B3, Hntt OlulUge of Agriculture atlfara, 5J. 1- Hibrarg Cornell University Library HD3616.U47B3 Government control and operation of indu 3 1924 013 850 841 The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924013850841 Carnegie Endowment for International Peace DIVISION OF ECONOMICS AND HISTORY JOHN BATES CLARK, DIRECTOR STJ PRELIMINARY ECONOMIC STUDIES OF THE WAR EDITED BY DAVID KINLEY President of the University of Illinois Member of Committee of Research of the Endowment No. 18 GOVERNMENT CONTROL AND OPERATION OF INDUSTRY IN GREAT BRITAIN AND THE UNITED STATES DURING THE WORLD WAR \ BY CHARLES WHITING BAKER, C. E. Consulting Engineer \ NEW YORK ' i^ / . V OXFORD UNIVERSITY PRESS AMERICAN BRANCH: 3S WEST 32nd STREEt EEt /^'' /, ^1 LONDON, TORONTO, MELBOURNE AND BOMBAY y ,' t 1921 XW-'"'' ,ii::Ur,;<: •.■'^f/'^ ■ <.. ^ COPYRIGHT 1921 BY THE CARNEGIE ENDOWMENT FOR INTERNATIONAL PEACE 2 JACKSON PLACE WASHINGTON, D. C. THE RUMFORD PRESS CONCORD EDITOR'S PREFACE The present study by the Honorable Charles Whiting Baker concerns itself with the government administration of the industrial life of Great Britain and the United States during the war. Mr. Baker's verdict on the organization and conduct of the various industrial activities undertaken by the government for war purposes is, on the whole, favorable. With this opinion most of our people will very likely agree. Indeed, the editor is doubtful of the correctness of Mr. Baker's opinion concerning the views of the so-called con- servative or middle class on this matter. On the contrary, the editor believes that the great majority of our people of all classes would say "yes" to the question whether the gov- ernment administration of such industrial activities as it took over was not good for war purposes under the conditions and circumstances that prevailed while the war was in progress. Indeed, the inquiry which one must put in such a matter is not, after all, whether the administration was good or bad, but whether it was as good as it could be under the circum- stances, whether other officers, for example, could probably have managed better. Put in this way the answer must again be, on the whole, in favor of the government. It must be remembered, however, that the favorable answer to the question propounded above by no means carries with it any implication concerning the value of government industrial management in ordinary times of peace. The industrial activities of the government in war differ from the country's industrial activities in times of peace in several important respects. The scope of industrial activity of the government in war is more limited and capable of more definite control. The government has certain war munitions to provide. Their character and amount are known, and the industrial energies necessary to secure them can be definitely iii iy EDITOR'S PREFACE directed to that end, without embarrassment from competi- tion to divert the country's industrial activities to other ends. It is one thing to make a success of any business under such circumstances and quite another to make a success of it, however success be defined, under ordinary circumstances. For the government in the one case is virtually in the position to determine its own conditions of production and to exclude all competitors from the field. Moreover, it must be remem- bered that the government succeeded in some matters, nota- bly in the case of the railroad management, only by resorting itself to practices which it had forbidden to the railroads under ordinary management, and also at a financial expenditure that had no relation and no reference to the earning capacity of the railroads. In short, even if we were justified in pronouncing a wholly favorable judgment on the industrial activities of the govern- ment in its conduct of the war, it is doubtful, in the editor's opinion, whether we would get much help in determining the wisdom of extending the scope of government operation in the economic field in ordinary times. To put the matter in another way, it may fairly be doubted, at least, whether war socialism, as it has sometimes been called, has any lessons favorable to peace time socialism, however that term may be defined. The limitation of the province of government is an age old subject of debate. It would be difficult to show that there has ever been in any age or country a large public opinion or, indeed, an important school of thought, which would have eliminated the government from all relation to the private industrial life of its citizens. Indeed, one may say, I think truthfully, that those critics of what they please to call a laissez faire policy, who interpret that phrase to suit their arguments as meaning that the government should have no relation to and indulge in no interference with industrial life at all, are quite mistaken in the meaning which they give the phrase. No school of thought has ever advocated such a view. Rather the right and desirability of government interference have always been admitted, but its extent has EDITOR'S PREFACE V been a subject of debate. Under some conditions of national life a larger interference is both desirable and necessary than under other conditions. Since the conditions of national life differ in different generations and centuries, we find the emphasis placed at one time on the importance of widening the scope of government economic activity, and at other times on the importance of limiting this scope. The world at present seems to be, on the whole, pretty generally of the opinion that the complex conditions of modern civilization require a larger interference by government,' in the sense, at least, of stricter regulation of the conditions under which private economic activities are carried on. Many are of the opinion that the scope of directing the conduct of industrial life by the government should be enlarged. It is the editor's opinion that there appears to be little in the government's conduct of the war on the industrial side to lay a foundation for justifying the latter contention. David Kinley, Editor. University of Illinois, June 10, 1920. CONTENTS CHAPTER ' PAGE I Introduction 3 II Efficiency in Government Operated Industries . 10 III Organizing a Nation for War 17 IV Railways in Great Britain 34 V Railways in the United States 43 VI Public Utilities in the United States 61 VII Shipping 70 VIII Labor 82 IX Capital 91 X Food 94 XI Fuel 104 XII Some Unforeseen Results 116 XIII The Popular Verdict and the Truth 121 XIV Inevitable Extension of Government Control .. . 125 XV Conflict Between the Executive and the Legisla- tive Branches of Government 128 Bibliography 135 Index 137 GOVERNMENT CONTROL AND OPERATION OF INDUSTRY PRELIMINARY ECONOMIC STUDIES OF THE WAR EDITED BY DAVID KINLEY President of the University of Illinois Member of Committee of Research of the Endanamenl 1 Early Economic Effects of the War upon Canada. By Adam Shortt, formerly Commis- sioner of tlie Canadian Civil Service, now Cliairman, Board of Historical Publications, Canada. 2 Early Effects of the European War upon the Finance, Commerce and Industry of Chile. By L. S. Rowe, Professor of Political Science, University of Pennsylvania. 3. War Administration of the Railways in the United States and Great Britain. By Frank H. Dbcon, Professor of Economics, Dartmouth College, and Julius H. Parmelee, Statistician, Bureau of Railway Economics. 4. Economic Effects of the War upon Women and Children in Great Britain. By Irene Osgood Andrews, Assistant Secretary of tlie American Association for Labor Legislation. 5. Direct Costs of the Present War. By Ernest L. Bogart, Professor of Economics, Univer- sity of Illinois. 6. Effects of the War upon Insurance with Special Reference to the Substitution OF Insurance for Pensions. By William F. Gephart, Professor of Economics, Wash- ington University, St. Louis. 7. The Financial History of Great Britain, 1914-1918. By Frank L. McVey, President. University of Kentucky. 8. British War Administration. By John A. Fairlie, Professor of Political Science, Univer- sity of Illinois. 9. Influence of the Great War upon Shipping. By J. Russell Smith, Professor of Industry, University of Pennsylvania. 10. War Thrift. By Thomas Nixon Carver, Professor of Political Economy, Harvard Univer- sity. ( 11. Effects of the Great War upon Agriculture in the United States and Great Britain. By Benjamin H. Hibbard, Professor of Agricultural Economics, University of Wisconsin. 12. Disabled Soldiers and Sailors — Pensions and Training. By Edward T. Devine, Pro- fessor of Social Economy, Columbia University. 13. Government Control of the Liquor Business in Great Britain and the United States. By Thomas Nixon Carver, Professor of Political Economy, Harvard University. 14. British Labor Conditions and Legislation during THE War. By Matthew B.Hammond. Professor of Economics, Ohio State University. 15. Effects of the War upon Money, Credit and Banking in France and the United States. By B. M. Anderson, Jr., Ph.D. 16. Negro Migration during the War. By Emmett J. Scott, Secretary-Treasurer, Howard University, Washington, D. C. 17. Early Effects of the War upon the Finance, Commerce and Industry of Peru. By L. S. Rowe, Professor of Political Science, University of Pennsylvania, 18. Government Control and Operation of Industry in Great Britain and the United States during the World War. By Charles Whiting Baker, C.E., Consulting Engineer, 19. Prices and Price Control in Great Britain and the United States during the World War. By Simon Litman, Professor of Economics, University of Illinois. +20. Cooperative Movement in Russia. By E. M. Kayden. *2i. The Germans in South America: A Contribution to the Economic History of the World War. By C. H. Haring, Associate Professor of History, Yale University. *22. Effects of the War on Pauperism, Crime and Programs of Social Welfare. By Edith Abbott, Lecturer in Sociology, University of Chicago. *23. (Omitted.) 24. Direct and Indirect Costs of the Great World War. By Ernest L. Bogart, Professor of Economics, University of Illinois. (Revised edition of Study No. s.) 25. Government War Contracts. By John F. Crowell, Ph.D., LL.D. THE CARNEGIE ENDOWMENT FOR INTERNATIONAL PEACE 2 JACKSON PLACE, WASHINGTON, D. C. •These numbers have not yet been published. CHAPTER I Introduction For more than a generation there has been going on in the two great industrial countries, Great Britain and the United States, a sharp conflict between those on the one hand who believe that there should be no government interference with private industry, and those on the other hand who advocate either government control or government ownership and operation, first, of public utilities, and second, of other proc- esses of production, whenever and wherever the normal processes of competition fail to protect the public. It is well known that during the last forty years a complete revolution has occurred, not only in economic thought but in public policy, both in Great Britain and the United States. Doctrines that were deemed ultra-radical thirty years ago and which a professor of economics expounded only at the risk of losing his position and being branded a socialist — a term which at that day was regarded by probably nine-tenths of average newspaper reading Americans as synonymous with anarchist — these doctrines are accepted today without question by railway presidents, financiers and captains of industry. The change in popular sentiment has in fact far outrun the change in governmental practice. There has been a very great extension of government control and regulation, not only in the field of public utilities, but in a great number of matters where public health or safety, or the welfare of wage workers is concerned. As examples may be cited the work- men's compensation laws, which place the burden of indus- trial accidents on the industry and not on the injured em- ploye; the extension of building regulations, factory laws, inspection of food products, restrictions on the employment of women and children. All these laws, which were originally enacted in the face of great opposition, are now accepted by 3 4 GOVERNMENT CONTROL AND OPERATION OF INDUSTRY all concerned as a necessary part of modern industrial life. This great extension of governmental functions, however, has not satisfied the public. There is probably as widespread favor today for government ownership and operation of public utilities as there was a generation ago for government control. The business men who a generation ago were opposed to public control, and who now accept it as "a necessary evil," are today as strongly opposed to public ownership and opera- tion of industries. It is curious indeed to note the contrasting points of view. One may talk with the responsible officers of public utility corporations which have been under public regulation, and hear almost invariably the story of the defects of public control as it is actually carried out. He will learn that the average "regulator" is a politician, to whom the small salary which the office pays is a consideration of importance. He will be told that these "regulators" generally lack all tech- nical knowledge of the industries over which they are placed in authority, and are always inclined to give the public the benefit of the doubt, rather than administer even-handed justice between the corporations and those whom they serve. But when one talks to the average citizen, he discovers a belief, in many parts of the country, at least, that the regu- lating commissions have protected the corporations rather than the public and that we must look forward to a great extension of government ownership and operation as the only satisfactory solution of the problem. Into this conflicting arena the great event of the war has projected itself. While it has to a certain extent diverted attention from the problems of economics and government, it has been on the other hand a great experimental demon- stration of the results of an enormous extension of the field of governmental activity. The "man in the street," as the English say, has learned from his daily newspaper how the governments of Great Britain and of the United States have undertaken enterprises INTRODUCTION 5 under the stress of war conditions which only the ultra- radical has hitherto dared to advocate. Fixing the prices at which food and fuel and steel and copper shall be sold; con- trolling buying a.nd selling and transport in international trade; operating the entire railway systems of the United States and Great Britain; building and operating ships on a scale that makes the operations of the greatest private ship- ping company seem trifling — these are typical of the greatly enlarged range of government activities as a result of the war. These facts have had and are bound to have in the future a profound effect on the minds of men the world around. What- ever the verdict of the scientific economist or the busi- ness man may be on the results of government operation and control of industry during the war, the effect on the popular mind has already been registered. For a generation to come, at least, in every appeal for direct government action to fix the price of commodities and prevent extortion and profiteer- ing, the precedent will always be cited as to what Great Britain and the United States did in fixing prices in the world war of 1914-1919. Arguments based on that precedent are not likely to be upset in the mind of the average voter by any later showing as to the specific results of this exercise of the government's strong arm. It may be accepted without question, therefore, that in the popular mind government operation and control of industry in the past four years has not merely driven the last nail into the coffin containing the defunct laissez faire theory of gov- ernment; it has dumped that coffin without benefit of clergy into the grave already dug to receive it and has heaped high the earth over it. But if one would hear opinions diametrically opposed to those just set forth, he need only interview some of the experi- enced business men who have had occasion to come closely in contact with government operations in some sphere of industrial work during the war. He will hear detailed recitals of concrete examples of ignorance, inefficiency and incompetence on the part of responsible government officers 6 GOVERNMENT CONTROL AND OPERATION OF INDUSTRY which to the reciter of the incident are proof conclusive that government operation of industries — or government control, for that matter, to any greater extent than circumstances compel — ^would be a most deplorable result. The manufacturer or merchant or railway officer who relates this experience and renders this opinion is as honest and sin- cere in his verdict as is "the man in the street" who has based his verdict on his general information. Further than this, it is noteworthy that the one has little or no respect for the opinion of the other. The captain of industry believes the opinions of the man in the street to be based on too super- ficial knowledge to be worthy of attention. The man in the street believes the captain of industry opposes government ownership because he wants to retain industry under private control for his own profit. And, as Mr. Dooley says, "there you are." In the face of these diametrically opposed opinions, it is worth while surely to undertake an impartial investigation, to find if possible where the truth lies. What have been the results of the wide extension of government control and operation of industry during the war in the two great English speaking countries? Attention may well be confined to these two nations because they are the two great industrial nations of the world which have been developed almost entirely on the basis of private enterprise. Here, in these two nations, in the years before us, will be settled the question whether industry is to be carried on as a private business or a public business. At the outset it is well to explain some of the difficulties in the way of solving the problem before us. It is easy enough for "the man in the street" to conclude from his desultory newspaper skimming that these governments have greatly extended their control of commerce and industry; but to give a categorical appraisal of the governmental activities in this field is far from an easy task. Official government reports are often delayed years in publication even in peace times. In the exigencies of war, the responsible government officers have been too busy trying to keep up with the manifold INTRODUCTION 7 demands of daily work to write detailed reports. Again a good share of these government activities in the control and operation of industry was withheld from publication for military reasons. The importance to the enemy of knowing the economic condition of his opponent, the extent to which government interference is necessary, and the causes operating to bring it about may be as important as knowledge of an army's strength and its location. But to answer the question "how has government operation worked?" it is not enough to know that the government carried on, or controlled, a certain industry. It must be known to what extent the results are good or bad. It would doubtless be possible for a competent investigator, empowered with the necessary authority, to take a single specific enter- prise which has been placed under government control or operation, and by spending weeks or months in examination of its books, records, operations and product in comparison with such records as were available of the same industry's operation under private management, a judicial verdict might be reached as to where and how far the change to government operation had been an advantage or a-detriment. If a similar investigation were made of all industries wherein government control or operation had been made effective in the two countries during the war, a foundation would be thus laid for a complete estimate of the results of government control. It is needliess to say that such an investigation would be an impossibility. Even if the government were to finance the enterprise with unlimited funds, and draft an army of trained economists to conduct the work, there would be no means of reducing to mathematical terms the precise results attained in each specific industry. Without that, the averaging neces- sary to obtain the final result would be a matter of balance of mental impressions, rather than of arithmetic. Again, both here and in making the original ratings, the personal equations of the experts would have a determining effect on the final result. 8 GOVERNMENT CONTROL AND OPERATION OF INDUSTRY Of course no government would finance, or even permit, such an impartial investigation of the results of its work. In time of war, the government will permit no facts to become public regarding any defects or failures in its operations that it can prevent. At the very time these lines are written, the administration is engaged in a severe struggle with Congress over the question whether the government operations in connection with the war are being carried on efficiently. The absolute necessity of maintaining the popular support of the government while the war continues is so generally recognized that a large pro- portion of the public condemns any publication in time of war regarding inefficiency in the government work, or even statements concerning it in Congress. Obviously, then, one need not expect to find, either in the official reports or in the public prints, any adequate statement as to the ways in which government administration has fallen short. Such information must be sought from the isolated statements and items which reach the public prints, supple- mented by information gathered at first hand, and great caution must always be exercised not to accept such items of information at their face value until checked and found relia- ble by other methods. The above briefly reviews some of the underlying reasons why it is impossible to present any exhaustive and complete review of the entire field of governmental activity in connec- tion with industry since the war began. What the author has attempted to do in the following pages is to set forth such broad, general facts with regard to the problem as he has been able to obtain. It is, after all, on such general facts that useful conclusions may be safely based, rather than on a multitude of details which, even though collected with impartial effort, often tend to confuse the mind and hinder, rather than help, clear thinking and sound conclusions. It seems necessary also, in the introduction, to say a per- sonal word. The author undertakes this study entirely INTRODUCTION 9 free from bias for or against the policy of public ownership and operation of industry. As an engineer, and as the editor- in-chief for more than a quarter of a century of the leading engineering journal of the United States, with a wide acquaint- ance among engineers, both those engaged in work for cor- porations and those in public service, the writer has had unusual opportunities to become familiar with underlying facts regarding both fields of work. The writer approaches the problem, moreover, with full recognition that revolutionary changes are impending and are indeed greatly needed in our industrial system. He recognizes, on the other hand, that these changes^ if they are to result in achieving the greatest good to the greatest num- ber, must have a sound economic basis and be made with due regard to existing conditions and prejudices. A reform may be entirely sound in theory and may conform to the prin- ciples of justice, and yet prove disastrous in operation, if the public is not sufficiently informed concerning it to accept it in good faith. CHAPTER n Efficiency in Government Operated Industries In the examination of the question to what extent govern- ment operation and control of industry has been a success, it will be necessary again and again to inquire to what extent the operation was efficient. It is well to set down in advance, therefore, the reason why efficiency in the conduct of industry is important and also the essential conditions upon which efficient operation depends. There appears to be a widespread belief that when an industry is carried on by the government, efficiency in its operation is of no great importance. The groundwork for this belief has been laid by the wide commercial exploiting of so-called efficiency systems that aim solely to secure a large output from the wage worker per dollar paid to him. For example, when a man is told that municipal operation of a street railway is less efficient than operation by a private company, he construes it to mean merely that the private company showed greater net earnings because it made its men work longer hours for lower wages. If efficiency meant no more than this — a mere question of how the earnings of an industry are to be divided between the capitalists who own it and the workers who operate it — then efficiency would not be of such vital concern to the public. But the events of the war have demonstrated that efficiency is a far broader and more important essential to national welfare than has ever been realized. Indeed it early became evident that victory in this great world struggle would be greatly influenced, if not determined, by the degree to which either of the two great contending groups of nations excelled the other in efficiency. In the United States, waste and extravagance have long been prevalent national sins. In Great Britain, the blunder- 10 EFFICIENCY IN GOVERNMENT OPERATED INDUSTRIES II ing governmental methods commonly employed are well expressed in the current expression "muddling through." In both nations this vice of inefficiency in government mat- ters has been lightly passed over in peace times because it apparently meant nothing more than the loss or inconvenience of a few individuals and a heavier burden laid on the taxpayers. National Security Depends on Efficiency The war has aroused us to a realization that inefficiency in governmental methods can bring about defeat in battle and a nation's downfall. To give a concrete illustration, had Great Britain not succeeded in organizing its manufacturing industries for munition production with an efficiency never before approached in operations on such a huge scale, the war would have been lost before the United States was pre- pared to exert its strength. There is hardly a more important economic lesson that the war has taught than the vital importance of efficiency in all the processes of production. And this is true in peace as well as in war. The feeding and clothing and sheltering of the world's teeming millions require the operation of indus- tries on a vast scale. If all these processes of production, transportation, manu- facturing and distribution are carried on efficiently, with all the utilization of power driven, labor saving machinery that the progress of science and the arts has placed at the service of mankind, then a limit can hardly be set to the degree of comfort which the masses of mankind may attain. If, on the other hand, inefficiency prevails, then the world's production will soon fall below the line necessary to supply the necessities of life, to say nothing of its comfort. It seems important to emphasize this matter at this par- ticular time, when the doctrines of the Bolsheviki have innundated the most populous nation of the world and threaten to spread elsewhere. Whatever beliefs may be held concerning the distribution of the products of industry, it is too evident to require argument that there must first of all 12 GOVERNMENT CONTROL AND OPERATION OF INDUSTRY be products to distribute, or rich and poor will go down to destruction together. The greater the efficiency of a com- munity or a nation, the greater will be its volume of produc- tion available for the benefit of all. It is generally agreed that the war will bring about profound changes in our social and industrial organization. Whether these changes will be for the better or the worse will depend very largely on how they affect the productive efficiency of society as a whole. This, then, is the reason why the most important question of all respecting the government's action, in controlling industry during the war, is what effect did it have on efficiency? Three Conditions of Efficiency And now it is useful to go one step further in our analysis. In order that an industry shall be operated efficiently, it is necessary that there shall be efficiency in three places. First, there must be efficient labor — the rank and file of the workers must carry out their set tasks diligently and faithfully. Second, there must be an efficient organization — the system on which the whole body of workers, from highest to lowest, is organized must be such as to make efficiency at least possible. Last, and most important, those who guide and direct the organization must be competent for their tasks. It is on this last element, more than any other, that the efficiency of the whole organization depends. The workers may be ever so diligent and faithful and the plan of organiza- tion may be faultless, and still the enterprise may suffer ship- wreck because the men at the head are lacking in good judg- ment or in knowledge of their business. All this is, of course, elementary to experienced business men. It is well known that the success of an enterprise depends on the quality of the men who run it, — that one man at the head will make a business yield large profits where another, apparently not much inferior in qualifications, will steer a straight course to bankruptcy. These three essentials of efficiency apply exactly the same EFFICIENCY IN GOVERNMENT OPERATED INDUSTRIES 1 3 when an industry is carried on by the government as when it is carried on by private enterprise. If a city is operating an electric lighting plant, for example, in order to get efficient results, it must have an efficient labor force, an efficient plan of organization and competent men to direct the work. The question whether it will secure higher efficiency or lower than a private company in the same field will attain depends on the degree on which the city owned plant excels or falls below the privately owned plant in each of these three particulars. The Standard for Measuring Governmental Efficiency There is another matter which needs to be clearly under- stood in order to form a just opinion as to the results of govern- ment industrial activity during the war. When we examine the operations of a government industry and desire to judge its efficiency, the question at once arises, by what standards shall we judge it? If we attempt to mark it on a lOO per cent scale, so to speak, then we shall inevitably reach an erroneous conclusion. There is no such thing as loo per ceijit efficiency in any art or industry, whether carried on by a private firm or by the government. Furthermore, the larger an organiza- tion becomes, the greater is the difficulty in securing a high degree of efficiency. There is a widespread fallacy to the effect that production on the largest scale is the cheapest production. That fallacy is based on superficial and limited knowledge. Those most familiar with the inside of the great industrial combinations know how often the advantages which they possess by reason of their size are overbalanced by serious disadvantages. This is a field, moreover, in which there is no rule to fit all industries. The size of the economical operating unit varies greatly. In agriculture in the temperate zone, for example, the farm large enough to be worked by a single family has developed by survival of the fittest, the world over, as the size of the economical operating unit. In raising sugar cane, in Cuba, great plantations with hundreds of diligent workers are essential. In manufacturing industry, while production 14 GOVERNMENT CONTROL AND OPERATION OF INDUSTRY on a large scale is generally essential to economy, the experi- ence of the past twenty years has demonstrated in many cases that the production costs of some of the so-called trusts are materially larger than those of some of the concerns of moderate size. A mistake very commonly made by critics of government administration is to compare government methods and results with those obtainable in some small private business. It is said, for example, that the government worker does not have the incentive to energy and industry and initiative that the man does who is working for himself. Of course, this is true ; but exactly the same thing is true of the individual employe and to a large extent of the officers as well of a great public utility or manufacturing corporation. Again, it is common to hear criticism of government administration of business because of the "red tape" in- volved. It is overlooked that a large part of the so-called "red tape" in connection with government business merely represents the system which must be established in connection with every large scale business to avoid waste and loss. This "overhead expense" of carrying on business increases generally with the size of the business. To take a familiar illustration, compare the elaborate system and organization of a great department store, with its army of specialized employes, and the simple methods in use in a small retail store, where the proprietor and a half dozen assistants con- stitute the entire force. The same illustration will serve to present what is perhaps the greatest difficulty to the maintenance of efficiency in any great business. The proprietor of a small retail store is in intimate personal contact with every one of his assistants. He himself must be efficient in the conduct of his business or he will be left behind in the race of competition. He can maintain efficiency in each of his assistants because he is on the spot to see and know. But in the great department store, or in any great business employing hundreds or thousands of workers, the individual employe's defects as well as his EFFICIENCY IN GOVERNMENT OPERATED INDUSTRIES 1 5 merits are often overlooked. Other economic conditions may drive out the small competitor; but in estimating the success of gQvernment organization in carrying on any work, the question must always be, not as to whether defects exist, but whether the results attained were on the whole as good as a private business concern would have attained on work of similar magnitude. New Achievements in Efficiency Resulting from the War The economic lessons taught by the war ought to lead to a study of national efficiency from a broader standpoint. The world has been amazed at the enormous rate of production which the war has shown to be possible through the combina- tion of modern machinery, trained labor, free from artificial restrictions upon its output, skilled technical direction and ample supplies of capital and of raw materials. In many respects this war production has been carried on with an efficiency never before known. It is unthinkable that this efficiency once attained should be sacrificed for a return to the methods of the past. For one thing, the coming world- wide competition in international trade will put out of busi- ness any industrial nation which fails to put in practice the principles of efficiency which the war has taught. It may be thought, however, that this is a view of the problem from the capitalistic standpoint, and that in order to square with the theories of the socialist and the labor leader, there must be a return to such labor restrictions as prevailed in England before the war. If we are indeed to return to the prewar conditions in other respects, there- is much to be said in defense of the labor union standpoint. Suppose, however, that artificial restric- tions on the distribution and sale of the output were likewise swept away. Suppose we think of the world as a family of workers. Under these conditions, the greater the production of raw materials and manufactured products, the greater will be the product of goods for everyone to use and enjoy. Under 1 6 GOVERNMENT CONTROL AND OPERATION OF INDUSTRY these conditions, the greater the use of labor saving machin- ery, the more efficient the utiUzation of material, the more diligent the workers at their task, the greater, will be the amount finally produced to divide among all for their use and enjoyment. This ideal we must approximate so far as possible. The nearer we can approach it, the nearer will we attain national prosperity and the welfare of the individuals that make up the nation. Why It Is Necessary to Watch Efficiency It is not often realized why efficient organization is a vastly more important matter today than it was a few years ago. It is because under a competitive order of business, efficiency is automatically provided for. The least efficient organiza- tions fail and disappear while the most efficient succeed and grow. But under modem large scale production, competi- tion no longer has free play. Further, the larger an organiza- tion grows, the more difficult is it to conduct it efficiently. Inefficiency in the conduct of private monopolies or in their control by the public authorities or industries carried on by the government directly is always paid for by the public at large in the form of high prices or poor services, and there is no automatic stimulation of efficiency, such as exists where industries are carried on on a freely competitive basis. CHAPTER HI Organizing a Nation for War When the world war began in 19 14, the two great Anglo- Saxon nations were not only unprepared in a military sense; they were wholly unprepared industrially, and they were wholly ignorant of this latter unpreparedness. No one dreamed that the coming struggle was to be a conflict be- tween the farms and workshops and mines and mills of the nations quite as much as between the armies in the field. The popular slogan among the British business men when the war cloud broke was, "business as usual." "Let our brave British soldiers and sailors fight the battles and we will go steadily on buying and selling, mining and manu- facturing just as if there were no such thing as war." It was not an unpatriotic sentiment by any means. The underlying thought was that Britain's trade and industry, on which her prosperity depended, must be maintained to support the armies in the field. There was no conception of the extent to which the war would affect the life and the daily tasks of every individual, from the captains of industry to the poorest laborer. We know now that the world war was a struggle between the industrial forces of the nations engaged quite as much as between their armies in the field and their navies on the seas. We know now that organization for that definite end was just as essential for the industrial forces of the nation as drill and discipline for the military forces; but none but the Germans knew this when the tempest broke in 1914. The Necessity of Organization A hundred thousand individuals may collect in a crowd; but without organization they are powerless for attack or defense, and will perish in a few days for lack of subsistence 17 1 8 GOVERNMENT CONTROL AND OPERATION OF INDUSTRY except as organization is effected to supply their needs. The hundred thousand may even be organized in detached groups formed for different purposes, but until the groups are brought together and organized for a common purpose, they are incapable of effective effort. The great task which confronted Great Britain and the United States when each entered the war, therefore, was the task of organization. How to convert the entire man power and machine power and money power of these great nations from operation in detached units for peace purposes to opera- tion as a united and harmonious whole for the one great aim of winning the war, was the problem to be solved. It was only very gradually that this great controlling fact came to be recognized. It was only piecemeal and by painful process of trial and error in many cases that the reorganiza- tion was effected. If the government at the outbreak of the war, in either Great Britain or the United States, had imme- diately undertaken the wholesale interference with every individual and every business which in the end became nec- essary, a storm of public protest would have gone up that would have made success impossible. Government Organization Defective In both Great Britain and the United States private indus- try had attained a high degree of efficiency prior to the war, but government activities were on the whole poorly conducted. The inefficiency of government work was due, not so much to the rank and file of government workers, as to defective organization, lack of intelligent planning and direction, and long delays in action on the part of higher officials. Hon. Franklin K. Lane, on retiring after seven years' serv- ice as Secretary of the Interior, gave the following keen analy- sis of the federal government as a business organization : Washington is a combination of political caucus, drawing room and civil service bureaus. It contains statesmen who are politicians and politicians who are not statesmen. It is rich in brains and character. It is honest beyond any com- mercial standard; it wishes to do everjrthing that will promote the public good; but it is poorly organized for its task. Fewer men of larger capacity would do ORGANIZING A NATION FOR WAR 1 9 the task better. Trust, confidence, enthusiasm — these simple virtues of all great business are the ones most lacking in government organization. We have so many checks and brakes upon our work that our progress does not keep pace with the nation's requirements. There are too few in the government whose business it is to plan. Every man is held to details — to the narrower view. We need for the day that is here and upon us men who have little to do but study the problems of the time and test their capacity at meeting them. In a word, we need more opportunity for planning, engineering, statesmanship above, and more fixed authority and responsibility below. How could a government, which in the ordinary routine of peace is unable to efficiently plan and organize its own activi- ties, undertake to efficiently organize and exercise absolute control over the productive activities of the nation? To state such a proposition was almost to condemn it. It would have seemed an entirely safe prediction at the outbreak of the war that government interference with indus- try, where industry was essential to win the war, would be the best means of ensuring defeat. And yet in both nations, as one step after another was taken in government control, the necessity was so obvious that the industries affected acquiesced with hardly a word of protest. The most marvellous accomplishment of the great struggle was the successful organization of both these great nations into a vast machine, all of whose operations were shaped toward the one end of winning the war. Of course this huge machine did not operate with loo per cent efficiency. No machine and no organization which fallible human beings originate and direct ever operates with anywhere near perfection. The story of the war organiza- tion in these countries and in every country is full of records of failure and incompetence, gross error and scandalous waste. But when the great organization is viewed as a whole and measured by the results attained, it is recognized that the failures and mistakes bulk small in comparison with the general success. Time Necessary for Efficient Organization In the ordinary operations of commerce and industry, the building up of an organization has been generally recognized 20 GOVERNMENT CONTROL AND OPERATION OF INDUSTRY to be a task for which a long time is essential. Mr. Carnegie, at the height of his business success, declared that the premier position of his companies was due neither to their control of raw materials nor to their superb mills and furnaces, but to the organized group of men which directed these activities. But the building up of this efficient organization had occupied the best part of his life. So it is with every enterprise which has attained a high degree of efficiency. It has been gradu- ally built up, usually from small beginnings, and by a process of trial and error and gradual growth has advanced its position. But when the demand came that the nations should reor- ganize for war, time was the element most lacking. It was evident not only that the victory would fall to whichever side was able to achieve greatest efficiency in organizing its people for war; but to whichever side was first ablie to get this organ- ization into operation. In the ordinary operations of peace times, efficiency is commonly measured in money. The most efficient steel making plant in peace times is the one which can turn out its products at the lowest cost. The most efficient in war times is the one which can fill an urgently needed order most quickly. How could a government with all its machinery adjusted to peace time operation at a phenomenally slow speed accom- plish the task of reorganizing all the activities of an entire people to the highest rate of speed possible? The task seemed impossible. It would have been impossible save that its successful accomplishment was absolutely essential to national existence. Had the task been presented as a whole at the outset of the war, as we can see it now, its very mag- nitude would have appalled those on whom the burden was laid. But taken as it was, one task after another, as one urgent need after another became plain, the great accomplish- ment became possible. Where one man failed another took up his task; where one means was found insufficient a sub- stitute was rushed forward and made to serve. ORGANIZING A NATION FOR WAR 21 A military campaign can not be carried out on a hard and fast plan made long in advance. Its plan must be subject to change from day to day and from hour to hour, as the move- ments of the army or other changes in conditions make nec- essary. So the government organization of industry had to be subject to continual change as different needs became urgent. For example, in the early part of the war Great Britain turned as mucK as possible of her shipbuilding facilities toward production for the navy in order to make as near certain as possible her control of the seas. Later, when the destruction of merchant vessels by enemy submarines endan- gered the Allied food supply, the shipyards were turned back to merchant work. Party Policies Opposed to Government Interference At the outbreak of the war, governmental policy in both Great Britain and the United States, so far as it was for- mulated in party policies, was strongly adverse to govern- ment interference with private industry. Historically, the Democratic party in the United States was the party least in favor of the exertion of federal authority. In Great Britain, the Liberal party is historically the defender of the laissez faire theory of government. The dominant political issues of the past quarter century have placed these older ideals in the background, but they still have influence with great masses of people. The governments of both nations were unprepared with any principles or policy for dealing with the war emergency. So far as any principles or policy had sway, they were contrary to the course which the stem logic of necessity gradually compelled both nations to adopt. When Great Britain entered the war, it was at first assumed that the great government owned and operated munition factories, added to the great private works in Great Britain which had specialized in war material, would be able to supply the needs of her armies. 22 GOVERNMENT CONTROL AND OPERATION OF INDUSTRY It was promptly found that these would be wholly inade- quate. Great Britain not only had to equip her own new armies but supply to a large extent the armies of her allies. There was no time to enlarge the government factories or to build up new organizations to carry on government work. The thing to do was to get munitions from every source pos- sible. Every factory in Great Britain capable of making guns or shells was at once appealed to to undertake such work and the government extended whatever help was needed. This was not done on any system. There was no time to formulate a system. What was done was to give whatever aid was needed to enable the factory to equip itself for the work. In some cases loans were made, with or without interest. In other cases the government paid for the new plant, either directly or indirectly through an allowance on the price of the output which it purchased. There was in those early months of the war no conception of the length and magnitude of the struggle ahead, and little attention was given to the prices paid. The idea that it would be as necessary to husband the financial strength of the nation as its industrial strength came later. There was no time to haggle over prices or to advertise for bids in the usual manner on government work in peace times. The government did not embark on this work with any idea of controlling the industry with which it dealt. It took the shortest and most direct means of supplying its urgent necessities. It had the power, indeed, to have commandeered the plants to which it let contracts; but such a course would have defeated the end in view. The organization which the manufacturer had built up was in most cases as important as the plant. To set this organization into operation on gov- ernment work was the thing desired. Breakdown of the Competitive System The very magnitude of these operations very rapidly made necessary an elaborate system of government control. It was the magnitude of these operations that soon brought ORGANIZING A NATION FOR WAR 23 into bold relief the inadequacy of the competitive system, or the law of supply and demand, to meet the nation's necessi- ties. There was no limit to the demand for munitions. The supply had to be created from sources that did not exist. To proportion the price to the urgent necessity of the pur- chaser was manifestly unjust. This is indeed typical of the situation that has existed in hundreds and thousands of industries. The world has been accustomed for generations to conditions under which the supply of commodities is somewhat in excess of the demand, or can be increased to meet the demand as a result of the stimulus due to a slight rise in price. The world war has created a demand far beyond the supply. There was not enough labor, there was not enough steel, not enough food, or coal, or ships, or wool or leather. More than this, raising the price would not materially affect the supply available for immediate needs. How Rationing Became Necessary These things were developed as the result of practical experience in the British Government's dealings with the munitions making industries. The government had con- tracts with thousands of manufacturers to produce shells in enormous quantities to feed its artillery. All these makers had to be supplied with steel, and this at a time when steel was urgently demanded for warships and merchant ships at home, for export to munition works in France and Italy; for a multitude of other war manufactures. Had supply and demand been left free to take their course, the prices of steel would have gone on rising until some purchasers would have been forced out of the market. Those industries alone would have secured steel which were able to pay the highest price for it; and they would have bought a surplus in order to be sure of keeping their plants in operation. This would have resulted automatically in concentrating the profits of the steel using industry in the hands of the makers of steel. 24 GOVERNMENT CONTROL AND OPERATION OF INDUSTRY But such an operation would have been most detrimental to the nation's welfare. The thing to be desired was that everyone who needed steel for war uses should secure a proper supply and be assured of such a supply without the necessity of hoarding. It was also extremely desirable that profits should be equitably distributed all along the line, and not concentrated in any one holding. The steel maker should have enough profit to induce him to push his production by every possible means, but so should the coal operator who furnished him with coal, and the mine operator who pro- duced the ore; so should the manufacturers who made the steel into shells and tanks and ships; and the workmen em- ployed by all these concerns must have wages sufficient to satisfy them and prevent strikes. Never was there better illustration of President Cleveland's famous remark that "it is a condition and not a theory that confronts us." The theory of the law of supply and demand and its relation to price was unaltered; but a condition had arisen that made the rise of prices in accordance with this law and the distribution of products according to price oper- ate against the public interest, instead of for it. Price Fixing Becomes Necessary The government of Great Britain was forced to fix prices for steel to meet this condition, although it did not do this until the war had been going on nearly a year and a half. Nor was this enough. The government was obliged to step in and direct how steel should be distributed. It could not permit steel which was urgently needed for munitions to be exported, even though the purchaser in a neutral country might offer a tempting price to the steel maker. It could not allow steel to be rolled into building material when it was more needed for ships. Where the supply was insuffi- cient for the demand, it had to decide which of the war indus- tries most urgently needed the metal. It was obvious that where price fixing by government authority is made effective, some adjudication of priority ORGANIZING A NATION FOR WAR 25 rights is essential; otherwise, who shall decide which pur- chaser shall receive the most of a limited supply? Under normal operation of the law of supply and demand, the man who can afford to pay the highest price is the one who receives the goods. This is supposed to automatically measure his need for them. But if the price is the same for all and there is no means of equitably adjudicating priority rights, then the goods would probably go to the buyer who made the largest present to the seller's sales agent or other responsible official. Control in the Labor Market The labor situation was the one which soonest made clear the necessity of government control. This again was not foreseen at the outset. It had to be demonstrated by the process of trial and error. Lack of skilled workmen was quickly felt as a limitation on the output of munitions. The various competing manufacturers began bidding against each other for the services of workmen skilled in shell production. This had the effect of increasing the labor turnover and unset- tling the rg.nk and file of workers, while it tended to make the small class of specially skilled men hold on to their advanta- geous position and oppose attempts to impart their skill to Others. The government had to interfere and establish restrictions against the transfer of skilled workers from one district to another. It had to bring back skilled workers who had vol- unteered for army or naval service. It had to establish a vast system for training labor; and for "dilution" of skilled labor with unskilled labor and with women workers. It was impossible for the employers of labor to grapple with the labor situation themselves, either individually or in combination. Labor was too distrustful of capital to make this at all possible. The matters at issue were not alone commercial and economic. They were political and social. The whole issue of the war was at stake. Unless the rank and file of British labor could be enlisted to contribute their 26 GOVERNMENT CONTROL AND OPERATION OF INDUSTRY best efforts to swell the industrial output of the nation, defeat was certain. How Lloyd George Saved the World The fate of Great Britain and of the world never hung on a more slender thread than during those months when the question whether British labor would sacrifice its dearly pur- chased power over wages, hours of labor, working conditions and output was undecided. It is very doubtful whether any living British statesman save Lloyd George could have accomplished the feat of pur- suading labor to make the sacrifice. Had he performed no other service than this during the five momentous years of the war, he would deserve perpetual honor as the savior of his country and the world. Government Welfare Work And having induced the workers of Great Britain to make the sacrifice, it was then the responsibility of the government to see that these workers were properly cared for. The gov- ernment had to establish tribunals to adjust differences be- tween employers and workmen and avert strikes. It had to suspend the factory laws, which limited the hours of labor and the employment at night work for women and children, and having done this it had to take extensive means to curb abuses, such as working unduly long hours. It had to provide housing for the workers on an enormous scale, it had to pro- vide special transport service to carry workers to and from their tasks. It had to provide for adjustment of wages to meet the rapid increase of living costs. It had to provide for limitation of profits by the firms engaged in filling govern- ment contracts. Previous to the war a few individual firms, more progressive than their neighbors, had undertaken for the benefit of their employes various enterprises classed under the general head of welfare work. Under the stress of war conditions, the government had to organize welfare work on an enormous scale for the army of munition workers, to con- ORGANIZING A NATION FOR WAR 27 serve their health and productive capacity, to cultivate their spirit of patriotic service, and to keep them contented so as to ward off industrial strife. A volume might be written on the measures taken by the government for the control of industry in connection with the relations of labor alone. In fact, the government reports, which describe in detail the measures employed in the deal- ings with labor, comprise many volumes. What is desired here is to point out how the control of the munitions industry in every particular — capital, profits, labor, skill, materials, and transportation — grew out of the nation's necessities for an enormous supply of munitions, a necessity which could not possibly be met in any other way. Very few British statesmen or business men believed before the war, or believe now, that the British Government could run a factory for making guns, or projectiles, or explosives, better than, or even as well as it could be run by its private owners. The government control was exercised when expe- rience demonstrated its necessity, and not before. How Did Government Control Work? When one asks the question how did government con- trol work, he receives two diametrically opposite answers and, curiously enough, both of them are true. Government control was established by a process of trial and error; and there was a vast amount of error in it. Nobody was wise enough to know exactly what was the best plan of solving each new and unprecedented problem as it arose. Time was generally lacking to permit the investigation and study nec- essary for deciding on the best course. The government had to build up a great organization to control the munition busi- ness at a time when it had to create numerous other organ- izations to conduct the war activities. Mistakes were inevi- table. Waste was inevitable. Confusion was inevitable. There were cases where capital was unjustly treated, there were cases where labor suffered. These things would have happened with any man or set of men In control and under 28 GOVERNMENT CONTROL AND OPERATION OF INDUSTRY any form of government or of private enterprise — had it been possible for private enterprise to undertake a task which required the authority and prestige of government for its performance. So if one views the work done by the government in the control of industry in its details, he will naturally take a pessimistic view. It is only when he views the accomplish- ment as a whole that he can appraise at its true value the remarkable achievement in organization and control which England and America achieved under the stress of war. , The Necessity of Central Control One of the most difficult of all the problems in connection with the government organization was the problem of con- centrating authority. Everyone knows how the success of the Allies' military operations that turned the tide of defeat into a current of victory began with the bestowal of supreme authority on Marshal Foch as commander of all the Allied armies. In the industrial field, both Great Britain and the United States failed of effective action until, after many months of disastrous delays, an effective central control was finally established. Bureau Control Versus the General Staff Even in the military field, the outbreak of the war found the United States with its army organizations handicapped by a fatal lack of central authority. The army was organ- ized in a number of different bureaus, each charged with its own special duties; but all of them overlapping and conflict- ing more or less with each other and with traditional enmi- ties, personal and otherwise, that continually interfered to prevent cooperation. In theory, of course, a central authority over the whole existed in the authority of the President as Commander-in- Chief, exercised through the Secretary of War; but no such control could be effective. The need was not a one man ORGANIZING A NATION FOR WAR 29 authority, but a central organization to plan for and direct all arms of the service. This need had been long recognized even in peace times, and legislation had been enacted author- izing the creation of a General Staff to exercise this very power. But as long as peace continued, the defenders of the old bureau system, under which each bureau was supreme and could conduct its own affairs as it pleased, were too strong to be overcome. It was not, in fact, until the nation had been for months at war and the conflicts going on between different bureaus became an evident, serious danger to the nation's welfare, that the organization of the General Staff to exercise central control over the entire army was undertaken in an energetic way. The Council of National Defense It was dimly seen, also, in the months before the United States declared war that the nation had no means of uniting all its forces for action, and a first attempt to supply this lack was made in the creation of the Council of National Defense. This was a body made up of the several Cabinet officers who were heads of departments which were supposed to have something to do with the war, and half a dozen or more men who had been selected almost at random — manu- facturers, army officers, college presidents — all patriotic but greatly varying in ability, and the whole organization possess- ing advisory powers merely, and no real .authority. The council did an immense amount of work. There was nobody else to do it; and the temper of the American people was such that advisory power was in many cases as good as legal authority. But when it came to really important matters, where a central authority was most needed, the council was powerless. In those early months of the war, men went to Washington on important missions and came away despairing at the chaos they found. The Council of National Defense had no organ- ization competent to act upon and decide questions. It was swamped with work, so that its members broke down under 30 GOVERNMENT CONTROL AND OPERATION OF INDUSTRY the physical strain. When it came to matters where real authority had to be exercised, one had to see a Cabinet officer after all, and the Cabinet officer in many cases said, "Only the President can pass on that." That was the condition of deadlock that for months par- alyzed many efforts to mobilize the nation's industries. Had President Wilson been twenty supermen combined in one, he could not have discharged the multitude of responsibilities which were at the time placed on him alone. What was needed was not a central man, but a central organization, with authority to guide and direct and harmonize all the energies of the nation. It was at this stage of affairs that a strong movement arose in Congress, in which leading men of Mr. Wilson's own party were prominent, to have a central body created correspond- ing to the Ministry of Munitions in Great Britain, to exercise a control over the industries of the country. This movement was opposed by the President; but afterward, under the broad authority granted him by the Overman Act to reorgan- ize the war activities of the nation, the War Industries Board was created. This board became, by a process of natural evolution, the chief authority in coordinating and directing the entire indus- trial forces of the nation. Besides determining all matters of priority, it had the responsibility of fixing prices of the staple commodities of trade, and it was the central organiza- tion which brought together for cooperative action the Fed- eral Trade Commission, which controlled the exports and imports of the nation, the Department of Labor, the Fuel and Food Administration Bureaus, and the foreign repre- sentatives purchasing for the supply of the Allies. It would be difficult to exaggerate the difference between the atmosphere of official Washington in the summers of 191 7 and 1918. In the first months after the declaration of war, hundreds of organizations, industrial and governmental, were feverishly at work, each on its own affairs with little or no knowledge of what others were doing; constantly get- ORGANIZING A NATION FOR WAR 3 1 ting in each other's way and undoing what the other had done. Hosts of men were assuming authority they did not possess, and as many more were "passing the buck" to some other fellow. On many war activities, whole months of time were lost through sheer inability to get decisions on impor- tant matters. A year later, Washington was directing the whole nation like a great machine. Calmness and confidence had suc- ceeded the frantic hurry and distrust and bickering of a year before. It is almost impossible to appreciate the hugieness of the task accomplished. A nation of a hundred million people had been coordinated in all its activities and directed toward a single object. From the hour of their rising — an hour earlier than ever before — men worked, ate, drank, bought and sold till their day was ended, and not an hour passed that the course of their actions was not touched at some point by the nation's plans to win the war. Establishment of Central Control in Great Britain To turn now to an earlier chapter in history, it is to be recorded here that Great Britain went through a similar and even longer period of chaos in her governmental activities before a central control was established. In fact. Great Britain was not industrially organized to win the war, as has been already indicated, until the Min- istry of Munitions was created and Lloyd George was placed at its head on May 25, 1915. Just prior to this, the situation was described by the London Times as follows: The central difficulty in obtaining a sufficient supply of munitions of war arises from the multiplicity of government departments, all more or less overwhelmed by the emergency, all clogged by official routine, all unused to business methods and ignorant of manufacturing technicalities, all issuing confused and often contra- dictory orders, all pressing their own requirements without regard to the rest. Manufacturers eager to help fell back baffled by a fog of official confusion; they apply in one quarter and are referred to another; they receive contradictory instructions and not infrequently fail to elicit any reply at all. The picture is as faithful a one of Washington in 191 7 as of London two years earlier. 32 GOVERNMENT CONTROL AND OPERATION OF INDUSTRY Nobody looking back now at the situation doubts that coordination of organization under a central authority in both Great Britain and America was essential to the winning of the war; and yet what a ponderous barking the critics of the daily press and many men in high places set up at this monstrous assumption of authority by the executives of the two nations! How many times were Lloyd George and President Wilson declared to be grasping more autocratic powers than the Kaiser had exercised. How many sage editorials berated Congress and Parliament for abdicating their powers ! Only the Executive Could Create Efficiency Because of this criticism — which those who made it must now read with shame — it is worth while to consider what was done to effect this organization. And the central fact which stands out is that the waging of war can only success- fully be done by the executive branch of the government. The legislative and judicial branches have their place, but their place is not in carrying on a war. Congress acted wisely in passing promptly and with little opposition a few statutes placing full authority in the hands of the President or those to whom he should delegate it, and not attempting to insert a multitude of details in the acts. Of course, as has been already said, the great executive organizations created under this authority made a vast num- ber of mistakes and betrayed a great amount of incompetence and worse; but that would not have been prevented in any way had Congress attempted to interfere with detailed direc- tions, as it is very apt to do in enacting laws. In Great Britain the volume of war legislation passed by Parliament was much larger than that enacted by Congress, perhaps on the theory that parliamentary action is essen- tial there, the executive being merely the representative of Parliament. And finally it should be said that the coordination of indus- try in the United States, and of all the multitudinous war ORGANIZING A NATION FOR WAR 33 activities, was only possible because the executive authority was backed by an overwhelming public opinion. The criti- cisms that the executive was assuming autocratic powers fell on deaf ears. The sound common sense of the people per- ceived that central leadership and control was absolutely essential. There were few to inquire whether the executive's action had warrant in law. A great chorus of criticism arose when Fuel Administrator Garfield decreed public holidays and suspension of business to save fuel in the cold winter of 19 1 7-1 8, but the order was obeyed. When gasless Sundays stopped pleasure riding in automobiles in the fall of 1918, a few lone individuals who had the bravado to defy the order found themselves such objects of public contempt that there was no need to appeal to the police to enforce the order. This was true of government control of industry all along the line. Millions accepted it gladly as a necessary part of winning the war. It is this fact that particularly needs to be borne in mind whenever the government's action in war is taken as a prec- edent for its actions in peace. The patriotic devotion of the millions of individual citizens was an enormous factor in the success of government control of industry and all activi- ties during the war. In theory, the citizen ought to be equally devoted to his country's welfare in time of peace; but everyone knows that human nature is not made that way. CHAPTER IV Railways in Great Britain ' On the day following Great Britain's declaration of war, the entire railway system of the country was taken over by the government. The reasons for this action are as important as the action itself. Government ownership and operation of railways has been more or less actively discussed in Eng- land for years and the discussion has turned generally on the relative economic advantages of government and private operation. With the coming of war, economic considerations were put in the background and the railways were taken over by the government as a military necessity. It has long been recognized that in the time of active military operations, railways are as important an element as weapons. This world war has demonstrated that the operation of transpor- tation lines in far distant lands across the seas may have an important influence on an army's campaign. The necessity for direct government control of railway lines in the event of war had long been foreseen in Great Britain. Legislation providing for such control was enacted in 1871, when the military lessons of the Franco-Prussian war were impressed on the world, and only an official order was required to put it into effect. On the surface, the change was exceedingly slight at the outset. Every wheel and cog of the vast railway organiza- tion continued in motion the same as before; every employe and official, from the navvy delving beside the track to the General Manager in his office, went on with his work as be- fore. The sole difference was that the general managers of the thirteen great systems which constitute the railway net of Great Britain were made a Managing Board for the whole, with the president of the Board of Trade (a govern- 34 RAILWAYS IN GREAT BRITAIN 35 ment official) as the official chairman, and the general mana- ger of one of the companies as the working head. As is well known, Great Britain, where the railway origi- nated, started out on the theory that the railway business should be a freely competitive business, and has always aimed through governmental action to preserve competition and prevent monopoly. There has been for many years a steady decline in the amount of competition between the different compan- ies. With the taking over of the railways by the govern- ment on August 5, 1 9 14, the competition which the govern- ment had for so many years labored to preserve was terminated at a stroke. The questions of divisions of traffic between the different companies were at an end. All the railways of the country were to be operated as a single system. This difference did not at the outset make any apparent great change in the railway operations. The thing of most importance at the start was the organization of the railways to meet the necessary movement of the troops and supplies. With the government in direct control, this was a far simpler matter than would have been the case had the operation by private companies continued. One matter which was greatly simplified by the change was that all government traffic, whether of freight or of troops, was moved without charge. The saving in delay by reason of no weighing and billing and ticketing being necessary was, under war conditions, a matter of vital importance. The British railways handled the military traffic during the war with marvellous efficiency. The mobilization of Great Britain's first army of 120,000 men, which was landed in France within a fortnight of the declaration of war, re- quired the movement of 1,500 trains, and 9,000 cars were required to carry the 60,000 horses of the force. Southamp- ton, the point of embarkation, was closed to all but military traffic. On one day, 104 trains carrying 25,000 troops, over 6,000 horses, and 1,000 tons of baggage were scheduled to reach Southampton at 12 minute intervals during the 16 hours from dawn to dark. If any train was as much as 12 36 GOVERNMENT CONTROL AND OPERATION OF INDUSTRY minutes late, it had to take a side track and wait until all Other trains had passed. During the whole embarkation of the expedition, not a single train failed to keep its place in the procession conveying troops from different points of the country. Sydney Brooks, writing in the North American Review in February, 1918, stated that the British railways had then, since the outbreak of the war, transported for purely military purposes, more than 13,000,000 persons, 2,000,000 horses and mules and some 25,000,000 tons of explosives and war material. Of the depletion of the staff by the war, he states that of 540,000 employes, 170,000 enlisted, whose places were partially filled by 60,000 women. The basis of the agreement under which the government would take over the railways from their owners had been de- cided on long before the war. The final terms were settled and announced in September, 1914, within a month after the rail- ways were taken over. Substantially these terms were that the companies owning the railways received a rental equal to their net earnings in the year preceding the war. They were not concerned, therefore, with the manner in which the government conducted the business, the way it distributed traffic among the different lines, or the rates it might charge. When the railways were first taken over by the government, the necessity chiefly in mind was the military necessity — the operation of troop trains, possible direct control of the lines in case of an invasion, etc. Under the exigencies which the war created, radical measures were taken which would have been scarcely possible had operation by private companies continued. For example, a great mileage of military rail- ways was built in France. Because of a scarcity of rails and rolling stock, many of these French roads were laid with rails taken from British roads. Again, the British railways had to move an enormous traf- fic with an operating staff depleted by military recruiting, with deficient rolling stock and a scanty coal supply. Under peace conditions it was exceedingly difficult for a railway RAILWAYS IN GREAT BRITAIN 37 company to secure consent from the Board of Trade for the abandonment of a single railway station. The necessities of war made necessary the abandonment of more than 500 coun- try stations. Entire railway lines in isolated districts were put out of business in order to send the rails to France and other theaters of war. Over 4,000 miles of military railway line were built by British railway men after the war began. Under peace conditions, also, the service the companies had to render was under rigid rule fixed by Act of Parliament and Board of Trade orders. The necessity of moving freight traffic in time of war made it necessary to cut down passen- ger traffic by drastic measures, and especially the running of nonessential trains. On the London & Northwestern system alone, 500 passenger trains were canceled and 44 stations were abandoned. Passenger fares were raised 50 per cent and many of the luxuries of travel were restricted, such as seat reservations and the use of sleeping and dining cars. , In the movement of, freight, also, drastic measures were put in force to reduce unnecessary traffic movements. Coal shipments were required to be made from the nearest produc- ing mining district to the territory to be supplied, and long distance shipments from a mine to a customer, who should draw his coal supply from mines in his own district, were prohibited. Severe penalties were laid down for delays by shippers in loading and unloading cars. These are typical of the radical measures which were adopted under government railway operation in Great Britain. They would have been -impossible with the railways under private company control. They would have been impossible for even the government in times of peace. In the presence of the war calamity, however, everyone recognized that the radical measures were adopted in the interest of national safety, and there was general acceptance without protest. More important than all the other reasons for government control, however, was the railway labor situation. In times of peace, entire paralysis of a nation's transportation facilities by a strike of its essential railway operatives is an overwhelm- 38 GOVERNMENT CONTROL AND OPERATION OF INDUSTRY ing public calamity. In time of war, when the nation is in peril, a great railway strike might easily cause the collapse and capture of its armies in the field. During the past quarter century there has been steady progress in the organization of railway operatives into unions and in the federation of these unions to enable them to take united action. In Great Britain, in years previous to the war, the government had several times been obliged to exert its influence to break a deadlock between the companies and the employes. Of course, direct operation of the railways by the government is no panacea against railway labor difficulties, as events in different countries have fully proved. Such recent events as the strike of the police force in London, in Cincinnati and Boston and of the fire fighting forces of Pitts- burg, in August, 1918, are illustrations of the fact that the employment of labor directly in the service of the community does not prevent it from making organized demands and back- ing them up by the strike. There is no doubt, on the other hand, that organized labor can be better dealt with by the government as an employer than by a private corporation. In dealing with labor matters nowadays, the attitude of the men themselves is all important, and their attitude toward the government — especially a democratic government, of which they realize themselves a part — is inevitably far different from their attitude toward a private employer. At the time the British Government took control of the railways, an agreement was in force between the companies and their employes fixing the wages and working conditions. This agreement had been made in 1911 as a result of concilia- tory efforts of the government officials of the Board of Trade, and was to expire November 30, 1914. It was obvious that a conflict over its readjustment under war conditions, or even the danger of a conflict, was to be avoided, if possible. The government in October, 1914, concluded an agreement with the Union leaders whereby the arrangement made in 1911 was to be continued. RAILWAYS IN GREAT BRITAIN 39 The conditions at that time were pecuUarly favorable for the making of such an agreement. The patriotic spirit of the nation was at fever heat. The railway employes, who have long favored the nationalizing of the railways, had heartily welcomed the taking over of the railways by the government. Besides this, unemployment was prevalent. The paralysis of business and industry at the outbreak of the war had not yet been broken. Under the existing circumstances, the railway employes doubtless felt they were being fairly treated by a continuance of their old wages, and they accepted the extra work and more onerous conditions of service resulting from the military traffic as part of the fortunes of war. Hardly anyone at that time foresaw the sweeping changes in prices and values that were close at hand. The British railway employe — and for that matter, the British employe in nearly every occupation — works for wages which are so far below the standards to which Americans are accustomed that the constant wonder is how they live. One answer to the problem is that where a low standard of wages prevails, most of the elements that make up the cost of living are likewise low. The margin of the British railway worker's wages over his cost of living, however, is inevitably much narrower than that of the American railway worker in a similar grade. When the war had been in progress a few months and the prices of food and fuel, shelter and clothing had started on their long journey upward, the railway employes demanded an increase in wages to correspond to the increased cost of living, setting the amount at 5s. per week. Into the conferences over this demand, the representatives of the companies entered. While their rental was secure for the period of the war, they looked forward to the time after the war when the railways would be turned back to them, and knew that it would be a hard matter to reduce wages after they had once been raised. The result of bargaining between the representatives of the men, the companies. ^nd the government was the grant to the men of a "war bonus," 40 GOVERNMENT CONTROL AND OPERATION OF INDUSTRY fixed at 3s. per week for those whose wages were 30s. or more, and 2s. per week for lower paid men. This meant an increase in the railway payrolls of nearly $20,000,000 per annum. This was but the beginning of a series of demands by the railway workers for higher wages to keep pace with rising prices, demands which were justified also by the increases in rates of wages paid to other war workers. In the fall of 1915, the "war bonus" which had been fixed in the spring at 3s. was increased to 5s. A year later there was widespread agita- tion for an increase in the war bonus and the date was fixed for a strike to enforce the demands. An agreement was finally concluded on September 20, 1916, by which employes over 18 years of age had their war bonus raised from 5s. to los., and those under 18 years were raised from 2s. to 5s. Six months later, in April, 1917, the war bonus was raised to 15s. per week. In the following summer a further readjustment was effected between the Union representatives and the railway offices, which altered rates for overtime and Sunday work and effected a further considerable increase in the payroll. At about the same time the locomotive engineers and fire- men made demands for the establishment of an 8 hour day, prompted thereto, there is hardly a doubt, by the success of a similar movement by locomotive engineers and firemen of the United States. This movement came the nearest to serious results of any railway labor difficulty since government control was estab- lished. It was difficult and even dangerous for the govern- ment to grant the demands of the men. While on its face a demand for a shorter day, it was really a move for a much higher wage scale. Obviously, with the force depleted by enlistment in the army, and with the enormous traffic to be moved, it was out of the question to reduce the working day to eight hours. The adoption of the 8 hour day would have meant an enormous increase in payments for overtime work. Heavy as this burden would have been, it might have been carried had that been all; but the government, had it conceded RAILWAYS IN GREAT BRITAIN 4I this demand, would have established a precedent. If the 35,000 locomotive engineers and firemen were granted an 8 hour day, the 400,000 other railway employes would have been prompt to demand a similar ruling in their behalf and the demand could not have beeri refused. Moreover, with an 8 hour day for railway workers, an 8 hour day for the millions of munition workers, coal miners, ship builders, and so on, all through the unionized trades would have been well- nigh inevitable. A nation at war must, for its own safety, conserve its financial strength as carefully as it does its military strength. It was, therefore, highly dangerous for the government to grant the demands of the locomotive engineers and firemen. The president of the Board of Trade, Sir Albert Stanley, answered the 'demands with the statement that the 8 hour day was an impossibility under war conditions. Pressure was brought to bear upon the men from every source, including the influence of patriotic leaders of the Labour party, who em- phasized the fact that the demand was contrary to the "truce" entered into between the government and the labor leaders at the outbreak of the war. Conditions became so acute that the delegates of the engineers' unions announced that a strike would be ordered unless these demands were granted within 24 hours. The government replied with a proclama- tion declaring a strike illegal until arbitration by the Minister of Labor had been tried. Settlement was finally effected, and the strike was declared off ; but Sir Albert Stanley pledged as one of the conditions of settlement that during the period of government control of the railways after the war, an oppor- tunity would be afforded for appeals from the men for a shorter work day, which would have immediate and sympa- thetic attention. The conditions during the fourteen months intervening between the conclusion of the armistice and the signing of the peace treaty have been, in some respects, more trying even than during the war. Prices of the necessities of life have been higher than during the war, and the patriotic fever that 42 GOVERNMENT CONTROL AND OPERATION OF INDUSTRY burned high while the issue of the war was doubtful has been succeeded by the inevitable reaction. Labor conditions have been tense in all industries: and the demands of railway labor culminated in a general strike in the summer of 1919 of sub- stantially all railway employes. A notable feature of the strike was the extent to which the public rallied to the support of the government and showed an understanding of the fact that the government was rep- resenting the public welfare in its refusal to concede the demands of the employes. The strike lasted for a week. The interruption to business and industry was, of course, enormous. On the other hand, England is a small country. Distances are short. All the army motor trucks were at once put into service to replace as far as possible the railway in distributing perishable necessities like milk and meat. The railway workers did not expect the firm resistance which the government displayed, and at the end of a week consented to a compromise and returned to work. Whether the railways will be eventually turned back to the companies or permanently retained by the government is apparently not finally decided ; but all the probabilities favor the latter course. A great body of popular sentiment favors nationalization ; and the owners of railway securities are fully aware that the change in conditions resulting from the war makes it practically impossible to restore the labor conditions which prevailed before the war and which enabled the British railways to remain solvent under their enormously heavy capitalization. Under those conditions the owners may well prefer to sell out to the government on any reasonable terms rather than take back their property and attempt to earn profits from its operation. CHAPTER V Railways in the United States The government of the United States did not assume con- trol of the railways until nine months after the declaration of war. If plans for such control had ever been made by the military or other government authorities, it is unknown to the public. It is safe to say that in this, as in most other planning with relation to the war, the United States was wholly unprepared. Like many other matters in connection with the United States' procedure with reference to the war, the assumption of control over the railways came when necessity dictated, and not as the result of a policy logically planned in advance. When the United States entered the war, there were very few, probably, who did not believe that the railway companies would be able to satisfactorily carry on their business during the war without interference from the government. Through- out the business community, indeed, the sentiment was strongly adverse to government control. And yet a few months earlier, before war was declared, the federal government had interfered in the affairs of the railways in a way that had great influence undoubtedly in preparing men's minds for the taking over of the railways by the gov- ernment, which occurred at the close of 191 7. The Adamson Law In the early summer of 1916, unions representing all the railway trainmen of the United States presented demands on the railways for the establishment of an 8 hour working day in train service. Probably the largest scale collective bar- gaining ever undertaken in the world was that which was carried on at the long daily sessions of the heads of the train- men's unions with the committee of railway managing officers 43 44 GOVERNMENT CONTROL AND OPERATION OF INDUSTRY held day after day on the stage of the Engineering Societies Building in New York City, while the auditorium was filled with delegates from the different local branches of the unions, keeping close tab on their representatives. When a deadlock came at the end of long conferences, the scene was shifted to Washington, where the government at both ends of Pennsylvania Avenue surrendered to the de- mands of the trainmen and enacted an 8 hour law at their dictation, rather than have the country's traffic paralyzed by a nationwide strike. It was the most threatening labor difficulty which the United States had ever faced; and the fact that it was ter- minated by direct action by the federal government awakened men to a new realization of the inherent dangers in the railway labor situation and to the importance that the federal govern- ment, in the tense international relations then existing, should be in a position where it could take prompt and decisive action. The Railway Companies' Finances No less important than the railway labor situation was the situation of railway finances. The rates of fare and freight which the railways could charge were fixed by law and custom and the rulings of State and federal regulating commissions. By the middle of 191 5 the value of the dollar, as measured by its purchasing power, began a rapid decrease. That meant that the railways had to pay more for all their materials and had to raise employes' wages because of the increased cost of living; but the commodity the railways produced (transporta- tion) had to be sold at the old price. The only thing that saved the railways from a rapid descent to bankruptcy was the very heavy traffic which the business prosperity of 191 5 and 1 91 6 furnished, and which partially offset the increase in operating expenses. By the end of 1916, however, the traffic had grown on many roads to the congestion point, so that the cost of handling it was increasing faster than the revenues. The railway companies should have expended large amounts RAILWAYS IN THE UNITED STATES 45 of money from 1913 to 1917 on the enlargement of terminals; on the purchase of cars and locomotives, on repair shops and on improvements in a permanent way; but during these years of steadily increasing traffic the railways were spending barely enough on improvements to keep the wheels moving. They could not do it out of surplus earnings for the surplus was too small, and with expenses growing faster than earnings, their credit did not permit borrowing on a large scale. It should be recorded, of course, that the railways had repeatedly appealed to the Interstate Commerce Commission for permission to advance their rates. There was long delay in acting on the appeal and then came refusal, followed later by a partial consent. The experience of the years from 1914 to 191 8, in fact, conclusively proves that long delays in mak- ing changes in rates on railways or other public utilities under present commission control may cause grave harm to the public interests. While it is true, therefore, that the railways lacked the capacity to accommodate the heavy traffic that came upon them in the fall and winter of 191 7, it was not because of incompetence in management, but because the companies had been financially unable to do the work they well knew should have been done. Why Consolidated Operation Was Necessary It was obvious to experienced railway officers, as soon as the United States entered the war, that the railways ought to be operated for the war emergency as one system. Even the brief experience in the movement of troops and supplies to the Mexican border, a short time previous, had demonstrated this. For years progressive officers of the railways had labored diligently, through such organizations as the American Rail- way Association and the Master Car Builders' Association, to bring about such voluntary cooperation between the individ- ual companies as would result in general benefit to all the railways and to the public. A vast amount of good had been 46 GOVERNMENT CONTROL AND OPERATION OF INDUSTRY done in this way; but it was limited by the lack of legal authority. Companies which found it more profitable to dis- regard the rules of the associations than to obey them often neutralized the work done. The railways had, in fact, gone just as far in cooperating with each other as the law against combinations permitted. Well understanding the need of complete cooperation to meet the war emergency, they sought to effect it by the only method the law allowed. A general committee made up of some of the ablest railway officers in America was created, and it was announced that this committee would direct the operations of all American railways. There was no possible way, however, to clothe the com- mittee with the legal authority necessary to make its control effectual. Not that there was any general disposition to go contrary to the committee's directions. The railway officers were patriotically anxious, to work for the national welfare. It was easy to see, however, the grave difficulties ahead. It might, for example, be desirable under the war emergency so to operate the railways that the business of Company A would suffer very seriously, while the business of Company B would be enhanced. Would the president of Company A be legally justified in so operating his road as to sacrifice the interests of its owners, the stockholders, simply because a body with no legal authority (the National Railway Com- mittee) requested it? This is but a single illustration of the many legal and practi- cal difficulties in operating the railways of the country as a single system, so long as the individual companies continued in control. Even if there had been no great financial difficulty looming up ahead and no wholesale demands from railway labor, the establishment of complete government control over the railways was a necessary step if the railways were to be operated as a single system ; and it was in fact recommended by the Interstate Commerce Commission, after the opera,tion by private companies under war conditions had had a thorough trial. RAILWAYS IN THE UNITED STATES 47 Control by a Director General President Wilson in his proclamation announcing the taking over of the railways by the government, placed the supreme authority in the hands of Secretary of the Treasury McAdoo, as Director General. In Great Britain the government authority over the railways is centered in the president of the Board of Trade, which corresponds roughly to our Interstate Commerce Commission. This officer, however, interfered little with the detail operations of the railways; in fact the British railways have been run about as if all the owning companies had been consolidated into one, with the general managers of all the different companies acting as a Board of Directors, which board is responsive to every demand of the military authorities. Government control in the United States has been con- ducted in a different way. Mr. McAdoo, in the position of Director General, did not delegate his powers to anyone, but became the actual chief executive and absolute authority over the entire railway business of the country. One would search far to find a case where one man has exercised such a measure of power over so vast an aggregation of capital. The railways of the United States, over which he held sway, operate over nearly 400,000 miles of tracks and control nearly one-third of the entire railway mileage of the world. Mr. McAdoo resigned after a year's service, and President Wilson appointed as his successor Walker D. Hines, former general counsel of the Atchison, Topeka & Santa Fe, and generally recognized as one of the ablest of railway officers. Public Demands Return to Private Ownership After two years' experience in government control, there is a practically unanimous demand on the part of the business community that the railways be returned to the companies. The general verdict is strongly condemnatory of the govern- ment operation. It is even declared that the government ought not to have taken over the railways at all. 48 GOVERNMENT CONTROL AND OPERATION OF INDUSTRY This is the public verdict as voiced by almost the entire public press. It expresses the sentiment of business and professional men and of the leaders of public thought. Organized labor, on the other hand, and that large body of voters which protests against the established order of things, has exerted all its influence to have the period of government control extended. It has declared its belief that there has been a conspiracy of those in authority to operate the roads badly so as to make government ownership and control un- popular and ensure the return of the railways to the private companies. Has Government Operation of Railways Been Fairly Tried? Both of these opposing parties believe that we have actually had du^-ing the past two years a practical test of government operation of railways, and that it has worked badly. The fact is, however, that the railway operations during the past two years furnish no test whatever of government operation as a permanent policy. The further fact is that the opera- tion of railways during the past two years has been on the whole remarkably successful, and not at all the dismal failure that the public so firmly believes. These statements will, of course, be received with incre- dulity. It is necessary, therefore, to state fully the ground on which they are based. The Decline in Railway Net Earnings The ordinary and proper test of the successful operation of a railway is the financial test. The railway manager who increases net earnings is held to have proved his ability. The manager under whom earnings fall off is discharged as incompetent. The legislation under which the control of the railways was taken over provided that the government should pay an annual rental to the railway companies equal to the average net earnings for the three years preceding federal control. Six months after government control was established, a RAILWAYS IN THE UNITED STATES 49 horizontal increase of rates was ordered by Director General McAdoo. Freight rates were raised 25 per cent and passenger rates were increased to 3 cents per mile. In addition to this, an internal revenue tax was placed on both passenger and freight charges. With the establishment of federal control and the operation of the railways as a consolidated system, numerous economies became possible through the elimination of expense due to competition of the different companies with each other. Great publicity was given to these savings, effected by the Administration. Notwithstanding these economies, the large increase in rates and the record breaking volume of traffic, the net earn- ings of the railways have fallen far below the amount necessary to pay the standard return to the companies. The deficit for the two years will probably exceed half a billion dollars, and in addition, the physical condition of the railways has deteri- orated materially. The Increase in Railway Wages The chief reason why railway net earnings have fallen off is the great increase in railway wages. The public believes that the railway employe is a profiteer, who is receiving higher wages than are warranted and has been unduly favored by the federal administration in its grant of increased wages and better working conditions. In order to determine the truth concerning this, there are here presented tables and diagrams comparing the increase in railway wages and the increase in prices of commodities. The changes in prices and in railway wages are shown from 1903 to the present time, the average prices and wages for the three years' period — 1903 to 1905 — being taken as 100 per cent. A comparison is also made of the prices and wages of 19 13 and the increase which has taken place since. The figures for railway wages are taken from the official reports of the Interstate Commerce Commission and the federal Railway 50 GOVERNMENT CONTROL AND OPERATION OF INDUSTRY Administration. The figures for wholesale prices are the index numbers published by R. G. Dun & Co. It may be remarked here that the United States Bureau of Labor index figures show a materially greater increase of prices in 191 7, 1918 and 1919 than the Dun figures. It will be seen from these tables and diagrams that in 191 6 and 1 91 7 the railway employes were hard hit by the increase in the cost of living and that the increase of wages which the TABLE I AVERAGE ANNUAL EARNINGS ', OF ALL RAILWAY EMPLOYEES 1903' TO 1919' Year ending Total amount Total number Average earnings June 30 paid all railway of railway per employe employes employes Per year Per month (1 = 1000) (1 = 1000) 1903 $775,942 1.312 $591 $49 25 1904 817,598 1,296 631 52-58 1905 839,945 1,382 609 50.75 1906 932,400 1.521 6.13 51-25 1907 1,072,386 1,672 641 53-41 1908 1.935,438 1.436 721 60.08 1909 988,324 1.503 659 54-91 1910 1,143.725 1,699 673 56.08 1911 1,208,466 1,670 724 60.33 1912 1.252,347 1,716 737 61.41 1943 1.373.830 1,815 763 63.60 1914 1.337,344 1,640 815 67.91 1915 1,134,666 1,366 831 69.25 1916 1,366,101 1.599 854 71.16 1916 Yr. ending 1,468,576 1.647 892 74-33 Dec. 31 1917 1.739,482 1.733 1,004 83.66 1918 2,581,885 1,821 1.418 118.16 7 months ending July 30 1919 1,513.227 1.852 1,401 116.73 In the returns for 1906 the pay of employes of the Southern Pacific Co. was not reported and in place of the actual figures there has been used an average of the Southern Pacific payments for 1905 and 1907. A similar correction is used for the payments by the Chicago, Milwaukee and St. Paul in 1903. For the year 1908 and following, the returns of switching and terminal com- panies are not included. For the year 1913 the returns cover Class I and Class II companies only. For the year 1914 and following the returns cover Class I roads only. Figures for the years 1903 to 1914 are taken from the Statistical Reports of the Interstate Commerce Commission for the year ending June 30, 1914. Figures for the years 1916 and 1917 are from the published reports of the commission. Those for 1918 and 1919 are obtained from the federal railway administration. ' Statistical reports of the Interstate Commerce Commission. RAILWAYS IN THE UNITED STATES 51 federal Administration granted them in 191 8 and 191 9 was not sufficient to offset the increase in the cost of goods. Had the railways continued under private control, instead TABLE II COMPARISON OF INCREASE OF COST OF LIVING AS SHOWN BY INDEX NUMBERS FOR WHOLESALE PRICES AND INCREASE IN RAILWAY WAGES 1903 TO 1919 Year Dun's Index No. Aver, yearly of Wholesale earnings of all Prices railway Aver, for 12 Mos. employes Percentage of increase over aver, for the 3 yrs, 1903 to 1905 Wholesale Railway prices wages Increase Per cent 0.5 50 18.2 8.0 10.3 18.3 20.8 25- 1 33-6 36.2 40.0 64.6 132.4 129.6 COMPARISON OF INCREASE OF COST OF LIVING AS SHOWN BY DUN'S INDEX NUMBERS FOR WHOLESALE PRICES AND OF INCREASE IN RAILWAY WAGES OVER 1913 1903 S99-3 $591 . i -~ 1904 99-7 631 1905 100.6 609 1906 106.3 613 6.4 1907 III .6 641 II. 7 1908 109.8 721 9 9 1909 117.8 659 7 9 I9IO 118. 8 673 18.9 191 1 116. 8 724 16.9 J912 1243 737 24.4 I9I3 120.9 763 21.0 I9I4 122.2 815 22.3 I9I5 126.4 831 26.5 I9I6 148.8 854 48.9 I9I7 204.1 1,004 104.2 I9I8 229.2 1,418 129.3 1919 (6 mos.) 224.4 1,401 124-5 1919 (12 mos.) 230.8 TABLE III 130.9 Year Dun's Index Number of Wholesale Prices Railway wages Aver, for Increase ove( 1913 Aver, for Increase over 1913 12 mos. Actual Percent 1913 fl20.9 1914 122.2 1.3 1 1915 126.4 5.5 4 1916 148.8 27.9 23 1917 204.1 83.2 68 1918 229.2 108.3 • 89 1919 (7 mos.) 224.2 103.3 85 1919 (12 mos.) 230.8 109.9 90 year ending June 30 $763 815 831 854 i,004» 1,418' 1,401'' Actual Per cent $52 68 91 241* 655 638. 6.8 9.0 12.0 31.6 85.8 83.6 'Year ending Dec. 31. * Figures cover period from Jan. to July inclusive. 52 GOVERNMENT CONTROL AND OPERATION OF INDUSTRY '"" 1 - SO / / JIO \\ =