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A y PROCEEDINGS 
 
 OF THE 
 
 ACADEMY OF POLITICAL SCIENCE 
 
 IN THE CITY OF NEW YORK 
 
 Volume X] 
 
 JULY, 1922 
 
 [Number 1 
 
 RAILROADS AND BUSINESS 
 PROSPERITY 
 
 S. SERIES OF ADDRESSES AND PAPERS PRESENTED AT THE SEMI-ANNUAL 
 
 MEETING OF THE ACADEMY OF POLITICAL SCIENCE IN THE 
 
 CITY OF NEW YORK, APRIL 28, 1922 
 
 EDITED BY 
 
 T. W. VAN METRE 
 
 AND 
 
 PARKER THOMAS MOON 
 
 PUBLISHED AT 
 THE ACADEMY OF POLITICAL SCIENCE 
 
 COLUMBIA UNIVERSITY , *^ * 
 
 116TH Street and Broadway, New Yoik | 13 D £i Fii Y 
 Cofyrigki tgii, by the Academy of Political ScitrnF" 
 
 JUM 6 (940 
 
THE POLITICAL SCIENCE QUARTERLY 
 
 The Quarterly is published by the Academy and edited by 
 the Faculty of Political Science of Columbia University. It is 
 devoted to the historical, statistical and comparative study of 
 politics, economics and public law. 
 
 Its list of contributors includes university and college 
 teachers, politicians, lawyers, journalists and business men in all 
 parts of the United States and European professors and pub- 
 licists. It follows the most important movements of foreign 
 politics but gives chief attention to questions of present in- 
 terest in the United States. On such questions its attitude is 
 nonpartisan. Every article is signed ; and every article, includ- 
 ing those of the editors, expresses simply the personal view 
 of the writer. Each issue contains careful book reviews by 
 specialists, and in March, June and December large numbers of 
 recent publications are characterized in brief book notes. A 
 valuable record of political events throughout the world 
 is printed as a supplement to the September issue. 
 
 Communications in reference to articles, book reviews 
 and exchanges should be addressed: Managing Editor, 
 Political Science Quarterly, Columbia University, New 
 York City. Intending contributors are requested to retain 
 copies of articles submitted, as the editors disclaim responsibility 
 for the safety of manuscripts. If accompanied by stamps, articles 
 not found available will be returned. 
 
 The Quarterly is sent, together with the Proceedings, as 
 part at the membership privileges, to all members and subscribing 
 members (libraries, institutions etc.), who pay five dollars annual 
 dues. Single numbers, not including supplement, one dollar. 
 Supplement containing Record of Political Events, one dollar. 
 Back numbers and bound volumes can be obtained at prices quoted 
 upon request. 
 
 All business communications should be addressed to The 
 Academy of Political Science, Kent Hall, Columbia Univer- 
 sity, N. Y. 
 
PROCEEDINGS 
 
 OF THE 
 
 ACADEMY OF POLITICAL SCIENCE 
 
 IN THE CITY OF NEW YORK 
 
 Volume X] JULY, 1922 [No. i 
 
 RAILROADS AND BUSINESS 
 PROSPERITY 
 
 A SERIES OF ADDRESSES AND PAPERS PRESENTED AT THE SEMI-ANNUAL 
 
 MEETING OF THE ACADEMY OF POLITICAL SCIENCE IN THE 
 
 CITY OF NEW YORK, APRIL 28, 1922 
 
 EDITED BY 
 
 T. W. VAN METRE 
 
 AND 
 
 PARKER THOMAS MOON 
 
 THE ACADEMY OF POLITICAL SCIENCE 
 
 COLUMBIA UNIVERSITY 
 
 1922 
 
(,a-^ 
 
 
 A, -J 
 
 cofvright bv 
 The Academy of Poutical Science 
 
 L:!i. 
 
 '' ^ ^7o-^ 
 
TABLE OF CONTENTS 
 
 RAILROADS AND BUSINESS PROSPERITY 
 INTRODUCTION 
 
 PAGE 
 
 Railroad Regulation under the Transportation 
 
 Act 3 
 
 T. W. Van Metre 
 
 I LABOR PROVISIONS OF THE TRANSPOR- 
 TATION ACT 
 Railroad Labor and the Labor Problem . .15 
 
 Henry R. Seager 
 Functions and Policies of the Railroad Labor 
 
 Board 19 
 
 Frank H. Dixon 
 Labor Policies of the Transportation Act : 
 
 (a) From the Point of View of Railway Man- 
 
 agement 29 
 
 C. B. Heisertnan 
 
 (b) From the Point of View of Railroad Em- 
 
 ployees 39 
 
 W. N. Doak 
 
 (c) From the Standpoint of the Public Group. 49 
 Henry T. Hunt 
 
 II RAILWAY POLICIES AND THE GENERAL 
 WELFARE 
 The Farmers and the Railroads , . .63 
 
 Henry C. Wallace 
 
 Transportation Act of 1920 tj 
 
 Daniel Willard 
 
 The New Basis of Rate-Making 87 
 
 Walker D. Hines 
 
 III FREIGHT RATES AND BUSINESS REVIVAL 
 How Railroads Adapt Themselves to National 
 
 Conditions 97 
 
 Albert Shav) 
 
 iii 
 
iv TABLE OF CONTENTS 
 
 PAGB 
 
 The Transportation Cost in a Basic Industry — 
 
 Steel Products lor 
 
 Charles R. Hook 
 
 How the Railroads May Render Maximum Service. 105 
 
 William J. Ctmningham 
 
 What Railroads are Doing to Increase Economy 
 
 and Efficiency of Operation 113 
 
 R. H. Aishton 
 
 The Transportation Factor in the Price of Coal. 116 
 y. D. A. Morrow 
 
 APPENDIX 
 
 The Semi-Annual Meeting, 1922, of the Academy 
 
 of Political Science 129 
 
 Samuel McCune Lindsay 
 
INTRODUCTION 
 
Cornell University 
 Library 
 
 The original of tiiis book is in 
 tine Cornell University Library. 
 
 There are no known copyright restrictions in 
 the United States on the use of the text. 
 
 http://www.archive.org/details/cu31924013693159 
 
RAILROAD REGULATION UNDER THE 
 TRANSPORTATION ACT 
 
 T. W. VAN METRE 
 Associate Professor of Transportation, Columbia University 
 
 THE annual meeting of the Academy of Political Science 
 held in New York, November 21-22, 1919, was devoted 
 to a discussion of railroad legislation. At that time it 
 was clear that the period of Federal operation of railroads, 
 which had begun late in December, 1917, was approaching an 
 end, and Congress was wrestling with the problem of formulat- 
 ing a new policy of railroad regulation. It was apparent that 
 there was to be a radical departure from the policy in effect at 
 the time Federal control began. For several years the opinion 
 had been gaining in strength that the system of railroad regu- 
 lation established by the laws passed in 1887, 1906 and 1910 
 was faulty in principle, and there was an insistent deniand 
 for comprehensive changes. But while there was almost uni- 
 versal dissatisfaction with the old methods of regulation, there 
 was a wide divergence of view as to what the new railroad 
 policy should be. Congress was deluged with " plans ", each 
 plan representing, for the most part, an effort to protect the 
 interests of the group which proposed the plan. At the meet- 
 ing of the Academy in 1919 the leading proposals with respect 
 to railroad legislation were fully discussed. The published 
 proceedings of the meeting ^ constitute a record of the views 
 then held by legislators, railroad managers, shippers, capital- 
 ists, labor leaders and prominent economists. The Trans- 
 portation Act of 1920 showed evidence of the influence of many 
 of the interests represented at that meeting. 
 
 The Transportation Act has now been in effect twenty-six 
 months, and the Academy has obtained, from the same interests 
 which took part in the discussion of 1919, an appraisal of the 
 influence of the law upon the transportation business of the 
 United States and upon the many other economic activities 
 with which the railroads are closely related. What have beea 
 
 1 Proceedings of the Academy of Political Science, January, 1920. 
 
 [3] 
 
4 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 the chief results of the Transportation Act? Is the policy 
 embodied in that law superior to the policy which preceded 
 it ? Does the experience of the past two years warrant a belief 
 that we have a reasonably satisfactory system of railroad 
 regulation? Or should the Transportation Act be amended? 
 And if so, in what particulars ? 
 
 Among the many changes which the Transportation Act 
 made in the railroad policy of the Federal Government there 
 were three of outstanding importance. First, the law con- 
 tained a rule of rate-making for the guidance of the Interstate 
 Commerce Commission, that body being directed to establish 
 a level of rates " so that carriers as a whole (or as a whole 
 in each of such rate groups or territories as the Commission 
 may from time to time designate) will, under honest, efficient 
 and economical management and reasonable expenditures for 
 maintenance of way, structures and equipment, earn an aggre- 
 gate annual net railway operating income equal, as nearly as 
 may be, to a fair return upon the aggregate value of the rail- 
 way property of such carriers held for and used in the service 
 of transportation." The enactment of this rule of rate-making, 
 while something new in Federal legislation, was nevertheless 
 little more than the recognition of a right which the carriers 
 presumably had always possessed. Of much greater signi- 
 ficance was the provision of the law designed to meet the prac- 
 tical problem arising from the application of such a rule of 
 rate-making. A body of rates which would yield a fair return 
 to the carriers as a whole would permit many carriers having 
 exceptional advantages in the way of rich traffic territory, 
 favorable conditions of operation, and well located terminals, 
 to obtain a return " substantially and unreasonably in excess, 
 of a fair return." The recognition of this fact led to the 
 adoption of a principle before unheard-of in Federal law, 
 the recapture or recovery by the government of a portion of the 
 income of those carriers whose earnings might exceed cin 
 amount deemed to be fair and reasonable. It was originally 
 the plan of the Senate to meet the situation created by the 
 unequal earning capacity of strong and weak roads by com- 
 pelling the consolidation of the railroads of the country into 
 a few great systems, which might employ uniform rates on 
 competitive traffic and, at the same time, earn substantially the 
 
 [4l 
 
No. 1] INTRODUCTION 5 
 
 same rate of return upon the value of their property. In the 
 final draft of the bill, however, the compulsory feature of the 
 consolidation program was eliminated. 
 
 The second important feature of the Transportation Act rep- 
 resented an effort to bring into effect a unified, national system 
 of rate regulation, to replace the dual system of state and 
 Federal control. The exercise of mutually exclusive powers by 
 state and federal authorities had long been a fruitful source of 
 controversy, and in many instances conflicting policies of regu- 
 lation had resulted in the creation of those unreasonable dis- 
 criminations the prevention of which had been the chief pur- 
 pose of regulating the railroads. Under the Interstate Com- 
 merce Act, as amended in 1920, when the Interstate Commerce 
 Commission finds that rates imposed by state authority cause 
 any undue discrimination against interstate or foreign com- 
 merce, it may prescribe rates which will remove the discrim- 
 ination ; and such rates must be observed by the carriers, " the 
 law of any State or the decision or order of any State authority 
 to the contrary notwithstanding." 
 
 The third outstanding feature of the Transportation Act 
 was the provision for the establishment of machinery to deal 
 with labor difficulties on railroads. The law did not make 
 strikes illegal, but it declared it to be the " duty of all carriers 
 and their officers, employees, and agents to exert every reason- 
 able effort and adopt every available means to avoid any inter- 
 ruption of operation of any carrier growing out of any dispute 
 between the carrier and the employees or subordinate officials 
 thereof." The act directed that all disputes be considered, 
 and if possible, decided, by conference between representatives 
 of the carriers and of the employees directly interested. For 
 the adjudication of disputes not capable of being settled by 
 conference it authorized the creation of Railroad Boards of 
 Labor Adjustment, and established the Railroad Labor Board. 
 The Adjustment Boards -were designed to deal with all disputes 
 not involving wages. Because of differences of opinion be- 
 tween employees and managers as to how these Boards should 
 he constituted — whether they should be local, regional or 
 national — they have not been established. The only official 
 labor tribunal to come into existence by virtue of the Trans- 
 portation Act was the Railroad Labor Board, consisting of 
 
 [5] 
 
6 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 nine members appointed by the President, the members being 
 divided into three equal groups, representing respectively labor, 
 management and the public. The Board was authorized to 
 state what in its opinion constituted reasonable standards of 
 wages and working conditions for railroad labor, being directed 
 to take into consideration the cost of living, the scales of wages 
 in other industries, the hazard of employment, and other 
 relevant circumstances and conditions. The Act did not pro- 
 vide that the decisions of the Board should be binding, and it 
 prescribed no means by which the orders of the Board could 
 be enforced. 
 
 Many other changes in the system of railroad regulation 
 were made by the Transportation Act. Among the leading 
 changes in policy was the reversal of the attitude of the govern- 
 ment toward the practice of pooling, the fifth section of the 
 Interstate Commerce Act being amended to permit carriers, 
 under the supervision of the Interstate Commerce Commission, 
 to pool both traffic and earnings. The traditional attitude of 
 the government toward railroad consolidation was also modi- 
 fied. Whereas consolidation had previously been regarded with 
 disfavor, and not infrequently declared illegal, the Interstate 
 Commerce Commission was now directed to prepare a plan 
 for the consolidation of all the railroads of the United States 
 into a limited number of competitive systems; and provision 
 was made that after the Commission had completed its work 
 the carriers might voluntarily enter into consolidations con- 
 forming to the Commission's final plan. The long-and-short- 
 haul rule of the fourth section of the Interstate Commerce Act 
 was amended, though the general principle adopted in 1910 
 was retained. The Cummins amendment governing the estab- 
 lishment of rules with respect to the liability of the carriers for 
 lost and damaged freight was again modified, to give added 
 protection to shippers. The long-continued agitation for Fed- 
 eral regulation of railroad capitalization at last bore fruit, 
 the new law requiring carriers desiring to issue securities to 
 obtain the approval of all proposed issues by the Interstate 
 Commerce Commission. Unwise and unnecessary extension of 
 railroad facilities was guarded against by requiring compEinies 
 contemplating the construction of new lines to secure from the 
 Interstate Commerce Commission a certificate of public con- 
 
 [6] 
 
No. I] INTRODUCTION 7 
 
 venience and necessity. Likewise it was provided that the 
 abandonment of existing railroad facilities could not take place 
 without the consent of the Commission. 
 
 The membership of the Commission was increased from nine 
 to eleven. In addition to receiving the new powers previously 
 mentioned, the Commission was authorized to establish mini- 
 mum as well as maximum rates; it was given a larger degree 
 of control of car service, and authority to direct the routing 
 and distribution of traffic in times of emergency. It was 
 empowered to require a carrier to permit the use of its termin£il 
 facilities by other carriers, to prescribe equitable divisions of 
 joint earnings, to direct the routing beyond the lines of initial 
 carriers of traffic not routed by shippers, and to exercise a 
 closer supervision over railroad accounts and records. In 
 one respect the authority of the Commission was curtailed, the 
 time of suspension of proposed changes in rates being reduced 
 from 120 days and an additional period of six months to 120 
 days and an additional period of 30 days. 
 
 In addition to establishing a new system of railroad regu- 
 lation the Transportation Act made provision for the adjust- 
 ment of the financial relations of the railroads and the 
 government, gave to such carriers as chose to accept it 
 a guaranty of net earnings for the six months following March 
 1, 1920, equal to one-half the annual rental paid by the gov- 
 ernment during the period of Federal control, and appropriated 
 $300,000,000 out of which railroad companies might secure 
 loans during the first two years of private operation. 
 
 The twenty-six months that have passed since the enactment 
 of the Transportation Act have witnessed a trial of virtually all 
 those provisions of the law which marked a departure from 
 the former railroad policy. While conditions have not been 
 such as to permit a thoroughly adequate test of the law, there 
 has been sufficient experience to make possible an estimate 
 of its merits and defects. 
 
 Public interest has centered naturally upon the events con- 
 nected with the three most important features of the Act, 
 those having to do with the application of the rule of rate^ 
 making, the regulation of state rates by Federal authority, and 
 the work of the Railroad Labor Board. The operation of 
 other portions of the law has not, however, been attended with 
 
 [7] 
 
S RAILROADS AND BUSINESS PROSPERITY [Vol. X. 
 
 insignificant results. The Interstate Commerce Commission 
 made exceedingly eflfective use of its increased powers over 
 car service during the months immediately following the 
 termination of Federal control, when the freight business of 
 the railroads was unusually heavy. The regulation of the 
 issuance of securities by the Commission has done much, on 
 the whole, to allay the fear of a recurrence of the financial 
 operations which in past years brought disaster to owners of 
 railroad stocks and bonds. The Commission has published its 
 tentative plan of railroad consolidation, following the plan 
 prepared, at the Commission's direction, by Professor William 
 Z. Ripley of Harvard University. New forms of bills of 
 lading for domestic and export freight have been adopted, 
 defining more clearly the exact nature of the legal obligations 
 of carriers and shippers. The promulgation of numerous or- 
 ders suspending and cancelling railroad tariffs providing for 
 reductions in charges indicates that the Commission is making 
 use of its new power to establish minimum charges. 
 
 One of the first important duties which confronted the Com- 
 mission, under the terms of the Transportation Act, was to 
 endeavor to establish a level of railroad charges sufficiently 
 high to give the carriers a fair rate of return. The law stipu- 
 lated that for the two years following March 1, 1920, the Com- 
 mission should take as a fair rate of return a sum equal to 
 5j^ per cent of the value of the carriers' property, to which 
 might be added, in the discretion of the Commission, one-half 
 of one per cent, to provide for additions and improvements. 
 Late in July, 1920, the Commission ordered a horizontal in- 
 crease of interstate freight rates and passenger fares. Four 
 rate territories were designated, an Eastern, a Southern, a 
 Western, and a Mountain-Pacific. In the Eastern territory 
 the increase of charges for the transportation of freight was 
 40 per cent, in the Western district 35 per cent, and in each 
 of the other two regions 25 per cent. A twenty-per-cent in- 
 crease of passenger fares was authorized, and a surcharge of 
 50 per cent imposed upon Pullman fares, the proceeds to go- 
 to the railroad companies. 
 
 After the authorization of the increase of interstate charges 
 the railroad companies asked the various state railroad and 
 utility commissions to authorize equivalent increases upon 
 
 [8] 
 
No. I] INTRODUCTION g 
 
 intrastate traffic. In some states the applications of the carriers 
 were granted, in some they were denied with respect to pas- 
 senger fares and granted with respect to freight rates, and in 
 other states the application met with refusals to permit any 
 increase of a substantial nature. The carriers appealed to the 
 Interstate Commerce Commission to order an increase in intra- 
 state charges, where such increases had been denied by state 
 authorities, upon the ground that the disparity between inter- 
 state and intrastate rates resulted in an undue discrimination 
 against interstate commerce. The Commission acceded to 
 the request of the carriers, and in a series of notable decisions 
 ordered an increase of intrastate rates and fares corresponding 
 in general to the increases which it had previously author- 
 ized on interstate business. A number of states challenged 
 the power of the Commission to increase the general level of 
 intrastate rates. In a test case involving the order made with 
 regard to rates in Wisconsin the Supreme Court upheld the 
 action of the Commission, vindicating its right to alter intra- 
 state rates, not only when there was discrimination against 
 a particular person or locality, but when it should find state 
 rates so low, compared with interstate rates, as to prevent the 
 carriers from earning from their intrastate business a reason- 
 , able proportion of the revenue to which, under the terms of 
 the Transportation Act, they are entitled. 
 
 Of equal importance with the rate-making activities of 
 the Interstate Commerce Commission has been the work of 
 the Railroad Labor Board. For some time before the Trans- 
 portation Act was passed there was much unrest in the ranks 
 of railroad labor. Prices had advanced immoderately since 
 1915, and while the United States Railroad Administration 
 had been generous in its treatment of labor, the workers felt 
 that the advance in the rate of compensation had not been com- 
 mensurate with the increase in the cost of living. Local dis- 
 turbances seriously impeded the operation of the railroads 
 during the closing months of Federal control, and a general 
 stoppage of work was averted in the spring of 1920 only be- 
 cause of the prospect of a speedy consideration of the wage 
 situation by the Railroad Labor Board. Immediately after 
 the Board was organized it undertook a settlement of the 
 wages question, and on July 20, 1920, it rendered a decision 
 granting to all classes of railroad labor a substantial increase 
 
 [9] 
 
lO 
 
 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 of wages, retroactive to May 1. By this decision the annual 
 outlay of the carriers for wages was advanced twenty-two per 
 cent. In the fall of 1920 the railroads found it necessary to 
 take steps to reduce expenses. The business depression which 
 had begun in the summer caused a marked decline in the 
 volume of railroad traffic, and the increased rates granted by 
 the Interstate Commerce Commission fell far short of supply- 
 ing the fair return of six per cent authorized by the Trans- 
 portation Act. The Labor Board was asked not only to 
 authorize a reduction of wages, but to abrogate the working 
 rules and agreements which had been inherited from the 
 Railroad Administration, and which the carriers asserted to 
 be the cause of large annual losses. In 1921 the Labor Board 
 authorized a twelve-per-cent reduction of wages, and it also 
 ordered new working agreements to be adopted to replace those 
 put into effect during the period of Federal control. During 
 the short time of its existence the Board has been exceedingly 
 active, handing down numerous decisions affecting the entire 
 railroad service, and issuing many orders with respect to dis- 
 putes on the lines of individual carriers. One of its most 
 noteworthy achievements was the effective part it took in 
 averting the threatened railroad strike in October, 1921. 
 
 The operation of the Transportation Act has evoked a 
 great deal of criticism. It was unfortunate that the law had 
 its earliest trial during a period of business depression. It was 
 particularly unfortunate that the large rate increases granted 
 by the Interstate Commerce Commission came at a time when 
 the general level of commodity prices, and especially of the 
 prices of farm products, was steadily declining. While there 
 is little ground for the belief that the increase of transportation 
 rates contributed in any marked degree to the business de- 
 pression, it was inevitable that in many quarters the new rates 
 should be held as the primary cause of the hard times. There 
 have been many demands for the unconditional repeal of the 
 entire rule of rate-making, and there has also been an unfor- 
 tunate tendency to encourage interference with the work of 
 the Interstate Commerce Commission by legislative and execu- 
 tive officials. The work which the Commission has done in 
 the readjustment of rates believed to be unreasonably high and 
 the recent partial revival of business have done much, how- 
 ever, to still the criticism of the rate-making provisions of the 
 
 [10] 
 
No. INTRODUCTION II 
 
 Transportation Act. So far there has been no recapture of 
 excess earnings from individual carriers, though the Com- 
 mission is now preparing to undertake this work. It is highly 
 probable that the railroads affected will challenge the constitu- 
 tionality of this feature of the law. The carriers of trunk line 
 and of central freight association territories have already called 
 into question the legal right of the Commission to order a 
 general readjustment of the divisions of joint earnings. 
 
 The invasion by the Federal Government of the right previ- 
 ously exercised by states to regulate intrastate commerce has 
 been more sharply criticised than the rule of rate-making, and 
 an attempt is being made to modify that portion of the law 
 which, according to the Supreme Court, gives the Interstate 
 Commerce Commission authority to adjust the general level of 
 intrastate rates in accordance with the needs of the carriers 
 for revenue. Senator Cummins has said that it was not the 
 intention of the framers of the law to give to the Commission 
 such sweeping power, it being thought that the law would 
 permit the Commission to modify intrastate rates only in cases 
 where the disparity between state and interstate charges re- 
 sulted in discrimination against particular individuals or par- 
 ticular localities. 
 
 The chief criticism of the Transportation Act has been in 
 connection with the provisions for the adjustment of labor 
 troubles. The Labor Board has met with a comparatively small 
 measure of public approval, and it has not been looked upon 
 with great favor either by the railroad managers or by the 
 railroad employees. Railroad labor unions have achieved a 
 position of much strength in recent years by virtue of the 
 Adamson Law and because of the deferential policy of the 
 Railroad Administration. They have a feeling of confidence 
 in their power to bring to a successful issue a contest with 
 the railroad managers, and consequently they are inclined to 
 regard with disfavor the creation of arbitration tribunals of 
 any character. Because of the business depression the rail- 
 road managers have a large measure of confidence in their 
 ability to dictate terms to their working forces in case of a 
 strike, and many of them feel that the Labor Board is an im- 
 pediment to the speedy readjustment of wages and working 
 rules which in their opinion the present condition of the trans- 
 portation industry justifies. The difference of opinion be- 
 
 [II] 
 
12 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 tween railroad executives and the Board as to the scope of the 
 Board's jurisdiction has tended to prevent the new tribunal 
 from exercising the influence that was expected. The public, 
 on the whole, has been impressed with the fact that the scale 
 of wages of railroad workers has not declined so rapidly as 
 the scale of wages of workers in other industries, and feeling 
 that high wages have been largely responsible for high rail- 
 road rates, it has been inclined to condemn the Railroad Labor 
 Board for failure to bring about a more expeditious reduction 
 of railroad expenses. The effective action of the Board at the 
 time of the threatened strike in October, 1921, tended, how- 
 ever, greatly to increase its prestige, and gained for it many 
 more friends than it had previously possessed. Perhaps the 
 greatest pretext for criticism of the Labor Board, both by the 
 carriers and by the public, has been the fact that the control of 
 railroad wages has been entrusted to one administrative body 
 and the control of rates to another, without specific provision 
 for close cooperation between the two. The demand for the 
 unconditional abolition of the Labor Board has not been so 
 urgent as the demand that the Board be abolished and its 
 functions vested in the Interstate Commerce Commission. 
 
 It is not improbable that the Transportation Act will be 
 modified in the not distant future, though with the partial 
 recovery of business and the gradual improvement of the 
 financial position of the carriers the opinion is unquestionably 
 gaining strength that it would be well to leave the law un- 
 disturbed for a time in order to see how it will function under 
 more nearly normal conditions of business than have prevailed 
 during the past two years. At any rate it is not to be ex- 
 pected that the law will be changed as extensively as its sever- 
 est critics desire. It must be remembered that if the law is 
 amended merely so as to eliminate its three most important 
 features the country will be thrown back upon virtually the 
 same railroad policy that existed in 1917. One has only to 
 remember the almost universal condemnation of that policy 
 to understand how unwise it would be to return to it. What- 
 ever has been the criticism of the Transportation Act there are 
 few who will not admit that the policy which it embodies is 
 superior to the former railroad policy. The general accept- 
 ance of this fact affords strong basis for the belief that there 
 will be no hasty and ill-considered changes. 
 
 [12] 
 
PART ONE 
 
 LABOR PROVISIONS OF THE 
 TRANSPORTATION ACT 
 
RAILROAD LABOR AND THE LABOR PROBLEM 
 
 HENRY R. SEAGER 
 Professor of Political Economy, Columbia University 
 
 THE primary purpose of the Academy of Political Science 
 is educational. It was founded in recognition of the 
 fact that there is a large and growing body of Ameri- 
 cans who wish really to understand both sides of the questions 
 that concern us as citizens. As a contribution to our educa- 
 tional program these meetings to discuss the Railroads and 
 Business Prosperity are especially significant. They are a 
 deliberately planned follow-up of the similar meetings which 
 the Academy held in November, 1919, on Railroad Legislation. 
 At that time, as you will all recall. Congress was wrestling 
 with the problem of the terms on which the railroads should 
 be turned back to their owners. The sessions of the Academy, 
 then held dealt with every important phase of that subject. 
 Senator Cummins explained the virtues of his bill. Repre- 
 sentative Merritt told why the House bill, the Esch Bill, was 
 a better measure. An interstate commerce commissioner, rail- 
 road executives, railroad labor union officials, spokesmen for 
 shippers, for the stockholders and for the public, and the in- 
 evitable professors, were all given opportunity to present their 
 views. There resulted a volume of Proceedings which contri- 
 buted greatly to the enlightenment of our members, of the 
 public, and even of Congress, as the good features — I will say 
 nothing of the others — of the Transportation Act of 1920, 
 which soon followed, clearly demonstrated. 
 
 Today we come together to appraise that measure in actual 
 operation. As two years ago, so today, we are still confronted 
 by the railroad labor problem as the most difficult aspect of the 
 whole railroad question. I have been asked to relate the 
 problem to the labor problem in general. The relation seems 
 to me so obvious that I need take but a few minutes of your 
 time to characterize it. 
 
 The railroads have long been recognized as a business " af- 
 fected with a public interest ", a " public utility ", as the phrase 
 
 [15] 
 
l6 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 goes. This means that while their business is not government 
 business it is also not strictly private business. In recognition 
 of its quasi-public nature we began thirty-five years ago to 
 subject the charges they might impose and the quality of service 
 they must render to regulation through the Interstate Com- 
 merce Commission. Just as the railroads occupy a middle 
 ground between public business and private business, so rail- 
 road employees occupy a middle position between public em- 
 ployees and private employees. We have been very slow in 
 realizing just what this implies. For many years we placed 
 sole reliance on mediation and voluntary arbitration to adjust 
 railroad labor disputes. Even the Transportation Act, while 
 creating the Railroad Labor Board, is vague in its definition 
 of the powers of this Board and provides no adequate sanction 
 for the enforcement of the Board's decisions. 
 
 This deliberation in recognizing the quasi-public nature of 
 railway employment and extending to railway employees some 
 of the protection as regards certainty and continuity of status 
 and some of the responsibility as regards regularity in the 
 performance of their duties that apply to public employees, 
 reflects the difficulty of the problem. It is well that we are 
 taking ample time to settle the railroad labor problem. It is 
 helpful that the timid steps toward an adequate railroad labor 
 policy in the Transportation Act are being subjected to judicial 
 review, even if some of the decisions seem to weaken rather 
 than to strengthen the labor provisions of that measure. The 
 goal to be aimed at is coming to be more and more clearly 
 perceived by all concerned. As regards the public it is maxi- 
 mum efficiency on the part of the railroad employees and pro- 
 tection against the interruption of railroad service ; as regards 
 the employees it is the " just and reasonable " wages and work- 
 ing conditions prescribed by the Transportation Act, coupled 
 with such participation in the determination of those con- 
 ditions as will call forth loyal and efficient service ; as regards 
 railroad executives it is such degree of control over the oper- 
 ation of the railroads as will enable them to do their work 
 efficiently and to secure the most loyal and efficient cooperation 
 of their fellow employees. As regards the owners of railroad 
 securities it is such an adjustment of labor costs to revenues 
 as will afford them a fair and reasonable return on their bona- 
 fide investments. 
 
 [16] 
 
Na I] RAILROAD LABOR AND THE LABOR PROBLEM y 7 
 
 I shall not anticipate the speakers who succeed me by at- 
 tempting to say how this goal is to be attained. But, con- 
 sidering together these different aims, there are two principles 
 which in the future development of our railroad labor policy 
 should, in my judgment, receive clearer recognition. The 
 first is the principle that the operating employees and the 
 shop employees present separate and distinct problems. Con- 
 tinuous service on the part of the operating employees on 
 every division of every reulroad system in the country is essen- 
 tial to the public welfare. This is not true of the shop 
 employees of any railroad. In my opinion only harm and 
 confusion have resulted from trying to apply exactly the same 
 method for adjusting disputes to the operating employees and 
 to the shop employees. Operating employees are quasi-public 
 employees in a sense that entitles them, in return for guarantees 
 of continuous service, to a definite and fully protected status. 
 Shop employees are little, if at all, different as regards the 
 importance of the services they render from private employees 
 in the many private plants which do the same work for the 
 railroads in some sections of the country that is done by the 
 railroad shops in other sections. As I am a strong believer in 
 leaving labor questions to voluntary adjustment, under proper 
 safeguards protecting the right of the individual employee to 
 organize, I do not believe that any useful purpose would be 
 served by restricting the right of shop employees to strike 
 should they desire, at any rate, unless and until we come to 
 adopt such a policy for other employees in manufacturing and 
 repair plants. On the other hand, if the operating employees 
 should ever again attempt to exercise the right to strike, which 
 they enjoy, there are clear indications that public opinion 
 would demand its curtailment. Such curtailment would be 
 fair and proper only if it were coupled with the adoption of 
 standards as regards wages and working conditions and con- 
 tinuity of employment that made the use of the strike weapon 
 clearly no longer necessary as a means of securing the just and 
 reasonable conditions, which the Transportation Act prescribes. 
 
 The other principle is that whatever public authority is 
 charged with adjusting disputes involving the operating em- 
 ployees, it must recognize that it is its duty to seek and find 
 some other and better basis for determining wages and work- 
 
 [17] 
 
1 8 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 ing conditions than reliance on settlements that may be im- 
 posed by railroad executives through their superior power, or 
 that may be wrung from such executives because of the superior 
 power of the organized employees. From this point of view 
 the statement with which the Railroad Labor Board prefaced 
 the first wage decision which it rendered on July 20, 1920, 
 advancing wages for the collective railroad employees of the 
 country, was highly disappointing. It said : " The Board has 
 been unable to find any formula which, applied to the facts, 
 would work out a just and reasonable wage for the many 
 thousands of positions involved in this dispute." The ob- 
 jection to this statement is not that it would have been reason- 
 able to expect the Board to find such a formula after its few 
 weeks' study of the problem but that it implies that no such 
 formula or formulae are to be found. If, instead of contenting 
 itself with such a pessimistic utterance as regards the possi- 
 bility of placing its decisions on a scientific and defensible 
 basis, it had recognized the grounds for distinguishing between 
 operating employees and shop employees, and indicated its 
 determination to seek a proper basis for the determination of 
 the wages and working conditions of operating employees, so 
 that in its decisions rules would in time be laid down which 
 would justify curtailing the right of operating employees to 
 interrupt the railroad service of the country, the public would 
 now entertain a much higher opinion of the Board and much 
 greater confidence in its ability to lead in the solution of the 
 railroad labor problem. 
 
 [i8] 
 
FUNCTIONS AND POLICIES OF THE RAILROAD 
 LABOR BOARD 
 
 FRANK H. DIXON 
 Professor of Economics, Princeton University 
 
 AS a background for our discussion it may be profitable 
 to recall the more significant provisions of the Trans- 
 portation Act of 1920 relating to labor — that portion 
 enacted under the title " Disputes between Carriers and their 
 Employees and Subordinate Officers ". The fundamental 
 purpose of this portion of the statute is revealed in the first 
 sentence of Section 301, which declares it to be the duty of all 
 carriers and their officers and agents to exert every reasonable 
 effort and adopt every available means to avoid any inter- 
 ruption to operation growing out of a dispute between carrier 
 and employees. Uninterrupted transportation is essential to 
 the life and happiness of the people and it is wholly proper 
 that this thought should be kept in the forefront of any legis- 
 lation concerning labor controversies on the railways of the 
 country. 
 
 Following this general injunction the specific plan is de- 
 veloped. All disputes must be considered, and if possible, 
 must be decided in conference between authorized representa- 
 tives of those directly interested in the dispute. This initial 
 conference usually would take place on the individual railway, 
 but if the dispute were of wider extent, it might conceivably 
 involve many carriers. Failure to reach a decision in such 
 a conference is provided for by boards of reference to whichi 
 the controversy may be sent. 
 
 In the first place, there are the Railroad Boards of Labor 
 Adjustment. These boards may be established by agreement 
 between carriers and employees. They may be limited to a 
 single line, to a group of carriers, or they may comprise the 
 carriers as a whole. They are to be bipartisan in character. 
 Their jurisdiction is an appellate one, and covers only such 
 disputes as involve grievances, rules or working conditions, 
 but not wages. Such a board, when set up, receives for hear- 
 
 [19] 
 
20 
 
 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 ing any dispute not settled by local conference, upon the appli- 
 cation of any carrier or employee organization, or the petition 
 of not less than one hundred unorganized employees. Further- 
 more, this Board either on its own initiative or upon the 
 request of the national Labor Board, may take jurisdiction 
 whenever it is of the opinion that the dispute is likely sub- 
 stantially to interrupt commerce. 
 
 Finally, at the apex of the pyramid is the Railroad Labor 
 Board, an arbitration body consisting of three representatives 
 each of labor, the carriers and the public. It takes jurisdiction 
 of disputes concerning working conditions not settled by Ad- 
 justment Boards or concerning which it decides that Adjust- 
 ment Boards have not exhibited due diligence. In case no 
 Adjustment Board has been organized, it takes the place of 
 this subordinate body and receives the dispute on appeal 
 directly from the local conference. 
 
 So far as wage disputes are concerned, the Railroad Labor 
 Board assumes direct jurisdiction on appeal from the local 
 conference without the intermediation of any Adjustment 
 Board. And it may go further and upon its own initiative 
 suspend the operation of any original decision concerning 
 wages made locally, if it is of the opinion that the decision 
 involves such an increase as will be likely to necessitate a sub- 
 stantial readjustment of the rates of any carrier. Decisions 
 are to be made public by transmittal to the President and to 
 the Commission. If an order of the Board is disobeyed, it may 
 hear and determine the violation and make public its finding. 
 But it has no weapon of enforcement beyond that of publicity. 
 
 This Board has been in existence for nearly two years, long 
 enough to develop its policy at least in outline and give indi- 
 cation of what are to be its fundamental guiding principles. 
 Certainly it has had a sufficiently varied experience during its 
 brief and busy life to prevent it from sinking to the level of 
 bureaucratic routine. Catapulted into the midst of a situation 
 seething with discontent and threatened outbreak, the Labor 
 Board was compelled at the beginning to act under pressure 
 and without that deliberation that should characterize the 
 decisions of a judicial body. And working under pressure 
 has been the habit of the Board almost continuously since the 
 beginning. It may have made some mistakes. It certainly 
 
 [20] 
 
No. i] THE RAILROAD LABOR BOARD 2 1 
 
 has not met with universal approbation. But its work should 
 be judged with due consideration of the conditions under 
 which the Board was created and under which it has been 
 compelled to work. 
 
 In the determination of the reasonableness of wages it was 
 under the guidance of Congress, which laid down seven con- 
 ditions that were to be taken into consideration. Hazard, 
 skill and responsibility were obvious factors, as were character 
 and regularity of employment. Inequalities in previous wage 
 adjustments were certainly pertinent considerations, for until 
 the wage base was determined to be sound and fair, no increases 
 or decreases therefrom could be fairly appraised. But the 
 Board naturally shrank from an investigation that would con- 
 sume much valuable time and carry it far afield, and this factor 
 was given slight attention. Cost of living, which the em- 
 ployees use as an argument for increases when prices are rising 
 and which is taken over by the carriers -when the tide begins 
 to recede, cannot by itself determine the fundamental reason- 
 ableness of an existing wage. It merely indicates the desir- 
 ability of an increase or a decrease from some assumed stand- 
 ard which has been only vaguely fixed, and may not have been 
 reasonable in the beginning. It is worthy of note that Mr. 
 Jewell in his recent presentation before the Labor Board in 
 behalf of the shop crafts, challenged the whole social order 
 and based his plea for an increase of existing wage rates upon 
 the necessity of assuring to the workers an American standard 
 of living. The laborer is worthy of his hire, and this hire must 
 procure for him the opportunity to live in comparative comfort 
 without reference to the financial condition of his employer. 
 
 No mathematical rule has been discovered for the deter- 
 mination of a reasonable wage. But so long as we maintain 
 our regime of private industry, one of the determining in- 
 fluences that must be accepted by any wage-adjustment board 
 is the first-named of the seven conditions listed in the statute, 
 " the scale of wages paid for similar kinds of work in other 
 industries ". Granted that the statistics of wages have been 
 honestly and intelligently gathered and that no manipulation 
 of wage rates has occurred through undue pressure of com- 
 bined capital, the price that must be paid for similar labor in 
 the open market is one of the conclusive factors in determining 
 
 [21] 
 
22 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 the reasonableness of a prevailing wage standard. Moreover 
 in connection therewith the Board should adjust wages in 
 harmony with the industrial conditions of each locality. 
 Standardized wages effective over wide areas can with difficulty 
 be defended on any economic basis. Their reason for existence 
 is political and strategic. Testimony submitted by the em- 
 ployees themselves in Chicago recently is a virtual recognition 
 of the need of restoring those differentials between town and 
 city and between one section and another that were largely 
 destroyed during the period of the national agreements. 
 
 But this wage the carrier should pay irrespective of its 
 financial condition. Mr. Jewell is fundamentally on solid 
 ground in directing the attention of the Board to the standard 
 of living of the laborer and away from the railway's ability 
 to pay. It is not only unfair but also unsound to make the 
 wages of the employees dependent upon the prosperity of the 
 carriers. The public must eventually be made to pay what is 
 necessary to keep capital in business and labor adequately re- 
 warded. But if there is any faltering on the part of the 
 public, it is capital that must bear the brunt, not labor. Of 
 course there are instances, and some of them have been recog- 
 nized by the Labor Board, where railway operation has only 
 been possible through a reduction of the wage standard, but 
 these have been minor instances on small roads, and it is signi- 
 ficant to notice that in the case of the Missouri and North 
 Arkansas, for example, the Board in reducing the wages stipu- 
 lated that capital should receive nothing until wages had been 
 restored to standard. 
 
 Overemphasis has been put upon the relationship of wages 
 and rates — the argument that wages depend upon the ability of 
 the carrier to pay — by the offer of the railways last October 
 to translate all further reductions in wages into rate reductions. 
 Why such an offer was made it is difficult to say. Possibly it 
 was a strategic move to enlist the shippers on the side of wage 
 reductions. But the practical value of the offer was certainly 
 insignificant. The effect in rate reductions of a decrease of 
 ten per cent in wages would be so small that it would scarcely 
 be recognized even if it had immediate effect upon the move- 
 ment of traffic. But all indications point to the conclusion 
 that reductions in rates would not stimulate traffic movement 
 
 [22] 
 
No. I] THE RAILROAD LABOR BOARD 23 
 
 to any considerable degree. The trouble lies in the business 
 situation. When business picks up, the height of the freight 
 rate will be in large measure forgotten. 
 
 Those who are insisting that wages depend upon rates are 
 urging the transfer of the duties of the Labor Board to the 
 Interstate Commerce Commission, on the ground that the 
 agency that determines revenues should be in control of 
 expenses. Their arguments are not impressive. To be sure, 
 there has been a certain amount of jolting in the machinery and 
 the two agencies have not worked as cooperatively £is they 
 might have done. But the combination of the two functions 
 in the one body would not solve any problem. Wages would 
 still have to be considered separately and ought still to be 
 considered ahead of rates if any conclusions of enduring force 
 are to be reached. And, besides, the Commission has enough 
 troubles of its own. 
 
 A review of the activities of the Labor Board reveals the 
 fact that whereas it was designed as an appellate body to 
 receive only such controversies as could not be settled locally 
 or regionally, which presumably would be few, it has been for 
 most of its life largely a court of original jurisdiction because 
 of the utter failure of the conference and adjustment machinery 
 to produce results. It is probable that the presence of the 
 Labor Board works as a deterrent to quick settlement in con- 
 ference. One of the parties feels that better terms may be 
 secured by appeal and so declines to participate in a local ad- 
 justment, or else makes merely a perfunctory effort toward 
 settlement. The result has been to bury the Board in petty 
 issues with which it should not have had to concern itself. 
 Unsettled controversies of minor character carried over from 
 the federal period occupied much of the time of the Board at 
 the beginning. The failure of the carriers and their employees 
 to get anywhere in the revision of the national agreements 
 threw the burden of readjustment wholly upon the shoulders 
 of the Labor Board. 
 
 It is true that adjustment boards have been set up in each 
 of the three territories, but thus far they have been confined to 
 men in engine, train, and yard service, and have included only 
 a portion of the carriers. No such boards have been created 
 for settling the problems of the shop crafts, in which the con- 
 ceal 
 
24 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 trcwersies over working conditions are much more numerous 
 than in train service. This failure of carriers and shop craft 
 employees to set up adjustment boards is in part due to the 
 attitude of the railways, which are disposed to distinguish 
 between occupations that are exclusively railway in their char- 
 acter, and those that are similar to commercial employment. 
 Shopmen are merely skilled mechanics. They belong to unions 
 associated with the American Federation of Labor which 
 contains men of the same craft employed in other industries. 
 Questions of policy are decided by vote of the entire union 
 membership and railways have resented the idea that rules for 
 railway shopmen should be made by men engaged in other than 
 railway occupations. 
 
 Nevertheless, it is evident that means should be devised for 
 encouraging and developing the type of local conference and 
 adjustment that the Act contemplated. Sound principles of 
 labor adjustment demand that removal of misunderstandings 
 and elimination of grievances should be undertaken at the 
 bottom and not at the top. Local conference develops a loyalty 
 to the individual operating organization without which effi- 
 ciency is impossible. Such loyalty is peculiarly needed in the 
 railway industry, in which the geographical extent of oper- 
 ations requires the scattering of employees over a wide territory 
 where they are thrown largely on their own resources. 
 
 It becomes a question whether the Labor Board has used 
 its influence as vigorously as it might to encourage local adjust- 
 ment. Of course it has compelled compliance with the Act, 
 which has required local conference as a preliminary to an ap- 
 peal to the Board. But there is no indication that it has been 
 unwilling to accept these appeals when made. Why has it 
 not followed the practice of the court which sends back for 
 further deliberation a hung jury? Why could it not refuse 
 to hear an appeal because the conference was obviously per- 
 functory? On the contrary, in the present wage hearing, in- 
 stead of passing upon the merits of Mr. Jewell's plea that 
 genuine conferences had not been held, the Board postponed 
 decision on this issue until after all the evidence should have 
 been offered by both sides. I do not mean to argue with re- 
 spect to this specific issue that the preliminary conferences 
 have not been genuine. Upon that I express no opinion. I 
 
 [24] 
 
No. I] THE RAILROAD LABOR BOARD 25 
 
 am merely insisting that the Board's general attitude does not 
 betoken any solicitude for the preservation and the enlargement 
 of the powers of the local conference. 
 
 In fact, there is much to lead one to the conclusion that the 
 Board is magnifying its own powers and is extending them 
 into that field which should be the exclusive possession of the 
 railway executives. To discuss this issue in detail would 
 extend this introductory paper beyond its proper limits. The 
 Board's attitude may be understood by brief reference to a 
 few of the more striking cases. In an issue last September in 
 which a carrier discharged a man because he belonged tO' a 
 union and challenged the power of the Board to interfere in a 
 matter of contract between employer and employee, the Board 
 held that it was required to take jurisdiction of all cases not 
 decided elsewhere, and that it must decide all disputes that 
 were likely to interrupt the operation of the carrier. This all- 
 embracing attitude takes out of the hands of the individual 
 carrier all control of its labor relations when they have reached 
 a stage in conference where disagreement has resulted. For 
 of course any disagreement may conceivably develop into an 
 interruption of traffic. 
 
 Another illustration of the Board's interpretation of its 
 powers is found in the Erie Railroad case, in which the carrier,, 
 after conference with its employees resulting in a disagreement, 
 restored the rates of pay in effect before the Labor Board's 
 decision of July, 1920. The Board held that the road had na 
 authority to decide when new conditions warranted a change 
 in wages, and expressed its somewhat heated views in the 
 following langauge: 
 
 This position, of course, renders nugatory and vain the elaborate 
 and costly processes established by the Act and applied by this Board. 
 It sweeps aside at the will of one party a decision arrived at after the 
 presentation of evidence and argument by the many parties to the 
 dispute, accepted by all and now obeyed by substantially all carriers.. 
 It justifies a disregard of the factors specified by Congress for the 
 ascertainment of just and reasonable wages and substitutes for these 
 factors the financial benefit of the carrier. If valid, the intent of Con- 
 gress that conference, reasonableness and justice should be substi- 
 tuted for power, violence and disorder in the settlement of railroad 
 labor disputes is utterly destroyed and legislation enacted after the 
 most careful consideration rendered ridiculous and even fraudulent. 
 If a carrier may arbitrarily reduce wages decided to be reasonable and 
 set aside rules while a party to proceedings with regard to such rules, 
 no reason appears why railroad employees may not announce an im- 
 mediate intention of abandoning the service in concert unless de-. 
 
 [25] 
 
26 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 mands for increased wages or more favorable working conditions are 
 at once satisfied, provided a trend toward higher living costs shall 
 have appeared or wage scales in similar industries shall have ad- 
 vanced. Such conduct is highly provocative of interruption to traffic 
 and is not only not consistent with the Act, but is thereby clearly 
 condemned and prohibited. 
 
 No court hcis passed upon this question because the carrier 
 complied with the ruling of the Board, but it is the particular 
 feature of the law to which the most serious objection is raised 
 by railway management. It is clear that under this inter- 
 pretation, management has no power to readjust wages with- 
 out the consent of the employees, and if that is withheld, with- 
 out a hearing and a decision by the Labor Board. It is the 
 contention of railway management that it should have original 
 authority to adjust wages, its action to be subject to review by 
 the Board, which should have power to make its findings retro- 
 active. Without such a procedure, wage-fixing will soon be- 
 come an exclusively governmental function. 
 
 Finally, there is the case of the Pennsylvania Railroad, 
 which is too familiar to need elaboration here. The Board 
 went further in this instance than in any other controversy 
 of which it has taken jurisdiction, and laid down general rules 
 of procedure which the railway was ordered to follow in choos- 
 ing employee representatives to confer with management con- 
 cerning a plan of labor adjustment. The Board even went 
 so far as to prescribe the form of ballot which the road should 
 use, although this portion of the order was later modified. But 
 it did insist upon certain principles of representation with 
 which the road was not willing to comply. In this respect it 
 apparently exceeded the powers granted it by the statute, for 
 it has within the past fortnight been enjoined by the Federal 
 Court from enforcing its orders against the carrier. The de- 
 cision of Judge Page virtually forbade the Board to interfere 
 with the procedure of the carrier which set up a scheme of 
 employee representation for the handling of local grievances. 
 [I note the prompt announcementthat the Labor Board proposes 
 to appeal this decision. This, of course, is quite proper and 
 quite desirable in order that the actual powers of the Labor 
 Board should be clearly defined by a higher court.] 
 
 However much we may as individuals sympathize with the 
 underlying purpose that inspired the Labor Board — ^the desire 
 
 [26] 
 
No. I] THE RAILROAD LABOR BOARD 27 
 
 to permit each employee to be represented by the person or by 
 the organization of his choice, whether this person or organi- 
 zation was local to the Pennsylvania Railroad or not — we must 
 recognize that this position of the Labor Board invades deeply 
 the field of management and is one more step in the direction 
 of robbing the railway executive of that initiative which is 
 essential to efficient operation. 
 
 I am not one of those who believe that the Labor Board 
 should be abolished. It has much valuable work to do within 
 its proper field. Above all it stands for the settlement of labor 
 problems through the medium of arbitration rather than that 
 of the strike. Uninterrupted transportation, which is at the 
 basis of the present law, is a goal which we must steadily 
 approach. We must accustom the public and labor to the idea 
 of arbitration as a permanent substitute for the strike. Capital 
 and labor should be required to accept service in this industry 
 subject to a limitation upon their freedom of action in the 
 .settlement of their disputes. There would have been no jus- 
 tice in incorporating compulsory arbitration into law in March, 
 1920, and imposing restrictions upon employees just emerging 
 from government employment, into which they had been 
 thrown without their consent — employees long in service with 
 valuable seniority rights and unfitted by age and experience 
 for any other employment. But the public should announce 
 a future policy of compulsory arbitration, with the purpose 
 of realizing it as speedily as conditions permit. The public 
 must assure the contestants that they have a tribunal in which 
 absolute justice will be meted out. Such a tribunal must offer 
 •a compensation and a tenure sufficient to attract the most com- 
 petent men the country can produce. It must establish a labor 
 •code which assures to labor certain fundamental rights. Such 
 a code the Board itself attempted to lay down last July. This 
 ■code has not met with universal approval, but it gives at least 
 -a basis for discussion. 
 
 There is not opportunity at this time to discuss the arguments 
 for and against compulsory arbitration. I wish only in reply 
 to those who insist that it is wholly impracticable, to call 
 attention to the influence exerted by the Labor Board and the 
 labor provision of the statute last fall in preventing a nation- 
 wide strike. Notwithstanding the fact that the law contained 
 
 [27] 
 
28 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 no sanctions and that the only method of protest left for labor 
 against the decision of the Board was the use of the strike 
 weapon, the strike did not take place. It crumbled because 
 in spite of all explanations and protests, labor could not rid 
 itself of the odium of striking against the decision of a body- 
 created by law for the express purpose of settling disputes of 
 this character. Public opinion refused to endorse lawlessness 
 and the gigantic structure of revolt collapsed like a house 
 of cards. 
 
 With the rights of labor adequately protected by a code 
 sanctioned by law, and with a competent and high-minded 
 arbitration board, there should be no more inherent difficulty 
 in settling labor disputes peaceably than there is in adjusting 
 the ordinary dispute in courts of law. The cry of involuntary 
 servitude, under such circumstances, is not persuasive. Public 
 policy must guarantee justice to the disputants but it must 
 also protect the people at large from the intolerable burdens 
 oi interrupted transportation. 
 
 [38] 
 
LABOR POLICIES OF THE TRANSPORTATION ACT 
 FROM THE POINT OF VIEW OF RAILWAY 
 
 MANAGEMENT 
 
 C. B. HEISERMAN 
 General Counsel of the Pennsylvania Railroad 
 
 A DISCUSSION of the labor policies of the Transpor- 
 tation Act from the point of view of railway man- 
 agement is hardly within the province of a member 
 of a railroad legal department, but I shall address my remarks 
 simply to a statement of facts which will authoritatively set 
 forth the policy of the company which I have the honor to 
 serve, and some phases of the controversy with the United 
 States Railroad Labor Board which led to our appeal to the 
 United States Court at Chicago. 
 
 Section 301 of the Transportation Act declares it to be the 
 duty of all carriers and their officers and employees to exert 
 every reasonable effort and to adopt every available means to 
 avoid any interruption in the operation of any carrier growing 
 out of any dispute between the carrier and its employees, or 
 its subordinate officials. All such disputes shall be considered 
 and, if possible, decided in conference between representatives 
 designated and authorized so to confer by the carriers, or 
 employees, or subordinate officials thereof, directly interested 
 in the dispute. If any dispute is not decided in such confer- 
 ence, it shall be referred by the parties thereto to the Board, 
 which, under the provisions of the title, is authorized to hear 
 and decide such dispute. 
 
 In Decision No. 119 the Labor Board assumed to terminate 
 the National Agreements, and called upon the officers and 
 system organizations of employees to designate and authorize 
 representatives to confer and decide so much of the disputes 
 relating to working rules and conditions as it might be po-ssible 
 for them to decide in conference, although no dispute as to 
 rules and working conditions had been referred to the Board 
 under the Transportation Act. To this decision the Board 
 attached and assumed to prescribe sixteen principles to govern 
 
 [29] 
 
30 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 such conference and required such conference to conform 
 thereto. Principle No. 5 declared the right of a lawful organi- 
 zation to act towards lawful objects through representatives of 
 its own choice, whether such representatives were employees 
 of the carrier or not, and declared further that the carrier 
 must agree to such principle. 
 
 Principle No. 15 declared that the majority of any craft 
 or class of employees shall have the right to determine what 
 organization shall represent members of such craft or class. 
 Such organization shall have the right to make an agreement 
 which shall apply to all employees in such craft or class. It 
 was provided, however, that no such agreement shall infringe 
 upon the right of employees not members of the organization 
 representing the majority to present grievances either in person 
 or by representatives of their own choice. 
 
 While not conceding that the Labor Board had at any time 
 acquired jurisdiction over the National Agreements, or that it 
 had any right or power to revive and perpetuate the same, as it 
 did in Decision No. 119, or that it had power to prescribe the 
 principles which it attached to said Decision No. 119, the 
 Pennsylvania Railroad Company endeavored to comply with 
 the said decision and the said principles. Though not 
 recognizing any obligation so to do, our company called into^ 
 conference its several classes of employees with the view to 
 negotiating with each class, respectively, rules and working 
 conditions to govern and control the relations between it and 
 its employees, in lieu of the National Agreements, which had 
 cesLsed to exist, and to which our company was in no wise 
 a party. 
 
 There was upon our lines a labor union in the shop crafts 
 known as System Federation No. 90, which is affiliated with 
 and is a branch of the Railway Employees Department of the 
 American Federation of Labor. The officers of System 
 Federation No. 90 proposed to confer with the company and 
 to negotiate rules in accordance with Decision No. 119 of the 
 Railroad Labor Board. Our company refused to negotiate 
 with such officers, but, while recognizing no legal obligation 
 so to do, offered to negotiate with committees of its employees 
 composed of men actually engaged in its service, regardless of 
 whether the members of such committees were or were not 
 members of System Federation No. 90. 
 
 [30] 
 
No. I] LABOR POLICIES OF THE TRANSPORTATION ACT 31 
 
 It may be here stated that it has been the policy of our 
 company, since the termination of Federal control, to re- 
 establish with its own employees a harmonious relationship, 
 bearing in mind that honest, efficient and economical operation 
 of its lines can be secured only by close and unrestricted co- 
 operation by the management and its employees. To that 
 end it determined that all classes of employees should have 
 a voice in the administration of matters affecting their welfare 
 through representatives of their own selection, provided that 
 such representatives, whether union or non-union men, should 
 be actual employees. The officers of System Federation No. 90 
 declined to cooperate with the carrier in the selection of com- 
 mittees to represent employees with whom the carrier might 
 negotiate rules and working conditions. Thereupon the com- 
 pany, with the cooperation of certain employees in the shop 
 crafts, though recognizing no legal obligation so to do, pre- 
 pared and distributed to such employees a ballot upon which 
 each employee might designate employee-representatives to 
 confer with the company as to rules and working conditions. 
 
 After the distribution of such ballots the officers of System 
 Federation No. 90 distributed ballots to all such shop craft 
 employees and warned each such employee not to use the ballot 
 furnished by the carrier, and directed each such employee to 
 vote for System Federation No. 90 as his representative for 
 such conference. Our company recognized the result of the 
 election which it conducted, and thereupon entered into con- 
 ferences as to rules and working conditions with the employee- 
 representatives so chosen. 
 
 Thereafter System Federation No. 90, by Mr. B. M. Jewell, 
 President, Railway Employees Department, American Feder- 
 ation of Labor, filed with the Labor Board an application for 
 decision, complaining that the carrier had refused to negotiate 
 rules and working conditions with the officers of System Feder- 
 ation No. 90 and was proceeding to negotiate rules and work- 
 ing conditions with committees selected in the manner afore- 
 said, and by reason of the premises had violated Decision No. 
 119, and particularly Paragraph 2 thereof and Principles 5 and 
 15 attached to the said decision. Thereafter the Board ren- 
 dered its Decision No. 218, in which it said : " Under the au- 
 thority of the Transportation Act as hereinbefore cited, the 
 
 [31] 
 
32 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 Labor Board hereby declares that both of said elections on the 
 Pennsylvania System were illegal and that rules negotiated by 
 the alleged representatives selected by either ballot will be void 
 and of no effect, and orders that a new election be held." 
 
 Thereupon the company made application to the Board to 
 vacate and set aside its said Decision No. 218, expressly deny- 
 ing the right and power of the Board to prescribe principles 
 which must in law govern the carrier and its employees in the 
 making of agreements covering working rules and conditions. 
 Notwithstanding this, however, the company asserted that it 
 had endeavored in negotiations with its employees to adopt 
 and observe such of the said principles as are fundamentally 
 sound and correct. 
 
 The Board decided that it had acquired full jurisdiction, 
 but it declared " that question is not of prime importance in 
 this case." The Board also declared : " There is no question 
 of the closed or open shop involved in this dispute and no 
 other real matter of principle ; the question involved is merely 
 one of procedure." With these propositions the company took 
 direct issue and represented to the Board that if the question 
 was merely one of procedure the Board had no right or power 
 to set up its judgment or opinion against that of the carrier. 
 Dissatisfaction, whether real or fancied, by certain employees 
 with matters of " mere procedure " should not be tortured into 
 a " dispute " within the purview of Sections 301 and 307 of the 
 Transportation Act. It was claimed that no fear need be 
 entertained of " interruption to the operation of any carrier " 
 because of differences between carrier and employees upon 
 questions of " mere procedure." Disputes under the law, refer- 
 able to the Board, are those of substance and real moment. 
 Reduction of wages, real grievances, unfair, unreasonable, 
 burdensome working rules and conditions are the matters com- 
 prehended by the Transportation Act as prolific of " disputes " 
 which might interrupt transportation, to prevent which the 
 Labor Board was created. The company denied the power of 
 the Board to prescribe an election, or any other method, by 
 which the carrier may ascertain who are the authorized repre- 
 sentatives of its employees; and it averred that it could not 
 accept as advisory the rules and conditions set forth in the 
 Board's decision in the case, especially the form of the ballot 
 
 [32] 
 
Na 1] LABOR POLICIES OF THE TRANSPORTATION ACT 33 
 
 and the franchise qualifications fixed and determined by the 
 Board. 
 
 The company represented that, as the occasion requires, it 
 will accord franchise rights only to its employees in service, 
 or absent upon leave, and will not concede voting qualifications 
 to men who have been laid off or furloughed and who may be 
 engaged in other occupations or who may never return to the 
 service of the carriers. 
 
 The company denied the power of the Board to compel a 
 conference or to prescribe with what representatives of em- 
 ployees it shall confer, and it declared that it could not accede 
 to the rule prescribed for ascertaining the representative 
 capacity of the spokesmen for unorganized employees. The 
 Board was advised that there were in the service of the carrier 
 at that time approximately 176,000 employees who were inter- 
 ested in and affected by rules covering working conditions, 
 and that 117,176, or 66.5%, of said employees had expressed, 
 by vote or otherwise as a result of conference a desire to 
 negotiate rules and working conditions through employee- 
 representatives, and that accordingly contracts respecting rules 
 and working conditions had been entered into between the 
 carrier and representatives of 149,918 employees apportioned 
 among the several classes named to the Board. These con- 
 tracts were put into full force and effect, and by their terms 
 the parties thereto acquired mutual rights and assumed mutual 
 obligations. 
 
 We further represented that since the Board had handed 
 down its Decision No. 218 the company had held conferences 
 with representatives of the several crafts with whom contracts 
 had been made for the purpose of ascertaining whether or not, 
 in the light of the said decision, said employees were satisfied 
 with the manner of selecting representatives and with the rules 
 and working conditions actually agreed to; and that as a result 
 of said conferences the said employees, through their repre- 
 sentatives, manifested their satisfaction not only with the man- 
 ner of selecting representatives, but also with the rules and 
 working conditions embodied in the said agreements. 
 
 The company thereupon asked the Board to vacate and set 
 aside its Decision No. 218 and to find in pursuance of the 
 Transportation Act: (a) that the company had the lawful 
 
 [33] 
 
34 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 right to establish rules and working conditions in the first 
 instance, either with or without first holding conferences with 
 employees; and (b) that the contracts respecting rules and 
 working conditions theretofore entered into by the carrier and 
 its employees in the shop crafts are now in full force and 
 effect without any further action on the part of the carrier and 
 its employees in the said shop crafts. 
 
 The Board denied the company a further hearing upon any 
 questions other than those involving matters connected with 
 franchise rights and the election, the decision as to which the 
 Board refused to vacate. 
 
 Another eff'ort was made by the company to settle peaceably 
 its controversy with the Board, and it respectfully submitted 
 a reply to the Board's last decision, setting forth that the said 
 decision was not responsive to the company's application, and 
 it expressly represented to the Board that the company had not 
 denied and was not now denying the jurisdiction of the Labor 
 Board to hear and decide such disputes as fall within the 
 purview of the Transportation Act, but it denied the right of 
 the Board to invade the domain of management and to assert 
 jurisdiction over grievances of whatsoever kind or character 
 in connection with the employment, the discipline and the 
 discharge of its employees. 
 
 Section 313 of the Transportation Act provides that the 
 Labor Board, in case it has reason to believe that any decision 
 of the Labor Board is violated by any carrier or employee^ 
 may upon its own motion, after due notice and hearing to all 
 persons directly interested in such violation, determine whether 
 in its opinion such violation has occurred and make public 
 its decision in such manner as it may determine. 
 
 Upon our failure to comply with its decision the Board cited 
 our company to appear before it in accordance with this section, 
 and we appeared for the purpose of informing the Board that 
 we could not accept as a lawful decision the declaration of the 
 Board that the election under which the employee-representa- 
 tives were chosen was illegal and that the rules and working 
 conditions agreed upon by such employee-representatives and 
 the management were void and of no effect. 
 
 This position was taken and maintained by the company 
 because it was of the opinion that the Board had no jurisdiction 
 
 [34] 
 
No. I] LABOR POLICIES OF THE TRANSPORTATION ACT 35 
 
 over the matter which was the subject of the decision. Con- 
 forming to the letter and the spirit of the Transportation Act^ 
 the carrier pledged itself to the principle of collective bargain- 
 ing with its employees by and through the medium of employee- 
 representatives of their own selection, and in good faith and 
 with the cooperation of a large majority of its employees of 
 ail classes entered upon a policy which promised good and last- 
 ing results in promoting harmony of action and full under- 
 standing of conditions between employees and management. 
 
 A minority of employees, represented by System Federation 
 No. 90, were opposed to employee representation and claimed 
 the right to negotiate concerning rules and working conditions 
 through the shop crafts' labor organization. This the com- 
 pany deemed subversive of its lawful right to deal with its 
 own employees without the intervention of individuals or 
 organizations whose manifest abject is the denial of the funda- 
 mental right of employer and employee to deal in the first 
 instance with one another respecting wages and working con- 
 ditions in which they alone are directly interested. And, 
 again, the company emphasized the fact that in cases of dis- 
 pute in relation to wages and working conditions it has ever 
 been willing to submit the dispute to the Labor Board and to 
 abide by its decision in full acquiescence in and acceptance of 
 the provisions of the Transportation Act. 
 
 The company stated that it had not " violated " any decision 
 of the Labor Board in the sense that it had set at nought and 
 refused to comply with the lawful pronouncement of the Board ; 
 neither had it " violated " any provision of the Transportation 
 Act nor " defied " the Labor Board or the Congress which 
 created it. On the contrary, the company has conceded the 
 jurisdiction of the Labor Board to hear and decide such dis- 
 putes as fall within the purview of the Transportation Act,, 
 and it is a willing party to several submissions now pending 
 before the Board in the matter of wages and working rules 
 and conditions. 
 
 The company further stated that in its opinion the Board in 
 its said Decision No. 218 had without warrant of law exercised 
 the functions of an administrative or regulatory body, and 
 as such had assumed to invade the domain of management and 
 to assert jurisdiction over matters solely referable to the func- 
 
 [35] 
 
36 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 tions of railway management. The company believed the 
 Labor Board to be under the law creating it not an administra- 
 tive but a mediative body, and it pointed to the fact that the 
 chairman of the Board had referred to the Board at one time 
 as an " impartial mediatory body." 
 
 We further stated that we strongly deprecated any con- 
 troversy with the Board with respect to the powers or juris- 
 diction conferred upon it by the Transportation Act, and, if 
 compliance with the decision had involved no serious conse- 
 quences, the company in order to avoid any controversy on 
 the subject would have submitted to the decision, notwithstand- 
 ing its belief that the Board had assumed a jurisdiction not 
 conferred upon it by Congress. But the company, in the con- 
 sideration of the question as to whether the directions of the 
 decision should be observed, was obliged to determine whether 
 the system of employee representation which it had inaugur- 
 atd was to be impaired and its usefulness and value largely 
 destroyed, or whether in order to avoid non-compliance with 
 the decision it should, in considering and determining what 
 rules governing working conditions should be established, 
 consult with an organization which, the company believes, 
 advocates (a) the closed shop, (b) the sympathetic strike, and 
 (c) limitation of output, and which had been largely instru- 
 mental in framing rules governing the operation of shops dur- 
 ing the period of Federal control. The company asserted that 
 these rules had reduced the efficiency of shop labor on its lines 
 to the extent of at least thirty-five per cent, and attention was 
 called to the fact that the late Judge Prouty, when a member 
 of the Railroad Administration, after an investigation made 
 by him, publicly announced that upon the Pennsylvania Lines 
 East labor upon that system was inefficient as compared with 
 private operation, the percentage of inefficiency in some cases 
 being as much as 33j^%. 
 
 The company, therefore, respectfully represented to the 
 Board that it should not consider Decision No. 218 as a lawful 
 exercise of its powers and that the carrier should not be held 
 by the Board as having " violated " a lawful decision of the 
 Board ; and the company reasserted its purpose and willingness 
 to comply in all respects with the provisions of the Transpor- 
 tation Act and to submit itself to the jurisdiction of the Labor 
 Board in all matters cognizable thereunder. 
 
 [36] 
 
No. I] LABOR POLICIES OF THE TRANSPORTATION ACT 37 
 
 Notwithstanding this appeal, the company was informed that 
 the Board was preparing a decision to be published to the world 
 that the Pennsylvania Railroad Company had violated its de- 
 cision and the law of the land. It was the opinion of the com- 
 pany that the purpose and intent of Section 313 is to induce 
 and impel through the coercive force of public opinion com- 
 pliance by any carrier or person affected by an order of the 
 Labor Board with the terms and provisions of the same, and the 
 company deemed it neither equitable nor just that it should 
 be subjected to such coercive influence in respect to any order 
 of the Board which the Board was without authority to make, 
 and that, consequently, the Board should be restrained by an 
 order of court from subjecting plaintiff to the coercive process 
 prescribed by the said provision of the Transportation Act in 
 respect to the order which the Company had declined to obey 
 because the subject matter thereof was not within the jurisdic- 
 tion of the Board. 
 
 Thereupon, a petition was filed in the United States Court 
 and Judge Landis granted a temporary restraining order to 
 prevent the publication by the Board that our company had 
 violated any legal decision of the Board or had failed to 
 comply with and observe the provisions of Title III of the 
 Transportation Act. 
 
 The case finally came on for hearing before Honorable 
 George T. Page, United States Circuit Judge, upon defend- 
 ants' motion to dismiss the bill and a so-called answer which 
 denies none of the averments contained in the petition. For 
 the defendants, it was argued (1) that the Labor Board is an 
 administrative arm of the government over which the courts 
 have no jurisdiction; and (2) that the Board had the power 
 exercised by it under Decisions 119 and 218. The court's find- 
 ing on both points was adverse to the Labor Board's contention. 
 
 The court decided that " the appointment or method of 
 election of conferees under Section 301 was not one of the func- 
 tions delegated to the Board, and therefore it had not the right 
 to make the regulations provided for in Decision No. 218," and 
 it expressed the " opinion that the purpose of Section 301 was 
 to leave to the carrier and its employees full liberty to get 
 together in their own way." 
 
 The constitutionality of the act was sustained by the court, 
 
 [37] 
 
38 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 and in this connection I desire to make it clear that it was and 
 is the declared policy of our board of directors and executive 
 officers not to question the constitutionality of the Labor Board 
 provisions of the Transportation Act so long as the Board exer- 
 cises its functions in accordance with the terms of the act. 
 And in our bill of complaint, we raised the constitutional ques- 
 tion only in the event that the court should find that the Board 
 was acting within its legal powers. If so, it was our claim 
 that the exercise of such power would deprive us of certain 
 constitutional rights. The court sustained our contention that 
 the Board had not properly interpreted the act, and we are 
 satisfied with its finding in all respects. 
 
 Naturally, we are gratified by Judge Page's decision, not 
 because of any pride of opinion sustained but because it may 
 be known of all men that our company, in objecting to the 
 Labor Board's decision, was actuated by an earnest and well 
 founded desire to protect its legal rights and those of its em- 
 ployees from what we deemed to be an unwarranted assumption 
 of authority on the part of the Labor Board. 
 
 As in the past, so in the future the Pennsylvania Railroad 
 System will subject itself to the jurisdiction of the Board in 
 strict conformity to the terms of the act, and it will abide by 
 the Board's decisions unless they be of such a character as will 
 necessitate or justify an appeal by the company in an orderly 
 manner to the courts, or to the bar of public opinion. This 
 privilege is enjoyed alike by all carriers and their employees. 
 
 I desire also to say that no feelings of hostility, personal or 
 official, have been engendered between the Labor Board and 
 our company, and that a fine spirit of cooperation has been 
 displayed by the Board in the taking of steps to secure a 
 judicial and authoritative determination of the legal questions 
 which have been the subject of argument and consideration. 
 
 [38] 
 
LABOR POLICIES OF THE TRANSPORTATION 
 
 ACT FROM THE POINT OF VIEW OF 
 
 RAILROAD EMPLOYEES 
 
 W. N. DOAK 
 Vice-President, Brotherhood of Railroad Trainmen 
 
 SINCE I last had the pleasure of meeting with you, many 
 changes have taken place in the industrial and economic 
 situation of the country, and indeed it is a pleasure for 
 me to be again honored with an invitation to meet with you 
 and discuss briefly the industrial situation from the viewpoint 
 of one who represents railroad employees. However, in ap- 
 pearing before you on this occasion it is in an individual 
 capacity, and the views presented will be more personal than 
 those represented by my organization or any other. 
 
 The organization that I have the honor of representing is 
 not now, nor has it been, engaged in any of the disputes or 
 the litigation mentioned by the preceding speaker.^ The rela- 
 tions between the railroads and the employees in transportation 
 service are very cordial in every respect and there is no question 
 at present regarding the right of the employees' organization 
 to represent the employees in our classes. Consequently, what 
 I shall have to say at this time will be predicated on the fact 
 that no such controversy exists so far as our group is concerned. 
 Also I would have you bear in mind that we consider the 
 employees engaged in conducting transportation as being some- 
 what differently situated from those engaged in other lines of 
 railroad work. And for that reason we feel that probctbly some 
 special consideration should be given to the employees engaged 
 in this non-competitive occupation as compared with those 
 engaged in a competitive occupation. 
 
 The public generally has become interested in wages of rail- 
 road employees and in the adjustment of disputes arising be- 
 tween the employer and the employee in the transportation 
 industry. This has been brought about largely by public dis- 
 
 ' Mr. Heiserman, see pp. 293-302. 
 
 [39] 
 
40 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 cussion of these questions through the press and on the plat- 
 form, and many different views have been expressed as to the 
 importance of these problems and as to their proper solution. 
 Extreme positions have been taken by those championing the 
 cause of the employer as well as by those advocating the cause 
 of the employee. Many public utterances have been made that 
 tend largely to exaggeration. It is thought by many that such 
 utterances have been largely prompted either by bias or through 
 misinformation. It is therefore a commendable and a very 
 desirable position that has been taken by your Academy in the 
 discussion of these questions to bring together, as far as pos- 
 sible, the different elements, and obtain the different views, in 
 order that you may have as nearly as possible the position of all. 
 
 There are those who hold that the labor organizations have 
 gone far beyond the bounds of reason and propriety in their 
 demands for wage increases and are unfair in their position 
 in the adjustment of transportation disputes. On the other 
 hand there are those who hold that the transportation com- 
 panies have been exacting and unreasonable in their demands 
 upon the employees. There is still another group that holds 
 that both the carriers and the employees are unreasonable and 
 unfair, and a large percentage of the public who are not fully 
 informed of the facts believe that both the carriers and the 
 employees are extremists and have gone beyond the bounds 
 of reason and fair dealing. 
 
 As much as I should like to agree with these different ele- 
 ments, I must of necessity disagree with the large majority of 
 the views that have been advanced and hold to a more reason- 
 able and impartial view, one of justice and fair dealing to 
 both the carriers and the employees. However, to arrive at 
 what is right we should insist upon having the facts, and when 
 the facts are produced then a correct judgment can be had. 
 The one great trouble has been that attempts have been made 
 to solve these problems on the basis of colored facts or half- 
 truths for so long that a prejudiced and biased judgment has 
 obtained in many instances. For instance, there are those who 
 believe that the wage level for train and yard service employees 
 should be based on the pre-war level, and there are others who 
 as persistently contend that wages should be based on the war- 
 time basis or one still higher. There are other who hold that 
 
 [40] 
 
No. I] LABOR POLICIES OF THE TRANSPORTATION ACT 
 
 41 
 
 the cost of living should be the prime factor in determining 
 such questions, and that the wage rate should be based upon 
 a standard of living that would afford only the necessaries of 
 life, or in other words, provide enough food to prevent dis- 
 solution of the body, together with only a meager supply of 
 clothing. Others hold that wages of railroad employees should 
 be based upon the ability of the carriers to pay with a trans- 
 portation rate at the lowest possible level. Still there are 
 others who hold that the American public is only interested 
 in having the lowest transportation rate possible, regardless of 
 the financial ability of the carriers or the living conditions of 
 the employees. 
 
 These are all wrong, and in my judgment the proper and 
 legitimate position is that transportation rates should be fair 
 and reasonable and afford a fair return on capital legitimately 
 invested ; and on the other hand the wages of the employees 
 should be just and adequate to afford a proper American stand- 
 ard of living, which should not only provide food and clothing 
 but allow for recreation, the education of the children, and give 
 the employee the opportunity to lay aside funds for the care of 
 himself and of his dependents in case of old age or dis- 
 ability. Wage standards and levels should be established in- 
 dependent of and separate from transportation rates. Neither 
 should be dependent upon the other. 
 
 In the discussion of the reestablishment of pre-war levels, 
 oftentimes the fact is not taken into consideration that if the 
 war had not occurred conditions would have compelled a re- 
 adjustment of the wages of transportation employees upward 
 not later than the early part of 1917, because the wage cycle 
 made such a readjustment imperative. If the European War 
 had not come on and the United States had not been drawn 
 into the World War and things had followed their usual course, 
 an adjustment upward of the wages of train and yard service 
 employees would have taken place about the time the United 
 States entered the war. But with the advent of the European 
 War in 1914, which caused a rapid advance in living costs, 
 an adjustment should have taken place about the latter part of 
 1916. This was of course accelerated by the entry of our coun- 
 try into the war early in 1917, but no readjustment was made 
 in wage rates until nearly the middle of 1918, and as a matter 
 
 [41] 
 
42 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 of fact a complete and proper adjustment was never had in 
 wage rates until long after the close of the war and then, in 
 so far as train and yard service employees were concerned, did 
 not reach a proper level. No sooner, however, was the last 
 adjustment made than a clamor was started to reduce wages. 
 The unfairness and injustice of this situation had an undesir- 
 able effect on the transportation employees because they had not 
 received any advance at the time the other classes of labor 
 received substantial advances, and at no time had the advance 
 in wages kept pace with the advance in living costs. 
 
 The public mind was unduly and improperly preyed upon 
 by a system of publicity and propaganda to such an extent that 
 substantial justice was withdrawn from railroad employees and 
 an undesirable and unfair estimate of the true situation arose. 
 Naturally, when such agitation became rampant and the public 
 mind became disturbed, as is always the case in such instances, 
 the railroad employees were placed in a most unfair position, 
 and generally speaking the public was ready to condemn them 
 without a knowledge of the facts. Of course, for the time 
 being the railroad employees felt that they were being unjustly 
 and unfairly criticized and that it was impossible for them to 
 obtain equal rights. They did not feel that the reduction in 
 wages handed them by the United States Railroad Labor 
 Board in 1921 was just and fair under the existing circum- 
 stances, but, rather than have trouble and turmoil, they finally 
 bowed to public sentiment and respected the decision of the 
 Board. Encouraged, as it seemed, by success in obtaining one 
 reduction, the railroads immediately sought further reductions. 
 These the employees bitterly and justifiably resisted. 
 
 This naturally had a tendency toward creating a fear in the 
 minds of the employees that the governmental agency was 
 being unduly influenced by the false propaganda being freely 
 circulated over the country. At the same time there arose 
 agitation for the repeal of state laws, laxity in enforcement of 
 safety laws, and other agitation for inroads into the conditions 
 of employment of the employees, many of which had been in 
 effect for a quarter of a century or more, and the whole agita- 
 tion was based on the false assumption that a reduction along 
 these lines would result in a corresponding reduction in trans- 
 portation rates. Of course such reductions in rates did not 
 
 [42] 
 
No. 1] LABOk POLICIES OF THE TRANSPORTATION ACT 43 
 
 follow, therefore the agitation has fallen flat to a great extent, 
 and the public is beginning to take a more sober view of the 
 situation. 
 
 The unsoundness of the theory that wages should be based 
 on the ability of the carrier to pay is just as apparent as the 
 falsity of the theory that rates can be fixed on a particular rail- 
 road on the basis of the density of traffic handled on that line, 
 because the financial condition and ability to pay of the various 
 railroads is just as diversified as the density of traffic on the 
 particular lines. So the entire theory that a rate structure can 
 be built up on individual systems or parts thereof on the basis of 
 density of traffic, and on other systems or parts thereof on the 
 small amount of traffic handled, is no more unreasonable or un- 
 scientific than the theory that wages should be fixed on the 
 different systems on the financial condition or ability of the 
 roads to pay. In both instances it has long been recognized 
 ty those who have studied the question that a rate structure 
 must be built with the object in view of providing just and 
 reasonable rates in given territories or in the country as a 
 whole, and just so with the wage structure. It must be founded 
 -on a just and reasonable wage, irrespective of the ability of 
 any particular carrier to pay this rate. 
 
 Unfortunately, beginning with the passage of the Adamson 
 Law in 1916 by the Congress and a decision of the Supreme 
 Court of the United States which in substance held that Con- 
 gress had absolute authority over the transportation systems, 
 the railroad labor situation has been the subject of entirely too 
 much agitation and discussion. This has resulted in extreme 
 positions being taken by the various parties interested and has 
 been the cause of entirely too much public alarm and unrest. 
 
 Despite the much-heralded national peril of disputes on the 
 railroads, there is no more real danger now, so far as a paralysis 
 of transportation is concerned, than there was fifteen or twenty 
 years ago. The plain truth of the matter is, there are certain 
 people who use this question as a pastime and in most instances 
 the matter is exaggerated to the greatest extent. Even if so, 
 there are many worse things that could happen than to have a 
 railroad strike occasionally. For instance, the practice of 
 disseminating false, malicious and misleading statements is 
 worse in its effects than any strike that could possibly take 
 
 [43] 
 
AA RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 place. Ever since the beginning of the railroad business in this 
 country there have been difTerent methods employed for the 
 adjustment of disputes between the railroads and their em- 
 ployees, and for a brief review of these different methods your 
 indulgence is asked for a few moments. 
 
 When the business was in its infancy, direct contact was had 
 between the employer and the individual employee, but as the 
 industry grew and expanded and more men were employed, 
 individual contact was impossible and the employees were 
 represented in small groups by local committees on different 
 parts of the respective lines. This was extended from time to 
 time until general committees representing the employees were 
 organized to deal with the various operating officials of the 
 lines as a whole. Later, when the railroads began to form 
 group organizations for mutual benefit and protection, their 
 example was followed by group organizations of employees,, 
 the latter generally being represented by the General Chairmen 
 of the systems in such conference, until the eight-hour move- 
 ment was started. It was then ascertained that the railroads 
 were uniting as a whole in opposition to this movement, and 
 finally a national conference committee of the railroads and 
 the employees was agreed upon to handle this matter for the 
 country as a whole. At the time negotiations were in progress, 
 through a multiplicity of advertising, propaganda and other 
 methods, it was pointed out that a national calamity faced the 
 country and that if the eight-hour day became effective the 
 railroads faced immediate bankruptcy, with the result that the 
 National Administration and later Congress intervened and 
 passed what was known as the Adamson Eight-Hour Law. 
 This brought the industrial situation on the railroads into the 
 national limelight. 
 
 For a number of years there was no Federal agency in 
 existence that dealt with disputes on the railroads. Finally 
 the Mediation and Arbitration Act came into existence. It 
 was amended from time to time and became a real effective 
 agency in the solution of these questions. In fact it afforded 
 a method of accommodation in virtually all disputes until the 
 eight-hour movement was inaugurated. As a matter of fact, 
 there are a great many of us who hold the view that it would 
 not have been a failure in this case had not undesirable publicity 
 become rampant with regard to this question. 
 
 [44] 
 
No. I] LABOR POLICIES OF THE TRANSPORTATION ACT ^5 
 
 Immediately following the passage of the Adamson Eight- 
 Hour Law, it became apparent that there were those who did 
 not desire friendly or mutual relations between employer and 
 employee in connection with disputes on the railroads, but who 
 thought that a governmental agency should be established. 
 Many hearings were held before the different committees of 
 Congress, but no conclusion was arrived at up to the time that 
 the United States entered the World War and the railroads 
 were taken over by the Federal Government. Of course one 
 of the first duties devolving upon the United States Railroad 
 Administration was the establishment of an agency to deal 
 with wages and working conditions on the railroads. There 
 was first established the board to investigate and recommend 
 wage increases. This was composed of four public men. After 
 extensive hearings they arrived at the conclusion that substan- 
 tial increases were necessary for the transportation employees. 
 This was followed by the creation of a court of railroad wages 
 and working conditions, bipartisan in character, consisting of 
 six members, three from the railroad employees and three from 
 the railroad management. The duty of this board was to 
 investigate and recommend adjustment in wages and rules, and 
 it continued to function until the railroads were returned to 
 their owners. In addition thereto there were established 
 boards of adjustment, bipartisan in character, to adjust disputes 
 other than those arising over wage questions. These boards 
 were likewise continued until they closed up all cases arising 
 under Federal control. 
 
 When it became apparent that the railroads were to be re- 
 turned to their owners. Congress directed its attention to the 
 passage of suitable laws, including laws dealing with the ad- 
 justment of wage and other disputes on the railroads. This 
 resulted in the establishment of what is known as the United 
 States Railroad Labor Board, tripartite in character, with 
 three representatives of the public, three of the railroads and 
 three of the employees. In addition to this, the law contained 
 a provision for boards of adjustment, bipartisan and voluntary 
 in character, to handle disputes other than those arising from 
 wage questions. Unfortunately however, such adjustment 
 boards were not established promptly. The result was a general 
 congestion of the docket of the U. S. Railroad Labor Board, 
 
 [4S] 
 
46 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 and this brought about further criticism and alarm as to the 
 value of the tribunal. 
 
 During the consideration of this species of legislation, the 
 railroad employees most strenuously opposed the enactment of 
 the tripartite plan, but advocated the establishment of bipartisan 
 boards, with appeal boards or a referee in case of a deadlock. 
 However, despite their opposition, the Transportation Act be- 
 came effective and the United States Railroad Labor Board 
 was created and has now been in existence two years. There 
 has not been sufficient time, in my judgment, to determine the 
 value of the plan, and as a matter of fact a great deal of 
 criticism, whether just or unjust, has been made of this plan. 
 Personally, I have not believed that a tripartite plan is as 
 desirable as a bipartisan plan, and I believe the future will 
 fully justify my position. As a matter of fact, the experience 
 of the past has to a certain extent justified my views with refer- 
 ence to this question. For example, the bipartisan boards deal- 
 ing with the adjustment of disputes on the railroads have in 
 every instance reached a conclusion and with as little criticism 
 as seems possible, whereas the Railroad Labor Board has been 
 the subject of most severe criticism and agitation. My prin- 
 cipal objection to a plan of this kind has been that no industrial 
 court yet known has proved a success. This was true of the 
 thorough trial of this species of legislation made by Australia 
 and the Australasian countries. The so-called Industrial Court 
 of Kansas is going through a most severe test, and I am of the 
 opinion that it is less effective than those systems where the 
 disputants have equal representation, and that it must ulti- 
 mately fail. 
 
 Compulsory arbitration in this country in the strict sense 
 has not been resorted to in the adjustment of disputes of this 
 character, but instances may be cited which have been tried in 
 foreign countries and proved a failure in each instance. I per- 
 sonally believe that such a law could not be passed in this 
 country and be effective, because it seems repugnant to our 
 form of government. 
 
 The most effective results in this or any other country, judged 
 by the experiences of the various countries, have been from 
 mediation, conciliation and voluntary arbitration, and the most 
 effective remedy in the form of a law in the United States has 
 
 [46] 
 
No. I] LABOR POLICIES OF THE TRANSPORTATION ACT 47 
 
 been the Erdman Act, later succeeded by the Newlands Act, 
 which was displaced by the Transportation Act of 1920. 
 
 Observation and investigation of labor disputes lead me to 
 believe that mediation is the most effective and desirable plan, 
 and when it is coupled with conciliation and voluntary arbitra- 
 tion it is almost certain to afford an accommodation in every 
 instance. 
 
 Whether or not the United States Railroad Labor Board will 
 succeed and be a satisfactory and effective means of settling 
 labor disputes on the American railroads, depends upon the 
 character, ability and fitness of its members and its freedom 
 from entangling alliances and political entanglements. In the 
 selection and maintenance of this Board partisanship and 
 favoritism must be cast aside, and practical, experienced and 
 impartial men placed thereon. Any interference or undue in- 
 fluence exercised by the Congress or the executive will tend to 
 disrupt and destroy this agency. Mutual respect by the rail- 
 roads, the employees and the public must be given it or it will 
 fail. Likewise its conduct must be such that it will command 
 the respect of each of these parties. It cannot, however, handle 
 all the disputes over wages, rules and conditions of employment 
 and function with any degree of satisfaction, and if it is con- 
 tinued there must of necessity be other and additional agencies 
 established and maintained auxiliary thereto. 
 
 Penalties for strikes and lockouts in the existing law are not 
 desirable, and in my opinion are objectionable to our form of 
 government. Therefore I consider it wholly unnecessary to 
 place such penalties in the law and I disagree with those who 
 advocate putting so-called " teeth " in the law. 
 
 This brings us then to specific conclusions as to a proper 
 solution of railroad labor disputes, and I would suggest the 
 following : 
 
 1. The reestablishment of the Board of Mediation and Con- 
 ciliation, with the right to bring about, if possible, voluntary 
 arbitration. 
 
 2. The establishment of bipartisan boards of adjustment, on 
 which the railroads and the employees are equally represented. 
 
 3. The reestablishment of the rights of the respective parties 
 to adjust any dispute by mediation, conciliation or voluntary 
 arbitration if possible, before reference to any board. 
 
 [47] 
 
48 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 4. The maintenance, if necessary, of a board to act as 
 referee, which for the time being, until otherwise changed, 
 would be the U. S. Railroad Labor Board; this Board to be 
 appealed to only in case of deadlock by bipartisan boards or 
 in case of failure to adjust any dispute through mediation, 
 conciliation or arbitration. 
 
 5. The establishment of a system or plan by which exact facts 
 concerning wages, grievances and conditions of employment 
 may be accurately obtained in a fair and impartial manner. 
 The prohibition by law or otherwise of the circulation of pro- 
 paganda concerning railroad disputes which has the tendency 
 of alarming or inflaming the public mind. 
 
 [48] 
 
LABOR POLICIES OF THE TRANSPORTATION 
 
 ACT FROM THE STANDPOINT OF 
 
 THE PUBLIC GROUP 
 
 HENRY T. HUNT 
 Former Member of the United States Railroad Board 
 
 A DECISION construing several sections of Title III 
 of the Transportation Act and determining the powers 
 of the Railroad Labor Board has very recently been 
 handed down by the United States District Court for the 
 Northern District of Illinois, Judge Page, Circuit Judge, writ- 
 ing the opinion. As this decision is the law until modified by 
 higher authority, it may be illuminating to examine it. 
 
 The Labor Board had, it appears, found that the Pennsyl- 
 vania Railroad had not complied with one of its decisions and 
 was about to publish its finding to that effect. The Pennsyl- 
 vania then applied to Judge Landis for an injunction restrain- 
 ing the Board from such publication, and a temporary order 
 was issued which the Board endeavored to get set aside. After 
 a delay of many months, Judge Page last week rendered his 
 decision refusing to dismiss the injunction. 
 
 The Labor Board had proceeded against the Pennsylvania as 
 authorized by Section 313, which follows: 
 
 Section 313. The Labor Board in case it has reason to believe that 
 any decision of the Labor Board or of an adjustment board is violated 
 by any carrier or employee may upon its own motion after due notice 
 and hearing to all persons directly interested in such violation deter- 
 mine whether in its opinion such violation has occurred and make 
 public its decision in such manner as it may determine. 
 
 The authority conferred by the above section on the Board 
 to publish its finding that railroads or employees have violated 
 its decisions is the only express sanction provided by the Act 
 toward making these decisions effective. Were it not for the 
 procedure set out in this section, a railroad or an organization 
 of employees might issue false propaganda to the effect that it 
 had obeyed the decision or that the decision did not apply to it 
 or that the board had no jurisdiction to make such a decision, 
 
 [49] 
 
JO RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 and sa befuddle the public as to the situation that public 
 opinion could not function. Congress did not give the Board 
 arms to enforce its decisions, but did give it a voice whereby 
 it might charge a recalcitrant with disobedience and convict it 
 before the bar of fair-minded men by means of the marshaling 
 of unassailable facts. 
 
 In this particular case the injunction issued by the Court 
 has the effect of preventing the board from informing the 
 public as to the facts in the controversy between the Pennsyl- 
 vania Railroad and its shop employees. Official information 
 as to the facts relating to this controversy is of very great 
 importance, at least to the students of politics in industry. 
 It would, therefore, seem to be worth while to examine the 
 decision in detail and to ascertain, if possible, whether it rests 
 upon secure foundations. 
 
 In order that the decision may be understood, certain recent 
 railroad history must be recited. 
 
 In March, 1920, a dispute was pending between practically 
 all the railroads and all their employees as to what should 
 constitute reasonable wage rates and reasonable working rules. 
 Representatives of the parties had conferred but could agree 
 on nothing. On April 16, 1920, the entire dispute was 
 submitted by both parties to the Railroad Labor Board for 
 decision. The Board decided the wage portion by Decision 
 2 of July 20, 1920, but reserved the rules portion for further 
 consideration. 
 
 By its Decision 119 of April 14, 1921, the Board—" Called 
 upon the officers and System Organizations of employees of 
 each carrier parties hereto to designate and authorize repre- 
 sentatives to confer and to decide so much of this dispute relat- 
 ing to rules and working conditions as it might be pos&ible for 
 them to decide." This Decision 119 was, then, a request made 
 of the carriers and employees to aid the Board to arrive at a 
 decision as to what should constitute reasonable rules and work- 
 ing conditions by agreeing on as many of said rules as they 
 could. 
 
 A new dispute arose on the Pennsylvania Railroad as to 
 the proper procedure to carry out the Board's request. Certain 
 organizations of its employees contended that representatives 
 should be elected in a cfertain manner, but the railroad com- 
 
 [5bi 
 
No. I] LABOR POLICIES OF THE TRANSPORTATION ACT 51 
 
 pany disagreed with this proposal and insisted on carrying on 
 the election in quite a different fashion. The officers of the 
 company and of these organizations of employees conferred 
 on the subject but still failed to agree. Application was then 
 made by the chief executives of the organizations of employees 
 directly interested to the Board for its decision. The company 
 also appeared before the Board, put in its evidence and argued 
 in support of its position. 
 
 By its Decision No. 218, the Board decided the dispute pre- 
 sented by the employees' organization, which dispute had not 
 been decided in conference, although conference had been had. 
 By this decision the Board established rules of procedure for 
 the election of employees' representatives on the Pennsylvania 
 Railroad in order that the request of the Board in Decision 119 
 might be carried out. No question was raised by the railroad 
 at the time as to the satisfaction of the requirements for con- 
 ference imposed by another section of the act, Section 301. 
 
 Afterwards the employees' organizations informed the Board 
 that the Pennsylvania Railroad was not obeying its Decision 
 218 and accordingly the Board took proceedings under Section 
 313 to ascertain whether the Pennsylvania had violated this 
 decision. Apparently it determined that the railroad had done 
 so and was about to make its finding public when it was 
 enjoined. 
 
 Judge Page, in the opening paragraph of his opinion, thus 
 states the case : 
 
 This is a bill by the Pennsylvania Railroad Company against the 
 Labor Board and its members to enjoin them from functioning as a 
 board generally and specifically from exercising the asserted right to 
 control the selection of the referees provided for in Section 301 of 
 the Transportation Act. 
 
 Two claims were urged, (i) That the Act is unconstitutional if, and 
 in so far as, it attempts to impose compulsory arbitration, and (2) 
 that the Act gives the Board no right under ex parte submission nor 
 under its ovi^n motion to do any act under Section 301. 
 
 This statement of the nature of the proceeding does not aptly 
 describe it. The Board was not, as is stated, attempting to 
 exercise the asserted right to control the election of the conferees 
 provided for in Section 301, but was asserting the right to 
 publish a decision finding the carrier had not obeyed its 
 Decision 218. This decision interpreted the " call " of the 
 Board in Decision 119. The conferees on the dispute which 
 
 [51] 
 
52 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 No. 218 decided had duly conferred and had disagreed. The 
 Board did not attempt to control their selection. The chief 
 executive of one of the parties had applied to the Board for a 
 decision of that dispute. In the controversy vi'hich Decision 
 No. 218 decided, there was no question that the representatives 
 of the employees in that dispute were properly authorized and 
 designated to confer nor that they had conferred and had 
 disagreed. 
 
 The opinion considers and apparently decides four points 
 as follows: 
 
 (1) The Labor Board is a body corporate subject to the 
 jurisdiction of the Federal Courts and may sue and be sued. 
 
 (2) The appointment or method of selecting referees under 
 Section 301 was not one of the functions delegated to the Board 
 and therefore it had not the right to make the designation 
 provided for in Decision 218 on pages 8, 9 and 10. 
 
 (3) As to other matters than those jointly submitted to the 
 Board under Section 301, the decisions of the Board are only 
 advisory, but as to jointly submitted matters legally enforcible. 
 
 (4) Title III of the Transportation Act is constitutional and 
 confers on the Labor Board the right to prescribe compulsory 
 arbitration and to fix wages under such compulsory arbitration. 
 
 The language of the court is not altogether distinct and 
 without ambiguity, but it is believed the above constitutes a 
 fair statement of the decision on the points covered by the 
 opinion. 
 
 The first point needs no particular discussion. 
 
 It is believed that the decision of the court as to the second 
 point is erroneous. Section 301 of the Transportation Act 
 reads as follows : 
 
 Section 301. It shall be the duty of all carriers and their officers, 
 employees and agents to exert every reasonable effort to adopt every 
 available means to avoid any interruption to the operation of any 
 carrier growing out of any dispute between the carrier and the em- 
 ployees or subordinate officials thereof. All such disputes shall be 
 considered and, if possible, decided in conference between representa- 
 tives designated and authorized so to confer with the carriers or the 
 employees or subordinate officials thereof directly interested in the 
 dispute. If any dispute is not decided in such conference, it shall be 
 referred by the parties thereto to the Board which under the pro- 
 visions of this title is authorized to hear and decide such dispute. 
 
 The relevant portions of Section 307 should also be cited : 
 
 [5»] 
 
No. 1] LABOR POLICIES OF THE. TRANSPORTATION ACT 5 j 
 
 Section 307. (a) . . . Labor Board (i) upon the application of the 
 Chief Executive of any carrier or organization of employees . . . 
 whose members are directly interested in the dispute, (2) . . . (3) 
 upon the Labor Board's own motion if it is of the opinion that the 
 dispute is likely substantially to interrupt commerce, shall receive for 
 hearing and as soon as practicable and with due diligence decide any 
 dispute involving grievances, rules, or working conditions which is 
 not decided as provided in Section 301. . . . (b) The Labor Board (i) 
 upon the application of the Chief Executive of any carrier or organ- 
 ization of employees . . . whose members are directly interested in 
 the dispute ([2) . . . or (3) upon the Labor Board's own motion if it 
 is of the opinion that the dispute is likely substantially to interrupt 
 commerce, shall receive for hearing and as soon as practicable and 
 with due diligence decide all disputes with respect to the wages or 
 salaries of employees ... of carriers not decided as provided in Sec- 
 tion 301. 
 
 It has always been the construction of the Board and of 
 officers of carriers and of organizations of employees that 
 Section 301 stated the duties of such officers and employees of 
 carriers with reference to railroad labor disputes. They have 
 never understood that Section 301 imposes any duty on the 
 Board. 
 
 It is also the construction of the Board and of such officers 
 that Section 307 is the section which confers jurisdiction on the 
 Board to decide disputes as to working conditions or as to wages 
 and prescribes the manner in which such disputes shall be 
 presented to the Board. 
 
 It has also been the belief of the Board that it had power 
 to decide any dispute on which conference had been had or 
 attempted by either party, and which was presented upon the 
 application of the Chief Executives of carriers or of organi- 
 zations of employees, if the dispute involved grievances, rules, 
 or working conditions or wages or salaries of employees. 
 
 As appears by Decision 218, the Board believes that a dis- 
 pute as to whether representatives were duly designated and 
 authorized to confer was a dispute involving grievances, rules 
 or working conditions which it had power to decide under 
 Section 307. It has been convinced that a dispute relating 
 to the proper designation or authorization of representatives 
 should be interpreted as coming within the meaning of the 
 words " grievances, rules, or working conditions." It could 
 not well decide whether the method adopted in the dispute was 
 a reasonable rule without deciding what a reasonable rule would 
 be. Section 307 (d) provides that all the decisions of the 
 Board in respect to working conditions shall establish stand- 
 
 [53] 
 
54 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 ards of working conditions which are just and reasonable. A 
 method of selecting representatives to confer is a " working 
 condition ". Experience has shown that controversies as to 
 whether persons claiming to represent a particular class do so 
 are very frequent and of great importance in railroad oper- 
 ation. The right of members of organizations of railroad 
 employees to select their representatives as they see fit and to 
 select whom they see fit is among the most cherished rights of 
 railroad employees. It has been the subject of many con- 
 troversies. Its denial by railroad officers has been a frequent 
 cause of conflict and of discontent. The court's decision in this 
 respect apparently goes to the length of holding that the 
 Board has no power to decide a dispute which concerns only the 
 question whether particular persons claiming to represent a 
 class really do so or to decide what is the correct and legal 
 method of determining who are qualified representatives. This 
 de'nial of power goes to the very essence of Title III. If the 
 Court's decision in this respect is not reversed, it will destroy 
 the efficacy of that title as means to prevent interruption of 
 railroad operation by labor disputes. 
 
 It would appear to be clear that there can be no dispute 
 cognizable by the Board unless the subject of dispute is adopted 
 as such by an organization of employees or by 100 unorganized 
 employees who are really organized for the purpose of present- 
 ing the dispute. If a carrier may decline to confer with the 
 representatives designated by the organization according to 
 its laws and the Board has no power to decide whether the 
 railroad officers are under a duty to confer with the said repre- 
 sentatives, the effective power remaining to the Board is little 
 more than a power to collate statistics. The court by this 
 decision, has, in my judgment, disemboweled Title III. The 
 right of organizations of employees to select what representa- 
 tives they see fit has been long acquiesced in by practically all 
 the railroads of the United States. The Pennsylvania Rail- 
 road is the only notable exception. In the past this railroad 
 has generally claimed the right to decide with what representa- 
 tives it would confer. 
 
 The result of this decision, in effect, is to enable the officers 
 of carriers to decide with what persons claiming to be repre- 
 sentatives of employees it will confer. The Board according 
 
 [54] 
 
No. I] LABOR POLICIES OF THE TRANSPORTATION ACT 55 
 
 to the court has no power to correct their decision. The de- 
 cision destroys the efficacy of Section 301 as a mandate to 
 officers and employees of carriers to confer and to decide their 
 disputes in conference if possible. Naturally the employees 
 can confer only by representatives. If the carrier may decide 
 finally who are representatives of the employees, it is clear 
 that the representatives so designated by the carrier may not 
 be those whom the employees wish to represent them. As the 
 representatives selected by the carriers to represent the em- 
 ployees may not, in fact, represent them, it is clear that the 
 employees will not be bound by the agreements entered into 
 by the representatives recognized only by the railroad officers. 
 There may be conference and agreement between the conferees 
 but the agreement will get nowhere. Railroad employees will 
 not permit railroad officers to select their representatives. 
 
 It is respectfully urged that the court in this respect is in 
 error. Railroad employees have a right to organize and the 
 members of the organizations have a right to choose such repre- 
 sentatives as they see fit and it is the duty of officers of carriers 
 to confer with the representatives chosen by the members of 
 the said organizations. It must be within the power of the 
 Board to decide whether the representatives claiming to repre- 
 sent the members of organizations do in fact represent them, 
 if the Board is to function. 
 
 As stated above, the fourth matter decided by the learned 
 judge is that Title III provides for compulsory arbitration and 
 that it is constitutional. Yet it is decided that prior to refer- 
 ence to the Board as arbitrators of the dispute there must be 
 conference between representatives of the parties. It is further 
 decided that one party may recognize whom it pleases as the 
 representatives of the other party and that the Board may not 
 review this decision. Therefore, the court has decided that 
 railroad employees are required by law to confer by representa- 
 tives but that the management can select their representatives ; 
 that the representatives so selected and the management may 
 jointly refer the dispute to the Labor Board; that the repre- 
 sentatives selected by the management to represent the men 
 may present evidence and arguments to the Labor Board ; and 
 that when the Board has heard the representatives selected by 
 the management to represent the management and the repre- 
 
 [55] 
 
56 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 sentatives selected by the management to represent the men, 
 the Board may decide the matter and the employees of the 
 railroad concerned are bound by law to obey the decision of 
 the Board. 
 
 Judge Pages states that the decision of the Board on disputes 
 jointly referred by the parties is binding and may be enforced 
 by court proceedings. 
 
 The dispute must be jointly referred by the parties. And 
 who are the parties? The parties must be the railroad com- 
 pany and the organizations of employees conferring through 
 representatives. Who is to refer the dispute ? The words of 
 Section 301 are " it shall be referred by the parties." The 
 parties to a reference are not the representatives or delegates 
 conferring but the persons or organizations they represent. 
 Under Judge Page's decision it would appear that it is the rep- 
 resentatives who must jointly refer the dispute. If the dispute 
 is referred by the representatives of the management selected 
 to act for the management and the " representatives " appointed 
 by the management to act for the men, what becomes of Section 
 307? That is the only section conferring any power on the 
 Board to decide disputes. It can act only upon the application 
 of the Chief Executive of any carrier or organization of em- 
 ployees whose members are directly interested in the dispute 
 unless it intervenes on its own motion because the dispute is 
 likely to interrupt commerce substantially. As the carrier 
 can in effect select the representatives of the employees under 
 the court's decision, to get the matter "arbitrated" by the Board 
 it must necessarily also select the Chief Executive of the or- 
 ganization of employees to refer the dispute. It would seem, 
 therefore, that not only has the court in effect rendered organi- 
 zations of employees impotent to select their own representa- 
 tives to confer under Section 301 but it has also in effect author- 
 ized the management to select the Chief Executive for the 
 organizations of employees. The court has apparently author- 
 ized the railroad companies to create organizations of em- 
 ployees of their own to handle rights provided and duties im- 
 posed by Title III. 
 
 The court decides, however, that the Chief Executive of an 
 organization of employees may make application to the Board 
 for decision of a dispute and that the Board must decide it. 
 
 [56] 
 
Na I] LABOR POLICIES OF THE TRANSPORTATION ACT ^y 
 
 In this case, however, the Board's decision is only advisory and 
 can not be enforced by legal proceedings. 
 
 Probably the Board is also without power to look into the 
 qualifications of the Chief Executive claiming to be such. If 
 the Board may not decide who are qualified conferees it may 
 not decide who are or are not " Chief Executives." Railroad 
 employees must thus receive such wages and work under such 
 working conditions as the Board decides are just and reason- 
 able after hearing representatives of the management only. 
 
 Section 309 provides : "Any party to any dispute to be con- 
 sidered by the Labor Board shall be entitled to a hearing either 
 in person or by counsel." As apparently under the court's 
 decision the parties to the dispute may consist entirely of repre- 
 sentatives satisfactory only to the management, it is only repre- 
 sentatives of the management who are entitled to such hearing. 
 
 The opinion finds that the decision of the Board has a 
 different effect according to whether the dispute comes before 
 the Board by joint submission under Section 301 or by appli- 
 cation of the Chief Executive of a party. If by the first 
 method, the decision of the Board is binding and can be en- 
 forced by legal proceedings, if by the second method, the 
 decision is merely advisory. If the carrier goes to the length of 
 selecting a " Chief Executive" as well as representatives for 
 the men, it may get a binding decision. 
 
 It is believed that this is an error; parties have only one 
 method of getting a dispute before the Board for decision. 
 This one method is set out in 307, viz. by application of the 
 Chief Executive of a carrier or of an organization of employees 
 directly interested or by application of 100 or more unorgan- 
 ized employees. 
 
 This provision was adopted by Congress in part to avoid 
 the reference of trivial disputes to the Board. It was believed 
 that the Chief Executives of the carriers and of organizations 
 of employees would refer only matters of consequence. Con- 
 gress also understood that the Chief Executives of carriers 
 and of organizations of employees had adopted definite policies 
 with reference to wages and working conditions and it was 
 believed desirable to put them in a position to control reference 
 of disputes. 
 
 The inference from the court's decision is that the parties 
 
 [57] 
 
58 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 to the dispute are the representatives conferring. If this is 
 the case, these representatives may apparently, under his de- 
 cision, refer what they wish without reference to the Chief 
 Executive. Thus disputes, for example, between shop fore- 
 men and employees on trivialities may be referred to the Board 
 for decision. The effect of this will be, of course, to swamp the 
 Board with unimportant disputes. The requirement imposed 
 by Congress that the Chief Executive make application im- 
 poses on him the duty of weeding out matters of slight 
 importance. 
 
 As the Board makes rules and wage rates for almost two 
 million men and its decisions have involved hundreds of mil- 
 lions of dollars, it ought not to be troubled with matters which 
 responsible officers can themselves settle. 
 
 The judge finds that the Board's decision under an appli- 
 cation not jointly submitted by both parties to a dispute is 
 advisory only. Decision 218 was a decision upon the appli- 
 cation of one party, viz., the labor organization. Hence, under 
 the judge's construction. Decision 218 was advisory only, 
 yet he refuses to dismiss an injunction against the publication 
 of this advisory decision. It seems remarkable that the Board 
 may not even render its advice without doing irreparable in- 
 jury to the Pennsylvania Company. 
 
 Of course, it may be that the decision is intended to restrain 
 the Board from the expenditure of public money to publish a 
 decision which it had no authority to make. This is not stated, 
 but conceivably it might be rested upon that ground. The 
 argument would be that the law gives the Board the right to 
 decide only disputes involving grievances, rules and working 
 conditions, whereas a dispute which relates to a question 
 whether particular persons are in fact duly designated repre- 
 sentatives of the parties is not a dispute involving grievances, 
 rules and working conditions. Yet it would appear that 
 Congress must have intended a dispute involving those sub- 
 jects to be within the powers of the Board to decide. The 
 paramount object of Congress as is shown by an examination 
 of the entire act was to prevent interruption of operation 
 growing out of disputes between railroads and their employees. 
 Certainly a dispute as to who should be the representatives of 
 employees is one which might well bring about interruption to 
 
 [58] 
 
No. r] LABOR POLICIES OF THE TRANSPORTATION ACT 59 
 
 operation. When the tribunal created by Congress to decide 
 disputes tending to interrupt operation is prevented from de- 
 ciding one of the main subject matters of disputes, a subject 
 matter which experience has shown is among the most passion- 
 ately asserted and strongly maintained rights of workmen, the 
 power of that tribunal to function effectively is almost fatally 
 injured. 
 
 It would seem to be clear that Congress intended the Board 
 to have jurisdiction over all disputes tending to interrupt oper- 
 ation ; that a dispute as to what persons are properly recogniz- 
 able by railroad management is one tending to interrupt oper- 
 ations ; that such a dispute involves grievances, rules and work- 
 ing conditions ; that Decision No. 218 of the Board was within 
 this jurisdiction; that the Board had power to determine 
 whether the Company had violated its decision and to publish 
 its decision. It is believed, therefore, that the court should 
 have overruled the injunction instead of continuing it. 
 
 If this line of reasoning is valid. Judge Page's decision can- 
 not be considered a correct determination of law. It is earn- 
 estly hoped that the Board will take steps to secure a review 
 of this decision by the Court of Appeals and by the Supreme 
 Court. If such action is not taken the discontent already exist- 
 ing in railroad service will be enormously increased. 
 
 [59] 
 
PART TWO 
 
 RAILWAY POLICIES AND THE 
 GENERAL WELFARE 
 
THE FARMERS AND THE RAILROADS 
 
 HENRY C. WALLACE 
 Secretary of Agriculture 
 
 AGRICULTURE is our greatest industry; transportation 
 our second greatest. These two industries are de- 
 pendent upon one another, and the national well- 
 being is dependent upon both. The failure of either to function 
 efficiently results in widespread inconvenience, financial loss, 
 and quite possibly national disaster. 
 
 Agriculture and railroad transportation have developed 
 together, each making the rapid extension of the other possible, 
 and together they have contributed to the rapid development 
 of the country. Perhaps exploitation is a more truly descriptive 
 term of what has happened through the rapid extension of 
 agriculture and transportation during the past sixty years. 
 
 Intelligent consideration of the subject assigned to me re- 
 quires a brief historical review. As population increased along 
 our eastern and southern coasts, the farmers pushed up the 
 navigable streams, using them as a means of transporting their 
 surplus to market. Until the middle of the last century the 
 occupation of the land was proceeding in an orderly manner, 
 farming being extended as the need for food increased, and in- 
 dustry following close after as the country settled up and the 
 cost of transporting manufactured products made it more 
 economical to carry the factory closer to the farm. Frontier 
 agriculture and pioneer settlements were based upon the prin- 
 ciple of self-sufficiency, and the commercial surplus was limited 
 to products which were valuable in relation to weight and bulk 
 and could be easily preserved and transported in the pack. 
 Each pioneer farm family itself produced most of the things 
 necessary to its living. The growth of the cities and settle- 
 ments nearer the sea stimulated the desire for transportation 
 of farm products from farther back in the country and led to 
 the building of canals reaching rich agricultural areas. The 
 building of the Erie Canal, for example, made possible the 
 maintenance of the growing population of New York City, since 
 
 [63] 
 
64 RAILROADS AND BUSINESS PROSPERITY [Voi„ X 
 
 it lapped the fertile wheat-producing areas and assured an 
 abundant supply of bread at a reasonably low price. 
 
 The development of rail transportation, the invention of 
 labor-saving farm implements and the liberality of the Gov- 
 ernment in the disposition of its lands resulted in the most 
 remarkable period of agricultural expansion and industrial and 
 urban growth the world has ever seen. In 1860 there were 
 about 30,000 miles of railroads in operation, mostly east of 
 the Mississippi. By 1900 there were almost 200,000 miles. 
 In 1860 there were about 407,000,000 acres of land in farms, 
 much of which was not being intensively cultivated. By 1900 
 the land in farms had more than doubled, and was being much 
 more thoroughly cultivated. Coincident with this develop- 
 ment of transportation and expansion of agriculture came the 
 improvement in ocean shipping, bringing the markets of 
 Europe closer by at least one-half because of the reduction in 
 shipping rates. Within the lifetime of one generation, there- 
 fore, we opened up a vast agricultural empire and our country 
 became the greatest producer of agricultural surplus in the 
 world. A fertile soil suited to extensive farming operations, 
 the rapid improvement in labor-saving implements, cheap 
 transportation both by rail and water, and ambitious, energetic, 
 hard-working farmers, eager to possess the land, combined to 
 produce a flood of cheap grains and live-stock which brought 
 disaster to the farmers of the east and even compelled import- 
 ant readjustments by farmers in the older settled countries of 
 Europe. 
 
 Had our railroads been extended into the west only as the 
 growth of our population made necessary an increased supply 
 of food, it is reasonable to suppose that freight charges would 
 have been fixed at figures which would have made sure of 
 operating costs and a fair return upon the capital invested. 
 Under such conditions it is reasonable to suppose further that 
 manufacturing and industry, and with them a consuming popu- 
 lation, would have moved westward following the extension of 
 agriculture. But a different policy was followed. Our people 
 were possessed of a fever to occupy the country. Land grants 
 and subsidies of all sorts were offered for railroad-building, 
 and as these new roads were necessarily dependent for their 
 principal revenue on agricultural tonnage and tonnage on goods 
 
 [64] 
 
No. I] THE FARMERS AND THE RAILROADS 65 
 
 the farmers would buy, freight rates were based on what the 
 traffic would bear, rather than on what might be shown to be a 
 fair charge for the service rendered based on operating costs 
 and interest on the actual investment. Thus rates on grain 
 were fixed at a point which would not discourage the growing 
 of grain, while rates on live-stock were so adjusted as to come 
 just within the point at which the stockman could better afford 
 to ship than to make his stock walk to market. In those days 
 of western development it was the policy of railroad managers 
 to foster agriculture along their various lines, for the very 
 good reason that they depended upon agriculture for a living. 
 Low rates were made for long hauls of farm products. This 
 gave cheap food to eastern industrial centers and gave the rail- 
 roads long hauls back on manufactured products. The traffic 
 departments of the western roads courted the farmer and stock- 
 man. Their products were moved promptly. In the case of 
 live-stock, the shipping time from western points to the central 
 markets was shorter thirty years ago than it is today. 
 
 As the country settled up and towns and villages in the west 
 grew into small cities, the policy of low rates for long hauls 
 both of agricultural and manufactured products was continued. 
 Efforts to establish industrial enterprises in great surplus- 
 producing states west of the Mississippi were systematically dis- 
 couraged, even to the extent of making grossly discriminatory 
 rates against such enterprises. Those were the days before 
 government supervision or control of rates. The railroad man- 
 ager was a law unto himself, made rates according to his own 
 sweet will, and made and unmade individuals and communities 
 in his own interest and the interest of his own road. He con- 
 ceived it to be to the advantage of the railroad to keep the 
 farm and the factory as far apart as possible in order that the 
 railroad might haul their respective products the longest pos- 
 sible distances. It was this high-handed policy which caused 
 the enactment of the famous granger laws and later the inter- 
 State commerce law and the creation of the Interstate Commerce 
 Commission with government control of rates and practices. 
 
 In the foregoing I have tried to make clear that western 
 agriculture has been developed on freight rates made with a 
 view to encouraging the movement of farm products long dis- 
 tances to central processing and consuming markets, such rates 
 
 [65] 
 
66 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 of course being adjusted roughly to the bulk and value of the 
 crop to be moved. It necessarily follows that the character of 
 the farming and the value of the land and improvements were 
 determined by this policy, and that any marked change in the 
 policy, even if adhered to for but a relatively short time, is 
 bound to make necessary profound changes in both agriculture 
 and industry. 
 
 During the years from 1890 to 1917 the Interstate Commerce 
 Commission was kept busy hearing appeals from shippers for 
 rate changes and adjustments, and during the latter part of that 
 period the railroads made several appeals to the commission to 
 permit substantial advances in rates. The requests from ship- 
 pers were mostly for a more equitable adjustment of rates as 
 between communities or regions and as between commodities, 
 in the effort to remove discriminatory rates which were the in- 
 evitable result of the purely arbitrary and unscientific methods 
 of rate-making which had been followed during the period of 
 exploitation. It was during this period that we began to form 
 a conception of just railroad rates, based not upon what the 
 traffic would bear but upon a fair return to capital actually 
 invested, or the fair value of the property, plus a return suffi- 
 cient to cover operating charges and adequate upkeep under 
 competent management. As a necessary preliminary to the 
 determination of such just rates Congress provided for a com- 
 plete physical valuation of all the railroads of the country, 
 and this stupendous undertaking was begun during the period 
 indicated. 
 
 When the railroads were taken over by the government it 
 was with the understanding that they should be assured a net 
 return equal to the average net return of the three years just 
 preceding, which happened to be the most prosperous three- 
 year period the roads had ever experienced. No measures 
 were taken to control wages or the other factors which entered 
 into the cost of operation and maintenance. It was simply 
 another way of applying the utterly vicious cost-plus policy 
 and added much to the burden of debt under which our people 
 will be laboring for a generation yet to come. During this 
 period of government operation prices of most commodities rose 
 to the highest point ever known. Intelligent railroad oper- 
 ation, therefore, would have justified increases in freight 
 
 [66] ^ 
 
No. I] THE FARMERS AND THE RAILROADS 67 
 
 charges fairly comparable with the increases in the values of 
 the commodities, with a view to holding down the amount 
 needed to make good the government guarantee. Some in- 
 creases in rates were made, but not enough to meet the increase 
 in expenses. Costs of operation were permitted to increase 
 almost without hindrance, and in the case of wages, the largest 
 cost item, with government acquiescence and even encourage- 
 ment. Thus when the time came to hand the roads back to 
 their owners they were in such condition that they seemed to 
 require very large increases in freight rates if they were to be 
 kept out of the hands of receivers. Just at the time, therefore, 
 when we were entering the period of severe liquidation and 
 prices of commodities and especially of agricultural products 
 were falling with great rapidity, burdensome rate increases 
 were put in force. 
 
 The blighting effect upon agriculture can hardly be compre- 
 hended. I would not be understood as suggesting that the 
 increases in freight rates were wholly responsible for the un- 
 precedented depression through which our agriculture has been 
 passing and which for a time threatened a financial disaster 
 of nation-wide scope, but these higher rates contributed ma- 
 terially to this depression and if continued will require changes 
 in agriculture and industry of national and international im- 
 portance. Transportation is an essential part of the process 
 of production. Transportation costs are a part of production 
 costs. Any material advance in the cost of production with- 
 out a corresponding advance in the price received for the pro- 
 duct involves important readjustments. During the past year 
 the farmer has been compelled to accept for his products,, 
 whether grain, live-stock, cotton, wool, or fruits and vegetables,, 
 prices which are on the average no greater than those which 
 prevailed during the pre-war period, meaning by the latter the 
 five-year period 1910-14 inclusive. For a time the prices of 
 some of the coarse grains were as much as forty per cent below 
 the pre-war average, and the prices offered the farmers in 
 some of the vegetable-growing regions were so low that they 
 did not cover the cost of harvesting and preparing for ship- 
 ment. During the same period freight rates on agricultural 
 products have been on an average about eighty per cent above 
 the rates which prevailed before the war. An illuminating 
 
 [67] 
 
68 
 
 RAILROADS AND BUSINESS PROSPERITY [Vol.. X 
 
 illustration of just how the farmer is affected by this condition 
 is furnished by the investigations of the Congressional Com- 
 mission of Agricultural Inquiry. Four standard implements 
 needed on the western grain and stock farm are a gang plow, a 
 wagon, a corn-harvester and a grain-binder. On August 1, 
 1913, the cost of these implements at certain points in Kansas 
 and Nebraska was $490.50, which was equivalent to the farm 
 price of 928 bushels of corn. The freight charge to Chicago 
 on the number of bushels of corn required to purchase these 
 implements at that time was $122.16. On August 15, 1920, 
 the cost of these implements was $944. This charge was cov- 
 ered by the price received for 706 bushels of corn, but the 
 freight charge on the corn was $179.30. On October 15 the 
 cost of the implements had been reduced to $751, but it required 
 the value of no less than 4,191 bushels of corn to purchase them 
 and the freight on the corn was $1,051.41. Similar illustrations 
 in unlimited number can be furnished to show the blighting 
 effect upon agriculture of advances in freight rates without 
 regard to the value of the products to be moved. 
 
 Perhaps a more understandable way to show the effect upon 
 agriculture of a continuance of the present freight rates is by 
 noting the additional charge per crop-acre which they impose. 
 Under the old rates a great fruit industry was built up in 
 California. It is estimated that the freight charge paid by 
 that State in 1920 was about $64,000,000. The increase in 
 freight rates during the past four years imposes an additional 
 charge per acre on lemons of $187.67, which capitalized at 
 7 per cent would amount to $2,681 ; on oranges an additional 
 acre tax of $192.38, which capitalized would amount to 
 $2,748.28; on apples $160.87, which capitalized would amount 
 to $2,298.14. Approximately the same burden is imposed upon 
 the fruit industry of the entire northwest and the truck industry 
 of the southwest, the source of a large supply of vegetables 
 of all kinds. 
 
 In the case of the less valuable crops, such, for example, as 
 corn, wheat, potatoes and cotton, the increased tax per acre 
 imposed by the present freight rates does not seem to be so 
 great when presented in figures, but is in fact relatively as 
 great. For example, the increased rate tax per acre on corn, 
 wheat and oats, and cotton is greater than was the net return 
 
 [68] 
 
No. I] THE FARMERS AND THE RAILROADS 69 
 
 per acre to the farmer during the pre-war period. In the case 
 of potatoes the increased rate tax per acre in Maine amounts 
 to $31.80, and in Michigan and Louisiana, both great potato- 
 producing regions, the increased rate tax per acre is above $15, 
 which, because of the lower yield, is relatively as great as the 
 increase in Maine. 
 
 When it is remembered that prior to the war agricultural 
 production yielded to the average farmer nothing more than a 
 fair living, and, indeed, less than this had the farmer demanded 
 a fair interest charge on his money invested in land and farm- 
 ing equipment, the impossibility of maintaining production 
 under the imposition of a rate tax as great as has been indi- 
 cated at once becomes apparent. Either freight rates on 
 agricultural products and on the principal commodities the 
 farmers need to buy must come down quickly to about pre-war 
 levels, or prices of agricultural products must increase suffi- 
 ciently to equal the increasing freight rates, or there will be 
 profound readjustments in agricultural production, and these 
 will involve readjustments in industry as well. 
 
 Cherishing the hope that present high freight rates are tem- 
 porary, the farmer is struggling to continue his farming oper- 
 ations without material change, and in the meantime casting 
 about for ways by which he may overcome the handicap im- 
 posed upon him. The fruit- and truck-growers of the far west 
 and southwest, for example, are turning to water transporta- 
 tion, and with the better adaptation of vessels to their needs 
 may find in his way some measure of relief from the high 
 freights. The wheat-growers of the west also are using the 
 shorter haul to water for export grains. To illustrate what 
 is happening in this respect, fifty-three per cent of the wheat 
 exported from this country in 1913 went out through the 
 Atlantic and Canadian ports. In 1921, only twenty-four per 
 cent passed through the eastern ports. In 1913, the Gulf ports 
 handled thirty-one per cent of our export wheat, and in 1921 
 slightly more than fifty-nine per cent. Last year the east-and- 
 west rail lines, which formerly handled the bulk of our grain, 
 were running small trains with light loads, while the north- 
 and-south lines in the surplus-producing country, which had 
 formerly handled less than one-third of our export grain, were 
 hauling long trains, heavily loaded, and our southern ports 
 
 [69] 
 
70 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 were congested with cars of grain waiting for ships that they 
 might be unloaded. 
 
 If the American farmer is to compete successfully with the 
 Argentine or the Australasian farmer in the markets of Europe, 
 he must be able to lay his products down in Europe at a cost 
 approximately the same as his competitors. The two principal 
 competitive factors entering into the cost of marketing agri- 
 cultural products in Europe are the cost of production and 
 transportation. I shall not attempt to go into the question of 
 cost of production, but shall confine myself to a comparison 
 of the cost of transportation from the wheat-producing centers 
 of the United States and Argentina to the United Kingdom. 
 It may be well at the outset to point out that while the cost of 
 ocean transportation is an important factor in the cost of 
 marketing agricultural products in foreign countries, it is by no 
 means as important a factor as rail transportation to the sea- 
 board, particularly in the United States, where our producing 
 centers are located much farther from the seaboard than are the 
 producing centers of Argentina, Australia, and other countries 
 that compete with the United States. In Argentina, for ex- 
 timple, the average rail haul from the wheat-producing regions 
 to the seaboard is approximately 435 kilometers, or 261 miles. 
 The cost of carrying 1,000 kilograms (2204.6 pounds) of wheat 
 a distance of 500 kilometers (310.6 miles) is $15.44 Argentine 
 paper, or $0.15 per bushel in United States money on the basis 
 of the prevailing rate of exchange. With an ocean freight rate 
 from Buenos Aires to Liverpool of $5.00 per ton, this would 
 make a rate of $0,134 per bushel, or a combined rail-and-ocean 
 freight rate from the wheat-producing centers of Argentina to 
 the United Kingdom of $0,284. 
 
 In the United States the export freight rate on wheat from 
 Hutchinson, Kansas, to Galveston, Texas, through which a 
 large part of our wheat is exported, is $0.44^ per 100 pounds, 
 or at the rate of $0,267 per bushel. The ocean freight rate 
 from Galveston to the United Kingdom is $0.21 per 100 pounds, 
 or at the rate of $0,126 per bushel. This makes a combined 
 rail-and-ocean freight rate from Hutchinson, Kansas, to the 
 United Kingdom of $0,393 per bushel, as compared with a 
 total rail-and-ocean freight rate from the wheat-producing 
 centers of Argentina to the United Kingdom of $0,284 per 
 
 [70] 
 
No. I] THE FARMERS AND THE RAILROADS 71 
 
 bushel. The wheat producer in Argentina thus has an apparent 
 advantage of approximately $0.11 per bushel in the cost of 
 transportation alone. 
 
 In the case of crops for domestic consumption grown in the 
 great surplus-producing states east of the Rocky Mountains, 
 water transportation is not available. The farmers in these 
 states must use railroads to ship their surplus to market and 
 the continuation of the present high rates must inevitably re- 
 duce the tonnage of coarse grains and hay shipped to the east. 
 We hear some criticism of the agricultural schedules of the 
 tariff bill now under consideration by Congress. In point of 
 fact, the duties proposed to be levied upon the principal agri- 
 cultural products are hardly sufficient to equalize the additional 
 freight tax which already has been imposed upon the farmers 
 of the surplus-producing states. The increase in railroad 
 rates during the past five years has been in effect a differential 
 against our own farmers in favor of the farmers of foreign 
 nations with whom they must compete. 
 
 A few examples are given below in order to illustrate con- 
 cretely the effect that high freight rates, if continued, are cer- 
 tain to have, not only on farming but on the railroads them- 
 selves. 
 
 In the case of a cheap bulky commodity like potatoes high 
 transportation costs will have an important effect on the dis- 
 tribution of acreage. At present the commercial production of 
 this crop is more or less concentrated in the northern border 
 states, the central states obtaining much of their supply from 
 those to the north of them. But when the freight rate on 
 potatoes from Bangor, Maine, to New York City increases from 
 25c a hundred pounds in 1913 to 52j/2C in 1921, a differential 
 is established in favor of the growers in New York, New Jersey, 
 Pennsylvania and Connecticut that will undoubtedly increase 
 the acreage in those states and make necessary a reduction of 
 acreage in the State of Maine. This will deprive the railroads 
 of a large and remunerative traffic. These rates have the 
 effect of decreasing the profit on potatoes in Maine by 25c per 
 hundred pounds, which makes it possible for other regions 
 nearer the market to compete. Since 1913 there has been an 
 increase in rates on Michigan potatoes to New York of 29c or 
 just 100%. A continuation of this rate v/ill have the effect of 
 
 [71] 
 
72 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 decreasing potato acreage in the west and of increasing it 
 in the east, thus cutting off another source of traffic. 
 
 The effect on the hay trade is similar. This crop can be 
 grown anywhere that farming is possible. Previous to the 
 war the eastern states obtained a large part of their hay from 
 the Middle West. Already rail shipments of hay eastward 
 have been curtailed. 
 
 The cotton belt has hitherto imported most of the hay it 
 requires. The recent increase in freights has so enhanced the 
 price of hay in the south that cotton-growers, if this high price 
 continues, are resolving to produce their own supplies of this 
 necessary commodity. This will deprive many roads of a 
 large and important traffic. 
 
 The shipment of fruits and vegetables from the south and 
 from California to eastern and northern cities is an important 
 part of the traffic of many lines of transportation. Even un- 
 der pre-war conditions large quantities of vegetables were 
 produced under glass near these cities for the winter trade, in 
 competition with California and the south. The present rates 
 for transportation will enable more men to succeed in growingj^ 
 vegetables under glass and this will reduce the tonnage of such 
 commodities shipped from California and the south. This 
 tendency is in fact already noticeable. 
 
 A pound of pork represents about ten pounds of corn, and 
 a pound of butter much more. Every increase in transpor- 
 tation rates tends to induce corn-growers to condense their 
 products into meat and butter, thus reducing the tonnage of 
 farm products delivered to the carriers. 
 
 The largest yields per acre and the greatest weight per bushel 
 of oats are obtained in our western mountain states. Yet these 
 states have never grown oats except as a supply crop. It is so- 
 cheap a product that it will not bear the cost of transportation 
 to distant markets. The commercial production of oats has 
 therefore always been concentrated about the great market 
 centers. Every increase in cost of transportation tends to 
 emphasize this concentration, thus reducing tonnage. 
 
 Wheat, because of its higher value per unit of weight, has 
 hitherto been widely grown in the western mountain states. 
 This is the only crop generally available to farmers in that 
 section that is sufficiently high-priced to bear the necessarily 
 
 [72] 
 
No. I] THE FARMERS AND THE RAILROADS 73 
 
 heavy transportation costs. The enormous increase in these 
 costs in recent years may have the effect of materially reducing: 
 the acreage of wheat in these states. The land thus vacated 
 will go to forage for dairy cows because butter is sufficiently 
 concentrated to stand the cost of getting it to eastern and even 
 to European markets. In so far as this change takes place, and 
 it is in fact actually taking place, the railroads will lose the 
 difference between the freight on the large volume of grain 
 now shipped and the few pounds of butter than can be made 
 from the land vacated by wheat. 
 
 Fortunately it is not necessary for you to accept merely my 
 opinion as to the effect of high transportation costs on agricul- 
 ture. The accompanying diagram shows the difference in the 
 farm prices of corn, wheat and oats, in the New England States 
 on the one hand, and the West North Central States on the 
 other, by five-year periods from 1871 to 1915, and for 1921. 
 It will be observed that the differences in prices east and west 
 gradually decreased until 1915. Since that time they have 
 greatly increased and are now approximately as wide apart as 
 they were back in the seventies. In the case of oats the differ- 
 ence is actually greater. It will be observed that this great 
 spread in prices between the east and the west since 1915 is 
 coincident with the recent increase in freight rates. 
 
 While the decrease in these differences was going on because 
 of decrease in transportation costs, there was a rapid reduction 
 in acreage of the cereals in New England, amounting between 
 1880 and 1909 to 46%. Following the Civil War the differ- 
 ence in prices east and west was sufficiently great to justify 
 the New England dairyman in growing grain for feed; but 
 as the cost of getting grain from the west fell it became more 
 and more advantageous to the New England dairyman to buy 
 his concentrated feed. This accounts for the reduction in the 
 acreage of cereals. That the New England farmer, if present 
 conditions continue, will go back to growing grain is shown by 
 the fact that during the period of high prices prevailing in war 
 times the acreage of wheat in New Hampshire increased from 
 practically nothing to 1,400, and oats increased from 11,000' 
 to 15,000 acres. The acreage of rye more than doubled. In 
 Vermont wheat increased from 700 to 11,000 acres and oats 
 from 71,500 to 83,100 acres. A similar increase occurred in 
 
 [73] 
 
74 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 Massachusetts. It is true this increase occurred under high 
 transportation rates, but the high prices of farm products at 
 the time made these rates relatively no greater than they had 
 
 PRICES IN PRODUCING AND CONSUMING SECTIONS 
 COMPARED 
 
 IHDEX OF FAHH PRICES OF CORH, WHEAT AHD OATS. 
 
 USITEB STATES. HEW EHGLAm AHD WEST HORTH CENTRAL STATES. 
 
 5 YEAR AVERAGES OF DECEMBER FIRST PRICES. 
 
 1871-1915 and 1921. 
 
 100 -AVERAGE FOR UNITED STATES. 
 
 Snail figures on chart are actual prices. 
 
 PRfCE 
 INDf" 
 
 PRICE 
 INDEX 
 
 1871-75 1882-86 I89I-95 I9OI-05 I9II-I5 1921* 
 •Wheat Bonthly average for year. Corn and oats Dec. 1. 
 
 been before the War. The case is different now, for the prices 
 of farm products are lower. There appears to be no escape 
 from the conclusion that unless there is a material reduction in 
 <;ost of transportation, New England will soon be producing 
 
 [74] 
 
No. i] THE FARMERS AND THE RAILROADS 75 
 
 again the concentrated feed she requires. The loss in profit 
 to the railroads this will occasion is no small item to many of 
 the roads supplying this section of the country. 
 
 To discuss in detail the effects upon agriculture and industry 
 in general of the advances in freight rates of the past four 
 years would require hours and days rather than minutes. In 
 brief, if the present high rates are continued for any length 
 of time their probable effect will be : 
 
 First, to favor the farmers of South America and Australia 
 at the expense of our own farmers, and all the more so be- 
 cause of the substantial decreases in ocean rates. 
 
 Second, to keep prices of farm products in the large surplus- 
 producing states at figures lower than are justified by the in- 
 vestment in land and equipment and cost of farm production, 
 except during years of short crops. 
 
 Third, to prolong the period of dissatisfaction among farm- 
 ers and encourage advocates of economic fallacies of all sorts. 
 
 Fourth, to improve the position of eastern truck- and fruit- 
 growers, but also to add considerably to the cost of production 
 of milk and dairy products, because of the advanced prices of 
 hay and coarse grains necessarily shipped in from the west. 
 
 Fifth, gradually to shift industrial enterprises westward, 
 nearer the surplus food producing territory. 
 
 Sixth, to promote sectional rather than national spirit and 
 make more and more difficult large national policies with re- 
 spect to international affairs. 
 
 No good citizen can find comfort or satisfaction in con- 
 templating such results. 
 
 I am not making a special plea for the farmer as against the 
 railroad. The relation between agriculture and transportation 
 is so very intimate and dependent that neither can afford to 
 acquiesce in a condition which seriously affects the other. 
 They must work together in harmony and understanding. The 
 important point I am trying to make is this : That this nation 
 has been built up by a system of low railroad rates designed 
 to encourage the movement of our surplus agricultural crops 
 long distances to manufacturing, industrial and business cen- 
 ters, with a corresponding return haul of manufactured pro- 
 ducts, and that a sudden reversal of this theory of rate-making 
 
 [75] 
 
76 
 
 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 results in great economic injustice and if persisted in will keep 
 us in a state of confusion and agricultural and business uncer- 
 bainty for a prolonged period. The need of permitting the 
 railroads to charge rates sufficiently high to cover reasonable 
 costs of operation and maintenance and yield a fair return 
 upon the capital invested is so obvious that it must at once be 
 conceded. Both commerce and agriculture require efficient 
 transportation. But the folly of undertaking to establish 
 such rates wholly without consideration of their disastrous 
 effect upon agriculture, the greatest industry of the country, 
 is now apparent to everyone. 
 
 The most hopeful sign at the present time is the apparent 
 recognition of the railroad management that our present high 
 rates cannot be continued without disaster to the railroads 
 themselves, and that rates must come down to a point not far, 
 if any, above the pre-war levels. Railroad management should 
 have the whole-hearted support of all right-minded and clear- 
 thinking people in taking the steps which will make it possible 
 to bring about the necessary reduction. 
 
 [76] 
 
TRANSPORTATION ACT OF 1920 
 
 DANIEL WILLARD 
 President, Baltimore and Ohio Railroad Company 
 
 THE framing of the Transportation Act of 1920 was pre- 
 ceded by one of the most exhaustive investigations ever 
 conducted by Congress, and the Act in its present form 
 undoubtedly reflects the enlightened effort of that body to deal 
 with the American railroad problem in a constructive and 
 effective manner. 
 
 It is desirable that we have a clear understanding of just 
 what the American railroad problem really is before we attempt 
 to decide how it should be dealt with. What we are in the 
 habit of speaking of as the American railway system is, of 
 course, not a system at all in the sense in which the word 
 " system " is ordinarily used. It is not, for instance, such a 
 system as we have in mind when we speak of the Pennsylvania 
 or Santa Fe Systems, nor is it like the American Telephone and 
 Telegraph Company, which latter includes under one general 
 management or supervision a network of wires reaching all 
 parts of the United States. When we speak of the American 
 railway system we have in mind, I suppose, the 1,800 or more 
 separate and independent railroad companies in the United 
 States, owning and operating steam railroads, with a total 
 length of about 265,000 miles, having in the aggregate about 
 2,500,000 freight cars, about 65,000 locomotives and about 
 56,000 cars used in passenger train service — all representing a 
 total investment of approximately $20,000,000,000 and giving 
 direct employment to upwards of 2,000,000 persons. The 
 American railroad problem, as it is called, grows out of the 
 question : how can this great aggregate property, represented 
 by an investment of $20,000,000,000, be so developed, main- 
 tained and operated cis to furnish the people with adequate 
 transportation at reasonable rates? 
 
 The steam railroad has ceased to be a new thing and certain 
 fundamental truths concerning the railroad problem have been 
 so clearly demonstrated that they may now be accepted as estab- 
 
 [77] 
 
78 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 lished. One of the fundamental truths which I have in mind 
 is this : Whatever policy of ownership, control or operation may- 
 be adopted with reference to our American railroads, it must 
 make satisfactory provision so that in times of emergency it 
 will be possible to mobilize and coordinate promptly all of the 
 physical properties of all the companies in order that the rail- 
 road plant as a whole may be used in the most effective manner 
 possible. Such coordination we know is possible under gov- 
 ernment operation. Such coordination was attempted by the 
 railroads themselves in 1917, and with a much greater degree 
 of success than is generally recognized, through the agency of 
 the Railroad War Board, which they voluntarily established 
 in April of that year. The War Board, however, had no legal 
 status, and as the laws were at that time, its efforts were much 
 hampered and interfered with. A satisfactory settlement of 
 the railroad problem demands among other things that suitable 
 provision be made by law for the prompt mobilization and co- 
 ordination of the railway properties when necessary in the 
 public interest. 
 
 The Transportation Act of 1920, therefore, specifically pro- 
 vides that in times of emergency the Interstate Commerce 
 Commission shall be authorized to assume direction and control 
 of all the cars and engines of all the railroads in the United 
 States, as if they were in fact owned and controlled by the 
 government, and it authorizes the Commission to take such 
 further steps as may be necessary to give effect to this provision 
 of the Act. It should be borne in mind, however, that this 
 broad authority which the Commission is authorized to assume 
 over private property is to be exercised only in times of 
 emergency. Congress undoubtedly recognized the fact that it 
 is not possible to have complete coordination and unified oper- 
 ation of all the railroads and at the same time have the benefit 
 of competition. The two things are incompatible. It was be- 
 lieved, and I think justifiably so, that while it was necessary 
 in the public interest to provide for the effective mobilization 
 of all the railroad facilities in times of emergency, it was also 
 desirable in the public interest that except in times of emer- 
 gency the individual companies should be given the fullest op- 
 portunity for individual initiative, enterprise and competition. 
 
 I believe the Transportation Act of 1920 effectively provides 
 
 [78] 
 
Na I] TRANSPORTATION ACT OF 1980 yg 
 
 for that phase of the railroad problem, and my belief is based 
 upon the knowledge that during the fiscal year 1920, when it 
 may be said there was a transportation emergency such as was 
 contemplated in the words of the Act, the American railroads, 
 acting under its provisions and in cooperation with the Inter- 
 state Commerce Commission, so coordinated their efforts that 
 in the aggregate they moved over 447 billion ton-miles during 
 the year. This was 7 billion ton-miles greater than the high- 
 est previous accomplishment, which was in 1918, while the 
 roads were under Federal control. The importance of being 
 able to mobilize promptly all of the railroad facilities in times 
 of emergency is so great that had it not been possible to provide 
 satisfactorily therefor in connection with private ownership 
 and operation, it is altogether likely that Congress would have 
 felt compelled to accept the policy of Government ownership 
 and operation as the only possible alternative. 
 
 Congress, however, having decided that it was possible under 
 proper legislation effectively to coordinate the railway facilities 
 when necessary, or in times of emergency, and having made 
 suitable provision by law for such coordination, then gave con- 
 sideration to another phase of the railroad problem as related 
 to private ownership and operation. 
 
 Of course, it is recognized that if we are to have private 
 ownership and operation of the railroads, it can only be had 
 upon a voluntary basis. No one, under institutions such as 
 ours, can be forced against his will to invest his money in rail- 
 roads. At the same time it is recognized that at least 
 $500,000,000, and probably more, must be expended each year 
 by the railroads for new facilities in order that they may pro- 
 vide for the demands of our growing commerce, and unless 
 railway securities can be made so attractive that each year at 
 least $500,000,000 of new capital will seek investment in that 
 direction, then the scheme of private ownership will fail, be- 
 cause we cannot as a people afford to have inadequate trans- 
 portation facilities. But whether railway securities are attrac- 
 tive or not from the investors' point of view depends, of course, 
 upon the rate and dependability of return and the certainty of 
 ultimate recovery of the capital invested. 
 
 Congress, with a full understanding of this phase of the 
 problem, for the first time laid down for the guidance of the 
 
 C793 
 
So RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 Interstate Commerce Commission a definite rule to be fol- 
 lowed with reference to the fixing of the rates and charges 
 which the railways might lawfully impose. What Congress m 
 eflFect did was to announce a policy, and in harmony therewith 
 it authorized and directed its agent, the Interstate Commerce 
 Commission, to fix rates and charges so that the railroads as a 
 whole, or as a whole in certain regions or groups, should be 
 able, in connection with honest and efficient management, to 
 earn a net operating income equal as nearly as may be to a fair 
 return upon the value of the property devoted to transportation 
 purposes. Nothing was said in the Act about the rate of 
 return upon the stocks and bonds of the railroads. As a 
 matter of fact there is no mention in the law of either railroad 
 stocks or bonds, nor is there a guarantee of any definite return 
 as some have seemed to think, but simply the statement that 
 the railroads as a whole should be entitled to receive a fair 
 return, if honestly and efficiently managed, upon the value of 
 the property devoted to the public use. 
 
 However, because the railroads are not all in one compact 
 system, because there are in fact several hundred separate and 
 independent companies, because some roads are more favor- 
 ably located than others, and because it was recognized that 
 different roads running between the same points should, and as 
 a matter of fact must, charge the same rates, it was therefore 
 recognized that rates which might be high enough to yield a 
 fair return to some of the carriers, might not yield an adequate 
 return to others in the same group. It was realized also that 
 the identical rates might yield to still other carriers in the 
 same group a higher return than could be justified from the 
 public point of view. 
 
 It is essential in the public interest, however, that all the 
 roads, generally speaking, should be able to survive and at the 
 same time properly maintain and enlarge their facilities as 
 circumstances may require. To overcome the difficulties re- 
 sulting from the conditions just referred to, it is provided in 
 the Act that if from rates fixed so as to yield a fair return upon 
 the value of all the roads in a specific group, certain individual 
 companies in the same group should be able to earn more than 
 six per cent upon the value of their property, then in that case 
 one-half of the net operating income earned above six per cent 
 
 [80] 
 
No. I] TRANSPORTATION ACT OF 19S0 gj 
 
 from rates so fixed should be recoverable by the government. 
 This feature of the Act has been much criticized, and by many 
 has been held to be unconstitutional. Personally, I do not 
 believe it is possible for private ownership of the railroads to 
 endure in this country without such a provision as this in 
 the Act. As a practical matter without such a provision in the 
 Act, I do not believe that politically appointed agencies, in face 
 of the opposition which might be urged, would approve rates 
 high enough to yield a fair return upon the properties as a 
 whole constituting a group for rate-making purposes, when it 
 was clear that from a lower or existing basis of rates one or 
 more companies in the same group could earn an operating in- 
 come in excess of the requirements from an investment point 
 of view. The result would be that while some of the railroads 
 might be very prosperous and others might manage to live, 
 still others less fortunately situated might not be able to survive 
 as commercial enterprises, and consequently they would be un- 
 able to furnish adequate transportation to that part of the 
 public depending upon them for service. 
 
 It was therefore thought better and more in the public inter- 
 est that rates should be fixed high enough to yield a fair return 
 upon all of the property used for transportation purposes in any 
 particular group of competitive lines, even though some roads 
 might be able to earn a sufficient return on a lower rate basis. 
 Inasmuch, however, as the more fortunate roads would benefit 
 by the higher rate basis necessary to sustain the less fortunate 
 roads, Congress decided that whatever was earned above six 
 per cent upon the property value of any particular road from 
 rates so fixed, should be divided equally between the road and 
 the government. 
 
 I repeat that in my opinion private ownership and operation 
 of the railroads in this country can not endure without some 
 such provision, nor do I think the provision which I have just 
 referred to is in itself unfair or inequitable. Undoubtedly if 
 it were not for the necessity of the less fortunate roads, the more 
 fortunate ones would not be permitted to charge the higher 
 rates. The very fact that some roads in a group are fortunate 
 enough to be able to earn more than six per cent upon the value 
 of their property, even though part of such excess is recoverable 
 by the government, puts the securities of such companies in a 
 
 [8i] 
 
82 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 preferred class, and because such companies are permitted to 
 retain one-half of all they can earn above six per cent, there 
 would seem to be ample inducement to stimulate initiative and 
 enterprise. Personally, I approve of this particular feature of 
 the Act, and I venture to express the hope that its constitu- 
 tionality will be upheld in the courts. Otherwise I feel that 
 rates will not be maintained on a basis sufficiently high to sus- 
 tain the roads in general, in which event private ownership 
 and operation of the railroads as a national policy will fail. 
 Congress, having satisfied itself that it was possible under 
 private ownership, with suitable legislation, for the railroads 
 to be coordinated in times of emergency, then addressed itself 
 to the financial phase of the problem, which it undertook to 
 solve by the establishment of a rule for rate-making, as I have 
 shown. 
 
 There still remained to be dealt with one other important 
 phase of the problem, to which I shall now refer. In no other 
 country in the world do the people make so great a use of the 
 railroads as in ours. The steam railroads in the United States 
 perform a freight service equal to the movement of 4,000 tons 
 one mile per annum for each man, woman and child of our 
 entire population, while the latest figures available show that in 
 Europe the analogous service performed by the railroads is 
 probably less than 600 tons one mile per capita per annum. 
 
 The greater use made of the railroads by the people in this 
 country is of course influenced largely by the fact that ours is 
 a country of great distances and is also rich in natural and 
 varied resources. It has come about, therefore, that in the 
 City of New York, an an example, the flour used is very likely 
 made from wheat grown on the rich prairies of Minnesota and 
 the Dakotas. The beef which is eaten here was perhaps bred 
 in Texas, developed in Wyoming, fattened in Iowa and dressed 
 in Chicago. Not only do we find upon the tables in New York 
 and Boston salmon caught in the waters on the Pacific Coast 
 and shipped from Seattle, but there will also be found on the 
 tables in Seattle the cod caught in the North Atlantic waters 
 and shipped from Boston. Many similar instances might be 
 cited. In short, it has generally been found advantageous, be- 
 cause more economical, to produce our flour, meats, minerals, 
 forest products etc. where each can be produced or obtained at 
 
 [82] 
 
No. I] TRANSPORTATION ACT OF 19S0 83 
 
 the lowest initial cost and then transport them, largely by rail, 
 to the point of ultimate consumption, the entire transportation 
 cost being less than the difference in initial cost of production 
 in different parts of the country. With this in mind it is mani- 
 festly important that there should be regularity and continuity 
 of service by the railroads, and one of the important problems 
 before Congress was to insure if possible such continuity by 
 guarding against interruption of service which might be caused 
 by misunderstandings and disputes arising between the railroad 
 managers and their employees. 
 
 It was urged by some that this provision of the Act should 
 be so written as to prohibit strikes upon the railroads. It was 
 not possible to enact legislation of that character, nor do I 
 think it would have been wise to enact such legislation at that 
 time. I believe it would be a mistake for Congress to pass a 
 law prohibiting strikes unless we are quite certain that we shall 
 be able to enforce such a law once it has been enacted. Per- 
 sonally I do not believe that we have reached a stage where we 
 can feel confident that such a' law would or could be effec- 
 tively enforced. The matter was., therefore, dealt with, I think, 
 in the wisest way possible under the circumstances. Congress 
 created machinery and set up agencies by virtue of which the 
 employees could feel assured of obtaining just as fair wages 
 and working conditions without striking as they could reason- 
 ably expect to obtain even if they did strike. 
 
 The Act provides, first, that — 
 
 It shall be the duty of all carriers and their officers, employees and 
 agents to exert every reasonable effort and adopt every available 
 means to avoid any interruption to the operation of any carrier grow- 
 ing out of any dispute between the carrier and the employees or sub- 
 ordinate officials thereof. All such disputes shall be considered and, 
 if possible, decided in conference between representatives designated 
 and authorized so to confer by the carriers, or by the employees or 
 subordinate officials thereof, directly interested in the dispute. If any 
 dispute is not decided in such conference, it shall be referred by the 
 parties thereto to the Board, which, under the provision of this title, 
 IS authorized to hear and decide such dispute. 
 
 The Act also provides for the creation of the Board above 
 referred to and in that respect reads as follows : " There is here- 
 by established a board to be known as the Railroad Labor 
 Board and to be composed of nine members." 
 
 The members of the Labor Board are to be appointed by the 
 
 E83] 
 
84 
 
 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 President. Three of his appointees shall be from men nomin- 
 ated by railroad employees, three shall be from men nominated 
 by the railroad companies, arid three shall be selected by the 
 President himself, as representing in a larger way the general 
 public, and all nine shall be confirmed by the Senate. In fact, 
 Congress has created for this particular purpose a special Labor 
 Court consisting of the same number as the Supreme Court 
 of the United States, appointed in the same way, that is to say, 
 by the President and confirmed by the Senate, and has given the 
 Board or Court a status and dignity in keeping with its im- 
 portance. The Act says that it shall be the duty of the Board 
 to establish rates of pay and standards of working conditions 
 which, in the opinion of the Board, shall be just and reasonable, 
 and in determining the justness and reasonableness of such 
 rates the Board is directed to take into consideration, among 
 other things — 
 
 1. The scale of wages paid for similar kinds of work in other 
 industries; 
 
 2. The relation between wages and the cost of living; 
 
 3. The hazards of the employment; 
 
 4. The training and skill required ; 
 
 5. The degree of responsibility; 
 
 6. The character and regularity of the employment ; and 
 
 7. Inequalities of increases in wages or of treatment, the 
 result of previous wage orders or adjustments. 
 
 It may indeed be said that Congress by this Act has made 
 a preferred class of the railroad workers, because so far as I 
 know this is the first and only time that Congress has ever 
 definitely enacted that any particular class of the people should 
 be given at all times and under all circumstances just and rea- 
 sonable wages and working conditions. Of course. Congress 
 did not do this primarily in the interest of the workers. Con- 
 gress acted only as it had a right to act in the interests of the 
 nation as a whole. Congress acted with a full realization of 
 the importance of an uninterrupted transportation service in a 
 country such as ours, but being unwilling to deprive the work- 
 ers of their right to strike, it sought to provide machinery 
 which would make it unnecessary under any circumstances for 
 the men to stop work in order to obtain just and reasonable 
 
 t84] 
 
No. I] TRANSPORTATION ACT OF 1980 gj 
 
 treatment. In short, Congress provided, or aimed to provide 
 by law, that the railroad workers should at all times be assured 
 of just as good wages ajid just as good working conditions 
 without striking as they could reasonably expect to secure even 
 if they did strike, for it is clear that no one could justify or ex- 
 pect to win a strike for wages or working conditions that would 
 be unjust or unreasonable. This feature of the Act has been 
 much criticised, but I venture to think that during the short 
 time the Act has been in effect, the labor provision has more 
 than justified itself by actual results achieved when viewed 
 in a large way. 
 
 It may, of course, be said that each one. of the three features 
 of the Act which I have been discussing is in a sense experi- 
 mental. Nevertheless, it is my feeling and firm belief that so 
 far it cannot be said that the experiment has failed in con- 
 nection with any one of the features mentioned. On the con- 
 trary it seems to me that the results so far obtained, when 
 fairly considered, have measurably met the proper expectation 
 of Congress. 
 
 There are other important features of the Transportation 
 Act to which I have not referred at all, chiefly because of my 
 limited time and because I do not consider them of fundamental 
 importance. One of the provisions which I have in mind has 
 reference to the future grouping of the railroads into a rela- 
 tively small number of strong, competing lines. I am in favor 
 of the general policy so announced. I do not, however, con- 
 sider it of fundamental importance. 
 
 I believe that the Transportation Act of 1920 affords a work- 
 able basis for the future successful operation of the railroads 
 in the United States, in harmony with our long-established 
 policy of private ownership and operation. That the success 
 of the Act has not yet been thoroughly demonstrated in all of 
 its aspects, I admit. I believe, however, that it would be a 
 great mistake to attempt to amend or change the Act in any 
 of its fundamental features at the present time. I do not think 
 we have yet had sufficient experience under the Act to justify 
 a conclusion that a change is actually necessary or, if necessary, 
 to indicate clearly what the change should be. I firmly believe 
 that if the Act is permitted to remain as it is for a period of 
 five years, and if the railway managers could be assured that 
 
 [85] 
 
86 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 it would not be changed within that period of time, such 
 knowledge would have a most stimulating and encouraging 
 eflfect, not only upon the railway managers, but upon investors 
 as well, and would in itself go far to assure the success of the 
 Act. Undoubtedly the Act is not perfect in all its details. 
 Nevertheless I believe that in its present form it makes private 
 ownership and operation of the railroads possible, and that too 
 on a basis much to be preferred to the only probable alternative. 
 I urge, therefore, that the Act in its present form be given a 
 fair and sympathetic trial. 
 
 [86] 
 
THE NEW BASIS OF RATE-MAKING 
 
 WALKER D. HINES 
 Former Director General of Railroads 
 
 I WANT to express at the outset my cordial belief in the 
 view that the Transportation Act deserves a fair and 
 impartial trial. Even if we were passing through times 
 that were entirely normal, it would still be true that an act 
 adopted with such care and after such prolonged investigation 
 should be given a reasonable time within which to justify its 
 usefulness. But the truth is that we have been passing through 
 times that are wholly abnormal, and the fact that in such times 
 a new and comprehensive piece of legislation may not have 
 brought satisfaction to the interests affected by it is not proof 
 that it is not a forward and constructive step. I do not know 
 of any place in the world where any institution or any scheme 
 of law has brought satisfaction to the people in these war years 
 and the years since the war. So I think we must give to this 
 new and important piece of legislation an opportunity to 
 justify itself when we again get into something approximating 
 normal times. 
 
 I think it is particularly important to emphasize this neces- 
 sity because it is undoubtedly true that in the period of re- 
 adjustment through which we have been passing, a great part 
 of our population, and that is the agricultural part, has suf- 
 fered most intensely from the unfortunate combination of pre- 
 war prices or less for its products, and of greatly increased 
 freight rates based on the existing much-increased costs of 
 railroad operations. 
 
 This has been a condition which was bound to produce 
 discontent and it was bound to direct attention to this new 
 legislation as the most obvious reason for the trouble, although 
 in fact, I do not believe that the legislation can be held re- 
 sponsible. Under any other possible scheme of legislation, we 
 would either have had rates approximately as high as the 
 existing rates or we would have had a series of railroad bank- 
 
 [87] 
 
88 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 ruptcies which would have been infinitely worse for the farm- 
 ers as well as the people in other walks of life. 
 
 I want to say something about the principle of rate-making 
 which has been put into the Transportation Act. I shall not 
 attempt again to outline the provisions of the Act on this point 
 because Mr. Willard has done that clearly and concisely. I 
 want to emphasize that this new rate basis has been adopted 
 from the standpoint of the public interest and that public inter- 
 est is vitally concerned in the maintenance of this new basis. 
 The provision in the Transportation Act that rates should be 
 so fixed as to produce a fair return upon the aggregate value 
 of railroad property was not put there merely to provide inter- 
 est and dividends for the holders of the existing bonds and 
 stocks of the railroad companies. It was put there for other 
 broad public purposes, in addition to that purpose, and I wish 
 to call attention to some of these other purposes. 
 
 One aspect of the railroad business is that it employs about 
 two million workmen. In a normal year, I suppose there 
 would be spent by the railroads, if they have a basis of rates 
 that yields a fair return upon their property, from two and 
 three-quarters to three billion dollars in wages. The dis- 
 tribution of that amount to the wage-earners of the country 
 would be a tremendous factor in the prosperity of every class 
 of people in the country. But in practice there is much more 
 fluctuation than is generally appreciated in the amount of rail- 
 road labor and the amount of the railroad pay roll. Even if 
 the wages remain unchanged, there may be very great fluctu- 
 ations in the number of employees, in the amount of work they 
 are called on to do, and hence in the amount of money that is 
 distributed to them as wages. The moment the railroads begin 
 to be apprehensive as to whether they are obtaining enough 
 revenue fairly to protect the interests with the protection of 
 which they are charged, they begin to lay off' their maintenance 
 forces, and maintenance represents close to forty-five per cent 
 of the total operating expenses of the railroad companies. 
 When the maintenance employees are laid off', the purchasing 
 power of themselves and their families is impaired and to a 
 considerable extent dstroyed, and that has a distinctly un- 
 favorable influence upon the general state of business in the 
 country. 
 
 [88] 
 
No. 1] THE NEW BASIS OF RATE-MAKING 
 
 89 
 
 The moment this condition becomes an influence to cut down 
 general business — and the cutting down of the maintenance 
 program is bound to have that influence — the number of freight 
 trains begins to diminish, the number of employees in the train 
 service is cut down, and you have an additional element which 
 makes for a slowing down of the prosperity of the country. 
 
 Let us look now at the material which the railroads buy. I 
 suppose it is fair to estimate that in the course of a year under 
 approximately normal conditions, the railroads would buy from 
 a billion eight hundred million to two billion dollars' worth 
 of materials, which are used in the operation of the roads. In 
 addition to this, in normal times, they would ordinarily buy 
 perhaps two or three hundred million dollars' worth of ma- 
 terials for the purposes of new construction. The railroads buy 
 nearly one-third of the soft or bituminous coal that is produced 
 in the country. It has been estimated that they buy about forty 
 per cent of the steel and iron articles produced in the country 
 and that about forty per cent of the country's lumber production 
 goes directly and indirectly into materials used by the railroads. 
 
 When the reasonable return to the railroads begins to be 
 seriously diminished and there comes to be a cutting-down in 
 these purchases of materials, as there is bound to be when the 
 maintenance program is diminished, or when the construction 
 program is diminished, we have another and very important 
 condition to militate against the prosperity of the country. 
 The various industries of the country, which are dependent so 
 largely upon the railroads, commence limiting their operations, 
 and their employees lose their jobs and their purchasing power. 
 The volume of business diminishes still more and again we 
 have a falling-off" in the amount of freight service and in the 
 number of trains and enginemen employed. We begin to have 
 a cutting-down in the amount of coal that the railroads can 
 consume, with consequent embarrassment to the coal industry 
 and its employees. 
 
 It follows that the giving of a fair return to enable them to 
 proceed in a normal manner with their operations has a tre- 
 mendously important relation to the public interest with respect 
 to the labor that the railroads employ, with respect to the ma- 
 terials that they use, and with respect to the industries which 
 manufacture these materials, and in all these respects the gen- 
 
 [89] 
 
go RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 eral prosperity of the country is vitally involved. When these 
 factors take an unfavorable turn, there is no class which is more 
 seriously affected than the farming class, which is dependent 
 upon the general prosperity of the country in order to have a 
 satisfactory demand for its products. 
 
 Another point of vital interest to the public is the adequacy 
 of the railroad service. That involves two considerations : one 
 is that the railroads of this country are not in a condition to 
 handle satisfactorily the amount of business which could be 
 regarded at present as normal. They need much additional 
 equipment and many sorts of improvements in order to meet 
 more satisfactorily the demands of the public for an adequate 
 service. This requires capital. In addition there is a steady 
 growth in the volume of business done in this country. In 
 1900 the mount of freight traffic carried was double what it 
 was in 1890. In 1910 it was eighty per cent more than in 
 1900. In 1920 it was sixty per cent more than in 1910. So 
 that we can count upon a continuing and heavy increase in the 
 normal amount of business. I am speaking broadly now and 
 disregarding for the moment the fluctuations that may come in 
 particular years of depression. With this increase in traffic 
 there must be enormous increases in the railroad plant and they 
 cannot be obtained without enormous expenditures of money. 
 I think Mr. Willard estimated only five hundred million dol- 
 lars a year. There will be needed, I believe, eight hundred 
 million to a billion, which can be expended in the further im- 
 provement and extension of the railroads to the distinct advant- 
 age of adequate and efficient service, although I can readily 
 appreciate that if the railroads cannot raise that much addi- 
 tional money to spend, they must, and no doubt they can, by 
 .spending less than that amount, get along with a service less 
 satisfactory than it ought to be. 
 
 Such enormous amounts of capital cannot be raised unless 
 there is adequate assurance of a fair return to the railroads, 
 and there again we have an important element of public interest 
 underlying the rate-making principle of the Transportation Act. 
 
 There is still another feature embodied in this rate-making 
 principle of the Transportation Act, and that is, that the 
 Transportation Act was designed to establish a greater certainty 
 as to a fair return for the railroads. 
 
 [90] 
 
No. I] THE NEW BASIS OF RATE-MAKING 91 
 
 Prior to the Transportation Act, the attitude of the Govern- 
 ment was restrictive rather than constructive. It merely told 
 the railroads what they should not do, but assumed no obliga- 
 tion to aid in creating a rate basis which would affirmatively 
 assure them a fair return. That contributed to a condition of 
 uncertainty which was unfavorable to the public interest. The 
 Transportation Act for the first time has imposed an affirmative, 
 express duty on the Interstate Commerce Commission to estab- 
 lish a rate basis which, as far as may be, will yield a fair 
 return. This provision was designed to establish a greater 
 certainty, and I think that is one of the most important elements 
 of public interest that is involved in this new conception. 
 
 I believe as the railroads become better assured of their 
 status there can and will be developed on their part a more 
 confident and steady policy of carrying forward on a more 
 regular and normal basis their maintenance and construction 
 programs. The lack of public interest in maintaining a fair 
 return was always working to make the return uncertain. 
 There was consequently a disposition on the part of the rail- 
 roads to respond very quickly to any unfavorable aspect of 
 general business by promptly cutting down their maintenance 
 and construction programs. That has tremendously accen- 
 tuated the tendencies already working toward depression in 
 general business conditions, so in the past we have had a con- 
 dition where this great institution, which represents the greatest 
 organized purchasing power and the greatest organized source 
 of wages in the country, has been under an influence which 
 caused it, the moment there came to be signs of depression, 
 to convert itself into an agency for increasing that depression. 
 And that picture has another side. When business begins to 
 get better, prices begin to go up and labor begins to get scarce, 
 the railroads, having been forced to cut down their main- 
 tenance and construction programs in times of depression, then 
 have to redouble their efforts in these directions and thereby 
 they become an influence for creating instability by putting up 
 the price, by bidding against each other and the other interests 
 in the country, in order to make up for their deferred programs 
 in times of depression. Further than this, the result of such 
 a policy has been that in a time of returning general business 
 prosperity the railroads have had to use their tracks, equip- 
 
 [91] 
 
02 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 ment and other facilities very largely for handling their own 
 material and supplies, which on account of their retrenchment 
 policy during the preceding period of depression they had not 
 purchased and distributed while they had ample surplus equip- 
 ment and other facilities. This has led to congestion of busi- 
 ness and has tended to accentuate still further the high prices 
 characteristic of returning prosperity. I strongly believe this 
 new policy of the Transportation Act is calculated in large 
 part to correct these highly unfavorable influences and to enable 
 the railroads, as they begin to feel better assured of the con- 
 tinuance of this new policy, to adopt a more regular policy of 
 maintaining more uniformly in bad times their normal pro- 
 grams of maintenance and construction and thereby help 
 stabilize the conditions of the whole country, rather than be 
 forced into a condition of intensifying unfavorable influences 
 in the direction either of further depression or of undue ex- 
 pansion. I think this result will be one of the most important 
 and salutary effects of the law, and will constitute one of the 
 most striking ways in which this new basis will be in promotion 
 of the public interests. 
 
 I fully appreciate that the adoption of a policy of carrying 
 forward normal programs of maintenance and construction in 
 times of business depression involves some difficult'complications 
 in the matter of cash, because the railroad maintenance and 
 construction work is largely a cash proposition. All employees 
 engaged in such work must be paid in cash and all materials 
 used in it must be bought for cash or on very short time. 
 Naturally in time of business depression railroad companies 
 cannot generally raise on satisfactory terms large amounts of 
 capital by the issue of stock or of long-term bonds, and they 
 have been quite hesitant to borrow money on short-term paper 
 for carrying forward maintenance and construction work. 
 Nevertheless with increased assurance of a definite and helpful 
 governmental policy I believe the railroad companies could and 
 ought to make further efforts than they have felt justified in 
 making in the past to provide themselves with the necessary 
 cash to carry forward their maintenance and construction work 
 in times of depression when labor is more plentiful and ma- 
 terials are cheaper, and when they have ample equipment and 
 other facilities for handling the work with a minimum of inter- 
 
 [92] 
 
No. I] THE NEW BASIS OF RATE-MAKING 
 
 93 
 
 ference to their transportation of commercial traffic. Not only 
 ■will this be to their own direct benefit, but it will immensely 
 promote the general public interest, and hence this consider- 
 ation in itself constitutes a highly important justification for the 
 rate-making principle of the Transportation Act. 
 
 In the last analysis railroad rates will depend upon the 
 cost at which railroad transportation can be carried on. This 
 new rate basis rests on the assumption that this cost is a matter 
 of vital importance. It assumes that the railroads must be 
 economically and efficiently managed. This subject is to be 
 increasingly a matter of scrutiny and concern on the part of 
 the Interstate Commerce Commission. With such scrutiny, 
 and with the efforts on the part of the railroad managements, 
 and with the improvement of conditions generally, I think it is 
 fair to predict that there will be such reduction in the unit 
 cost of railroad operation that'to a large extent the difficulties 
 from which the public has suffered — and no interest has suf- 
 fered more than the farmers — on account of rates out of pro- 
 portion to the cost of the products transported, will be over- 
 come. So believing as I do that this is an important forward 
 step, and being utterly unable to think of any substitute for it 
 which will begin to offer as great promise of adequate service, 
 adequate employment of railroad labor, adequate consumption 
 of materials produced in the country, or as great promise of a 
 definite forward movement in the stabilizing of business of all 
 sorts throughout the country, I certainly wish to add my voice 
 in favor of giving the Transportation Act a thorough and 
 sympathetic trial, and I predict, with great confidence, that 
 it will justify itself when it gets normal times in which to work. 
 
 [93] 
 
PART THREE 
 FREIGHT RATES AND BUSINESS REVIVAL 
 
HOW RAILROADS ADAPT THEMSELVES TO 
 NATIONAL CONDITIONS 
 
 ALBERT SHAW 
 Editor, The Review of Reviews 
 
 TRANSPORTATION is in itself a specialized form of 
 business which has problems of its own. In its aspect 
 as a distinct interest, the transportation system — of 
 which the railroads constitute the larger framework — is subject 
 constantly to inquiry and discussion from many standpoints. 
 But the railroads thus regarded do not constitute the subject 
 of our meeting of the Academy today. It is the economic 
 situation of the United States, as inseparaibly affected by 
 transportation methods and policies, that is before us for our 
 consideration. 
 
 It is true that from the standpoint of investment and from 
 that of organization and employment the railroads, with their 
 related industries of service and supply, constitute a foremost 
 economic interest. But railroads are also, as an everyday 
 affair, looked upon by men engaged in every other form of 
 production and exchange as a subordinate but essential factor 
 in their own operations. The producers of wheat and corn, 
 as well as the producers of coal and steel, think of railroads not 
 as a distinct field of investment and of employment but as an 
 agency necessary to their own success. Every business meas- 
 ures its own prosperity in terms of market and price. Trans- 
 portation is in many industries the vital factor in measuring 
 the range of markets. Freight rates go far to determine the 
 habits of whole communities as regards the things that they 
 eat, the houses that they build, the fuel that they consume, and 
 the particular forms of employment that they find profitable. 
 
 Considerable changes in transportation rates, when such 
 changes come suddenly, are likely to disturb complicated move- 
 ments to such an extent as to create emergencies in some lines 
 of business and to produce sharp and painful crises in others. 
 At such times, the demand for remedies often creates confusion 
 of thought, so that slow and far-reaching policies are suggested 
 
 [97] 
 
98 
 
 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 as cures for transient evils. It happened, as has already been 
 explained by a distinguished speaker, that a greatly delayed 
 advance in freight rates to meet the needs of the railroads took 
 effect at the very time when agricultural prices were rapidly 
 falling by reason of the curtailment of European markets. To 
 advocate a ship canal to connect our Great Lake systern with 
 Europe by way of the St. Lawrence, as a remedy for this 
 particular crisis, would be something like proposing the inven- 
 tion and adoption of new methods of fire prevention at the 
 moment of an actual conflagration. 
 
 If one is considering the relation of railroads to business 
 prosperity in the more permanent sense, it becomes important 
 to remember that the railroad systems of the past and of the 
 present are merely a concrete expression of the phases of our 
 economic development as we have spread across the country 
 from Atlantic to Pacific. The early railroads followed the 
 lines of pioneering progress, while the later railroads pushed 
 ahead in order to aid more rapidly in the settling of the great 
 West. Nearly all of the problems affecting American railroads 
 are best understood by studying them in close relation to the 
 facts of our economic history, as we have taken vast expanses 
 of new country, opening up agricultural and mineral resources, 
 and creating communities occupied by many millions of settlers. 
 
 The transportation methods and conditions of the future are 
 also, like those of the past, to be vitally related to changing 
 conditions in the nation's development as a whole. There will 
 always be long-haul business for the railroads in ample volume ; 
 but there will be a relatively increasing intensity of short-haul 
 traffic movement if the country is to continue to expand in a 
 normal and healthy way. Vast surpluses of agricultural pro- 
 duction in the Mississippi Valley and the farther West, in the 
 nature of things, are a temporary phase. Obviously the agri- 
 cultural development of these regions was destined to come 
 first. But the growth of towns and cities, and the transplan- 
 tation of varied industries, were sure to follow. 
 
 To an increasing extent the bread-stuffs, the beef and poric 
 and the fruits of the central and western States will be con- 
 sumed by populations within their own boundaries. Europe 
 is not destined to live upon the wheat of the United States, nor 
 even upon that of Canada. It is far more important for the 
 
 [98] 
 
NO..V ffOW RAILROADS ADAPT THEMSELVES 99 
 
 interior of the country to develop its own transportation sys- 
 tems and expand its own varied economic life than to advocate 
 large expenditures which would look to future markets beyond 
 the Atlantic. 
 
 The group system as proposed in the new Transportation 
 Act would seem to be in accord with the normal tendencies of 
 the country. We shall continue to have a very large traffic 
 that is national in its scope. New England will make articles 
 that will be sold in every State. The citrous fruits of Florida 
 and California will find consumers everywhere. Natural cen- 
 ters for the production of iron and steel, like Pittsburgh or 
 Birmingham, will hold preeminence and will find markets be- 
 yond their own districts. But the tendency will be towards 
 intensive regional development. The agriculture of the East, 
 which has been abnormally depressed and neglected, will be 
 revived under conditions of a more normal and permanent 
 character. Not more than twenty-five per cent of the fruit- 
 growing capacity of the Eastern States is now utilized. 
 
 Obviously it is highly important that there should be im- 
 mediate study of freight rates with a view to adjustments for 
 the lightening of specific burdens. But our recent experiences, 
 which have brought distress to wide regions and heavy loss 
 to particular industries, will have been attended by some in- 
 direct advantages. Localities will see the greater relative 
 value of home markets, and will endeavor to import industries 
 rather than to export commodities. 
 
 It was natural enough that in the earlier period the emphasis 
 should have been placed upon the long-haul. The story of 
 the transcontinental lines, of the eastern trunk lines, of the 
 granger lines, all has to do with the eastward movement of 
 surplus agricultural products and the westward movement of 
 various commodities and supplies. A marked trend toward 
 equalization of average conditions, as our Western States be- 
 came mature, was gradually producing changes of a normal 
 and healthy sort when the great European war reversed all 
 tendencies and created a market condition unknown before in 
 the history of the world. Along with the movement of men 
 and war material to the eastern seaboard, there arose an un- , 
 precedented European demand for food and commodities of 
 all kinds. Price-fixing by Government, and prompt payments 
 
 [99] JUN «"' 
 
:[00 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 through the United States Treasury, made European markets 
 seem the most desirable of all things to Western producers. 
 It has not been easy to accept the fact that this war-time phase 
 was wholly abnormal, that it will never return, and that pros- 
 perity must be found at home or nowhere. 
 
 One of the greatest benefits that could come to our trans- 
 portation interests themselves would lie in the purchase of 
 railway securities by Western and Southern investors, in order 
 that the definite and conscious control of their own major 
 agencies of travel and traffic movement might become localized. 
 Our program this afternoon is designed to bring the question of 
 freight rates and their relation to general prosperity before 
 us from the standpoint of several practical and theoretical stu- 
 dents of these subjects, who are recognized as authorities in 
 their respective fields. 
 
 [lOO] 
 
THE TRANSPORTATION COST IN A BASIC 
 INDUSTRY— STEEL PRODUCTS 
 
 CHARLES R. HOOK 
 
 Vice-President and General Manager, American Rolling Mill 
 Company, Middletown, O. 
 
 IN talking on the subject " Transportation Costs in Steel 
 Products ", I do not presume to speak for the Steel 
 Industry. However, the figures which I shall present, 
 although applicable to plants making high-finished sheet steel, 
 are, I believe, indicative of what is true with respect to all 
 other steel products. 
 
 In arriving at the quantity of iron ore, coke and limestone 
 used in the production of one ton of pig iron we have used as 
 a basis the amounts shown by the Southern Ohio pig-iron 
 manufacturers in the ore case before the Interstate Commerce 
 Commission. 
 
 To make one ton of pig iron, the following quantities of raw 
 material are required: 
 
 Iron ore 2 gross tons 
 
 Coke 1.10 net tons 
 
 Limestone 50 net tons 
 
 The quantity of pig iron used in the production of one net 
 ton of finished sheets is taken from our own detailed cost sheets. 
 
 If you will refer to the chart you will observe that we have 
 presented figures showing the accumulated freight in the five 
 principal raw materials in a net ton of finished steel sheets 
 delivered at St. Louis. The city of St. Louis is used only be- 
 cause it is a natural market for a plant in our locality. 
 
 This freight today is $24.07, in 1914 it was $11.84, showing 
 an increase of $12.23 today over the period at the beginning 
 of the World War. 
 
 If we deduct the freight from Middletown to St. Louis, 
 which is $6.80, we have $17,271 as the .amount of accumulated 
 freight in these items at Middletown. 
 
 Sheets which are being delivered on orders taken prior to 
 
 [lOl] 
 
I02 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 this month were sold at $60.00 per net ton ; in other words, this 
 item of $17,271, representing the accumulative freight in only 
 the six items enumerated, is equal to 28.8% of the sales price. 
 
 
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 By reference to page 24 of the Twentieth Annual Report of 
 the United States Steel Corporation, just issued, we find this 
 statement : 
 
 [102] 
 
No. I] TRANSPORTATION COST IN A BASIC INDUSTRY 103 
 
 A number of elements in the cost of producing steel show little if 
 any recession from war-time figures, notably that of railroad trans- 
 portation, which on basis of existing rate conditions averages in the 
 case of the subsidiary companies upwards of forty per cent of the 
 total cost of producing steel. 
 
 If we were to add to the figures we have shown on the chart 
 the freight on all the other materials and supplies used to 
 produce a ton of sheet steel, you can readily see that the state- 
 ment just quoted is certainly conservative as to the facts. 
 
 In announcing new and lower prices for steel products, going 
 into effect on July 5, 1921, President Grace, of Bethlehem 
 Steel, said : 
 
 The increase in freight rates has been the largest factor in increas- 
 ing the cost of manufacturing steel products because the making of a 
 ton of finished steel involves the transportation of more than five 
 tons of raw materials. The cost factors next in importance are 
 materials and labor. 
 
 Taking as an example the price for structural shapes, under the 
 new schedule of prices, 2 cents a pound or $44.80 a gross ton, the 
 comparison with pre-war prices, reflecting concretely the three more 
 important cost factors, is as follows: 
 
 The increase over pre-war cost in transportation on ore, coal, lime- 
 stone, scrap and miscellaneous supplies amounts to $7.85 per ton of 
 finished steel. 
 
 The accumulated freight in sheet bars would I believe com- 
 pare very favorably with the freight in structural shapes, yet 
 sheet bars represent only the beginning of operations in the 
 production of finished sheets, so by a little use of the imagina- 
 tion you can readily see what the total transportation cost in a 
 ton of sheet steel would be, if all the materials used in all the 
 operations were included in our figures. 
 
 It may interest you to know for instance, that in 1920 we 
 used: 
 
 5555 Net tons spelter 
 11335 Net tons sulphuric acid 
 26173 Net tons fire brick of all kinds. 
 
 As an illustration of the conditions existing in 1914 as com- 
 pared with today I should like to present the facts with refer- 
 ence to our coal supply. 
 
 In 1914 the average price of all the coal we bought was 93c 
 per ton at the mine; the freight was $1.15, making a total cost 
 of $2.08 per ton f. o. b. Middletown. 
 
 [103] 
 
I04 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 The freight alone today is $2.24, or 16c more than the freight 
 plus the cost of the coal in 1914. 
 
 It is our opinion that transportation costs must be liquidated 
 to somewhere near the same percentage above the base of 1914 
 as is true with respect to steel prices. To secure liquidation 
 of transportation charges, comparable with that which has 
 already taken place in the steel industry, will require a reduc- 
 tion of approximately 28^/2% in present rates. 
 
 I think I am safe in saying that the steel industry as a whole 
 wants not higher prices but lower costs in order that its surplus 
 production can be sold in the markets of the world in com- 
 petition with our fellow-manufacturers across the water. 
 
 I am not unmindful of the part railroad wages are playing 
 in the cost of transportation and I submit to you that it is not 
 reasonable to ask the steel worker, who is receiving a wage 
 fifty per cent above base, to buy transportation cost in every- 
 thing he wears and eats when that cost is so largely affected 
 by railroad wages one hundred per cent above base. 
 
 Until the restoration of approximately the same relation- 
 ship which existed between transportation, fuel, the various 
 basic commodities and wages during the pre-war period is 
 effected, a normal exchange of commodities cannot take place 
 and any attempt to maintain one of the factors of cost at a 
 high level in the face of radical declines in the other factors, 
 is contrary to economic law and its depressing effect is 
 cumulative. 
 
 [104] 
 
HOW THE RAILROADS MAY RENDER MAXIMUM 
 
 SERVICE 
 
 WILLIAM J. CUNNINGHAM 
 Professor of Transportation, Harvard University 
 
 IN this attempt to suggest a partial answer to the question 
 assigned to me for discussion, I have adopted the view- 
 point of the near future, assuming that the much-desired 
 business revival is not far distant. Under present conditions 
 of subnormal traffic there is no serious question concerning the 
 ability of the railroads to meet the immediate transportation 
 needs, although the standard of service as a whole is lower than 
 that which should obtain in normal times and the scale of 
 freight rates, dislocated as it is by two substantial war-time 
 horizontal increases, is inequitable in many respects and de- 
 mands early revision. We are, however, not so much con- 
 cerned with the immediate present as with the near future when 
 the transportation demands will be much greater and when the 
 capacity of the railroads will perhaps be overtaxed. 
 
 It is hardly necessary here to dwell upon the fact that rail- 
 road development has been virtually at a standstill since the 
 beginning of the World War. The normal rate of enlarge- 
 ment and improvement in facilities and equipment had been 
 seriously retarded prior to the war when the steady decline in 
 the rate of return on investment prevented the usual income 
 appropriations for betterments and increased the difficulties 
 connected with raising new capital on reasonable terms. It 
 will be recalled that the peak-load of receiverships came in 
 
 1915 when about one-sixth of the entire railroad mileage of 
 the country was in the hands of the courts. The additional 
 operating revenues from the large volume of war traffic in 
 
 1916 averted the threatened general financial collapse, and 
 the government rentals and guarantees from January 1, 1918, 
 to September 1, 1920, enabled the railroad companies to 
 maintain solvency. Yet, while general bankruptcy was 
 avoided, the program of extension, enlargement and improve- 
 ment was necessarily limited to emergency needs, and when 
 
 [105] 
 
Io6 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 the railroads were again entirely on their own resources from 
 September 1, 1920, the arrearage in deferred but necessary 
 investments in betterments was substantial. Little could be 
 done during the last half of 1920, when the volume of traffic 
 exceeded all previous records, and such plans as were then 
 made for execution in 1921 were necessarily abandoned in 
 greater part in 1921 because of the acute business depression 
 and the serious losses in revenues. Notwithstanding the sub- 
 stantial rate increases of 1920 the net railway operating in- 
 come of 1921 was but little more than one-half of the statutory 
 rate of six per cent contemplated by the Transportation Act 
 as a reasonable return on property value. 
 
 Various estimates have been made as to the sum necessary 
 to make up the deferred improvements. It is probably close 
 to the mark to set the amount at $1,000,000,000 per year for five 
 or six years. To this should be added a large sum for deferred 
 maintenance chargeable entirely to operating expenses. This 
 need for large capital expenditures was referred to by Mr. 
 Willard this noon who stated that it would be approximately 
 half a billion dollars a year. Mr. Hines thought it might be as 
 much as one billion. It may be recalled that ten or twelve years 
 ago, the late James J. Hill stated that the railroads needed a 
 billion dollars a year for five years for terminal enlargements. 
 My own view is that the larger figure is that which is justifiable, 
 and that the railroads will need during the next four or five 
 years to spend one billion dollars per year for additions and 
 betterments. One billion dollars a year, related to twenty 
 billion dollars property investment, is an increase of only five 
 per cent a year, so that while the sum itself sounds large, it is 
 not so large relatively. 
 
 Considering the fact that the normal growth in ton-miles 
 over a long series of years has been an increase of one hundred 
 per cent every twelve years, and that passenger miles normally 
 double in approximately fifteen years, it is plainly evident that 
 a consistent and continuous program for increasing traffic capa- 
 city is imperative. Having in mind also the further fact that 
 relatively little has been done to increase traffic capacity during 
 the past decade, the seriousness of the situation is obvious. It 
 is probably true that the traffic of the fall of 1920 was the 
 greatest load that the existing facilities could stand. Since 
 
 [io6] 
 
No. I] RAILROADS RENDER MAXIMUM SERVICE xo; 
 
 then there have been practically no increases in capacity. In- 
 deed the situation with respect to maintenance, particularly as 
 to freight and passenger car equipment, may be less favorable. 
 
 If these premises are correct, and I believe that they are, 
 the railroads will have difficulty in rendering satisfactory 
 service when the business revival brings with it a volume of 
 traffic as great or greater than that of two years ago. There 
 is imperative need, therefore, for the expenditure of large sums 
 for additions and betterments. The railroads cannot furnish 
 the maximum of service without such expenditures. The 
 problem then is largely one of finance. 
 
 With the passage of the Transportation Act and its con- 
 structive rule of rate-making, as well as its recognition of the 
 principle that carriers are entitled to a fair rate of return on 
 property value, and with the rate increase authorized in 1920 
 by the Interstate Commerce Commission for the purpose of 
 producing a net return of six per cent, it was hoped that sub- 
 stantial progress had been made toward the solution of the 
 financial problem. All calculations, however, were upset by 
 the business depression. Yet it is not proper to interpret the 
 disappointing results of 1921 as an indication that the Trans- 
 portation Act has failed. Its real test must await a return to 
 normal business conditions. My own opinion is that its in- 
 herent soundness will then be demonstrated. 
 
 I shall digress, if I may, to show how the law of diminish- 
 ing returns can easily explain why the railroads under the high 
 freight rates of 1920 were able to earn only one-half of the 
 rate of return contemplated by the Transportation Act. It will 
 be recalled that the increases authorized by the Interstate 
 Commerce Commission were based largely upon estimates made 
 by the railroads, checked and accepted by the Commission. In 
 arriving at those estimates, the amount of the increase was 
 determined by going to the bottom of the income account, and 
 working upward, that is, determining what six per cent on the 
 property value would require, estimating taxes and other items, 
 estimating operating expenses, seeing what the gross operating 
 revenues should be, then finding out how much freight and 
 passenger rates should be increased to bring that gross revenue. 
 
 The Interstate Commerce Commission then attempted to set 
 rates so as to bring that estimated amount of operating revenue 
 
 [107] 
 
I08 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 which would yield the six per cent contemplated by the Act. 
 It so happened, however, that the volume of traffic upon which 
 the calculation was based was overestimated and some of the 
 expenses were underestimated. 
 
 Let us assume that that gross revenue is one hundred and 
 that the operating expenses are seventy, leaving the net oper- 
 ating revenue as thirty. Taxes and charges might be as- 
 sumed as five and fifteen, respectively, leaving twenty of taxes 
 and charges to come out of the thirty net operating revenue. 
 That would leave ten as a surplus for the payment of dividends 
 or appropriations. 
 
 Instead of getting one hundred units of revenue, the rail- 
 roads got less than eighty. For easy figuring, let us assume 
 that they got eighty. That would be a twenty-per-cent de- 
 crease. Expenses could not be reduced twenty per cent with 
 the loss of traffic, because, roughly speaking, only one-half of 
 the expenses will fluctuate with fluctuations in traffic in that 
 degree. If we take that as a basis, one-half of the twenty, 
 or ten per cent, would aff'ect the expenses, bringing the expenses 
 from seventy to sixty-three. The sixty-three expenses, then, 
 would be taken from eighty operating revenues, leaving seven- 
 teen net, instead of thirty. From that seventeen, it would be 
 necessary to deduct twenty for taxes and charges, leaving a 
 deficit of three units instead of a surplus of ten. That is a very 
 simple arithmetical demonstration of the profound eff'ect of a 
 loss in traffic because expenses cannot be trimmed to meet the 
 loss in revenue to the same degree in which that loss in revenue 
 occurred, and besides, taxes and other expenses are constant. 
 
 That will explain, in greater part, the disappointing results 
 of 1921. It is not an indication of failure of the Trans- 
 portation Act. It is merely the working of economic laws. 
 
 In the meantime how are the railroads to render maximum 
 service? It seems to me that the answer is: 
 
 (1) By improvement in management; 
 
 (2) By better relations with labor; and 
 
 (3) By patience and tolerance on the part of the public. 
 
 Without intelligent management, loyal service from em- 
 ployees, and the support of public confidence, satisfactory and 
 economical service is impossible. In whatever degree an im- 
 
 [108] 
 
No. I] RAILROADS RENDER MAXIMUM SERVICE 
 
 109 
 
 provement is brought about in any one or in all of the three 
 fields, in that degree will progress be made toward the attain- 
 ment of the objective named in the subject of this paper. 
 
 Public regulation of railroads may have been carried to 
 extremes and in certain particulars such regulation has worked 
 against the best interests of both the public and the railroad 
 owners, yet such criticism as may fairly be directed against 
 regulation applies to policies followed prior to 1920. The 
 Transportation Act of that year marked a new era in which 
 the regulating authorities are charged with new responsibility 
 for the powers which they may wield. Prior to 1920 the spirit 
 of regulation was mainly corrective and punitive. The new 
 law, while continuing the powers of correction and punishment, 
 also recognizes the fact that the prosperity of railroads is es- 
 sential to satisfactory public service and it directs the regulating 
 bodies to exercise their authority so that consideration shall be 
 given, among other things, to the transportation needs of the 
 country and the necessity of enlarging transportation facilities 
 " in order to provide the people of the United States with ade- 
 quate transportation." 
 
 In return for this public recognition of responsibility and 
 partnership in adequate net earning power, railroad managers 
 should whole-heartedly accept all of the obligations which the 
 Act imposes upon them. In the first place there is the obliga- 
 tion to operate the properties honestly, efficiently and economi- 
 cally. In the second place there is the obligation to recognize 
 the fact that the principle of railroad consolidation is a vital 
 part of the new rate-making rule. A selfish attitude on the 
 part of individual roads in opposing progress toward the eli- 
 mination of the troublesome factor of the weak road, should not 
 be allowed to wreck the most important feature of the new law. 
 I am sorry here to disagree somewhat with Mr. Willard, who, 
 while believing in the principle of consolidation, regards it as 
 not vitally important. It seems to me that it is a vital part 
 of the successful working of the rate-making rule, inasmuch 
 as it is only by consolidation that the so-called weak roads can 
 be strengthened, by being absorbed by the stronger roads. 
 In the third place, there should be a more receptive attitude 
 toward really constructive measures which look toward uni- 
 fication of facilities and pooling of freight equipment. All 
 
 [109] 
 
no 
 
 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 such proposals have their defects, some of them serious, but 
 when a plan such as that of common ownership and control of 
 freight cars is so obviously advantageous in principle, an effort 
 should be made to make it workable, rather than to block 
 progress by condemning the whole because of a defect in a part 
 
 The railroads as a whole quite properly protest against the 
 efforts of those who support the Capper Bill which would eli- 
 minate the rate-making provision of the Transportation Act, 
 yet a few of the railroads will just as surely destroy the effec- 
 tiveness of the law by attacking the principle of recapture of 
 excess earnings, or by appealing to the courts to overthrow 
 the decision of the Interstate Commerce Commission in a recent 
 important case affecting the division of revenues on joint traffic. 
 The best interests of the railroads as well as those of the public 
 will be served by a whole-hearted acceptance of every part 
 of the Transportation Act to the end that it may have a fair 
 trial under normal conditions. 
 
 Finally, the railroads as a whole should agree upon and make 
 effective a fair and enlightened policy toward labor, recog- 
 nizing the joint partnership in an ungrudging spirit and with- 
 out antagonism against unions as such. The Transportation 
 Act provides the necessary machinery for the restoration of 
 amicable relations. The responsibility for the failure to get 
 together on important principles cannot be charged entirely 
 to management but it must assume a share. The fear on the 
 part of the unions that some railroads are attempting to use 
 the present opportunity to disrupt their organizations has a 
 very disturbing influence. Economical operation and maxi- 
 mum transportation capacity are impossible while labor rela- 
 tions are strained beyond the legitimate and natural degree 
 of difference in the respective viewpoints of employer and 
 employed. 
 
 But the remedy is not wholly in the hands of management 
 The public has a right to demand that employees shall recog- 
 nize the relation between loyal and efficient service and econom- 
 ical and satisfactory transportation. Misled by their leaders, 
 an increasingly large proportion of employees believe that 
 railroad management as a whole is corrupt, and their resist- 
 ance to the inevitable deflation in war-time wage rates and 
 restrictive rules is carried to an extreme which, while aimed 
 
 [no] 
 
No. I] RAILROADS RENDER MAXIMUM SERVICE m 
 
 at management, disregards public interests in the restoration 
 of normal conditions. Just as railroad managers as a whole 
 must recognize their obligations as the operating heads of 
 public utilities, so must the labor leaders and the union mem- 
 bership be brought to a realization of the fact that they too 
 are amenable to the bar of public opinion. The obligation of 
 the railroad managers to pay fair wages is no greater than that 
 of the employees to work efficiently. 
 
 Finally we come to the obligations of the general public. 
 When Congress, in 1919, considered the many plans for the 
 solution of the railroad problem, it responded to an over- 
 whelming public sentiment by rejecting all proposals looking 
 toward government ownership or operation in any form. Pub- 
 lic opinion was unmistakably in favor of a return to the initia- 
 tive and competition of private ownership and management. 
 The passage of the Transportation Act appeared to wipe the 
 slate clean of public resentment and antagonism because of past 
 abuses and mismanagement, and the railroads were returned to 
 their owners with an encouraging degree of public confidence. 
 
 Principally because of the disturbing effects of the business 
 depression and the burden of war-inflated freight rates, a large 
 part of the public confidence in railroads has changed into an 
 attitude of criticism and distrust. Much of the criticism is 
 the result of misunderstanding. It is commonly believed that 
 the railroads are working under a guarantee from the govern- 
 ment and that they are not accepting their fair share of the 
 pains of post-war deflation. The eff'ect of freight rates upon 
 the cost of living and upon the marketing of commodities has 
 been unfairly magnified, and the atmosphere is befogged by 
 professional propagandists with a mixture of sophistry, half- 
 truth and misstatement. 
 
 If we are to find a way out of the dilemma short of gov- 
 ernment ownership it can only be by the exercise of patience 
 and tolerance on the part of the public. They must give the 
 railroads time to adjust their costs to changed conditions and 
 to put their house in order for the hoped-for better times and 
 bigger traffic. The public must exercise moderation and tem- 
 perance in their demands for rate reductions. Just now each 
 group of shippers is insisting that the rates in which it is 
 interested must come down at once without regard to the effect 
 
 [III] 
 
112 
 
 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 upon railroad net income and service. Notwithstanding the 
 fact that the present rate scale is yielding only slightly more 
 than three per cent on property value, certain interests are 
 intent upon cutting the heart out of the Transportation Act 
 by repealing its rate-making clause, and upsetting the equili- 
 brium by curtailing the power of the Interstate Commerce 
 Commission over state rates. 
 
 Unless the public will refrain from encouraging Congress 
 to tinker with the existing laws, and from bringing political 
 pressure to bear upon the Interstate Commerce Commission to 
 make wholesale downward rate adjustments while the rail- 
 roads are barely able to pay taxes and charges, there can be 
 little progress made in putting the transportation machine in 
 order for the heavy traffic load which will probably soon be 
 in sight. 
 
 Patience and tolerance, and a reasonable degree of con- 
 fidence in the integrity of railroad management, will serve 
 the real and long-time interests of the public much better than 
 impatience, intolerance and distrust. Adequate service and a 
 factor of safety in traffic-carrying capacity are more important 
 than low rates. An insistence upon rates which are unre- 
 munerative will work against the rehabilitation of the railroad 
 properties, prevent the making-up of deferred maintenance and 
 effectually block the flow of income and new capital into 
 imperatively needed and long-delayed improvements and 
 enlargements. 
 
 [112] 
 
WHAT RAILROADS ARE DOING TO INCREASE 
 ECONOMY AND EFFICIENCY OF OPERATION 
 
 R. H. AISHTON 
 
 President, American Railway Association, Chicago; Former Regional 
 Director, Northwestern Region, U. S. Railroad Administration 
 
 I HAVE been assigned twenty minutes in which to deal 
 with a rather large subject. How large it is, I doubt 
 whether many people realize. For example, in the year 
 1921 the Class 1 railroads performed the following service. 
 
 They moved 306 r'n billion tons revenue freight one mile 
 
 _ 37J^ billion passengers one mile 
 
 To do this 
 
 They created I^V billion train miles 
 
 They earned syi billion dollars 
 
 They paid operating 
 
 expense 4K billion dollars 
 
 There was paid 
 in wages SjV billion dollars, the decrease over pre- 
 
 vious year being due to depressed business, 
 deferred maintenance and consequent large 
 reduction in number of employees. 
 
 That is all I shall say regarding billions or millions. It is 
 hard for me to comprehend what a million is, to say nothing 
 of a billion. Let us get down to something we can all under- 
 stand without undue mental strain. I have been allotted twenty 
 minutes. I started talking at 5 :00, I will finish and sit down 
 at 5 :20, and during that twenty minutes this will have hap- 
 pened on the railroads. During the twenty minutes that I 
 am talking the energy developed by the railroads is equivalent 
 to moving a train consisting of a locomotive with ten freight 
 cars carrying 311 tons of revenue-paying freight, with two more 
 freight cars containing 38 tons of Company freight that doesn't 
 produce revenue, with two passenger cars containing 38 paying 
 passengers together with the employees necessary to operate 
 the train, with the necessary postal, baggage and express car. 
 and a little old red caboose, a total of 17 cars, a distance of 
 37,500 miles, or once and one-half times around the earth at 
 its greatest circumference. What do they get for performlnif 
 thht service? The year 1914 is taken for comparison because 
 
 tiiSl 
 
IJ4 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 it was a year of depression and because it marked the start of 
 the European war, the beginning of all our troubles : 
 
 In 1914 every 20 minutes the gross earnings were $iiS.347 
 
 In 1021 every 20 minutes the gross earnings were .... . . • 209,074 
 
 Increase— ^2% 
 
 In 1914 every 20 minutes the operating expenses were... $83,844 
 In 1021 every 20 minutes the operating expenses were... 173.0S2 
 
 Increase— 107% 
 
 In 1914 the pay roll for 20 minutes $50,888 
 
 In 1921 the pay roll for 20 minutes • • 100,379 
 
 Increase — 107% 
 
 The above figures indicate what the matter is. In addition, 
 the following facts should be considered. 
 
 In 1914 every 20 minutes there was paid in taxes '. . ^5ii59 
 
 In 1921 every 20 minutes there was paid in taxes 10,526 
 
 Increase — 104% 
 
 In 1914 every 20 minutes the net Railway operating in- 
 come, which is the amount left after payment of ex- 
 penses and taxes, was $25,153 
 
 In 1920 it practically disappeared, being only • . ; - ; ; • 822 
 
 In 1921, however, with an increase of 3,091 millions in 
 investment over 1914, the net operating income every 
 20 minutes was 22,755 
 
 In other words, whereas the book value increased l&% 
 between 1914 and 1921, the net railway operating in- 
 come earned on the investment thus increased actually 
 decreased 9ib%. 
 
 What are the Railroads doing to bring about economy and 
 efficiency ? 
 
 In 1921, although the times were depressed, as was the case 
 in 1914.— 
 
 They handled 7.7% more revenue ton-miles than they did 
 in 1914. 
 
 They handled 8.0% more passenger-miles. 
 
 They did it, however, with 10.6% less train-miles, and the 
 train-mile is what creates expense. There must have been 
 ecorK)my and efficiency manifested there, surely. 
 
 In 1920, with a large business, as compared with 1914, with 
 a light business : — 
 
 There was an increase of 44% in revenue freight-ton-miles, 
 and about 36% in revenue passenger-miles, and yet this was 
 accomplished with the same train -miles, practically, as in 1914 
 
 C114]' 
 
No. I] ECONOMY AND EFFICIENCY OF OPERATION 
 
 "5 
 
 As a matter of fact, it was 300 miles less every twenty minutes 
 than in the 1914 period. Truly a notable record. 
 
 There isn't a railroad but what has been and is making 
 the strongest individual efforts, through its own organization 
 of experts, to develop new methods of efficiency and economy. 
 I doubt if there is any industry in the country that has any 
 more complete check on the minutest details of its operations, 
 or that has competitive initiative developed to a higher degree, 
 than the transportation companies. 
 
 The field for economy in the future lies largely, in my 
 opinion, in two main directions : 
 
 (i) Heavier car loading. 
 
 One ton more per car load is equivalent to adding 8o,ooo 
 cars to the supply. 
 
 (2) More mileage per car per day. 
 
 One mile additional is equivalent to adding zoo,ooo cars 
 to the supply. 
 
 These two things the railroads and shippers are vitally inter- 
 ested in and they are working cooperatively towards the ulti- 
 mate g^al. Besides this there are, of course, the large intensive 
 developments requiring large capital expenditures that will 
 produce economies. When the time arrives when such ex- 
 penditures can with safety be made with a hope of reasonable 
 return, as great progress will be possible in the future as has 
 taken place in the past. 
 
 The time limit has now expired. It is 5 :20. Our train has 
 completed its twenty-minute journey once and one-half times 
 around the world ; but while this talk stops the train must still 
 keep going day and night through storm and sunshine, through 
 business depression and great activity, without a hitch but with 
 constantly increasing speed and cargo, if this nation of ours 
 is to continue to expand. 
 
THE TRANSPORTATION FACTOR IN THE PRICE 
 
 OF COAL 
 
 J. D. A. MORROW 
 Vice-President, National Coal Association, Washington, D. C. 
 
 SPEAKING as I do as Vice-President of the National 
 Coal Association, which is an organization of bitumin- 
 ous coal producers, what I have to say on the subject 
 of the transportation factor in the price of coal refers particu- 
 larly to bituminous coal and not to anthracite. 
 
 When the ordinary consumer pays his coal bill he thinks 
 he has paid for coal. As a matter of fact what he has chiefly 
 bought and paid for is transportation service from the coal 
 seam to his furnace room. The discussion of this factor in 
 the cost of coal usually centers about railroad transportation, 
 but in order that you may appreciate more fully the part 
 which the railroad plays in the whole problem of transporta- 
 tion of coal, I want to speak very briefly about some of the 
 transportation problems involved in volume production of coal. 
 
 Transportation of bituminous coal from the mine to the 
 consumer begins at the face of the coal seam underground, 
 often two or three or four miles from the tipple where the 
 product is dumped into railway cars. Various methods are 
 used in that underground transportation, ranging all the way 
 from primitive haulage by mule or horse in very small mines 
 to splendid motor haulage over miniature electric railway sys- 
 tems in the larger modern mines. If the mine is a drift mine, 
 that is if it goes directly into the hillside, the trains or " trips " 
 of inine wagons are hauled out and dumped directly into rail- 
 way cars. If it is a shaft mine, the wagons are brought to the 
 foot of the shaft, uncoupled, lifted to the surface, and then 
 dumped into railroad cars. Sometimes the mine wagons are 
 dumped at the shaft bottom into skips which bring the coal 
 to the surface. 
 
 The cost of transporting coal underground upon the mine 
 haulage varies, of course, with many different local conditions, 
 such as the type of haulage used, the grades in the mines, the 
 
 [ii6] 
 
No. I] TRANSPORTATION FACTOR IN THE PRICE OF COAL nj 
 
 length of haul, the extent to which falls of the roof have to 
 be cleaned up, the extent to which bottom conditions necessi- 
 tate repairs to track and increase the track maintenance cost, 
 and similar factors. The range of mine haulage cost is gener- 
 ally between 20 cents and 35 cents per ton, on the basis of 
 present wage scales, out of a total average production cost for 
 1921 of $2.94 per net ton. There are extremes, of course, 
 above and below those figures, but they represent the general 
 range of transportation costs at the mine at present. Approxi- 
 mately 80% of this haulage cost is direct labor cost in the 
 operation of the mine transportation system. The other 20% 
 is made up of cost of supplies, repair parts and power, and of 
 depreciation on the haulage system. 
 
 It must be remembered that these railway systems are 
 «iuipped with expensive electric or storage batteries, or with 
 compressed air locomotives, and that many of the mines have 
 a large number of cars underground. They are equipped 
 with heavy steel rails. The operators have the problem of 
 maintenance of track under the adverse conditions common to 
 coal mines, with constant falls of slate and rock from the roof, 
 with other difficulties with roof and bottom, with a certain 
 amount of corrosion from mine water and so on. The main- 
 tenance of way underground is much more difficult than the 
 maintenance of a railway system on top of the ground. All of 
 these factors enter into that cost of underground transporta- 
 tion. Moreover, the mine transportation system is not used 
 twenty-four hours in the day, as is an outdoor railroad system. 
 
 The second element in the transportation cost of bituminous 
 coal is the railway freight rate. Railway freight rates on 
 bituminous coal at present are approximately 93% higher than 
 in 1913. They range from 90 cents per ton on short hauls to 
 $7.25 per ton on such movements as that from the mines of 
 Utah and Colorado to the Pacific Coast. According to George 
 M. Shriver, Vice-President of the Baltimore & Ohio Railroad, 
 the present average railroad transportation charge on all 
 revenue bituminous coal is $2.27 per ton. Not all of the out- 
 put of bituminous coal bears this transportation charge. Of 
 the total normal production approximately 11% is used at the 
 mines and 89% is shipped away. This 11% is made up as 
 follows : About 3.7% is sold locally to consumers in the vicinity 
 
 t"7] 
 
Il8 RAILROADS AND BUSINESS PROSPERITY [Vou X 
 
 of the mines; 2% is consumed by the mines themselves for 
 power and fuel purposes; and 5.3% is made into coke at the 
 mines. The 89% which is shipped away from the mines moves 
 as follows: 2% by water, chiefly on the Monongahela, 
 Kanawha, Ohio and Mississippi Rivers; and 87% by rail. 
 One-fifth of this 87% is non-revenue railroad fuel coal. This 
 coal is used on the lines of the originating carriers and while 
 it bears a transportation cost, no charge is made by the carrier 
 for the movement of its own fuel supply. This leaves approxi- 
 mately 69.5% of the normal output of bituminous coal as 
 revenue freight, which moves at an average transportation 
 charge of $2.27 per ton. On this coal the total railroad freight 
 charge is something over $780,000,0.00 annually at the present 
 freight rates. 
 
 It is of interest here to call attention to the further fact 
 that this 69.5% of bituminous coal which bears a definite rail- , 
 road transportation charge is made up of 9% distributed 
 through retail coal dealers to household and small industrial 
 consumers and 60.5% consumed by carload users of coeJ. The 
 latter consumers, such as railroads upon whose lines there are 
 no coal mines, electric light and power plants, street railways, 
 gas works, by-product coke plants, manufacturing establish- 
 ments of all kinds, exporters of coal and ship bunkering con- 
 cerns, pay the freight on that coal themselves; so that their 
 delivered price is made up of the f. o. b. mine price plus the 
 railroad freight on the coal. For the three months of Janu- 
 ary, February and March, 1922, the general market level of 
 bituminous coal prices for the United States as a whole aver- 
 aged between $2.05 and $2.33 per ton for run of mine coal. 
 By run of mine coal I mean the coal just as it comes to the 
 surface, without any further cleaning or preparation than what 
 it has received from the miners underground. Bituminous 
 coal is sold not only as run of mine but also in a number of 
 different sizes ranging from fine screenings to eight-inch 
 lu^ip. Just as the freight rates on bituminous coal varied 
 from 90c per ton to more than $7.00 per ton according to the 
 haul, so also the open market prices for bituminous coal during 
 the winter ranged from 75 cents per ton for screenings to $5.00: 
 per ton for the highest grade of especially prepared domestic 
 lump coal. 
 
 [n8] 
 
No. T] TRANSPORTATION FACTOR IN THE PRICE OF ^ COAL 1 19 
 
 Before passing on from the subject of railroad transportation 
 of coal I desire to call your attention to another significant 
 fact. Not only is it true, as I have already pointed out, that 
 the freight charge on coal makes up over one-half of the total 
 delivered cost of coal, but it is also true that the freight charge 
 on coal constitutes a much larger percentage of the total deliv- 
 ered cost than is the case with almost any other commodity, 
 and also that the increases in freight rates granted during and 
 since the war have borne with special hardship upon bitumin- 
 ous coal. These facts may be b^st shown by a few typical 
 illustrations taken from actual shipments before the begin- 
 ning of the strike. 
 
 Let us compare coal with another bulk basic commodity like 
 cement There is a considerable movement of cement from 
 Allentown, Pennsylvania, to Fairmont, West Virginia. Simi- 
 larly bituminous coal moves in the opposite direction from 
 Fairmont, West Virginia, to Allentown, Pennsylvania. In 
 1914 the freight rate on a carload of cement was $75.00, or 
 22.1% of the value of the shipment. The freight rate on a- 
 carload of coal was $87.75, or 58.5% of the value of the 
 shipment. See now how the increases in freight rates between 
 1914 and 1922 affected these figures. In January, 1922, the 
 freight rate on the cement had been advanced to $142. 5&, and 
 now constituted 41.9% of the value of the cement. Mean- 
 while the freight rate on the coal had been increased to $160.65, 
 or 107.1% of the mine cost of the coal. In other words, while 
 the actual increase in the rate on coal was only $5.40 more than 
 that in the rate on cement, that increase constituted 48.6% of 
 the value of the carload of coal and only 19.9% of the value 
 of the carload of cement. 
 
 It will be readily seen that if such a relation existed in the 
 case of cheap bulky commodities it would become still more 
 striking in the case of more valuable articles. Without un- 
 necessary details let me quote two other illustrations. Cotton 
 is shipped from Opelika, Alabama, to Birmingham, Alabama, 
 and there is a reverse movement of bituminous coal. In 1914 
 the freight rate on cotton was 1.4% of the value of the com- 
 modity, while that on coal was 50%. As a result of rate in-- 
 creases. the freight rate on cotton in January, 1922 was 3% 
 of the value of the shipment, while that on bituminous coal 
 
 [119] 
 
J20 RAILROADS AND SUSISESS PROSPERITY [Vol. X 
 
 was 95.2% of that value. In other words the increase 
 amounted to 1.6% of the value of the cotton, and 45.2% of the 
 value of the coal. 
 
 On the shipment of automobiles from Detroit to Athens, 
 Ohio, and of bituminous coal from Athens, Ohio, to Detroit, 
 we have the following corresponding figures. In 1914 for 
 automobiles the freight rate was 1.1% of the value of the ship- 
 ment, while on the coal the rate was 63.9% of that value ; in 
 January, 1922, for automobiles the percentage was 2.4% and 
 for bituminous coal 137.2%, showing an increase in the case 
 of automobiles amounting to 1.3% of the value of the ship- 
 ment, and in the case of bituminous coal to no less than 73.3% 
 of the value. These illustrations are sufficient to g^ve force 
 to the point often made, that the transportation charge on coal 
 is so high as to constitute a serious burden upon the consumer, 
 and furthermore that the method of increasing freight rates 
 in recent years has greatly augmented that burden. 
 
 While bituminous coal for household use constitutes be- 
 tween 11% and 12% of the total output, about 3% out of 
 this 12% is consumed in the vicinity of the mines and does 
 not move on railroad lines. On the remaining 9% freight is 
 paid from the mine to the retail dealer's yard. It then must 
 bear an additional transportation charge, namely, the trans- 
 portation cost of the retail delivery of the coal. Little definite 
 detailed information is available as to this particular item of 
 transportation cost. Inquiry among representative retail deal- 
 ers, however, indicates a range in transportation costs for the 
 delivery of domestic bituminous coal of from 70 cents per ton 
 to $1.75 per ton. The low delivery costs are obtained where 
 large lots are delivered regularly in 5 to 10 ton trucks. The 
 high costs are incurred in small irregular deliveries to house- 
 holders. The difference in the volume of deliveries may double 
 the cost of delivery in summer as compared with winter. It 
 should be clearly understood here that haulage cost is only 
 a part of the cost of retailing coal. Office and yard employees' 
 wages and salaries, insurance premiums, taxes, telephone and 
 telegraph charges, allowance for depreciation of plant and 
 equipment, and losses due to degradation and deterioration of 
 the coal handled, constitute a large part of the total cost of 
 retail coal distribution, just as many other items besides haul- 
 age go to make up the total cost of mining coal. 
 
 [120] 
 
No. I] TRANSPORTATION FACTOR JN THE PRICE OF COAL 121 
 
 What is the prospect for a reduction in some of these trans- 
 portation costs in the prices of bituminous coal ? 
 
 So far as the haulage cost in the mine is concerned, reduc- 
 tions in wage scales at the bituminous mines will, of course, 
 correspondingly reduce the haulage cost of the coal, and there 
 is a constant progressive improvement in mine haulage facili- 
 ties and methods which tend to lower costs. 
 
 With respect to railway transportation charges on bitumin- 
 ous coal, the Interstate Commerce Commission now ^ has under 
 consideration the evidence submitted in its general inquiry 
 into the present level of freight rates. As railroad operating 
 costs decline we may expect a decline in the railroad trans- 
 portation charges on coal. 
 
 With respect to the cost of delivery of bituminous coal by 
 retail dealers, so far as wages paid employees of retail coal con- 
 cerns may be reduced, a corresponding reduction in such retail 
 delivery costs may likewise be anticipated. Better methods of 
 distributing household coal may also gradually operate in the 
 same direction. 
 
 It is frequently suggested that a steadier movement of coal 
 from the mines to the user would materially lower the trans- 
 portation charge. This opinion is predicated on the assump- 
 tion that bituminous coal moves to market with great seasonal 
 irregularity. Examination of the facts, therefore, may be 
 enlightening as to the possible economies in the transportation 
 of coal which might be effected by an equalization of summer 
 and winter movement. 
 
 I have analyzed the production of bituminous coal as re- 
 ported by the United States Geological Survey month by 
 month for the last nine years, averaging the monthly produc- 
 tion for the six summer months, April to September, in com- 
 parison with the production for the six winter months, from 
 October to March. Such analysis shows that of the total out- 
 put of bituminous coal during these nine years, 48.9% was 
 produced and shipped from the mines in the six summer months 
 and 51.1% in the six winter months. Considered as a whole, 
 therefore, the bituminous coal industry is not at all a seasonal 
 
 1 April 28, 1922. The decision handed down by the Interstate Com- 
 merce Commission on May 16, 1922, reduced all freight rates, includ- 
 ing those on bituminous coal, approximately ten per cent, effective 
 July I, 1922. 
 
 [121] 
 
122 
 
 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 industry ; in fact, but few of the great industries of the United 
 States approach it in steadiness of operation. Whatever 
 economies might be expected from an equalization of summer 
 and winter movement would necessarily be confined to par- 
 ticular coal-mining districts where the movement of coal is 
 seasonal. 
 
 I realize that a general statement for the industry as a 
 whole, and a general average for the industry as a whole, is 
 somewhat like the average temperature of the patients in a 
 hospital. The average may be pretty nearly normal and yet 
 a particular patient may be seriously ill. 
 
 On the same principle, while the average seasonal variation 
 for the whole bituminous coal industry is low, there is seasonal 
 movement in some mining districts. This is notably true in 
 the western part of the United States, where the chief con- 
 sumption of bituminous coal is in the households and where the 
 requirements of railways and industrial establishments are 
 comparatively small. 
 
 At this point let me direct attention to the difference in 
 summer and winter consumption of some of our major indus- 
 tries. Studies by the United States Geological Survey indicate 
 that the railways of the United States consume only 10% or 
 15% more coal in winter than in summer. The great public 
 utilities, gas plants, electrical plants, street railway systems, 
 by-product coke plants and the steel industry show similar very 
 slight differences between summer and winter consumption of 
 coal. The cement-manufacturing industry consumes more coal 
 In the summer months than in winter. Throughout the great 
 Appalachian coal-mining fields, which produce some two- 
 thirds of our total annual output, the great bulk of the pro- 
 duction goes to these transportation and industrial users. The 
 slight decline in their summer demands upon the mines is 
 counterbalanced by the summer shipments up the Great Lakes 
 to the Northwest, and by rail and water both into Canada and 
 into New England for storage against the succeeding winter's 
 requirements. Thus, throughout all these great coal-producing 
 districts there is no important seasonal fluctuation in the pro- 
 duction and shipment of bituminous coal. 
 
 The studies of the United States Geological Survey already 
 mentioned show that the one striking difl^erence in amount be- 
 
 [123] 
 
No. I] TRANSPORTATION FACTOR IN THE PRICE OF COAL 123 
 
 tween the summer and the winter consumption of bituminous 
 coal is found in the consumption of households, the domestic 
 users. From a winter maximum of 10,000,000 tons per month, 
 their consumption drops in the summer to but little over 
 5,000,000 tons per month. Here is a winter maximum five 
 times as great as the summer minimum compared with only 
 10 to 20% difference in the case of the railways and industrial 
 consumers. 
 
 Equalization of the summer and winter movement of coal 
 from the bituminous mines, therefore, considered from a prac- 
 tical standpoint and stripped of all optimistic misunderstand- 
 ing, comes simply and squarely down to a question of persuad- 
 ing the domestic consumer to put in his household coal in 
 fairly regular quantities throughout the year. He who would 
 regulate the production of bituminous coal for the purpose of 
 bringing about steady mine production in the interest of coal 
 mine operators, employees and consumers, should understand 
 clearly that the real regulating must be applied not to the 
 mines, but to the domestic user of the product. 
 
 It is proper at this point to consider what means may be 
 employed to attempt to equalize the shipments of household 
 coal from the mines throughout the year. Seasonal variations 
 in freight rates have been proposed for this purpose. The 
 National Coal Association has neither advocated nor opposed 
 this measure. Operators in some parts of the country favor 
 seasonal freight rates; other operators oppose the project. It 
 is claimed that a spread between summer and winter rates will 
 induce enough householders to buy coal during the summer so 
 that the production of this type of coal and operation of the 
 mines producing it will be stabilized throughout the year. 
 Opponents of this proposal assert that in most districts a very 
 wide spread would have to be employed in order to bring 
 about such a result, because it would have to compensate the 
 consumer for the additional expense entailed in carrying his 
 coal supply for some months and for any degradation of the 
 coal while in storage. In the mining districts which are in 
 most need of summer business, the mines of Oklahoma, Kansas, 
 Iowa and Illinois, the coal deteriorates decidedly in storage 
 even in the householders' cellars, while the output of the lignite 
 mines of Colorado, which furnish the fuel of Denver, eastern 
 
 [133] 
 
124 RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 and western Kansas, and Nebraska, will not store at ail, but 
 must be used fresh from the mines. 
 
 Opponents also point out that the increased railroad rates 
 on coal in the winter time would have to be paid by those 
 consumers who can least afford to pay the charges, namely: 
 the poorer class, those householders and consumers who have 
 neither the facilities nor the money to permit them to take 
 advantage of the lower summer rates. Such a system, there- 
 fore, would simply penalize these poorer consumers of coal and 
 benefit their richer neighbors at their expense. Railroad offi- 
 cials object that a decided change in freight rates on a given 
 date would result in shipments being withheld just prior to a 
 decrease in freight rates and being increased prior to an ad- 
 vance in rates, with a consequent irregularity of mine and 
 railroad operation in the period immediately preceding and 
 following the change in rates. 
 
 It has been suggested also that producers of bituminous coal 
 should make a difference in their prices at the mine, reducing 
 the price levels in the spring and gradually increasing them 
 through the summer, so as to persuade the consumer in that 
 manner to take in at least a part of his coal supply during the 
 spring and summer months, thereby stabilizing production. 
 
 It will be readily seen that much of what has been said as to 
 seasonal variations in freight rates applies here with equal 
 force. In addition, it should be pointed out that competition 
 in the open market normally reduces prices to their lowest 
 levels in the early spring months when demand is at a mini- 
 mum. Since bituminous coal prices are determined by com- 
 petition in the open market no individual operator, or group 
 of operators is any more able to arrange in advance a schedule 
 of prices month by month throughout the year than a grower of 
 hogs in Indiana can determine in advance the price at which 
 he will sell his hogs in different months. It has been found 
 possible for distributors of anthracite coal to put arrangements 
 of this character into effect, but they are dealing with a com- 
 modity which can be stored readily and of which the produc- 
 tion is limited by nature, so that methods of marketing the out- 
 put can be applied there which are wholly impracticable in 
 the case of bituminous coal. 
 
 It is frequently urged that coal producers should store a 
 
 [124] 
 
No. 1] TRANSPORTATION FACTOR IN THE PRICE OF COAL 125 
 
 part of their output at the mines in summer and thus render 
 the operation of their properties more stable and regular. 
 This proposal has the defect of being impractical. Coal mines 
 are organized, equipped and operated to send coal forward on 
 a continuous journey from the face of the coal seam to the 
 boiler room of the consumer. The production, transportation 
 and distribution of that coal is obtained at the most economical 
 cost when that movement is uninterrupted. As it comes from 
 the underground mine wagons coal is dumped directly into 
 railroad cars and shipped straight through to the plant or retail 
 yard of the buyer. That is the most economical manner in 
 which coal can be produced and moved. If it is carried 
 two or three miles from the face of the coal seam underground 
 out into the daylight at the mouth of the mine and there 
 dumped on the ground or put into storage bins from which 
 it must be again loaded into cars, there is an increase in the 
 cost of the coal consequent upon the additional handling 
 involved. 
 
 There is also a certain degradation and deterioration of the 
 product in storage. This stored coal must be sold by the 
 producer who has stored it at a higher price than his freshly 
 mined coal, if he is to avoid a loss on the operation. But on 
 account of the deterioration of the product during storage this 
 stored coal for which he must ask a higher price is a less efficient 
 and less desirable fuel than his freshly mined coal which his 
 salesman can offer at a lower price. If he should attempt to 
 equalize his prices or place a sufficient premium upon his 
 freshly mined coal to allow him to sell his higher-cost storage 
 coal at a discount he will merely invite numerous competitors 
 to take his business away from him through their offers of 
 freshly mined coal at prices below his quotations. In short, 
 a producer who should store considerable quantities of his own 
 coal at the mines would inevitably find himself caught between 
 the competition of his own freshly mined coal and his stor- 
 age coal, and would have to accept an inevitable loss on the 
 transaction in consequence. No sane business man would 
 attempt any such enterprise, nor would he get any sane banker 
 to finance it even if he were foolish enough to try it. 
 
 The proposal is impracticable for another reason. The 
 m^nes already open have an over-capacity of approximately 
 
 ["Si 
 
,26 JtAILROADS AND BUSINESS PROSPBRtTY [Vot. X 
 
 40%. In other words, these mines can currently furnish 40% 
 more freshly mined coal than the country needs. In the 
 absence of strikes at the mines the only thing which has ever 
 prevented the mines from meeting all demands of consumers 
 with current daily shipments of freshly mined coal direct from 
 the mine tipples has been the inability of the railway lines 
 to transport the tonnage demanded by consumers. These 
 consumers have never failed to get their coal because of in- 
 ability of the mines to produce it, but only through the in- 
 ability of the railroads to handle it when shipped. Now, if 
 the railroads in time of maximum demand are not able to 
 place railroad cars enough at the mines to carry away the coal 
 that is being mined from day to day, what opportunity would 
 a mine operator have to obtain cars to take coal from storage 
 in addition to shipping his usual daily output? 
 
 As a matter of fact, there is already a tremendous storage 
 of coal in the United States, not in the mining districts, but 
 where the storage ought to be, namely, in or adjacent to the 
 consuming centers. Consumers and wholesale and retail dis- 
 tributors of coal in the United States have provided facilities 
 in which they regularly store from 40,000,000 to 50,000,000 
 tons of bituminous coal annually. Just prior to the signing of 
 the Armistice they had stored over 60,000,000 tons and at the 
 beginning of the present strike they had utilized these facili- 
 ties to store approximately 65,000,000 tons, in addition to 
 the amount upon the docks at the head of the lakes. If the 
 capacity of these dodcs is included, the total possible storage 
 by consumers and distributors of coal in the United States 
 exceeds 70,000,000 tons. This is practically all storage by 
 the consumers, who own these great stocks and are, therefore, 
 insured against any raising of prices on this tremendous ton- 
 nage. Storage of this kind has developed wherever it is prac- 
 tical ; that is, wherever the service to the user of the coal in 
 actual practice justifies the investment and the expense of 
 installing and operating the facilities for storage and com-- 
 pensates him for the deterioration of the coal. 
 
 TTie greatest future saving in the cost of moving coal from 
 the mine to the user will doubtless come not through the adop- 
 tion of artificial devices in the coal industry, but through trans- 
 porting the energy in the coal instead of the coal itself. By 
 
 [«?6] 
 
No. I] TRANSPORTATION FACTOR IN THE PRICE OF COAL 127 
 
 this I mean that long-distance, high-tension transmission of 
 electricity and the transmission of gas manufactured from the 
 coal will be the practical means of reducing the transportation 
 cost to the user of the energy of coal. Engineers already look 
 forward to utilizing a large part of the output of bituminous 
 coal at the mines or in the immediate vicinity of the mines and 
 to transmitting from the mines to important consuming centers 
 in the form of electricity or gas the energy thus developed 
 from the most efficient combustion of the coal. They also look 
 forward to a much more general use of gas as a domestic and 
 household heating fuel than at present. Such transmission of 
 energy from the mines would go far to remove coal from the 
 rails of our transportation systems, upon which coal now 
 constitutes approximately one- third of all the freight moved. 
 Improvement in the manufacture of gas from coal, with the 
 consequent wider use of gas as a domestic fuel, is expected to 
 reduce the ultimate cost of heating our dwellings. There is 
 not time here to discuss the details of developments in these 
 directions. Let me merely say that competent authorities be- 
 lieve the future will bring almost revolutionary changes in the 
 transportation of coal through the means just indicated. 
 
 [i»7l 
 
APPENDIX 
 
 THE SEMI-ANNUAL MEETING (FORTY-SECOND YEAR) OF 
 
 THE ACADEMY OF POLITICAL SCIENCE, 
 
 NEW YORK CITY, APRIL 28, 1922 
 
 The Committee on Arrangements, which also served as the 
 Program Committee, planned for three sessions at this meet- 
 ing to consider the three most important problems growing 
 out of the actual experience of the country with, and operations 
 under, the " Transportation Act, 1920." The Academy, at its 
 Annucil Meeting in November, 1919, had discussed quite fully 
 the railroad problem in all its various aspects at the close of the 
 war and while the railroads were still under Federal control. 
 The very substantial volume on " Railroad Legislation " 
 (Proceedings of the Academy of Political Science, Vol. VIII, 
 no. 4, Jan., 1920, 268 pp.), which contains the papers and ad- 
 dresses presented at that meeting, gives a good account of the 
 considerations under discussion in Congress while the Trans- 
 portation Act was still in its formative stages. This volume, 
 together with the text of the Transportation Act, 1920 (Act 
 Feb. 28, 1920), which is too voluminous to reproduce here, 
 should be studied as the basis of the program of the meeting 
 of April 28, 1922. 
 
 The three problems which seemed to the Committee to cover 
 the most important matters of present public interest and to 
 serve as a means of following up the discussion of railroad 
 legislation at the Annual Meeting of the Academy in Novem- 
 ber, 1919, are: (1) The labor provisions of the Transportation 
 Act; (2) The general railway policies of regulation and control 
 with respect to the general or public welfare; (3) Freight rates 
 and business revival. To each of these a special session of the 
 meeting of April 28, 1922, was devoted. 
 
 The thanks of the Academy are due to the railway executives 
 and to the economists and publicists who have specialized in 
 transportation problems, who gave generously of their time 
 and service in the work of the Committee on Arrangements, and 
 in the preparation of papers and addresses delivered at the 
 meeting. 
 
 [1*9] 
 
RAILROADS AND BUSINESS PROSPERITY [Vol. X 
 
 COMMITTEE ON ARRANGEMENTS 
 
 SAMUEL McCUNE LINDSAY, Chairman ex-officio 
 
 WILLIAM L. RANSOM 
 CHARLES M. SCHWAB 
 HENRY R. SEAGER 
 EDWIN R. A. SELIGMAN 
 ALBERT SHAW 
 T. W. VAN METRE 
 PAUL M. WARBURG 
 FRANK J. WARNE 
 
 130 
 
 FRANK H. DIXON 
 HOWARD ELLIOTT 
 MILTON W. HARRISON 
 ELON HUNTINGTON HOOKER 
 EMORY E. JOHNSON 
 ROBERT S. LOVETT 
 VICTOR MORAWETZ 
 CHARLES P. NEILL 
 
PROCEEDINGS OF THE ACADEMY OF 
 
 POLITICAL SCIENCE 
 
 Volume IX, Number 4, January, 1922 
 
 CONSTRUCTIVE EXPERIMEOTS IN INDUSTRIAL COOPERATION 
 BETWEEN EMPLOYERS AND EMPLOYEES 
 
 EDITED BY 
 
 Parkek Thomas Moon and Sam A. Lewisohn 
 
 TABLE OF CONTENTS 
 
 I. PERSONNEL WORK AND COOPERATION WITHIN INDUSTRIAL 
 
 PLANTS 
 
 Personnel Work and Cooperation Sam A. Lewisohn 
 
 Employee Representation and Personnel Work in a Large-Scale Organization 
 
 Charles B. Seger 
 Stabilizing of Employment on a Diversified Seasonal Industry . . Henry S. Denntson 
 Winning the Confidence of Employees by Taking the Mystery Out of Business 
 
 S. R. Rectanus 
 
 Insurance Against Unemployment in a Plant Harold A. Hatch 
 
 Executive Leadership and Personnel Work in Public Service Corporations ..E.K. Hall 
 
 Discussion : Owen D. Young, C. J. Hicks and Sidney Blumenthal 
 
 11. INDUSTRY-WIDE COOPEKATION 
 
 Standardization and Cooperation in the Printing Industry Matthew Wall 
 
 Standardization and Cooperation in the Printing Industry K A. Silcox 
 
 Joint Relations in an Industry Without Plants Ernest 7 rjj-^ 
 
 Cooperation Within the Clothing Industry Earl Dean Howard 
 
 Joint and National Counseling in the Electrical Construction Industry -.L.K. Comstock 
 
 Cooperation in Industrial Relations in the Leather Goods Industry. ..S.y, Prokesch 
 
 Discussion : G. J. Anderson 
 
 III. GOOD WILL AND COOPERATION IN INDUSTRY 
 
 The Value of Good Will and Cooperation in Industry .Herbert C. Hoover 
 
 The Way to Industrial Peace B. Seebohm Rowntree 
 
 Good Will and Cooperation in Industry from the Worker's Point of V\evt.ffvgh Frayne 
 
 Government Counsellors and Efforts to Promote Cooperation James J. Dams 
 
 The Value of Good WUl in Government Employment Will H. Hays 
 
 IV. INDUSTRIAL RELATIONS IN GOVERNMENTAL EMPLOYMENT 
 AND IN FINANCIAL INSTITUTIONS 
 
 Industrial Relations in Governmental Employment Albert Shaw 
 
 Personnel Work in the Post Office Department Lee K. Frankel 
 
 The Rock Island Arsenal Conference Plan Pay son Irwin 
 
 Job Analysis in Prisons and State Institutions Burdelte G. Lewis 
 
 Personnel Administration in the Federal Government W. E. Mosher 
 
 Personnel Activities in Financial Institutions Harry Arthur HepJ 
 
 V. GOVERNMENTAL AND OTHER ORGANIZED COUNSEL AND INFOR- 
 MATION TO PROMOTE BETTER INDUSTRIAL RELATIONS 
 
 Better Industrial Relations Glenn Frank 
 
 Philadelphia Plan of Self-Education of Foremen Joseph H. Willits 
 
 Industrial Counseling Work, N. Y. State Industrial Commission . . . Charles M. Mills 
 What the Chamber of Commerce Can Do for Better Industrial Relations. /f/«*.C.i9;-ozf« 
 What Are the Universities and Technical Schools Doing to Train Their 
 
 Under-graduates in Industrial Relations Dexter S. Kimball 
 
 The Manufacturers' Council of the Brooklyn Chamber of Commerce. . /T. H. Doehler 
 Discussion : H. C. Afetcal/and Henry Harap, and others 
 
 Appendix— Bibliography Feldman 
 
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