^c %%^ Freight Rates and Railway Conditions ADDRESSES AND CORRESPONDENCE WILLIAM C. B^ROWN President New York Central Lines 1908-1909 .- ..'m -^> CONTENTS Illinois Manufacturers' Association, Address . . i May 15, 1908. Michigan Manufacturers' Association, Address . 15 New York Manufacturers' Association, Corre- spondence 42 Leather Belting Manufacturers' Association, Cor- respondence 68 B. D. Rising Paper Co., Correspondence . . 99 Illinois Manufacturers' Association, Address . . 130 December 8, 1908. Albany Chamber of Commerce, Address . . . 145 Davenport Commercial Club, Address . . . . 162 Lincoln Commercial Club, Address 189 Freight Rate Primer 208 .1 V.J INDEX Albany, N. Y., Chamber of Commerce, Address Jan. 7, i^op. 145 Battleships vs. Experimental Farms 182, 203 Bond Issues, Penn., C. I. & S. and B. & A. R. Rs 14 Bureau of Labor, Bulletin No. 69 8, 26 Burlington & Missouri River Railroad' in Nebraska 189 Capitalization of Railroads : Europe 19 France 19 Interstate Commerce Commission, report on 19 New York Central Lines 18, 127 Roosevelt, Indianapolis speech 20, 128,209 United Kingdom 19 United States 19 Capital required by railroads.. IS7, 158, 184 Car's and locomotives purchased by railroads 31, 51, 78 Classification of commodities, changes in 141, 153, 177 Comparison of railroad employes and standing armies 132, ISO, 173 Consumer pays all freight charges 52, 79, 83, 121 Cost of transporting farm products analyzed by Depart- ment of Agriculture ig8 Cotton dress goods, freight rates on 6s Cotton exported and freight charges ." 217 Davenport Commercial Club, address January 14, 1909.... 162 Detroit, A. C. & F. Co., plant 32 Distribution of railroad earnings 132, 150, 173 Dividends passed and reduced by railroads So, 77 Earnings and expenses, last half of 1907.. 29, 48, 76, 94, 119, 229 A., t. & S. F 30, 49 Erie R.R 29, 49 Louisville & Nashville R.R 30, 49 Missouri Pacific R.R 30> 49 N. Y. C. & H. R. R.R 30, so N. Y., N. H. & H. R. R.R , 30, 49 Pennsylvania R.R 30, 49 3 ' St. Louis & San Francisco R.R 3°. 49 Southern Pacific R.R 30, 49 Union Pacific R.R 29, 49 Elkhart Shops, Lake Shore R.R., Belting used 93, 203 Employer's Liability Act 6, 23, 44, TZ, 116 Employes, number on railroads 18, 131 Equipment and material, increased cost 95 Erie Canal, construction of 148 Expenditures for improvements of New York Central. ... 51, 78 Farleigh, Judge David W., on advance in prices 136 Farms in Iowa, present value 169 Farm products, cost of transporting analyzed by Depart- ment of Agriculture 198 Farms, yield of, in U. S. and Europe 156, 181 Freight charges, what one cent will pay 103 Freight rate Primer 208 Freight rates on: Blue chip steel 33 Butter ID, 36, SS, 83 Cloth 80 Cotton piece goods 81 Cream separator 56, 84 Dining-room suite 35, 215 Dressed beef 12, 36, 56, 83, 219 ^ggs 10, 36, 55, 83, 220 Flour 12, 36, 55, 83, 218 Gloves 53 'Harvester 12, ZT, S6, 83, 212 Hats II, 82 Ladies' Cloaks 34 Knit Goods 54, 80 Men's Clothing 11, 80, 216 Mowers '56, 84 Paper 120 Poultry 10, 36, 55, 83 Refrigerator 35, 54, 83, 214 Shoes and Boots 1 1^ 52, 81 Steel Range 35, S3, 213 Underwear gj Freight rates on farm products from Nebraska to sea- board, reduction since 1881 197 Freight rates on New York Central in 1885 and 1907 149 Freight rates, reductions during years 1890 to 1905.... 7, 8, 27 Freight rates, changes in classification 141, 153, 177 Freight traffic, tonnage handled 18 General increase in freight rates not decided upon 94, 104 Gold production, increase in 13S-138 Growth of United States 154 Hazard in railroad business 9 High cost of living 62 Hoile, James T., letter of protest 40 Illinois M'f'rs Assoc, Address May 15, 1908 i Address Dec. 8, 1908 130 Increase in iprices of commodities 43 Increase in rates sought to offset increased costs 126 Increase in rates or reduction in wages 8, 25, 123 Increase in wages in 15 years 43 Interstate Commerce Commission on capitalization of railroads ig Iowa: Early conditions 169, 171 Early travel , 165 Iowa Railroad Commissioners, fourth annual report on reductions in freight charges 19S, 196 Kansas crop failure, action of railroads 22 , Knapp, Hon. Martin A., on capitalization of railroads 226 Knapp, Hon. Martin A., mediation averted strike in 1907 S> 23. 44, TZ Land Grants : C, B. & Q. R.R 168 Illinois Central Railroad 167 Leather Belting Manufacturers' Association, Protest of 68 Leather Belting, Prices and freight rates 85, 86 Legislation restricting hours of labor 6, 23, 44, 116 Letter from Clarinda Poultry, Butter and Egg Co 3 Lincoln Commercial Club, Address May 24, 1909 189 Living expenses 222 Mail pay reduced 6, 23, 44, 73, 116 Mail compensation reduced on land grant railroads i68 Manufacturers' Association of New York, reply to 42 Material, increased cost of : Angle bars 25, 43, 71, 114, 139, 176 Barbed wire 25, 43, 71, 114, 139, 176 Bar iron 25, 43, 71, 114, 139, 176 Box cars 26, 43, 71, 114, 139, 176 Bridge timbers 26, 43, 71, 114, I39. 176 Car axles 26, 43, 71, 114, 139, 176 Car siding 26, 43, 71, 114 Cast-iron car wheels 25, 43, 71, 114, 139, 176 Cast-iron pipe 25, 43, 71, 114, 139, 176 Cross ties 26, 43, 71, 114, 139, 176 Cut nails 25, 43, 71, 1 14 Grey-iron castings 25, 43, 71, 114, 139, 176 Fuel 1 139, 176 Locomotives 26, 43, 71, 114, 139, 176 Locomotive steel forgings 26, 43, 71, 114, 139, 176 Malleable-iron castings 25, 43, 71, 114 Stationery, paper 139, 176 Steel rails 25, 43, 71, 114, 139, 176 Track spikes 25, 43, 71, 114, 139, 176 Wire nails 25, 43, 71, 114 Material, increased cost of, in 1907 over 1897 152 Mediation averted strike in 1907 5, 23, 44, y^, Michigan Central Railroad chartered and opened for traffic 16 Michigan's First Railroad 16 Michigan, Taxes on railroads 26 Michigan Manufacturers' Association Address, June 22, 1908. 15 Mohawk and Hudson River Railroad 145 Mutual interest of railroads and shippers 225 National Prosperity Association 5, 21, 231 Nebraska Crop failure, action of railroads ^. . 22 Nebraska, reduction in charges on farm products to sea- board since 1881 igg Nebraska, yield of farm products 201, 202 New York Central Lines, employes, income and wages paid.. 149 New York Central Lines : Capitalization 18, 127 6 Cars and Locomotives purchased 31, 51, 78 Cost of material and equipment in 1907 over 1897 95 Earnings and expenditures, last half of 1907 30, So Expenditures for improvements 51, 78 Paid Manufacturers of Detroit 31 Paper purchased 120 Permanent improvements paid out of earnings 128 Operating expenses increased more than earnings in 1907. ... 50 Parker, Professor E. W., on gold production 137 Payments by New York Central Lines to Detroit Industries. . 31 Pay Rolls of railroads and increased wages S Paper, freight rates on lOS Paper purchased by New York Central Lines 120 Per cent of freight to selling price 102 Pioneer life in Iowa 163-165 Present freight rates too low under normal conditions 113 Prices of commodities, wholesale, increased 1890 to 1905.. 8, 27 Prices, increase of 1897-1907 : Coal 134, 151, I7S Cotton and cotton goods 134, ISI, I75 Farm products 134, 151, I7S Forest products • 134, 151, 175 Prices of leather belting, 1899-1907 - 92 Prices of paper and amount bought 105, 106 Prices of public land granted to railroads 166, 168 Production of agricultural and mineral products IS4, I5S, 179, 180 Purchase of belting by New York Central Lines 92 Kails and ties purchased 51, 78 Railroad employes compared with standing armies. 132, 150, 173 Railroad earnings, distribution of 132, 150, "173 Railroad rates : Changes in classification 141, 153, 177 Declined since 1882 25 Reduction during years 1890-190S 7, 8, 27 Railroads stopped purchasing, effect of S Railway conditions. Address before Michigan Mfrs.' Assoc... 15 Rates in United States and Europe 223, 224 Rates, New York and Chicago, 1877-1908 57 7 Rate on grain and flour, 1877-1908 S8 Report on extension of B. & M. R.R., 1866 172 Return on Capital iS9. 186 Rising Paper Co., protest and replies. 99, loi, 109, 113, 125, 126 Roosevelt, Indianapolis Speech, capitalization of rail- roads 20, 128, 209 Savings in cost of operation at prices and wages of 1897 139, 152, 153, 176, 177. 178 Taxes on- railroad property increased 8, 26, 43, 72, 115 Texas, railroad facilities 185- Ton-mile rate declined since 1882 25 Transportation sixty-six years ago 2 Wages : Brakemen 38 Conductors 38 Engineers 38 Sectionmen : 38 Wages high and rates low in United States 210 Wages increased in 1907 115 Wages in United States and Europe 223, 224 Wages not too high 62 Washington, George, letter to Benjamin Harrison 147 Yearly expenditure of family and freight charges 106, 222 Vield of farms in United States and Europe • Belgium 156, 181, 200 England 156, 181, 200 France 156, 181, 200 Germany 156, 181, 200 Netherlands 156, 181, 200 United States , 156, 181, 200 REMARKS OF WILLIAM C. BROWN SENIOR VICE-PBESIDENT NEW YORK CENTRAL LINES AT CONFERENCE OF SHIPPERS AND COMMERCIAL ORGANIZATIONS CONVENED BY ILLINOIS MANUFACTDREBS' ASSOCIATION FOB THE PURPOSE OF OPPOSING ANY INCREASE IN FREIGHT RATES CHICAGO, ILL., MAY 16, 1908 Mr. President and Gentlemen: I have addressed the Illinois Manufacturers' Association when those into whose faces I gazed seemed to regard me with a little more friendly look than I see today (laughter); and I want to precede what I shall say by thanking the President and the gentlemen of the Illinois Manufacturers' Association for this opportunity of being heard. My home and place of business, so far as my railroad connection is concerned, happens to be in the City of New York, but I have today been reminded very forcibly of the Page One fact that I am essentially a Western man. Sixty-six years ago today my father and mother landed in Chicago after a journey of three weeks by canal boat and lake propeller from Utica, N. Y. Sixty-six years ago day after tomorrow my father and mother and two little boys took a lumber wagon and started for what was then the territory of Iowa. There was only one tier of counties surveyed by the United States Government at that time. My father helped build the territory of Iowa into a state and lived in the state until his death, in his eighty-ninth year, in 1901. I have been engaged in railroad service more than 35 years. I know something about railroads, their cost of operation, their net earnings. I do not today own a single share of railroad stock or bonds. Every dollar I have been able to accumulate is invested in Iowa, Missouri and Illinois, in farms, in manufacturing concerns, in mercantile business and in banking. I knew nothing of this meeting until, I think, day before yesterday, or the day before that, when I received a letter from Mr. W. T. S. White, who is president of one of the largest butter, poultry and egg concerns in the West, with general headquarters here in Chicago, but with plants in Lincoln, Nebraska; Clarinda, Iowa; Keokuk, Iowa, and in Clinton, Iowa, and I perhaps cannot make myself clearer than by reading, with your permission, Mr. White's letter to me and my reply thereto. Mr. White wrote me under date of May 9th, and he wrote me because I was one of the stockholders of the concern, which, about twelve years ago, started a little plant at Clarinda, Iowa, with a capital of $30,000, but which, in the year 1907, did seven and three quarter millions of dollars worth of business, and there has not been a year thus far from the date of the incorporation of that plant that the business has not been very highly prosperous and profitable. Page Two LETTER FROM MR. WHITE, CONCERNING FREIGHT RATES ON POULTRY, BUTTER AND EGGS. CHICAGO OFFICE OF The S. P. Pond Company, Keokuk, la. Iowa Cold Storage Company, Clinton, la. Clarinda Poultry, Butter and Egg Co., Clarinda, la. Chicago, May 9, 1908 Mr. W. C. Brown, New York City. My Dear Mr. Brown: We are somewhat annoyed and also very anx- ious with reference. to recent public report that the railroads conteraplate an advance in freight rates of 10 per cent on a number of items, including our own lines. We have felt for a long time that the freight rate on poultry, butter and eggs was extremely high in comparing these rates with rates on other perishable products of simi- lar character. It is also felt that these rates, having been in effect for twenty-five or thirty years, were based on conditions that have changed considerably in that time. Our stock is prepared differently and assembled along, en- tirely different lines than years ago, all of which appears to us as being in favor of the transportation companies, in that the stock is shipped in good round lots, well prepared, and, as a rule, when shipped by responsible shippers, goes through without much chance of a loss to the transportation company so far as condition is concerned. We feel that we should enter a vigorous protest against advance in rates on our lines of Page Three produce, especially in carloads'; and I have felt it proper and fitting that I should write you on the subject, and trust that you will have some suggestion to offer and will let me hear from you in the matter. Thanking you in advance for any attention you may give the subject, I remain. Yours truly, (Signed) W. T. S. White. REPLY OF MR. BROWN. My reply to this letter was as follows: New York, May 13, 1908. Mr. W. T. S. White, President, Clarinda Poultry, Butter and Egg Co., 34 South Clark Street, Chicago, Illinois. My Dear Mr. White: I am in receipt of your letter of the 9th, in regard to a suggested increase in freight rates that is being considered by the railroads, and having special reference to a ten per cent increase in rates on poultry, butter and eggs, against which you feel you should enter a vigorous protest. I do not think any definite per cent of increase has been considered, much less determined upon. That some increase must be made is, in my opinion, inevitable. I have just been reading with a good deal of interest a circular issued by the National Prosperity Association of St. Louis, and quote the following, which I believe every business man in the country who gives the matter careful, unprejudiced consideration will endorse: Page Four "Our prosperity came with the prosperity of the railroads; it declined when adversity struck the railroads. We do not believe we can have the full measure of prosperity again until the railroads are prosperous." (/ take it, gentlemen, that this simply means a reiteration of the fact patent to all, that your prosperity and the prosperity of the railroads is inseparably interwoven, that the railroads cannot do anything to hurt you without hurting themselves, nor can you do anything to injure the railroads without seriously injuring yourselves. One of the prime factors of the present depression is the fctct that the railroads have stopped buying things. The lines that I represent, comprising about 12,500 miles of railroad in tfie most populous, the m,ost prosperous section of t/ie United States, for the first three months of 1908, the gross earnings being larger than they ever were in the first three months of any year in tfie history of those railroads, with the single exception of 1907, have barely earned interest on their bonds. ) ' In the last eighteen months, by reason of increased wages, enforced by the threat of a general strike, the pay rolls of the railroads of the United States have been increased ap- proximately $100,000,000 per annum. {Now, there is hardly a man in this room that is not thoroughly conversant with the circum,stances under which that increase was made. Captain Smith will remember. President Upham will remember, when Chairman Knapp of the Inter- state Commerce Commission, and Labor Commissioner Neal were sent here by President Roosevelt in the early months of 1907, and at the end of ten days of mediation between the rail- roads and their employes, this increase was agreed to, and it was agreed to because it was absolutely necessary to avert a strifie thai would have cost the business interests of the United States one hundred times the $100 ,000 ,000 involved in the increase.) Page Five Becoming effective in the early months of the present year, legislation restricting the hours of labor of trainmen, enginemen, operators, signalmen, etc., has added approxi- mately $25,000,000 annually to this amount. By legislation passed by the last Congress and recent orders of the Postmaster General, reducing compensa- tion paid the railroads for handling United States mail, something like $10,500,000 per annum has been taken from the revenues of the railroads; and, wiithin the last thirty days, the "Employers' Liability Act," which applies only to transportation companies, has been passed. This removes the last vestige of protection against personal injury claims on the part of employes that was secured to the railroads by the Common Law, and makes the railroads liable to employes in cases of accident to an employe, even though the employe's carelessness was a contributing factor, and will add enor- mously to the expenses of the roads. The earnest plea made by the advocates of this measure in behalf of the vast army of men employed in railway service appeals to no class of citizens more st:^ongly than to the managers of our great systems of railways, ninety-nine per cent of whom have come up from the ranks and know by experience of the unavoidable dangers of the service. Under the operation of this law, however, the loss hitherto placed by the Common Law upon the individual — the employe — is transferred to the employer — ^the railroad — and it must have been understood that the employer could not, under present conditions, bear the additional burden. • That it was not the intent of the framers of the measure that the railroads should assume this burden is indicated by the following quotation from the report on the measure submitted by Senator Dolliver, from the Committee on Education and Labor, when it was under consideration by the Senate: Page Six "It is no part of the purpose of this legisla- tion to oppress or add burdens to the business enterprises of the country, but rather to pro- mote the welfare of both employer and employe by adjusting the losses and injuries insepar- able from industry and commerce, to the strength of those who in the nature of the case ought to share the burden." Again, in speaking of the risk and danger involved, the report says: "Yet, somebody must assume these risks, and the tendency throughout the world, in those countries where the industrial life of the community is thoroughly organized, has been to modify the doctrine of negligence so as to allow the burden of accident and misfortune to fall, not upon a single helpless family, but upon the business in which the workman is engaged; that is, upon the whole community." The only possible manner in 'which this burden can be placed where it belongs, and where the framers of the bill intended it should rest — "Upon the whole community" — is by an increase in rates by the carriers commensurate with the new burden imposed. For the Government to impose this additional expense upon the transportation interests without permitting such increase in rates would mean bankruptcy for many railroads and great injustice for all. The railroad rates in the United States have for the last thirty years shown almost a continuous and uniform reduc- tion. The average rate per ton per mile on all classes of commodities shows a reduction of between 38 and 40 per cent since 1882; and, at the same time, the average wages paid to railroad employes, and the average cost of almost every class of material that railroads buy, has increased from 50 to 100 Page Seven per cent. Taxes have increased from an average of $179 to an average of $33,5 per mile of road, or 86 per cent; while the cost of right of way and additional property necessary for increased, facilities in many instances is from 500 to 1000 per cent more than it was at that time. Bulletin No. 69 of the Bureau of Labor, issued in March, 1907, which contains a record of wholesale prices of all commodities from 1890 to 1905, shows that during the ten years ending in 1905, the following increases in price occurred: Farm products 24 . 2 per cent. Food, etc 8.7 " " Cloths and clothing 12 " " Fuel and lighting 28.8 " " Metal and implements 22 . 5 " " Lumber and building material 27.7 " " Drugs and chemicals 9.1 " " House furnishing goods : ... 9. 1 " " Miscellaneous 12.8 " " All commodities 15.9 " " During substantially the same period, the average freight rate received by the railroads for handling the above com- modities shows a reduction from 941-1000 of one cent per ton per mile to 766-1000 of one cent per ton per mile; or over 18 per cent. The diverging lines of cost and compensation in railroad operation, which for years have been steadily approaching each other, are now separated by so narrow a margin that in order to pay fixed charges, taxes and operating expenses, with even a very moderate return to shareholders, there must either be a moderate increase in freight rates or a very sub- stantial reduction in the wages of railroad employes. I do not know that the basis of wages paid railroad men is too high — the conditions of service are becoming more and more exacting every year, and there is no other business in Page Eight the world that compares with it in point of hazard, both for employe and employer. In the case of the former, risk of life and limb; in the case of the latter, danger of almost unlimited damages for accidents which, in spite of the most complete and comprehensive precautions, seem unavoidable. With the sympathy and co-operation of the business interests of the country, a moderate increase in freight rates can be made effective without the slightest injury to any department of business activity. The reduction in wages of railroad employes could only become effective at the end of a conflict with organized labor, universal, prolonged, and which would cost the business interests of the nation ten times the amount involved in any possible increase in freight rates. The credit of the railroads has been injured largely by the growing and well-founded conviction on the part of the investing public that on the present basis of cost of operation and compensation for service rendered, the permanent pay- ment of interest on bonds, to say nothing of a fair return upon the money invested by shareholders, is extremely uncertain. The effect of a moderate increase in railroad rates, accepted by the public and approved by the Interstate Commerce Commission, in restoring confidence in railway investment, would do more to put in motion the wheels of industry and start the country upon a new era of prosperity, than anything else that could possibly be done. In view of the above facts, I submit the question to you, as a fair-minded man, whether a moderate increase in rail- road rates is in any way unreasonable. You are interested particularly, of course, in the rates on poultry, butter and eggs; and, in this connection, I desire to say that the rate from Clinton and Keokuk, Iowa, to New York, Page Nine about 1,200 miles, on butter and eggs is 843^ cents per hun- dred pounds, while on dressed poultry the rate is 96J^ cents per hundred pounds. An increase of ten per cent on butter and eggs would make an increase of a little more than eight-one-hundredths of one cent per pound; while on dressed poultry the increase would be a little more than nine one-hundredths of one cent per pound. I happen to have before me a bill from your company for thirty pounds of dressed chicken, charged at 25 cents per pound, or a total of $7.50; and, as one of the great army of consumers of the products of your company, I should be perfectly willing to have nine one-hundredths of one cent per pound, or a total for the thirty pounds of less than three cents (.0285) added to the cost of these chickens if the result of such an increase, or some fair increase uniformly applied to all shippers and shipments, shall have the effect, as I believe it will have, of giving employment to the hundreds of thousands of railroad men who are out of work ; of return- ing to the factories and mills that manufacture locomotives, freight and passenger equipment, the thousands of men who have fceen forced into unwelcome idleness on account of the inability of the railroads to continue their annual purchase of the output of these concerns. (Z want to say, Mr. President, in this connection, that in the year 1907 the lines I represent bought thirty-three and three-quarter millions of. dollars' worth of engines, and freight and passenger cars. In the year 1908 we will not purchase a single car of any description, except possibly five or six for our electric operation in New York, and about two arid a quarter million dollars' worth of engines. Think what that means to the ore producer, to the steel mills, to the locomotive builder, to the car builder; and think what it means to every farmer, to every wholesale merchant and to every retail mer- Page Ten chant who are deprived in a large measure of the custom of these hundreds of thousands of m^n who have been thrown out of work sim-ply because the railroads have been compelled to stop the purchase of necessary articles^ If it will return to steady, well-paid employment the thousands of idle coal miners, iron ore miners, and employes of the great rolling mills that are closed or working on exceed- ingly short time, every individual citizen can well afford, and if it can be clearly set before him the almost infinitesimal effect on the individual of a ten per cent increase in freight rates — ^he will gladly accept his share of the burden in order to restore to this country the full dinner pail and the abound- ing prosperity of the last decade. To illustrate how little an increase of 10 per cent would mean to each individual — and in the last analysis that must be the controlling consideration — I beg to submit the follow- ing facts: {Mr. President, I wish to impress upon the gentleman present the fact that, while I use ten per cent here it is used merely as an illustration; tht railroads themselves do not know what the per- centage of increase will be, and the reason the taking effect of this proposed increase, whatever it is, was set as far forward as October 1st, was in order to enable the matter to he thoroughly considered, not only among themselves, but with the shippersj because the railroads have exactly the same interest in so dis- tributing any increase that may be made as to cause the least possible inconvenience or hardship to the patrons of the roads.) The freight rate on a suit of clothes, including shoes and hat, from Boston, Philadelphia or New York to any point in the Mississippi Valley, is about nine cents. The suit will sell for from $10 to $30, according to quality. An increase of 10 per cent would add nine one-hundredths of one cent to the cost of the suit. For a distance of 300 miles the freight rate Page Eleven is 33^ cents. A 10 per cent increase would add a little more than three one-hundredths of one cent to the cost of the suit. The freight rate on a harvester for three hundred miles, boxed and crated, by the carload, as they are shipped, would be $1.76. A 10 per cent increase in this freight rate would amount to about 17% cents. The machine sells for approxi- mately $130. Would the manufacturer who makes the harvester — would the farmer who buys and uses it — object to this very moderate addition to the cost if, by reason of it, thousands of well paid, steadily employed consumers were added to those who buy the grain and other products of the Nation's farms? The rate on flour from Minneapolis to New York, in car- loads, is 25 cents per 100 lbs., or 12% cents per 50-lb. sack. The flour is sold to the retailer in New York at approxi- mately $1.48 per 50-lb. sack. An increase of 10 per cent in freight rates would add but IM: cents to the price of a 50-lb. sack, or a little more than two one-hundredths of one cent per pound. The rate on dressed beef from Chicago to New York is 45 cents per 100 lbs. The average price of this beef to the retailer in New York is approximately 11% cents per pound. A 10 per cent increase in freight rates would add less than five one-hundredths of a cent per pound. While I have used an increase of 10 per cent in the illus- trations I have given above, it should not be understood that this figure, or any definite figure has been determined upon. The question of the amount of increase and articles upon which such increase shall apply must be the subject of the most thorough and intelligent investigation. I am, as you know, one of the stockholders of your com- pany, and no person connected with it takes a deeper interest in its prosperity than I do. Page Twelve You know, I think, that I am largely interested in farm- ing, mercantile, manufacturing and banking business in Iowa and Illinois. In this connection, I want to say to you that I do not own a single share of railway stock or bonds. Every dollar of the accumulation of a life-time is invested as I have stated. Every personal interest I have is with the shipper as against the railroad in any question where these interests conflict, I regard the present question as one of the most important that has ever engaged the attention of the business interests of the country. I firmly believe that upon its righteous solution depends the momentous question of an early return to prosperity, or a con- tinuance of the depression of the past six months, emphasized and darkened by a struggle with organized labor such as this country has never experienced. The issue is in the hands of the business men of the country. If the business interests of the Nation shall, after mature consid- eration, say that railroad rates shall not be advanced, I doubt if it can be done. But it should be understood clearly, definitely and beyond all question of doubt, that in saying this they say just as clearly and definitely that the wages of the great army of 1,500,- 000 railroad employes shall be reduced, and they must accept their full measure of responsibility for the results which will follow. Pardon this long letter, but the subject is so important, and the effect of a conflict between the business interests of the country and the great transportation interests, just at this critical juncture, would be so disastrous that I have felt justified in thus imposing on your time. * Yours very truly, (Signed) W. C. Brown. I doubt, Mr. President, if the importance of this meeting and the great significance of the result of the deliberation of Page Thirteen this gathering of representatives of the great commercial and manufacturmg interests of the country, is even faintly ap- preciated by any of us. The spark of business confidence is being slowly fanned into life. The slowly returning faith in railroad investment, as evidenced by the recent Pennsylvania bond sale, and by the less important, but no less significant sale of $15,000,000 of the bonds of the Chicago, Indiana & Southern Railroad and of $7,000,000 of the bonds of the Boston & Albany Rail- road, are omens of encouragement eagerly welcomed by the business interests of every state in the Union. The action of this meeting will exert a most powerful in- fluence either in stimulating or stifling this return of confi- dence. It is a time which calls for the most conservative deliber- ation. If you have confidence in the statement I have made, the figures I have given, you must be forced to the conclusion that in all fairness the claims of the railroads for an increase in revenue are well founded. If^you doubt my statement, it is your duty, by careful, unprejudiced investigation, to verify or disprove it; but you cannot in justice to the important interests you represent afford to act hastily or unadvisedly in reaching a decision of this most important matter. NOTE. — The paragraphs printed in italics and enclosed in parentheses do not constitute a part vf the letter, but were inserted at the time the letter was read in further explanation of the points made. Page Fourteen RAILWAY CONDITIONS ADDRESS OF HtUtam (H. Irnmn SENIOR VICE-PRESIDENT NEW YORK CENTRAL LINES AT ANNUAL BANQUET OF Michigan IVlanufacturers' Association DKTKOIT, MICH., JUNE 88, 1908 REMARKS OF \S^II.LIAM C. BROWN SENIOK VICE-PHESIBENT NEW XOHK CENTRAL LINES AT ANNTJAIi BANQUET OF MICHIGAN MANrTFACTTTRERS' ASSOCIATION DETROIT. JUNE S3, 1908 Mr. Toastmaster and Gentlemen of the Michigan Manufacturers' Association: I am exceedingly glad to meet this splendid representa- tion of the manufacturing interests of the great State of Michigan, and am profoundly grateful for the opportunity a!iTorded by your courtesy to say a word in behalf of the great transportation interests of the Nation. No other branch of industrial activity has contributed more to the marvelous growth and development of our country during the last half of the century just closed, and none promises greater things for the century upon which we have entered, than the great business of manufacturing. The opening of the last half of the 19th century found the United States occupying a position of comparative insignifi- Page One cance, almost a negligible factor, among the manufacturing nations of the earth. Fifty-seven years, filled with the inspiration of American genius, energy and enterprise, has made this the greatest manufacturing country in the world; for in the year 1907 the value of our manufactured products approximated fifteen billions of dollars, being greater than those of Great Britain, Germany and France combined. In the great march of industrial progress of the nation during the past threescore years, the manufacturer and the railroad have kept shoulder to shoulder — each contributing much to the other and both making contribution to national prosperity and growth, without which the hands on the dial of progress and development of the country would be set back fully fifty years. Occasions of this character, marking mile-stone after mile- stone in the history of a great industry, and in a way writing much of the history of the commonwealth itself, are sugges- tive of retrospective thought; and I want to refer briefly to some incidents and facts connected with early days of railroads in Michigan. , In July, 1830, Michigan's first railroad was incorporated, the Pontiac & Detroit; but it was fifteen years later — ^July, 1845 — when the road, 35 miles long, was completed to Pontiac. What is now the Michigan Central Railroad was chartered on June 29, 1832, under the name of the Detroit & St. Joseph Railroad. The available funds of the company seem to have been exhausted in securing the charter; and, upon the ground that it was a public benefit, the United States War Department was induced to undertake the survey of the line. Six years later, on February 3, 1838, the road was opened for traffic to Ypsilanti; and a grand excursion, consisting of State and city of&cials, was run to Ypsilanti, where a banquet was served and an address delivered by General Van Fossen. Paee Two On the return trip the engine gave out at Dearborn, and, as the road had but one locomotive, a sufficient number of teams was procured to draw the engine and excursion train back into Detroit. The road at this time was owned by the State, and the progress of construction, earnings, etc., was watched with great interest. In its issue of May 19, 1838, the Detroit Journal & Courier contains this cheerful announcement: "It is gratifying to know that the freight and travel on this State road are increasing rapidly. The average receipts for several days past have been upwards of $300. On Monday they were $326; Tuesday, $431; Wednesday. $310; and Thursday, $372." In February, 1846, the road was completed to Kalamazoo; and, notwithstanding the gratifying showing in the way of earnings, the State, in the latter part of this year, having expended $1,954,308.28 on the road, decided to sell it to a railroad corporation organized to take it over, for $2,000,000. It required six years of further struggle to complete the road to Chicago. This was the morning of life in Michigan, the day of small beginnings; and how full of almost pathetic interest the story of these early struggles is today. This story of the inception of the great railroad system of Michigan had its counterpart in almost every state in the Union. Today the railroads of this country, with their equipment, represent approximately twelve per cent of the wealth of the nation. Their mileage exceeds 222,000 miles; over 815,000,000 passengers are carried per annum, at lower rates of fare and with better service than is furnished in any other country on the globe. Page Three More than 1,630,000,000 tons of freight are handled annu- ally, at an average rate from 40 to 50 per cent lower than the average freight rate in any other country where railroads are operated. The railroads of the nation earn more than $2,345,000,000 per annum; nearly 80 per cent of which vast sum is imme- diately put into circulation again, in the payment of wages and taxes and in the purchase of equipment and material. An army of more than 1,500,000 men is employed directly in the operation and maintenance of these railroads, and millions of other men are furnished employment indirectly, in the mines, the forests and the factories, supplying the railroads with approximately one and one-quarter billions of dollars' worth of material and equipment annually consumed. These are wonderfully interesting and impressive facts; but the fact of greater interest and worthy of the most careful thought of every citizen of this country, is that this vast army of men engaged in producing the commodity of transportation at an average cost more than 40 per cent lower than is shown by any other country, is paid an average wage more than fifty per cent higher than is paid in any other country where rail- roads exist. Much has been said about the over-capitalization of the railroads, about watered stocks; and, without attempting a defense of isolated instances of stock jobbery, I want to say just a word upon this general subject. The capital stock of the New York Central Lines, including all proprietary lines, is $418,783,600, the funded debt $549,- 176,672; and I undertake to say that these roads could not be duplicated today for 50 per cent above the sum of the stock and bonds. During the last twenty years these roads have paid an average annual dividend of 3.9 per cent on the stock, and during that time have taken out of earnings and put into the properties approximately $150,000,000 (or more than 38 per Pace Four cent of the capital stock), for which not a single dollar of securities has ever been issued. The Interstate Commerce Commission recently published its statistical statement for the year ending June 30, 1906; and this report shows that the total capitalization of the rail- roads of the United States on that date was $14,570,421,478, or $67,936 per mile of line. According to the table shown on page 63 of the report, however, the above amount includes a duplication of $2,898,- 480,829, covering stocks and bonds owned by other railroad companies. Deducting this amount from the gross capitalization of American railroads, shows that the net or actual capitalization of the railroads of this country on June 30th last was $11,681,- 940,649. . Professor Adams, Statistician for the Commission, also shows in the report (page 105) that the cost of construction of these railroads was $11,588,922,421, with $831,365,517 addi- tional for equipment, making a total cost of $12,420,287,938. These figures indicate that the railroads of this country are capitalized for an aggregate of $738,347,289 less than their actual cost. The capitalization of the railroads in the United Kingdom in 1905, which is the latest data available, was more than $273,000 per mile; that of the railroads of France, $132,000 per mile, and the cost of construction of the railways of Ger- many was something more than $101,000 per mile. The average capitalization of all the railways of Europe is over $110,000 per mile, or about double the actual capitaliza- tion per mile of the railroads of the United States. These statistics are from the highest and most reliable authority, and are undoubtedly correct. They refute in the most conclusive manner the charge of watered stock, and indicate that the value of the railroads of the United States, taken as a whole, and giving no consideration whatever to the Page' Five tremendous increase in value of the vast terminals of the rail- roads, exceeds their total outstanding stock and bonds by nearly three-quarters of a billion dollars, and that these secu- rities rest on a basis which should be, with fair treatment, as safe and as dependable as a Government bond. No stronger confirmation of these facts and figures is possible than that given by President Roosevelt in his speech ~ at Indianapolis on May 30, 1907. No person will claim that the President has been inclined to especially favor the railroads; but he is as fearless in de- fending them when he believes them to be in the right as in condemning them when he thinks they are in the wrong. And no one will deny that he says exactly what he means, and means exactly what he says. I know that his conclu- sions in this important matter were the result of the most thorough study and investigation. The quotation is as follows: "There has been much wild talk as to the extent of the overcapitalization of our railroads. The census reports on the commercial value of the railroads of the country, together with the reports made to- the Interstate m Commerce Commission by the railroads on their cost of construction, tend to show that, as a whole, the railroad property of the country is worth as much as the securities repre- senting it, and that, in the consensus of opinion of investors, the total value of stock and bonds is greater than their total face value, notwith- standing the "water" that has been injected in particular places. The huge value of terminals, the immense expenditures in recent years in double-tracking and improving grades, roadbeds and structures, have brought the total invest- ments to a point where the opinion that the Page Six5 real value is greater than the face value is prob- ably true. "While there have been many instances of gross and flagrant stock inflation, and while, of course, there remain cases of overcapitalization, yet when the statistics of the weaker roads, the overcapitalized roads, are combined with those of the stronger roads and considered in the aggregate, in my judgment they will not be found to impair the wholesome financial stand- ing and position of the railroads as a whole ; and while those railway owners and managers who have enriched themselves by loading their prop- erties with securities representing little or no real value deserve our strongest condemnation, on the other hand, our hearty commendation is due those owners and managers — representing, I believe, the large majority — who have, year after year, worked faithfully, patiently and honestly in building up our great systems of rail- roads, which have knitted together in close com- mercial and social intercourse widely removed sections of the country and stand second only to the great business of agriculture itself in contri- bution to national growth and development." In a circular recently issued by the National Prosperity Association of St. Louis, I note the following statement: "Our prosperity came with the prosperity of the railroads ; it declined when adversity struck the railroads. We do not believe we can have the full meastire of prosperity again until the railroads are prosperous." I take it, Mr. President, that this is simply a reiteration of the axiomatic truth, that the prosperity of the people and that of the railroads is so inseparably interwoven' that neither Page Seyen can sufEer adversity without harm coming to the other; nor can either hope for continued prosperity unless the other shares therein. Each must bear its share of adversity which comes from natural causes common to both. Each must be willing to accept some part of any burden which comes to the other from causes beyond its control and from which the other is happily exempt. No better illustration of what I mean can be given, per- haps, than to recall the years when the crops of the States of Kansas and Nebraska were almost totally destroyed by the scourge of grasshoppers, and later, when, for several seasons, the destruction by drought was almost as universal. Thousands of carloads of corn, provisions, clothing aijd other supplies were contributed by sympathizing friends throughout the Middle States, and were hauled free by the railroads and distributed all over these two States. The railroads accepted their part of the adversity common to both, and gave their services freely in amelioration of the suffering of the people of Kansas and Nebraska; making it possible for them to remain on their cla'ms, which otherwise they would have been forced to abandon. « I beg your indulgence while I attempt to make clear to you the special burdens which have come to the transportation interests of the country, aside from, and in no way the re- sult of, the general depression from which all interests are suffering; but which in my opinion have been an important factor in producing and in continuing the depression. I also want to refer to some of the effects of these special burdens, not only upon the prosperity of the railroads, but, in my opinion, upon that of every business interest of the nation. Becoming effective during the early months of 1907, increases in pay of railroad employes approximating one hundred million dollars per annum were made. Page Eight This increase was not voluntary on the part of the raikoads, but was the result of weeks of conference between representa- tives of the roads and those of the employes; and finally of intermediation by Chairman Knapp of the Interstate Com- merce Commission and Commissioner Neal of the Bureau of Commerce and Labor. The settlement was on a lower basis than the men thought they should have and higher than the roads felt they could afford to pay; but the settlement undoubtedly averted a strike which would have cost the commerce of the country a thousand times the amount involved. Following this tremendous increase in wages, legislation by Congress and by a number of the States, restricting the hours of labor of trainmen, enginemen, telegraph operators, block signalmen, employes of interlocking towers and others, made a further annual increase of approximately $25,000,000 in the pay rolls of the railroads of the country. By legislation passed at the last two sessions of Congress and by subsequent rulings of the Postmaster General, reducing compensation for handling United States mail, approximately $10,500,000 per annum has been taken from the revenues of the railroads. In the closing hours of the last Congress, the Employers' Liability Act, which applies only to railroad companies, was enacted. This law removes the last vestige of protection against personal injury or death claims on the part of employes or their families that was secured to the railroads by the Com- mon Law, making the railroads liable for injuries caused by fellow employes, even where every possible precaution had been taken by the company to secure safety, and the law also removes the bar to recovery of damages for accidents which result from the employe's own carelessness. The earnest plea made by the advocates of this measure in behalf of the army of men employed in railroad service and Page Nine their dependent families, appeals to no class of citizens more strongly than to the managers of our great systems of railroads, 99 per cent of whom have come up from the ranks and know- by experience of the unavoidable dangers of the service. Under the operation of this law, however, the loss hitherto placed by the Common Law upon the individual — the employe — ^is transferred to the employer — the railroad — and it must have been understood that the employer could not, under present conditions, bear the additional burden. That it was not the intent of the framers of the measure that the railroads should assume this burden is indicated by the following quo- tation from the report on the measure submitted by Senator DoUiver, from the Committee on Education and Labor, when it was under consideration by the Senate: "It is no part of the purpose of this legisla- tion to oppress or add burdens to the business enterprises of the country ,'^ but rather to promote the welfare of both employer and employe by adjusting the losses and injuries inseparable from industry and commerce, to the strength of those who in the nature of the case ought to , share the burden." Again, in speaking of the risk and danger involved, the report says: "Yet, somebody must assume these risks, and the tendency where the industrial life of the community is thoroughly organized, has been to modify the doctrine of negligence so as to allow the burden of accident and misfortune to fall, not upon a single helpless family, but upon the business in which the workman is engaged; that is, upon the whole commimity." No person can approximately estimate what this legislation will cost the railroads of the country. Page Ten That it will result in a most substantial benefit to the employes of the railroads is best evidenced by the untiring effort of the railroad men, strongly supported by the Presi- dent, in securing its passage, and every dollar of benefit to the employe must be paid by the employer — ^the railroad. The only possible manner in which this burden can be placed where it belongs, and where the framers of the bill intended and distinctly stated it should rest — "upon the whole community" — ^is by an increase in rates by the carriers commensurate with the new burden imposed. For the Gov- ernment to impose this additional expense upon the trans- portation interests without permitting such increase in rates. would mean bankruptcy for many railroads and great injus- tice for all. Railroad rates in the United States for the last thirty years have shown almost a continuous and uniform reduction . The average rate per ton per mile on all classes of commodities shows a reduction of between 38 and 40 per cent since 1882; and, at the same time, the average wages paid to railroad employes, and the average cost of almost every class of material that railroads buy, has increased from 50 to over 100 per cent. To illustrate: the price which railroads have to pay for material of which they are very large purchasers, shows increases during the ten years, 1898 to 1908, as follows: Angle bars 50 per cent Gray iron castings 37 . 5 Malleable iron castings 21.3 Bar iron ." 42.8 Cut nails 95.4 Wire nails 45 6 Cast iron pipe 87 . 8 Steel rail 47.3 Track spikes 25 . 9 Cast iron car wheels 25 Barbed wire 32 Page Eleven Bridge timbers 80 per cent Cross ties 76 Car siding 90 Locomotives 68 . 3 Box cars 72 . 8 Car axles 51 Locomotive steel forgings: Crank pins 105 Piston rods 57 Main and side rods 28 Taxes have increased from an average of $179 to an average of $349 per mile of road, or 95 per cent; while the cost of railroad right of way and additional property necessary for increased facilities in many instances is from 50.0 to 1000 per cent more than it was at that time. Not in the way of complaint or even of criticism, I might mention in passing that, in the decade from 1897 to 1907, the taxes of railroads in the State of Michigan have increased from an aggregate of $935,930.98 per annum to $3,700,000. Some of this increase is due, of course, to increased mileage; but the taxes of the Michigan Central road have increased during the same period from $289,367.62, in 1897, to $893,«687.84, in 1907, without any very substantial increase in mileage. The effect on the railroads of the conditions I have attempted to describe is exactly the effect similar conditions would have on any other manufacturing or mercantile busi- ness. The railroads bear no "charmed financial life;" they are subject to the same conditions and must retrieve losses in the same manner as any other business. Increased expense of production means increased price for the articles produced, or in some manner reducing the cost of production. Bulletin No. 69 of the Bureau of Labor, issued in March, 1907, which contains a record of wholesale prices of all com- Page Twelve modities from 1890 to 1905, shows that during the ten years ending in 1905, the following increases in price occurred: Farm products 24 . 2 per cent Food, etc 8.7 Cloths and clothing 12 " Fuel and lighting 28 8 Metal and implements 22 . 5 Lumber and biiilding material .... 27 . 7 " Drugs and chemicals ,.9.1 " House furnishing goods 9.1 " Miscellaneous 12.8 " All commodities 15 . 9 " During substantially the same period, the average freight rate received by the railroads for handling the above com- modities shows a reduction from 941/1000 of one cent per ton per mile to 766/1000 of one cent per ton per mile, or. over 18 per cent. The diverging lines of cost and compensation in railroad operation, which for years have been steadily approaching each other, are now separated by so narrow a margin that in order to pay fixed charges, taxes and operating expenses, with even a very moderate return to shareholders, there must be either a moderate increase in freight rates, or a very sub- stantial reduction in the wages of railroad employes. I do not know that the basis of wages paid railroad men is too high — ^the conditions of service are becoming more and more exacting every year, and there is no other business in the world that compares with it in point of hazard, both for the employe and employer. In the case of the former, risk of life and limb; in the case of the latter, danger of almost unlimited damages for accidents, which, in spite of the most complete and comprehensive precautions, seem unavoidable. With the sympathy and co-operation of the business interests of the country, a moderate increase in freight rates Page Thirteen can be made effective without the slightest injury to any department of business activity. The reduction in wages of railroad employes, on the other hand, could only become effective at the end of a conflict with organized labor universal, prolonged, and which would cost the business interests of the nation ten times the amount involved in any possible increase in freight rates. It is fourteen years since the so-called Debs strike stunned the business of the country; but the memory of that struggle, with its riots and disorder, the actual destruction of property by fire, as well as the appalling loss to the nation by reason of the interruption of its commerce, is fresh in all of our minds. I want to say to you that, in my opinion, this strike, bad as it was, would be like a summer shower compared with the blackness of the storm which confronts the business interests of the country if the railroads are compelled to attempt to enforce a general reduction of wages. Union labor was never so well organized, never so united, and never so abundantly able from a financial standpoint to oppose what they would honestly believe to be an uncalled- for reduction; and organized railroad labor would have the united support of every department of organized labor of the fiation. The credit of the railroads has been injured largely by the growing and well-founded conviction on the part of the invest- ing public that on the present basis of cost of operation and compensation for service rendered, the permanent payment of interest on bonds, to say nothing of a fair return upon the money invested by shareholders, is extremely uncertain. How well founded this conviction was, and is, may be best illustrated by calling your attention to some illuminating but extremely startling figures. The tremendous increases in expenses which I have referred to in detail became effective at successive dates during the first half of the year- 1907; and I have looked up the statement Page Fourteen of about 80 per cent of the principal railroads of the country, and find that, duringi,the./last half of the year, after all the increases had become effective, while the gross earnings of the railroads increased $57,413,078 over the same period of the preceding year, their expenses increased $80,235,823; showing a net loss for the period, despite the tremendous business handled, of $22,822,745. I want to say, Mr. President, that these figures and the condition they reflect are even more serious than they appear. There is hardly an operating official on any of our railroads who did not recognize the fact very early after the taking effect of these large increases, that the most drastic methods of retrenchment and economy would be necessary to offset in part the sudden and tremendous increase in operat- ing expenses, and many of these economies passed far beyond the line which divides true from false economy. Yet, in spite of these extreme measures of retrenchment, the startling loss in net revenue resulted. These are general and somewhat indefinite figures, because they do not refer to particular roads; and, in further corrobo- ration, I call attention to the following specific cases covering principal roads representing all sections of the country. The figures cover the last six months of the year 1907. The Union Pacific Railroad, with an increase in gross earnings of $3,855,646, shows an increase in operating expenses of $5,282,877, due to the tremendous increases in cost of material, pay rolls, etc., making a decrease in net earnings of $1,427,231, as compared with the same period of the preceding year. The Erie Railroad, with an increase in gross earnings of $596,430, shows a decrease in net of $2,636,694. The St. Louis & San Francisco Railroad, with an increase in gross of $2,092,061, shows a decrease in net earnings of $1,546,273. Page Fifteen The Santa Fe Railroad, one of the best managed roads in the United States, with an increase of $2,986,818 in gross earnings, shows an increase of $6,555,351 inoperating expenses, making a decrease in net earnings of $3,568,533. The Southern Pacific Railroad, with an increase in gross earnings of $6,975,042, shows an increase in operating expenses of $11,245,788, and a decrease in net earnings of $4,270,746. The Pennsylvania Railroad east of Pittsburgh, with an increase of $7,258,400 in gross, shows an increase in operating expenses of $8,921,900; making a reduction in net earnings of $1,663,500. The New Haven Railroad, with an increase of $1,194,183 in gross earnings, shows an increase in operating expenses of $2,516,196, making a decrease in net earnings of $1,322,013. ^The Missouri Pacific Railroad, with an increase in gross earnings of $478,697, shows an increase in operating expenses of $2,187,911 ; making a decrease in net earnings of $1,709,214. The Louisville & Nashville Railroad, with $815,877 increase in gross, and $2,542,766 increase in operatingexpenses, shows a decrease in net of $1,726,899. The gross earnings of the New York Central Railroad increased $2,227,621, while operating expenses show an i]?crease of $3,866,752; making a decrease in net earnings of $1,639,131. In giving these,, figures, I have tried to select railroads representing fairly all sections of the country. They show that operating expenses increased about 60 per cent more than gross earnings; that no increase in volume of business will make good the tremendous increase in expenses ; and indicate unmistakably that there must be secured an increase in net earnings, by a moderate increase in freight rates, or a decrease in expenses by a substantial reduction in pay. During the first quarter of this year, the New York Central Lines, traversing, as they do, the most populous and most prosperous section of the United States, have but little more Page Sixteen than earned their fixed charges, making scant provision for dividends and none whatever for betterments. Two of them. — the Cleveland, Cincinnati, Chicago & St. Louis, and the Lake Erie & Western — ^located in the garden of the United States, and serving some of the largest and most important cities in the countrj^ have passed from the list of dividend- paying roads. The reports from hitherto prosperous railroads located in and serving every portion of the United States show that this condition is universal. Dividends of the most prosperous railroads are being reduced and on others entirely suspended. Other roads, unable to earn their operating expenses and fixed charges, are being placed in the hands of receivers. The first effect of this condition was to close the usual sources from which large sums of money have heretofore been readily available for necessary improvements by the sale of long time, low-interest bearing bonds, and to force the rail- roads to resort to short time notes bearing high rates of inter- est, absorbing all the available funds of the banks and making it difficult, and in many cases impossible, for other business enterprises to borrow money at all, and also forcing interest rates for all to an almost prohibitive figure. This was the effect on the railroads. Let us glance briefly at the effect upon the prosperity of the country at large. During the year 1907 the New York Central Lines paid to manufacturing concerns located in Detroit approximately $2,500,000 for material and equipment; this year not a dollar has been thus expended. During the same year those lines paid out to car and locomotive manufacturers in the United States more than $30,000,000, almost every dollar of which was paid out for labor in some form or other During the year 1908, with the exception of a compara- tively small number of locomotives, not a dollar will be Page SeTenteen expended for this purpose; and this record is being repeated by almost every railroad in the country. The plant of the American Car & Foundry Company in Detroit is practically closed down, over 7000 men are thrown out of employment, and the retail trade of your city is losing more than $450,000 per month, which this company disburses when in full operation. ' And, gentlemen, this picture, bad as it is, depicts only a portion of the whole truth. The closing of these great car works stills the sound of the axman in the woods, calls the miner of iron ore and coal from well paid employment to unprofitable, unwelcome idleness, closes the great rolling mills and the steel foundries, and side-tracks the thousands of cars and engines which were required to handle the raw mater- ial and the finished product. Study the picture; multiply it by the number of similar manufacturing enterprises all over this broad land; note the thousands of idle locomotives, the hundreds of thousands of side-tracked cars, the millions of idle workers; and then ask yourselves if it is not time for every man, for every interest, to join in some concerted movement looking to the return of the glad day of "the full dinner pail." « The effect of a moderate increase in railroad rates, accepted by the public and approved by the Interstate Commerce Com- mission, in restoring confidence in railway investment, would do more to put in motion the wheels of industry and start the country upon a new era of prosperity, than an5rthing else that could possibly be done. I sometimes think, Mr. Toastmaster, that the question of freight rates and their effect upon the price of commodities to the consumer is not very accurately known. We are prone to jump at conclusions, instead of carefully analyzing figures and thus arriving at conclusions which are exact. Page Eighteen I am one of the largest individual stockholders in a manu- facturing concern located in southwest Iowa, which, among other things, manufactures a very fine cream separator. I spent a few days at the factory during the latter part of May; and one day, while talking with the President, the Superintendent came into the office, and said they needed at once a special kind of steel — the trade name, I think, is "Blue Chip Steel." This steel is made in Poughkeepsie, New York. As the steel was required at once, in order to avoid the delay of ordering from Poughkeepsie, the Superintendent called up by telephone a concern in another county in the State, which uses a good deal of this kind of steel, and was informed that they had plenty and would be glad to let us have some, quoting a price of 90 cents per pound. The price of the steel, f. o. b. Poughkeepsie, is 55 cents per pound, and an inquiry as to the 35 cents margin resulted in the usual explanation of high prices: "The freight rate is very high." The Superintendent was told to reply that the freight rate ' was less than one cent per pound, and that they would have to put up a better explanation of the 35 cent raise. The reply was that they thought we were mistaken about the" freight rate, but they would look it up and see if they could shade the 90 cent price a little. They called up shortly, and, without referring to the important question of freight rates at all, made the price GO cents per pound. As a matter of fact, the freight rate was 5-9/10 mills^'per pound. In,' jumping at conclusions, they had figured freight rates at least fifty times too high. In a prosperous county-seat town in Iowa, I spent some time in a general store in which I am somewhat interested. A box of ladies' cloaks was received; the cloaks cost in Chi- cago from $10 to $13 each, the average being about $10.80; Page Nineteen the box contained thirty garments; and the freight on tlie box and contents was, as I recall it, $1.08. Instead of carefully figuring out the exact amount of freight chargeable to each garment, the wide-awake and enterprising merchant jumped at conclusions and added 10 per cent to the invoiced price to "cover freight." The freight paid the railroad was approximately $1.08; the little item of freight charged the purchasers of the gar- ments amounted to approximately $32.40. ^ I appreciate the fact that the 10 per cent covered drayage | from the station to the store and other incidental expenses, but the fact remains that the railroad received a very small portion of that 10 per cent; and I realized that the term , "freight," like charity, "covers a multitude of things." The question of freight rates, in order to get a fair per- spective and to reach an absolutely fair conclusion,' must be followed to its last analysis, which is its application to and eflect upon the individual consumer. t The whole fabric of freight rates, from the first shipment | of raw material, is simply a transfer or carrying forward of freight charges, until it reaches the final purchaser or con- 'i sumer, and he pays the freight. When the New York Cen- • tral Lines paid the American Car and Foundry Co. $2,500,- ! 000 for approximately 2,500 cars built at its plant in Detroit last year, the railroad paid every farthing of freight that .; had accrued on every pound of iron and steel from the time the first pick was struck into the ground that mined the ore; J it paid the freight on every foot of lumber from the time; the axe was struck into the tree from which the lumber was cut, and it paid the freight on every dollar's worth of pro-1 visions used and clothing worn by the employes of the car company and their families while working on these cars. The consumer buys what his family consumes — flour, butter, meat, sugar, tea, coffee and the like — ^by'^the pound| He buys his kitchen stove or range and his heating stove, or Page Twenty his refrigerator, once in ten or fifteen years, according to the quaUty of the utensil and the care given it in its use. Let us consider fpr a moment what the freight rate means to the consumer, and what an increase of 10 per cent would signify to him. The freight on a steel range, weighing from 400 to 500 pounds from Detroit to Chicago, by the carload, is 57 cents each. In less than carloads to points from 300 to 500 miles beyond Chicago, the rate is from 30 to 40 cents per hundred pounds; making the freight rate on a stove delivered in the Mississippi Valley from $2.00 to $2.50 per stove, on stoves which retail at from $55 to $60 each. An increase of 10 per cent would add from 20 to 25 cents to the cost of the stove, which, divided by the life of the stove, taking the low average of ten years, would add one and one- half to two cents per year to the cost. On heating. stoves the increase would be about one-third less. The freight on a refrigerator, such as is used by the ordinary family, from Belding, Mich., to New York is approximately 75 cents; an increase of 10 per cent would add 73^ cents to the cost of the refrigerator delivered in New York City. And, Mr. President, I ask you if you, as a manufacturer, could not afford to pay this small addition in freight rates? Could not we all afford to pay 73^ cents more for the refrig- erator if such an addition, fairly and equitably distributed, would return to steady, well-paid employment the hundreds of thousands of men now out of employment, enabling them again to become purchasers of the stoves, the refrigerators and the many other products of Michigan manufacturers? The freight on a dining-room suite, consisting of a table, sideboard, six chairs, china closet, etc., weighing approxi- mately 750 pounds, and selling for from $50 to $75, from Grand Rapids to Chicago, is $1.60. An increase of 10 per cent would add 16 cents to this amount. Page Twenty-one The freight on dressed beef, Chicago to Detroit, Lansing, Jackson and other interior points in Michigan, is 20 cents per hundred, or 2 mills (two-tenths of one cent) per pound. An increase of 10 per cent would add two one-hundredths of one cent per pound. It would require an expert in decimal frac- tions to apply this increase to the consumer. The rate on butter and eggs from points in eastern Iowa to New York — a distance of approximately 1200 miles — ^is 84J^ cents per hundred pounds. On dressed poultry from the same points to New York the rate is 963^ cents. The eggs are sold to the consumer by the dozen and the other commodities by the pound; and the consumer pays every farthing of freight that has accrued from the time the egg is laid, which he buys in the original package or as dressed poultry, or from the time the cow is milked from which the butter is made. An increase of 10 per cent would add eight one-hundredths of one cent per pound to the price the consumer pays for butter and eggs, and it would add nine and one-half one- hundredths of a cent per pound to the cost of dressed poultry, for which he pays from 15 to 25 cents per pound. * The freight on an ordinary suit of clothes, including hat and shoes, for a distance of 300 miles from any of our large jobbing or distributing centers, is approximately 33^ cents; a 10 per cent increase would add a little more than three one- hundredths of one cent to the cost of a suit, which sells for from $10 to $35. The rate on flour from Minneapolis to New York, in car- loads, is 25 cents per hundred pounds, or 12J^ cents per 50-pound sack. The flour is sold to the retailer in New York at approximately $1.48 per 50-pound sack. An increase of 10 per cent in freight rates would add but 1}4 cents to the price of a 50-pound sack, or a little more than two one- hundredths of one cent per pound. Twenty-two The freight rate on a 50-pound sack of flour from Grand Rapids to Detroit, Jackson, Marshall or Battle Creek, is four cents per sack. An increase of 10 per cent in rates would add only four mills per sack between these points, or eight one-thousandths of one cent per pound. The rate on dressed beef from Chicago to New York is 45 cents per hundred pounds. The average price of this beef to the retailer in New York is aj3proximately 11 H cents per pound. A 10 per cent increase in freight rates would add less than five one-hundredths of one cent per pound. The freight rate on a harvester for three hundred miles, boxed and crated, by the carload, as they are shipped, would be $1.76. A 10 per cent increase in this freight rate would amount to about 17J^ cents. The machine sells for approxi- mately $130. Would the manufacturer who makes the har- vester, would the farmer who buys and uses it, object to this very moderate addition to the cost if, by reason of it, thous- ands of well-paid, steadily employed consumers were added to those who buy the grain and other products of the Nation's farms? This list could be enlarged to embrace every commodity which railroads handle, and the same process of analysis would in every case reach the same result. No man who will familiarize himself with conditions which surround the railroads of the country can avoid the conclu- sion that either by increased revenue or by reduced expenses, or by both, the net earnings must be very materially increased. Shall it be by moderately increasing freight rates, which have either remained practically stationary or have been materially reduced, while every other commodity has steadily advanced, or shall it be by making the extremely uncertain attempt to make a general reduction in the pay of railway employes, which, by comparison with the pay of men in places of less responsibility and much less danger, is not imreasonably high? Twenty-three The locomotive engineers and conductors on our railroads earn approximately $1500 per annum. Shall $150 each year be taken from these men in order to avoid an increase in freight rates which no individual in all the land would know had been added so far as its personal effect is concerned? The switchmen and brakemen earn about $1000per annum. Is it fair that each man should lose $100 per annum, rather than that the millions who* barter and trade, who ship and receive freight, shall pay the infinitesimal amount involved in the suggested increase? Go on down the line to the sectionman, out in summer'* heat and winter's cold, who earns between $350 and $400 per annum; and tell me if it is not better to distribute this burden fairly, by a moderate increase in rates, than to take from this man and his family $35 to $40 per year? Is it not better, Mr. President, that you and I, and tens of thousands of people who buy and use the automobiles made in Michigan, should pay a dollar or two more freight on our machines, than that the family of the engineer, the conductor, the brakeman, the switchman, or the humble sectionhand, shall be deprived of the actual necessities and comforts of life, which we know they must give up if the monthly pay check i^ reduced? The issue in all its important significance, reaching, as it does, the home and hearthstone of every employe of the rail- ways of the country, will finally be left for decision to the great business interests of the Nation. The question reaches far beyond the manufacturer or the jobber, and will be discussed in the thousands of cities and villages all over this broad land, where railroad men live and trade, and where good wages and prosperity of the railroad employe means prosperity for the community. It will be discussed in the homes of the hundreds of thous- ands of men, like the 7000 employes of the American Car & Foundry Company of Detroit, whose prosperity, yea whose Twenty-four existence almost, depends upon the ability of the railroads to resume the purchase of equipment and prosecution of improve- ments. No question of greater importance confronts the p'eople of the country today; for upon its righteous solution hangs the momentous issue of an early return of prosperity, or a con- tinuance of the depression of the past six months, emphasized and darkened by a struggle with organized labor such as this country has never experienced. The Michigan Manufacturers' Association will exert a powerful influence in the settlement of this great question; and, relying upon the ultimate fairness of this and kindred associations, the railroads of the country with confidence submit the facts, and rest their case. rwenty-flve CORRESPONDENCE BETWEEN JAMES T. HOILE SECRETARY MANUFACTURERS' ASSOCIATION OF NEW YORK AND WILLIAM C. BROWN SENIOR VICE-PRESIDENT NEW YORK CENTRAL LINES RELATIVE TO QUESTION OF FREIGHT RATES LETTER OF MR. HOILE The Manufacturers^ Association of New York Manufacturers' Building, 198 Montague Street Brooklyn, City of New York (There is probably no other public body of citizens filling such an important place as does this Association. — New York Herald.) JAMES T. HOILE, Secretary. Mr. W. H. Newman, July 1st, 1908. President, N. Y. C. & H. R. RR., Grand Central Station, New York. Dear Sir: It is reported that the railroads within the territory covered by the "Official Classifications" (governing that part of the country east of the Mississippi River and north of the Ohio and Potomac Rivers) propose to advance all class and commodity rates. If the roads mentioned decide, against the protests of the commercial interests, to make such advances, it will undoubted- ly lead to similar and possibly more drastic action by roads in other sections of the country. 1 M'^c do not believe these advances are necessary. We be- lieve that any advances in the present rates would retard the re- turn of normal conditions, and delay indefinitely the era of renewed prosperity. We feel that the claim of the railroads, viz. : that rates have been constantly reduced, is insincere. The present basis of rates between Chicago and New York, which govern rate-making in the territory mentioned, has been in effect for thirty years, and has never been raised or reduced in all that time, although in the meantime we have had panics and business booms. The carriers have on numerous occasions advanced rates through the medium of advanced minimum weights, or by ad- vancing the classification on numerous articles at different times during this period, but the rates have remained firm and well established. We do not deny the right of the carriers to make rates, but we believe it unwise from a tactical and political view, at the pres- ent time of depressed commercial conditions, to advance rates arbitrarily without some consideration being given to the ship- ping interests. The manufacturing and commercial interests have suffered fully as much as the railroads by the recent depressioil, and ttiey are just as slow to recover from the effects. At this time, to advance rates in the face of numerous protests is, in view of the onerous burden it would place upon shippers, we believe, a grievous mistake on the part of the railroadsi. The railroads have profited very largely by recent laws, whereas shippers have been injured in various workings of the new law; and we protest against any additional burden being put upon the shippers by the railroads. We join with other commercial bodies in asking that the question be put before the Interstate Commerce Commission, in order that all shippers so desiring may be given a hearing on the subject before these proposed advances are put in effect. Yours very truly, (Signed) JAMES T. HOILE, Secretary. REPLY OF MR. BROWN New York Central Lines New York Central & Hudson River R.R. Co. Lake Erie, Alliance & Wlieeling R.R. Co, Lake Shore & Michigan Southern Ry. Co. Chicago, Indiana & Southern R.R. Co. Michigan Central R.R. Co. Rutland Railroad Co. Lake Erie and Western R.R. Co. New York & Ottawa R.R. Co. Cleveland, Cincinnati, Chicago & St. Louis Ry. Co. GRAND CENTRAL STATION New York, July 9, 1908. Mr. James T. Hoile, Secretary, Manufacturers' Association of New York, Manufacturers' Build'g, 198 Montague St., Brooklyn, N. Y. My Dear Sir: Your letter of July 1st, addressed to Mr. W. H. Newman, President, has in his absence been referred to me; and I am very glad indeed of the opportunity afforded to take up with you and, through you, with your Association, this very impor- tant question. I wish to call attention to the following quotation from your letter: "The present basis of rates between Chicago and New York, which governs rate-making in the territory mentioned, have been in effect for thirty years, and has never been raised or re- duced in all that time, although in the meantime we have had panics and business booms." I beg to say, and later in this communication will endeavor to demonstrate, that you are in error in your impression that there has been no reduction in freight rates in the territory between Chicago and New York during the last thirty years; but, for the sake of argument, we will assume that there has been no increase or decrease during that time, and upon this premise, I believe that I can convince you and every member of your Association that in view of all the circumstances the railroads are entitled to a very substantial increase in freight rates. 3 In the first place^ the average wage paid to railway em- ployes has, in the last 15 years, sliown an increase of from 33 1/3 to 50 per cent. The average cost of almost every class of material that railroads consume in tremendous quantities each year has increased from 50 to 100 per cent. To illustrate, I desire to call your attention to the following increases which have occurred during the last ten years ; and a comparison of the prices of 1898 with those of 1878 would, with the exception of steel rails and possibly two or three other items, show a still further increase. During the ten years from 1898 to 1908 there have been the following increases in the cost of material: Angle bars 50 per cent. Gray iron castings 37.5 Malleable iron castings.. 21.3 Bar iron 42.8 Cut nails 95.4 Wire nails 45.6 " Cast iron pipe 87.8 " Steel rails 47.3 Track spikes 25.9' Cast iron car wheels 25 Barbed wire 32 Bridge timbers 80 " . Cross ties 76 " Car siding 90 " Locomotives 68.3 Box cars 72.8 " , Car axles 51 Locomotive steel forgings: Crank pins 105 " Piston rods 57 " Main and side rods 28 This list could be increased to include almost every item of material used by the railroads. Taxes have increased from an average of $179.00 per mile to an average of $349.00 per ,mile, or approximately 95 per cent. Generally, these increases have been gradual and have been offset in some measure by increased tonnage and increased effi- ciency, resulting in decreasing the unit cost of transportation. During the last eighteen months, however, the following tre- mendous increases have come in leaps and bounds, and the con- verging lines of cost and compensation in railroad operation, which for years have been steadily approaching each other, have been suddenly brought so close together as to alarm share- holders and investors ; and it is certain that, in order to pay fixed charges, taxes and operating expenses, with even a very mode- rate return to shareholders, there must be either a moderate increase in freight rates or a very substantial reduction in wages of railroad employes. Becoming effective during the early months of 1907, in- creases in pay of railroad employes approximating one hundred millions of dollars per annum were made. This increase was not voluntary on the part of the railroads, but was the result of weeks of conference between representa- tives of the roads and those of the employes; and finally of intermediation by Chairman Knapp, of ' the Interstate Com- merce Commission, and Commissioner Neal, of the Bureau of Commerce and Labor. The settlement was on a lower basis than the men thought they should have, and higher than the roads felt they could afford to pay; but the settlement undoubtedly averted a strike which would have cost the commerce of the country a thousand times the amount involved. Following this tremendous increase in wages, legislation by Congress and by a number of the States, restricting the hours of labor of trainmen, enginemen, telegraph operators, block signalmen, employes of interlocking towers and others, made a further annual increase of approximately $25,000,000 in the pay rolls of the railroads of the country. By legislation passed at the last two sessions of Congress and by subsequent rulings of the Postmaster-General, reducing compensation for handling United States mail, approximately $10,500,000 per annum has been taken from the revenue of the railroads. In the closing hours of the last Congress, the Employers' Liability Aet, which applies only to railroad companies, was enacted. This law removes the last vestige of protection against per- sonal injury or death claims on the part of employes or their families that was secured to the railroads by the common law, making the railroads liable for injuries caused by fellow em- ployes, even where every possible precaution had been taken by the company to secure safety, and the law also removes the bar to recovery of damages for accidents which result from the employe's own carelessness. Under the operation of this law, the loss hitherto placed by the common law upon the individual — the employe — is trans- ferred to the employer — the railroad. That it was understood the employer could not, under present conditions, bear the ad- ditional burden, and that it was not the intent of the framers of the measure that the railroads should assume this burden, is not only clearly indicated but distinctly stated in the following quotation from the report on the measure submitted by Senator DoUiver, from the Committee on Education and Labor, when it was under consideration by the Senate : "It is no part of the purpose of this legislation to oppress or add burdens to the business enter- prises of the country, but rather to promote the welfare of both employer and employe by adjust- ing the losses and injuries inseparable from in- dustry and commerce, to the strength of those who in the nature of the case ought to share the burden." Again, in speaking of the risk and danger involved, the report says: "Yet, somebody must assume these risks, and the tendency where the industrial life of the community is thoroughly organized, has been to modify the doctrine of negligence so as to allow the burden of accident and misfortune to fall, not upon a single helpless family, but upon the business in which the workman is engaged; that is, upon the whole community." 6 No person can approximately estimate what this legislation will cost the railroads of the country. As an indication of the effect of an Employers' Liability Act, and in a direction of peculiar significance and vital import- ance to the members of your Association, I note the following, taken from a report made by a special correspondent of the "London Commercial Intelligence." Speaking of the effect of the recently enacted law, he says: "The metallurgic industry is being hard hit in this respect. I have before me a return show- ing the number of cases brought before the courts for compensation, and I see that in the metal- lurgic industry alone no less than 6,318 cases came before the courts of France during the three months ending December 31, 1907. The number of accidents causing death was 264, and in addition to the compensation awarded to those who recovered, life annuities were awarded to 192 widows, and annual allowances, till of age, to no less than 308 children." This is the record for three months in one private industry, probably exempt from the prejudice which public service cor- porations in this country invariably encounter. That the enactment of this law will result in a most sub- stantial benefit to the employes of the railroads is best evi- denced by the untiring effort of the railroad men, strongly sup- ported by the President, in securing its passage, and every dol- lar of benefit to the employe must be paid by the employer — the railroad. The only possible manner in which this burden can be placed where it belongs, and where the framers of the bill in- tended and distinctly stated it should rest — "upon the whole community" — is by an -increase in rates by the carriers com- mensurate with the new burden imposed. For the Govern- ment to impose this additional expense upon the transporta- tion interests without permitting such increase in rates, would mean bankruptcy for many railroads and great injustice for all. The effect on the railroads of the conditions I have at- tempted to describe is exactly the effect similar conditions would have on any other manufacturing or mercantile business. The railroads bear no "charmed financial life"; they are sub- ject to the same conditions and must retrieve losses in the same manner as any other business. Increased expense of production means increased price for the articles produced. I do not know that the basis of wages paid railroad men is too high — the conditions of service are becoming more and more exacting every year, and there is no other business in the world that compares with it in point of hazard, both for the employer and the employe. In the case of the latter, risk of life and limb; in the case of the former, danger of almost un- limited damages for accidents, which, in spite of the most com- plete and comprehensive precautions, seem unavoidable. With the sympathy and co-operation of the business inter- ests of the country, a moderate increase in freight rates can be made effective without the slightest injury to any department of business activity. The reduction in wages of railroad employes, on the other hand, could only become effective at the end of a conflict with organized labor widespread, prolonged, and which would cost the business interests of the nation ten times the amount in- volved in any possible increase in freight rates. It is fourteen years since the so-called Debs strike stunned the business of the country; but the memory of that struggle, with its riots and disorder, the actual destruction of property by mobs, as well as the appalling loss to the nation by reason of the interruption of its commerce, is fresh in all our minds. I want to say to you that I fear this strike, bad as it was, would be like a summer shower compared with the blackness of the storm which confronts the business interests of the country if the railroads are compelled to attempt to enforce a general reduction of wages. Union labor was never so well organized, never so united, and never so abundantly able from a financial standpoint, to oppose what they would honestly believe to be an uncalled for reduction; and organized railroad labor would have the united support of every department or organized labor of the nation. The credit of the railroads has been injured largely by the growing and well-founded conviction on the part of the invest- ing public that on the present basis of cost of operation and compensation for service rendered, the permanent payment of interest on bonds, to say nothing of a fair return upon the money invested by shareholders, is extremely uncertain. How well founded this conviction was, and is, may be best illustrated by calling your attention to some illuminating but extremely startling figures. The tremendous increases in expenses which I have referred to in detail became effective at successive dates during the first half of the year 1907 ; and I have looked up the statement of about 80 per cent, of the principal railroads of the country, and find that, during the last half of the year, (after all the increases had become effective) while gross earnings of the rail- roads increased $57,413,078 over the same period of the pre- ceding year, their expenses increased $80,235,823 ; and, despite the tremendous increase in tonnage handled and gross earn- ings, net earnings decreased $22,822j745. This showing was not the result of any depression or falling off in tonnage. Traffic was moving in unprecedented volume. Furthermore, the condition which these figures reflect is even more serious than is indicated on their face. There is hardly an operating official on any of our rail- roads who did not recognize the fact very early after the taking effect of these large increases, that the most drastic methods of retrenchment and economy would be necessary to offset in part the sudden and tremendous increase in operating expenses, and many of the economies adopted during the last six months of 1907 passed far beyond the line which divides true from false economy. Yet, in spite of these extreme measures of retrench- ment, the startling loss in net revenue resulted. These are general and somewhat indefinite figures, in that 9 they do not refer to particular roads ; and^ in further corrobora- tion, I call attention to the following specific cases covering principal roads representing all sections of the country. The figures cover the last six months of the year 1907. The Union Pacific Railroad, with an increase in gross earn- ings of $3,855,646, shows an increase in operating expenses of $5,282,877, due to the tremendous increases in cost of mate- rial, pay-rolls, etc., making a decrease in net earnings of $1,427,231 as compared with the same period of the preceding year. The Erie Railroad, with an increase in gross earnings of $596,430, shows a decrease in net of $2,636,694. The St. Louis & San Francisco Railroad, with an increase in gross of $2,092,061, shows a decrease in net earnings of $1,546,273. The Santa Fe Railroad, one of the best managed roads in the United States, with an increase of $2,986,818 in gross earnings, shows an increase of $6,555,351 in operating expenses, making a decrease in net earnings $3,568,533. The Southern Pacific Railroad, with an increase in gross earnings of $6,975,042, shows an increase in operating ex- penses of $11,245,788, and a decrease in net earnings of $4,270,746. The Pennsylvania Railroad, east of Pittsburgh, with an increase of $7,258,400 in gross, shows an increase in operating expenses of $8,921,900; making a reduction in net earnings of $1,665,500. The New Haven Railroad, with an increase of $1,194,183 in gross earnings, shows an increase in operating expenses of $2,516,196, making a decrease in net earnings of $1,322,013. The Missouri Pacific Railroad, with an increase in gross earnings of $478,698, shows an increase in operating expenses of $2,187,911; making a decrease in net earnings of $1,709,214. The Louisville & Nashville Railroad, with $815,877 increase in gross, and $2,542,766 increase in operating expenses, shows a decrease in net of $1,726,899. 10 The gross earnings of the New York Central Railroad in- creased $2,227,621, while operating expenses show an increase of $3,866,752; making a decrease in net earnings of $1,639,131. In giving these figures I have tried to select railroads repre- senting fairly all sections of the country. They show that operating expenses increased about 60 per cent, more than gross earnings; indicating that no increase in volume of business will make good the tremendous increase in expenses ; and demon- strating clearly that there must be secured an increase in net earnings, by a moderate increase in freight rates, or a decrease in expenses by a substantial reduction in pay. During the first quarter of the year, the New York Central lines, traversing, as they do, the most populous and most pros- perous section of the United States, have but little more than earned their fixed charges, making scant provision for dividends and none whatever for betterments. Two of them — ^the Cleve- land, Cincinnati, Chicago & St. Louis, and the Lake Erie & Western — located in the garden of the United States, and serving some of the largest and most important cities in the country, have passed from the list of dividend-paying roads. The reports from hitherto prosperous railroads located in and serving every portion of the United States show that this condition is universal. Dividends of the most prosperous railroads are being re- duced and on others entirely suspended. Other roads, unable to earn their operating expenses and fixed charges, are being placed in the hands of receivers. The first effect of this condition was to close the usual sources from which large sums of money have heretofore been readily available for necessary improvements by the sale of long-time low interest-bearing bonds, and to force the railroads to resort to short time notes bearing high rates of interest, absorbing all the available funds of the banks, making it diffi- cult, and in many cases impossible, for other business enter- prises to borrow money at all, and forcing interest rates for all to an almost prohibitive figure. 11 This condition will be repeated the moment the railroads attempt to resume the purchase of equipment in large quanti- ties, or the great work of improvement, which was interrupted by the panic, unless the credit of the roads can be restored, enabling theni to sell securities of long tenor at a reasonable price and bearing a reasonable rate of interest. It is, perhaps, unnecessary to say that this resumption can never come, except by such restoration of credit, and I do not believe such restora- tion of credit can be brought about save by an increase in rail- way rates, which will promise a revenue sufficient to make rail- way securities a reasonably dependable investment. This was the effect of these sudden and tremendous in- creases in expenses on the railroads. Let us glance briefly at the almost immediate effect upon the prosperity of the coun- try at large. During the year 1907, the New York Central lines paid out to car and locomotive manufacturers in the United States more than $31,000,000, almost every dollar of which was paid out for labor in some form or other. During the year 1908, with the exception of a compara- tively small number of locomotives, not a dollar will be ex- pended for this purpose; and this record is being repeated by almost every railroad in the country. Nearly $11,700,000 was expended during the year 1907 for rails and ties. During the present year less than half this amount will be expended. During the year 1907, approximately $32,000,000 was ex- pended by the New York Central lines alone in reducing grades, improving alignment and providing second, third and fourth tracks. At the present time, from the Atlantic to the Pacific and from the Gulf to the Great Lakes, work of this char- acter is almost entirely suspended. If the railroads could resume the purchase of equipment and material and the great and vitaUy necessary work of im- proving their facilities, the present depression would, in my opinion, Yapigll in a day; and the re-employment of the hun- 12 dreds of thousands of idle workmen would, by their purchasing power, start running to their capacity thousands of idle manu- facturing plants all over the land. I believe these results would very speedily follow the taking effect of the suggested increase in freight rates. The effect of a moderate increase in railroad rates, accepted by the public and approved by the Interstate Commerce Com- mission, in restoring confidence in railway investment, would do more to put in motion the wheels of industry and start the country upon a new era of prosperity, than anything else that could possibly be done. I sometimes think that the question of freight rates and their effect on the price of commodities to the consumer is not very accurately known. We are prone to jump at conclusions, instead of carefully analyzing figures and thus reaching con- clusions which are exact. The question of freight rates, in order to get a fair perspec- tive, and to reach an absolutely fair conclusion, must be fol- lowed to its last analysis, which is its application to, and effect upon, the individual consumer. The whole fabric of freight rates, from the first shipment of raw material, is simply .a transfer or carrying forward of freight charges, until it reaches the final purchaser or consu- mer, and he pays the freight. When the New York Central lines paid the various locomotive and car manufacturing companies approximately $31,000,000 for equipment and material furnished in the year 1907, the railroad paid every farthing of freight that had accrued on every pound of iron and steel from the time the first pick was struck into the ground that mined the ore; it paid the freight on every foot of lumber from the time the axe was struck into the tree from which the lumber was cut, and it paid the freight on every dollar's worth of provisions used and clothing worn by the employes of these companies and their families while working on this equip- ment. When the New York Central lines paid for the three million 13 ties and approximately one hundred and eighty-five thousand tons of rail used in 1907, it paid every penny of freight that had accrued on the ties and the rail from the time one was standing timber and the other was iron ore in the mountains of Minnesota. The railroad fed and clothed the workmen and their families and paid the freight on the provisions used and clothing worn by them from the time the tree was felled in the forest and the ore dug from the ground, until, passing through the thousands of hands, the ties and rails were finally laid in the track. The consumer buys what his family consumes^ — flour, but- ter, meat, sugar, tea, coffee, and the like — ^by the pound. He buys his kitchen stove or his range, and his heating stove, or his refrigerator, once in ten or fifteen years, according to the quality of the utensil and the care given it in its use. Let us consider for a moment what the freight rate means to the consumer, and what an increase of ten per cent, would signify to him. Troy, New York, is quite an important stove manufactur- ing point. The freight on a steel range, selling at retail for from $55.00 to $60.00, and weighing from 400 to 500 pounds, from Troy to Chicago, is about $1.1-1; to Cincinnati, 90 cents; to Indianapolis, 99 cents; to St. Louis, $1.30. An increase of ten per cent, would add from 9 to 13 cents to the cost of each stove to the consumer who finally buys and uses the stove. Taking the low average of ten years as the life of a stove and dis- tributing this increase over the ten years, would make it cost the consumer for increased freight charges from one to one and three-tenths cents per year. The rate on gloves from Gloversville, N. Y., to New York City or Brooklyn, amounts to about nine-tenths of one cent per dozen pairs, or seven and one-half one-hundredths of one cent per pair of gloves, which retail at from 75 cents to $2.00 a pair. An increase of ten per cent, would add nine one-hundredths of one cent per dozen, or seven and one-half one-thousandths of one cent per pair. 14 The rate on knit goods, cotton and woolen underwear, sweaters, etc., from Troy, Cohoes, Amsterdam, Little Falls, Utica, Fort Plain, and all other points in New York and West- ern New England to Chicago, the great distributing point for the West and Northwest, is 44 cents per hundred pounds. The average price to the consumer of a suit of underwear is from $1.00 to $3.00. The freight per suit to Chicago is forty-four one-hundredths of one cent. An increase of ten per cent, would add four one-hundredths of one cent to this cost to the consumer. To St. Louis and other Mississippi River points the freight is fifty-four one-hundredths of one cent per suit. An increase of ten per cent, would add five one-hundredths of one cent to the cost of underwear to the consumer. Do you not think that either the manufacturer or consumer would very gladly accept this almost inconceivably small addi- tion to cost if, as a result of such small increase in rates applied uniformly to the freight traffic -of the country, the railroads could again resume their tremendous purchases of material and equipment, enabling the large locomotive and car manufactur- ing companies, the rolling mills, the iron mines, and other in- dustries that to a very great extent are dependent on the rail- roads' purchases, to resume operations and to re-employ millions of men who are out of employment; making this vast army of men now idle, and with no purchasing power whatever, patrons of the retail establishments in the thousands of communities in which they live, and enabling these establishments in turn to buy the stoves and ranges manufactured at Troy, and the gloves, knit goods, cotton and woolen underwear, sweaters, etc., from the manufacturers at Gloversville, Utica, Amsterdam, Little Falls, Fort Plain, and the many other manufacturing points represented in your Association. The freight on a refrigerator, such as is used by the ordi- nary family, from points in Indiana and Michigan to New York is approximately 75 cents; an increase of ten per cent, would add 7^ cents to the cost of the refrigerator which sells for from $15.00 to $50.00, delivered in New York City. I ask 15 you, as a representative of a large manufacturing association, if the manufacturer could not afford to pay this small addition in freight rates? Could not we all, as consumers, afford to pay 7^ cents more for the refrigerator if such an addition, fairly and equitably distributed, would return to steady, well-paid employment the hundreds of thousands of men now out of em- ployment, enabling them again to become purchasers of the stoves, the refrigerators, and the many other products of the Nation's manufacturers ? The rate on butter and eggs from points in Eastern Iowa to New York — a distance of approximately -1,200 miles — is 84 cents per hundred pounds. On dressed poultry from the same points to New York, the rate is 96-| cents. The eggs are sold to the consumer by the dozen and the other commodities by the pound; and the consumer pays every farthing of freight that has accrued from the time the egg is laid, which he buys in the "original package" or as dressed poultry, or from the time the cow is milked from which the butter is made. An increase of ten per cent, would add eight one-hun- dredths of one cent per pound to the price the consumer pays for butter and eggs, and it would add nine and one-half one- -hundredths of one cent per pound to the cost of dressed poul- try for which he pays from fifteen to twenty-five cents per pound. The freight on an ordinary suit of clothes, including hat and shoes, for a distance of three hundred miles, from any of our large jobbing or distributing centers, is approximately 3^ cents ; a ten per cent, increase would add a little more than three one-hundredths of one cent to the cost of a suit, which sells for from $10.00 to $35.00. The rate on flour from Minneapolis to New York, in car- loads, is 25 cents per 100 pounds, or 12|^ cents per 50 pound sack. The flour is sold to the retailer in New York at approx- imately $1.48 per 50 pound sack. An increase of ten per cent. 16 in freight rates would add but 1^ cents to the price of a fifty- pound sack, or a little more than two one-hundredths of one cent per pound. The rate on dressed beef from Chicago to New York is 45 cents per hundred pounds. The average price of this beef to the retailer in New York is approximately 11^ cents per pound. A ten per cent, increase in freight rates would add less than five one-hundredths of one cent per pound. The freight rate on a harvester for 300 miles, boxed and crated, by the carload, as they are shipped, would be $1.76. A ten per cent, increase in this freight rate would amount to about 17^ cents. The machine sells for $130.00. The freight on a cream separator — by the carload — from Poughkeepsie to Chicago, is approximately 48 cents; to Minne- apolis, 74 cents; to Kansas City and Omaha, 95 cents; to Mon- treal, 35 cents. One of these separators retails for from $45.00 to $60.00 each. An increase of ten per cent, in the freight rate would add from three and five-tenths cents to nine and five-tenths cents to the price of the separator which the pur- chaser would have to pay. The freight on a mower, weighing from 750 to 900 pounds and selling from about $45.00, from Poughkeepsie to Chicago, is approximately $2.06 ; to Montreal, Can., $1.51 ; and to points in Central Ohio from $1.40 to $1.50 each. A ten per cent, in- crease would add approximately twenty cents to the price of the mower at Chicago; 32 cents at Minneapolis; 39 cents at Kansas City and Omaha; 15 cents at Montreal, and from 14 to 16 cents at points in Ohio. Would the manufacturer who makes these implements, would the farmer who buys and uses them, object to this very moderate addition to the cost if, by reason of it, thousands of well paid, steadily employed consumers, were added to those who buy the grain and other products of the nation's farms. This list could be enlarged to embrace every commodity which railroads handle, and the same process of analysis would in every case reach substantially the same result. 17 As before stated^ my argument has been on the assumption that you were correct in your statement that the rates have not been either raised or reduced in the last thirty years; and if this was the case, in view of the tremendous increase in cost of producing the commodity of transportation, which the rail- roads produce and sell, I do not believe that any fair-minded man, giving the matter careful, unprejudiced consideration, can reach any other conclusion than that the railroads are en- titled to a substantial increase in freight rates. I beg to state, however, that you are in error in your state- ment that there has been no reduction in freight rates during the last thirty years. The following were the class rates in effect between New York and Chicago in 1877 compared with 1908 : Eastbound — 1877. First class _. $1.50 Second class 1.10 Third class 85 Fourth class 40 (In addition, there are the fifth and sixth classes, which were not in existence in 1877, which take a rate of 30 and 25 cents per 100 pounds respectively, and include many articles which before took the fourth class rate of 40 cents.) Westbound — ■ 1877. First class 75c. Second class 70c. Third class 60c. Fourth class 45c. Fifth class 35c. (And a sixth class has been established, which takes a 25 cent rate, and which includes many commodities which for- merly took fourth and fifth class rates.) The rate on grain and flour from Chicago to New York dur- ing this period was as follows: 18 Decrease 908. per cent. 75c. 50 65c. 41 50c. 41 35c. 12* Decrease 1908. per cent. 75c. 65c. 7 50c. 17 35c. 22 30c. 14 Wheat. Corn. Flour. 1877 35c. 35c. 35c. 1887 - 25c. 25c. 25c. 1897 20c. 15c. 20c. 1908. Domestic: 16c. 16c. 16.7c. Export 13c. 13c. 14c. These figures show that the rate on wheat and corn for ex- port was 270 per cent, higher in 1877 than in 1908; while on flour it was 250 per cent, higher. It is true that class rates do not show anything like the ratio of reduction that is shown on farm products eastbound; but it is also true that the fact that the railroads have made these tremendous decreases in rates of freight on farm products has been one of the most potent influences in the upbuilding and prosperity of the great agricultural West and Middle West, and this prosperity has been the foundation on which the great manufacturing industry of the United States has been built, and upon which the future prosperity of the manufacturing business of the nation must depend. I have written you at great length because I appreciate fully the importance of the Manufacturers' Association of New York and the influence it will exert in the settlement of this question. The interests of the manufacturer, the merchant, the miner, the farmer, and the railroads are inseparably interwoven. In- jury can come to neither without hurt to all the others, and the blow to the railroads which I have attempted to describe was quickly and disastrously reflected in every department of busi- ness activity of the nation. I doubt if any question which is pressing for consideration at this time exceeds in importance the one I have attempted to outline. Upon its righteous determination rests the issue of an early return of prosperity or an indefinite continuance of present depressed conditions, emphasized and darkened by a conflict with organized labor such as the business interests of the nation have never experienced. 19 The question deserves the most careful^ unprejudiced study and investigation at the hands of every business man in the country. Without such study and investigation no man should attempt to form or express an opinion. With such an investi- gation, carefully and conscientiously made, by members of your Association or any kindred organization of business men of the nation, the railroads may safely submit the facts and with full confidence await the decision. Yours very truly, (Signed) W. C. BROWN, Senior Vice-President. 20 CLIPPINGS FROM NEW YORK PAPERS, CONTAIN- ING CRITICISMS OF MR. BROWN'S LETTER TO MR. HOILE AND REPLIES THERETO. New York Times, July 13, 1908. SECRETARY HOILE DECLARES FOR THE MANUFACTURERS THAT RAILROADS ARE PLAYING POLITICS -WAGE CUT THE REAL REMEDY. Secretary Hoile, of the Manufacturers' Association of New York, after a careful perusal of Mr. Brown's letter, at his home in Farmingdale, L. I., yesterday, replied to a number of the state- ments it contained. He said, in part: "I do not intend for a moment to question the motives of Mr. Brown, nor is it my desire to enter into a controversy with him, par- ticularly through the newspapers. "For many moons the prayer of the railroad managers, ad- dressed to Washington, D. C, has been: 'Don't bother us and let us alone.' That is now the prayer of the shippers to the railroad man- agers. "If the railroads insist upon the proposed 10 per cent, increase at this particular time we shall have to see what can be done with and through the Inter-State Commerce Commission. It may be a fact that there should be a 10 per cent, increase in freight rates. The time, however, for that increase is not nov/. "It may be true, as intimated by Mr. Brown, that the freight rate question is not properly understood as to its effect upon the cost of an article to the consumer, but to most people it is quite clear that, notwithstanding the bold announcement 'Jones pays the freight,' it is the consumer who has that honor. And if the normal freight charge is $1, and that rate is increased 10 per cent., it means in practice to the consumer, that on ten purchases he pays $11 instead of $10 freight charges. "If the railroads are going to arrange rates for the benefit of the labor unions the manufacturers had better have this thing out right now, and the sooner the better. "While the manufacturers are not opposed to the labor unions, and particularly those connected with the running of trains, our 31 experience as manufacturers and those affiliated with tlie building trades, has been far from satisfactory. "If the two conventions, the Republican and the Democratic, can play with the anti-injunction plank, it is quite a different propo- sition when the railroad managers put a similar proposition up to tlie manufacturers. Politicians can throw a bluff and they do throw bluffs. And the railroad managers every now and tlien play politics. They can play politics with the politicians, but when it comes to their playing politics with the manufacturers, it is a far different proposition. We are standing against that sort of thing as a matter of principle. "The railroad companies are not the only ones who are being pinched by the present situation. The manufacturers are also being pinched as it is. Many of them have stock in their possession which has depreciated 50 per cent, since last Fall. The blow which resulted from the financial depression last Fall is still being felt keenly all along the line. We are all carrying our end of the load. Perhaps Mr. Harriman could inform us how the panic last Fall was caused. "It is no use for the railroads to hold out the threat of a strike should they meet the situation by decreasing their payrolls. If that comes, let it come, for the railroads have only to face a situation that every employer of union labor faces. The manufacturers face the same proposition as the railroads do in this respect. It is one of the unfor- tunate results of union labor. The statement by Mr. Brown that a strike would be precipitated should the railroads decrease the payrolls does not answer our statement that the advance of rates would work disaster to the manufacturers. , "If an advance in rates were made on the Long Island Railroad and not on the New Jersey Central it can be readily understood tliat the man along the Jersey Central is going to get his goods to New Yorlc cheaper than the man along the Long Island Railroad. That would scarcely be fair to tlie men who are engaged in the same business, but whose manufacturing plants are in different localities. The point is this — the advance is not to be made universal, as we understand it. If that understanding is correct the increase in freight rates becomes inequitable, because it is discriminatory." New York Times, July 14, 1908. SUGGESTS A BOARD TO ARBITRATE RATES. Vice-President Brown Says Such a Commission Would Satisfy the New York Central. DEFENDS THE WAGE SCALE. Counting High Cost of Living, Pay of Men Isn't Too High, He Says- Railways Not Playing Politics. Senior Vice-President Brown of the New York Central replied yesterday to the interview of James T. Hoile, Secretary of the Manu- facturers' Association, as published in yesterday's Times. When Mr. Brown was seen yesterday in his ofSce at the Grand Central Station by a Times reporter he was asked: "Mr. Brown, what reply have you to make to the statement of Mr. Hoile that the railroads, through fear of union labor, propose increasing rates rather than decreasing wages?" "This is not the case," said Mr. Brown. "If wages paid railroad employes were unduly high as compared with wages paid in other departments of business activity, in positions comparable with the positions in railway service, then it would be fair to consider the ques- tion of reducing wages; but, as a matter of fact, this is not the case. Taking into consideration the cost of living, which is almost as high in every particular as during the height of business prosperity in 1907, the present basis of wages paid railroad men is not too high; whereas, com- pared with freight rates in any other country where railroads are operated, or compared with the former basis of rates in this country, or taken in connection with the large increases in cost of material of every character, freight rates in the United States are too low. "I happen to have before me a letter from Mr. O. C. Barber, President of the Diamond Match Company, of Akron, Ohio, under date of July 7th last, in which he speaks of the wages paid coal miners in mines in which he is interested. He says: " 'At our mines at the present time we have no difficulty in get- ting cars, neither have we any difficulty in selling the coal at rea- sonable profit, and we have to-day working in these mines Russian miners who cannot speak the language of the country, making as liigli as $8 per day.' "The engineers pulling our highest class passenger trains, the Twentieth Century Limited, the Empire State Express, etc., cannot 23 make $8 per day. There is hardly a trainmaster in the United States, and not a great many Division Superintendents of railroads, who make as much as $8 a day. "The truth of the matter is that the pay of iron and steel workers, brick masons and carpenters averages higher than the pay of engineers, firemen, conductors, and trainmen on the railroads. The former have reasonably regular hours and are subjected to little of the exposure to all kinds of weather and the constant risks that make life insurance almost an impossibility for railway employes in train and yard service, as well as the indispensable requirement in railway service of working night or day as conditions may demand." "Have you anything to say in regard to Mr. Hoile's charge that the railroads are playing politics?" Mr. Brown was asked. "There is no desire or disposition on the part of the railroads to play politics. I endeavored in my reply to Mr. Hoile to give figures which are susceptible of verification and they should certainly be ac- cepted or disproved." "What have you to say to Mr. Hoile's suggestion that the question will probably be submitted to the Inter-State Commerce Commission?" "Speaking for the New York Central lines, as I am not authorized to do more than this, I should be perfectly willing to submit the question to the Inter-State Commerce Commission either before or after the taking effect of the rates; and if the Inter-State Commerce Commission does not care to undertake the consideration of the question until it reaches them — after the taking effect of the rates — I should be perfectly Jtvilling to leave it to a fair commission, similar perhaps to the Coal Commission appointed by President Roosevelt in 1902. I think the rail- roads can demonstrate the merit of their claims for an increase in rates to any fair-minded, conscientious commission to which the question may be submitted." "Mr. Hoile states that he understands the proposed rates will be discriminatory," suggested the reporter. "I do not know where Mr. Hoile gets this understanding of the situation," said Mr. Brown. "One purpose in deferring the taking effect of the new rates until October 1 was to give time for such thorough consideration of the matter in all its phases as to avoid any discrimination, and in making any increase in rates thai may be determined on to preserve existing differentials and relation of rates so that all shippers will be on the same relative basis of rates as now." 24 New York Evening Post, July 14, 1908. VIEWS OF PROPOSED ADVANCES IN FREIGHT RATES. Douglas Dallam, secretary and treasurer of the National Whole- sale Dry Goods Association, said yesterday: "Mr. Brown and the other parties to the increase agreement betray their lack of full knowledge of the freight and business situation when they say that a 10 per cent, increase would distribute itself in a minute way among consumers. In the dry goods business, which, by the way, furnishes the best paying traffic the railroads get, the additional 10 per cent, would be paid directly by the jobbers. In the final analysis, to use Mr. Brown's favorite expression, the charge might fall on the general public, but it would take years for this adjustment to be made. "There is no possible way in which the wholesale distributer could add the extra tax, to the retail price of his silks, calicoes, and other commodities. He simply would have to call upon his bankers for more money. Is it the part of wisdom to further curtail the working ability of the distributers of merchandise — the people who in a large way create the business for the railroads?" W. S. Armstrong, president of the New York Credit Men's Asso- ciation and member of the Board of Trade's committee on transporta- tion, said: "It would be a case of building higher on a false foundation, wliich would be the worst possible thing the roads could do. The tax would be a direct one on the vital forces of the country; would further paralyze the sinews, and therefore never should have been seriously considered. Mr. Brown holds contrary views, it appears, but the expression of them only creates the' impression that his other arguments are just as faulty. He has attempted to analyze; he will be surprised when the shippers and other business men begin to analyze railroad rates. "Mr. Brown was asked pertinent and direct questions by the manu- facturers, none of which he answered. The gist of his recent letters and speeches is that either rates must be raised or wages lowered; that a 10 per cent. Increase in the former would not seriously injure any one. I doubt if any other railroad executive of prominence in the country would openly endorse the latter view. "If wages are too high in places they should be lowered to the proper level; if freight rates are too low on certain commodities they should be increased. "In any event, the mercantile and industrial interests of the country are not responsible for the situation in which the railroads find them- selves. Greater financial — and political — damage will be done by wrong- fully maintaining wages and wrongfully raising freight rates than by doing the sensible thing at all odds, as the railroads finally will be forced to do." New York Herald, July 16, 1908. MAKES HER SUIT COST 13-lOOTHS OF A CENT MORE. How a Woman in Chicago Would Be Affected by Ten Per Cent. Freight Rise. COTTON DRESS GOODS USED TO ILLUSTRATE. Figures Are Provided by William C. Brown, Senior Vice-President of New York Central. MILLIONS TO THE RAILROADS. Advance, Distributed Minutely Among the Buyers, Keeps Men at Work and Their Families from Starvation. " Increases of ten per cent, in freight rates may present, when reduced to actual figures, extremely small fractions — almost incon- ceivably small when viewed by the consumer. But to the railroads those fractions in their aggregate mean the difference between pinching poverty and a reasonable degree of prosperity. To hun- dreds of thousands of workingmen they mean the difference between steady, well paid employment and walking the streets looking in vain for work." With this statement William C. Brown, senior vice-president of the New York Central and Hudson River Railroad, summed up yesterday a further defense of the position of railroad authorities and financiers, as stated In interviews in the Herald, that there must be an increase in freight rates or a wage reduction if the railways of the United States are to escape a paralyzing attack of "arteriosclerosis," as aptly and vividly presented by the simile applied in the Herald's editorials on this vital subject, and become the foremost factor in bringing to the nation at large a stable return of buoyant prosperity. Of the alternatives presented Mr. Brown asserted that moderate rate advancement offers the best expedient and carries the least possi- 26 bility of causing any industrial disturbance. He answered tlie contention of Douglas Dallam, secretary and treasurer of the National Wiiolesale Dry Goods Association, that he had "betrayed his lack of knowledge of the freight and business situation" when in his formal letter on the subject the New York Central ofBcer held that a ten per cent, increase would "distribute itself in a minute way among the consumers." Mr. Brown said: "I have read very carefully what Mr. Dallam has saiJ, and I am very glad to suggest a method by which the dry goods jobber can and should distribute the proposed increase, if made. The present rate on cotton dress goods from New York to Chicago is fifty-five cents a hun- dred pounds. This figures out about eleven-hundredths of one cent a yard, including the weight of the case or box. An increase of ten per cent, on the freight rate would add eleven one-thousandths of a cent a yard to the cost of the goods in Chicago. Allowing twelve yards of dress goods for a woman's dress, an increase of ten per cent, in tlie present freight rate would add thirteen-hundredths of a cent to the cost of the suit. "The present rate on winter dress goods between New York and Chicago is seventy-five cents a hundred pounds, or approximately seventy-five hundredths of one cent a yard, including the boxing. A ten per cent, increase would add seventy-five one-thousandths of one cent a yard to the cost of the goods at Chicago, or an increase on the cost of a dress of twelve yards of about nine-tenths of one cent. Mr. Dallam will simply have to add to the present price on cotton goods eleven one-thousandths of one cent a yard; to the present price of winter goods seventy-five one-thousandths of one cent a yard. "I realize this is dealing in extremely small fractions, almost in- conceivably small to the consumer; but to the railroads — handling mil- lions of tons of freight as they do — ^means the difference between pinch- ing poverty and a reasonable degree of prosperity. It means to hun- dreds of thousands of workingmen the difference between steady well paid employment and walking the streets looking in vain for work." Reminded of the position of Mr. Knapp, of the Interstate Commerce Commission, who has not favorably regarded the suggestion that the rate matter be referred to an independent commission or board of arbi- tration, Mr. Brown said: — • "I agree fully with Mr. Knapp in this. The regular and legal method of handling these matters seemls to me best and really the only effective way. I am satisfied that the equity and fairness of the rail- roads' ijosition would appeal to any commission that might be agreed on, and, so far as I can express the sentiment of the railroads, they 37 would be willing to leave it to such a commission. I realize, however, that the finding of a 'special' commission of this kind could not, in the nature of things, be final, and that the question can only conclusively and authoritatively be decided by the Interstate Commerce Commission, which was created for that express purpose.'' Answering the charge of Mr. W. S. Armstrong, President of the New York Credit Men's Association, that the proposed increase in freight rates* would be a case of "building higher on a false foundation, would be a direct tax on the vital forces of the country, and would further paralyze the sinews," Mr. Brown stated: "I do not think his point is well taken. The foundation for an increase of freight rates lies in the fact that for ten years there has been a continuous rise in the price of almost everything except freight rates. The demand on the part of the railroads for an in- crease in freight rates at this time is not based on the existing de- pressed business conditions. A moderate increase in freight rates would have been necessary on account of the tremendous increase in wages, advanced cost of material and increased expenses incident to recent legislation, even if the volume of business during 1908 had been fully as great as in 1907. "As shown in my letter to J. T. Hoile, secretary of the Manufac- turers' Association of New York, during the last six months of 1907, while the gross earnings of the railroads increased about $57,750,000 over the same period of 1906, their expenses increased almost $80,500,000 and net earnings decreased almost $23,000,000. This showing was not the result of any depreciation or falling off in tonnage. Traffic was moving in unprecedented volumes, and if these figures indicate anything it is that no increase in volume of business will make good the tre- mendous increase in expenses. And they demonstrate unmistakably that there must be some increase in net earnings by a moderate increase in freight rates or a substantial reduction in the pay of railway employes. "For very many reasons the former alternative is by far the better. The one controlling reason, however, is the fact that, by comparison with the wages of men employed in other departments of business activity, the wages paid railroad men are not too high. On the other hand, it is a fact that, considered in connection with the great increases made in the wages of railway employes during the last ten years and with recent legislation which curtails the hours of labor and adds burdens impossible of estimation in connection with personal injury claims, and in considera- tion of the further fact that almost every item of material used by rail- roads shows an increase during the same period of from twenty to one hundred per cent., the present basis of freight rates in the United States is too low." 28 correspondence: bet-ween CHARLES T. PAGE: Chainnan Eacecutive Coimiiittee Tine LeatKer Belting Manufacturers' Association and WILLIAM C. BROWN Senior Vice-President Ne\Ar YorK. Central Lines CONCERNING FREIGHT RATES THE LEATHER BELTING MANUFACTURERS' ASSOCIATION. Concord, N. H., July 3, 1908. Mr. W. H. Newman, President N. Y. C. & H. R. R. R., Grand Central Station, New York City. Dear Sir — It has come to our knowledge that the rail- roads east of the Mississippi River and north of the Ohio and Potomac rivers propose to advance rates from 8 to over 12% per cent on classes and commodities in this territory, which would put a very onerous burden upon the many shippers located therein, and we wish to protest against any such action upon the part of the railroads, and to ask the governing offi- cials of these roads to abandon these advances. We feel that they are uncalled for, and if put in effect will injure shippers and retard progress toward better conditions. The railroads have suffered, possibly not to the extent that the commercial interests have, and certainly to no larger extent, during the recent and present depressed business conditions. Some railroad representatives state that an advance in the freight rates would mean quick resumption, of business, but it does not seem very plausible that when business conditions are depressed and it is hard work for merchants and manu- facturers to do business with any profit, that all they would have to do would be to ask railroads to advance rates, and business would immediately resume its normal condition. Shippers cannot combine during dull times to advance prices on their commodities, and, while we believe that rail- roads should be allowed to have their associations 'in order to secure uniformity in rates and regulation of their roads, such associations should not be allowed to advance rates at sucli times as these- without due consideration of the public. The railroads claim that their interests and the interests of the commercial community are identical, but they hardly carry out their profession when they secretly get together and try to advance rates at a time when merchants and manufacturers can least stand such advances. Yours truly, (Signed) Chas. T. Page, Chairman Executive Committee. NEW YORK CENTRAL LINES New York Central & Hudson River R. R. Lake Erie, Alliance & Wheeling R. R. Co. Lake Shore & Michigan Southern Ry. Co. Chicago, Indiana & Southern R. R. Co. Michigan Central R. R. Co. Rutland Railroad Co. Lake Erie and Western R. R. Co. New York & Ottawa R. R. Co. Cleveland, Cincinnati, Chicago & St. Louis Ry. Co. Grand Central Station, New Yokk, July 15, 1908. Me. Charles T. Page, Chairman, The Leather Belting Manufacturers' Assn., Concord, N. H. My Dear Sir — Your letter of July 3rd has, in the absence of Mr. W. H. Newman, to whom it was addressed, been re- ferred to me ; and I beg to say in reply that the railroads are contemplating advancing freight rates, but no attempt has been made to make this advance secretly as you suggest. On the contrary, the matter has been the subject of discus- sion for the last two months, and the taking effect of the pro- posed increase has been deferred for the express purpose of giving full opportunity for all interests tp be heard. The railroads claim, as you say, that their interests and the interests of the commercial Community are identical, and certainly nothing can be more convincing evidence of this fact than the reflex effect on your business and that of almost every manufacturer and merchant in the United States of the conditions the railroads have been called on to face during the last eighteen months, which have almost destroyed their purchasing power, stopped nearly everything in the way of construction of new equipment and very greatly curtailed the maintenance and repair work on existing equipment. I desire briefly to call your attention to a few of the things I refer to above, which in my judgment make it absolutely necessary for the railroads to secure a reasonable increase in compensation for the service they render: In the first place, the average wage paid to railway em- ployes has, in the last ten years, shown an increase of from 33 1-3 to 50 per cent. The average cost of almost every class of material that railroads consume in tremendous quantities each year has increased from 50 to 100 per cent. To illustrate, I desire to call your attention to the follow- ing increases which have occurred during the last ten years ; and a comparison of the prices in 1898 with those of 187S would, with the exception of steel rails and possibly two or three other items, show a still further increase. During the ten years from 1898 to 1908 there have been the following increases in the cost of material ; Angle bars 50 per cent Gray iron castings 37.5 " Malleable iron castings 21.3 Bar iron 42.8 Cut nails 95.4 Wire nails 45.6 Cast-iron pipe 87.8 " Steel rails 47.3 Track spikes 25.9 " Cast-iron car wheels 25 " Barbed wire 32 Bridge timbers 80 " Cross ties 76 Car siding 90 " Locomotives 68.3 " Box cars 72.8 Car axles 51 " Locomotive steel forgings: Crank pins 105 Piston rods 57 " Main and side rods 28 " 4 This list could be increased to include almost every item of material used by the railroads. Taxes have increased from an average of $179.00 per mile to an average of $349.00 per mile, or approximately 95 per cent. Do you know of any other business in the country which could sustain such tremendous increase in cost without some increase in price of the commodity produced? Generally, these increases have been gradual and have been offset in some measure by increased tonnage and increased efficiency, resulting in decreasing the unit cost of transporta-^ tion. During the last eighteen months, however, the follow- ing tremjendous increases have come in leaps and bounds, and the converging lines of cost and compensation in railroad operation,, which for years have been steadily approaching each other,, have been suddenly brought so close together as to alarm shareholders and investors ; and it is certain that, in order to pay fixed charges, taxes and operating expenses, with even a very moderate return to shareholders, there must be either a moderate increase in freight rates or a very substan- tial reduction in wages of railroad employes. Becoming effective during the early months of 1907, in- creases in pay of railroad employes approximating one hun- dred million dollars per annum were made. This increase was not voluntary on the part of the rail- roads, but was the result of weeks of conference between representatives of the roads and those of the employes ; and finally of intermediation by Chairman Knapp of the Interstate Commerce Commission and Commissioner Neill of the Bureau of Commerce and Labor. The settlement was on a lower basis than the men thought they should have and higher than the roads felt they could afford to pay ; but it undoubtedly averted a strike which would have cost the commerce of the country many hundred times the amount involved. Following this tremendous increase in wages, legislation by Congress and by a number of the States, restricting the hours of labor of trainmen, enginemen, telegraph operators, block signalmen, employes of interlocking towers, and others, made a further annual increase of approximately $35,000,000 in the payrolls of the railroads of the country. By legislation passed at the last two sessions of Congress and by subsequent rulings of the Postmaster-General, reducing compensation for handling United States mail, approximately $10,500,000 per annum has been taken from the revenue of the railroads. In the closing hours of the last Congress the Employers' Liability Act, which applies only to railroad companies, was enacted. This law removes the last vestige of protection that was secured to the railroads by the Common Law against personal injury or deatii claims on the part of employes or their fam- ilies; makes the railroads liable for injuries caused by fellow employes, even where every possible precaution had been taken •by the company to secure safety, and the law also removes the bar to recovery of damages for accidents which result from the employe's own carelessness. Under the operation of this law, the loss hitherto placed by the Common Law upon the individual — the employe — is transferred to the employer — the railroad. That it was under- stood the employer could not, under present conditions, bear the additional burden and that it was not the intent of the framers of the measure that the railroads should assume this burden is not only clearly indicated but distinctly stated in the following quotation from the report on the measure sub- mitted by Senator Dolliver, from the Committee on Education and Labor, when it was undef consideration by the Senate : G "It is no part of the purpose of this legislation to oppress or add hurdens to the business enterprises of the country, but rather to promote the welfare of both employer and employe by adjusting, the losses and injuries inseparable from industry and commerce, to the strength of those who in the nature of the case ought to share the burden." Again, in speaking of the risk and danger involved, the report says : "Yet, somebody must assume these risks, and the tendency, where the industrial life of the community is thoroughly organized, has been to modify the doc- Irine of negligence so as to allow the burden of acci- dent and misfortune to fall, not upon a single helpless family, but upon the business in which the workman is engaged; that is, upon the zvhole coninmnity.'' No person can approximately estimate what this legislation will cost the railroads of the country. As an indication of the effect of an Employer's Liability Act, and in a direction of peculiar significance and vital im- portance to the members of your association, I note the follow- ing taken from a report made by a special correspondent of the "London Commercial Intelligence." Speaking of the effect of the recently enacted law, he says : "The metallurgic industry is being hard hit in this respect. I have before me a return showing the num- ber of cases brought before the courts fpr compensa- tion, and I see that in the metallurgic industry alone no less than 6,318 cases came before the courts of France during the three months ending December 31, 1907. The number of accidents causing death was 264, and in addition to the compensation awarded to those who recovered, life annuities were awarded to 1.92 widows, and annual allowances till of age, to no less than 308 children." This is the record for three months in one private industry, probably exempt from the prejudice which public service corporations in this country invariably encounter. That the enactment of this law will result in a most sub- stantial benefit to the employes of the railroads is best evi- denced by the untiring effort of the railroad men, strongly supported by the President, in securing its passage, and every dollar of benefit to the employe must be paid by the employer — the railroad. ■ The only possible manner in which this burden can be placed where the fr-amers of the bill distinctly stated it should rest — "upon the whole community' — is by an increase in rates by the carriers commensurate with the new burden imposed. The effect on the railroads of the conditions I have attempted to describe is exactly the effect similar conditions would have on any other manufacturing or mercantile business. The rail- roads are subject to the same conditions and must retrieve .losses in the same manner as any other business. Increased expense of production means increased prices for the article produced. The credit of the railroads has been injured largely by the growing and well-founded conviction on the part of the in- vesting public that on the present basis of cost of operation and compensation for service rendered, the permanent pay- ment of interest on bonds, to say nothing of a fair return upon the money invested by shareholders, is extremely un- certain. How well-founded this conviction was, and is, may be best illustrated by calling your attention to some illuminating but extremely startling figures. The tremendous increases in expenses which I have referred 8 to in detail became effective at successive dates during the first half of the year 1907. I have looked up the statements of about 80 per cent, of the principal railroads of the country and find that, during the last half of the year (after all the in- creases had become effective), while gross earnings of the rail- roads increased $57,413,078 over the same period of the pre- ceding year, their expenses increased $80,235,823 ; and, despite the tremendous increase in tonnage handled and gross earnings, net earnings decreased $22,822,745. This showing was not the result of any depression or falling off in tonnage. Traffic was moving in unprecedented volume. Furthermore, the con- dition which these figures reflect is even more serious than is indicated on their face. There is hardly an operating official on any of our rail- roads who did not recognize the fact very early after the taking effect of these large increases, that the most drastic methods of retrenchment and economy would be necessary to offset in part the sudden and tremendous increase in operating ex- penses, and many of the economies adopted during the last six months of 1907 passed far beyond the line which divides true from false economy. Yet, in spite of these extreme measures of retrenchment, the startling loss in net revenue resulted. Statements of earnings and expenses issued by the principal roads in all sections of the country for the six months ended December 31, 1907, show that operating expenses increased 60 per cent, more than gross earnings, indicating that no increase in volume of business will make good the tremendous increase in expenses, and demonstrating clearly that there must be secured an increase in net earnings, by a moderate increase in freight rates, or a decrease in expenses by a substantial reduction in pay. During the first quarter of this year the New York Central Lines, traversing, as they do, the most -populous and most prosperous section of the United States, have but little more than earned their fixed charges, making scant provision for dividends and none w^hatever for betterments. Two of them — the Cleveland, Cincinnati, Chicago & St. Louis, and the Lake Erie & Western — located in the garden of the United States, and serving some of the largest and most important cities in the country, have passed from the list of dividend-paymg roads. The reports from hitherto prosperous railroads located in and serving every portion of the United States show that this condition is universal. Dividends of the most prosperous railroads are being re- duced, and on others. entirely suspended. Other roads, unable to earn their operating expenses and fixed charges, are being placed in the hands of receivers. The first effect of this condition was tO' close the usual sources from which large sums of money have heretofore been readily available for necessary improvements by the sale of long-time, low-interest bearing bonds, and to force the rail- roads to resort to short-time notes bearing high rates of inter- est, absorbing all the ■ available funds of the banks, making it difficult, and ift many cases impossible, for other business enterprises to borrow money at all, and forcing interest rates for all to an almost prohibitive figure. This condition will be repeated the moment the railroads attempt to resume the purchase of equipment in large quan- tities, or to prosecute the great work of improvement, which was interrupted by the panic, unless the credit of the roads can be restored, enabling them to sell securities of long tenor at a reasonable price and bearing a reasonable rate of interest. It is, perhaps, unnecessary to say that this resumption can never come, except by such restoration of credit ; and I do not believe such restoration of credit can be brought about save by an increase in railway rates, which will promise a revenue sufficient to make railway securities a reasonably dependable investment. 10 This \\as the effect of these sudden and Ireniendoiis in- creases in expenses on the railroads. Consider for a moment the eflfect upon nearl\' every other class of business in the country. During the year 1907 the New York Central Lines paid out to car and locomotive manufacturers in the United States more than $31,000,000, almost every dollar of which was eventually paid out for labor in some form or other. During the year 1908, with the exception of a compara- tively small number of locomotives, not a dollar will be ex- pended by these hnes for this. purpose, and this record is being repeated by almost every railroad in the country. Nearly $11,700,000 was expended by these lines during the year 1907 for rails and ties. During the present year less than half this amount will be thus expended. During the year 1907, approximately $32,000,000 was ex- pended by the New York Central Lines alone in reducing grades, improving alignment, providing second, third and fourth tracks, and other necessary additional facilities. At the present time, from the Atlantic to the Pacific, and from the Gulf to the Great Lakes, work of this character is almost entirely suspended. If the railroads could resume the purchase of equipment and material and the great and vitally necessary work of improving their facilities, the present depression would, in my opinion, vanish almost in a day ; and the re-employment of hundreds of thousands of idle workmen would, by their pur- chasing power, start running to their capacity thousands of idle manufacturing plants all over the land. I believe these results would very speedily follow the taking effect of the suggested increase in freight rates. The efifect of a moderate increase in railroad rates, accepted by the public and approved by the Interstate Commerce Com- mission, in restoring confidence in railway investment, would 11 do more to put in motion the wheels of industry and start the country upon a new era of prosperity than anything else that could possibly be done. I sometimes think the question of freight rates and their effect on the price of commodities to the consumer is not very' accurately known. We are prone to 'jump at conclusions in- stead of carefully analyzing figures and thus reaching con- clusions that are exact. In order to reach an absolutely fair conclusion, the trans- portation charge must be followed to its last analysis, which is its application to, and effect upon, the individual consumer. The whole fabric of freight rates, from the first shipment of raw material, is simply a transfer or carrying forward of freight charges until it reaches the final purchaser or con- sumer, and he pays the freight. When the New York Cen- tral Lines paid the various locomotive and car manufacturing companies approximately $31,000,000 for equipment and mate- rial furnished in the year 1907, the railroad paid every farthing of freight that had accrued on every pound of iron and steel from the time the first pick was struck into the ground that mined the ore ; it paid the freight on every foot of lumber from the time the axe was struck into the tree from which the lumber was cut, and it paid the freight on every dollar's worth of provisions used and clothing worn by the employes of these companies and their families while working on this equip- ment. When the New York Central Lines paid for the 3,000,000 ties and approximately 185,000 tons of rail used in 1907, it paid every penny of freight that had accrued on the ties and the rail from the time the one was standing timber and the other was iron ore in the mountains of Minnesota. The rail- road fed and clothed the workmen and their families and paid the freight on the provisions used and clothing worn by theiii from the time the tree was felled in the forest and the ore 13 dug from the ground until, passing through the thousands of hands, the ties and rails were finally laid in the track. The consumer buys what his family consumes — flour, butter, meat, sugar, tea, coffee and the like — by the pound. The clothing they wear, including hats, shoes, boots, under- wear, etc., is purchased at retail. Let us consider for a moment what the freight fate means to the consumer and what an increase of ten per cent would signify to him. The New England States are very largely interested in the manufacture of cotton and woolen cloth, knit goods, worsteds, flannels, boots, shoes, underwear, hats, etc. The freight rate from Boston rate points, which include Cam- bridge, Lynn, Salem, Lowell, Lawrence, North Adams, Man- chester and other places in that territory, on knit goods, woolen cloth, worsteds, flannels, etc., to Buffalo, N. Y., is 44 cents per hundred pounds; to Chicago, 70 cents; and to St. Louis, 83 cents ; making the freight rate per yard of cloth, from one-third to two-thirds of a cent per yard. An increase of ten per cent would add from thirty-five one-thousandths to sixty-six one-thousandths of a cent a yard to the cost of the cloth at the points named. Allowing ten yards of cloth to a woman's suit, the freight on the material used in making the suit would amount to three and fifty-two one-hundredths cents from New England to Buffalo, five and six-tenths cents to Chicago, and six and two-thirds cents to St. Louis. A ten per cent increase in the freight rate would add to the cost of the dress at Buffalo thirty-five one-hundredths of a cent, at Chicago fifty-six one- hundredths of a cent, and at St. Louis sixty-six one-hundredths of a cent. For a suit of men's clothing or the necessary cloth to make such a suit, the freight rate from New England to New York City is nine-tenths of one cent ; to Buffalo, two and sixty- four one-hundredths cents; to Chicago, four and two-tenths cents; 13 and to St. Luiiis, about five cents. A ten per cent increase in the freight rate would add to the cost of the suit at New York City, nine one-hundredths of one cent ; at Buffalo, twenty-six onerhundredths of one cent ; at Chicago, forty-two one-hundredths of one cent ; and at St. Louis, one-half cent. On underwear, the freight on a suit which sells at from PH)(} to $3.00 retail, from New England points to New York amounts to approximately fifteen one-hundredths of one cent ; to Bufifalo, forty-four one-hundredths of one cent ; to Chicago, seven-tenths of a cent ; and to St. Louis, eight-tenths of a cent. An increase of ten per cent would add to the cost of the suit of underwear at New York City, fifteen one- thousandths of a cent ; at Buffalo, forty- four one-thousandths of a cent ; at Chicago, seven one-hundredths of a cent ; and at St. Louis, eight one-hundredths of a cent.' The rate on calicos and cotton piece goods selling at from ten to fifty cents a yard from New England points to New York City is 13 cents per hundred pounds; to Buffalo, 32 cents ; to Chicago, 53 cents ; and to St. Louis, 61 cents per hundred pounds. This equals approxirriately twenty-six one- thousandths of a cent per yard at New York ; sixty-four one- thousandths of a cent at Buffalo; one-tenth of a cent at Chi- cago, and at St. Louis, one-eighth of a cent. Allowing ten yards of cloth to a dress, which would make its retail value from $1.00 to $5.00, a ten per cent increase in the freight rate would add to the cost of such a dress at New York City, twenty-six one-thousandths of a cent; at Buffalo, sixty- four one-thousandths of a cent; at Chicago, one-tenth of a cent; and at St. Louis, one-eighth of a cent. The rate on leather, felt and rubber boots and shoes, retail- ing at from $3.00 to $5.00 per pair, from New England points to New York City, is 25 cents per hundred pounds; to Buf- falo, 44 cents; to Chicago, 70 cents; and to St. Louis, 83 cents, amounting to from one-half to one and two-thirds 14 cents per pair. A ten per cent increase in the freight rate would add to the cost of a pair of boots or shoes at New York, five one-hundredths of a cent; at Buffalo, eight and one-half one-hundredths of a cent; at Chicago, fourteen one- hundredths of a cent ; and at St. Louis, sixteen one-hundredths of a cent per pair. The freight rate on hats, in boxes, from New England points to New York City is 34 cents per hundred pounds, or approximately seventeen one-hundredths of a cent each. To Buffalo, it is 44 cents per hundred povuids, or twenty- two one-hundredths of a cent each. To Chicago, 70 cents per hundred pounds, or thirty-five one-hundredths of a cent each. To St. Louis, 8;! cents per hundred pounds, or forty- one one-hundredths of a cent each. An increase of ten per cent in the freight rate on these hats, selling at from $2.00 to $5.00, would add from seventeen one-thousandths of a cent to the cost of the hat at New York City to forty-one one- thousandths of a cent at St. Louis. Do you not think that either the manufacturer or consumer would very gladly accept this almost inconceivably small addi- tion to cost if as a result of such small increase in rates, equi- tably applied to the freight traffic of the country, the railroads could again resume their tremendous purchases of material and equipment, enabling the large locomotive and car manu- facturing companies, the rolling mills, the iron mines, the coal mines, and other industries (which to a very great extent are dependent on the railroads' purchases), to resume opera- tions, re-employ millions of men who are out of employ- ment, and make this vast army of men now idle and with no purchasing power whatever, patrons of the retail estab- lishments in the thousands of communities in which they live ; enabling these establishments, in turn, to buy knit goods, cloth- ing, cotton and woolen underwear, sweaters, machinery, with the leather belting to run it, and the thousands of other prod- ucts of the manufacturing industries of the nation. 15 The freight on a refrigerator, such as is used by the ordir nary family, from points in Indiana and Michigan to Bostoii, is approximately 70 cents ; an increase of ten per cent would add seven cents to the cost of the refrigerator, which sells for from $15.00 to $50.00 delivered in Boston. The rate on butter and eggs from points in eastern Iowa to Boston — a distance of approximately 1,350 miles — is 90% cents per hundred pounds. On dressed poultry from the same points to Boston the rate is $1,031/2. The eggs are sold to the consumer by the dozen and the other commodities by the pound ; and the consumer pays every farthing of freight that has accrued from the time the egg is laid, which he buys in the "original package," or as dressed poultry, or from the time the cow is milked from which the butter is made. An increase of ten per cent would add nine one-hundredths of one cent per pound to the price the consumer pays for butter and eggs, and it would add one-tenth of one cent per pound to the cost of dressed poultry, for which he pays from 20 to 30 cents per pound. The rate on flour from Minneapolis to Boston and other ■New England points, in car loads, is 37 cents per hundred pounds, or 13% cents per fifty-pound sack. The flour is sold to the consumer at approximately $1.85 per fifty-pound sack. An increase of ten per cent in freight rates would add but one and three-tenths cents to the price of a fifty-pound sack, or a little more than two one-hundredths of one cent per pound. The rate on dressed beef from Chicago to Boston and New York is 45 cents per hundred pounds. The average price of this beef to the consumer is approximately 25 cents per pound. A ten per cent increase in freight rates would add less than five one-hundredths of one cent per pound. The freight rate on a harvester for three hundred miles, 16 boxed and crated, by the carload, as they are shipped, would be $1.76. A ten per cent increase in this freight rate would amount to about seventeen and one-half cents. The machine sells for $130.00. The freight rate on a cream separator — 'by the carload — from Bellows Falls, Vt., to Chicago, 111., is approximately 42 cents ; to Minneapolis, 67 cents ; to Kansas City and Omaha, 89 cents; to Montreal, 29 cents. One of these separators retails for from $45.00 to $60.00 each. An increase of ten per cent in the freight rate would add from two and nine- tenths cents to eight and nine-tenths cents to the price of the separator which the purchaser would have to pay. The -freight on a mower, weighing from 750 to 900 pounds and selling for about $45.00, from Poughkeepsie to Chicago is approximately $2.06 ; and to points in Central Ohio from $1.40 to $1.50 each. A ten per cent increase would add ap- proximately 20 cents to the price of the mower at Chicago ; 32 cents at Minneapolis ; 39 cents at Kansas City and Omaha-; and from 14 to 16 cents at points in Ohio. Would the manufacturer who makes these implements, would the farmer who buys and uses them, object to this very moderate addition to the cost if, by reason of it, thousands of well-paid, steadily employed consumers were added to those who buy the grain and other products of the nation's farms. This list could be enlarged to embrace every commodity that railroads handle, and the same process of analysis would in every case reach substantially the same result. I take it that no one line of business is likely to suffer in much greater degree than the manufacturers of leather belting in a period of depression such as this country is now going through. The railroads are' very large purchasers of your product for their thousands of large car and locomotive repair shops, and the great car and locomotive manufacturing concerns are also extensive patrons of your industry. 17 Upon the ability of the railroads to earn money to keep their own shops running and to purchase cars and locomotives, thereby keeping the car and locomotive manufacturing plants running, depends to a considerable extent the prosperity of your business. Of course, the efifect goes far beyond the limits above sug- gested, because as these car and locomotive shops shut down and discharge thousands of employes, the decreased purchas- ing power, on account of this army of men being thrown out of work, stops the machinery in thousands of other factories, thus reducing or entirely suspending purchases by these fac- tories of the belting which your manufactories produce. Without attempting to unduly minimize the effect of freight rates in your particular line of business, I desire to submit the following figures. Leather belting sells by the foot at from 29 cents to $5.18 per running foot for single thickness, varying in width from four inches up to seventy-two inches. I get these figures from the prices our companies pay for belting of various widths, of which we are very large purchasers and users. The freight per hundred pounds from New York and Boston to St. Louis is 59 cents, which figures out approxi- mately from one-tenth of a cent to one and eight-tenths cents per running foot, according to the width. An increase of ten per cent in the freight rate would add from one one- hundredth of a cent to eighteen one-hundredths of a cent per foot of belting, which sells — as above stated — for from 39 cents to $5.18 per foot. The rate from New York and Boston to Chicago, the great distributing point for the. West and Northwest, is 50 cents per hundred pounds (or from eight one-hundredths of a cent to one and four-tenths cents per running foot). An increase of ten per cent would add from eight one-thousandths to fourteen one-hundredths of one cent per running foot, accord- ing to the width, to the cost of the belting at Chicago. The rate from New York and Boston to Indianapolis, Ind., and Cincinnati, Ohio, is, respectively, 47 and 44 cents per hundred pounds, or from seventy-eight one-thousandths of a cent to one and four-tenths cents at Indianapolis, to- seven one- hundredths of one cent to one and three-tenths cents per run- ning foot at Cincinnati. An increase of ten per cent would add from eight one-thousandths to fourteen one-hundredths of a cent per running foot to the cost of belting delivered in these cities. In this connection it may not be out of place to say to you that the New York Central Lines, under normal condi- tions, are purchasers of leather belting to the extent of approximately $75,000 per annum; and in going- over our pur- chases for the year 1899 as compared with those of 1907 (our records do not go back farther than 1899), I find that the prices were as noted below for the sizes of belting most com- monly used : NET PRICE OF SINGLE THICKNESS LEATHER BELTING. Size 1899 1907 Per cent of Increase. 4 inch 83.33c 28.S0C 23.4 5 * 29 . 50c 36.00c 22.0 G " 36.00c 43.20c 20.0 1 4-2. l?c 50.40c 19.6 n " 54.11c 64.80c 19.7 12 " 71.93c 86.40c 20.1 i:l " 78 . l-2c 93 . 60c 19.8 11 " 83.0-2C $1 .008 20.1 1.) •' 90.10c .080 19.8 Ifi " 95.91c .15? 20.1 17 " $1 . 0?? .224 19.8 18 " 1 .079 .396 90.1 19 Size 1899 1907 Per cent of Irtcrease. 19 inch $1,140 $1,368- 20.0 20 " 1.199 1.440 20.1 21 " 1.260 1.512 20.0 22 " 1.318 1.584 30.1 23 " 1.381 1.656 20.0 24 " 1.439 1.728 20.1 72 " 4.316 5.184 20.1 This equals an average increase in price for the sizes shown of 22 cents per running foot, or approximately 21 per cent; and, taking all sizes of belting manufactured, the increase in price for this period of eight years averages 24 cents per running foot, or 21 per cent. In view of the fact that the railroads paid the leather laelt- ing manufacturers from five and five-tenths cents to eighty-six cents more per running foot in 1907 than they did in 1899, is it unreasonable for the railroads to ask the belting manu- facturers to pay an additional freight rate of approximately eight one-thousandths of one cent to eighteen one-hundred ths • of one cent per running foot, according to the width, for the transportation of this commodity? Do you not think the manufacturers of leather belting embraced in your association could well afford to stand these almost infinitesimal additions to the freight rate if such an increase, fairly distributed over the commodities handled by the railroads of the United States, would result in setting in motion the millions of belts now standing idle in factories all over this broad land, and the re-employment of the millions of men who are now out of work? I have written you at considerable length because — instead of attempting to raise freight rates secretly, as you suggest— the railroads are anxious to give their side of the question the utmost publicity. 20 The question of an increase in freight rates in its bearing on, and the powerful influence it will exert either to hasten or retard the return of prosperity, is one of the most impor- tant before the people of this country to-day. It deserves the most careful, unprejudiced study and investigation at the hands of every member of your Association and all other busi- ness men in the country. With such an investigation, care- fully and conscientionusly made by members of your Associa- tion and kindred organizations of business men of the country, the railroads can, in my opinion, submit the facts and with full confidence await the decision. Without such study and investigation, no man or body of men should undertake to influence such decision. The ques- tion reaches beyond the manufacturer or the jobber, to the home and hearthstone of 1,500,000 employes of the railroads of our country; it extends to and vitally affects the hundreds of thousands of workmen employed by the industries which supply the railroads of the country with the Billion and a Quarter Dollars' worth of material consumed annually, and this gives it an importance and significance that can not be measured in dollars and cents. Yours very truly, (Signed) W. C. Brown^ Senior Vice-President. NEW YORK CENTRAL LINES. Grand Central Station, New York, July 15, 1908. Mr. Charles T. Page, Chairman, The Leather Belting Mfrs.' Assn., Concord, N. H. My Dear Sir: Referring to my letter of even date, in 21 reply to yours of July 3cl, addressed to President Newman, relative to the proposed advance iij freight rates: As this subject is one of very great interest to the public, I have taken the liberty of furnishing a copy of your letter to Mr. Newman, together with copy of my reply, to the press, which I trust will meet with your concurrence. Yours very truly, (Signed) W. C. Brown, Senior Vice-President. THE LEATHER BELTING MANUFACTURERS' ASSO- CIATION. Concord, N. H., July 32, 1908. Mr. W, C. Brown, Senior Vice-President, New York Central Lines, New York City. Dear Sir — I am in receipt of your letter of July 15th, together with a copy of the letter which you gave to the press. I have also received clippings of the correspond- ence from two or three New York papers. It is very unusual for one to make public private correspondence without the consent of the other party. In this instance, no especial harm has been done. I can see that it gave you a chance to make statements which you are glad to have published. Before writing your president, Mr. Newman, I had read your remarks delivered at Chicago, May 15th, and freely admit that from your standpoint you make a good argument. Viewed from the shipper's standpoint, if you will allow me to say so, your conclusion that the "customer will pay the freight," at least so far as the leather belting business is concerned, is fanciful and inaccurate. 22 As far as it is possible for an outsider, I think I appre- ciate the present difficulties under which railroads operate; but I can conceive of no good reason why they should be singled out and made the recipients of special favors when every other business is in like manner embarrassed by condi- tions which at present prevail. You compare the prices of leather belting in 1899 with those of 1907 and find that there was an advance of a little more than 20 per cent. You fail to note that there has been since then a decline of just about 20 per cent. An advance in freight rates will entail an extra burden upon belting manufacturers without any possible relief in the way of an advance in the price when selling goods. The gen- eral rule in the belting business is that manufacturers of belt- ing pay freight on incoming goods and deliver the product to customers. You see how mistaken you are in your con- clusion that the customers will pay for the added cost. The fact that the increase in freight on one foot of belting is infinitesimal does not relieve the situation. In the aggre- gate the added cost, if freight rates are advanced, would be a very considerable amount, a large part of which would have to be borne by the manufacturers of belting. The proposed advance in freight rates is deemed by the members of our as.sociation inexpedient and decidedly untimely under existing conditions, at least so far as I have been advised of their views. Yours truly, (Signed) Chas. T. Page, Chairman Executive Committee. 33 NEW YORK CENTRAL LINES. GiiAND Central Station, New York, July 29, 1908. Mr. Charles T. Page, Chairman Executive Committee, The Leather Belting Manufacturers' Association, Concord, N. H. My Dear Sir — I am in receipt of your favor of the 23d, and in reply beg to say it was my intention to ask your per- mission in advance to publish your letter, with my reply, but in some way it was overlooked. However, as the matter is of great public concern, and not in a strict sense private cor- respondence, I trust the oversight will be pardoned. I think you are under a misapprehension in regard to the decline of 20 per cent in prices of leather belting since last year, as stated in your letter. According to prices recently paid by our purchasing department, there has been a decline of less than 6 per cent in the cost of belting used by our lines. Of course, the decline is brought about by the tremendous falhng off in demand for leather belting; and this falling off in demand is the direct result of the closing down of the thou- sands of manufactories all over the country, which, in my opinion, would have continued running if the purchasing power of the railroads had not been almost destroyed by the condi- tions recited in my letter to you of July 17th. I believe that with a moderate increase in freight rates, the demand for leather belting would increase so that within six months from the date of the taking effect of the increase the members of your association could restore the decline in price, whatever it has been. I can not agree with your statement that my conclusion that the consumer pays the freight and will pay any addition that may be made to the freight rate "is fanciful and inaccu- rate." 24 In 1899 our company paid for four-inch single-thickness leather belting 33.33 cents per running foot. The freight per running foot on this four-inch belting, by the carload, to St. Louis, which is the farthest point on our lines to which it could possibly be shipped from Boston, amounts to about two- tenths of one cent. In 1907, for the same size and quality of belting, we paid 28.80 cents, an increase of 5.47 cents per running foot, the freight rate remaining the same. An increase of 10 per cent in the freight rate would add two one-hundredths of one cent per running foot to the cost of the belting. The price' of six-inch belting advanced during this time from 36 cents to 43.2 cents, or 7.2 cents per running foot. No change occurred in the freight rate, which is three-tenths of one cent per foot from Boston to St. Louis. The additional cost of the belting by a 10 per cent increase in this rate would be only three one-hundredths of one cent per foot. The increase in price per foot of nine, twelve and four- teen-inch belting during this period was 10.69, 14.47 and 16.88 cents, respectively. The freight rate on this belting is approx- imately four and one-half tenths of one cent per running foot for the nine-inch, six-tenths of a cent for the twelve-inch and seven-tenths of a cent per foot for the fourteen-inch, which is the same rate as was in effect in 1899. An increase of 10 per cent would add four and one-half one-hundredths of one cent, six one-hundredths of a cent and seven one-hundredths of a cent, respectively, to this rate. Now, if the belting manufacturers did not include the freight charge in the price of this belting — ranging from two- tenths of one cent to seven-tenths of one cent per running foot for a distance of 1,230 miles — our railroad, as a purchaser of leather belting to the amount of $75,000 per annum, would be perfectly willing to have it added ; and, as a large user of leather belting, pur lines will be perfectly willing to have an 25 average of from two one-liundredths of one cent to seven one- Imndredths of one cent per running foot — which represents an increase of 10 per cent in the freight rate — added to the price of belting of the widths specified, which would relieve the belt- ing manufacturer entirely of the burden, so far as the finished product is concerned. The shops of the Lake Shore & Michigan Southern Rail- way Company, at Elkhart, Ind., are equipped with 13,388 running feet — or practically two and one-half miles — of vari- ous widths of leather belting, which cost approximately $6,235. The freight rate on this belting, from Boston to Elkhart, a distance of 937 miles, amounted to $18.37, figured on the car- load basis, or $33.73 figured on the less-than-carload rate. An increase of 10 per cent in the freight rate would add $1.83 to the cost of two and one-half miles of belting, if figured on the carload rate, and $3.37 if figured on the less-than-carload rate. We have many shops equipped with a similar amount of belting, and, of course, it goes without saying that in a trans- action involving more than six thousand dollars a difference of either $1.83 or $3.37 would cut but little figure to the manu- facturer or consumer. Does not this thought appeal to you, however, that there is a very strong probability — I >believe a certainty — that an addition of this character to the freight rates of the country generally, or to such rates as could bear such an increase with- out any hardship whatever either to the manufacturer or con- sumer, will start up the thousands of manufactories now standing idle, thus making an increased demand for the prod- ucts of the leather belting manufactvirers all over the country, and giving employment to hundreds of thousands of men now idle, who would at once become purchasers of the product of New England's mills if they could secure steady, well-paid employmeJit ? 2G In this connection I want to say that no general or hori- zontal increase in freight rates has been considered by the railroads, nor has any definite per cent of increase been decided upon. I have used ten per cent in what I have written merely as an illustration to show the effect of such an increase if applied to the commodities referred to. In your letter you say that, as far as an outsider can, you appreciate the present difficulties under which railroads operate, but that you can conceive of no good reason why they should be singled out and made the recipients of special favors when every other business is likewise embarrassed by the conditions which at present prevail. - You entirely miss the point which I have tried to emphasize in all that I have said ' on this important question, viz. : The real question is not whether the present rates are sufficiently profitable in times of restricted business, but whether they are too low to be reasonably compensatory under ordinary normal business conditions. In other words, has. the cost of operation so increased, despite all the various economies, that it is no longer possible to carry freight at a reasonable profit at existing rates, no matter how heavy the tonnage may be? I would respectfully call your attention to page 7 of my letter, where I give the earnings of 80 per cent of the prin- cipal railroads of the country, which shows that during the last half of 1907, when tonnage and earnings were vastly in excess of those of any similar period in the history of the railroads, , with an increase in gross earnings of $57,413,078 over the same period of the preceding year, there was an increase in operating expenses of $80,235,833, making a loss in net earn- ings for the six months in question of almost $33,000,000. Is there any business in the world showing such a large increase in gross earnings, and at the same time such a start- ling decrease in net earnings, that would not at once take very positive steps to correct such a disastrous condition? 27 What we all ought to seek very earnestly to accomplish is to secure the return to this country of the abounding pros- perity of the last five years. If the suggested increase in rates is going to make conditions worse, the railroads certainly do not want it. If, on the other hand, such increase in freight rates will, by the restoration of credit, enable the railroads to resume their tremendous purchases of material and equipment and the prosecution of necessary improvements and exten- sions, and thus exert a very powerful influence in restoring prosperity, we all want it — shippers as well as railroads. I have recently made a very thorough analysis of the amount of equipment and material purchased by the New York Central Lines diiring the year 1907, in order to determine what such articles would have cost if the same basis of prices in effect in 1897 had prevailed last year; and beg to submit the following figures for your information : Increase in Cost in 1907. Cost Over 1897 Prices. TRACK material: Cross ties, rails, angle bars, spikes, track bolts, frogs and switches $19,510,000 $7,117,018 SHOP AND MISCELLANEOUS MATERIAL: Lumber, castings, nails, rivets, bolts, nuts, washers, forg- ings, brass and copper goods $13,670,000 $5,683,650 NEW equipment: Cars and locomotives $31,000,000 $12,764,700 Total $64,180,000 $25,565,368 The above figures do not cover a number of articles used by our lines, such as fuel, oil, waste and other miscellaneous 28 supplies. Including these items, the sum we were compelled to pay for equipment and material purchased in 1907 amounted to a total of approximately $31,375,368 more than the same articles would have cost on the basis of prices in effect in 1897. If our payrolls for 1907 had been upon the basis of wages paid in 1897 we could have employed the same number of men in the same positions for about $23,291,214 less than it cost us under the increased wage schedule. Increased cost of material and higher wages paid to em- ployes, therefore, increased the cost of operation of the New York Central Lines alone approximately $54,666,582 for the year 1907 over the amount it would have cost to handle the same tonnage had wages and prices of material been the same as in 1897 ; and, as the last large increase in pay and added expense caused by national and state legislation did not be- come fully effective until the last half of the year, the above figures do not tell the whole story. This vast sum, however, is $8,000,000 more than the total fixed charges of all the roads comprising the New York Cen- tral Lines for the year 1907, including interest on bonds and other outstanding obligations, rentals of leased lines, taxes, and all other capital charges. Your Association is composed of business men. The aver- age American business man -is a fair man; and these figures, together with the facts which they express and the condition which they reflect, must appeal to them. If you accept my statements as accurate, can you reach any conclusion other than that the railroads are entitled to a fair increase in freight rates? If you doubt them, can yon do less than to investigate and either confirm or disprove them? In this investigation I beg to offer you every facility at our command. Yours very truly, (Signed) W. C. Brown, Senior Vice-President. 39 NEW YORK CENTRAL LINES. Grand Central Station, New York, July 31, 1908. Mr. Charles T. Page, Chairman Executive Committee, Leather Belting Manufacturers' Association, Concord, N. H. My Dear Sir — After having mailed riiy letter of the 29th, and, upon re-reading it, I fear, on account of the extremely small fraction of a cent involved in the transaction, you may regard my suggestion that the increase of 10 per cent can be added to the price at which the manufacturers sell the belting as trifling or sarcastic. Above all things, I want to avoid anything of this charac- ter in the discussion of this very important question. I realize that in the manufacturing antl mercantile business in these days of strenuous competition the profit is frequently counted in fractions of cents, also that in the case of leather belting— where an increase of 10 per cent in the freight rate would amount to only two one-hundredths of one cent per running foot — it would require fifty feet to bring this increase aip to one cent; but in buying belting, as we do, by the thou- sands of feet, it seems to me that it would be entirely prac- ticable to include the original freight rate and add the amount which may be involved in any increase in the freight rate that may be finally decided upon. To the railroads, small as the fraction is when measured by lineal feet of belting as I have done, in the aggregate it means a great deal. A readjustment of . freight rates, involving a reasonable increase appHed to such articles and commodities as can stand it, without any appreciable hardship either to manufacturer, merchant or consumer, means the difference between grinding economy and a fair degree of prosperity. 30 It means the difference between closed shops and suspended improvements, and the resumption of improvements with the ability to resume the large purchases of material and equip- ment, giving full employment to labor and furnishing improved transportation faciHties, which, within a very short time, the commerce of the country is going to be demanding more in- sistently than ever. Yours very truly. (Signed) W. C. Brown, Senior Vice-President. 31 JAMES KEMPHTER PRINT, N. Y. correspondence: t>etv\reen CHARLES McKElRNON Treaavirer B. D. Rising Paper Company and WILLIAM C. BROWN Senior Vice-President Ne-w YorK Central Lines ON SUBJECT OF FREIGHT RATES B. D. RISING PAPER COMPANY. HousATONic, Mass., August 34, 1908. Mr. William C. Brown, Senior Vice-President, New York Central Lines, New York City. Dear Sir — We have received the copy of your correspond- ence with the Manufacturers' Association relative to an in- crease of freight rates. The arguments you use to justify an increase are not very convincing to a manufacturer like ourselves, who will have to pay it. Your contention that it can all be passed on to the consumer is entirely wrong in the case of hundreds of manu- facturers. At the present time it is with the greatest difficulty that prices can be maintained, and any attempt at advancing them is absolutely out of the question. With a hundred men ready to take an order at present prices or lower, h. iw can one add 1 to his price sufficient to cover an increased cost of freight and keep his business? But, if your contention was true in all cases, as it probably is in some, that the cost can be passed along to the consumer, does that alter the case any? It may be true that it amounts to but little on any particular article, but if ten per cent is added to the cost of all that a family buys, it will be a very serious burden. If the prices were to be raised they must necessarily con- sume less. The railroads have discharged thousands of men and mills of all kinds are running half to three-quarters time. Where are these idle men to get the means to buy goods at a ten per cent advance in cost? Thousands of them can not buy goods at any price. If the increased cost of goods that railroads use justifies advances, these advances should have been made in prosperous times when people had the means to pay them. In our own case the advance you propose would cost us $3,000 to $4,000 per year, not a penny of which can be re- covered from the consumer. The railroads must bear their share in the general condition of afifairs. They ought not to expect to escape it and they ought not to try to pass it along to the manufacturers, who have all they can carry now. There is such a thing as killing the goose that lays the golden egg. Let the railroads get along for a time on a lower rate of dividends the same as other people do, rather than expect their patrops to carry the railroad's burden as well as their own. Yours truly, B. D. Rising Paper Company, C. McKernon, Treas. 2 NEW YORK CENTRAL LINES New York Central & Hudson River R.R. Co. Lake Erie, Alliance & Wheeling R. R. Co. Lake Shore & Michigan Southern Ry. Co. Chicago, Indiana & Southern R. R. Co. Michigan Central R. R. Co. Rutland Railroad Co. Lake Erie & Western R. R. Co. New York & Ottawa R. R. Co. Cleveland, Cincinnati, Chicago & St. Louis Ry. Co. Grand Central Station^ New York, September 11, 1908. Mr. C. McKernon, Treasurer, B. D. Rising Paper Company, Housatonic, Mass. My Dear Sir — I have read with great interest your letter of August 24th relative to freight rates, and am glad to have your views on this important question, as it is Only through, a free and frank discussion of all the points at issue that we will eventually arrive at the right and proper solution. It occurs to me, however, that your assumption that an increase of ten per cent in the freight rates will effect a ten per cent increase in the cost of living is hardly correct. You say in your letter: "It may be true that it amounts to but little on any particular article, but if ten per cent is added to the cost of all that a family buys it will be a very serious burden." It must be borne in mind that the proposed increase applies only to the cost of transporting the article, and not to the cost of the article itself. The cost of transportation is but a small fraction of the "selling price," which includes (or, at least, should include) not only the cost of transportation, but all other costs which enter into the production of the finished article, and in addition thereto the manufacturers' profit. To illustrate how small a per cent of the value or selling price of various articles the freight charge represents, I beg to call your attention to the following tabulation, showing, in regard to many articles of common use, the selling price, freight rate from producing point to market, the percentage of the freight rate to the selling price, and what a ten per cent increase in the freight rate would amount to: Commodity. Selling Price. Freight Rate, ^'[^^^^^^f^'^ pfeighi Rati" PROVISIONS Dressed Beef Chicago to New York City and Boston 30^ lb. 45/100^ lb. 1.5% 45/1,000^ lb. Ham and Bacon Chicago to New York City 2201b, 3/io0 lb. I-36S8 3/100^ lb. Lard Chicago to New York City 150 lb. 3/io0 lb. 2^ 3/iotj0 lb. Canned Fish Maine points to St. Louis, Mo i80 can i8/ioo0 can t% i8/i,ooo0 can Eggs Iowa to New York City 40^ doz. 1-1/20 doz. 3-755^ i5/ioo0 doz. Milk Northern New York to * New York 80 qt. 8/io0 qt. loSf 8/ioo0 qt. Cream Northern New York to New York 48^ qt. 1-1/40 qt. 2.6% i25/i,ogo0 qt. Sugar New York to St. Louis, Mo 501b. 3/IO0 lb. en 3/IOO0 lb. Coffee New York to St. Louis, Mo 3O0 lb. 3/io0 lb. 1% 3/1000 lb. Tea New York to St. Louis, Mo 5O0 lb. 88/ico01b. 1.7SS 88/i,ooo0 lb. Breakfast Foods Battle Creek to New York 1201b. i8/ioo0 lb. 1.5)6 i8/i,ooo0 lb. Flour Minneapolis to New York $1.80-50 lbs. 12.50-50 lbs. 6.75;^ i-i/40-5o lbs. or 25/1,0000 lb. Minneapolis to Boston.. $1.80-50 lbs. 13.50-50 lbs. 7-70^ i-i/30-5o lbs. or 27/1,000^ lb. A. Commodity. Selling Price. Freight Rate. *"tervision of commissions, national and in almost every state. Further than this, every act, every change in tariff made or suggested by the railroads 'is the subject of instant challenge and investigation by hundreds of alert, aggressive associations such as yours. I do not for an instant quiestion the right, the wisdom, or the necessity for this supervision and regulation of railroads by the nation or the state that creates them. No man can gainsay the right and duty of the Daven- 26 port Commercial Club or any kindred organization to most minutely scrutinize every change in rates, classi- fications or conditions that may affect your interests. Under our form of government, the people rule, and the terms "rule" and "regulate" are synonymous. The right to rule or regulate carries with it the power, if unwisely exercised, to very seriously injure the interest or thing regulated. In view of this, should not the right to regulate the railroads by both the state and nation be exercised in a spirit of broadminded, unprejudiced, judicial impartiality, uninfluenced alike by the impor- tunities of great interests on one side or uninformed popular clamor on the other? Should not the right to regulate, the power to control, carry with it the solemn duty to protect in every proper and legitimate way the interest thus controlled? No one of the four great cornerstones of this vast commercial structure can be undermined, damaged or weakened without injury to the structure itself. The interests of agriculture, manufacturing, merchandising and transportation are so interwoven, so interdependent, that no lasting injury can come to one without permanent injury to all. Authority to regulate the railways of the country has been and is being conferred upon national and state commissions, limited only by that provision of the Con- stitution that protects the property of the citizen from confiscation. Does not the interest of every citizen, the growth, the development, the prosperity of the nation, demand that this power be used conscientiously, with the most scrupulous conservatism, and above all, with the broad- est possible constructive wisdom? 27 JAMES KCMPSTCR PRINT, ADDRESS OF William C. Brown President New York Central Lines AT THE SECOND ANNUAL BANQUET OF THE LINCOLN COMMERCIAL CLUB Lincoln, Neb., May 24, 1909 TRANSPORTATION QUESTIONS ' ' Mr. Toastmaster and Gentlemen OF THE Lincoln Commercial Club: On behalf of the great industry with which I am identified, for my associates who are with me, and in my own behalf, I desire to express my appreciation of the privilege of meeting this representative gathering of business men of this capital city of the great Common- wealth of Nebraska. The Burlington & Missouri Railroad in Nebraska was incorporated in 1869 and the road opened for traffic to Fort Kearney on September 2, 1872. The total mileage of the Burlington Road in Ne- braska in 1875 was 192 miles ; in 1907 it was 2,865 miles. Speaking in this beautiful capital city of your State, it is a source of gratification to me to recall the fact that for twenty-six years I was connected with a road that has contributed so largely to the building up, the develop- ment, the prosperity, of Nebraska; and I am especially glad to remember that during those years of building I was intimately associated with a man who loved the State of Nebraska with a filial, affection that knew "no vari- ableness or shadow of turning" ; one who was loyally devoted to her best interests from his first connection with the State, when she was yet in her swaddling clothes, until the last year of his life. Sometime when the lapse of years shall afiford a fair and just perspective of the men and events of those early days, the names and the memories of such men as Charles Elliott Perkins will looin very' large (and de- servedly so) in the history of the States of Iowa and Nebraska. In these days of abounding prosperity in the West, it is almost impossible to realize and appreciate the terri- ble contrast presentied by the story of some years of the past ; years of drought and crop failure, of privation and destitution, of blasted hopes and abandoned claims; years when the number of broken-hearted families cross- ing the Missouri River eastbound exceeded those hope- fully seeking homes in this virgin State. Years when the hearts of the citizens of every, eastern State went out in loving sympathy to their stricken brothers and sisters on this western frontier; sympathy that found expression in thousands of carloads of cloth- ing and provisions, of corn and wheat for sustenance and seed, and every car contained a full carload of sympathy and love in addition to its other contents. Years that are now a dim and fading memory, almost forgotten in the long period of bountiful harvests and general prosperity that has followed them. After nearly two-score years of continuous employ- ment in railway service, I could not, if I would, disasso- ciate myself from that interest; and yet I would like to talk to this association of business men as one of you ; as a business man and a shipper rather than as a repre- sentative of the railroad interests. In order to qualify myself to do this, if you will par- don the personal reference, I would like to say to you that I do not own a share of railroad stock as an investment. I have not avoided investments in railroad stocks because I lacked confidence in railway management. There is no other business in the country more intelligently or more honestly and conscientiously managed than our railroads. I have invested in other lines of business because they pay a much higher average return on the money actually invested than the best railroad securities and more than three times the amount that can be realized from the average railroad investment. Almost every dollar that I have been able to accumu- late is invested in manufacturing, merchandising, farm- ing and banking, all of it in the West — in Illinois, Iowa, Nebraska and South ^Dakota — most of it within two hundred miles of Lincoln ; a small part of It in Lincoln. Outside of the bare fact of my employment in rail- road service, every material interest I have is on the side of the shipper and against the railroad in any con- troversy in which these interests clash. I believe I can understand and appreciate the interest of the shipper as fully and as clearly as that of the car- rier, and, in discussing the question from the standpoint of the shipper, I sincerely want to be absolutely fair. One of the crying evils of railway management in the past (and nothing but the strong arm of the law would ever have stopped it) was the practice of discrim- ination in favor of large shippers as against those who shipped little, the giving of rebates, the distribution of passes to secure business or to influence legislation. We all believed (the shipper as well as the railroad) that it was perfectly legitimate to give a shipper whose business amounted to a thousand cars per annum a lower -rate than was given to one who shipped perhaps but one car in a year. In other words, we all honestly believed that the wholesale and retail principle had a legitimate and legal place in the transportation business of the country, as it has always had, and still has, in all other commercial transactions. We know better now. We know that the man that ships little — no matter how little — must be given the same unit price, whether by the hundred pounds or by the car- load, as the man that ships much — no matter how much. This knowledge has come to us in an evolution that has brought out in clearer light the ethical questions . involved in the great business of transportation. We ought to have known these things earlier, but we did not, and in judging the railroads for their share in these wrongs, we should not lose sight of the fact that whenever and wherever the hand of a railroad man was extended to give a rebate, the hand of a shipper was ex- tended to accept a rebate. Where the hand of a railroad man was extended to give a pass, the hand of a legislator or a shipper was extended to receive the pass, and if a snapshot had been taken of every transaction of this character it is quite possible it would disclose the fact that in some instances the hand of the recipient was extended first. Like all questions, there were two sides to it, the re- sponsibility was a divided one, and all will agree that conditions are healthier and better on account of the abolition of these evils. Another evil, and a grievous one, was the fact that some railroads and some railroad men seemed to assume that they were a "law unto themselves" ; that the public had no rights that the railroad was under any obligations to respect. Any attempt at regulation or control was resented as an invasion of a private right, an interference with a private business. Well, railroad men who were laboring under that particular delusion have had a thor- ough and most salutary awakening. They realize that railroads, like other corporations, are created by the State and recognize the fact, which is self-evident and should have been recognized from the first, that the power that creates not only reserves the right but must assume the duty of regulating and controlling the instrumentality created. I have said that for a long time it seemed to us ship- pers that the railroads (or at least some of them) did not recognize any definite rights of the public that they were bound to take into account. As a result of this condition the public rose up in its might and indignation, and it is a serious question to-day whether or not the pendulum has not swung a great deal too far in the opposite direc- tion. In the light of the hundreds of regulatory acts of the national and State legislative authorities passed in the last five years, nearly all of them in the direction of decreasing revenue or increasing expenses, or both, many of them passed in a spirit of unmistakable angry retaliation, is there not ground for serious question as to whether conditions have not been completely reversed and instead of the railroads failing to properly recognize the rights of the public, is not the public at large assum- ing that the railroads have no rights that are entitled to recognition or serious consideration? Has not the equity that attaches to ownership been lost sight of, and in our zeal to right recognized wrongs, may we not do very serious and permanent injury to the very interests we seek to conserve? The Scriptural injunction, "If thine eye offend thee, pluck it out," or "If thine hand offend thee, cut it off," is figurative language and not intended to be followed literally. If the person continues to live, the eye and the hand will be found to be very useful members, almost indispensable to future well being. Even so with the the railroads, no matter how grievously they may have, offended in the past, dismissing from consideration all questions of ethics or justice, viewing it from the nar- rowest standpoint of self-interest, is it the part of wis- dom to destroy or cripple them? The purpose of the railroad, its only mission, is to transport passengers and freight, people and property, and in performing this function it is by far the most important factor in our National Commerce. The great departments of business activity of the nation, represented by agriculture, manufacturing, mer- chandising and mining, could never have attained a tithe their present proportions but for a transportation sys- tem that in every essential respect is the best in the world. The function of transportation, so inseparably inter- woven into our national commercial fabric, so vital to national prosperity, should be the subject of the most profound study by men of the highest order of intelli- gence, integrity, courage and conservatism. The cost of transportation reaches every man, woman and child that wears clothing and eats food. Analysis shows that the cost to each is very small, but it reaches all. How important it is, then, that this cost shall be re- duced to the lowest minimum consistent with safe and efficient service, and a fair return on the value of the railroad. It should be the aim of railroad management to con- stantly and continuously reduce this charge by the adop- tion of every possible measure of operating economy, and in this they should have the support and co-operation of the public and of the commissions by exemption from every unjust and unnecessary expense that will add to the cost of service. As shippers we should ascertain -from time to time whether or not the tendency of railroad charges is in the right direction^ Railway rates, like the prices of most other things, vary. Sometimes they are advanced, some- times reduced; and the only dependable index is to take these rates for a term of years and ascertain whether as a whole the movement has been up or down. I want to submit some facts and figures in this con- nection taken from statistics, compiled by railroad com- missions and from tariff sheets, which are exceedingly interesting and instructive. In the fourth annual report of the Iowa Board of Railroad Commissioners, issued November 30th, 1881, on page 8, will be found a table showing the freight charges and reductions in the same on fifteen of the most important lines of transportation in the United States; the period covered by the table being from 1868 to 1878. Referring to this table the report says : "A careful study of the foregoing table will show that the fourteen railroad lines mentioned, almost without exception, steadily reduced their rates, in a " substantially fixed ratio during all the successive years from 1868 to 1878, inclusive. The few excep- tions to this rule, as previously mentioned, show the slight average increase of only nine-hundredths of of a cent per ton per mile, an increase which bears but a slender ratio to the increase in cost of labor, supplies and all forms of material entering into rail- road use. The New York Central and Lake Shore & Michigan Southern (which are practically one con- tinuous line of road) and the Chicago, Burlington & Quincy show the greatest decrease in charges, to wit, 68%. The MicKigan Central comes next, 66% ; the Boston & Albany, the Chicago^ Rock Island & Pacific, the Chicago & Northwestern, the Pennsyl- vania, the New York,, Lake Erie & Western, follow- ing in the order named." In the same report we find the following reference: "The Chief of the, National Bureau of Statistics, in his report just issued, uses this language: " 'It is impossible to estimate the magnitude of the benefits which the reduction made in charges for transportation on railroads have conferred upon the interests of agriculture, of mining and of com- merce. That the increase in value of the domestic exports of the United States to foreign countries from $442,820,178 during the year ending June 30th, 1871, to $902,319,473 durirfg the year ending June 30th, 1 88 1, has been largely due to such reductions is evident from the fact that such exports. are chiefly products of the western and northwestern States, and are largely transported to the seaboard on rail- roads.'" This was the condition twenty-eight years ago, as tes- tified to by the Railway Commissioners of your sister State of Iowa and accompanied by statistics that have never been questioned. During the period covered by the statistics, freight rates had been reduced from 54% to 68%, resulting in adding millions to the farm value of all our agricultural products; and the Commissioners left on record the opinion "that freight is now carried at a rate that no competent railway manager or trans- portation expert would have thought possible half - a dozen years ago." Conditions, or at least comparative conditions, seem to have been fairly satisfactory in 1881. What has been the record in the twenty-eight years that have elapsed since the publication of that report ? I have looked up the tarififs of 1881 on the principal farm products, from Lincoln, Hastings, Indianola, Su- perior and Aurora, all prominent and representative ship- ping points in Nebraska, as compared with present tarififs, and find that the average reduction in freight rates from these stations to the Atlantic seaboard is as follows : Wheat ... 20 cents per bushel, or 48 % Barley ... 15 " " " " 47.8% Rye 18 " " " " 49 % Corn .... 14.8 " " " " 44.5% Oats .... 7.2 " " " " 38 % Applying these reductions in transportation charges to the grain crop of 1907, and applying the lake and rail rates in 188 1 as compared with those of 1907, shows a saying to Nebraska farmers of $42,572,000, or almost 32% of the farm value of the crops of the latter year. Rates on livestock, merchandise, machinery, coal, lum- ber, etc., show a corresponding reduction. To summarize: During the decade ending with the year 1880 rates had been reduced on an average from 54% to 68%, and since that date a further reduction of from 38% to 48% has been made. Can we not as ship- pers endorse the words of commendation of the Iowa Railway Commission of 1881, which read as follows : "In concluding this branch of the report, the Cornmissioners ventured to assert that freight is now carried at a rate which no competent railway man- ager or transportation expert would have thought possible half a dozen years ago. The public every- where will welcome the fact and from them learn to value the means by which they are obtained." The railroads may not have done all we hoped they might do, but must we not acknowledge that they have done fairly well. Why not tell them so, and encourage them to try and do as well, or better, in the years to tome? This important question of transportation does not begin nor end with the railroads. There are other features of it of very great interest and importance to the farmers and business men of the country. The Agricultural Department has been carefully ana- lyzing the cost of transportation of our farm products from the farm to the initial shippiiig point and has found that the expense of thus handling the agricultural prod- ucts of 1907, having a value at the farm of $1,450,- 440,060, was $59,484,000, or 4.1%, of such farm value. The average distance that corn, hay, oats, potatoes, 10 rye and wheat was handled was about eight miles; the average cost per ton per mile was a fraction less than 20 cents, which is approximately 25 times the average ton mile revenue of all the railroads in the country, and about 40 times the average charge per ton per mile for handling the same commodities from Chicago to the sea- board. When the railroads, by reducing grades, correcting alinement and increasing the size of cars and locomo- tives, are constantly reducing the cost of their portion of the transportation incident to moving the commerce of the country, would it not be well for us, as shippers, to give very serious attention to the improvement of our country roads? I want to refer briefly to one more question, the im- portance of which is but faintly appreciated by the people of the country. From the first settlement on the shores of the Atlantic, until within a few years, there have been new States and Territories opening up and inviting settlement. Millions of acres of virgin soil have 'been constantly waiting tlie plow of the husbandman. To-day this is all changed. The last county of the last State or Territory where cultivation is possible is being very rapidly occupied. The reclamation of arid lands will offer opportunities for some further expansion. The occasional opening up of a tract of land heretofore held by the Government for an Indian reservation is the signal for the rush of thou- sands of settlers seeking homes, but the day of the pio- neer homesteader and settler is gone. With a limit already set upon .material increase in II the cultivated area of the nation, and with a constantly increasing population to be fed, a question, the gravity of which is very inadequately appreciated, is presented. T. B. Macaulay, one of the ablest English historians of the last century, in writing to an American fifty years ago, said: "As long as you have a boundless extent of fer- tile and unoccupied land your laboring population ~ will be found more at ease than the laboring popu- lation of the Old World, but the time will come when wages will be as low and will fluctuate as much with you as they do with us. Then your institutions will be brought to the test." This boundless extent of fertile unoccupied land of which Macaulay speaks is gone. Are we not approach- ing this period of- stress and test? Each year we are consuming more of our products and exporting less. The United States, with the most fertile soil in the world, but with its wasteful, slipshod methods of seed selection,, fertilization and cultivation, produces an average annual 'yield of only fourteen bushels of wheat to the acre, whereas England produces more than thirty-two bushels, and the Netherlands more than thirty-four bushels. Of oats, the United States produces aii average an- nual yield of 23.7 bushels per acre ; England, 42 bushels ; Germany, 46 bushels, and the Netherlands, 53 bushels per acre. The average annual yield of potatoes in the United States is 85 bushels per acre, while that of Germany, Belgium and Great Britain is 250 bushels per acre. Po- tatoes, like wheat and bread, are a food staple of the poor man, and they are selling to-day in Chicago at about $1.00 per bushel. 12 Germany, with an area considerably less than that of the state of Texas, produces approximately 2,000,- 000,000 bushels of potatoes annually, while the aggre- gate crop of the entire United States averages barely 275,000,000 bushels per annum. Are not these facts — startling and discreditable as they are — suggestive of very serious thought? The land, our kindly, patient mother earth, upon which not only prosperity, but life itself, depends, is year after year being robbed and impoverished. Our average annual yield of wheat for ten years was 13.88 bushels per acre. This is less than it was thirty years ago. Instead of improving we are retrogressing. One hundred years ago the average production of Great Britain was about the same as our present yield. A royal commission (which is still in existence) was appointed, a campaign of education was entered upon, and to-day the farms of the United Kingdom, tilled for centuries, in a climate less favorable than ours, produce over thirty-two bushels of wheat to the acre. In 1907 the farmers of Nebraska produced an average of only 24 bushels of corn to the acre. With intelligent seed selection, fertilization and cultivation, there is no reason why this land should not produce 50 bushels of corn per acre. I know whereof I speak, because I have demonstrated the fact on my own farm, and land that formerly produced an average of 38 bushels is now pro- ducing 65 bushels per 'acre every year. The acreage planted in corn in 1907 in the State of Nebraska was 7,472,000 acres ; if an average yield of 50 bushels per acre had been prodtfced the additional income 13 of the farmers from this crop alone would have been $79,651,000. In 1907 the farmers of Nebraska produced 46,000,000 bushels of wheat, with an average yield of 18. i bushels per acre. In Germany, with soil and climate no more favorable, through proper fertilization and cultivation, the average yield of wheat for the past ten years has been 28 bushels per acre. At this rate the farmers of Nebraska would have received $20,000,000 additional for their wheat crop of that year. The average yield of oats in Nebraska was 20.4 bush- els per acre, while in Germany 47.4 bushels is the aver- age crop. At this rate the income of the farmers of Nebraska would have been increased $24,975,000 from this crop alone. In other words, if the farmers of Nebraska had pro- duced fifty bushels of corn to the acre, and the average 3'ield of wheat, oats and barley produced in Germany, their income for the year 1907, on the same acreage . planted that year, would have been increased by nearly $125,000,000. The increased value of corn, wheat, oats and barley in the United States, provided the average yield per acre of the same crops in Germany had been raised, and assuming a production of 50 bushels of corn to the acre, would have amounted to the stupendous total during the year 1907 of $2,280,000,000, divided as follows: Corn $1,241,320,000 . Wheat 644,085,000 Oats 344,568,000 Barley 50,244,000 Think of the effect of increasing the annual balance 14 of trade in favor of this country by two and a quarter billion dollars! Concisely stated, if the farmers of the United States, through more intelligent cultivation, had produced the same quantity of wheat, oats and barley per acre as the farmers in Germany, with 50 bushels of corn per acre, during the year 1907, the increased value of their crops from the same number of acres cultivated that year would have been sufficient to pay five times over the cost of building the canal across the Isthmus of Panama. There is no soil or climate that is naturally superior to that of the United States, and no nation on earth can produce a larger crop per acre than this country if our soil is intelligently tilled. The importance of this great subject can not be over- estimated. It overshadows and outweighs a, thousand times the question of tariff revision, the prolonged dis- cussion of which is to-day retarding the return of pros- perity and .preventing the re-employment of hundreds of thousands of idle men. We are building great battleships, from two to four every year, at a cost, complete and equipped, of from $7,000,000 to $9,000,000 each. What one of these fight- ing machines costs would establish, and fully equip a splendid experimental farm of 640 acres in every State in the Union, to be operated by and at the expense of the general government. Such a farm would soon be followed by a i6o-acre farm owned and operated by the State in every county in our great agricultural States. Such farms, once established, would not only be self- 15 sustaining, but, in my opinion, would show a handsome profit. The effect of such a system of practical education upon the product and profit of the nation's farms would be almost beyond comprehension. Every thriftless and uninformed farmer would quickly note the difference between the result of his loose methods and those of the experimental farm, and benefit by the comparison. Men who have no books on this important subject, and who could find no time to study them if they had, would learn by that most apt and thorough teacher, ob- servation, the value of improved methods and would adopt them. Invest the price of one battleship in this important work, follow the investment up intelligently and perse- veringly for ten years, and the value you will have added to each year's crops of the nation's farms will buy and pay for every battleship in all the navies of the world to-day. Above and beyond all other considerations, this sys- tem would dignify and make attractive a life now too full of drudgery.; it would make the cultivation of the soil a profession rather than a vocation. It would keep the boys on the farm and attract from the cities and towns thousands for whom farm life now has few attrac- tions. It would multiply farms and multiply prosperous farmers, because 80 acres intelligently tilled will produce as much as 160 acres produce under our present slack" and ignorant methods. It would return the preponder- ance of political power to the rural districts, where it can be more safely left than to the congested centers of 16 population, already ominously powerful in many of our States, and would indefinitely postpone that great test of the permanency of our institutions predicted by Macaulay half a century ago. Mr. Toastmaster, I want to once more express my appreciation of the high compliment paid me by the Lin- coln Cdmmercial Club in inviting me to be one of your guests on this occasion. I have tried to speak to you from the standpoint of the shipper, but above all from the standpoint of a patri- otic citizen of this great country of ours. If correctly understood, the best interests of the East and the West, the North and the South, lie along parallel lines. There is no section or locality isolated in interest, in hope or in aspiration from all the rest. Adversity in any one section is quickly reflected in all the others. The four great foundation stones upon which the commercial supremacy of this nation has been builded, and upon which its future development and prosperity depend, are agriculture, manufacturing, merchandising and transportation. I have placed the great function of transportation last, but it is in no sense least, because the prosperity, aye, the very existence, of the others depend upon it. In the free, untrammeled rise and fall of prices to meet changing conditions, agriculture, manufacturing and merchandising respond promptly, almost automat- ically. The great business of transportation alone, subject to and as acutely sensitive to conditions that affect cost of production as either of the others, is hedged about 17 and restricted by legislative enactment and supervision of commissions, national and in almost every State. Further than this, every act, every change in ' tariff made or suggested by the railroads, is the subject of instant challenge and investigation by hundreds of alert, aggressive associations such as yours. I do not for an instant question the right, the'wisdom or the necessity for this supervision and regulation of railroads by the nation or the State that creates them. It is not only the right, but it is the duty of the Lin- coln Commercial Club or any kindred organization to most minutely scrutinize every change in rates, classifi- cations or conditions that may affect your interests. Under our form of government the people rule, and the terms "Rule" and "Regulate" are synonymous, The right to rule carfies with it the power, if unwisely exer- cised, to very seriously injure the interest regulated. In view of this, should not the right to regulate the railroads by both the States and the nation be exercised in a spirit of broad-minded, unprejudiced, judicial impartiality, from which every vestige of anger, every tinge of retalia- tion has been eliminated? Moreover, does not the right to regulate and control carry with it the solemn duty to protect in every proper and legitimate way the interest thus controlled? The interests of agriculture, manufacturing, merchan- dising and transportation are so interwoven, so interde- pendent, that no lasting injury can come to one without permanent injury to all. Authority to regulate the railroads of the country has been and is being conferred upon national and State commissions, limited only by that provision of the Con- i8 stitution that . protects the property of the citizen from confiscation. Is it not important from every standpoint and in the interest of every citizen, no matter where located or what his business may be, that this authority be exercised with the most conscientious regard for the rights of the trans- portation interests as well as those of the shipper, and above and beyond all, and in the interest of all, that it be exercised with the" most scrupulous conservatism and with the broadest possible constructive wisdom? 19 James KempBter Print, N. T. mghtRate rimer President Roosevelt says : "There has been much wild talk as to the extent o£ the overcapitahza- tion oF our railroads. The census reports on the commercial value of the railroads of the country, together with the reports made to the Interstate Commerce Commission by the railroads on their cost of construction, tend to show that, as a whole, the railroad property of the country is worth as much as the securities representing it, and that, in the consensus of opinion of investors, the total value of stock and bonds is greater than their total face value, notwithstanding the 'water' that has been injected in particular places. The huge value of terminals, the immense expenditures in recent years in double-tracking and improving grades, roadbeds and structures, have brought the total investments to a point where the opinion that the real value is greater than the face value is probably true." (From President Roosevelt's Decoration-Day address at Indianapolis, May 30, 1907.) COPYRIGHT I ARREN J. LVNCH "An army of more than 1,500,000 men is employed directly in the operation and maintenance of the railroads in the United States, and millions of other men are furnished employ- ment indirectly in the mines, the forests and the factories, supplying the railroads with approximately one and one-quarter billions of dollars' worth of material and equipment annually consumed. " These are wonderfully interesting and impres- sive facts ; but the fact of greater interest and worthy of the most careful thought of every citizen of this country is that this vast army of men engaged in producing the commodity of transportation at an average cost more than 40 per Cent lower than is shown by any other country is paid an average wage more than 50 per cent higher than is paid in any other country where railroads exist. (W. C. Brown, before the Michigan Manufacturers' Asao* elation, June 22, 1908.) Lesson I. The men represented above all live in the Mississippi Valley. Their clothes were made in New England. They paid the railroads nine cents apiece for trans- porting their clothes, including shoes and hats, from point of manufacture to the Mississippi Valley. The combined freight charges on all the clothes worn by all the men in the picture, including shoes and hats, was less than One Dollar. I( freight rates were advanced 10 per cent, the increased price to these men on their entire wearing apparel would be less than one cent each. Lesson II. This harvester was sold for $130.00. The farmer paid $1.76 to have it brought to him by the railroad from the place of manufacture, 300 miles away, or, in other words, the freight charges amounted to one and thirty-five one-hundredths per cent of the cost of the harvester. If freight rates were advanced 10 per cent the cost of this harvester would be increased only seventeen and one-half cents. Lesson III. The freight on a steel range, weighing from 400 to 500 pounds, from Detroit to points in the Missis- sippi v'alley, approximates from $2.00 to $2.50 per stove on stoves which retail at from $55 to $60 each. An increase of 10 per cent would add from twenty to twenty- five cents to the cost of the stove, which, divided by the life of the stove, takmg the low average of ten years, would add one and one-half to two cents per year to the cost. On heatmg stoves the increase would he about one-third less. Lesson IV. The freight on a refrigerator, such as is used by the ordinary family, from Balding, Mich., where they are manufactured in large quantities, to New York is approximately seventy- five cents; an increase of 10 per cent would add seven and one-half cents to the cost of the refrigera- tor, delivered in New York City. Lesson V. The freight on a dining-room suite, consisting of a table, side- board, six chairs, china closet, etc., weighing approximately 750 pounds and selling for from $50 to $75, £rom Grand Rapids to Chicago, is $1.60. An increase of 10 per cent would add sixteen cents to the cost of all this furniture. Lesson VI. The freight on an ordinary suit of clothes, including hat and shoes, for a distance of 300 miles from any of our large jobbing or distrib- uting centers is approximately three and one-half cents. A 10 per cent increase would add a little more than one-third of one cent to the cost of a suit which sells for from $10 to $35. ■^^ Lesson VII. This "bale" represents the value of the cotton exported from the United States in 1906, namely, $401,000,000. The detached portion represents the "bite the railroads took out of it for freight charges. Ilcost the farmer an average of sixteen cents per hundred pounds to haul this cotton from his farm to the railroad station for shipment, while the railroads received an average of only forty cents per hundred pounds for hauling it from point of shipment to the various seaports for export. In other words, the cost to the farmer of moving the cotton from his farm to the railroad station was more than one-third as much as the railroad charged for transporting it an average of about 500 miles to the seaboard. "^ "X (.Report of Department of Agriculture ) Lesson VIII. The rate on flour from Minne- apolis to New York, in carloads, is twenty-five cents per hundred pounds, or twelve and one-half cents per fifty- pound sack. The flour is sold to the con- sumer in New York at approximately $1.85 per fifty-pound sack. An increase of 10 per cent in freight rates would add but one and one-quarter cents to the price of a fifty-pound sack, or a little more than two one-hundredths of one cent per pound. The freight rate on a fifty- pound sack of flour from Minneapolis to Chicago is five cents per sack. An increase of 10 per cent in rates would add only five mills per sack between these points, or one one- hundredth of one cent per pound. Lesson IX. The rate on dressed beef from Chicago to New York is forty-five cents per hundred pounds. The average price of this beef to the consumer in New York is approximately twenty-five cents per pound. A 10 per cent increase in freight rates would add less than five one- hundredths of one cent per pound. If freight rates were advanced 10 per cent, the increased cost in New York City of a two-rib roast of the best quality, weighing eight pounds, retailing for $1.92, would be less than one-half cent. Lesson X. The rate on butter and eggs from points in Eastern Iowa to New York — a distance of approximately 1,200 miles — is eighty-Jour cents per hundred pounds. On dressed poultry from the same points to New York the rate is ninety-six and one-half cents. The eggs are sold to the consumer by the dozen and the other commodities by the pound ; and the consumer pays every farth- ing of freight that has accrued from the time the egg is laid, which he huys in the "orig- inal package," or as dressed poultry, or from the time the cow is milked, from which the butter is made. An increase of 10 per cent would add eight one-hundredths of one cent per pound to the price the consumer pays for butter and eggs, and it would add nine and one-half one-hundredths of one cent per pound to the cost of dressed poultry, for which he pays from twenty to thirty cents per pound. Lesson XI. The shops of the Lake Shore & Michigan Southern Railway at Elk- hart, Indiana, are equipped with 13,288 running feet, or practically two and one-half miles, of leather belting. This belting cost the railroad company $6,235.00, or an average of 46.9 cents per running foot. The belting was shipped from Boston to Elkhart, a distance of 937 miles. The total freight charges amounted to $18.37, or fourteen one-hundredths of one cent per running foot. An increase of 10 per cent would add $1.83 to this cost, or fourteen one -thousandths of one cent per running foot. This belting, moreover, cost the railroad company $1,082.00 more than it would have cost at the prices prevailing in 1899, representing an increase of 21 per cent. During this same period there was no change whatever in the freight rate. Lesson XII. The Railroad Transports All the Food, Clothing and Fuel Consumid by the Average Family in the United States for Less Than Three Cents Per Day. According to an investigation made by the Government, the average size of a family in the United States is five persons and the average yearly income of the family is $749.50 Of this amount $699.24 is ex- pended during the year, divided as follows: Food $312 92 44.75 per cent Clothing 94 99 13.B8 pnr cent Fuel and Lighting 38 59 5.52 por cent Rent 118 40 16.93 per cent For All Other Purposes 134 34 19- g g prsr c ent Total $699"24' 100.00 per cent The total freight charges for food, clothing, fuel, etc , used by this average family, liv'ing in any one of our central commercial cities, costing approximately $446, amounts to $9.90 per year, or less than three cents per day. A 10 per cent increase in freight rates would add ninety-nine cents to the annual expense, or less than one-third of one cent per day. Is this not an exceedingly limall price for the wage earner to pay for stead>-, well-paid employment? Are not freight rates marvelously low in this country, rather than unreasonably high, as has been so often claimed? | Lesson XIII. In the United States Wages are Higher than in Foreign Countries ! The average wage per year paid to the railroad employes in the various countries IS as follows: In France $256 In Germany $338 In Great Britain 303 In the United States 642 Classifieij, these wages are paid as follows: _ txcess in Great Britain Uni*:ed States United States Per Cent Firemen $300 $ 765 $465 155 Conductors 315 1,155 840 267 Engine Drivers 487 1,359 872 179 The pay of section men in the United States is $423 per annum, which is $108 more than conductors are paid in Great Bntain, and $123 more than locomotive firemen receive in that country. In the United States Freight Rates are Lower than in Foreign Countries ! The average charge for moving one ton of freight one mile is: In Great Britain 2/3 cents In Germany IJ/3 cents In France Iz-z cents In the United States ^ cent To state this in another way, one dollar pays the charge for moving one ton of average freiglit in the different countries the distances shown: In Great Britain $1 pays (or moving one In Germany $1 pays for moving one ton. . . 75 miles Ion 43 miles In the United States $1 pays for moving one In France $1 pavs for moving one ton. .... 66 miles ton 132 miles I Lesson XIII — Continued. SOME COMPARISONS with CONDITIONS in FOREIGN COUNTRIES Wages Wages paid by United Stales railways to 1,675,000 employes in the year 1907 . .$1,075:000,000 00 If our railway employes had been paid the wages oE English railway employes they would have received 503,000,00 00 Difference in favor of the United States railway employes $ 572,000,000 00 Freight Rates CHARGES PER TON ON GRAIN UNITED STATES, St. Louis to New York. 1,066 miles $4 00 UNITED STATES, St. Louis to Chicago, 280 miles 1 40 ENGLAND, Manchester to London, 227 miles 4 21 While the class of traffic and the conditions under which it is moved on the railways of the United States differ considerably from that of the English railways, still it is well within the bounds of conservative estimate to say that if the freight rates in this country had been as high as those in England the shippers of the United States would have paid more than double the amount they did for freight charges on their products m 190/; while if railroad wages had been as low in this country as in England, the cost to the rail- roads of handling the business of 1907 would have been Five Hundred and Seventy-two Million Dollars less than it was. , Lesson XIV. INTERESTS ARE MUTUAL With few exceptions, the railroads do not originate any traffic. They must depend upon the producers and manufacturers of the country for their revenue ; and, furthermore, e railroads represent an integral part of every shipper s busi- ness, because bis products have little value until distributed to the markets where they are consumed. Therefore, the interests of the railroads and their shippers are identical. If an increase in freight rates will impede the return of prosperity to the shipping interests, the railroads certainly do not want it. On the other hand, if a moderate in- crease in rates will enable the railroads to resume improvements and purchase _/ of equipment and material, furnishing ,<^' employment for thousands of men now die, again making this vast army of workingmen purchasers and consumers of the country's products, we all want it; and the manufac turers, jobbers and retailers will share in the general pros- perity equally with the railroads. Lesson XV. The Chairman of the Interstate Commerce Commission says : "Without regard to the personnel of railroad officials, without regard primarily to the interest of stockholders, but in the interest of public welfare and national prosperity, we must permit railway earnings to be adequate for railroad improvement at advantage and profit. "To my mind it is a most impressive fact, so great as to elude the grasp oi imagination, that the railway traffic of the country fully doubled in the first seven years of this twentieth century. This enormous addition to the volume of transportable goods overtaxed, as you know, the existing facilities, and the resulting condition perhaps accounts for much of the hostility which has been manifested in various quarters. For the man who has raised something by hard labor or made something with painstaking skill, which he could sell at a handsome profit in an eager market, and finds that he cannot get it carried to destina- tion, and so sees his anticipated gains turned into a positive loss, is naturally exasperated and unthinkingly 'blames it' on the railroads, and is ready to hit them with anything he can lay his hands to; and as the state legislature seemed to be the most convenient weapon he wielded it for all it was worth. "I dwell upon this a moment further, because it seems plain to me that the prosperity of the country is measured and will be measured by the ability of its railroads and waterways to transport its increasing commerce. With a country of such vast extent and limitless resources, with all the means of production developed to a wonderful state of efficiency, the continued advancement of this great people depends primarily upon such an increase of transportation facilities as will provide prompt and safe movement everywhere from pro- ducer to consumer; and that we shall not secure unless the men who are relied upon to manage these great highways of commerce have fitting opportunity, and the capital which is required for their needful expansion is permitted to realize fairly liberal returns. (Hon. Martin A. Knapp, Chairman Interstate Commerce Commission, in "Annals of the American Academy of Political and Social Science, " July, 1908^) Lesson XVI. Do You Want This ? A readjustment of freight rates, involving a reasonable increase applied to such articles and com- modities as can stand it, without any appreciable hardship either to man- ufacturer, merchant or consumer, means the difference betvv'een grind- ing economy and a fair degree of prosperity. Lesson XVI — Continued. Or This ? I It means the difference between closed shops and suspended improvements and the resumption of improvements with the abihty to resume the large purchases of materia! and equipment, giving full employ- ment to labor and furnishing improved transportation facilities, which, within a very short time, the commerce of the country is going to demand more insistently than ever. To hundreds of thousands of workingmen it means the difference between steady, well-paid employment and walking the streets looking in vain for work. "I have looked up the statement of about 80 per cent of the principal railroads of the country and find that during the last half of the year 1907, after the tremendous crease in expenses had become efFeclive, while the gross earnings of the railroads increased $57,413,078 over the same period of the preced[ng year, their exjpenses increased $80,235,823, showing a net loss for the period, despite the treniendous business handled, of $22,822,745. The converging lines of cost and compensation \n railroad operation, which for years have been steadily approach- ing each other, are now separated by so narrow a margin that in order to pay y^ fixed charges, taxes and operating expenses, with even a very moderate return to shareholders, there must be either a moderate in- crease in freight rates or a very substantial reduction in the wages of railroad employes." j^iT^' "Is it not better, Mr. Ifresident, that you and I, and tens of thoilisands o£ people who buy and use automobiles, should pay a dollar or two more freight on our machines than that the family of the engineer, the conductor, the brakeman, the switchman or the humble section hand shall be deprived of the actual necessities and comforts of life, which we know they must give up if the monthly pay check is reduced? "No question of greater importance confronts the people of the country today, for upon its righteous solution hangs the momentous issue of an early return of prosperity or a continuance of the depression of the past six months, emphasized and darkened by a struggle with organized labor such as this country has never experienced. (W. C. Brown, before the Michigan Manufacturers' Association, June 22, 1908.) "Our prosperity came with the pros- perity of the railroads; it declined when adversity struck the railroads. We do not believe we can have the full measure of prosperity again until the railroads are prosperous." (National Prosperity Association of St. Louis.)