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the Compliments of 
 OTTO a. KAHN 
 
 THE GOVERNMENT 
 
 AND 
 
 THE RAILROADS 
 
 BY \ - ' ' ' 
 
 OTTO H. KAHN o' 
 
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 (Reprinted from The " World's Work " February, IdlSJ) 
 
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Cornell University 
 Library 
 
 The original of tiiis book is in 
 the Cornell University Library. 
 
 There are no known copyright restrictions in 
 the United States on the use of the text. 
 
 http://www.archive.org/details/cu31924013693118 
 
THE GOVERNMENT AND THE RAILROADS 
 
 BY 
 OTTO H. KAHN 
 
 The conflicts and the storms which have raged 
 around the railroads these many years have largely 
 subsided. Abuses which were found to exist, though 
 it is fair to say that for their existence the railroads 
 were by no means alone to blame, have been remedied 
 and their recurrence made impossible. The people's 
 anger has cooled and, though some politicians still 
 sound the old war-cry, many indications (such, for 
 instance, as the recent popular vote against the Full 
 Crew Law in Missouri) tend to show that the people 
 desire to have the railroads fairly and justly dealt 
 with, exacting and expecting from them a reciprocal 
 attitude, treatment, and spirit. Railroad executives 
 have come to recognize their functions as those of 
 semi-public officers owing accountability no less to 
 the public than to the shareholders of the particular 
 property they represent. A system has been evolved 
 which, while preserving for the country in the con- 
 duct of its railroads the inestimable advantage of 
 private initiative, efficiency, resourcefulness, and re- 
 sponsibility, yet through governmental regulation 
 and supervision emphasizes and protects the com- 
 munity's rights and guards against those evils and 
 excesses of unrestrained individualism which experi- 
 ence has indicated. It is in every way a far better 
 system than government ownership of railroads, 
 which, wherever tested, has proved its inferiority, 
 except only in Germany, and the very reasons which 
 have made government ownership measurably suc- 
 cessful in Germany are the reasons which in America 
 would make it nothing short of an economic calamity, 
 
being given political and other circumstances as they 
 now exist and are likely to continue to exist for a 
 long time to come. 
 
 The system as it has evolved itself in America, 
 though it is resented by some of the Bourbons as 
 far too advanced and as an indefensible interference 
 with the rights of property, and by some of the Ultra- 
 Radicals as not going far enough, seems to me in 
 theory an almost ideal one. But the best of theories 
 is futile if its practical application is at fault; and I 
 know of few more flagrant instances of the unwise 
 and unsound application of a wise and sound theory 
 than in the case of our railroad legislation. Indeed, 
 the structure of federal and state laws under which 
 American railroads are compelled to carry on their 
 business at present is little short of a legislative 
 monstrosity. Writing on the subject of control and 
 regulation of corporations, Colonel Roosevelt in a 
 recently published article expresses himself as 
 follows : 
 
 . . . When we control business in the pub- 
 lic interest we are also bound to encourage it 
 in the public interest, or it will be a bad thing 
 for everybody and worst of all for those on whose 
 behalf the control is nominally exercised. . . . 
 
 This object cannot be accomplished by a 
 chaos of forty-eight states working at cross- 
 purposes in the development of our interstate 
 and international industrial fabric. . . _. 
 
 So much of the regulation attempted in our 
 country in the past has been done by dema- 
 gogues or by heedless politicians interested only 
 in their own momentary political success that 
 the very name Regulation has become an offense 
 and an abomination to many honest business 
 men. 
 
THE ANTI-RAILROAD ERA. 
 
 With the enactment of the Hepburn Bill, during 
 President Roosevelt's second administration, began 
 the modern era of railroad regulation and rate control 
 by commissions. It was a measure of radical inno- 
 vation and far-reaching importance, and it ought to 
 have been given a fair test in practical operation for 
 a sufficient length of time. Instead, President Taft, 
 in 1909, felt called upon to propose a new and drastic 
 measure of railroad legislation. He embodied his 
 recommendations on the subject in a bill which was 
 duly introduced in Congress. It was far from being 
 a perfect piece of legislation. The odor of politics 
 was not absent from it. It was considered by the 
 railroads, and in business circles generally, as un- 
 called for, unwise, and as unduly burdensome and 
 restrictive in various important respects. But at 
 least it was a consistent and carefully matured meas- 
 ure. It was the formal and official expression of the 
 views of the Taft Administration, the second import- 
 ant measure put forward by it. It offered the first 
 real test of the capacity for leadership and fighting 
 edge of the President and his Cabinet, and they failed 
 in it lamentably. 
 
 The introduction of the Taft railroad bill co- 
 incided with a stage of public sentiment where 
 suspicion, ill-will, and resentment against corpora- 
 tions were rampant, where inflammatory appeal took 
 the place of reasoning, where economic heresies and 
 fallacies hoary with age, tried and found wanting 
 and discarded elsewhere long ago, were rediscovered 
 by our brand of demagogues and proclaimed by them 
 as a cure-all, partly honestly, from lack of thorough 
 
study and clear thinking, partly disingenuously, for 
 political and personal advantage. 
 
 It was a right instinct which had guided the 
 people, under President Roosevelt's leadership, to 
 determine, firmly and unmistakably, that the time 
 had come to regard the pioneer period of this 
 country's industrial and economic development as at 
 an end, to revoke the latitude which had been tacitly 
 accorded, to insist on strict adherence to the rules of 
 business conduct laid down by the law, and to punish 
 any violation of such rules, by whomsoever com- 
 mitted, high or low. It was right to have recourse 
 to the law to undo some of the things which those 
 charged with the administration of the law had 
 through its non-enforcement permitted and even 
 sanctioned. It was entirely right and beneficial to 
 set up and proclaim a new standard of business 
 methods in certain respects because business had 
 exercised great, and in some ways excessive, power 
 for a long time, and all power tends to breed abuses 
 and requires limitations and restraints. It was salu- 
 tary and timely to bring home to corporations and 
 individuals, however powerful, the respect and fear 
 due to the law and to use all means at the Govern- 
 ment's disposal to visit upon dishonorable practices 
 condign punishment. But it was unreasonable and 
 unfair to judge with retroactive moral severity in the 
 light and according to the measure of that new 
 standard business methods which with universal 
 knowledge and universal tolerance had prevailed in 
 the past; to stigmatize, as heinous, certain practices 
 which did not in their essence involve any moral 
 turpitude, certain acts which became unlawful, not 
 because they were inherently immoral or dishonor- 
 able, but only because and only from the moment 
 
when Congress by statute declared them unlawful, 
 and which, too, are not only not forbidden, but are 
 expressly sanctioned by the laws and practices of 
 other great commercial nations such as England, 
 France, and Germany. 
 
 It was hardly just to make no allowance for the 
 fact that the people themselves and their chosen repre- 
 sentatives cannot, in fairness, be entirely absolved 
 from responsibility for the regrettable excesses and 
 excresences which, together with much splendid and 
 fruitful achievement, were engendered by the period of 
 vast and unparalleled national development from the 
 close of the Civil War to the first years of the present 
 century, as similar economic pioneer periods in all 
 countries and at all times have engendered them. It 
 was hardly just to fail to give due weight to the con- 
 sideration that if certain provisions of the Anti-Trust 
 Laws — now suddenly to be enforced to the letter with 
 retroactive rigor — had come to be lightly regarded, 
 indeed almost forgotten, a large part, if not the larger 
 part, of the responsiblity should be laid at the door of 
 those whose duty it was to enfore the law and who 
 for many years, through administration after admin- 
 istration. Congress after Congress, had been gravely 
 remiss in that duty and had thereby permitted these 
 particular statutes to fall into desuetude. 
 
 Some few instances of wrongdoing had, indeed, 
 been brought to light which were offenses against the 
 written as well as the moral law, indefensible under 
 any proper standard of ethics, but it was neither right 
 nor wise to permit the just indignation which they 
 aroused to lead to the condemnation and punish- 
 ment of an entire vast industry not to mention the 
 loss thereby inflicted upon innocent security holders 
 and the damage caused to the country at large. 
 
MAKING POLITICAL CAPITAL. 
 
 Given the then prevailing state of public feeling, 
 the provisions of the Taft railroad bill afforded a 
 peculiarly inviting opportunity to those whose politi- 
 cal fortunes or personal prejudices or convictions led 
 them to an attitude of hostility toward the measure 
 or the Administration, and at the same time offered 
 a tempting means to test the backbone — or the lack 
 of it — and the driving power and influence with 
 Congress of President Taft and his Cabinet. Certain 
 Senators and Congressmen were not slow to avail 
 themselves of that situation, and they succeeded far 
 beyond what they could reasonably have hoped for. 
 They laid bare in this first assault — for all men, 
 friends and enemies, to see and be guided accordingly 
 — that peculiar and fatal incapacity for practical 
 political leadership and for steadfastness in resolu- 
 tion and action which was the besetting sin of the 
 Taft Administration and which explains its outcome. 
 
 Having broken down the bill as introduced, its 
 opponents not only ripped it to tatters but, to a large 
 extent, made their own measure out of it. A number 
 of provisions which were actuated by regard for the 
 legitimate interests of the railroads were torn out, 
 the coherence and logic of the measure were de- 
 stroyed, amendment after amendment of radical 
 manufacture was added by a Senate leaderless, weary, 
 and in a hurry, some of them embodying the weird 
 and crude notions of those to whom corporations had 
 long been the object of fanatical animosity and whose 
 aim was simply punitive, even vindictive. And thus 
 the bill came back to the President. Its fate, from 
 every consideration of political wisdom and self- 
 respect, should have been a Presidential veto accom- 
 panied by a trenchant message, but, instead, Mr. Taft 
 
tamely submitted, affixed his signature, and, by this 
 truckling to and compromising with the rebellious 
 elements in his own party bent on embarrassing and 
 harassing him, set the pace for the vicissitudes which 
 thenceforth beset and finally overwhelmed his Admin- 
 istration. He has since recognized, it seems, the 
 faultiness of that statute, for he has repeatedly and 
 publicly protested against the over-regulation, the 
 starvation, and the oppression of the railroads which 
 were the inevitable and easy-to-be-foreseen conse- 
 quence of its enactment, not merely for what it con- 
 tained but even more for what it omitted. For, while 
 conferring upon the Interstate Commerce Commis- 
 sion almost absolute power over the interstate 
 business of railroads, it entirely ignored the correlated 
 problem of the exercise of control by the states. And 
 in the states a veritable mania of railroad legislation 
 had broken out. Drastic rate reductions, rigid rate 
 regulation, full crew laws, and heavy additions to 
 already disproportionate taxation combined to bring 
 about a system of vast and inconsistent complexity 
 of restrictions, burdens, and interferences, superim- 
 posed on the structure of federal legislation and 
 regulation. 
 
 There is no parallel I know of in any other country 
 to its greatest industry being placed, down to its 
 minutest details, under the almost autocratic power 
 of seven men owing defined accountability to no one, 
 selected for relatively short terms and according to 
 no particular standard of training or qualifications, 
 and being practically free from control, restraint, or 
 appeal. But it is not so much the existence of that 
 power, excessive though it be, of which the railroads 
 complain ; in fact, not a few railroad men have come 
 to be reconciled to the theory on which it rests and 
 
8 
 
 even to consider the underlying principle a wise and 
 beneficent one. Practically all, I believe, recognize 
 that thorough public regulation has come to stay. 
 It is the faultiness and inadequacy of the law under 
 which the Interstate Commerce Commission works 
 and exercises its power and the multiplicity of mas- 
 ters under whom the railroads have to serve and 
 whom they have to satisfy that constitutes the main 
 burden of their grievances and that cries for reform. 
 
 THE INTERSTATE COMMERCE COMMISSION. 
 
 That the Interstate Commerce Commission, being 
 at the same time prosecutor, judge, and jury, combin- 
 ing in itself legislative, executive, and judiciary 
 powers, is a negation of the root principle from which 
 the American system of government springs, may be 
 stated as an incontrovertible fact. Such combina- 
 tion of powers in one body has been styled by James 
 Madison "the very definition of tyranny." The evil 
 or impropriety of such a union of conflicting or at 
 least inconsistent functions has been publicly ac- 
 knowledged by a most unimpeachable witness, 
 namely, one of the ablest members of the Commission 
 itself, Hon. Charles A. Prouty, in an address deliv- 
 ered in 1907, from which the following extract may 
 be quoted: "If the Interstate Commerce Commission 
 is vested with a jurisdiction so tremendous in extent 
 and of such finality, every effort should be made to 
 provide a body adequate to the trust. ... I very 
 much doubt whether the same body can properly 
 discharge both these functions (executive and ju- 
 dicial). In the end it will either become remiss in its 
 executive duties or will, in the zeal of these, become 
 unfit for the dispassionate performance of its judicial 
 functions. Whatever may have been true in the past, 
 
the time has come when the Commission should be 
 relieved of all its duties except the hearing and decid- 
 ing of complaints." If this was true in 1907, how 
 much more true and urgent is it today, considering 
 the immense amplification and extension which the 
 Commission's powers and functions have received 
 since then? And has "every eflfort" been made "to 
 provide a body adequate to the trust?" I am far from 
 underrating the great ability, vast industry, and 
 devotion to duty of the men now composing the Inter- 
 state Commerce Commission, nor do I share in the 
 not-infrequently-heard opinion that they are hostile 
 to the railroads on principle, believing as I do, on the 
 contrary, that they are earnestly striving to do justice 
 according to their conscience and judgment and are 
 bravely struggling with a simply intolerable burden 
 of work and responsibility. But it cannot be gain- 
 said that to this Commission which has greater power 
 and greater responsibilities concerning the industrial 
 life of the Nation than probably any other tribunal 
 anywhere in the world exercises there has never yet 
 been appointed a man who came to it qualified by 
 first rate experience in railway operation, or by broad 
 business experience, or any considerable experience 
 in financial matters. Nor can it tend toward provid- 
 ing "a body adequate to the trust" that the members 
 of that body, called upon to deal with questions of 
 momentous import and most intricate complexity, 
 should be appointed for short terms and be paid 
 salaries so modest as to make acceptance of such 
 appointment a very great financial sacrifice to men 
 of first rate ability, and prolonged continuance in 
 office an injustice to their families. 
 
10 
 THE COMMISSION'S OVERWHELMING TASK. 
 
 I doubt whether anywhere else can be found a body 
 of seven men on whom devolves the staggering, 
 crushing, stupendous mass of work which is laid 
 upon the Interstate Commerce Commission. If it 
 were composed of the wisest, most expertly trained 
 minds and most vigorous working capacities to be 
 found in this or any other country, it would be im- 
 possible for it to accomplish the superhuman task 
 which Congress, in its eagerness to rid itself of 
 troublesome problems, has piled and keeps piling 
 upon it. According to its annual report for the year 
 ending October 31st, 1915, the Commission during 
 that year conducted 1,543 hearings, in the course of 
 which it took the almost incredible total of 200,438 
 pages of testimony, and it must be borne in mind that 
 this is only the preliminary work, the groundwork 
 on which its deliberations and decisions are based. 
 Within that period of twelve months the Commission 
 furthermore heard oral arguments in 198 cases (sit- 
 ting 103 days for that purpose), decided 902 cases 
 upon its "formal docket," entered upon its "informal 
 docket" 6,500 separate complaints and upon its 
 "special docket" 6,690 applications, made 822 orders 
 under the "long-and-short-haul-clause," etc., and had 
 filed with it no less than 149,449 rate schedules. The 
 Committee's report states that 
 
 A mere recital of these figures scarcely gives an 
 adequate idea of the volume of work disposed 
 of and the enormous interests involved in the 
 cases that come before the Commission. 
 
 In addition to the activities above summarized, it un- 
 dertook numerous prosecutions besides transmitting 
 many cases to the several United States district at- 
 torneys, gathered statistics, collected information, 
 
11 
 
 made investigations, answered Congressional in- 
 quiries and conducted a correspondence of over- 
 whelming dimensions. 
 
 It is a physical impossibility for each of seven men 
 to read carefully 200,438 pages of testimony in a year, 
 even if they had nothing else to do. Yet the Commis- 
 sion not only has to decide cases in which 200,438 
 pages of testimony have been taken, but it has to hear 
 as many arguments as are heard by the Supreme 
 Court, grant or refuse almost countless exemptions 
 from general rules established by Congress, initiate 
 and supervise criminal prosecutions, conduct a great 
 detective bureau for the purpose of discovering in- 
 fractions of the statute, formulate a complex system 
 of accounts and adapt it to changing conditions or 
 changing conceptions of public policy, supervise the 
 accounting of more than two thousand corporations, 
 inspect the physical apparatus employed in railway 
 transportation and devise means for its improvement, 
 enforce regulations concerning hours of labor, de- 
 termine what water facilities railway corporations 
 may operate and perform numberless other duties 
 of arduous character and vast importance. It has 
 further to regulate telegraphs, telephones, pipe lines 
 and express companies and to grapple with the for- 
 midable task of making a physical valuation of the 
 railroads. For years, Congress has thrust upon the 
 Commission one function after another until it is 
 simply overwhelmed. The result is not merely delay 
 and insufficient time for deliberate consideration but 
 the necessity to relegate the hearing and investiga- 
 tion of many important cases to clerks or agents; 
 and, with every desire on the part of the Commis- 
 sioners for the conscientious discharge of their duties, 
 the views and conclusions arrived at by such sub- 
 
12 
 
 ordinates must necessarily have a large, if not a 
 controlling, influence on the decisions of the Com- 
 mission. 
 
 It is a regrettable but undeniable fact that no 
 discussion of the difificulties and unjust burdens laid 
 upon the country's greatest industry would be com- 
 plete without making mention of the action of the 
 Postmaster General in compelling the railroad to ac- 
 cept grossly inadequate compensation for carrying 
 the mail and the parcel post. If any large corpora- 
 tion were to take advantage of its position and power 
 as the Government does in this instance, it would 
 not take the Federal Trade Commission long to de- 
 nounce such practices and to compel redress for the 
 aggrieved party. 
 
 THE PREDICAMENT OF THE RAILROADS. 
 
 If this presentment exhausted the grievances of 
 our railroad industry it would be serious enough, but 
 it is very far from exhausting them. Indeed, the 
 most serious grievance is the fact that in addition 
 to the activities of State legislatures there are not less 
 than 43 state commissions, exercising varying de- 
 grees of power over railroads, guided in their de- 
 cisions by no precedents or fixed rules, their jurisdic- 
 tion and their decrees interwining, conflicting with, 
 upsetting those of each other and of the Interstate 
 Commerce Commission. In 22 of these 43 states the 
 commissioners are chosen by popular vote, their 
 terms ranging from 2 to 6 years, their salaries being 
 generally very moderate, down to as low as $1,500 
 per annum. It is not surprising that the authority of 
 such State commissions, of which it would be too 
 much to expect or even to ask unyielding impervious- 
 ness to public pressure, should have been exercised, 
 
13 
 
 in not a few instances, frankly for the selfish interest 
 of each State, somewhat on the lines of creating 
 through the fixing of State railroad rates and other- 
 wise the equivalent of a protecting tariff or of an 
 export bounty for the benefit of the industries or the 
 consumers of each particular State. Nor will it be 
 wondered at that there have been instances of a ten- 
 dency to use the commissions' authority over the is- 
 sue of stocks and bonds toward forcing the railroads 
 to spend part of the proceeds for purposes which to 
 the commissioners appeared advantageous for their 
 particular State or certain localities therein. The 
 following illustration is taken from the annual report 
 of the Southern Pacific Company: 
 
 To provide funds for corporate purposes, ar- 
 rangements were made with bankers, in May, 
 1913, for sale of two-year notes at a very satis- 
 factory price. Authority of the California Rail- 
 road Commission to issue the notes was obtained 
 without delay; approval by the Arizona Corpora- 
 tion Commission, however, was withheld, pend- 
 ing certain assurances and guaranties on the part 
 of the Company with reference to the conduct 
 of its business in Arizona which it was not war- 
 ranted in giving, and, during the time the matter 
 was pending before the Commission, the condi- 
 tion of the money market had so changed that 
 a sale of the notes could not be made. Further 
 consideration of a two-year note issue was aban- 
 doned, and one-year notes were issued instead, 
 and sold at a price yielding approximately $275,- 
 000 less than would have been received had the 
 two-year notes been issued without delay. Under 
 the laws of California and Arizona the issue of 
 one-year notes did not require Commission ap- 
 proval. 
 
14 
 
 In several cases the carrying out of suggestions 
 made by the Interstate Commerce Commission to 
 the railroads with the view to enabling them to obtain 
 more adequate revenues was peremptorily stopped 
 by State Commissions which ordered the railroad not 
 to do the very things which the Interstate Commerce 
 Commission had told them they should do and had 
 criticised them for not having done before. 
 
 In the "Eastern rate case" the Interstate Com- 
 merce Commission found that the carriers' revenue 
 was inadequate and insufficient, but declined to grant 
 the greater part of the increase asked for, largely on 
 the ground that there were other ways open to the 
 railroads to augment their income. The Commis- 
 sion pointed out these ways in considerable detail, 
 but when the railroads took action in accordance with 
 the indications or directions thus given, they were, 
 as to the most important of them, promptly stopped 
 by State Commissions, Court decisions and even by 
 the Interstate Commerce Commission itself from do- 
 ing the very things which the Interstate Commerce 
 Commission had told them to do and the feasibility 
 and propriety of which it had given as a reason for 
 not granting the rate increases asked for. 
 
 The following extracts from a most interesting 
 and instructive address recently delivered by Mr. Al- 
 fred P. Thorn before the State Bar Association of 
 Tennessee may appropriately be quoted in this con- 
 nection as illustrating the activities of State bodies: 
 
 Three States have passed laws making it il- 
 legal for a carrier having repair shops in the 
 State to send any of its equipment, which it is 
 possible to repair there, out of the State for re- 
 pairs in another State, fifteen States have at- 
 tempted to secure preferred treatment of their 
 
15 
 
 State traffic, either by heavy penalties for de- 
 lays or by prescribing a minimum movement of 
 freight cars, some of them requiring a minimum 
 movement of fifty miles per day, whereas the 
 average movement for the United States is not 
 more than twenty-six miles per day — one of 
 these States imposing a fine of ten dollars per 
 hour for the forbidden delay; twenty States have 
 hours-of-service laws, varying from ten to six- 
 teen hours twenty States have full-crew laws; 
 twenty-eight States have headlight laws, with 
 varying requirements as to the character of the 
 lights, and fourteen States have safety-appliance 
 acts. Sixteen States have enacted statutes, each 
 asserting for itself the individual right to control 
 the issue of stocks and bonds of interstate car- 
 riers. 
 
 It is manifest that, if such issue is to be regu- 
 lated by the individual States, every State is at 
 the mercy of the others. A bond, to be available 
 in the market, must, as a rule — especially now 
 when most bonds are necessarily junior liens — 
 be secured upon the whole railroad line; and this 
 crosses many States. One of the States, there- 
 fore, if it possesses the power to regulate the 
 issue of securities of an interstate carrier, may 
 defeat a financial plan approved by all the other 
 States and necessary to the carrier's transporta- 
 tion efficiency. . . . 
 
 In other words, the greediest, the most sel- 
 fish, and the most unreasonable State thus se- 
 cures by its own laws a preference for its own 
 commerce over the commerce of its sister States 
 and over interstate commerce itself. 
 
 A MASS OF CONFLICTING LEGISLATION. 
 
 What with the regulating activities of 43 Commis- 
 sions besides the Interstate Commerce Commission, 
 the adoption by State legislatures of rate-fixing meas- 
 ures, extra crew bills, and all kinds of minute enact- 
 
16 
 
 ments (between 1912 and 1915 more than 4,000 Fed- 
 eral and State bills affecting the railroads were intro- 
 duced and more than 440 enacted), the enormous in- 
 crease within the last seven years in Federal and 
 State taxation, the steadily mounting cost of labor, 
 the exactions of municipal and county authorities, 
 etc. — it will be admitted that the cup of railroad 
 difficulties and grievances is full. I am far from hold- 
 ing the railroads blameless for some of the conditions 
 with which they are now confronted. Not a few of 
 them were arrogant in the days of their power, many 
 mixed in politics, some forgot that besides having 
 a duty to their stockholders they had a duty to the 
 public, some were guilty of grievous and inexcusable 
 financial misdeeds. But, in their natural resentment 
 and their legitimate resolve to guard against similar 
 conditions in the future, the people have overshot the 
 mark. The proof of the pudding is in the eating. 
 Not less than 82 railroads, comprising 41,988 miles 
 and representing $2,264,000,000 of capitalization, are 
 in receivers' hands, and the mileage of new railroad 
 constructed in 1915 is less than in any year since the 
 Civil War. The duration of receivership has become 
 longer and longer, far longer than it used to be, 
 owing to the difficulty of raising the necessary funds 
 for the rehabilitation of the properties and for tak- 
 ing them out of receivers' hands, which difficulties are 
 largely due to the complications and delays result- 
 ing from the jurisdiction and views of State Commis- 
 sions. Thus the Wabash Pittsburgh Terminal has 
 been in bankruptcy since May 29, 1908, the Wheeling 
 & Lake Erie since June 8, 1908, the St. Louis & San 
 Francisco since May 27, 1913, the Wabash from De- 
 cember 26, 1911, to November 1, 1915, and so forth. 
 Railroad construction has practically stopped, the 
 
17 
 
 purchases by railroads have been reduced to a mini- 
 mum, so much so that, had it not been for the wind- 
 fall of the "war orders," our steel and cognate in- 
 dustries would have faced an exceedingly serious situ- 
 ation. Railroad credit has become gravely affected. 
 It is true that faults of management and disclosures 
 of objectionable practices have been contributory 
 causes in diminishing American railroad credit, but 
 from my practical experience in dealing with invest- 
 ors I have no hesitation in afifirming that the main 
 reason for the multiplication of railroad bankruptcies 
 and of the changed attitude of the public toward in- 
 vesting in railroad securities is to be found in the Fed- 
 eral and State legislation of the years from 1906 to 
 1912 and in what many investors considered the illib- 
 eral, narrow, and frequently antagonistic spirit to- 
 ward railroads of Commissions charged with their 
 supervision and control. The fortuitous and for- 
 tunate circumstances that, owing mainly to the 
 direct and indirect effect of the stimulus of huge 
 war orders and because of other unusual circum- 
 stances, railroads are doing much better at present, 
 and that investors, after having left railroad se- 
 curities more or less severely alone for years, 
 are, for the time being, looking upon them with a 
 friendly eye, should not make us lose sight of the un- 
 derlying fact that the railroad industry is in an inher- 
 ently weakened condition, that the spirit of enterprise 
 has largely gone out of railroading that, generally 
 speaking, expenditures for construction, equipment, 
 improvements, etc., are confined to the absolute ne- 
 cessities. Nor must the present prosperity of the 
 country blind us to the consideration that the full 
 measure of prosperity which it is capable of attaining 
 ©r, indeed, any permanent and comprehensive prog- 
 
18 
 
 ress or prosperity cannot be reached as long as its 
 most important industry, that of railroading, is bur- 
 eaucratized, shackled, harassed and lamed. 
 
 Incidentally it may be mentioned that if the ex- 
 penditure of time, thought and effort which the num- 
 berless and intricate requirements of the Commis- 
 sions impose on the Chief Executives of our railroads, 
 together with the expenditure of cash for lawyers 
 and for a fair sized army of officials and clerks to 
 handle the work incident thereto, could be computed 
 in the aggregate as to time and money, the resulting 
 figures would be appalling. I have known of cases 
 where for days at a time all the higher officers of a 
 railroad were taken away from their work, having to 
 attend hearings instead before Commissions in vari- 
 ous parts of the country. It is an unquestioned fact 
 that the feeling of being hampered and harassed by 
 incessant and minute regulations, of having to go to 
 Commission after Commission in order to obtain the 
 sanction of a bureaucratic regime for almost each and 
 every step, has resulted in chilling the spirit of initia- 
 tive on the part of those in charge of our railroads, 
 has diminished their desire for and satisfaction in 
 creative activity and has lessened the inducement for 
 ambitious and capable young men to embrace the ca- 
 reer of railroading. 
 
 Considered from whatever point of view, the con- 
 clusion seems to me unavoidable that American rail- 
 road legislation, whilst sound in theory, is in practice 
 a patchwork, a makeshift, and grossly and fundamen- 
 tally faulty. It has been added to, modified, tinkered 
 with session after session in National and State legis- 
 latures; it is illogical, unscientific, confusing, vexa- 
 tious, and generally intolerable. The Interstate Com- 
 merce Commission and 43 State bodies acting at once 
 
19 
 
 as lawmakers, prosecutors, judges and juries hold the 
 destinies of the railroads in their hands, with the 
 power almost over life and death — a power not much 
 short of autocratic, for it is subject to little, if any, 
 executive control and, as far as the Federal Commis- 
 sion is concerned, to practically no effective judicial 
 review. Unlike the courts they are bound by no pre- 
 cedents and rules of procedure, guided by no fixed 
 and well understood principles or rules of decision. 
 The Interstate Commerce Commission, overburdened 
 with labors and duties vastly beyond the capacity of 
 any seven men, is bound to leave much important 
 work to subordinates. In the case of rate decisions 
 it is compelled to resort to postponements which in 
 effect amount to denial of justice, for the power 
 possessed by the Commission since 1910 to suspend 
 for ten months proposed rate increases is nothing less 
 than the power — opposed to all equity — of inflicting 
 heavy and irrecoverable monetary penalties before or 
 pending trial. Experience has shown that the Com- 
 mission in practically all important cases avails itself 
 of the power of suspension for the full ten months' 
 period, which, as a matter of fact, at times is even fur- 
 ther prolonged, the railroads consenting to such pro- 
 longation rather than have the Commission com- 
 pelled to render an opinion without, in the pressure 
 of its other work, having had time to give sufficiently 
 thorough and mature deliberation to the subject. 
 
 SUGGESTED REMEDIES. 
 
 Railroads, being essentially nation-wide in their 
 functions, should, as to rates and other phases of their 
 business directly or indirectly affecting interstate re- 
 sults, be placed under one National authority instead 
 of being subject to the conflicting jurisdiction of 
 
20 
 
 many dififerent States — a jurisdiction the exercise of 
 which is always subject to the temptation of being 
 used unfairly for the selfish and exclusive advantage 
 of the respective individual States. State Commis- 
 sions have their proper and important functions in 
 the supervision and regulation of street railways and 
 of public service corporations other than interstate 
 steam railroads, and even in the case of the latter in 
 the exercise of certain administrative, police, or pub- 
 lic welfare powers within well defined limits. But 
 the fundamental law of the land, the Federal Con- 
 stitution, expressly reserves to Congress the exclu- 
 sive power of dealing with commerce between the 
 States, and the exercise by State authorities of rate- 
 making and other powers which, though technically 
 confined to railroad activities within the States, yet 
 actually must and do affect interstate relations, is 
 clearly opposed to the spirit, if not to the language, 
 of the Federal Constitution. 
 
 Until the advent of the railroad legislation of re- 
 cent years, the rate-making power in interstate com- 
 merce (and, in most of the States, also for intrastate 
 commerce) was in the hands of the railroads, subject 
 to judicial review upon complaint. Under this system 
 the rate structure of American railroads was built 
 up, and it may safely be asserted that, among all 
 the accusations, just and unjust, which have been 
 brought against them, the charge that, generally 
 speaking, the rates thus fixed were excessive has 
 found no place. On the contrary, the rates resulting 
 from that system were much the lowest prevailing 
 anywhere in the world, notwithstanding the fact that 
 wages paid by American railroads are fully twice as 
 high as those obtaining in Europe. Under the bill 
 of 1910, the interstate rate-making power was to all 
 
21 
 
 intents and purposes conferred upon the Interstate 
 Commerce Commission (subject to interference by 
 States and State Commissions), but with character- 
 istic unfairness or thoughtlessness the power to pre- 
 scribe minimum rates, which manifestly ought to be 
 the concomitant of the power to prescribe maximum 
 rates, was not given to the Commission. The burden 
 of proving according to the requirements of an un- 
 defined and uncertain standard the necessity for pro- 
 posed rate increases was thrown upon the railroads. 
 Personally, I believe that the principle of giving to 
 the Interstate Commerce Commission power to regu- 
 late rates is sound, and I am convinced that it has 
 come to stay. But I think that the now prevailing 
 rigid and cumbersome system of what is practically 
 rate making by the Commission is neither sound nor 
 wise. I believe that the public could and would be 
 just as fully protected and that, in fact, both the pub- 
 lic and the railroads would be the gainers if the im- 
 mensely complex, difficult, and dehcate task of mak- 
 ing rates were left in the hands of those trained for 
 it by a life's study, experience, and practice, i. e., the 
 railroad officials, with full power, however, in the 
 Commission, on its own motion, to reduce or to in- 
 crease rates for cause. 
 
 A HELPFUL POLICY NEEDED. 
 
 It is vital to our railroads that investors be reas- 
 sured and encouraged as to the safety and attractive- 
 ness of investment in American railroad securities, 
 particularly also in view of the world-wide competi- 
 tion for capital which, sooner or later after the close 
 of the European war, is likely to set in. A more lib- 
 eral and helpful policy toward railroads should be in- 
 augurated and a greater margin of net earnings se- 
 
22 
 
 cured than can be obtained under the existing rates 
 in normal times; and in this connection it must be 
 borne in mind that such margin must include a sum 
 over and above what would be a reasonable dividend 
 because the nature of the railroad business makes the 
 accumulation of a substantial surplus a necessity for 
 every properly managed line. A railroad can never 
 be considered a finished product. Expenditures are 
 continually required and not few of these outlays, 
 such as for the elimination of grade crossings, better 
 station buildings, etc., produce no direct revenue. A 
 trifling fraction of a cent added to rates means a vast 
 difference to the railroads applied to the huge total 
 of their traffic, whilst very little felt by the shipper 
 or producer, and hardly, if at all, by the consumer. 
 The test for proposed rate increases should not be 
 whether a case has been made out according to some 
 rigid doctrinaire standard, but whether it has been 
 made out according to reason and equity and broad 
 considerations of business fairness and of public in- 
 terest which includes the preservation of railroad 
 credit and due regard for the vast and far reaching 
 importance of the railroad industry. It is not too 
 much to say that on the policy and attitude of Con- 
 gress and the governmental authorities, on the en- 
 couragement or discouragement afforded by them, 
 largely depends the answer to the question whether 
 or not railroad development is to keep pace with the 
 country's potentialities and opportunities. Capital 
 cannot be commandeered. It is proverbially timid 
 and its owners will not venture forth into a field 
 where they must be in 4oubt from one year to the 
 next as to what new exactions, burdens and restraints 
 may be placed upon the properties in which their in- 
 vestment is placed. If railroad officers are to plan for 
 
23 
 
 the future in a large and far-reaching way, if an ade- 
 quate supply of capital is to be forthcoming for the 
 extension and development of our railroads commen- 
 surate with the opportunities before our farmers and 
 merchants and with the vast size and promise of our 
 undeveloped areas, there must be not only reasonable 
 liberality but above all reasonable stability of policy. 
 In other words, the railroad question must be taken 
 out of politics. 
 
 The present lopsided structure of railroad laws 
 ought to be demolished and superseded by a new body 
 of laws designed, not to punish the railroads, but to 
 aid them toward the greatest development of useful- 
 ness and service to the country, conceived upon har- 
 monious, carefully considered, scientific, and perma- 
 nent lines. The reform of our banking and currency 
 laws having been carried into effect, for which the 
 country owes a heavy debt of gratitude to President 
 Wilson, the reconstruction of our railroad laws ranks 
 amongst the most pressing and vitally needed reform 
 in the economic affairs of the country. The Presi- 
 dent's latest message, in which he calls for considera- 
 tion of the situation of American railroads, affords 
 a most welcome and promising indication, justifying 
 the hope that he is preparing to bring to bear upon 
 a wise solution of this problem his great powers of 
 mind and leadership. The banking and currency leg- 
 islation of 1913 affords an appropriate precedent and 
 in many respects a parallel. The national functions 
 and character of the railroads are largely analogous 
 to those of the national banks. Like the national 
 banks, so should the railroads be freed, at least in es- 
 sentials, from the conflicting and multitudinous juris- 
 diction of the several States and placed under Fed- 
 eral authority. And just like the national banks, they 
 
24 
 
 should not only be permitted but be compellel to co- 
 operate, and thus mobilized for the maximum ex- 
 tent and efficiency of service; in other words, pool- 
 ing and kindred arrangements should be sanctioned, 
 subject to the approval of the Interstate Commerce 
 Commission. The formula and principle of the bank- 
 ing and currency legislation, viz., a strong, effective 
 and controlling Central Federal Board in Washing- 
 ton, relieved from detail work and from certain es- 
 sentially conflicting functions (which should be con- 
 ferred upon a separate body) with Regional Boards 
 according to geographic groupings, might prove ex- 
 actly suited to railroad legislation. Red tape should 
 be cut wherever possible, bureaucratic interference 
 limited, and, to the extent that it can safely be done 
 without jeopardizing the due protection of the inter- 
 ests and rights of the public, freedom should be given 
 to the railroads in the conduct of their business 
 coupled with strictest individual responsibility and 
 fullest publicity. Railroads should be freed from the 
 unfair, unreasonable, and illogical situation of being 
 subjected, as they now are, at one and the same time 
 to special regulatory and supervisory legislation, and 
 to the inhibitions of the Sherman Anti-Trust Law, 
 which is based upon a theory and designed to serve a 
 purpose essentially contradictory to the theory and 
 purpose of our existing railroad legislation. Further- 
 more, the same body which determines earnings by 
 fixing rates should be charged with the responsibility 
 of hearing and determining wage disputes between 
 railroads and their employees, or if that be not prac- 
 ticable then at least with the duty of giving full 
 weight and consideration to all factors that go to en- 
 hance the cost of operating railroads, such as legisla- 
 tive enactments like the full crew law, increased taxa- 
 tion, advances in wages, and so forth. 
 
25 
 
 The situation resulting from the European war 
 has brought to this country a scope and a wealth of 
 opportunity almost, if not entirely, without parallel 
 in history. It has never happened before that the 
 great nations of the earth, all but one, were engaged 
 in a terrible physical and economic conflict — a con- 
 flict so appalingly costly and destructive in lives and 
 treasure that its consequences must be felt for genera- 
 tions — whilst the one great country at peace not 
 only enjoys its blessings in an undiminished degree, 
 but is actually benefited by the urgent necessity of 
 some of the fighting nations, to turn to it for certain 
 of their essential requirements during the continu- 
 ance of the war. Granting that it is true that no 
 nation can derive lasting economic advantage, in an 
 absolute sense, from the destruction of the wealth of 
 other nations, yet it must be borne in mind that all 
 values are relative, and there can be no doubt that 
 in relation to all other nations the position, economic 
 power and wealth of the United States have received 
 an immense enhancement in consequence of the war, 
 and the opportunities opened up to it are well nigh 
 boundless. But there is no great opportunity with- 
 out a corresponding duty, no privilege without a cor- 
 responding obligation to use it wisely and beneficent- 
 ly. To fulfil with credit and honor, with due advant- 
 age to itself and the world, the part which the favor 
 of Providence has allotted to America is a weighty 
 and solemn task. It calls for thoroughness of thought 
 and study, integrity, self-restraint, and conservatism, 
 boldness, enterprise and adaptability, breadth of 
 vision coupled with attention to details, and last, but 
 not least, wise and mutually trustful co-operation be- 
 tween business and the legislative and administrative 
 powers — such as exists as a matter of course in most 
 
26 
 
 if not all of the great nations of Europe. By all means 
 let us have vigorous governmental action, legislative 
 regulation, administrative control whenever and in 
 whatever ways, after mature and dispassionate con- 
 sideration, it appears best in the interest of the coun- 
 try. But do not let us have paternalistic regime, ig- 
 norant interference, partisan motives, political view- 
 points, narrow technicalities. Let us carefully refrain 
 from so hampering and confining the activities of 
 business men as to lame the initiative, weaken the 
 self-reliance, chill the enterprise and zeal and joy of 
 work which have always been their characteristics 
 and which have so greatly contributed toward the 
 marvelous development of this country. Let us have 
 no patience with the presumption that men who, 
 mostly from small beginnings, have fought their way 
 to the top after having passed through the hard and 
 searching test and discipline of business, are to be ig- 
 nored or distrusted in the shaping of the industrial 
 and economic policies of the country, because of al- 
 leged incapacity or unwillingness to take a broad and 
 patriotic view of national questions directly or indi- 
 rectly affecting their own interests. Let us lend no 
 countenance to the presumption that patriotism, vir- 
 tue, and knowledge reside primarily with those who 
 have been unsuccessful, those who have no practical 
 experience of business, nor yet, be it said with all re- 
 spect, with those who are politicians or office holders. 
 
 THE BEGINNING OF A NEW ERA. 
 
 I know of no finer or more honorable body of men 
 than the presidents of our American railroads. There 
 is not one of them now in office who owes his position 
 to inherited advantages, to protection, to anything, 
 in fact, but his own qualities of mind and character. 
 
27 
 
 With few exceptions, the men in active charge of 
 large businesses or corporations in this country have 
 made their own positions; the vast majority started 
 at or near the bottom of the ladder. There is no cen- 
 ter in the world where the label counts less, where it 
 is less possible to bequeath position, however backed 
 by wealth, where the shine and effect of a great name 
 is more quickly rubbed off if the bearer does not prove 
 his worth, where the acid test of personal efficiency 
 is more strictly applied, where merit is more certain 
 to come to the top, than in the great mart of Ameri- 
 can business. And there is no country where the ca- 
 pacities of representatives of business are so little 
 availed of in governmental and political affairs, their 
 views so little heeded and so frequently rebuffed, 
 where legislation affecting economic, industrial and 
 financial matters is framed, and the resulting laws 
 administered with such disregard of the counsel and 
 expert knowledge of business men as in the United 
 States. A number of instances could be cited of law- 
 making (the latest being the Clayton Anti-Trust 
 Act) where, if the advice of such men had been taken, 
 the aims sought to be accomplished could have been 
 attained with equal or greater sureness of effect and 
 without undesirable incidental results such as were 
 not intended by the legislators, though clearly fore- 
 seen by the trained experience of business men. 
 
 Fortunately, there have been indications within 
 the recent past which justify the hope that this condi- 
 tion of affairs is about to change and that prejudices 
 and antagonisms which have been prevalent all too 
 long are beginning to give way to more auspicious 
 relations. As corporations have learned the lesson 
 that their well-being depends upon their so conduct- 
 ing themselves as to deserve the good-will and sup- 
 
28 
 
 port of public opinion, so the people have learned that 
 their own prosperity and the prosperity of the basic 
 industries of the country are interdependent. The 
 matter and manner of the passage of the Federal Re- 
 serve Act, the spirit and method of its administration, 
 the co-operation between the Treasury and the bank- 
 ing community during the first few months of the 
 European war, by means of which what threatened 
 to become a most serious situation was met and suc- 
 cessfully overcome, several public declarations of 
 President Wilson, the activities of the Administration 
 in co-operation with business men, aimed at enlarg- 
 ing our commercial and financial intercourse with 
 South and Central America and other countries — all 
 these and other instances that might be mentioned 
 are evidences of a new spirit expressing itself on 
 broad and constructive lines. Our railroad legisla- 
 tion, on the other hand, and, in frequent instances, 
 its administration, remains a glaring example of the 
 opposite spirit, and our railroad industry cannot per- 
 manently prosper, nor can it render the full measure 
 of service which the vast development ahead of the 
 country calls for until relief is given to the railroads 
 from the legislative and administrative conditions 
 which now hamper, restrain and oppress them. 
 
 Some fifty years ago, that great statesman and 
 seer and noble man, Abraham Lincoln, addressed the 
 following words to Congress: "You cannot, if you 
 would, be blind to the signs of the times. I beg of 
 you a calm and enlarged consideration of them, rang- 
 ing, if it may be, far above personal and partisan 
 
 politics So much good has not been done, by 
 
 one effort, in all past time, as in the Providences of 
 God it is now your high privilege to do. May the vast 
 future not have to lament that you have neglected it." 
 
29 
 
 Of course, I do not mean to put in comparison the 
 vital and fateful problem which President Lincoln 
 and the men of his time were called upon to face, with 
 the economic and social task, important and far 
 reaching though it is, which is laid upon the states- 
 manship of our day; but it may well be hoped that 
 something akin to the spirit so eloquently invoked, to 
 the sentiments so inspiringly expressed by Lincoln 
 may guide all those in a position of responsibility and 
 especially our legislators and administrators in meet- 
 ing with broad, wise and dispassionate vision and ac- 
 tion the new phase of development which is opening 
 up before the American nation. 
 
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