ti:i!-;hi^ 3tliara, ^tm lack BOUGHT WITH THE INCOME OF THE IRVING PORTER CHURCH FUND THE GIFT OF THE CORNELL SOCIETY OF CIVIL ENGINEERS AND OTHER STUDENTS OF PROFESSOR CHURCH 19)7 Cornell University Library TE 15.J711 Principles of railroad transportation 3 1924 004 117 986 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/cu31924004117986 APPLETON'S RAILWAY SERIES EDITED BY EMORY R. JOHNSON, Ph.D., Sc.D. PRINCIPLES OF RAILROAD TRANSPORTATION PRINCIPLES OF RAILROAD TRANSPORTATION BY EMORY R. JOHNSON, Ph.D., Sc.D. DBAN OF THE WHARTON SCHOOL OF FINANCE AND OOMUBBCE AND PR0FE3B0S OP TRANS PC CTATION AND COMMBHCB IN THE UNIVERSITY OF PENNSYLVANIA. AUTHOR OF "OCEAN AND INLAND WATER TRANSPORTATION/' "ELEMENTS OF TRANSPORTATION," ETC. AND THURMAN W. VAN METRE, A.M., Ph.D. ASSOCIATE PBOFESSOB OF TRANSPORTATION IN THE SCHOOL OF BUSINESS OF COLUMBIA UNIVERSITY. AUTHOR OF "BOONOMIO HISTORT OF THE UNITED STATES" ILLUSTRATED WITH HALF-TONES. MAPS AND DIAGRAMS D. APPLETON AND COMPANY NEW YORK LONDON 1927 -^ . Copyright, 1903, 1904, 1908, 1916, 1921, By D. APPLETON AND COMPANY Printed in the United States of America CONTENTS CHAPTER PAGE I- — Introduction — Definition and Scope of Transpor- tation 1-9 Transportation defined, 2. The technics of transporta- tion, 2. The service, 2. The economics of transportation, 3. Transportation economics and the science of political economy, 3. Transportation and the production of wealth, 4. Transportation and the use or consumption of wealth, /L Relation of transportation to the ex- change of ^alth or commefce,^ 4. Relation of trans- portation to the distribution of wealth, 5. Transporta- tion and political science, 7. The scope of this vol- ume, 9. PART I THE AMERICAN RAILROAD SYSTEM II. — Origin of the American Railroad . . . 13-24 Antecedents of the railroad, 14. Country roads and turnpikes, 14. Canals and improved rivers, 16. Early history of the railroad in America, 20. References, 24. III. — Growth of the American Railroad Net . . 25-37 Growth in mileage by decades, 26. Importance of the decade from 1 850-1860, 26. Railroad consolidations, 28. The decade 1860-1870, 30. The first transcontinental lines, 30. The panic of 1873, 31. Construction from 1880-1890, 31. Construction since 1890, 32. Compari- son of American and European railroad mileage, 33. Magnitude of the railroad system in the United States, 33. References, 37. V ■vi CONTENTS ICHAFTER PAGE IV. — The Mechanism of the Railroad — Development OF Track and Locomotive 38-60 Early track construction, 39. Development of the rail- road rail, 39. Ties and ballast, 44. Early locomotives, 45. Later types of locomotives, 51. Classification of lo- comotives, 57. Recent improvements in locomotives, 58. V. — The Mechanism of the Railroad {Concluded) — The Car, Terminal and Operation . . . 61-83 Early passenger cars, 62. Sleeping cars, 63. Steel pas- senger cars, 63. The air brake, 65. Freight cars, 66. Terminal facilities, 68. The passenger terminal, 69. The freight terminal, 72. Electric telegraph, 76. CRail- road signaling, yy. Electrification of steam railroads, 78. References, 82. VL — The Present Railroad System of the United States 84-96 Railroad mileage and number of corporations in 1914, 84. The three large territorial groups of railroads, 85. Territorial grouping into seven sections, 85. Grouping by ownership and control, 88. Supply of railroad fa- cilities in the United States and foreign countries, 94. References, 96. VII. — The Railroad Corporation and Its Charter . 97-107 The corporation defined, 97. The corporation and part- nership distinguished, 98. The railroad company is a quasi-public private corporation, 99. The power of government to regulate railroads, 100. Railroad char- ters, 102. Size of railway corporations, 104. Insolvent corporations, 106. References, 107. VIII. — Railroad Capital 108-130 Stocks and bonds, 108. Classes of bonds, 109. Classes of stocks, no. Railroad capitalization in the United States, no. Stock watering, 113. Motives for stock CONTENTS vii CHAPTER PAGE watering, 113. The promoter and the underwriter,- 116. Methods of stock watering, 117. Effect of stock water- ing, 120. Bases of railway capitalization, 121. Public regulation of railroad capitalization, 124. State laws, 125. The Hadley Commission, 127. Federal regula- tion, 128. References, 130. IX. — Earnings, Expenses and Dividends . . , 131-143 Sources of revenue, 131. Operating revenues, 131. Non- operating income, 133. Operating expenses, 134. Fixed charges, and other expenditures, 135. Net income and dividends, 135. The operating ratio, 138. Relation of earnings and dividends to business conditions, 141. References, 143. PART II THE RAILROAD SERVICE X. — The Freight Service — Classification of Freight 147-159 The freight business the most important railroad serv- ice, 147. Volume of freight traffic in the United States, 148. Classification of freight, 149. The three great classifications, 150. Commodity tariffs, 155. Uniform classification, 156. How an agent ascertains rates on class and commodity freight, 158. Through and local freight, 159. XI. — The Freight Service (Concluded) — Business Or- ganization 160-180 Freight shipping papers: (i) bills of lading, (2) the waybill, 160. Unit billing, 168. Organization of freight service, 168. Demurrage, 170. Reciprocal demurrage, 171. Fast freight lines, 171. Cooperative freight lines, 173. Car interchange and the per diem system, 175. Records of car movements, 175. The railroad clearing house, 176. Private cars and private car lines, 177. References, 179. viii CONTENTS CHAPTER PAGE XII. — The Passenger Service .... 181-200 General characteristics of the passenger service, 181. Comparison of the trend of passenger fares and freight rates in the United States, 182. Volume of passenger traffic in the United States, 185. Comparison of rail- road travel in the United States and foreign countries, 186. Classification of passenger travel in Europe, 187. Varieties of passenger service in the United States, 188. Relation hetween the Pullman Company and the railroad corporation, 193. Passenger tickets and baggage checks, 195. Methods employed to in- crease traffic, 196. Opportunities for developing pas- senger traffic, 197. Electricity and the passenger serv- ice, 199. References, 200. XIII. — The Express Service of the Railroads . 201-217 General character of the express service, 201. The origin of the express service and its subsequent develop- ment, 203. The organization of the American Rail- way Express Company, 206. Express shipping papers, 207. The contractual relations hetween the Ameri- can Railway Express Company and the railroads, 207. Express rates, 209. Volume of express business, 213. The parcel post and the express service, 214. Should the present express service be discontinued? 215. Ref- erences, 216. XIV. — The Mail Service of the Railroads . . 218-234 The mail service increases with the progress of civili- zation, 218. Classification of mail matter, 219. The par- cel post rate system, 220. General statistics of mail traffic, 223. Mail transportation, 223. The railway post office, 225. The services performed by railroad companies in transporting the mails, 226. Railway mail pay, 227. The postal deficit and its cause, 232. References, 234. CONTENTS ix CHAPTER ' PAGE XV. — The Organization of the Service . . 235-249 The corporate organization of a railroad company, 235. The secretary's department and law department, 236. The treasurer's department, 237. The accounting de- partment, 237. The operating department and its sub- divisions, 238. The traffic department, 241. Other de- partments, 241. Organization of the Pennsylvania Railroad Company and the Illinois Central Railroad Company, 242. References, 249. XVI. — The Accounts and Statistics of the Railroad Service) 250-269 The usefulness of railroad accounts, 250. The mate- rials of railroad accounts and statistics, 251. The comptroller's reports, 252. Annual report of the presi- dent, 252. The income statement, 253. The profit and loss account, 256. The general balance sheet, 257. The need for accuracy and uniformity in railroad ac- counts, 258. Government regulation of railroad ac- counting, 259. Five leading sources of railroad statis- tics, 262. Suggested extensions of the scope of trans- portation statistics, 265. References, 268. PART III THE RAILROADS AND THE PUBLIC XVII. — 'Interrailway Relations — Railroad Competi- tion AND Agreements to Maintain Rates 273-287 The public nature and the unity of the transportation service, 273. Railroad companies are cooperators and competitors, 274. Early interraiWay relations, 275. Early arrangements for through traffic, 276. Interrail- way rivalry; its beginnings, 277. The struggle for the Chicago-Atlantic traffic, 278. The rivalry of the At- lantic ports, 279. Early competition in the West and X CONTENTS CHAPTER ' PAGE South, 280. Nature of railroad competition, 281. The railroad business one of "increasing returns," 283. The restraint of interrailway competition a necessity, 284. Cooperation or consolidation is the alternative, 284. Agreements to maintain rates, 284. The Saratoga Conference, 286. XVIII. — Interrailway Relations {Continued) — Pools AND Traffic Associations . . . 288-303 Definition of pooling, 288. Description of traffic and money pools, 288. The beginning of railroad pooling, 290. Pooling in the West, 291. The traffic association and the pool distinguished, 292. Pools in the South, 292. Early agreements in trunk line territory, 294. The trunk line pool and the Joint Executive Commit- tee, 296. The situation as regards railroad pooling in 1887, 298. Pooling prohibited by the Interstate Com- merce Act, 299. Pooling contracts were illegal at com- mon law, 300. Reorganization of pooling contracts to eliminate the pooling feature, 301. XIX. — Interrailway Relations {Concluded) — The Present Situation 304-320 Efforts of trunk lines to regulate competition after the prohibition of pooling, 304. Traffic associations decid- ed to be a violation of antitrust law of 1890, 306. Ef- fect of the decision in the traffic association cases, 307. Progress of railroad consolidation, 307. Methods of consolidation, 308. "Community of interest," 309. Traffic associations and informal agreements, 311. Pools legalized, 314. Classes of traffic associations, 315. Shippers' organizations, 318. References, 319. XX. — Monopoly and Competition in the Railroad Service 321-333 Railroad corporations must be large and must cooper- ate, 321. Scope of railroad monopoly must be under- CONTENTS xi PTER PAGB Stood in considering charges and government regula- tion, 323. What is meant by monopoly, 323. The oil business an example of monopoly, 324. The railroad business has not fceen a complete monopoly, 325. Rail- road cooperation is of two kinds; the attitude of the law toward each kind, 326. Railroad competition is of two kinds, 327. Railroad competition is not confined to junction points, 328. The competition of markets, 328. Influence of competition upon local rates, 330. The monopoly of the railroad is only partial, 332. Govern- ment regulation of a partial monopoly may be neces- sary, 332. The term natural monopoly not strictly ac- curate, 333. References, 333. XXI. — Theory of Rates and Facts . . . 334-348 Need of a theoretical basis of rates and fares, 334. Meanings of the term "cost," 335. The impossibility of determining exactly the cost of a particular service, 336. Cost an undesiralble as well as an impracticable basis of railway charges, 337. The value of the service theory of charges, 340. The value of commodity the- ory, or the taxation principle, of charges, 342. Charg- ing "what the traffic will bear," 343. What constitutes a theoretically just rate? 344. Discriminations may be just or unjust, 346. The socialization of rates and fares, 347. References, 348. XXII. — Rate Making in Practice . . . 349-364 The problem of rate making different for private and state railroads, 349. Classification the first step in mak- ing freig'ht rates, 350. The machinery for making freight rates, 352. Considerations which influence the decisions of traffic officials, 354. Railroad cooperation in rate making, 355. Rate systems in the United States, 356. The trunk line rate system, 356. The southern rate system, 357. The western rate system, 358. xii CONTENTS CHAPTER Transcontinental rates, 359. Import and export rates, 360. The machinery for making passenger fares, 360. The problem of fixing passenger fares as compared with the freight rate problem, 361. The general tariff policy of American and foreign railroads, 363. Ref- erences, 364. PART IV THE RAILROADS AND THE STATE XXIII. — Railroads and the State. Regulation in THE United Kingdom and Germany . 367-406 The twofold relation of the government to the rail- roads, 367. The form which the state's relation to railroads may assume, 370. Railroads of the United Kingdom received no state aid, 371. Early competi- tion and consolidation in Great Britain, 372. Rail- road cooperation, 373. British regulation of railroad consolidation, 374. Early regulation of railroad rates in Great Britain, 375. The Act of 1854, 378. The Act of 1873, 379. The Railway and Canal Traffic Act of 1888, 381. Maximum rate laws, 383. The Act of 1894, 384. British railroads and the war, 385. The Ministry of Transport Act of 1919, 387. The Railways Act of 192 1, 389. Early railway policy in Germany, 390. The nationalization of Prussian rail- ways, 394. The Prussian railway organization, 395. The results of railway nationalization in Prussia, 398. German railways and the war, 400. The present rail- way policy of Germany, 400. Railway policies of other countries, 402. Conditions which determine the railway policy, of a state, 404. References, 405. CONTENTS xiii CHAPTER PAGE XXIV. — Public Aid to Railroad Construction in . . THE United States 407-421 Aid given by the States to railroads, 408. Forms of aid given by the States, 409. Amount of aid given by the States, 409. The results of state aid were unsat- isfactory, 410. National aid to raiWay construction, 411. Terms of the land grants, 412. The grants to the Pacific roads, 412. Repeal of the land grants, 415. The loan of public funds to aid railroads, 415. Con- cerning the policy of loans and land grants, 417. County, municipal, and individual aid to railroad building, 418. Local individual aid, 419. References, 420. XXV. — Regulation of Railroads by the American State Governments — The State Commis- sions 422-447 Powders of the Federal and State governments over railroads, 422. Little regulation before 1870, 423. Charter limitations on rates and profits, 424. Early railroad commissions and their functions, 426. The demand for rate regulation, 427. The tvi^o types of railroad commissions, 427. The Massachusetts com- mission of 1869, 427. Railroad regulation in the West and South, 429. The granger laws and the Illinois commission, 430. Granger laws upheld by the Su- preme Court, 432. The Wabash decision of 1886, 433. Modification of the early granger lawrs, 434. Recent methods of state regulation; the utilities commission, 435. The powers of present state commissions; the law of Illinois, 436. Railroad commissions and cor- poration commissions, 439. Objections to state regu- lation, 440. Changes effected by the Transportation Act of 1920, 443. References, 445. xiv CONTENTS CHA7TEK FAGS XXVI. — Railroad Regulation by the Federal Gov- ernment^^The Act of 1887 . . . 448-466 Origin of the demand for Federal regulation, 448. The Windocn report of 1874, 449. The Cullom report of 1886, 450. Early attempts at Federal regulation, 450. The enactment of the Interstate Commerce Act of 1887, 451. Chief provisions of the law, 451. The operation of the law; the commission's orders not binding, 456. Power of the commission to secure testimony, 458. The power of the commission to regulate rates, 459. The long and short haul clause, 460. Import rates, 463. Results accomplished 'by the law of 1887, 464. Needed changes, 464. References, 466. XXVII. — Federal Legislation from 1903 to 1914 467-488 The Elkins Act of 1903, 467. The Expediting Act of 1903, 468. Enactment of the Hepburn amendment of 1906, 469. Main provisions of the Hepburn amend- ment, 469. The question of judicial review, 474. The grounds upon which the courts set aside orders of the com'mission, 475. The Mann-Ellcins Act of 1910, 477. Other amendments to the Interstate Commerce Act, 1910-1915, 480. The Federal Antitrust law applicable to railroads, 483. Federal regulation of railroad opera- tion, 484. General character of the system of Federal regulation as it existed in 19 10, 486. The need for modification, 487, References, 487. XXVIII. — New Railroad Problems; Government Operation 489-511 Decline of earnings, 489. Railroad bankruptcies, 492. The Adamson Act, 494. Effects of the war, 496. CONTENTS XV PAGE Government control, 504. The Railroad Adminis- tration, 505. Operating results, 509. Financial re- sults, 510. References, 511. XXIX. — The Transportation Act of 1920 . 512-533 r" Reconstruction plans, 512. The Cummins and the Esch bills, 514. The Transportation Act, 515. Labor disturtbances, 523. Rate increases, 524. The business depression, 525. Operation of the law, 528. Refer- ences, 533. XXX. — The Courts and Railroad Regulation . 534-562 Laws are partly court made, 534. Function of the ju- diciary in railroad regulation, 536. Development of judicial review, 536. State rate regulation, 537. The relation of the courts to unreasonable rates made by railroad companies, 541. Injunctions to prevent rate advances, 543. Injunctions to prevent rate wars, 544. Injunctions against secret rebates, 547. Injunctions and lathoT disputes, 548. The general law regarding strikes, 548. Injunctions to protect property and per- sonal rights, 549. Injunctions compelling railroad em- ployees to work, 550. Use of the injunction in the Deibs strike of 1894, 551. Regulation of the use of the injunction by the Clayton Antitrust Act, 553. Railroad receiverships, 554. Railroad insolvency in the United States, 556. Causes of railroad insolvency, 557. Ob- jections to the present system of railroad receiverships, 559. Suggested changes, 560. References, 561. XXXI. — The Problem of Government Ownership AND Government Regulation in the United States 563-577 The twofold nature of the problem of government reg- ulation, 563. The two methods of government control, 564. Government ownership a question of expediency, 565. The experience of one country not necessarily a safe guide of action in another, 566. Should the xvi CONTENTS CHA7TES PAGE United States adopt a policy of government ownership ? 567. Probable effect of such a policy upon the railroad service, 567. Probable effect upon rates, 569. Sociali- zation of rates and fares possible under government ownership, 571. Effect of government ownership on politics and government, 572. The success of govern- ment regulation in the United States, 573. Need for a constructive policy, 575. References, 577. Appendix — Questions and Topics . . • 579-6o9 Index . . « • 611 LIST OF ILLUSTRATIONS AND MAPS ILLUSTRATIONS PAoa The stagecoach, generally used for passenger travel before the introduction of the railroad .... 14 The Conestoga wagon, the predecessor of the freight car in the Middle Atlantic States IS The Rocket, 1829 21 Advertisement illustrating the transportation service in 183s 34 Advertisement showing what the transportation service was in 1837 ....... 36 Track with wooden stringers, surfaced with straps of iron 38 39 40 41 46 48 48 49 Track of granite sills plated with straps of iron Track of cast iron rails resting on granite blocks . Rolled iron U-rail, 1844 Peter Cooper's locomotive, 1830 .... The Old Ironsides, 1832 De Witt Clinton engine and train, 183 1 . John Bull engine and train, 1831 .... Lancaster engine and train, run on Pennsylvania State Railroad, 1834 First Campbell locomotive, 1836 .... American (4-4-0) type of locomotive . Ten- wheel (4-6-0) type of locomotive . Mogul (2-6-0) type of locomotive .... Consolidation (2-8-0) type of locomotive Mikado (2-8-2) type of locomotive .... xvii 49 SO SI 52 S2 53 S3 xviii LIST OF ILLUSTRATIONS AND MAPS Atlantic (4-4-2) type of locomotive . . . • 54 Pacific (4-6-2) type of locomotive .... 55 Triplex articulated (2-8-8-8-2) locomotive . . • 5^ -Passenger coach, 1835. Used on Pennsylvania portage railroad over the Alleghany Mountains, Pennsylvania 61 An early passenger coach ...... 62 All steel passenger coach 64 All steel box car .66 All steel gondola car 68 Grand Central Station, New York City .... 7° Bird's-eye view of the Grand Central Terminal, New York City 71 Union Station, Washington, D. C. . . . . -73 Electric locomotive ....... 79 Gas electric motor car ....... 81 Diagram o£ railroad capitalization and dividends, i8go- 1918 115 Railway earnings in the United States since 1890 . . 140 Straight bill of lading 1 61 Order bill of lading 163 Merchandise waybill ....... 165 Card waybill . . • . . . . . .166 MAPS PACTNQ PAGE Canals and railroads in New York in 1840 ... 12 Canals and railroads in Pennsylvania in 1840 . . .13 Map of the United States showing railroads in 1850 . 28 Map of the railroads in the United States in i860 . . 28 Map of the United States showing railroads in 1870 . 28 Map of the United States showing railroads in 1880 . 28 Map of the United States showing railroads in 1890 . 28 Map of the railroads in the United States in 1921 . . 28 LIST OF ILLUSTRATIONS AND MAPS xix FACING PAGE Vanderlbilt group go Pennsylvania group 90 Morgan group 90 Union Pacific and Southern Pacific Systems ... 90 Hill group 90 Chicago, Milwaukee and St. Paul 90 Atchison, Topeka and Santa Fe 90 Territorial districts of the United States adopted by the Interstate Commerce Commission .... 90 Section of express map showing method of numibering blocks 208 Section of parcel post map for unit No, 869 . . .218 PRINCIPLES OF RAILROAD TRANSPORTATION CHAPTER I INTRODUCTION— DEFINITION AND SCOPE OF TRANS- PORTATION Transportation defined, 2. The technics of transportation, 2. The service, 2. The economics of transportation, 3. Transporta- tion economics and the science of political economy, 3. Trans- portation and the production of wealth, 4. Transportation and the use or consumption of wealth, 4. Relation of transportation to the exchange of wealth or commerce, 4. Relation of trans- portation to the distribution of wealth, 5. Transportation and political science, 7. The scope of this volume, 9. Transportation has to do with travel, traffic, and com- munication; it is concerned with the movement of persons and things, and with the tra nsmission o j^i deas . The term is appHed both to the instruments by which movement is accomplished and to the service performed by those agen- cies. The several instrumentalities — waterways, highways, railroads and the vehicles used upon them, the telegraph and telephone — are spoken of collectively as the transpor- tation system. In the study of transportation attention may be directed either to the system or to the service. The system is the machine that performs the service, and a study of it is a technical one, covering the engineering \ 2 RAILROAD TRANSPORTATION problem connected with the construction, maintenance, and operation of the means or mechanism of transportation, and also including the business principles and methods prevail- ing in the management of the several parts of the various organizations engaged in performing the transportation serv- ice. The engineering side of the technics of transportation is studied in the civil and mechanical engineering schools, which give instruction in the principles and methods of building the structures and machinery pertaining to each of the several transportation agencies — instruction in improv- ing rivers, building canals, highways, and railroads; in de- signing and constructing ships, engines, locomotives, and cars; and in the several branches of electrical engineering. The principles and methods of administration, or the busi- ness technics, with the exception of such as may be included in the study of accounting and telegraphy, are as yet but little taught in American schools. They must be mastered in the school of experience. In this regard the educational facilities in the United States are somewhat inferior to those in some European countries. In studying the transportation service, only incidental regard need be given either to the agencies which perform the service or to the technics of the administration of those agencies. The purposes of the study are threefold : ( i ) To understand the nature and scope of the transportation serv- ice both as a whole and with such detail as may be necessary to an intelligent consideration of each of the several branches of the service; (2) to analyze the relations of the com- panies and individuals who perform the services to the users of the service — the relations, actual and desirable, of the carriers and the public; (3) to ascertain the degree and form of supervision or control that the Government should exercise over the relations of the carriers and the public. In contrast with the technics of transportation, the study SCOPE OF TRANSPORTATION 3 of the service may be called the economics of transporta- tion — the study which treats of the characteristics of the transportation service, the business relations of the carriers and the public, and the governmental supervision or con- trol of transportation. This study comprises a part of each of two social sciences : economics or political economy and civics or political science. Political economy, or economics, is the science of busi- ness affairs, or, as it is sometimes defined, the science which treats of the efforts of men to satisfy their wants. Among the manifold instrumentalities men have devised to assist them in the business activities which they carry on to create the wealth whereby their wants are satisfied, transportation agencies have come to be indispensable, and a study of the services performed by those agencies constitutes an impor- tant part of the science of business affairs. The position of transportation economics in political economy can be specifically stated by explaining briefly the relation of the transportation service to the production, consumption, ex- change, and distribution of wealth. Production consists in making matter more useful for purposes of consumption. It is the creation of utilities. To give matter the ability to satisfy wants, two things must be done : The commodities must be given the form or the qualities which the user desires them to possess, and the ar- ticles must be taken to Ihe user. The form and intrinsic qualities that make matter useful result from agriculture, manufacture, and the various industries by which things are grown and shaped. The transportation service puts commodities in the place where they can be used. An article that has been grown, mined, or manufactured has received only a part of the services by which it becomes useful. Only the intrinsic utilities of form or quality have been created; the usefulness which depends upon the location of the ar- ticle — its place utilities — has yet to be given it. Place 4 RAILROAD TRANSPORTATION utilities are created by the transportation services, which are thus a part of the general process of production. The relation of transportation to production inay also be shown by considering the general effect which improvements in transportation services have had on the use or consump- tion of wealth. Men produce commodities, because they want the commodities, because they wish to hoard up, or use — that is, "consume" — them ; accordingly, what men pro- duce depends upon the kinds, number, and intensity of their wants. From this it follows that any force or influence that changes men's wants will also affect their productive activities. This truth is illustrated by the fact that the un- civilized man will do but little work, because he wants but a few things. The only way to make him work is to create wants in him. The causes which modify the wants of men, and thus change what they produce and consume, are many, but nothing will do more to create new wants or more intense ones than a decrease in the cost and an increase in the quantity and variety of consumable commodities. The availability of commodities has been multiplied many times by improvements in transportation, and the effect of this upon human wants has unquestionably been great. Indeed, with our present facilities of transportation, there is prac- tically no limit to the number of wants we can satisfy, and our rapidly increasing demands have spurred us on to an ever-widening range of production. Commerce consists in exchange of commodities between separated localities — it is the agency by means of which the consumer and producer are brought together. The process involves a sale and purchase of goods, their transmission from the seller to the buyer, and the settlement of business accounts. Transportation is one of the mechanisms through which this is accomplished. Among the other agencies of commerce are the stock exchanges, the bourses, the markets. SCOPE OF TRANSPORTATION 5 the banks, the trust companies, and insurance companies; but of these several auxiharies the transportation service is the least dispensable. With the growing subdivision and specialization in productive effort, with the continually in- creasing tendency to locate industries where they can be carried on most economically, with the constant extension of the areas from which the materials of industry are drawn and over which the products are marketed, commerce, and particularly that part of commerce which is concerned with the movement of persons and things, becomes of ever greater consequence in all productive enterprises. The production of wealth has been greatly enhanced by the en- largement of commerce, and the extension of commerce has been possible mainly because of the improvements that have been made in the agencies by which the various trans- portation services are performed. The relation of transportation to the distribution of weal th is somewhat complex. Wealth is the creation or product of three factors: land or the resources of nature, capital, and human effort, physical and mental. Nature is the source of wealth, capital is the tool, and man is the agent by which the source is drawn upon. The income which men derive from the possession of natural agencies and resources is called rent, that secured from the owner- ship of capital is termed interest, that obtained from effort is named wages. The income or rent received by the owner of "land" depends upon two things: the productivity or intrinsic characteristics of the land or natural resource, and its location. The rent which owners of agricultural land can command depends upon its fertility and its location with reference to markets; rents from mines and forests are de- termined by productivity and location; rents on building sites result mainly from location. As far as rent depends upon location, the determining factor- is transportation, and every improvement or change in the facilities or costs of 6 RAILROAD TRANSPORTATION transportation services must have an influence upon the total amount of "rent" received by the owners of natural agents and must readjust the distribution of that form of income among its recipients. The relation of the transportation service to the income from capital is twofold; the total income from capital has been greatly increased by the modern transportation facili- ties, but the rate of return has been lowered. Capital is so generally and extensively employed in production today, as the result of improved transportation, the use of machinery, and other well-known causes, that we have come to speak of modern productive processes as capitalistic in contrast with those of a hundred years ago, when most things were done by manual labor and when land and labor received nearly all of the income from production. But the accumu- lation of wealth has been so rapid as to make capital abun- dant and to cause the rate of interest to decline rather than rise. This fall in the rate of interest, however, has been slower than it would have been had not the opportunities for investment been greatly multiplied by the extension and improvement of the means of transportation. By wages, the income resulting from human effort, is popularly meant the money payment received by those who toil with hand or brain; but in scientific discussion the word more frequently means the amount of useful commodities received by the workers. The "real" wages of a day's labor are the commodities which a day's labor will secure. Possibly transportation has had no more marked effect than that of increasing the quantity and variety of useful things which come within the range of the toiler's income. The luxuries of past generations have now become necessities, because of the reductions in the costs of production effected by improved transportation and other forces. Furthermore, as the laborer's real wages have increased, his efficiency has become greater and his impulses to effort have been strength- SCOPE or TRANSPORTATION 7 ened. To have is to want more, to strive harder. We call this raising the standard of living, the progress of civilization. As the result of cheap transportation, those who pro- duce have multiplied their wants and their efforts; and with the present highly developed transportation service to aid them, their efforts are far more productive than they would otherwise be. Human effort creates enor- mously more wealth than was formerly possible. Whether, in the distribution of wealth among the classes who control or contribute to the forces of production, labor or human effort receives an adequate share of the total, is a question concerning which there are differences of opinion. The absolute income of labor is greater than it was when cruder processes of production prevailed, and that income con- tinues to increase; but it is by no means certain that the forces controlling the distribution give labor an equitable share. The relation of the government,- local. State, and Federal, to transportation is such an intimate one that a study of the transportation service necessarily involves a considera- tion of some duties and activities of the State, subjects covered by the study of government or political science. Indeed, some branches of transportation, as the mail service, are everywhere carried on by the government. The city streets and most country roads are highways maintained at public expense; and the commercially important lakes> streams, and harbors are usually improved and maintained wholly or partially by the use of public funds. Canals are sometimes private enterprises, but more often are state works. Street railways, especially in Europe, are frequently owned by the cities, and sometimes are operated by them. In many countries the steam railroads are owned and managed by the government, and in all countries where private ownership prevails the railroad service is subject to govern- 8 RAILROAD TRANSPORTATION ment regulation. The telephone service has thus far usually been conducted by private companies. Whether performed by the government, or by companies, or by individuals, the transportation service is of a public nature. This is a well-established principle of law, the Supreme Court of the United States having held that "the business of a public carrier is of a public nature, and in performing it the carrier is also performing to a certain ex- tent a function of government which requires him to per- form the service upon equal terms to all." The principle applies as much to railroads built and operated by corpora- tions as to other transportation agencies. Whether the use of a railroad is a private one depends in no measure upon the question who constructed it or who owns it. It has never been considered a matter of any importance that the road was built by the agency of a private corporation. No matter who is the agent, the function performed is that of the state. Though the ownership is private, the use is public.'- The general basis of this principle is the vital dependence of the social organization upon transportation. A service must be of a public nature that is essential to orderly human relations, to all industrial activities, and the progress and welfare of society. The public nature of the transportation services of railroads and some other carriers is recognized by the state in the granting of franchises giving to such carriers the power to take possession of the private property they may need. To quote the language of the United States Supreme Court, The State would have no power to grant the right of appro- priation unless the use to which the land was to be put was a public one. Taking land for railroad purposes is a taking for ' Olcott V. The Supervisors, i6 Wallace. 6q<^ SCOPE OF TRANSPORTATION 9 a public purpose, and the fact that it is taken for a public purpose is the sole justification for taking it at all.* In studying the transportation service, then, we are dealing with one of the functions of government, and one of the important branches of political science. In consider- ing this service the student is concerned with the government at work either performing the service directly or insuring its proper performance by persons and corporations receiving from the state their authority to act, and subject in their actions to the regulative control of the government. The problems of the government ownership, operation, and regulation of the agencies of transportation require the investigator to inquire into some most interesting questions regarding the functions of government and the proper scope of its activities. This volume is concerned with the transportation serv- ice performed by steam railroads. It does not discuss the engineering and other technical questions of railroad con- struction and operation, but describes the American railroad system, gives an account of the service performed by the different branches of the railroad organization, considers the business relations of the railroads and the public, and dis- cusses the problems of government regulation. The book is a study in railway economics, and is intended to be an introduction to the general subject of railroad transporta- tion, a volume that may profitably precede or accompany a more special study of a particular branch of the rail- way service. * United States v. Joint TrafHc Association et al., 171 U. S., SOS- PART I THE AMERICAN RAILROAD SYSTEM CHAPTER II ORIGIN OF THE AMERICAN RAILROAD Antecedents of the railroad, 14. Country roads and turnpikes, 14. Canals and improved rivers, 16. Early history of the railroad in America, 20. References, 23. Until the fourth decade of the nineteenth century the in- land highways of travel and trade were wagon roads, rivers and canals. As compared with Europe the United States was poorly equipped with these means of transportation, because the newness of the country, the sparseness of popu- lation and the undeveloped state of industry had kept both the government and individuals from devoting to the build- ing of roads and waterways the meager volume of capital available for investment. Most of the countries of western Europe still lead the United States in the building of roads and waterways, though the railway mileage in this country now surpasses that of all Europe. In recent years, however, there has been a widespread movement in the United States toward the betterment of roads and the construction of an adequate system of inland waterways, and a vast amount of work has been accomplished, in which Federal, State and local governments as well as private individuals and corr porations have shared. Until near the end of the eighteenth century the country roads constructed in America were built and maintained by the local governments — that is, by the towns in New Eng- land, the townships in the middle Atlantic section, and the counties in the South. With the growth of population 13 14. RAILROAD TRANSPORTATION and business these highways became so inadequate that corporations of individuals began the construction of roads and charged tolls for their use. These roads were called turnpikes, because at the places where tolls were collected there was placed across the road a gate consisting of a pole armed with pikes and so hung as to turn upon a post. The construction of toll roads began soon after 1790, and numerous turnpike companies were chartered by each State, The Stagecoach, Generally Used for Passenger Travel Before THE Introduction of the Railroad particularly by the Middle and New England States. The greatest mileage was built in Pennsylvania, and what was done in that State is typical of what occurred in many other parts of the country. In 1790 a company was chartered to build a turnpike from Philadelphia to Lancaster, and this road, begun in 1792, was completed in 1794. Later this road became a part of a continuous line of turnpikes extend- ing from Trenton, N. J., to Steubenville, on the Ohio River, a distance of 343 miles. Before the construction of railroads began in this country, 102 Pennsylvania companies had built 2,380 miles of roads in that State at a cost of nearly $8,500,000. Although these toll roads did not, as a rule, prove to be very profitable to the companies which built them, they were of great benefit to the people of the State. Some of these turnpikes are still operated as toll roads, al- ORIGIN or THE AMERICAN RAILROAD 15 though most of them have very properly become free pubHc highways. Some turnpike roads were built with funds donated by the State and by the Federal Government at the time when public aid was being given freely to works of "internal im- provement." The most celebrated of these turnpikes was the Cumberland Road, or the "National Pike," constructed by the United States. The first appropriation for the build- ing of this highway was made in 1806, and the first con- The Oonestoga Wagon, the Predecessor or the Freight Cab in THE Middle Atlantic States struction contract was let in 181 1. The road was builli westward from Cumberland, Md., and by 1818 it reached Wheeling on the Ohio River. Subsequently it was ex- tended across Ohio and Indiana, and by 1838 it reached Vandalia in central Illinois. It was to have gone to Jeffer- son City, Mo., but before Illinois had been crossed the superiority of the railroad for the carriage of long-distance traffic had been fully demonstrated, and further extension of the National Pike was discontinued. Even before the period of turnpike construction began attempts were made to establish artificial waterways in America. Surveys of canal routes were made in Pennsyl- vania as early as 1762. In 1774, Washington, who years before had been deeply impressed by the need for a through . transportation route between the Atlantic seaboard and the region west of the Allegheny Mountains, laid before the 16 RAILROAD TRANSPORTATION Virginia House of Burgesses a plan for establishing a great highway between the East and the West by the improvement of the navigation of the Potomac River from tidewater to Fort Cumberland, and the construction of a road across the mountains to the nearest navigable tributary of the Ohio River. A bill was introduced by the terms of which individuals were permitted and authorized to subscribe the funds necessary to carry out such a scheme, but before an agreement could be reached between Virginia and Mary- land concerning the improvement of the Potomac River, the Revolutionary War broke out and temporarily put a stop to all plans for the undertaking. With the return of peace the agitation for the establish- ment of waterways was renewed, and a large number of notable improvements were planned. Washington displayed a deep interest in the entire movement and especially in his favorite project of constructing a through route between the Ohio Valley and the Atlantic coast region, and for a few years he was president of the Potomac Company, a corporation chartered by Virginia and Maryland for the improvement of the Potomac River. While he was in charge, the enterprise was vigorously prosecuted and a considerable portion of the work of building a canal around some of the falls in the river was completed, but when he resigned to become President of the United States in 1789, the project was allowed to languish and work was practically aban- doned. Because of a lack of capital only a few of the many other waterways planned at the time were completed, the most important being the Dismal Swamp Canal, which was built between 1787 and 1794, and the Middlesex Canal, which was finished in 1804. However, with the spread of population westward from the ocean, the need for better transportation facilities became more and more pressing, and it was strongly urged that the Federal Government undertake the work of supplying them. ORIGIN OF THE AMERICAN RAILROAD 17 In 1808 Albert Gallatin, the Secretary of Treasury, made an elaborate report to Congress, outlining in detail a plan for the construction by the United States of a comprehensive system of waterways and roads to extend throughout the entire country. Before any action could be taken on Galla- tin's scheme the government became involved in the com- plications which led finally to the second war with England. By temporarily cutting off all intercourse with Europe and by confining domestic trade almost entirely to inland routes the war strongly emphasized the need of the people of the United States for a more adequate transportation system; and, when peace was again restored, determined efforts were put forth to secure a number of important artificial waterways by the construction of canals and by the canal- ization of rivers. The National Government, under the control of the strict constructionist party, did not for a time assist in the work of supplying "internal improvements," but State governments and private corporations, aided by the States, undertook the work, and later the Federal Govern- ment gave extensive aid, directly and indirectly, to the proj- ects both of States and of private corporations. Of the many schemes for waterway improvements planned and undertaken soon after the close of the War of 1812 there were two of especial prominence, one for the purpose of connecting the anthracite coal fields in eastern Pennsyl- vania with tidewater, and the other for the purpose of establishing through transportation routes between the East and the West. One of the first of the anthracite tidewater canals was the Schuylkill Navigation, which was built along the Schuylkill River from Mount Carbon to Philadelphia, and opened for traffic early in 1826. Shortly afterward canals were built along the Lackawaxen, Lehigh and Sus- quehanna Rivers. From the Delaware River, opposite the point of entrance of the Lackawaxen Canal, the Delaware and Hudson Canal was built to Rondout, N. Y., on the 18 RAILROAD TRANSPORTATION Hudson River, and two other lines of communication be- tween the Delaware River and New York harbor were es- tablished by way of the Morris Canal extending from a point opposite Easton, Pa., to Newark and Jersey City, and by way of the Delaware and Raritan Canal from Bordentown to New Brunswick, N. J. All of these canals, with the exception of part of the one along the Susquehanna River, were built by private corporations, which in most cases, however, were subsidized by the State governments. The State of Pennsylvania also constructed, as a part of the an- thracite tidewater system, a canal along the Delaware River from Easton to Bristol. The project of establishing a through route to the West was attempted by each of three States, New York, Pennsyl- vania and Maryland, but only the effort of New York re- sulted in complete success. This State built the Erie Canal, which was begun in 1817 and opened in 1825. For nearly a half century after its completion this waterway and its connections constituted the most important single route of trade between the Central States and the Atlantic sea- board. The immediate success of the Erie Canal roused Pennsyl- vania to action, and in 1826 she began her system of "public works," the main feature of which was a composite rail and water route, completed in 1834, connecting Philadelphia with Pittsburgh. A railroad ran from Philadelphia to the Sus- quehanna River at Columbia, thence a canal extended up the Susquehanna and Juniata Rivers to Hollidaysburg. Be- tween Hollidaysburg and Johnstown the canal barges were carried over the mountains by a portage railroad; a canal connected Johnstown and Pittsburgh, at which point junc- tion was made with the Ohio River steamboats. Though affording a through route between Philadelphia and Pitts- burgh this line proved to be both inconvenient to operate and expensive to maintain; it was never able to compete ORIGIN OF THE AMERICAN RAILROAD 19 successfully with the Erie Canal for through traffic, and soon after the completion of the Pennsylvania Railroad most of it was abandoned. Two years after Pennsylvania started the construction of her public works, a corporation chartered by Virginia and Maryland as a successor of the old Potomac Company of which Washington had for a time been president, began to build the Chesapeake and Ohio Canal in the valley of the Potomac. This canal was never built farther than Cumber- land and it did not reach there until 1850. In addition to the waterways already described a large number of others were constructed. By 1840 New York and Pennsylvania each had nearly 1,000 miles of artificial waterway. The transportation systems of canals and rail- roads in those two States in 1840 is shown by the accom- panying charts giving data taken from Tanner's maps of that date. Several short canals were built along the Atlantic coast to connect some of the larger indentations of the sea. The most important of these waterways was the Chesa- peake and Delaware Canal which was completed in 1829, In the Western States also, where the people were anxious to take advantage of the hew route to the East afforded by the Erie Canal, great interest was taken in the con- struction of waterways. Between 1830 and 1850, Ohio and Indiana, aided by large grants of land from the Federal Government, built three canals joining the Ohio River to Lake Erie ; and Illinois built a canal from Chicago on Lake Michigan to La Salle on the Illinois River. After 1840 canal building fell off rapidly. The panic of 1837 so crippled the financial resources of the States that they were temporarily left without surplus funds to invest in internal improvements; at the same time the railroads were being extended rapidly and were taking the traffic that had previously moved by water. The use of rivers and canals did not stop with the spread of the railway aO RAILROAD TRANSPORTATION system, nor have the inland waterways yet ceased to be serviceable ; but at the present time only the large lakes and rivers and the most important canals are able to hold their traffic in competition with the railroads. The railroad at the beginning was an improved tram- way equipped with a track upon which locomotives could be run. The distinctive feature of the railroad was the substitution of mechanical for animal traction (the use of steam instead of muscle as the power by which vehicles were moved), and, although the first locomotives were small and crude, their use as an agent of transportation marks one of the greatest advances the world has ever made. Mechanical traction freed society from the narrow limitations which muscular force placed upon human de- velopment, and gave man possession of an agency capable of indefinite improvement. The construction of tramways for cars drawn by horses was a comparatively simple task, and, from 1801 on, tram- way companies were frequently chartered in England. The tracks were used mainly for hauling minerals. The Quincy tramway, the first road of its kind in America — built in Massachusetts in 1826 and sometimes wrongly called the first railroad in America — was used to transport the build- ing-stone of which Bunker Hill monument was erected. It was only three miles in length, and extended from the Quincy quarries to a wharf on the Neponset River. Near the quarry there was a steep incline, up and down which the cars were handled by a stationary engine; for the re- mainder of the distance horses were used. The rails used on the tramways and on most of the early railroads of America consisted of wooden beams with a strap of iron nailed to the upper surface, the rails being very similar to those most frequently used for street railways until horse cars were displaced by the heavier electric cars run at a higher rate of speed. ORIGIN OF THE AMERICAN RAILROAD 21 The successful locomotive dates from 1829, at which time the celebrated English engineer Stephenson brought out the Rocket. The stationary engine had been introduced by Watt 50 years before that time, but it was Stephenson who first incorporated in the engine the two features essen- tial to a workable locomotive. One of these two features was the multitubular boiler, by which the heating surface The Eocket, 1829 was greatly increased. Stephenson was not the inventor of this, but was the first to make practical use of the inven- tion. The other feature was the exhaust draft, the device whereby the exhaust steam from the cylinder created a stronger draft through the firebox and the tubes of the boiler. By combining these two principles in the Rocket, Stephenson became the "father of the locomotive." At the trial test, in October, 1829, on the Liverpool and Man- chester Railroad, the Rocket attained a speed of 29 miles an hour and the practicability of mechanical traction became a demonstrated fact. The day of doubtful ex- 22 RAILROAD TRANSPORTATION periment was past, the tramway became the railroad. The first railroad in England, the line between Liver- pool and Manchester, was begun in 1826— three years before the success of the locomotive was assured. At Mauch Chunk, Pa., in 1827, and between Carbondale and Hones- dale, in the same State, in 1826, two coal companies had opened roads for the transportation of their coal from the mines to their canals. These mountain roads were built for private use, and the cars were operated by the force of gravity and by means of stationary engines. They were not railroads in the present meaning of the term. The pioneer American railroad built for general public use was the Baltimore and Ohio. The company was chartered in 1827 and construction was begun in 1828, but not on a large scale, there being only 13 miles open for trafHc in 1830. Five years later the length of the road was 135 miles. The first rail of this historic road was laid on July 4, 1828, by Charles Carroll, the only living signer of the Declaration of Independence. As Professor Hadley, writing in 1885, stated: "One man's life formed the connecting link between th< political revolution of the last century and the industrial' revolution of the present." The construction of numerous other roads was begun shortly after work commenced on the Baltimore and Ohio. A South Carolina road, the Charleston and Hamburg, was chartered in 1829, and in 1834 it had 137 miles in operation. For a short time it was the longest line in the world under one management. The parent company of the New York Central system, the Mohawk and Hudson, was chartered as early as 1826, and began construction in 1830. The line from Albany to Schenectady, 17 miles, was opened in 1 83 1. Five years later Albany and Utica had been con- nected by rail. In 1842 Buffalo was reached, and by that time lines had been built from New York and Boston to Albany, so that the East and the West of that period had ORIGIN OF THE AMERICAN RAILROAD 23 been joined by easy communication by way of the railroads and the Great Lakes. Between 1830 and 1835 railroad building was pushed more rapidly in Pennsylvania than in any other State, 2CX) miles being opened. The first division of the present Penn- sylvania Railroad system was the Columbia Railroad, by which Philadelphia was connected with Columbia, on the Susquehanna River, in 1834. The road was built by the State, its construction having been authorized in 1828. This railroad was a link in the through route above referred to, consisting of canals and railroads, by which the State connected Philadelphia with the Ohio River at Pittsburgh in 1834. The line to connect Philadelphia with New York, the Camden and Amboy, was chartered in 1830 and com- pleted in 1837. The road from Philadelphia to Baltimore, the Philadelphia, Wilmington and Baltimore, was chartered in 1831 and finished in 1837. The Reading Railroad, built mainly for the transportation of coal, was chartered in 1833 and opened for traffic five years later. In Massachusetts the chartering of railroad companies began in 1830, and in 1835 three lines radiated from Boston. One ran south to Providence, another north to Lowell, and a third west to Worcester. This third line reached Albany and western connections just at the close of 1841. Americans began to build locomotives in 1830, or about as soon as they engaged in railroad building. The Eng- lish locomotives were expensive, they could not be secured promptly, and when obtained they were not well adapted to the light rails, steep grades, and sharp curves of the American tracks. The traffic conditions caused the engines and cars to be built according to designs different from those followed in Great Britain, and the differences in equipment are quite as pronounced today as they were at the beginning. 84 RAILROAD TRANSPORTATION REFERENCES Tanner, H. S. A Description of the Canals and Railroads of the United States (1840). Hadley, a. T. Railroad Transportation, chaps, i and ii (1885). Adams, Charles Francis. Railroads: Their Origin and Prob- lems (1878). [The first third of the book gives the story of the "Genesis of the Railroad System."] Poor, H. V. Manual of the Railroads of the United States. [The volume for 1881 contains a sketch of the "Rise and Progress of Internal Improvements."] Tenth Census of the United States. [Vol. IV contains a his- tory of the canals of the United States.] RiNGWALT, J. L. Development of Transportation Systems in the United States (1888). Jones, Chester Lloyd. The Economic History of the Anthra- cite-Tidewater Canals (1908). CHAPTER III GROWTH OF THE AMERICAN RAILROAD NET Growth in mileage by decades, 26. Importance of the decade from 1850-1860, 26. Railroad consolidations, 28. The decade, 1860- 1870, 30. The first transcontinental lines, 30. The panic of 1873. 31- Construction from 1880-1890, 31. Construction since 1890, 32. Comparison of American and European railroad mile- age, 33. Magnitude of the railroad system in the United States, 33. References, 37. The accompanying chart shows what the railway mile- age of this country has been at the beginning of each decade since the introduction of the new means of trans- portation. In 1830 there were but 23 miles in use. During the succeeding ten years the total mileage reached 2,818. The account just given of the early history of American railroads shows that the roads constructed during the first ten years radiated from several Atlantic seaports, Phila- delphia being the most important center in 1840.^ New York was a larger city, but having especially favorable facilities for water transportation, its railway connections were de- veloped somewhat more slowly than were those of Philadel- phia. In the year 1850 the length of the railways in the United States reached 9,021 miles. The growth during the preced- ing ten years had not been especially rapid outside of the New England States. The decade 1840 to 1850 was not a period of rapid industrial development. The progress of the country was steady, but comparatively slow. Railroad ' Consult map of Pennsylvania's railroad net in 1840, 26 RAILROAD TRANSPORTATION Chart showing by decades the mileage of railway lines in the United States 1830 23 1840 2,818 1850 9,021 i860 30,626 1870 52,922 1880 93,267 1890 163,597 1900 193.346 I9I0 240,293 I9I8 253,528 building in the Southern States made little headway, and in the central West only three important lines were begun. In New England, where the country was most thickly popu- lated, the progress was greater, so that by 1850 nearly all the present important trunk lines in that section had been completed. The ten years following 1850 were far more important in railroad history than were the ten years previous. The in- crease between 1850 and i860 was from 9,021 to 30,626 miles. Several causes combined to bring about this rapid expansion. Fully recovered from the financial and industrial depression occasioned by the disastrous panic of 1837, the United States was enjoying a period of great business prosperity. In the central West the steady inflow of settlers had brought about the addition of thousands of acres to the farm land of the nation, and with the great increase in acreage and the constantly growing use of farm ma- chinery, the annual product of agriculture in this section, composed chiefly of cereals, was enormously augmented; in the South cotton cultivation had become the one dominat- ing industry and with the multiplication of spindles and looms in New England and abroad the cotton plantations grew in number and extent and the crop of cotton became GROWTH OF AMERICAN RAILROAD NET 27 larger each year; in New England and the middle Atlantic States manufactures and commerce were assuming the posi- tion of leading importance. To care for the expanding volume of traffic entering into domestic trade and to insure the permanent prosperity of the three economic sections of the country an adequate transportation system was vitally necessary. The railroad had fully demonstrated its superiority over the canal for the speedy carriage of all kinds of traffic; moreover, railroads could be constructed more cheaply than canals and could also overcome the difficulties imposed by climate and elevation. Consequently canal building was practically discontinued after 1850 and every energy was bent toward establishing rail connections throughout all parts of the country. Conditions were extremely favorable for the success of railroad enterprises from 1850 to i860. Encouraged by the increase in the volume of money resulting from the dis- covery of gold in California, business activity in all lines was unusually keen and railroad builders were sure of a large volume of traffic. On account of an eagerness for speculation existing throughout the country it was no diffi- cult matter to secure private capital for the prosecution of transportation enterprises. Then, too, construction of rail- roads in the central West was greatly stimulated by grants of land from the public domain. In 1850 the first large grant was made, the Illinois Central Railroad being the recipient, and many other gifts of land were made during the next few years. The policy of giving lands to aid in railroad construction was followed by the United States for nearly thirty years, and it caused some of the lines in the Central and far Western States to be built earlier and more rapidly than they otherwise would have been. The individual States and many local governments also made large contributions of public funds to induce corpora- tions to construct railways. The history and results of 28 RAILROAD TRANSPORTATION government aid to railroads are given in Chapter XXVII. During the decade following 1850 many of the trunk lines of the large railway systems were completed. The Erie Railroad joined New York to Dunkirk on Lake Erie in 1 85 1, and the same year connection between New York and Buffalo by way of Albany was established by the com- pletion of the last of the chain of roads which were sub- sequently consolidated into the New York Central and Hudson River Railroad. The Baltimore and Ohio, the first railroad of the United States, reached the Ohio River, also, in 1851, and the following year a through rail route was completed between Philadelphia and Pittsburgh. In the South, also, trunk lines from the ports of Charleston and Savannah were extended as far west as Tennessee. All of these lines, and especially those in the North, made connec- tions with new railway systems spreading through the Cen- tral States. By 1853 it was possible to travel from the At- lantic seaboard to Chicago by rail. In the following year the Chicago and Rock Island Railroad connected Chicago with the Mississippi River. Land grants. State subsidies and prosperous times combined to foster the rapid spread of the railway net in the middle West, and it was in that region that the greatest part of the construction of this decade took place, though both in the South and in the Atlantic coast section south of New England a large amount of new track was laid down. The period of expansion lasted until 1857, when the good times were interrupted by a sharp finan- cial panic, which so seriously interrupted railroad building that it had not regained its previous activity when the great Civil War broke out and put another check upon in- dustrial progress for half a decade. One of the most notable features of railway progress during the decade from 1850 to i860 was the beginning of the process of welding together numbers of short connecting railroads into long lines under a single ownership. The #'*-^N .«^ / \ ""^z^ ^^ /J '^^^J ^^a^^^^^^^p* ^ J \ V' .jlS^' ^*^^^^^^^^ . ^^'vV/Li^^ **• J^^^^^^^ .<^ ^Y*+v)^^^^ 'My! fA* ^..^^K AH^^l WIS iff 1^1 '^^^^ "^^^4^^^^^ "5iv_jM.Jiili ""^" W _-^a^^^M, >X. YT^^Sj^^^^ ^^^^ES "^^^W ^t [Li ILl M^nP^^^P^Zo^^^'^'^^^ m"" =f a*rJps^^*^^^^^^jJ^iSw<"«;jy^ tp-y S hj3>t^M^^^^ 8 *^^^ """ in— '"'^.'"''^ /yj^ ^-JZ^^\ ■"s^^fflj Memp-hJAi -\ / T&«N y^ ,y /NO ^-~_ ^iafan- — < 1 1 ^fS^f^'^^^^F^ ^ ! NEV i\ ^- -^^«" ^^..™n.nW^^''^X^ v"' ^^^^:% s»r«M^/cAU ^^^? ^M w^\ \^ - » m Map of the Railroads in the United States in 1860 ^^<^ -^ \- -b B-"/ V 8 ^ \ \ C'^^&t ^^A ^ r ^__A-* i. 1! JS. -ir^ i'-isfrT: x\r a , u^ ^^n^ 3?^pK>. ^w- ^ " ''■ife?>^^ ^1 ^^^1 s ^Jk<^^>K 1 \T^ StM iiiSr'ls fti ^^=b>^ ° bh -MO i ' 1 ^g 2- * — ^ Li.^^^a^iT^i-' .■[ .■! J, '^/d- ^TO- ^^/jtWiMw =|rl-. y t-f^r a I Iffli u ( V/OT ■^^!_ ■-3Sh&^__J\ — "" /SMiii£jLsi """ — 1 V /\. S"^ / IJ^T/?^ (fi 5/^(1 l_r ■— J^ "[7^o4^ ov^^Ji ^ °^u^* ■E^ -v " 141^ A z '^ ^■ .q / ^'^^^ lEn ■J^^ ^ ~'^^^-Mi r = V / < 1 / ^5 CO i mS. til 5 ^^^^'^ ^, ■ ^LU °= - S -^ CO ^ „, S tjj ^ 2= J w Map of the EAioiOADS in :iE United States in 1921 GROWTH OF AMERICAN RAILROAD NET 29 early roads were short, largely because the corporations of the fourth and fifth decades of the last century could not command the capital needed to build ■ long roads or large systems. No enterprise now seems too great for a private corporation, but previous to 1850 that was not so. Some of the short roads were built with reference to their being a part of a through or general system, but many were con- structed rather to connect local points. The necessity for providing facilities for uninterrupted travel and shipment became so imperative that railway consolidations were found to be necessary. The New York Central Railroad and the Pennsylvania Railroad are good examples of these consolidations. In 1850 there were no less than ten distinct companies owning and operating the railroads composing the line connecting Albany and Buffalo, but by 1853 these roads were united under one management. In 1867 Commodore Vanderbilt secured a controlling interest in this line and in 1869 he brought about its consolidation with the Hudson River Rail- road which he had acquired a few years previously. Mean- while, several important branch lines had been added to the property, connecting lines west of Buffalo were soon leased, and thus the powerful New York Central system was built up. The Pennsylvania Railroad Company was chartered in 1846 to construct a line from Harrisburg to Pittsburgh. The company secured control of the road between Harrisburg and Lancaster in 1849, ^nd when in 1857 it bought up the main. line of the public works of Pennsylvania, including the railroad extending from Philadelphia to Columbia by way of Lancaster, it came into possession of a continuous line of railway from Philadelphia to Pittsburgh. By build- ing new lines and absorbing other companies the system was gradually extended through all parts of the rich territory lying between New York, Philadelphia and Washington on 80 RAILROAD TRANSPORTATION one side and Chicago and St. Louis on the other. At the present time this great system comprises properties for- merly owned by more than 200 companies, in addition to the extensive mileage constructed by the original corporation. During the decade 1860-1870 the mileage of railways in the United States increased from 30,626 to 52,922. While the Civil War was in progress the amount of construction was necessarily small, but as soon as peace was restored, railroad building, in common with nearly all other lines of business, became unusually active. After 1866 construc- tion proceeded at an unprecedented rate. The increase in 1869, amounting to 4,615 miles, was greater than the in- crease of any single previous year; and in 1870 the new track laid down amounted to 6,078 miles. The most important single feature of the railroad history of the period was the completion in 1869 of the first trans- continental line. From Omaha to Ogden this line was built by the Union Pacific Railroad Company, which was char- tered by Congress in 1862 and rechartered in 1864, while the Central Pacific Railroad Company, a California corpora- tion, constructed that part of the road lying between Ogden and Sacramento. The route of this line is shown in the map of the railroads for 1870. The United States Government, desirous of having railroad connection established between California and the; northern States of the East, gave great quantities of land and loaned large sums of money to the corporations undertaking this enterprise. To other companies also, which engaged in the work of building railways across the dry plains and high mountains toward the Pacific coast, the Federal Government made liberal gifts of land; and those companies which did not receive Federal aid were freely subsidized by the States. Within a short time a number of transcontinental lines were under way, and though construction work was checked by the panic of 1873, the roads were ultimately pushed GROWTH OF AMERICAN RAILROAD NET 31 through to the ocean. The Atchison, Topeka and Sante Fe reached Deming, N. M., in 1881, there connecting with the Southern Pacific line to San Francisco. In 1883 the Northern Pacific was completed and the same year the Southern Pacific opened a line from New Orleans to the western coast. Since then additional lines have been added, until there are now within the United States no less than seven distinct transcontinental railway systems. Three great lines stretch from ocean to ocean in Canada and another transcontinental route is being established by the construc- tion of a road between the Missouri River and the Mexican coast. The period of rapid railroad building which began in 1867 lasted until 1873, the railway net of the United States being increased by 33,000 miles during the seven years. Unfortunately, however, many of the new railways antic- ipated the needs of their time. Unable to secure traffic, ^hese roads afforded no return on the large investments Ivhich they represented, and their s'ecurities became almost Worthless. The financial and industrial crisis of 1873 was largely due to the too rapid building of railways and to the overcapitalization of most of the new lines. Indeed the panic was precipitated by the failure of the Jay Cooke banking house of Philadelphia, which had underwritten a large issue of Northern Pacific bonds. The depression which ensued was severe and protracted, and during the five years following 1873 less than 10,000 miles of railway were constructed. By 1880, however, the country had re- covered from the results of the panic, and the growth of the railway net again began to proceed at a rapid rate. In 1880 there were 93,267 miles of railroad in the United States. In 1890 there were 163,597; 70,000 miles of railroad were built in this country in a single decade. This marvel- ous achievement is unparalleled in the economic history of any other country of the world. Within ten years the people 32 RAILROAD TRANSPORTATION of the United States built as many miles of railroad as the people of the three leading countries of Europe had con- structed in 50 years. The building operations were carried on in all sections of the country, but the largest increases were made in the States of the central and western por- tions of the country, where settlers were rapidly taking possession of the unoccupied agricultural and grazing sec- tions of the vast public domain, and where the mineral wealth of the Cordilleras was causing cities and States to be established on the great Rocky Mountain plateau. Capi- talists, confident of the growth of the country, and assisted by generous aid from the United States and from the local governments and individuals of the sections to be served, constructed railroads for the purpose of creating the traffic upon which the earnings of the roads must depend. In many cases the railroads built during the 20 years following the Civil War were pioneers entering unsettled regions beyond the Mississippi and Missouri Rivers and opening the high- ways by which immigration was able rapidly to occupy thf prairies and mountain valleys of the great West. After 1890 there were no spectacular increases in the railway mileage of the United States comparable to the increase occurring during the preceding 10 years. It seems that by 1890 the most urgent needs for railways had been met, that the country had been so well covered by the railroad net that only minor extensions were necessary. Moreover, the financial depression which began in 1893 and lasted for nearly five years compelled the railway com- panies to practice rigid economies and caused them to extend their systems slowly. During the five years from 1894 to 1898 inclusive the annual construction averaged less than 2,000 miles, ,the yearly increase being only a little more than I per cent, and the entire construction between 1890 and 1900 amounted to less than 30,000 miles. With the return of prosperous times in 1898 the rate of increase rose GROWTH OF AMERICAN RAILROAD NET 33 again and for the next 12 years about 5,000 miles, or more than 2 per cent, were added each year to the railroad net of the United States. From 1910 to 1913 the average annual construction was slightly in excess of 3,000 miles. With the coming of the World War in 1914 railway building abruptly declined, and kept on declining until in 1920 only 314 miles of new line were completed in the United States. In fact during the four years following 1916 there was a greater mileage of old line abandoned in this country than of new line constructed, so that the railway net at the be- ginning of 1921 was actually less extensive than it had been five years before. The railway mileage of Europe, the United States, and the world in IQ14 Europe . .*. 218,000 United States. . 252,000 The World 691,000 The railway system of the United States now comprises over 253,000 miles of line. In 1914, before the World War began, when there were 252,000 miles in the United States, the railway lines of the entire world were 691,000 miles long. More than one-third of the railway mileage of the world was in the United States. The mileage in the United States exceeded that in all Europe by more than 15 per cent. The magnitude of the railway system of the United States is only partially indicated by the figures as to mileage. The par value of the capital stock and the bonds comprising the capitalization of the railroads in this country amounted on December 31, 1918, to $20,784,832,841. Not all of these securities possessed a selling value ; and it is not possible to say just how much capital was invested in the railroads of 34 RAILROAD TRANSPORTATION the country at that time. The yearly rental paid to railroad corporations by the Government, during the period of gov- The Penmylvaiua Canals ^RaiURoait T. BORBIDGE & Co's. Transportation and Commission CAlVAIf BASinr, CQIiUMBtA. -"Ill II —■■— —— ^—^» Their arrangements are such, (bat thex can at all f inieB darlnr (he Boslou* SeaflAi|« forward Goods. Produce, and Alercliandlze, to and from Pbiladeipliln.-PUtgbare. WIUIam»> port. Wllksbarrc. and oil intermedifac placnootbe PenDprlrnnla Canals anaUail itoud* wlCb prompinessand dcsiuiccb* ** A1X KINDS OP Recevaed and Sotd fm C^mmiinbn, and /i^erof oi/e^nce^miKfe ff refinr«£ ,,CONaTANTLT Oft BAND LARGE BVtfUES OF iiNTHRACITE ANB SlTUSStHOVS COAb iU. OF nmCH THE! fflU SELL LOW ^R CiBB (A CO'tilTSr rBODICE^ OI«lw, UKWHtCawir. h. Much I. U& An Advebtisemenx IiiusiEATmo the Teanspobtation Sebvicb IN 1835 ernment operations, from December 28, 1918, to March i, 1920, was $918,000,000. This sum, capitalized at 6 per cent, would give to the roads which the Government oper- GROWTH OF AMERICAN RAILROAD NET 35 ated a value of $15,300,000,000, which is considerably less than the par value of their outstanding securities. In 1913 Congress enacted a law directing the Interstate Commerce Commission to undertake the valuation of all the railroads of the United States. Before sufficient time had elapsed for the completion of the valuation, the Trans- portation Act was passed, February 28, 1920, under the terms of which the Commission was required to establish a level of rates which would yield to the carriers, as nearly as possible, a net operating income of 5^ per cent (or at the discretion of the Commission of 6 per cent) of the value of the carriers' property devoted to transportation. In reaching a decision as to what the level of rates should be to yield a net operating income of 6 per cent the Com- mission set a value of $18,900,000,000 upon all the rail- roads. This was some two billion dollars less than the val- uation which the representatives of the railroads asked the Commission to adopt. When the appraisal of the railroads, provided for in 1913, is completed, we shall have a valua- tion based upon an actual inventory. Even then, however, because of differences of opinion as to what principles should govern the Commission in establishing final money values of physical assets, the valuation arrived at will by no means be satisfactory to all parties. Using the estimate of $18,900,000,000 as the amount of capital invested in railways of the country, it is interesting to make comparisons with other industries. The capital stock and surplus of the 7,762 national banks of the United States in 1919 amounted to $1,984,964,000 — about one- tenth the probable value of the American railroads. The total capital and surplus funds of all banks, national. State and private, and of the loan and trust companies in the United States in 1919 amounted to $5,000,000,000 — about one-fourth the value of the railroads. The amount 36 RAILROAD TRANSPORTATION of capital invested in railroads is little less than that invested in all the manufacturing industries of the country. The census of manufacturers in 1914 showed a reported capital investment of $22,547,574,000; while the a? !BA3iL :&ixh:d &(eiisxvs> Ron Phiiadeliihia to PitisbBSfe, THROUGH IN 31 BATS: /iilfO BVSTEJIJi;hl wh»rl cart, via ih* Ijmcaiitt nml tlurrniurg fte.l KonJt. •rri.Inir 01 ihf hntf pUtf , at 4 n'tVitV, in ih^ nftf nwMt. ofam p-iMneFn wjl i>il Whuc Swan HMcl,Rw«Slrccit •• itw N. E. tanct sT TUf^ Vld *illO* ftrtMt r(is3> South ThinI Stmt t uiHlai ihcW*!) ChairrlliHiir.DimMjSiTtrt An Adveetisement Showing What the Transpoetation Sebticb Was in 1837 GROWTH OF AMERICAN RAILROAD NET 37 value of farms and farm property in the United States on April 15, 1910, was placed at $40,991, cxx),ooo. The total wealth of the United States in 1912 was estimated to be $i87,739,ocx),ooo, to which railways and their equipment contributed $16,149,000,000. Although it now costs but a small fraction of what it once did to transport persons and commodities a given distance, the amount of travel and traffic has so enormously increased, the demand for the service is now so many times what it was before the days of the railroad and other economical agencies for transpor- tation, that the capital employed in transportation is far greater than in the days of the stagecoach and the towboat. The cheaper the service, the greater its magnitude and the larger the amount of capital devoted to the performance of the service. REFERENCES Scrihner's Statistical Atlas of the United States, plates 15-17 and p. cvii (1883). Hadley, A. T. Railroad Transportation (1885). Philips, U. B. A History of Transportation in the Eastern Cotton Belt to i860 (1908). Statistical Abstract of the United States (annual). CHAPTER IV THE MECHANISM OF THE RAILROAD— DEVELOP- MENT OF TRACK AND LOCOMOTIVE Early track construction, 39. Development of the railroad rail, 39. Ties and ballast, 44. Early locomotives, 45. Later types of Locomotives, 51. Classification of locomotives, 57. Recent im- provements in locomotives, 58. Although this book is concerned with the transportation service, with transportation economics, rather than with the technical or engineering phases of the subject, a brief Tback with Wooden Steingehs, Surfaced with Straps or IsoTf account of the growth and present efficiency of the mechan- ism by which the service is now performed will aid in the presentation of the subjects considered in this volume. The essential parts of the railway machine are three in number : the track, the locomotive, and the car. Each had crude be- 38 TRACK AND LOCOMOTIVE DEVELOPMENT 39 ginnings and each has reached its present condition of ex- cellence by a long series of improvements. A few only of the most important of these improvements need be con- sidered. At the beginning of railroad construction, tracks of vari- ous designs were built, the chief thought of the builders be- ing to secure a solid structure that would not permit the rails Tback of Gkanite Siixs Plated with Steaps or Ieon to spread. In relation to the weight of the rolling stock and volume of traffic the track was comparatively heavy and expensive. This was particularly true in England and on some American railroads begun before 1835, up to which time American practice was more influenced by British methods than it was during subsequent years. Three kinds of rails were Msed, the one most employed consisting of strong wooden beams, surfaced with strap iron. On the South Carolina Railroad the timber rails had a cross section measuring 6 by 12 inches, and the strap iron was 23^ inches wide and Y^ inch thick. It was no uncommon thing for the iron straps on this type of rail to work loose, and curving upward under the weight of moving trains, form "snakeheads," which, when the wheels passed *0 RAILROAD TRANSPORTATION under them, would penetrate the floors of cars, occasionally causing severe injuries to passengers. The danger involved in the use of such rails as well as their lightness caused the gradual substitution of rails made entirely of iron, all the early forms of which, to distinguish them from the "plate rails" were known as "edge rails." The most common form of the early edge rails used in this country was that known as the "parallel" rail, consisting of a heavy bar of iron having the same form of cross section throughout its length, with the top and base of about the same width and Tkack of Cast Iron Rails Resting on Granite Blocks the sides slightly concave. Another form, shown in the illustration on this page, had no base and was deeper in the center than at the ends. All such rails were supported in iron pedestals or chairs placed upon blocks of stone or wood, and the track gauge was maintained by the use of crossties placed at intervals of 6 to 15 feet. The first edge rails were made of cast iron and for this reason their length seldom exceeded Zj4 feet. Rolled-iron rails came into use in the United States about 1832, the first ones being about 15 feet long and weighing 40 pounds to the yard. Until 1844 all the rolled-iron rails used in the United States were im- ported from Great Britain, but in that year a rail mill was established in Allegany County, Md., and in the following yeai", another at Danville, Pa. From that time the number TRACK AND LOCOMOTIVE DEVELOPMENT 41 of factories producing' rolled-iron rails grew very rapidly and an increasing proportion of the rails used came from domestic mills. The roadbed of the Columbia Railroad from Philadelphia to the Susquehanna River, constructed by the State of Penn- sylvania between 1828 and 1834, illustrates in an excellent way the various types of construction followed in the early days of railroad building. This was a double track road 81.6 miles in length, the entire length of single track RoLr.ED-lEON U-Ratl, 1844 being 163.2 miles, exclusive of sidings. For six miles of this distance the rails consisted of granite sills plated with flat iron bars. Eighteen miles of track had rails con- sisting of wooden string-pieces plated with thin bars of iron. These wooden string-pieces were laid upon wooden crossties placed four feet apart upon a secure foundation of broken stone. On two miles of the track rails made of iron were supported upon stone blocks, precaution being taken against spreading of the rails by placing stone sills across the track at intervals of 15 feet. The remainder of the track was constructed with edge rails supported in cast iron chairs of 15 pounds weight, which in turn rested upon stone blocks and wooden cross-sills placed alternately at distances of three feet. Throughout the entire length 42 RAILROAD TRANSPORTATION the space between the rails was filled in with gravel or broken stone to form a horse path. The roads constructed in this manner were needlessly expensive, and because of their rigidity were more destruc- tive to rolling-stock than the railroad tracks are at the present time. American builders soon adopted the kind of track with which we are now familiar, the rails being placed upon wooden crossties resting either directly upon an earth foundation or upon a thin ballast of gravel or broken rock. Builders tended early to substitute iron for wooden rails, but as late as i860 there were several railroads in the United States, particularly in the Southern States, still hav- ing wooden rails surfaced with thin plates of iron. One of the early improvements of the edge rail was a rail rolled in the shape of an inverted U. This type of rail was never used extensively, however. The T-rail now universally em- ployed was first designed about 1830, and by 1840 it was in use on several American railways. The first rails of this type were about 16 feet long and weighed 36 pounds to the yard. Both the U-rail and the T-rail could be spiked directly to wooden crossties and the use of the cast-iron pedestals or chairs was dispensed with. The greatest improvement in rails came with the substitu- tion of steel for iron in their construction. The first steel rails used in this country were imported from England by the Pennsylvania Railroad Company in 1863. Though the steel rails possessed a vastly greater durability than the iron rails, their excessive cost for a time prevented their general adoption. By 1870, however, the cost of rolled steel had be- come much lower and after that year the quantity of steel rails used multiplied with great rapidity. Not only were the new railroads equipped with steel rails, but on most of the older roads iron rails were replaced with steel. One-fourth of the mileage of railway track in the United States in 1880 TRACK AND LOCOMOTIVE DEVELOPMENT 43 was laid with steel rails, and by 1910 the proportion had increased to more than 98 per cent. Iron rails are now no longer made in this country. The manufacture of steel rails in the United States began in 1865, and since then the industry has expanded until it now occupies a position of high rank among the manufacturing industries of the nation, the output increasing from 2,277 tons in 1867 to a maximum of 3,977,887 tons in 1906. In 1913 the production amounted to 3,502,780 tons. It fell in 1914 to 1,945,095 tons, but un- der the influence of the war demand both at home and abroad, rose again, maintaining an average of 2,500,000 tons a year down to 1921. Until 1897 the steel employed in the manufacture of rails was made almost universally by the Bessemer process, but at the present time nearly three- fourths of the rails annually manufactured are rolled from open-hearth steel, and a small but growing number are rolled from steel made in electric furnaces. Attempts have been made in recent years to improve the texture of the steel used in rail manufacture by the addition of certain alloys, notably titanium, manganese, copper and nickel, but the alloy treated rails have not proved to be especially pop- ular, and their production has not been large. With the improvement of the design of the rail and of the material enjployed in its manufacture the weight of the rail has been steadily increased until at the present time the new rails being laid weigh from 85 to 150 pounds to the yard. One hundred pounds to the yard has become the standard upon most tracks where traffic is heaviest. For some time past the standard length of rail has been 33 feet, but at the present time some track is being laid with rails 60 feet in length. A rail 60 feet in length weighing 100 pounds to the yard weighs exactly one ton. The use of these heavy rails has been made necessary by the increased weight of en- gines and cars and by the increase in speed of passenger trains and freight traffic- Along with the improvements 44 RAILROAD TRANSPORTATION in the track, the bridges and other structures have been Strengthened to meet the necessities of modern transporta- tion methods, so that in spite of the greater cheapness of material as compared with the early days of railway build- ing, the roadbed of today is much more expensive than was that of 50 years ago. With few exceptions, the early roads had but a single track, and, indeed, today those having a relatively small volume of traffic have only one track. As the business over a line increases a second track usually becomes necessary, and some roads find difficulty in han- dling their business even with four-track lines. With the adoption of the T-rail the use of granite blocks and wooden sills to support the rails was discontinued, and ■ in their place the wooden sleeper or crosstie was employed. On account of its great durability and because it holds spikes more firmly than other kinds of wood, oak, and par- ' ticularly white oak, has been used most extensively as timber for crossties, though pine, fir, cedar, chestnut, cy- press, tamarack, hemlock and other woods are also em- ployed. The steady and rapid depletion of the hardwood forests of the United States has caused a great advance in the price of crossties in recent years, and railroads have attempted to meet the problem of increased maintenance costs by using other material than wood for crossties and by treating the cheaper soft-wood ties with some preserva- tive sif)stance which will give them a greater degree of durability. Attempts to introduce steel ties have as yet met with no marked success. The first cost is compara- tively high, and it has been found that the side thrust of the heavy rolling stock on the rails has a tendency to shear bff the bolts with which the tie and rail are fastened to- gether. Ties of concrete have also been made, but their high cost and extreme rigidity seem likely to prevent their general use. To retard decay wooden ties are treated, and such good TRACK AND LOCOMOTIVE DEVELOPMENT 45 results have been obtained, that most of the large rail- roads of the United States now use wooden ties only after they have been subjected to some preserving process. Many roads possess treating plants of their own, where not only ties but other timbers employed for ordinary construction purposes are treated. The two most common methods of preserving wooden ties are by treating them with creosote oil or with a solution of zinc chloride. These liquids pro- tect the vegetable fibers of the wood from the action of water and air, and consequently the life of a tie treated by either process is greatly prolonged. Notwithstanding the success of tie preservation, however, the growing scarcity of timber is causing a steady advance in the cost of wooden ties, and it is likely that in the future the use of some form of stee^ tie will become general. To make it possible to maintain a level track and to dis- tribute evenly the load of moving trains the railway track is usually laid upon a layer of ballast from 9 to i8 inches in thickness, consisting of some free-draining, easily worked material. Crushed rock, the pieces varying from Ij4 inches to 3 inches in thickness, makes the best ballast, though its first cost is greater than that of other materials employed. Gravel is widely used, but it is dustier and less firm than crushed rock, and it affords poorer drainage. Some of the other materials utilized for ballast are slag from iron furnaces, cinders and burnt clay. The development of the locomotive in the United States has had an interesting history. It must be remembered that when the first railroads were constructed it was not yet certain that the use of steam traction would be possible, and on several roads, notably the Baltimore and Ohio, the Mohawk and Hudson, and the Philadelphia and Columbia, locomotives were preceded by horses. The Charleston and Hamburg Railroad in South Carolina was the first road 46 RAILROAD TRANSPORTATION built solely with reference to the immediate use of steam for motive power, though the first locomotive actually run upon an American road was used on a short portion of a line between Carbondale and Honesdale, Pa. This loco- motive, the Stourbridge Lion, was imported from England in 1829. It proved too heavy for the trestles of the road, however, and it was never put into regular service. Petee Coopek's Locomotive, 1830 Locomotive building in the United States began in 1830. Indeed, experiments were begun the previous year by Peter Cooper and others. Peter Cooper expected financial gains from the successful completion of the Baltimore and Ohio, and when it seemed uncertain whether locomotives could be run on a road having grades and sharp curves. Cooper designed a little engine called the Tom Thumb, which weighed barely a ton, but which succeeded, in August 1830, TRACK AND LOCOMOTIVE DEVELOPMENT 47 in hauling 4^^ tons around curves and up grades at a speed of 12 to 15 miles an hour, and did much toward, demonstrating the possibility of using steam locomotives on American railroads. The first locomotives constructed in the United Statea for actual service on a railroad were built in New York City at the West Point Foundry Works. Locomotive No. l was the Best Friend, erected in 1830, and put into service that year on the Charleston and Hamburg Railroad. The following year the West Point was delivered to the same company. The third locomotive to come from the West Point Foundry Works was the De Witt Clinton, also built in 1 83 1, and put into use on the Mohawk and Hudson Railroad between Albany and Schenectady. Machinists in New York, Baltimore, York, Pa., and elsewhere were study- ing and experimenting, so that within two years from the time when the first tracks were laid American builders had demonstrated their ability to construct locomotives adapted to the requirements imposed by American conditions. Among the firms which early undertook locomotive con- struction was the one founded in Philadelphia by Matthias Baldwin, whose first engine, the Old Ironsides, appeared in 1832. Up to June I, 1920, the Baldwin Locomotive Works constructed more than 45,000 locomotives, and in prosper- ous times it builds more than 2,000 each year. The influence of George Stephenson, of England, and of his celebrated locomotive, the Rocket, was felt in the United States, but, considering the undeveloped condition of American industries in 1830, a surprisingly small num- ber of English engines were imported. The needs of our railroads were mainly supplied by our own foundries and shops. Nor were British models followed to much extent. American designers followed new lines in order to meet novel conditions. They were so successful in making en- gines that would work on curves and climb grades 48 RAILROAD TRANSPORTATION that American locomotives soon began to be sold in England. As compared with the locomotives with which we are The Old Ironsides, 1832 now familiar, those built in 1830 seem tiny and curiously- designed. The first locomotives constructed for actual serv- ice weighed from 3 to 5 tons; the weight of the De Witt Clinton was 3>^ tons. The English engines imported were DeWitt Clinton Engine and Train, 1831 double that weight and proved too heavy for the tracks with rails of wood surfaced with strap iron. The John Bull engine, shown in the illustration, was imported in 1831 for use on the Camden and Amboy line, the line connecting TRACK AND LOCOMOTIVE DEVELOPMENT 49 New York and Philadelphia. It weighed lo tons, and was the heaviest engine run up to that time. Indeed, its great size was a positive disadvantage to the company for some time. The American locomotives and cars, unlike the English and those on the Continent, where English models were John Bull Engine and Tkain, 1831 generally followed, early adopted a swivel truck. After the first few years practically all American locomotives had eight wheels, four driving wheels under the rear part of the engine and a four-wheejed truck carrying the fore part of the boiler, the truck being fastened to the engine by means of a bolt which permitted the truck to swing or Lancaster Engine and Train, Run on Pennsylvania State Railroad, 1834 swivel through several degrees and enabled the engine to round sharp curves. The swiveling truck seems to have been thought of by several people about the same time. Ross Winans, of Baltimore, used it under a passenger coach in 1831. The same year he placed a truck under the forward part of a locomotive. In 1831, moreover. 50 RAILROAD TRANSPORTATION the truck principle was applied to two locomotives built in New York. One was designed by Horatio Allen, while chief engineer of the Charleston and Hamburg Railroad, and the other by John B. Jervis, chief engineer for the Mohawk and Hudson Railroad. The engine planned by Jervis was more in accordance with subsequent designs, and to him the greater credit is due. The American or Campbell type is the name applied FiEST Campbell Locomotive, 1836 to the locomotive having four connected driving wheels and a four-wheeled truck. The first engine of this design was built in 1836 by James Brooks for Henry R. Campbell, both of Philadelphia. This speedily became the prevailing de- sign for the passenger service, and has remained until the present day the approved form of passenger locomotive, except when special conditions require the use of a loco- motive of a different type. One essential feature of the locomotive awaited intro- duction until 1837, ^'^'^ that was the use of equalizing beams by means of which the weight on the driving wheels TRACK AND LOCOMOTIVE DEVELOPMENT 51 ceases to be affected by the inequalities of the elevation in the track. Since 1837 locomotives have been so con- structed that each driving wheel can have a vertical motion independent of the other wheels, and can so move without changing very greatly the pressure imposed by the wheel on the track. Equalizing beams were first used in the Hercules, designed by Joseph Harrison, Jr., and constructed by the Baldwin Locomotive Works. Another notable im- provement was accomplished in 1842 when Matthias Bald- American (4-4-0) Type of Locomotive Built by the Baldwin Locomotive Works for the Ligonier Valley Rail- road in 1914. Weight, engine and tender, 200,000 pounds ; weight on driving wheels, 81,400 pounds. win invented the flexible beam truck by the use of which the different pairs of locomotive drivers in passing a curve could move laterally in opposite directions, the axles yet remaining parallel to each other. With the steady and rapid increase of the railway busi- ness there came a need for locomotives of greater power. Since the tractive force exerted could be augmented by increasing the weight resting on the driving wheels, addi- tional power was secured by the construction of heavier locomotives. To enable the track to sustain the heavier equipment the weight was distributed by adding to the number of drivers and thus extending the area of the base 52 RAILROAD TRANSPORTATION upon which the weight rested, the difficulty of rounding curves with locomotives having long wheel bases being Ten-wheel (4-6-0) Type of Locomotive Built by the Baldwin Locomotive Works for the Southern Railway in 1914. Weight, engine and tender, 240,000 pounds ; weight on driving wheels, 109,200 pounds. solved by using flexible beam trucks and journal boxes with considerable lateral play, by making part of the drivers Mogul (2-6-0) Type of Locomotivb Built by the Baldwin Locomotive Works in 1915. Weight, engine and tender, 205,000 pounds ; weight on driving wheels, 104,650 pounds. without flanges, and by increasing slightly the gauge of the curved portions of the track. Ten-wheeled locomotives, having a four-wheeled leading truck and three pairs of connected drivers came into use TRACK AND LOCOMOTIVE DEVELOPMENT 63 about 1850, and they have ever since been popular in both freight and passenger service. About 1865 the Mogul loco- CONSOLIDATION (2-8-0) TYPE OP LOCOMOTIVE Built by the Baldwin Locomotive Works for the Pennsylvania Rail- road in 1915. Weight, engine and tender, 431,000 pounds ; weight on driving wheels, 226,900 pounds. motive was developed from the ten-wheeled type by decreas- ing the number of truck wheels from four to two. This Mikado (2-8-2) Type of Locomotive Built by the Baldwin Locomotive Works for the Chicago, Burlington and Quincy Railroad in 1915. Weight, engine and tender, 497,500 pounds; weight on driving wheels, 239,900 pounds. change increased the proportion of weight resting on the drivers from 70 per cent to 85 per cent and consequently gave a much greater tractive force. For many years the 54. RAILROAD TRANSPORTATION Mogul was the leading type of locomotive for heavy freight service, and it is still used extensively. The Consolidation type, with four pairs of connected drivers and one pair of truck wheels, introduced about the same time the Mogul was first used, is now employed in freight service more extensively than any other single type of locomotive. The Decapod, with a two-wheeled truck and lo connected driv- ers, and the Centipede, with a similar truck and 12 drivers, have also been used to some extent. The difficulty of back- ing a locomotive with such a long wheel base around curves Atlantic (4-4-2) Type of Locomotive Built by the Baldwin Locomotive Works for the Baltimore and Ohio Railroad in 1910. Weight, engine and tender, 344,000 pounds ; weight on driving wheels, 116,000 pounds. led to the adoption of a two-wheeled trailing truck, giving rise to new types, the Santa Fe, the Prairie and the Mikado. The additional truck not only facilitated the backward mo- tion of the locomotives but it also made possible the con- struction of deeper and wider fire boxes, thereby permit- ting the development of greater power. The Mikado, with a leading and trailing truck, each two-wheeled, and four pairs of connected drivers, has become very popular for heavy freight service. Additional types of locomotives having the four-wheeled leading truck have also been developed, the two most TRACK AND LOCOMOTIVE DEVELOPMENT 55 notable ones being the Pacific and the Atlantic. The former has three pairs of connected drivers and a two-wheeled trailing truck, and is used extensively in heavy passenger and fast freight service. The Atlantic type, first con- structed in 1895 by the Baldwin Locomotive Works for the Atlantic Coast Line Railroad, has two pairs of con- nected drivers and a two-wheeled trailing truck. Like the American, which it most closely resembles, it is used chiefly for fast passenger service. The latest step in the development of steam locomotives Pacific (4-6-2) Type of Locomotive Built by the Baldwin Locomotive Works for the Atchison, Topeka and Santa Fe Railway in 1915. Weight, engine and tender, 506,000 pounds ; weight on driving wheels, 172,550 pounds. for heavy freight service has been the construction of the articulated locomotive. The difficulty of rounding curves with locomotives having more than five pairs of drivers attached to a rigid frame led to the introduction of this type, designed, in i888, by a Frenchman, Anatole Mallet, after whom it is named. It has one fire box and one boiler, but has two sets of drivers and cylinders attached to separate frames which are connected by a movable joint. This arrangement divides the wheel base into two inde- pendent units, and the jointed frame affords the flexibility necessary to enable the locomotive to pass around sharp curves. The first Mallet locomotive constructed in the TRACK AND LOCOMOTIVE DEVELOPMENT 57 United States was built in 1904 by the American Loco- motive Company at Schenectady, N. Y., for the use of the Baltimore and Ohio Railroad. The use of this type has increased greatly in recent years, especially on those roads having a heavy traffic crossing mountain grades, wrhere it is employed for pusher service. Some Mallet loco- motives have been built with articulated boilers, but in most of them the boilers are of rigid construction and only the frames jointed. At the Baldwin Locom.otive Works several Mallet locomotives have been built by combining and rebuilding two locomotives of ordinary type. In 1913 this firm constructed for the Erie Railroad a triplex articu- lated locomotive having three sets of drivers and cylin- ders, two sets under the boiler and one set under the tender. Each set of drivers contains four coupled pairs, the total length of the driving wheel base being 71^^ feet. The simplest system of classifying locomotives is that known as Whyte's classification, in which each type, except the Mallet, is described by a series of three figures, the first figure indicating the number of leading truck wheels, the second the number of drivers and the third the number of trailing wheels. Thus the American type is the 4-4-0, the Atlantic the 4-4-2, the Ten-wheel the 4-6-0, the Pacific the 4-6-2, the Mogul the 2-6-0, the Consolidated the 2-8-0, the Prairie the 2-6-2, the Mikado the 2-8-2, the Santa Fe the 2-10-2, etc. Switching locomotives as a rule have their entire weight on the drivers and are built without truck wheels, the most common type being the 0-6-0. In desig- nating the Mallet locomotives four figures are used instead of three, the second indicating the number of drivers under the forward portion of the boiler and the third the num- ber under the rear portion. Thus a locomotive of the 2-6-6-2 class would have a leading and a trailing truck of two wheels each and two sets of drivers, three pairs in each set. The triplex articulated locomotive is a 2-8-8-8-2 58 RAILROAD TRANSPORTATION type. This system of classifying of course gives little in- formation about the engine other than the number and kind of wheels. The motive power department of a railroad has a much more complex system of classification, in which, by using a combination of figures and letters, locomotives are classified according to other important structural features. The Pennsylvania Railroad Company issues a classification list covering more than 150 different kinds of steam loco- motives. During the past sixty years a great many important im- provements have been made in locomotive construction. Among the most valuable innovations has been the intro- duction of a compound locomotive, in which the steam, in passing from the boiler to the exhaust, is used in two cylin- ders in succession. By this means a greater amount of power is derived from a given quantity of fuel. Some compound locomotives are equipped with two cylinders, the high pressure cylinder being on one side and the low pres- sure cylinder on the other; sorne possess four cylinders, a high and a low pressure cylinder on each side, placed either tandem or one above the other; while still another kind, the balanced type, has the axes of the four cylinders in the same horizontal plane, the high pressure cylinders being situated between the locomotive frames and their piston rods connected to cranks attached to the axle of a pair of the driving wheels. On the railroads of the United States compound engines are on the whole but little used, it being the consensus of opinion among motive power officials that the saving made in fuel by their use is more than offset by the high cost of maintenance of the somewhat com- plicated machinery necessarily employed in their construc- tion. Mallet locomotives, however, are all compound. Another important fuel-saving device recently introduced is the steam superheater. After passing from the boiler, the steam, before entering the cylinders, passes through TRACK AND LOCOMOTIVE DEVELOPMENT 69 a system of tubes, either contained in the smoke box or ex- tending from a drum in the smoke box back into the boiler flues, where its temperature is greatly increased over the point reached in the boiler. The superheated steam has no greater pressure than non-superheated steam but it has a greater duration of maximum expansive power, inasmuch as it must be cooled more before it reaches the point of condensation. Superheating affords more units of power per unit of fuel consumed, and since the maintenance costs of various types of superheaters are small compared to the saving of fuel which their use permits, they are installed in many locomotives. Heavy locomotives now built are also equipped with automatic mechanical stokers, which con- vey the coal from the tender to the fire box. In the far West, where coal is scarce and oil plentiful, most of the locomotives use crude petroleum for fuel. The ordinary locomotive in use today weighs as much as twenty- five of the engines used at the beginning of rail- roading. In 1850 a locomotive weighing more than 50,000 pounds was considered very large. A locomotive weigh- ing 200,000 pounds is now not considered notably heavy, and many reach a weight of 500,000 pounds. The giant triplex Mallet locomotive, referred to above, which is the largest and most powerful locomotive ever built, has a total weight, when in working condition, of 853,050 pounds, of which 761,600 pounds rests on the drivers. With the in- crease in the size of locomotives the tractive power has been enormously increased. Half a century ago a train load of 200 tons would have been a heavy one to handle, but now 2,500 to 4,000 tons are hauled over long distances by the largest types of freight engines, and loads of more than 6,000 tons are not uncommon. The achievements in the increase of speed of locomotives have been less wonder- ful, but the schedule speed of 60 to 65 miles an hour for passenger trains, now regularly maintained on many Ameri* 60 RAILROAD TRANSPORTATION can and European roads, is double the maximum rate pos- sible a half century ago, and the discomforts and risks of the present are incomparably less than those formerly in- cident to travel. CHAPTER V THE MECHANISM OF THE RAILROAD (Concluded)-~-THE CAR, TERMINAL AND OPERATION Early passenger cars, 62. Sleeping cars, 63. Steel passenger cars, 63. The air brake, 65. Freight cars, 66. Terminal facilities, 68. The passenger terminal, 69. The freight terminal, 72. Elec- tric telegraph, 76. Railroad signaling, 77. Electrification of steam railroads, 78. References, 82. The improvements in travel and traffic have resulted quite as much from the progressive adaptation of the vehicle to the service to be performed as from betterments in the roadbed and the locomotive. The passenger coaches Passenger Coach, 1835. Used on the Portage Railroad over the Alleghany Mountains, Pennsylvania first used were similar to the stagecoaches, and this was so because carriage builders in making vehicles for the railroad followed the designs with which they were fa- miliar. Indeed, in Europe the passenger coaches in use today, with their small compartments entered from the side, indicate that the stagecoach influenced the style of con- struction. Coaches of the European type were used on a few of the early American roads. 61 62 RAILROAD TRANSPORTATION The construction of coaches for American railroads, dif- fering totally in design from those used on highways, began with the opening of the first lines. The first railroad coaches were not unlike the four-wheeled caboose of today in appearance, but after 1830 longer vehicles mounted on two four-wheeled trucks began to be used, and the typical American coach soon came to differ from the European in being longer, in having the doors at the ends, and in having a central aisle. This form of coach was probably adopted because the curves in our tracks required the use of trucks under the cars as well as under the engines. An Early Passbngek Coach Many improvements in design were necessary to produce the comfortable coaches of today. Better ventilation was secured by raising the central half of the roof and insert- ing "deck-lights." This was first done in 1836, but it was several years before the raised roof became a feature of all passenger cars. The roofs of the best railway coaches now have special appliances for admitting fresh air and are equipped with ventilators, so constructed that when the train is in motion the rush of the atmosphere creates a suction which draws the impure air from the interior. Even with these improvements, however, the problem of main- taining pure air in crowded cars has not yet been fully solved. For 30 years the jolting caused by the loose coupling of cars was a great discomfort to travelers, but patent auto- matic couplers and spring and friction draft gears, of which there are many kinds in use, have now obviated that trouble. CAR, TERMINAL AND OPERATION 63 At first cars were heated with rude wood- or coal-burning stoves. Not only would such stoves fail to heat the coaches properly, but in case of a wreck they would set fire to the train, adding greatly to the loss of life and property. Pas- senger trains are now heated throughout with steam from the locomotive. The old oil and gas lights are fast being replaced by electric lights, the current for which is sup- plied by a small dynamo supported on the truck and run by a belt encircling the car axle. The sleeping car, as we know it today, originated with George M. Pullman, who built the Pioneer A in 1864. Cars had been fitted up with tiers of bunks on each side as early as 1837, t)ut the discomforts of such accommoda- tions were so great that sleeping cars did not become popu- lar until the Pullman and Wagner services became available. The sleeping car was soon followed by the buflfet or hotel car, and that by drawing room and dining cars. The neces- sity for passing from one car to another suggested the vestibuling of trains. The idea originated in 1852, when a man by the name of Waterbury designed a vestibuled car. Some cars were fitted up with vestibules that year, but the first vestibuled train like those with which we are familiar was designed and built by Pullman and was run on the Pennsylvania Railroad in 1886. Within the last 20 years a noteworthy improvement has been made in passenger cars by the substitution of steel for wood in their construction. The greatest advantage of the steel_ car comes from the security it affords the traveler in case of accidents. It is seldom telescoped, and cannot be splintered, in collisions or when overturned, and it is, of course, non-inflammable. The superior safety of steel cars has led not infrequently to agitation for a law compelling their universal use. No such law has been passed, however, and it is not probable that any will be necessary. Railroad companies find it more economical in 64 RAILROAD TRANSPORTATION every way to use steel cars; they last longer, are less ex- pensive to maintain, and their use brings about a great de- crease of claims for damages. The building of wooden cars has already been virtually discontinued, and on all the rail^ roads of the country wooden coaches are constantly being replaced by coaches of steel. Out of 56,000 cars in use for passenger service in 1918, nearly 14,000 were of steel con- struction throughout, and 6,000 possessed steel underf rames. On January i, 1921, the Pennsylvania Railroad Company had in service 2,133 steel passenger cars and 1,549 wooden pas- All Steel Passenger Coach Pennsylvania Railroad Company senger cars, all of the steel cars having been acquired since 1907. The air brake, invented by George Westinghouse and first successfully applied to passenger trains in 1868, was one of the most valuable of all the inventions by which the improvement of the transportation service has been brought about. In 1887 the air brake had been developed so that it was practicable to use it on freight trains, and at the present time the law requires all trains in the United States to be equipped with air brakes by which the train can- be controlled by the engineer. The first air brake was known as the straight-air brake. Compressed air stored in a tank under the locomotive was admitted through the train CAR, TERMINAL AND OPERATION 65 pipe to cylinders under the coaches, the pressure on the pistons in the cylinders being transmitted to the brake shoes by a series of connected levers. The defect in this type of brake was that it was not automatic, and if the train broke in two, severing the train-pipe connection, the brake system on the entire train became useless. In 1872-73 Westinghouse perfected his first automatic brake, the essential features of which are still retained in air-brake construction. Under each car is placed an auxili- ary reservoir, containing a supply of compressed air, which, by the action of an ingeniously devised valve is admitted to the brake cylinder upon the decrease of the air pressure in the train pipe. When a train is accidentally uncoupled the escape of air from the train pipe automatically causes all brakes on the train to be set. Refinements of this mechanism have consisted mainly of devices by which the engineer can bring about more speedily the action of the brakes throughout the entire train. In the original form the application of the brakes was made by releasing the air only through a valve in the cabin of the engineer. The result was that in a long train the brakes nearest the locomotive were set several seconds in advance of the brakes near the rear of the train, and cars were subjected to a series of damaging shocks. Often, too, the train when start- ing, would break in two, because of the tardy release of the brakes on the rear cars. The "quick-action" brake and its modifications overcame these difficulties and made it possible to use the air brake on the longest trains. Recently the Westinghouse Company perfected a pneumatic brake for passenger trains, in which the admission of air to all the brake cylinders is accomplished simultaneously by the ac- tion of electricity. The air brake reduced by about 90 per cent the time and the distance required to stop trains with the old hand-brake system. It has greatly lessened the risks to which employees 66 RAILROAD TRANSPORTATION are exposed, has decreased the danger of travel and has made possible much greater speed for freight as well as for passenger trains. The freight car is built today in many designs for the better accommodation of the numerous kinds of traffic to be handled. Starting with only open and box cars, crudely constructed, mounted on four wheels and having a load- ing capacity of three to five tons, the freight equipment of railroads has come to include the large variety of cars All Steel Box Car Pennsylvania Railroad Company with which we are now familiar, provided with many mechanical appliances for saving labor costs and minimizing damages to property in transit, and capable of carrying loads of over 50 tons. Many of the improvements in car con- struction, as, for instance, the swiveling truck having four or more wheels, improved couplings, and air brakes, were as applicable to the freight car as to the passenger coach. Specialization in freight cars continues with the growing volume of traffic. There are special cars for carrying cattle, dressed meats, oil, coal, coke, iron ore, fruit, milk, and many other commodities, a special car being brought into use whenever there develops a new kind of traffic running regularly and in large volume and not capable of CAR, TERMINAL AND OPERATION 67 being handled advantageously in the ordinary box or flat cars. The invention of the refrigerator and heater cars was incidental to this specialization, and has been of great value to producer and consumer. The distribution of perish- able commodities throughout the entire country can be carried on during all seasons of the year, to the great ad- vantage of both producer and consumer. The products of the tropical and the cold sections of the world are now available for the people of both regions at all times, and the volume and value of freight transported are greater than they could be when the movement of many kinds of goods was dependent upon the weather. The increase in the capacity of the freight car, particu- larly in the United States, has been quite as remarkable as the growth in the size of locomotives. With the construc- tion of stronger tracks and with the use of steel rails the railroad companies have taken advantage of the economy resulting from the use of large cars. The larger the cars the less the "tare" or weight of the vehicle as compared with the weight of the cargo. The larger the cars the greater the live load the engine can haul. Thirty years ago 20 tons was the standard carload in this country, and such a weight would today be considered a heavy one in most countries in Europe, but for some time past the box and open cars in the United States have been built to carry 30 tons and more. The average capacity of the 2,427,460 freight cars in use in this country in 1918 was 41 tons. Of this number about five-twelfths were box cars, the average capacity of which was about t^"] tons. The aver- age capacity of coal cars, which made up more than a third of the total freight car equipment, was 48 tons. Few box cars of less than 30 tons capacity are now built and few coal cars of less than 50 tons. Some coal cars of 120 tons capacity are in use. A cut of a 90-ton car is shown on page 68. So much greater was the capacity of the average coal car 68 RAILROAD TRANSPORTATION than that of other cars, that this type, though comprising only about two-fifths of the total number of cars, furnished four- ninths of the total car capacity. In the construction of freight cars, as of passenger cars, steel is being extensively employed. In fact the building of cars with a capacity of 50 tons or more has been made possible only through the use of steel in the truck frames and in the body of the car. Coal cars are now made almost exclusively of pressed steel, and box cars of steel construction throughout are by no means uncommon. The facilities for caring for railway traffic, both pas- senger and freight, at stations or terminals constitute an All Steel Gondola Cab Six-wheeled trucks ; capacity, 90 tons. Norfolk and Western Railway important part of the mechanism with which the trans- portation service is performed, and in the improvement of these facilities the progress has been no less remarkable than in the improvement of the roadbed, locomotives and cars. To the end of the sixth decade of the nineteenth century the deficiency of station and terminal equipment was a notable feature of all American railways; public houses and inns often supplied the place of passenger sta- tions, and nearly all the adequate freight houses belonged to forwarding agencies. Today one of the most highly de- veloped and efficient, as well as one of the most costly, por- tions of the railroad mechanism is the equipment provided CAR, TERMINAL AND OPERATION 69 for the reception and delivery of traffic and for the move- ment of traffic within terminal limits. The modem passenger terminal possesses tw^o essential parts: the coach yard, where cars are stored, inspected, cleaned, repaired, and, in cold weather, heated before being attached to the locomotive ; and the passenger station where passengers enter and leave the trains. The large passenger station always has four distinct parts, the ticket and baggage offices, the train shed, the concourse and the waiting rooms, and in addition to these may usually be found other facilities, such as restaurants, retail stores, news stands, and often the general offices of the railway company. Most of the great passenger stations of this country are equipped with a huge, overhanging train shed entirely covering a series of stub tracks terminating near the gates through which the passengers pass between the concourse and the plat- forms lying along the track. In the most recently built sta- tions, a part of the tracks at least are through tracks, this type affording a much greater train capacity in proportion to the amount of space occupied. When through tracks are used passengers go to and from the track platforms by stairways leading to subways or balconies connecting with the concourse and waiting rooms. The large vaulted train shed is gradually disappearing. In the terminals where elec- tricity is used to operate all trains the space above the tracks may be occupied by office buildings ; in other places each platform between the tracks is covered with a small shed, which is cheap to construct, admits the sunlight, and, by not extending over the track, permits the smoke from the locomotives to pass immediately to the open air; and in some instances the tracks are all covered with a single low roof provided with slots over each track, through which the smoke may escape. The concourse or head-platform lies between the track platforms and the station building proper. It usually adjoins the main waiting room; and it M P5 O o H < !» -U a n a u a U a < a O w K m 72 RAILROAD TRANSPORTATION is equipped with street entrances and exits so that passengers may enter and leave without passing through the station building. The design of the waiting rooms in passenger stations depends upon the character of the traffic to be accommodated. The South Station at Boston is used by more passengers in a single year than any other station in the United States, but since the traffic consists to a large extent of suburban residents there is less need for extensive waiting rooms than in railway stations where a relatively largfe proportion of the traffic is made up of through pas- sengers changing from one line to another and consequently needing a place in which to wait for trains. In the Chicago and Northwestern Station at Chicago, for instance, where large numbers of persons wait daily for connecting trains, very extensive facilities are provided for their accommoda- tion, including such conveniences as a laundry for the use of immigrants, an emergency hospital, bathrooms, and private rest rooms. A noteworthy feature of the large passenger stations constructed in the United States in recent years is the great advance in architectural design. The Union Station at Washington, probably the most beautiful passenger station in the country, harmonizes admirably with the other attractive buildings of the city, and the magnificent Penn- sylvania and Grand Central stations in New York not only show the results of earnest endeavors to provide the most desirable accommodations for the traveling public, but also represent the splendid effects obtainable in railway archi- tecture. They constitute a distinct mark in the artistic progress of the nation. The terminal facilities for handling freight traffic are much more complicated than those provided for passenger traific. Ordinarily one large passenger station is suffi- cient for a city; but stations and sidings for the reception and delivery of freight must be provided often at dozens IZi o H O a ^ 1. IjLitii, ..aj ^^ \A ^^ftl g liiiiigCiiHiiil'"'^ 5! ■" V^'^Am,^ J':'" ■: •, ;, ■?''"""v «a' " "Ifj'.'n'Mjwiii'i » .1 i' ,.,_■„ I sSssaw^ tumftt "' 'm ^™v^^^S? Gas-Electric Motor Car Built by the General Electric Company for the Illinois Central Rail- road. Length, 70 feet ; center and rear entrances ; baggage com- partment 8 feet in length. the service can be coordinated more closely with that of connecting urban and interurban electric lines. On branch lines, where the traffic is not heavy, many steam railroads throughout the country have installed gas- electric motor cars, and in some places such cars are even used on main lines for the purpose of giving more frequent local passenger service. The use of these cars saves the cost of installing expensive electrical equipment and at the same time it affords an economical and satisfactory method of handling small units of traffic. The marvelous development of electric transportation in recent years and the manifest advantages which electric 82 RAILROAD TRANSPORTATION traction affords for certain varieties of service have given rise to the question as to whether it might not be a wise policy to equip all railway lines electrically and abandon entirely the use of the steam locomotive. The results of careful studies of this problem by engineering and transportation experts indicate that an early general aban- donment of steam power would be uneconomical. However, as coal resources diminish, more and more reliance must be placed upon water power as a source of energy for the work of the world. Therefore, while there is no im- mediate prospect of general railway electrification it is certain that the use of electric traction will have a steady growth, and it is not improbable that the future will see the general substitution of electricity for steam in all branches of the transportation service, and the mechanism of the railway will pass through even more important stages of development than have been witnessed in tiie past. REFERENCES Tanner, H. S. A Description of the Canals and Railroads of the United States (1840). Brown, William H. The History of the First Locomotive in America, from Original Documents and the Testimony of Living Witnesses (1871). [A book rich in historical material.] Prout, H. G. "Railroad Construction and Equipment," in Shaler, The United States of America, II, 163-178 (1894). The American Railway: Its Construction, Development, Man- agement, and Appliances (1897). [A collection of papers by different authors. M. N. Forney has a valuable paper on "American Locomotives and Cars,'' 100-148.] History of the Baldwin Locomotive Works, iS^i-ipi^. HuNGERFORD, Edward. The Modern Railroad (1911). [An extremely interesting popular description of modern rail- CAR, TERMINAL AND OPERATION 83 way facilities in the United States and an account of their development.] Turner and Dudley. Development in Air Brakes for Rail- roads ( 1909) . [Published by the Westinghouse Air Brake Company.] Haines, Henry S. Efficient Railway Operation (1919). Droege, James A. Freight Terminals and Trains (1912). , Passenger Terminals and Trains (1916). CHAPTER VI THE PRESENT RAILROAD SYSTEM OF THE UNITED STATES Railroad mileage and number of corporations in 1914, 84. The three large territorial groups of railroads, 85. Territorial grouping into seven sections, 85. Grouping by ownership and control, 88. Supply of railroad facilities in the United States and foreign countries, 94. References, 96. On December 31, 1918, there were 253,528 miles of rail- road lines in the United States. Several of these lines had more than one track, and if the total length of the track in the various roads and in their freight yards be taken as the basis of length, there were about 385,000 miles of railroad track in this country, exclusive of the mileage of switching and terminal companies. This vast mileage was owned by about 1,900 corporations. Many of these corporations, it is true, were subsidiary to others, but ac- cording to the reports of the Interstate Commerce Com- mission, there were over 800 independent operating com- panies. The railroad system of the United States as a whole is too vast and is composed of too many parts to be readily comprehended. It is impossible, at least for the ordinary mind, to carry the details of such a large and intricate pic- ture as is presented by a railway net comprising 250,000. miles of line and spread over a country 3,000 miles in breadth. By dividing the United States into several natural territorial sections, and by classifying the railroad lines or systems according to those sections, and by grouping the rail- roads according to ownership, it is possible to obtain a gen- 84 THE UNITED STATES RAILROAD SYSTEM 85 eral picture of what for convenience' sake we term the American railway system. The most general and frequent grouping of the railroads of the United States territorially is into three sections ; one section, the eastern district, comprising that portion of the country north of the Ohio and Potomac Rivers and east of the Great Lakes and a line from Chicago through Peoria to East St. Louis and thence down the Mississippi River to the mouth of the Ohio River ; another, the southern district, south of the Ohio and Potomac and east of the Mississippi ; and the third, or western district, the region west of the first two. A basis for this grouping may be found in well- known differences in production, density of population, and other economic and social conditions prevailing in these three sections of our country. There are also sufficient dif- ferences in the freight business of the railroads in these sections to cause a distinct classification of freight to have been worked out for each of the three regions. Since 1910 the Interstate Commerce Commission has employed this grouping for the territorial analysis of the statistics of the railway business of the country. While this grouping of the railroads of the United States into three sections has been serviceable for purposes of freight classification, the sections are so large that further subdivision is necessary. Within each of these large groups there are distinct sub- divisions, due in part to diversity of physical conditions, and in part to the fact that the railroads in different portions of the country have come, in a large degree, to be owned by a limited number of groups of capital- ists. The railway system of the United States as a whole may be divided into seven groups, each group occupying a nearly although not completely distinct section of the country. Within some of these sections the railroad system may be subdivided into two or more parts, dependent upon 86 RAILROAD TRANSPORTATION whether a general or detailed classification is sought for. The first of these territorial groups of railroads comprises the New England States. The railroads in this section differ from those of other parts of the country, because they serve the region where population is densest; where the passenger business as compared with the freight is larger than in any of the other States, and where the local freight business as contrasted with the through freight is of relatively greater importance. The region west of New England and the middle At- lantic seaboard, north of the Ohio and Potomac Rivers and east of the cities of Chicago and St. Louis, comprises another section of the country within which there is con- siderable unity in the operation and ownership of the rail- road systems. The railroads in this group have the heaviest freight traffic of any roads in the country. Most of them were built from the East toward the West, for the purpose of bringing the agricultural, forest, and mineral products of the great central West to the Atlantic seaboard to supply our own and European markets, and for the pur- pose of giving the manufacturing industries of the north- eastern section of the United States a western outlet for the products of the mills and factories. The railroads in this group are often spoken of as the "trunk lines," because the first through or trunk lines in the United States were those built to connect the Atlantic seaboard v/ith the Great Lakes and the Ohio River. The corporations con- trolling these first trunk lines have extended their systems to Chicago and St. Louis, and the term "trunk lines" has come to be applied to the roads between the Atlantic sea- board and the central West. Comprised within this trunk-line territory is a distinct subdivision of lines whose business consists chiefly of trans- porting anthracite coal from the Pennsylvania mines to the seaboard. Some of the hard coal mined in Pennsylvania THE UNITED STATES RAILROAD SYSTEM 87 is handled by the trunk lines, but the larger part of this coal is mined and transported by other than the trunk-line companies. The section south of the Potomac and Ohio and east of the Mississippi is usually spoken of as southern territory. The traffic conditions in southern territory differ from those in other parts of the country, and it is probable that the railroads in this part of the United States will always remain a fairly distinct group. The Alleghany Mountains separate the southern territory into two parts, one of which is tributary to the Gulf and the other to the Atlantic seaboard. To some extent the lines in these two parts are operated under separate managements, but there is manifest a marked tendency toward the unification of ownership and control of the lines in both parts of the southern territory. To the west and north of Chicago and St. Louis, and including the chief grain-raising States of the United States, may be found another group of railroads. The roads in this territory are called the "granger" lines, a term that ori- ginated between 1870 and 1875, at the time when the farmers of the central West were organizing their so-called "granges," or societies. The granger roads radiate from three centers, the chief of which is Chicago. At the head of Lake Superior is another growing center of traffic, while St. Louis has always been an important point for the collec- tion and distribution of the traffic from and to the agricul- tural central West. South and west of St. Louis lies the southwestern territory, within which there is a large number of rail- way lines, some of them having St. Louis and Memphis connections, and others being more distinctly tributary to Gulf ports. A large part of the roads in this system were formerly controlled by Jay Gould and even yet many of the lines are spoken of as the Gould roads, though the con- 88 RAILROAD TRANSPORTATION trol of the territory is now divided among several groups of capitalists. West of the sections occupied by the granger and south- western lines lies the territory occupied by the transcon- tinental or Pacific roads. These transcontinental lines have connections with Chicago and the Mississippi, and conse- quently the territory occupied by the transcontinental lines overlaps to some extent the granger and southwestern sections. The transcontinental lines are divided into two rather distinct groups, the northern and southern. Within the northern section are comprised the Great Northern, the Northern Pacific and the Chicago, Milwaukee and St. Paul. The southern section includes the Union Pacific, the Atchi- son, Topeka and Santa Fe, the Southern Pacific, and what was formerly called the Gould transcontinental line, made up of the Missouri Pacific, the Denver and Rio Grande, and the Western Pacific. One of the most interesting features of railway devel- opment in the United States has been the growth of the great railroad "systems." The beginning of the movement toward the consolidation of connecting lines was described in Chapter III, and an account was given of the early his- tory of the Pennsylvania and the New York Central sys- tems. In each of the three large railroad regions — Eastern, Southern and Western — a few great railroad systems were developed after the Civil War, partly by the construction of additional mileage by the dominating companies of the systems, and partly by the lease and purchase of connect- ing lines. Frequently the absorbed lines were operated as a unit with the lines of the controUing system, but in many cases the operating organization of subsidiary roads was retained, and though becoming a part of the great systems, they were operated independently. For example, the Penn- sylvania System, including the lines east and west of Pitts- burgh, consisted in 1917 of about 12,000 miles of line. UNITED STATES RAILROAD SYSTEM 89 East of Pittsburgh the Pennsylvania Railroad Company operated directly 4,541 miles, of which it owned 2,841 miles, the remainder belonging to a number of subsidiary non-operating companies. In addition some 2,000 miles were operated by subsidiary operating companies, the most important of which were the Long Island Railroad Com- pany, the Philadelphia, Baltimore and Washington Rail- road Company, and the West Jersey and Seashore Rail- road Company. West of Pittsburgh the Pennsylvania Company, the capital stock of which was owned by the Pennsylvania Railroad Company, operated 1,754 miles of line, all owned by non-operating companies, subsidiaries of the Pennsylvania Company. Of chief importance among these subsidiaries was the Pittsburgh, Fort Wayne and Chicago Railroad Company, owning the main line of the Pennsylvania System between Pittsburgh and Chicago. The Pennsylvania Company also controlled, through stock own- ership, several subsidiary operating companies, the two largest being the Pittsburgh, Cincinnati, Chicago and St. Louis Railroad Company and the Grand Rapids and Indi- ana Railroad Company. The former of these two corpora- tions operated 2,399 "liles of line. The Pennsylvania lines are now nearly all operated as one great system. All the great systems were built up and operated very much as the Pennsylvania System. For a time after the development of the great systems began they were vigor- ously competitive, not only in services, but in rates as well. Destructive rate wars carried on during the seventies brought many strong roads to bankruptcy. The losses caused by intense competition eventually brought about a second phase of railroad consolidation — the consolidation of competing lines. For a time competing Hues endeavored to maintain peace by the use of rate agreements supported by traffic pools and other devices. First, pools, and then all formal rate agreements, were declared illegal. After 90 RAILROAD TRANSPORTATION this occurred railroad financiers undertook to suppress com- petition by bringing about the consolidation in one way or another of the dominant railway systems. Pursued at first for the purpose of bringing an end to destructive compe- tition, consolidation was later carried on extensively be- cause of the financial gains to be derived through the dis- tribution and sale of watered securities. Either by merger, the purchase of a controlling interest in rival lines, the formation of holding companies, or by the organization of •'communities of interest" and interlocking directorates, great regional combinations were built up. The period of greatest activity in railroad consolidation extended from 1893 to 1903. For a time it seemed that the combination process would be carried to such an extent that there would be a territorial division of the railroads of the United States among a comparatively small number of powerful financial interests. In New England the New York, New Haven and Hart- ford Railroad, under the direction of the Morgan banking interests, secured control of nearly all the leading trans- portation agencies, including steam and electric railways and steamship lines. The Pennsylvania Railroad bought substantial blocks of stock in the Chesapeake and Ohio, the Baltimore and Ohio, and the Norfolk and Western. The Baltimore and Ohio invested heavily in the Reading Company, which controlled the Philadelphia and Reading Railroad. The Baltimore and Ohio shared its purchase of Reading stock with the Lake Shore and Michigan Southern, a subsidiary of the New York Central. The New York, New Haven and Hartford was jointly interested with the Pennsylvania and the New York Central in various railroad properties. In this way the most powerful systems of the Eastern territory reached a position which enabled them to exercise a dominating influence. In the South the Morgan banking interests secured con- I I B -a ° g ^ S -w" *» B 2b C J^ "S ?? i^lSlli::^.§»?' s,l 111 S i i rf ° a s -a o o OO m m o K S m a O K g H < (■ s — — _ — _ — — — _ — - — - - - - - — "■ __ — — — ^ ^ ■" f~ — — ^ ' c 1 / Qj r- J .'^ / r V 1 C / •\i / ^ y / li h V 9 f •^"^nnn ^1 J> ;/ J' '. tO V /\ *< ^ vP V / V V ' ■^ -6 / 49000 _ _ _ _ _ = := = = — - — — — DlA0RAr^OFRAaBOADCAP»TAUZArWMAM0 0WiOE:rt05,- l©90- 1916 116 RAILROAD TRANSPORTATION of par and market values in igcx) would most likely have shown the market values to have been greater than the par values. In addition to the motive for stock watering cited above — the distribution of stock among bond purchasers gratis or at a low price — there are three other incentives to the issue of large amounts of stock. In financing corporations it has been found that greater profits can be secured from the sale of large amounts of stocks and bonds at a low figure than from the sale of small issues at a high price. Investors prefer securities affording opportunities for spec- ulative gains. Ten million dollars of 3 per cent bonds will sell for more than $6,000,000 of 5 per cent bonds, although the income at the beginning would be the same from each investment. Another motive for stock watering is the de- sire to capitalize the future growth in the earnings and value of the property; the large volume of stock is not issued by the company for immediate sale, but to be held by the in- dividuals composing the company in order that they may have an ample basis for the distribution of future profits which they anticipate will be large. This plan of large capitalization also enables the company to conceal from the general public the real amount of its profits. Large profits are secured from low rates of dividends and from securities having a low valuation, and this is advantageous from the investor's standpoint in a business such as rail- road transportation, where the charges for services are sub- , ject to public regulation. The men who "promote" and underwrite new corpora- tions or the consolidation of competing companies have de- rived special gains from the device of stock watering. The business of the promoter is to organize a corporation or a combination of corporations and to induce those affected to agree to the conditions of organization. If several com- panies are to be united, the promoter first secures from each RAILROAD CAPITAL 117 company an option for purchase at a fixed sum; and then he fixes the capital of the new consolidated corporation at a sum much in excess — usually about double — the total cap- ital of the constituent concerns. The several companies are paid in cash or with preferred stock, and more or less common stock is usually thrown in as a bonus. A large share of the common stock is retained by the promoter to remunerate him for his services, and the profits he realizes from his undertaking come chiefly from the sale of this watered stock. To insure the sale of securities a corporation usually negotiates with a banking house or a syndicate of bankers to act as underwriters. The bankers agree to sell a certain amount of stocks or bonds at a minimum price, or failing to do so, to take the securities not disposed of. To the pro- moter of a new company the services of the underwriter are of great importance; and the directors of established corporations often prefer to insure the sale of a block of new securities at a certain minimum rate, rather than risk the hazards of the open market. The underwriter receives large pay, in the form of cash or securities, and further- more he is often able to realize a profit from the sale of the stocks or bonds which he guarantees. In many instances the promoter of a new company and the underwriter are the same individual or business organization. The methods by which stock watering may be accom- plished are numerous. A generation ago, when the stand- ards of railroad financiering were lower than they now are, the securities of a railroad were sometimes increased at the will of speculators for the purpose of manipulating the mar- ket. The history of the Erie Railroad and other transpor- tation corporations, when in the hands of speculators and unscrupulous operators, affords conspicuous examples of fraudulent practices.^ ' See Charles Francis Adams, Chapters of Erie. 118 RAILROAD TRANSPORTATION Another fraudulent method of dealing with stocks and bonds, much in vogue between i860 and 1880, consisted of awarding large amounts of securities to construction com- panies which were composed of officials of the railroad corporation. One of the most noted construction companies of this kind, though only one of many, was the Credit Mo- bilier, to which the contracts for building the Union Pacific Railroad were let.^ This method of defrauding the stock- holders not in the ring of interested officials has a parallel in the exorbitant payment of securities to the syndicate of bank- ers that finances the enterprise of constructing a new road or assumes the task of reorganizing an insolvent company. According to the report of the Industrial Commission, "the original Southern Pacific cost actually only $6,500,000; al- though it is a matter of record that $15,000,000 was paid to a construction company, and the bankers' syndicate, which financed the road, received $40,000,000 in securities, or an average of $6 in bonds and stock for each dollar of actual cost." These methods of stock watering are not characr teristic of railroad construction and financiering today, but they have not been entirely eliminated. Stock watering is accomplished at the present time in a variety of ways. One method is to distribute a new issue of stocks among the stockholders either as a bonus or to sell it to them below par or for less than the price which could be obtained in the open market. A railroad is sometimes in the fortunate po- sition of having a revenue sufficient to pay large dividends and to add largely to the undistributed surplus. By increas- ing the stock the rate of profits or dividends can be kept at a lower figure, and any unneeded surplus reserve can be; turned over to the stockholders. Railroad companies having an undesirably small revenue 'See histories of the Union Pacific by Davis and by White; also The Credit Mobilier by Crawford. RAILROAD CAPITAL 119 sometimes add to their funded debts, and thus to their cap- italization, by converting current liabilities, such as bills payable, wages and salaries due, into interest-bearing scrip. This kind of financiering is a temptation to which compa- nies are apt to yield during protracted periods of business depression, but it violates the principle that current expenses should be paid from current earnings. The retirement of bonds by the issue of stock much in excess of the amount of the bonds canceled is resorted to by some companies. This is done for two reasons. By re- ducing the funded debt, the fixed charges are lessened, and the difficulties of weathering financial depressions are made lighter. Similarly the large volume of stock is useful in times of prosperity, because it affords an ample basis for the distribution of large profits in dividends at a low rate per cent on the capitalization. In the reorganization of in- solvent companies, the fixed charges are frequently reduced by the substitution of stocks for bonds. The consolidation of railroad companies is frequently accompanied by a large increase in capitalization. This has been notably the case with the consolidations that have taken place since 1898, and has been even more characteristic of the mergers of street railways than of trunk-line railroads. In making the purchase of the Chicago, Burlington and Quincy by the Great Northern and Northern Pacific inter- ests, and in the transfer of the Lake Shore to the New York Central, the stocks of the selling companies were ex- changed for bonds of the purchasers, $2 of bonds being given for each dollar of stock. The Northern Securities Company, organized in 1901 to hold the securities of the Great Northern, Northern Pacific, and Burlington systems, exchanged $180 of its stock for $100 of Great Northern stock and $115 of its stock for $100 of Northern Pacific stock. Competing railroads are consolidated for the pur- pose of stopping the expenses due to competition, and to 120 RAILROAD TRANSPORTATION introduce a more economical administration of the proper- ties. These anticipated savings are usually capitalized in advance by the issue of additional securities. There are differences of opinion as to whether the water- ing of stock should be practiced by railroad companies or permitted by the Government. There is little doubt that the practice gives greater scope for speculation, some forms of which are decidedly objectionable. The company with a large capitalization and a consequently low rate of divi- dends has a plausible reason for opposing the payment of higher wages to its employees and for objecting to a reduc- tion of the rates and fares charged the public. The actual relation of capitalization to railway charges is difficult to determine, and the discussions of the subject show a dif- ference of views among students of transportation, but there is no doubt that a railroad company whose rate of dividends is small is less liable to have its charges reduced by public authority than it would be if its regular dividends showed a high rate of profits. The excessive watering of stock is certainly opposed to conservative railroad financiering. The best managed companies have carefully limited the amount of their securities, both bonds and stocks. The promoter and speculator find their opportunity in the practice of wa- tering stock, but the general investor and the responsible managers of railroad properties are safer under a policy of restricted capitalization. A partial excuse for the excesses of the past may be found in the fact that many of the early railroads, especially in the West, were extremely hazardous enterprises, and it was only by appealing to the speculative interests of indi- viduals that capital could be secured at all for their con- struction. Furthermore it must be said that in many cases the "water" injected into railway securities a few decades ago has been absorbed by the application of large portions of the railway revenues to the improvement of the proper- RAILROAD CAPITAL 121 ties, instead of to the payment of dividends, until the value of the railroad now approaches more nearly the par value of the stocks and bonds which they represent. But whatever methods of capitalization past conditions may have justified, under present conditions reckless speculation with railway property and gross overcapitalization should no longer be tolerated. The manner and extent to which railroad capital should be limited by public regulation may be understood better after considering the basis which should be accepted in de- termining whether a railroad is or is not overcapitalized. Different views obtain as to the proper basis for capitalizing a railroad. Some persons claim that the original cost of the property and the money actually invested at the beginning and subsequently should determine the amount of capital issued. Others hold that the earnings of a railroad aiford the true measure of the volume of capital that may safely be adopted, while some persons consider the true basis of capitalization at any given time to be the cost of reproducing the railroad — the sum it would require to obtain the right of way, construct the line, and acquire the terminals. The most natural supposition is that railroad capital should represent the cost of the property, the money ac- tually invested, that stocks and bonds should be issued only for money paid in, and that their par value should ap- proach as closely as practicable their actual value at the time of issue. This theory is not altogether satisfactory, however, because some roads have cost more than they ought on account of inefficient or fraudulent management, or because they were constructed at a time when labor was scarce, materials expensive, and interest rates high. Under such conditions cost gives a capitalization higher than would be just to the public at the present time. Likewise, some roads have been very economically built, and have been managed with such ability and honesty as to have had their 122 RAILROAD TRANSPORTATION value greatly increased. Business ability should have its re- wards, and a rule regarding capitalization which would not give men the results of their efforts would be neither just to them nor in harmony with the best interests of the public. The basis for capitalization preferred by the men inter- ested in railroad management is the earning capacity of the property. The selling value of the railroad is determined by its earnings, and that its selling value, present and prob- able, may justly be fully capitalized is the contention of those who accept this theory. This plan of capitalization enables a railroad company to obtain money from investors more readily, since many persons prefer to buy securities at a discount because of the chance of securing profits from the advance in the price of the securities with the growth of the earnings of the railroad. There are certain objections to this theory of capitalization, one being that the excessive capital conceals real profits, and makes it difficult for the men who serve the company or the public served by the corporation to determine whether the men who own the property are receiving more or less than a just return on their investment, whether the company, the employees, and the public are sharing equitably in the benefits. To permit a railroad company to secure the greatest possible earnings from the public, and to cover up the relation of profits to actual investment by issuing stocks or bonds without limita- tion, is not in accord with present views as to the public obligations of carriers. Does cost of reproduction or duplication afford a satis- factory and fair basis for capitalization? This theory has been accepted by some of the State railroad commissions, and has been followed by several courts. The Interstate Commerce Commission, however, and the United States Supreme Court have not adopted this rule. In order to determine what rates a railroad company may reasonably charge, the courts and commissions are obliged to decide RAILROAD CAPITAL 123 how much capital is justly entitled to receive profits from the company's earnings — i. e., they are compelled to de- termine the actual and just value of the property; for it may be assumed that its owners may properly issue capital to the amount of a just valuation of the railroad. The amount of money invested in the property does not reveal the true present value for reasons already stated. The earning capacity of the railroad can not equitably or logically be made the sole criterion of value, because the rates, and hence the earnings, should depend to some extent at least upon the amount of capital justly entitled to profits. The solution of this difficult question seems to be found by taking into consideration both the cost of reproduc- tion and the earning capacity in determining the basis of capitalization, and this method has been followed in a general way by numerous courts and commissions. Defi- nite rules for applying this method as a basis for taxation were worked Out by a State Tax Commission, in Michigan, in 1900. In determining the value of the physical proper- ties of the railroad — its roadbed, rolling stock, terminals, etc. — the cost of duplication was made the basis of valua- tion. The railroad company's franchise, the special con- cessions granted to it by public authority, and the special commercial opportunities upon which its business depended ■ — that is to say, all the non-physical or immaterial ele- ments of its property — ^were valued in accordance with their earning capacity. To ascertain the value to be at- tributed to these non-physical properties, a method suggested by Professor Henry C. Adams was followed. According to the method devised by Professor Adams, the value of these immaterial properties was determined (i) by deducting aggregate expenses of opera- tion from gross earnings and adding the income from corpo- rate investments; (2) by deducting from the total income thut IM RAILROAD TRANSPORTATION obtained an amount properly chargeable to capital — that is, a certain per cent on the appraised value of the physical prop- erties — rents paid for the lease of property operated, amount paid for taxes and the sum spent on permanent improvements charged directly to income; (3) by capitalizing the remainder at a certain rate of interest.^ A method of valuation similar to this, in which both the value of the physical equipment of a railroad and the ad- vantages resulting from efficient operation and economical management would receive consideration, would offer a basis for capitalization equitable to all parties of interest — ■ the public, the investor, and the railroad company. The excessive capitalization of their properties by many railroad companies for the purpose of securing the great- est possible amount of money from the investing public, and the speculative — sometimes fraudulent — manipulation of railroad securities, have probably made the cost of securing transportation services greater than it need have been, and have made railroad bonds and stocks a much less reliable form of investment than they might have been. For many years there was an urgent demand that the capitalization of railroad corporations be subjected to public control. In many States laws were enacted providing for the regu- lation of the issuance of railroad securities. Massachusetts was a pioneer in the enactment of legis- lation for the regulation of the issuance of stocks and bonds by railroad companies and other public utility corporations. The laws passed by this State forbade the distribution of stock as a bonus to the purchasers of bonds, and other common forms of stock watering were likewise prohibited. The Public Service Commission law of Massachusetts pro- vided that before a railroad corporation might issue securi- ties it should apply to the Commission for an order approv- ^ Report of Industrial Commission^ XIX, 412. RAILROAD CAPITAL 125 ing the proposed issue. It was required that the application state the purpose for which the securities were intended ; the Commission was authorized to determine the amount reasonably necessary for the purpose indicated in the appli- cation, and was also authorized to order the proceeds of the sale of the securities to be applied to particular uses. Shares of stock could not be sold or issued for a less amount than par value, actually paid in cash. New shares of stock might be oflfered proportionately to stockholders at a price, not less than par, to be fixed by the stockholders themselves, subject to the approval of the Commission. If the Com- mission thought that the price named by the stockholders for any issue of stock was "so low as to be inconsistent with public interest" it could refuse its approval of the issue. The law thus served to prevent the emission of stock at a price so much below market value as to bring about stock watering, but at the same time permitted the corpora- tions and their shareholders to participate to a certain ex- tent in any premium which efficient and economical man- agement might cause the stock to command. Railroad cor- porations were forbidden to issue bonds, notes, and other evidences of indebtedness in excess of twice the amount of capital stock actually paid in. Many other States followed the example of Massachu- setts in regulating the capitalization of railroads and other public utilities. While these State laws unquestionably did much to check excessive capitalization of railroads, it was clearly perceived that State legislation could not bring cap- italization under complete control. Many States passed no regulatory laws whatever, and the practices of those States which did take action were by no means uniform. The lines of nearly all the larger railroad companies are located in several States, and it was easy for the corporate officials to carry out plans of unwise financing in the States where the laws were least stringent and effective. For example, the RAILROAD CAPITAL 127 of which was Professor A. T. Hadley, President of Yale University, rendered its report in 191 1. The Hadley Commission, as it was popularly known, argued that there was little relation between capitalization, and rates, and that regulation limiting the price of se^ curities and the amount which might be issued could be of but little benefit. However, as a measure of protection for the public it recommended that the Federal Govern- ment should make a physical valuation of all the railway property of the country and should require the fullest publicity of all the financial transactions of the railroad companies. The first of these recommendations was en- acted into law in 1913, and under the direction of the Interstate Commerce Commission a valuation of the physical properties of the railroads of the United States is now being made. The Hadley Commission advised that the Govern- ment refrain from other means of regulation of security issues, partly because of their needlessness, but chiefly be- cause of the certainty of conflict between Federal and State authority. An interesting, and according to most students of finance, an unwise recommendation of the com- mission was that a stated par value be omitted from shares of capital stock. Notwithstanding the adverse report of the Hadley Com- mission on the question of regulation by the Federal Gov- ernment of the issue of railroad stocks and bonds the agi- tation for Federal control continued. The persistence of reckless methods of railroad finance and of improper manip- ulation of securities by unscrupulous directors constituted an argument for Federal action too strong to be withstood. In June, 1914, a bill giving to the Interstate Commerce Commission powers with respect to the issue of securities by railroads engaged in interstate commerce similar to the powers possessed by the stronger State commissions was passed by the House of Representatives, but it did not reach 128 RAILROAD TRANSPORTATIOIS! a final vote in the Senate. Action on the subject was there- after delayed until the passage of the Transportation Act of 1920. This law brought the regulation of railroad capi- talization under the control of the Interstate Commerce Commission. Under the provisions of Section 20a of the Interstate Commerce Law, as that law now stands since amended by the Transportation Act of 1920, a railroad corporation subject to the terms of the act may not issue any share of capital stock or any bond or other evidence of indebtedness except with the consent of the Interstate Commerce Com- mission. A carrier contemplating an issue of securities must first make application to the Commission in such form as the Commission may prescribe. Upon receipt of the application the Commission is required to give notice there- of to the governor of each State in which the applicant carrier operates. The regulatory authorities of the State have the right to make before the Commission such repre- sentations with respect to the application as they think proper. The Commission may hold hearings, if it chooses to do so, to enable it to determine what its decision on the application should be. It may grant or deny the applica- tion or it may grant it with modifications and upon such terms and conditions as it deems appropriate. The juris- diction of the Commission is "exclusive and plenary, and a carrier may issue securities and assume obUgations or liabilities" without securing the approval of other authori- ties. The only securities which the carrier may issue with- out the Commission's express consent are short-term notes of a maturity of two years or less, and of such notes the amount issued without specific authorization must not ex- ceed 5 per cent of the par value of the outstanding securi- ties of the carrier. There is some question concerning the extent of the jurisdiction over security issues given to the Interstate RAILROAD CAPITAL 129 Commerce Commission by the Transportation Act. There seems little doubt that the law gives the Commission ample powers of a restrictive character. That is, it may forbid the issuance of securities which under existing State laws or regulations might be legally issued. But it is question- able whether the Commission niay permit the issue of securities forbidden by the law of the State in which a rail- road holds a charter or forbidden by the terms of the char- ter itself. For instance, suppose the law of a State in which a certain railroad is incorporated forbids the issue of a stock dividend. Does the Commission have the authority to permit that railroad to issue a stock dividend? If the Commission possesses only restrictive powers the only way in which it may obtain complete discretionary powers over capitalization would be through the enactment of legisla- tion compelling the Federal' incorporation of all railroads engaged in interstate commerce. It is not unlikely that legislation of this character will in time be passed. A further limitation upon the issue of securities by rail- road corporations is provided in that part of the Trans- portation Act dealing with the consolidation of railroads. The law stipulates that when two or more carriers shall consolidate their properties into one corporation, the bonds at par together with the outstanding capital stock at par of the new corporation shall not exceed the value of the con- solidated properties as determined by the Commission. Should a law eventually be enacted to compel the consolida- tion of the railroads into a limited number of great sys- tems, the capitalization of the systems will doubtless be based directly upon the valuation of the properties. A capitalization of railroads to correspond with their actual value, as determined by an impartial tribunal, would un- questionably be of much public benefit. The problem of rate regulation would be simplified, and there would be fewer opportunities for unscrupulous speculators to indulge in fraudulent practices. 130 RAILROAD TRANSPORTATION REFERENCES Cleveland, F. A. Funds and Their Uses (1902). Cleveland and Powell. Railroad Promotion and Capitaliza- tion (1909). . Railroad Finance (1912). Meade, E. S. Trust Finance (1903)'. Wood, William Allen. Modern Business Corporations (1906). Report of the Industrial Commission, XIX, 397-419 (1902). Interstate Commerce Commision. Statistics of Railways of the United States (annual). Stocks, Bonds, Etc., Subject to the Act to Regulate Commerce (Senate Doc. No. 178, 57 Cong., 2 sess., 1903.) [A report comparing the par and market value of railroad securities for the year ended June 30, 1900.] Proceedings of the Twenty-third Annual Convention of the National Association of Railway Commissioners (1912). [Contains Federal and State laws regulating railroads, and a digest of the important decisions of Federal and State courts pertaining to these laws.] Report of the Railroad Securities Commission (House Doc. No. 256, 62 Cong., 2 sess., 1911). Ripley, W. Z. Railroads: Finance and Organization (1915). BoNBRiGHT, James C. Railroad Capitalization (1920). CHAPTER IX EARNINGS, EXPENSES AND DIVIDENDS Sources of revenue, 131. Operating revenues, 131. Non-operating income, 133. Operating expenses, 134. Fixed charges and other expenditures, 135. Net income and dividends, 135. The oper- ating ratio, 138. Relation of earnings and dividends to busi- ness conditions, 141. References, 144. The revenues obtained by the railroad companies are derived mainly from the freight and passenger services. The payments received from the transportation of mail and ex- press matter are of considerable amounts, but as the mail and express cars are always attached to passenger trains, the receipts which the railroads obtdin from the Govern- ment and the express companies for running these cars are credited to passenger train revenue. In connection with both the freight and passenger services there are earnings not derived from the operation of trains, such as the receipts for the rental of cars and terminal facilities of various kinds. Moreover, some railroad corporations lease their tracks to other companies and own the stocks or bonds of other companies — both railroad and industrial — and the rentals and the interest or dividends on these investments constitute sources of income. A general grouping of railroad revenues may be made into (i) those derived from the operation of trains and other facilities, and (2) those obtained from interest on loans and investments and rentals. In the accounts and reports of railroad companies each of these groups is divided into several classes and subclasses. 131 132 RAILROAD TRANSPORTATION Analysis of operating revenues of Class I operating railroads for the years ending December 31, V)iJ and 1916 Account Amount Per cent of total revenue 1916 Amount Per cent of total revenue Freight Passenger Excess baggage Sleeping car Parlor and chair car Mail Express Other passenger train Milk Switching Special service train Other freight train Water transfers — freight Water transfers — passenger. . . Water transfers — vehicles and live stock Water transfers — other 12,819,965,215 825,211,593 6,234,382 2,848,710 1,508,627 58,775,765 106,914,603 7,120,499 16,759.174 41,421,149 1,877,034 386,128 863,881 1,762,927 2.673.250 1,445,215 70.25 20.56 .15 .07 .04 1.46 2.66 .18 • 42 1.03 .05 .01 .02 .04 .07 .04 12,560,988,111 706,608,630 6,064,369 2,895.797 1.365.037 61,195,80a 90,155,445 5,913,622 16,115,884 39,419,827 1,688,198 273,619 652,790 1,684,367 2,325,202 1,221,751 Total rail-line transportation revenue $3.895.768.152 I3.498.568.439 Freight $12,958,610 1,454,722 3,692 38,802 29.958 37,680 225 444.371 Passenger . Excess baggage Other passenger service . Mail Express Special service Other Total water-line transportation revenue Dining and buffet Hotel and restaurant Station, train and boat privileges Parcel room Storage — ^freight Storage — baggage Demurrage Telegraph and telephone Grain elevator Stockyard Power Rents of buildings and other property Miscellaneous Total incidental operating revenue Joint facility — Cr . Joint facility — Dr . Total joint facility operating revenue Total railway operating revenues $14,222,511 1.435.403 4.524 56.559 27.871 20,753 1.930 330,650 $14,968,060 $16,100,201 $21,720,059 8,915,269 4,488.763 1,208,543 5,682,785 759,413 26,401,148 2,108,673 1,948,123 1,994,91s 2,762,482 4,934,022 17,719,503 $100,583.698 4.381.795 i.SSS.gs? $2,822,838 $4,014,142,748 .54 $17,466,682 6,448,258 3.897,093 1,050,812 3,524,463 669,082 18,372.713 1,885,119 2,231,200 1,491,392 2,184,040 4,464,872 16,077.259 $79,762,985 3.830,343 1,396,202 $2,434,141 $3,596,865,766 71.20 19.64 .17 .08 .04 1.70 3. SI .16 • 45 l.IO OS .01 .03 .05 .06 .03 .40 ■ 04 • 4S .48 .IS .11 .03 .10 .03 .51 .OS .06 .04 .06 • 45 EARNINGS, EXPENSES AND DIVIDENDS 133 The operating revenues are derived from several sources, the most important being the transportation of freight and passengers. An analysis of the revenues from rail opera- tions of operating railroad corporations as given in the an- nual statistical report published by the Interstate Commerce Commission, is shown in the preceding table.^ It will be observed that nearly seven-tenths of the revenue is obtained directly from the freight business, while less than one- fourth comes from the transportation of passengers, and only one twenty-fifth from the mail and express revenues. Non-operating income of Class I operating railroads for the years ending December 31, 1917, and IQ16 1917 1916 Hire of freight cars — credit balance I33.349.S42 7.999.916 12,016,887 3.493.543 1,946,167 24,827,433 4.172,339 8,957.683 3.131.149 2.050,342 122.560,524 44.172,934 24,672,263 2.907.967 75.394 4.752,738 1.630,741 120,964,852 7,540,673 11,256,786 200,837 2,100,142 24,211,969 4.382.393 8,369.241 2.956,131 3.230,514 103,194,671 50,520,614 27,035.177 2,890,362 295^801 Rent from floating equipment Income from lease of road Miscellaneous non-operating physical property Separately operated properties — profit Income from unfunded securities and accounts Income from sinking and other reserve funds 1,032,709 Miscellaneous income 1,616,362 J302,7l7,s62 $271,799,234 An analysis of the non-operating income of the railroads of the United States, as given by the Interstate Commerce Commission, is presented in the table above. ' The statistical tables presented in this chapter are for the years 1916 and 1917, the two years of private operation preceding the period of government control. Complete statistical returns for the first year of private operation following the return of the railroads to their owners on March i, 1920, have not been published. While the official statistics for the year 1918 are available, they offer no sat- isfactory basis of comparison with previous years because govern- ment operation necessitated many changes in the presentation of financial statements. The finances of the railroads during the period of government control will be considered in a later chapter. 134 RAILROAD TRANSPORTATION The operating expenses of a railroad are divided into eight classes, the most important of which are: Mainte- nance of way and structures, maintenance of equipment, traffic expenses, transportation expenses and general ex- penses. Each of the eight classes is in turn subdivided, there being no less than 196 separate items in the operat- ing expenses of Class I railroads, or those having annual operating revenues in excess of $1,000,000. The statistical reports of the Interstate Commerce Commission for 1917 and 1916 show the following summarization of railway operating expenses. Railway operating expenses of Class I operating railroads for the years ending December 31, 1917, and IQZ6 1917 I9I6 Amount Per cent of total operating expenses Amount Per cent of total operating expenses I. Maintenance of way and ; 442,109,862 685,428,913 64,985,070 1,506,544.964 9,443,91s 33,437,644 95.933,290 8,558,535 IS. 626 24.225 2.297 S3. 247 .334 1.182 3.391 .302 $ 421,775,812 595,566,336 62,839,996 1,164,274,088 9,713,687 26,858,441 84,418,107 8,048,055 II. Maintenance of equipment III. Traffic 25.264 2.666 IV. Transportation — rail line. v. Transportation — waterline VI. Miscellaneous operations. . VII. General 49.388 .412 1.139 3.581 VIII. Transportation for invest- .341 Total operating expenses. . $2,829,325,123 100.00 $2,357,398,412 100.00 The second important class of expenditures of railway corporations is ordinarily called "fixed charges," consisting of such payments as the interest on funded and floating debts, rentals, and appropriations for sinking funds. The first tabular statement on page 135 shows the classification and amount of these expenditures in 1917 and 1916. ' The surplus remaining after the payment of fixed charges, operating expenses and taxes is designated as the net income. This amount represents the profits of the business and from EARNINGS, EXPENSES AND DIVIDENDS 135 it are deducted the dividends on common and preferred stock, the appropriations for additions and betterments, and the appropriations for various reserves which a railway Deductions from gross income of Class I operating railroads for the years ending December 31, Tgi7, and igi6 1917 1916 Hire of freight cars — debit balance . .... t S3.SS2.I08 7.090.585 12,790,170 2,792,423 579,867 42.9s7.003 132,082,177 5,743,377 2.134.435 5.754.990 403.305.438 15.704.857 2,442,077 38S.492 1. 147.908 5. 589.696 ; 43,622,850 6,644,421 11,981,598 3,061,272 520.411 41.916.686 158.377.958 5.523.004 2.292,698 3.451.927 406,667.567 14,854.42s 2,893.200 Rent for locomotives Reht for floating equipment Rent for work equipment Rent for leased roads Miscellaneous rents Interest on funded debt . . . Income transferred to other companies 3,702,470 5.220.459 $694,052,603 $711,017,961 may maintain. Any surplus or deficit remaining is trans- ferred as a credit or debit to the profit and loss account of the company. The disposition of the net income of the railways of the United States in 1917 and 1916 is given in the reports of the Interstate Commerce Commission as follows : Disposition of the net incom". of Class I operating railroads for the years ending December 31, 1917, and igi6 1916 Appropriations to sinking and other reserves Dividend appropriations of income Appropriations for investment in physical property . . Stock discount extinguished through income Miscellaneous appropriations of income Balance transferred to profit and loss ; 12,122,185 220,822,373 47.242.469 15.382.475 297,461,104 J 15,117.355 187.98S.3s5 62.510,056 20,359,899 360,908.008 All of the receipts and disbursements of the railway cor- porations above described — the operating revenues and ex- penses, the income from other sources, the amount paid out 136 RAILROAD TRANSPORTATION as fixed charges, the sums appropriated for dividends and improvements and the balance carried to profit and loss — are listed in the income and profit and loss statement of the company. The following table,, which represents in a condensed form the income report of the Class I operating railroads of the United States, summarizes the detailed statements previously given and includes also a condensed statement of the profit and loss account of the railroads. It must be observed that while the income account shows the earnings, expenses and dividends of the lead- ing operating railroads of the United States, the state- Condensed income and profit and loss statement of Class I operating railroads for the years ending December 31, 1917, and igi6 1917 1916 14,014,142,747 2,829,325,124 $3. ■» 96.86^. 766 Net revenue from railway operations Ir. 184,817,623 $1,239,467,354 $213,920,095 700,090 $157,113,372 797,486 Railway operating income 1970,197,438 $1,081,556,495 f 69.453,732 52,401,894 t 40,833,977 34.324.932 Net revenue from miscellaneous operations . . . J 17,051,838 2,883,629 $ 6,509.04s 1,966,141 $ 14,168,209 $ 4,542,904 $984,365,647 $1,086,099,400 $302,717,562 $271,799,234 Gross income $1,287,083,209 $1,357,898,634 $694,052,603 $711,017,061 $593,030,606 $646,880,673 Profit and loss: $464,270,561 310.369,370 $416,488,234 250,923,185 Total debits during year $153,901,191 $165,565,049 Balance at beginning of year $1,282,208,129 $1,096,353,229 $1,436,109,320 $1,261,918,278 EARNINGS, EXPENSES AND DIVIDENDS 137 rnent would have to be changed considerably before it could be made to apply to these railroads considered as a single large system. In the first place it would be necessary to eliminate certain intercorporate payments such as the sums received for the lease of roads, and as interest on bonds and dividends on stock, because these sums rep- resent merely the transfer of funds from one company to another — from one part of the railway system to another. Furthermore, in the income account for the railroads, con- sidered as a single system, it would be necessary to include the financial statements of non-operating companies, inas- much as they have certain expenses such as taxes and salaries, and certain receipts other than those received for the lease of their railway properties, which must be con- Income and profit and loss statement of the railroads of the United States, considered as one system, for the year ending December 31, V)i7 J4,i78, 784,652 2.957,770,809 Railway operating expenses 51,222,013,843 $227,301,093 711. 87P $994,000,871 Equipment and joint facility rents (net deduction) $26,573,773 Net railway operating income $967,427,098 $101,808,148 Gross income, after deducting operating expenses, taxes, equip- $1,069,235,246 $475,646,748 24,371,700 Net dividends (including dividend appropriation of surplus) $293,291,805 $27^.024.00'? The "net railway operating income" as computed in the preceding table, for the three years ending June 30, 1917, was the basis for computing the "standard return" which the government paid to the railroad companies during the period of government operation. 138 RAILROAD TRANSPORTATION sidered. The preceding table gives in condensed form the income account for 1917 of the railroads of the United States, with their operating and non-operating subsidiaries, considered as a single system. Of the $4,014,142,747 received by Class I railroads in 1917, as operating revenue, $2,829,325,124, or 70.48 per cent, was paid out for operating expenses. The arithmetical relation between the expenses and revenues of operation, which is commonly known as the operating ratio, is a signifi- cant figure to all railroad officials and holders of railroad securities. A decline in the ratio usually means that the profits of the company are growing, while an increase indicates that there will be a reduced sum of money avail- able to apply to interest charges and to dividends. When the operating ratio rises steadily for a period of years it is a warning signal to railroad managers that expenses must be reduced or the total receipts increased. If neither of these alternatives is possible, profits will disappear, and perhaps the railroad may be compelled to face bankruptcy because of inability to meet fixed charges. If the situa- tion is due to a growth of necessary operating expenses at a rate proportionally greater than the rate of increase of • traffic, the only step which can be taken to preserve the credit of the railroads is to increase the charges for trans- porting freight and passengers. The net income of the Class I operating railroads of the United States in 1917 was $593,030,606, of which sum $220,822,373 was paid in dividends. A part of the divi- dends was paid to other railroad companies, thus making the net dividend received by individuals and corporations other than railroads somewhat less than the figures given. The 1917 surplus was $297,461,104. As was stated in the previous chapter, less than one- half the railroad stock of the United States received divi- dends in 1900. In 1917, 63.32 per cent of the stock shared EARNINGS, EXPENSES AND DIVIDENDS 139 in dividends, though nearly one-third of the amount paid ' out as dividends came from surplus funds, and not from current income. The prosperous times since 1897 have greatly increased the receipts of railway securities, partic- ularly of the stocks. The large issues of watered stock chiefly account for the fact that such a percentage of the stocks yield no income ; indeed, one of the chief purposes of stock watering is to secure larger present investments by speculative capitalists and to anticipate the future increase in the value of the property, the present earning capacity of which has been overcapitalized. The accompanying chart shows graphically for 28 years, 1890 to 1918, the gross earnings of American railroads, the revenue from the freight service, the operating expenses, and the income available for dividends. The income ac- counts of railroad reports are an accurate index of general business' conditions. During the prosperous years of 1890, 1 89 1, and 1892 gross earnings rose rapidly, and then with the financial depression which began in 1893 they fell off sharply. The position held in 1892 was not regained until near the close of 1897, after which time the increase in earnings was continuous and rapid until 1908, when an- other short period of business depression occurred. By 1910, total receipts were larger than ever before, and during the next three years there was a steady increase. The fiscal year ending June 30, 1914, showed a decline in the gross and net earnings of railroads, and the fiscal year of 191 5 was likewise a poor year for the railroads. During the latter part of 191 5 traffic began to increase very rapidly, and during the calendar year of 1916, with the huge traffic of export goods destined for the warring nations of Europe, the railroads of the United States had the most prosperous year in their history. Following 1916 traffic continued to grow, but operating expenses advanced more rapidly than gross receipts. During the entire period of government op- 140 RAILROAD TRANSPORTATION iliilliSI S§5oSiSgSSS2r5i«3-;e£t£2S| '^,900 : ::: :t: +.800 ji +.700 ^600 +.500 *«0 - t '^.300 ^ ^aoo ^.lOO 4.000 3i900 - i - 3i800 t 3,700 . 3.600 ' -^ 4 550O I S.W) I 3.30O - A U TfEOO i 1- 3.100 t L 5000 /n t ■' eaoo -^ \ £.800 7 2700 / 7 g 86O0 / t < £500 2^^- :t J Z.+00 ^^^ 1 o «M0 ' ^7 -^i J -i u. 2.100 ^^Z^ - t ^ ^'O* St - - /^■.t z zpoo r-^^ r^z 2 1,900 ^t^ =! i.aoo -,^Z ^ ,-v ^ 1.700 -,3/ $>." / lEOO 2^^ 'T 'S St ISOO uS^ ^ ? - l.*00 ^Z p)!^-;^ 1.300 1 /^^2^2 WOO g^ %^^2^ uoe 7 ^ /--■^ ^2-^2j^ 1.000 _ i^5^^2 900 T* 5^^ 8°° ^^'-^-^i -17 : 700;^^ ^^'_ti li 600 2 e ''^ ^ , V 500 - - £ _ --7^ - -wo , ^jT 5 / ^"^Z t 300 ^e'^U^t'2^ ^- 2"* r,^^ 5ig-=' 100 . V r< ^ "^ o RoilwOY Eornm^i in the United Stefet 5incc laSO-CfbrClaisIRsods 5ince l9iS) EARNINGS, EXPENSES AND DIVIDENDS 141 eration the railroads failed to earn the "standard return," because the Railroad Administration failed to make an ad- vance in rates commensurate with the increase of wages and other operating costs. Other less obvious facts are illustrated by the chart. As gross earnings rose rapidly from 1890 to 1893, the net in- come available for dividends rose very slowly and actually declined in 1892. The increased receipts were being ab- sorbed by the fixed charges and the operating expenses, especially by the latter. It being the practice of American companies to pay for additional equipment, for improve- ments and new construction largely from earnings, as well as from the sale of bonds and stock, a portion of the earnings during prosperous times is used in betterments and extensions. What occurred during the three years preceding 1893 took place on a much larger scale during the ten years following 1897, gross receipts advancing at a considerably more rapid rate than net corporate income. From 1910 to 1912, notwithstanding a considerable in- crease in gross receipts, the net corporate income, because of heavy operating expenses, increased taxes, and large fixed charges, actually declined more than $100,000,000. A comparison of the curve representing freight revenues with that representing operating expenses shows that when earnings decline it is not possible to curtail operating ex- penses to an equal degree. Likewise, when there is a large increase in earnings the operating expenses, includ- ing the expenditures for additions and betterments, do not always rise with equal rapidity. A large railway business is relatively less expensive than a small one. The earnings of the railroads have been favorably affected in recent years by many mechanical improvements and their resultant economies. In 1897 the average number of ton-miles per freight train mile was 204; in 1900 it was 271, and in 191 7 it was 597. The average earnings per mile run 142 RAILROAD TRANSPORTATION by a freight train in 1897 were $1.65; in 1900, $2; and in 1917, $4.27. While both the train load and the earnings have been increased during the last few years because of the large volume of traffic, they have also been favorably affected by improvements in track, equipment and management, the in- fluence of which upon earnings will be permanent. Comparative revenue account per mile of line operated, for specified years Item Per mile of line operated 1896 1900 ig04 1906 1908 1910 1912 1914 1916 1917 Gross earnings from operation . Less operating ex- penses Net revenue from operation. . . . J5,32o 4,248 7.722 4.993 9.306 6.308 10,460 6,912 10.491 7.320 II.SS3 7,658 11.482 7.968 12,387 8.944 14,678 9,362 17.234 12,140 $2,072 2,998 3,548 3.895 5,046 The combined effects of economies in operation and of a large volume of traffic are indicated by the average earn- ings per mile of line. The facts for a number of years since 1896 are shown in the table on this page. By com- paring this table with the preceding chart, it will be seen that the facts regarding changes in earnings and operating expenses per miles are nearly the same as those for the railroad system considered as a whole. The changes in mileage have not been responsible for the changes in aver- age earnings and expenses per mile. When the net earnings of a railroad are small, its stock will sell at a low figure, and its bonds will not be sought after by investors. The price of securities rises with the increase of earnings, but the two movements are not usually parallel. Larger net earnings come during periods of pros- perity, and it is then that speculation is very active; so active, indeed, as usually to make the prices of the stocks most dealt in rise much higher than the gain in earnings EARNINGS, EXPENSES AND DIVIDENDS 143 would seem to justify. Similarly when net earnings fall off the speculative demand for the securities affected sud- denly ceases and their prices drop out of proportion to the decline in earnings. The fluctuation in market value is much less for bonds than for stocks, but, nevertheless, bonds are affected to a considerable degree by speculation, because speculation in the stock may result in changes of policy as regards capitalization or management that will seriously affect the value and marketability of bonds. The purchase of the stocks, and bonds of most railway companies is usually considered a risky venture for per- sons seeking a safe and permanent investment. There are several companies, however, whose bonds find compara- tively ready sale to insurance companies, savings banks, trust companies, and other fiduciary organizations having funds to invest, and there are a few companies whose stocks are even considered fairly safe. In general, there has been a marked improvement in the merits of railroad securities as forms of investments, but speculation in them is still so active and so little restricted by public regulation as to make them less satisfactory and less beneficial socially than they might be as repositories of the savings of the public. REFERENCES Interstate Commerce Commission. Statistics of Railways in the United States (annual). Report of Industrial Commission, XIX, 267-272 (1902). Ripley, W. Z. Railroads: Finance and Organization (1915). PART II THE RAILROAD SERVICE CHAPTER X THE FREIGHT SERVICE— CLASSIFICATION OF FREIGHT The freight business the most important railroad service, 147 Volume of freight traffic in the United States, 148. Classifica- tion of freight, 149. The three great classifications, 150. Com- modity tariffs, 155. Uniform classification, 156. How an agent ascertains rates on class and commodity freight, 158. Through and local freight, 159. The transportation service performed by the railroads includes the movement of freight, the carriage of persons, and the transmission of mail and express matter. Each of these services merits careful consideration. Whether viewed from the standpoint of public bene- fit or considered with regard to the volume of business done and profits received by the company, the transpor- tation of freight is the most important service performed by the railroad. The income from the passenger busi- ness is about 22 per cent of the total earnings and income of the railroads in the United States, while the receipts from the freight amount to seven-tenths. Moreover, social welfare is more dependent upon cheap and unfettered movement of commodities than upon inexpensive and speedy means of travel; for, however important it may be that the relatively few people who may at any one time desire to take a journey should be able to reach their destination promptly and comfortably, it is of incalculably greater consequence that producers should be able to dispose of the commodities upon the sale of which their livelihood de- pends and that consumers should have the power of draw- 147 148 RAILROAD TRANSPORTATION ing upon distant as well as near sources of supply for the satisfaction of their wants and the gratification of their desires. The volume of freight transported increases rapidly with the progress of civilization and the diversification of men's wants. The freight business is carried on to enable men to secure what they want; and the more complex their demands the more goods will be produced and transported. The growing demand for the freight service has furnished a most powerful stimulus to inventors and engineers to lessen the obstacles to the movement of commodities by improving the tracks, cars, and locomotives, and making other changes in the railroad mechanism whereby the costs of transportation have been reduced to their present small amount. Whether the endeavors of railroad companies to increase the speed of their passenger trains or their efforts to lessen the costs of freight movement have been the more potent incentive to mechanical improvements, it would be impossible to say; but the results accruing to society from those improvements have come more largely from the greater facilities for the shipment of goods. During the year ending December 31, 1918, Class I rail- roads in the United States reported a freight traffic of 2,305,824,940 tons of revenue freight. This is a greater ton- nage than shippers actually turned over to the roads, because the same freight is often handled by more than one road, and duplications result from taking the total of all the traf- fic of all the companies. After making deductions necessary to eliminate the duplications, it is found that the traffic actually received from shippers during the year amounted to 1,262,621,054 tons. The average distance traveled by each ton of freight was 300 miles, and the number of tons carried a mile — or the "ton mileage" — was 405,379,284,206. To handle that vast tonnage required nearly 50,000 freight and switching locomotives and nearly 2,500,000 freight cars. CLASSIFICATION OF FREIGHT 149 The mines from which the coal, iron ore, and other min- erals are taken furnish more than half the tonnage handled by the railroads, but as this traffic is carried at low rates per ton the receipts from this business amount to much less than half the total freight revenue of the railroads. Manufactures supply nearly one-sixth of the tonnage, the products of the forest about one-tenth, and the products of agriculture about one-tenth. The remainder of the traffic, comprising slightly less than one-tenth of the total, consists of animal products, general merchandise, and miscellaneous unclassified commodities. There are no figures obtainable regarding the value of the goods which the railroads trans- port, but if their value does not average more than $25 a ton, their total worth would be nearly $32,000,000,000. The articles comprised under the seven headings men- tioned in the preceding paragraph include many thousand kinds of commodities. In order to establish a basis for fixing rates of charges for transportation it is necessary for the railroad companies to divide these commodities into a small number of groups or "classes." To quote a separate rate between each two termini on each one of the 10,000 to 15,000 commodities would be an almost impossible task, and even if performed, the resulting schedule of rates would be utterly confusing both to freight agents and to shippers. The classification of freight traffic greatly simplifies the work of rate-making. The practice of classifying freight is very old. On the early wagon routes, freight was very crudely classified into light and heavy articles, the former paying by the cubic foot and the latter by the hundred pounds. In the schedules of charges upon the early English and American canals more detailed classifications were made. The pioneer American railroads naturally adopted, with some modifica- tions, the freight classifications of the canal companies. During the first half century of railroad development 150 RAILROAD TRANSPORTATION it was customary for each company to have a classification of its own. At one time there were 138 distinct classi- fications in eastern trunk-line territory, and shortly previous to the enactment of the Interstate Commerce Act of 1887 there were 130. No shipper, unless he was a rate expert, could determine in advance what his rates would be or what rates were supposedly paid by his competitors. How- ever, with the growth of long-distance traffic and of the need for through rates, through routes and through way- bills, there developed in the early eighties a definite move- ment toward securing a greater degree of uniformity of freight classification. The prohibition of unreasonable dis- crimination by the Interstate Commerce Act of 1887 and the rulings of the commission stimulated the movement, as it was recognized by the railroads that they could not observe the law unless a more nearly uniform system of classification was devised. Early in 1887 the leading rail- way lines operating in eastern trunk-line territory adopted a common classification, and by the end of 1889 the south- ern railway lines and the western lines had taken similar action. The three great classifications adopted at that time are still in existence, though they have been revised and modified many times. By them most of the railway busi- ness of the country is handled. These three classifications, known as the Official, the Southern and the Western, are limited to fairly definite territories. The Official applies to traffic within the region north of the Ohio and Potomac rivers, including New Eng- land, and east of Lake Michigan and a line drawn from Chicago through Peoria to St. Louis and the mouth of the Ohio River. The Southern is in force in the region south of the Ohio and Potomac and east of the Mississippi ; while the Western applies west of the other two. Occasionally, however, the classifications overlap. Shipments from a point, located near a classification boundary are usually governed CLASSIFICATION OF FREIGHT 161 by but one classification, that of the point of destination. St. Louis, for instance, though located in Western classifi- cation territory, uses the Official Qassification for east- bound freight and the Southern for southbound freight. In a few regions the three great classifications are supple- mented or displaced by others. In several States — Florida, Georgia, Illinois, Iowa, Louisiana, Texas, Virginia and some others — classifications applicable only to intrastate traffic have been established. The three large classifications are not made directly by the carriers but by classification committees. Formerly the committee in each territory was made up of a number of traffic officials, representing the various railway companies. Meetings of a committee would be held at regular inter- vals, but so infrequently that it was impossible for shippers to secure speedy consideration of matters which they pre- sented. In 1914 the organization of the Western Classi- fication Committee was entirely changed, the large com- mittee being superseded by a committee of three members, who sit in constant session and give their entire time to the work of classification. The members of the committee are not employed by or identified with any individual road, but are chosen by the joint action of the interested carriers. Early in 1916 the Official Classification Committee was reorganized in a similar manner, the former committee of fifteen traffic officials representing the lines in eastern terri- tory, being replaced by a committee consisting of a chair- man and three associate members. This committee is ready at all times to confer informally with carriers or shippers concerning classification changes, and it holds regular bi- monthly hearings at New York and Chicago to consider proposed changes in or additions to the Official Classifica- tion. The decisions of the committee, unlike those of the Western Classification Committee, are not final, but must be submitted to the railroad companies for approval. The 152 RAILROAD TRANSPORTATION Southern Classification Committee altered its form of or- ganization in 191 7, to resemble the form adopted by the other committees. Each committee has permanent offices, the Official Classification Committee having headquarters in New York, the Southern in Atlanta, and the Western in Chicago. Previous to 1919 each classification committee pubHshed a classification book applying to its particular territory. In De- cember, 1 91 9, while the Federal Government was operating the railroads the three-book system was dispensed with, and all three classifications published in a single volume, known as the Consolidated Classification. The second issue of the Consolidated Classification became effective April i, 1921. It constitutes the 46th issue of the Official Classification, the 45th issue of the Southern, and the 57th issue of the Western. Though the three great classifications are all now pub- lished in a single volume, they are by no means uniform. They have the same rules, with a few minor exceptions, and the description of articles is the same for all three. But each retains its own peculiar system of classifying. The Official Classification contains six numbered classes, a Rule 25 class and a Rule 26 class. Some articles are listed as I, lyi, 2, 2j4, 3, or 4 times first class, so that in reality there are fourteen classes in the Official Classification. The Southern Classification provides for six numbered and four lettered classes, with some articles rated as i}^, i^, 2, 2^, 3 and 4 times first class, while the Western Classification has five numbered and five lettered classes, with various articles listed as i^, lyi, 2, 2}^, 3, 3^4 and 4 times first class. The number of articles listed in the Consolidated Classi- fication book is approximately 14,000, though the number of ratings is much greater than that in each classification. The same article is very often placed in two or three or CLASSIFICATION OF FREIGHT 153 even more classes, the classification varying with the man- ner in which the goods are packed or otherwise prepared for shipment and with the quantity in which they are offered to the railroad. The class to which a commodity is assigned, and consequently the rate it must pay, are made lower for the carload quantity than for smaller consign- ments. The reason for this is that business can be done on a large scale more economically than on a small scale. The producer who ships in carload quantities can usually supply the railroad not only with a large amount of freight, but with a regular volume of business, and can thereby enable the carrier to perform the service at much less cost per ton than business can be handled for the small shipper. A certain minimum weight is stipulated for all carload shipments, the minimum weight usually approxi- mating the weight of the article which can be loaded in a car. For a large number of the lighter articles of freight the classification provides that the minimum weight shall vary according to the length of the car used. The minimum weight to be observed for cars of various lengths are given in Rule 34 of the classification, and the articles to which this rule applies are always indicated in the body of the classification by the phrase, "Subject to Rule 34." The class given an article affects the rate of freight it must pay, those commodities grouped as first class or- dinarily paying a higher rate than those catalogued as second class, the second class articles paying heavier charges than those listed as third class, and so on. The class to which particular items are assigned is determined by a variety of considerations. In general it is determined by what rate the article should pay in order to remunerate the railroad for the expenses involved in its transportation, and also by what rate the article can pay — that is, whether it is a commodity of high value for the transportation of which shippers can afford to pay a relatively high rate. Articles 154 RAILROAD TRANSPORTATION are put into higher classes if their transportation is espe- cially expensive to the railroads and if the value of the service to the shipper is large. The classification of freight is closely connected with the subject of rates, and the factors determining the classification- of commodities will be indicated more fully in the chapters on rates. To illustrate the manner in which commodities are actu- ally grouped in freight classifications and to bring out some of the facts influencing the rating of commodities, there have been compiled in the following table a few ex- Extracts from Consolidated Classification No. 2 Ratings Official Southern Western Asbestos Doors, glazed: In crates, L.C.L In boxes, L.C.L In packages named, C.L., minimum weight, 30,000 lbs Magazines or Periodicals: In bags, barrels, boxes or wrapped bundles, L.C.L In packages named, C.L., minimum weight, 24,000 lbs., subject to Rule 34 Chains: Automobile Tire — In bags, L.C.L In barrels or boxes, L.C.L In packages named, C.L., mini- mum weight, 30,000 lbs Key blanks, iron or steel: Finished, in barrels or boxes In the rough, unfinished, in barrels or boxes Monuments, metal, N.O.I.B.N., in boxes or crates Di I 3 R26 CLASSIFICATION OF FREIGHT 155 tracts from an issue of the Consolidated Classification. The commodities are taken at random from the detailed classi- iication comprising about 14,000 items. It is evident from the above brief table that the classifica- tion of commodities is influenced by the space they occupy, and is also made to depend upon the value of the articles. The expense of transportation to the shipper is made to vary v^rith reference to the value of the commodities, and is in most cases conditioned upon the quantity of shipment. The difference in classification, and consequently in freight charges, between less-than-carload and carload quantities is a wide one, much greater than the variation in classi- fication and rates for the lower groups. It is never practicable to classify all commodities, and every railroad transports many articles — as, for example, live stock and coal — at special or commodity tariffs. The articles thus treated are invariably handled in carload lots, and in many cases they are not included in the classification, because special conditions of competition between the rail- ways and the carriers by water require that the articles should be especially favored by the railroads in order to prevent the diversion of the traffic to the lake or ocean vessels. The competition between the railroads engaged in transcontinental traffic and the lines of vessels navigated between the two seaboards gives rise to a well-known in- stance of the exemption from classification of a large num- ber of commodities. A reason which very frequently in- fluences a railroad to exempt a commodity from classi- fication is the desire of the railroad to foster the develop- ment of new and special industries. Men who are engaging in new forms of production or are opening up previously undeveloped resources are constantly beseeching the railroad companies for special or commodity tariffs. The railroad companies thus besought by the shippers frequently have difficulty in deciding what course to follow. The railroad 156 RAILROAD TRANSPORTATION is always desirous of promoting as far as possible the industrial development of the section of country which it serves, but it is at the same time equally desirous of maintaining a schedule of freight charges high enough to yield the owners of the railroad a fair profit upon their investments. The shipper desires to secure the lowest pos- sible rate; the railroad company endeavors to maintain a profitable rate. Generally, however, the shipper succeeds in getting the commodity tariff. In 1921 the Pennsylvania Railroad Company had approximately 700 commodity tariffs in force on its lines east of Pittsburgh, Erie and Buffalo. Efforts have been made to unify the several freight classifications now in force and to substitute for them one uniform classification. If this could be done success- fully it would be highly desirable, because it would enable producers of all commodities in different parts of the country to know accurately what would be the cost of getting their commodities to the market and how much freight they would have to pay upon the supplies brought to them by the railroads. The unification of the classifica- tion would also make it easier for shippers and for the state to detect discriminations. The enforcement of a published schedule of rates and the equal treatment of all shippers could be much more readily brought about. Many people, including the members of the Interstate Commerce Commission, have favored Federal laws requiring the rail- roads to adopt a uniform classification, and, in the case of their failure to do so, empowering the Interstate Com- merce Commission to promulgate such a classification. Such a law came near being enacted in 1889; but Congress, upon the advice of the Interstate Commerce Commission, which thought the time had not then arrived for compulsory ac- tion, gave the railroad companies an opportunity to attempt to work out a single classification for the entire country. An earnest effort was made by the railroad companies during CLASSIFICATION OF FREIGHT 157 the succeeding two years to accomplish this result. The attempt, however, was unsuccessful. In 1907 the question of uniform classification was again taken up seriously by the railways and a committee of fifteen members, consisting of five from each great classification territory, was appointed to consider whether a uniform classification could be devised and to suggest a mode of procedure. This committee, after three months of investigation and deliberation, re- ported that "while establishment of a uniform classification is impracticable at this time, it can ultimately be worked out along intelligent and satisfactory lines." It suggested as a preliminary step the unification of classification rules, of descriptions of articles and of minimum carload weights, and recommended that a "uniform classification committee" be appointed tc undertake this work. Accordingly an execu- tive committee of 21 traffic officials was appointed by the carriers, and that committee selected a sub-committee of nine men who were to devote their entire time to the task. The "working committee" was formally organized and be- gan its duties on September 15, 1908. It made many rec- ommendations which were adopted by the three classifica- tion committees, with the result that a much greater de- gree of uniformity in classification was brought about than traffic experts had deemed possible. It was due chiefly to the efforts of this committee that the Consolidated Clas- sification was published in 1919. There is still a widespread sentiment in favor of a uni- form classification for the entire United States. Though uni- formity of classification seems in theory highly desirable, the three main classification territories represent such variations in industrial conditions as to create obstacles which make the work of securing' uniformity necessarily slow and difficult. The unification Ofi'frefeent classifications would require a general readjustment of rates and might fundamentally alter the existing conditions of competition among rival 158 RAILROAD TRANSPORTATION producing and manufacturing centers in different parts of the country. It will probably not be impossible, however, to rearrange freight charges on the basis of a uniform classification so as to minimize the interference with in- dustrial competition. Necessarily, some articles will have to be withheld from the classification and be given special or commodity rates, though there are serious objections to increasing the already large number of such tariiifs. The rates to be charged between given pomts upon ship- ments of "class traffic," that is, freight moved subject to the rating in the classification book, are specified in another publication called the "class tariff" or rate book. Class tariffs may be local or joint. The former are issued by an individual railway company for the class traffic between local points, that is, between stations on its own lines; the latter are issued by the originating carrier and concurred in by the connecting lines. When a shipper delivers a consignment of class freight to a railway company for transportation the agent first consults the classification book to ascertain in which class the traffic falls, then turning to the rate book he finds given in "cents per loo pounds" the rate to be charged from his station to the point of destina- tion. In case the shipment is consigned beyond the bound- aries of one of the great classification territories, it is nec- essary, if no joint through rate is in effect, that the agent find the amount to be charged for that part of the trans- portation occurring in each classification district, and charge the sum of the several rates, or what is known as a "com- bination of locals." In quoting rates on commodity traffic, the freight agent turns directly to the "commodity tariffs." Many commodity tariffs are elaborate. A railway may have arrangements with numerous companies for the through shipment of an impor- tant commodity and the tariff sheets must show the rate to hundreds of stations. Other "commodity tariffs" specify the CLASSIFICATION OF FREIGHT 159 rates merely to a few commercial centers, and state the sums to be added in order to determine the rates to other regions. Freight is usually spoken of as through and local. In a popular sense through freight means that which is trans- ported a long distance, and local freight that which is moved only a short distance. The railroad companies, however, use the words in a more technical sense. By local freight they mean that which originates and termi- nates upon the same line — that is, freight carried between two points on the same road. Through freight is that which comes to the railroad company from some other railroad, or that which, originating at some point on the line, is turned over to some connecting carrier — that is to say, through freight is that in the transportation of which more than one carrying company is employed. In general, the technical use of the terms corresponds with their popular meaning, but not always so. Some freight may travel hundreds of miles, pass State boundaries and move between great centers of population, and yet not leave the original line ; while through freight may move only a short distance. The distinction between through and local freight is an important one for the railroads, because they are obliged to employ different methods of accounting when the business is handled jointly with another corpora- tion than when it is confined entirely to their ovyn line. CHAPTER XI THE FREIGHT SERVICE, (^Concluded)— BUSINESS ORGANIZATION Freight shipping papers, (i) bills of lading, (2) the waybill, 160. Unit billing, 168. Organization of freight service, 168. De- murrage, 170. Reciprocal demurrage, 171. Fast freight lines, 171. Cooperative freight lines, 173. Car interchange and the per diem system, 175. Records of car movements, 175. The railroad clearing house, 176. Private cars and private car lines, 177. References, 179. In connection with the handling of the freight traffic several shipping papers are necessary. Some of these papers constitute the contract and the record of transac- tions between the railway company and the shippers and others are used to enable the company to keep an account and a record of the various shipments. Upon delivering goods to the railroad company at one of its freight stations the shipper receives from the repre- sentatives of the company a receipt for freight. Large shippers often prefer to furnish their own receipts or bills of lading for the freight agent to check up and sign. Many railroads have wholly dispensed with the receipt, the bill of lading serving therefor. The two papers are identical, ex- cept that the shipper's receipt is not negotiable and usually does not contain the rate of charge. The shipper's receipt, wherever issued, may, upon request of the shipper, be ex- changed for a bill of lading. The bill of lading is a contract which the railroad makes for the transportation to the proper consignee of the articles 160 Railroad Company STRAIGHT BILL OF LADING— ORIGINAL— NOT NEGOTIABLE Stiippef'i No— Afierii's No. -. BECEITBD, nbjMl to lta> aUuiflcitioD* ud tarllbl Id off«t on ttaa daty or Jhub al Ihla OrlKlntl Dill at Lidlni tlia propsrir dauribrd bolow, [d ■ppuant good ordar, (lo^pt aa Dotod (ooatouU and aoQdltlon of aontonti of paokagM unkiiooo), markMl, eonBlKnwl lod dtitiasil aa IndUatad twlow, wfaloh *ald Compauj brfmi to aanr lo Ita niual plaoo o( dallTerjr at mid duntlnatiun, \t od ill romd, othnrwli* to dtllYit to U0th«r eanUi oa tbs rout* to Mid dHtioalian. Itla nutuaUy agnad, M to tnali carrier ot all or any of lald propartj ovrr a1< or aof portiou ul Hid mat* to daitluatloo, uid aato aacti paitjr at anj tlma lotonatod In all or aoj o( Mid propvrtr, that ••erf leTrio* la b« iicrfuimad Loi«uuJ»> ahall ba mbJMi to alltha ounditlaDi, irbatlitr priot^ orwrittaa, bmlo aostaload (Includlni aoodilioni on ba«k barMf) and ableh an a«T>*d m hy tb« aUppai and aaatplad lei UbmU sod hlaaaalgnai -- — - — _ ___ _ — . — . ntB.. irii.^ VMCIMl VltlKll*C) Rilaud *rib»il, FREIGHT CHARGES ADVANCES PREHIB .— — -- — THIS POMI TO BE PRINTED OH "WHITE" PAPER. — Z ^ STBAIOHT BiUi of LA0II70 162 RAILROAD TRANSPORTATION named in the bill. It may be either "straight" or "order." A bill of lading contains a statement of the number of packages shipped, description of the articles, their weight, rate, or class and rate, charges due and advances paid, name of shipper and consignee, shipping point, destina- tion, route, car number and initials and signature of the freight agent and the shipper. It moreover contains an agreement that the articles are accepted and shipped sub- ject to certain stipulated conditions. The contract con- tained in the uniform bill of lading which was approved by the Interstate Commerce Commission and widely adopted in 1908, contains nine sections, the leading provisions being ijhe exemptions of the carrier from liability for loss or damage due to "the act of God, the public enemy, quarantine, the authority of law, or the act or default of the shipper or owner, or for differences in weights of grain, seed or other commodities caused by natural shrinkage or discrepancies in elevator weights," fire occurring 48 hours after notice of arrival, strikes and riots, and delays ordered by the owner of the goods. Straight bills of lading are issued on white paper in triplicate form, the original and one copy being given to the shipper, and the other copy being retained by the freight agent. The shipper sends the original to the consignee and keeps his copy as a "memorandum" for his office records; the copy retained by the freight agent, known as the "shipping order," is used in making out the waybill for the shipment and is then filed in the freight station office. The order bill of lading is issued whenever the shipper desires to secure payment for his goods before delivery is made to the consignee. The contract conditions and the items specified are identical with those of the straight bill, but the freight is consigned to the order of the shipper instead of to the consignee, and with the stipulation that the Railroad Cpmpany Shippers No. _ ORDER BILL OF LADING ORIGINAL. . , „ Agents no.^ BECKIVED, lubjocl to lh« eliutifli^iitioni tiiH (irirfi in bolow, In B|)uraal gaoA brOer, fxceiilu nolod (podI-qU Had Inilir'atod t*f£inr, which said CnniiimiT tenrt U> enrrj to [U u naolbcr CftrrJor on Ibn ivutn tornlJ atiDntlou. ll ii muluoll uld roulo lo d»itlDAlii'n, nndiuto cacb ^•^rfJ ot hdj timo laU] ihalt bo tubjcrt ^ all thi< rouilitiuiiB, irbclb^r prlalnl or nritli bj the ihipiHir and uctplud tar himsplt tad liii tislgDi. Ths lur/ender ot Ihli Original ORDER BRI of Ladlnr properly Indoracd ahall be requlMd beford tha dellvor/ of Iho proiKrty. Inspectlun of property covered by Uile bill ot ladlnj v.iil not tfe permltled unleu provided by law or unieu pcrmJulon U IndoraeJ on thie original bill ot laJlnx or kIvcii In wrltlnx by the shipper. ' T/ie Jialo of J-'reigltt ftom. , _;.„. . OD Lbn data o( laiiin of thli OrlgloBl DUt ot Udlns (be ptoptrtf dJMribn] ilioD ql ccintonl* ol pQckn^oi ddIiiidwd), nurkod, oonilgmd aod dsitlntd H plaro of dcJiicr; nl Miid dailUiatlbD, it on III road, othsrwIiB todellTtrto ■rej, a» to rnrL fBrrier of all or any of Mid proportj 0»M all or anj portion ot lid proportT, that evory ■orrlae to bo p«rIortD«d hartnudtr . t. , ,^ h - " — * -'-•-•- •- 1, buiuln vijDtalDij iluUine DondltloDi oi k bsTBOf) and wblob are agreed to _ ..M in Cents per 100 Ua. iriMdx Mr- IF..II>tl1l IFtllClMI IFIOCIlii ir Ruit n IF 3» Out IF Huitie IFRu • II IF41hCllii iraihoiii irgikciMi M' From Shipper ^ Uflll Ad4nu-Hol h Coaflifned to ORDER OP.. Dcsti p "tin", . ■ ■ ■ ___ ..J^aaty ot„ HO. PACKAGES DESCRIPTION 9F AflTICLES AND SPECIAL HARKS WEIGHT lS(t]f£l la Comrtlst) Ailhtril; FHEIGHT CHMGES A0VAIICE4 riEPAID — _ THIS fT)RM TO BE PBINl'ED — — — ON "YELLOW" PAPER^ — ■ ■. — — — ' ir LadlDi ll (o M llfutil bf Ih* •hiitxr *l Okdeb Bill of Ladinq 164 RAILROAD TRANSPORTATION freight is not to be delivered to the consignee except on presentation of the original order bill of lading properly indorsed. The original is printed on yellow paper and the copies on blue in order to avoid the possibility of fraud. The original order bill of lading is a negotiable instrument, which, when attached to a draft on the purchaser of the goods, may, when properly indorsed, be discounted at the shipper's bank. The bank then sends the bill and draft to its correspondent bank in the city to which the goods are billed. This bank, after collecting the amount of the draft from the purchaser, gives to him the original order bill of lading indorsed by the shipper, and this enables him to obtain his goods from the railway. In addition to the uniform straight and order bills of lading; there are various other forms to meet particular needs. A uniform export bill of lading, which has been widely adopted, is an elaborate document, the contract pro- visions of which stipulate the conditions under which the traffic received is to be carried over the three distinct parts of its route, that is, (i) from the point of origin fo the port from which the goods are to be exported, (2) from the port of export to the fdreign port of receipt, and (3) from the foreign port of receipt to the ultimate destination in the foreign country. For the shipment of grain a special kind of bill of lading is often used, and the same is true for the shipment of live stock. Formerly it was customary for railroads, when receiving certain kinds of traffic, to require the shipper to sign a re- lease, fixing the liability of the railroad for loss or damage at a certain maximum. If the shipper refused to sign such a release he was obliged to pay higher rates. By the Cummins amendment to the Interstate Commerce law, made August 9, 1916, the carriers are required to assume full liability for the actual loss or damage caused by them, re- gardless of any agreement or regulation limiting their liabil- ORGANIZATION OF FREIGHT SERVICE 165 ity. The railroad companies have adopted for some com- modities a sliding scale of rates based on the actual de- clared value of the shipments. Such rates can be adopted only with the express consent of the Interstate Commerce Commission. (MOTATIONS OF TnANSFCItt, PMlatm ITAUM, CTO., SHOULD U PUXtO III BUMIC tMOE •ILOWj PENNSYLVANIA RAILROAD COMPANY Fialghl Bill Nl, F., a. a w. a a. w. J. a a. N. a. Lenglh of Car Fail Inehaa MarkadCapaollyolCar Lba. O.L. Minimum Wolflhfld At ■oilaa 191 Oioaa Taia Nat Lbl. Lba. Lba. ROUTE Hi. COMMDOtTTKb PofnlolOllolll Orlgiaal Car WiybirUd From WaiblllNa. Data ShipBOr ID. Via Conilgnad to OaallnaUoa Stataol Coonliol Room Ch lanjal and No. Merchandise Waybili, The railroad keeps account of all shipments made by means of waybills. For every shipment of freight a way- Re-1C6 at-..™. A. D. 1107 PENNSYLVANIA RAILROAD Ftiiia., Salta. & V^b, R. ft V. J. & Seajfaora R. R. ■ .fcidRMds'iii bUrlint System FfOffl ,^^ .^„,. sTShipmBirt /, hm J, — Shipper—..—..*, . _.Car No., Consignee.,. Oestinfttion,^ „ f repaid $ , „, Ity Coiicct 1... •Marked Capacity of Car aXimt£ WtlGHT ACTUAL MEIGH7 6ro»„„; , „ . ._ „.Jb». Taft , lbs. Net _...._„ .Jbs. Date 191 ._ „ Agent TuniferratftD,,,, At . ... ^ _.. .._ ..Cardo. _.,.Pat« _...,. ta NOTE-This card must be used only for freight charg-ed at the L. C. L. rate. Caed Waybill ORGANIZATION OF FREIGHT SERVICE 167 bill is made out stating the number and initials of the car in which the goods are sent, giving the names of the con- signor and consignee, the points of origin and destination of shipment, a description of the articles, their weight, tariff or class, rate, charges, advances and amounts prepaid and the signature of the freight agent. A copy of every waybill made out is sent to the auditor of freight receipts of the railroad and another copy is kept on file in the office of the forwarding agent. The original waybill either accompanies the freight or is forwarded to destination by mail. If sent by mail a card waybill, containing information similar to that in the original waybill, is made out and given to the freight train conductor. For local freight a local waybill is used; for through freight an interline way- bill. Interline waybills differ from local waybills chiefly in that they route a shipment over specified lines of the company receiving the freight to some point on another (a "foreign") railway. A copy of the interline waybill is sent to each of the railways concerned in the shipment, as well as to the auditor of freight receipts. A great deal of the through freight carried is not sent on interline waybills, but is rebilled at each junction point. Special types of way- bills are used by many railroads for particular kinds of freight, such as live stock, perishable commodities, coal, and company freight. Upon the arrival of a shipment at its destination the receiving agent makes out a notice of arrival, a delivery receipt and a freight bill. These forms each contain the record of the waybill, describe the goods which have been shipped, and state the amount of freight charges. The notice of arrival is sent to the consignee, who calls at the freight house and secures his goods, signing the delivery receipt, which the freight agent retains for his office records. The freight bill, upon payment of the charges indicated. 168 RAILROAD TRANSPORTATION is signed by the agent and given to the consignee as a receipt. Some railroads have adopted an ingenious scheme of "unit billing," by which all the shipping papers used with each shipment of freight can be made out by the forwarding agent at one operation. A copy of the waybill is kept by the forwarding agent, the bill of lading is given to the shipper, and the other papers — original waybill, freight bill, arrival notice and delivery receipt — are sent to the agent receiving the shipment. This method saves a great deal of time and eliminates the risk of error due to transcribing. In cases where the shipper so desires he is permitted to prepare the waybill at the same time he prepares the bill of lading and the shipping order, the freight agent filling in such in- formation as is not in the shipper's possession. The Penn- sylvania Railroad Company, which uses the unit billing system, has its waybills in four colors, white for a straight consignment, charges collect; pink for a straight consign- ment, charges prepaid; yellow for an order consignment, charges collect ; and green for an order consignment, charges prepaid. To insure rapidity and regularity in the handling of freight traffic a railroad company finds a thoroughly sys- tematic organization of the service necessary. Each day a large railroad receives at its freight houses, and team tracks, and from industrial sidings thousands of shipments con- signed to individuals and firms at many different places. The movement of each article must be accounted for from the time it is received from the shipper until it is delivered to the consignee. How the service is organized to do this may be shown by a brief description of the way a shipment is handled from an outbound freight house in one large terminal to an inbound freight house in another.* 'For a detailed description of the handling of freight traffic cf. Johnson and Huebner, Railroad Traffic and Rates, I. ORGANIZATION OF FREIGHT SERVICE 169 When traffic is delivered to the railroad company by the shipper at the outbound freight house it is weighed and the weights entered on the shipping order; the packages are marked to indicate in which car they are to be placed, and are then turned over to truckers to be loaded. The shipping order is stamped with the number of the car in which the goods are placed and is sent to the office, where it is taken first to a rate clerk, who enters the rate and the amount of freight charges. The shipping papers for all the traffic loaded into a single car are placed together and given to a billing clerk, who makes out the waybills for the car, all packages having the same destination being entered on the same waybill. Ordinarily it is possible at each outbound freight house to load a large number of cars with articles for a single destination, and for each of these cars a single waybill is sufficient. At regular intervals during the day the loaded cars are removed from the outbound freight house and replaced by empty cars. A switch engine hauls the loaded cars to the freight yard, where, with cars coming from other freight houses, and from other points on the railway, they are classified according to destination, and made into trains. The conductor is given either the original waybills or card waybills for his train, and from them he knows what is to be done with each shipment of traffic which the train contains. When a car arrives at the freight yard at the point of destination, it is switched to an inbound freight house, un- loaded, and the contents checked against the waybill. A notice of arrival is sent to the consignee, who pays what- ever freight charges may be due the railroad company and receives the goods. Most of the leading railroads have, within recent years, adopted methods for moving certain kinds of freight more rapidly than others. Such freight is usually known as 170 RAILROAD TRANSPORTATION "time freight" but sometimes as "preference" or "fast" freight, to distinguish it from the other class known vari- ously as "slow," "ordinary," or "dead" freight. Time freight is usually carried on special trains at the rate of about 20 miles per hour as contrasted with a speed of 12 miles per hour for slow freight. The trains have a regular schedule and special arrangements are made to facilitate their movement. On the road they are given the right of way over other freight trains, and in the yards the cars of fast freight are given preference so that the time oc- cupied in moving them through terminals is much less than that required for the movement of cars loaded with or- dinary freight. Some railroads have adopted special billing for their fast freight shipments. A very large part of the freight received by a railroad company is not brought to its freight houses, but is loaded by the shippers directly into cars placed on team tracks or industrial sidings. In a similar way many consignees have freight delivered in carload quantities directly to their busi- ness establishments. When a shipper desires to send car- load consignments he requests empty cars from the freight agent who transmits the request to the car distributor. After a car has been delivered to a shipper or after a car- load of freight has been delivered to a consignee it is cus- tomary for the railroad company to allow a certain length of time — generally 48 hours — in which to load or unload the car. After the expiration of the "free time" the railroad imposes a cash penalty known as demurrage. By this means the company is able to keep its freight car equip- ment in more nearly continuous service. Some railways collect at certain terminals not only demurrage but also track storage charges. These charges are designed to discourage the practice which some consignees indulge in of using freight cars as warehouses. Dealers in fruits and perishable produce can often easily afford to pay ORGANIZATION OF FREIGHT SERVICE 171 demurrage to use cars as warehouses, but in so doing they cause loss and inconvenience both to the railroads and to shippers. It is to overcome this abuse that track storage charges are imposed at certain places. In several States demurrage is regulated by statute. The law or the railroad commission of the State may fix the length of free time the carriers must allow and stipulate th^ amount of penalty that may be imposed. Some States have also enacted statutes known as "reciprocal demurrage laws" which impose a penalty on the railroad companies for failure to furnish shippers with cars within a certain time, or for failure to move freight traffic at a stipiilated minimum rate of speed. The Interstate Commerce Commission has jurisdiction over demurrage on interstate shipments and it has aided the railways in formulating and adopting a uni- form code of demurrage rules. No reciprocal demurrage law affecting interstate shipments has been enacted. At the beginning of the railway business each company endeavored to keep its own cars upon its own lines, and it was necessary for shipments going over the lines of two or more carriers to be transferred from one car to another at the end of each separate line. A shipper sending a con- signment of goods which was to be conveyed by several railroads usually employed an agent at the terminus of each road to take charge of his property and forward it to the next point of reshipment, until it reached its final destina- tion. The inconvenience and expense of this method of transportation led to the formation of the so-called fast freight lines, which were companies organized especially to care for joint or interline business. These freight lines provided their own cars and made arrangements with dif- ferent railroads for hauling them, thus obtaining continuous service between distant points. A typical corporation of this kind was the Empire Trans- portation Company, chartered by the State of Pennsylvania 172 RAILROAD TRANSPORTATION in 1865. This company, which is still in existence, was created to increase the business done over the Philadelphia and Erie Railway", a line connecting Sunbury and Erie, Pa., and forming one of the roads joining New York and Phila- delphia with the oil regions in western Pennsylvania and the Great Lakes. As stated by the company, its purpose was "to increase convenience, promptness, and safety in the transfer of property between inland points west on the line of the Philadelphia and Erie Railway and points on the Atlantic slope and seaboard and in the foreign countries east thereof, and to do so in such a manner as should popu- larize with the shipping public the route formed by that railway and its various connections." Like other corpora- tions of its kind, the Empire Transportation Company solicited freight, provided patrons with cars, charged such rates for its services as competitive conditions allowed, paid the railroad for hauling its cars, and retained, the re- mainder of its income above expenses for distribution among its stockholders. To increase its business, the Em- pire Transportation Company built pipe-lines within the oil regions, developed terminal facilities on the seaboard and Great Lakes, and established transportation companies on the Great Lakes and railroad lines extending westward from Pittsburgh and Ohio to Chicago, Indianapolis, and other points in the central West. A traffic organization, such as the Empire Transportation Company developed, was in many ways similar to the com- panies that were organized for freight and passenger busi- ness over the turnpikes and toll roads in the days before railroad construction began. The companies owning the roadbed, were distinct from those performing the service of transportation over the road. Such a form of organization had certain advantages, particularly for securing traffic free to move over different and competing lines. It was an efficient solicitor for business. By owning the cars it re- ORGANIZATION OF FREIGHT SERVICE 173 lieved the railroad companies of the necessity for provid- ing special lines of business with particular classes of rolling stock at a time when the railroad companies were com- paratively small organizations. With the progress of the consolidation of railroads, however, the fast freight lines of the class typified by the Empire Transportation Com- pany ceased to be necessary, either to the railroads or to the public. The railroad systems reached such proportions and their interline relations so developed that the railroad companies were able without the assistance of any inter- vening corporation to take shipments between most distant places. Moreover, independent fast freight lines gave cer- tain individuals an opportunity to divert to themselves a part of the profits which rightfully belonged to the stock- holders of the railroad. Some of the independent fast freight lines were controlled by a limited number of the stockholders of the railroad corporations over whose roads the fast freight lines did business, and an unduly large part of the receipts for the transportation business went to the fast freight lines. The railroad company received less than its proper share of the total earnings derived from the business done over its lines. To obviate this objection, and also to provide more effi- ciently for the management of interline business, the "co- operative" freight lines were established. These cooperative freight lines represented merely a joint arrangement be- tween several connecting railroads. Each of the railroad companies forming the cooperative line assigned to the line a number of cars, usually in proportion to the number of miles of road. A general manager was put in charge of the cooperative line, with agents at the principal terminals to solicit business and employees to report the movement of the line cars. The earnings of the cooperative line and all its expenses were divided pro rata among the interested roads. Thus the cooperative freight line was little more 174 RAILROAD TRANSPORTATION than a system for securing an inexpensive and honest ad- ministration of interline business. With the growth of railway systems and the perfection of their methods of caring for traffic even the cooperative freight lines lost most of their usefulness though they have continued to be used by the railway companies, chiefly as freight solicitors, trade marks and accounting bureaus. The shipping public has become accustomed to consigning goods to certain fast freight lines, and many railroad companies find that by their use it is easier to control competitive business. The railroads also find these cooperative lines of assistance to them in the settlement of accounts in con- nection with their interline business. The Union Line of the Pennsylvania Railroad Company was for many years a clearing house for certain accounts of the railroad. Previ- ous to the general reorganization of the Pennsylvania in 1920 the lines east of Pittsburgh were considered as a sys- tem distinct from the system comprised by the lines east of Pittsburgh, and the traffic passing between the two systems was treated as through traffic. The accounts of this through business were audited by the auditing organization of the Union Line. This Union Line was organized in 1863 as an independent fast freight line between eastern and western points over the lines of the Pennsylvania Railroad system; but in 1873 the Pennsylvania Railroad Company, having secured control of all the roads over which the Union Line operated, caused the Pennsylvania Company, through which the Pennsylvania Railroad Company controls the lines west of Pittsburgh, to purchase the Union Line. The Union Line still exists, but its chief usefulness to the Pennsylvania Sys- tem comes from its value as an advertising and soliciting agency. Its symbol, a white star, is seen on many freight cars. A leading reason for the decline in importance of the fast freight line was the development of a system of car inter- ORGANIZATION OF FREIGHT SERVICE 175 change among the railroad companies. Though it has long been the practice of railways to permit carload freight to be shipped through from consignor to consignee without transhipment, yet most through traffic before 1890 was handled by the fast freight lines. Railroad companies were reluctant to permit their cars to leave their own lines be- cause it was difficult to get them back and because there was no satisfactory method of securing compensation for the use of the cars by other railroads. The rental for a long time consisted eptirely of "car mileage," amounting for several years to three-fourths of a cent per mile run by the car; later the payment was six-tenths of a cent per car per mile. This form of payment was unsatisfactory because a company might retain a foreign car for a long time with- out moving it more than a short distance. Shippers and consignees were often permitted to use foreign cars for storage purposes, and inasmuch as there was no chect upon the accounts of the various railways it was possible for a company to use foreign cars for local freight service without the payment of mileage. Because of the defects of the mileage system of compensation the leading railroads in igo2 adopted the per diem system of payment for the use of foreign cars, it being agreed that the owner of a foreign car should receive 20 cents a day for its use. The rate has been changed at various times ; it has at times been more than $1 a day. Though the per diem method has not always been sufficient to induce railroads promptly to return foreign cars during times of car short- age it has nevertheless brought about a great improvement of the conditions prevailing under the old system. Not only does it cause railroad companies to return foreign cars more promptly but it gives the companies a strong reason for collecting demurrage charges, thus bringing pressure to bear upon shippers and consignees to avoid delaying the release of freight car equipment. 176 RAILROAD TRANSPORTATION Every railroad company keeps a record of the daily move- ment and whereabouts of all the cars on its lines. By means of this record, the amounts due foreign lines for the use of their cars may be computed, and it is possible to learn the location of any car on the system at any time, so that lost cars and lost shipments of freight may readily be traced. The record is kept, either in the form of a card index or of a loose leaf ledger, by the car accountant, who secures the necessary information from the reports of freight train conductors and the reports of the agents at junction points where cars are interchanged with other lines. After each trip a freight train conductor is required to make a report showing the point "where from" and the point "where to" each car of his train has been carried. Each time a car is moved its new location is recorded together with the date. From the agents at a junction point the car account- ant receives daily car interchange reports showing what cars have been received from, and what cars have been delivered to, other lines. This information the car accountant places in his record, and as soon as possible sends junction re- ports to the companies owning the interchanged cars, in- dicating what cars were transferred and to what lines they were delivered. Soon after the close of each month a per diem report is made out to the owners of foreign cars, show- ing the number of days each car has been used and the amounts due. ^"TTie per diem accounts between railway companies in the United States, as well as the interline freight accounts, interline passenger accounts and loss and damage accounts, are virtually all settled by draft. In England the railway companies are all members of a clearing house which was organized in 1847 ^nd chartered by Parliament in 1850. The British Railway Clearing House collects all the charges and distributes the earnings on interline business, the rail- road companies auditing only their local business. ORGANIZATION OF FREIGHT SERVICE 177 A clearing house for the settlement of the interline ac- counts would be a very desirable addition to the business organization of American railways, though the work of such an institution in a country where the distances are so great as in the United States would be much more com- plicated than in a small country like England. In 1907 the Committee on Car Efficiency of the American Railway Asso- ciation organized a clearing house which kept a record of car interchanges and settled car-hire accounts for a number of railroads, the most important of which were the Harri- man lines. This clearing house, which was limited in scope both as to the kind of accounts it handled and as to the number of railroads it served, was abandoned in July, 1912, and since then no other general clearing house has been or- ganized. It is not unlikely that a clearing house system, either a single great clearing house or a number of dis- trict clearing houses, will eventually be adopted by Amer- ican railways. Inasmuch as the railways are to a certain extent divided territorially and according to ownership into a small number of groups it might be advantageous to establish a clearing house in each one of the territorial sections.^ Should a law be passed requiring the rail- roads to be consolidated into a limited number of great systems, a single clearing house could effectively handle all interline financial transactions. The railroad companies do not furnish all the cars used by shippers. Many large shippers prefer to have their own cars in order that they may be able to ship their goods when- ever they desire to do so and in cars especially adapted to the needs of their business. The large meat packers in Chicago, Omaha and other centers of the packing-house business own their own cars, and this is also true to some extent of western fruit growers, the shippers of petroleum, 'For an account of a proposed railroad clearing house system for the United States, cf. W. E. Hooper, Railroad Accounting, 407. 178 RAILROAD TRANSPORTATION live stock, and coal, and the manufacturers of certain kinds of heavy machinery. On the basis of ownership and man- agement private cars may be divided into two classes : ship- pers' cars, consisting of those owned by the shipper and ordinarily used only for the carriage of the owner's prop- erty, and private car lines, consisting of cars owned by pri- vate companies, who lease them to carriers and shippers for general use. To the former class belong most of the coal, ore, oil and fresh-meat cars, and to the latter belong fruit, dairy, poultry and live stock cars. The private car owner shipping freight in his own car pays the same freight rate as other shippers and the same rate as he would pay if he shipped his goods in a car be- longing to a railway. For the use of the car the railroad company usually pays the owner a fixed amount per mile. Though in 1902 a mileage rate was superseded by a per diem rate as the method of payment for the use of foreign rail- way cars, it was retained in the case of private cars. In times past private car mileage has been as much as a cent a mile. It is now six mills for stock and ordinary cars, while the rate on refrigerator cars is generally one cent a mile in the middle West and three-fourths of a cent a mile in the East and far West. There are certain objections to the system of private cars. They have led frequently to unjustifiable discriminations between large and small shippers, the man possessing his own cars and shipping in large quantities being able to ob- tain special favors from the railroad companies. Another fruitful source of dissatisfaction has been the exorbitant charges for refrigeration made by the owners of private cars, but since 1906, when the Interstate Commerce Com- mission was authorized to regulate such charges just as it regulates freight rates, this abuse has been eliminated. Pri- vate cars have unquestionably been of great benefit. Several of the great industries of the country, particularly fruit ORGANIZATION OF FREIGHT SERVICE 179 raising and meat packing, have reached their present higli state of development only because special transportation equipment has been available. In the early days of these industries the railroads were unable or unwilling to supply the necessary equipment, and had not the private car lines been originated the growth of these industries would have been much slower. The tendency on the part of rail- roads at the present time is to limit the use of private cars as much as possible by supplying themselves all the equip- ment used by different classes of shippers, and the use of private cars may eventually be limited to a small number oi industries. However, the number of private cars in use is large. Their exact number is not known, but there are about 150,000, or about 6 per cent of the total number of cars owned by the railroad corporc tions. REFERENCES The American Railway (1889). Paper on "Railway Manage- ment," by E. P. Alexander, 149-186; also paper on "The Freight Car Service," by Theodore Voorhees, 267-297. For the classification of freight the following references may be consulted : Report of Industrial Commission, IX, pp. Ixxxii-xc and 652- 687 (1901). Fourth Annual Report of the Interstate Commerce Commis~ sionj 197-239 (1890). A copy of a freight classification, which may be secured from any railroad company. Interstate Commerce Commission Reports, XXV, 442 (In- vestigation in the Matter of the Suspension of Western Classification No. 51). For a discussion of fast freight lines consult: Hadley, a. T. Railroad Transportation, 87-90 (1885). Report of Industrial Commission, IX, pp. xcv, 613, 724 (1901). Johnson and Huebner. Railroad Traffic and Rates, I, chap, xiii (1911). 180 RAILROAD TRANSPORTATION For information concerning the railway clearing house : FiNDLAY, G. The Working and Management of an English Railway (London, 1889). [Contains an account of the British Railway Clearing House.] Report of Industrial Commission, IX, pp. xcvii, 718-731 (igoi). [This is the testimony submitted to the commis- sion by Mr. William Nicholson, manager Central Railway Clearing House, Buffalo, N. Y.] The subject of private cars is discussed in: Weld, L. H. D. "Private Freight Cars and American Rail- ways," in Columbia University Studies in Political Science, XXXI, No. I, 1908. MiDGELEY, J. W. "Private Cars : An Inquiry into Their Growth, Development, and Operations." [A series of pa- pers printed in the Railway Age, October 10 and 17, No- vember 7 and 21, December 19, 1902, and January 16 1903-] Johnson and Huebner. Railroad Traffic and Rates, I, chap, xii (1911). Eighteenth Annual Report of Interstate Commerce Commis- sion (1904). On the per diem plan of payment for the use of cars consult: The Railroad Gazette, February 17, 1899, October 11, 1901, and the indexes of that publication for the years 1901 and 1902. Weld, L. H. D. Ihid. Johnson and Huebner. Railroad Traffic and Rates, I, chap. X (1911). CHAPTER XII THE PASSENGER SERVICE General characteristics of the passenger service, i8i. Comparison of the trend of passenger fares and freight rates in the United States, 182. Volume of passenger traffic in the United States, 185. Comparison of railroad travel in the United States and foreign countries, 186. Classification of passenger travel in Europe, 187. Varieties of passenger service in the United States, 188. Relation between the Pullman Company and the railroad corporation, 193. Passenger tickets and baggage checks, 195. Methods employed to increase traffic, 196. Op- portunities for developing passenger traffic, 197. Electricity and the passenger service, 199. Competition of the automobile, 200. References, 200. The service of transporting persons differs in several par ticulars from the freight service. Goods are shipped; men travel of their own volition, controlling, in most instances, the time and direction of their movements. This fundamen- tal distinction necessitates an organization of the freight service different from that required by the passenger busi- ness. Freight rates and passenger fares are charges levied for dissimilar services, and to a large extent are deter- mined by different considerations. One important difference between the two branches of the service is that most freight is moved in carloads or trainloads, the car or train being started when the car is loaded or the train is made up, while the passenger business is performed by trains that run on fixed schedules. This distinction, however, does not apply in all cases. Some com- modities, like milk and fresh fruit, are dispatched by trains 181 182 RAILROAD TRANSPORTATION which run strictly according to schedule, and the collection and distribution of the traffic at the local centers of pro- duction or consumption are usually accomplished by "way- freight" trains which have a more or less definite time of ar- rival and departure. Frequently the "milk" trains and way- freight trains have passenger coaches attached, and thus perform a mixed service ; but the larger share of the freight traffic is handled in trains whose time of departure is ar- ranged with reference to the volume of goods offered for shipment, while passenger trains are dispatched according to prearranged schedules, whether many, few, or no per- sons present themselves at the station. The passenger service, moreover, to a far greater degree than is required in the freight business, must provide for speed, safety, comfort, and convenience. While speed and regularity of service are demanded by the shippers of some classes of commodities, the great demand is for cheap trans- portation, for low rates, and to meet this demand the rail- road companies have constantly striven to reduce the costs of handling and moving goods. On the contrary, in the pas- senger service railroad officials have striven to give a better service, to increase speed, provide for greater safety, and to minimize the discomforts of travel. Travelers in most countries, and particularly in the United States, seem to prefer a good although expensive service to inferior ac- commodations at low fares. Whether this is true of all classes of American people is open to question; but there is no doubt that excellence rather than economy has been the goal in the development of the passenger service. Among the results following the pursuit of these dif- ferent aims in the two main branches of the railroad busi- ness has been a large increase in the average freight train load, and a smaller change in the average number of peYsons per passenger train. In i8go the number of tons of revenue freight per train averaged 175 ; in 1900 the average was 344 PASSENGER SERVICE 183 tons, and in 1918 it was 628 tons. The number of passengers per train was 41 in 1890, and also in 1900; in 1905 the aver- age was 48 and in 191 8 it was 76. There was an increase in the number of people carried and in the distance trav- eled by them, but the growing demand for frequency of service, speed and comfort resulted more in the increase of trains than in a gain in passenger train load. Another result has been a more rapid decline in freight rates than in passenger fares. The facts regarding rates, fares, and revenue are indicated by the following figures: , 1890 1900 1906 1913 1918 Revenue per passenger per mile, cents Revenue per ton of freight per mile, cents. . Revenue per train mile, passenger trains, dollars . ... 2.167 • 941 1.086 1.654 2.003 .729 1. 010 2.000 2.003 .748 1.203 2.608 2.008 .729 1 .356 3.243 2.414 .849 2.232 5. 334 Revenue per train mile, freight trains, dol- From 1890 to 1900 passenger earnings per passenger mile declined 8 per cent, and freight earnings per ton mile fell during the same period 23 per cent. In the freight service the decrease in rates was more than offset by the introduc- tion of more economical methods of conducting the busi- ness, so that there was a large gain in the earnings per mile run by freight trains ; but in the passenger service that was not possible, and the train revenue fell off slightly. The figures for 1900 and 1906 reflect the influence of the highly prosperous times then prevailing, and show an arrest in the downward tendency of rates and fares. From 1906 to 1914 there was but little change in passenger fares. The receipts per ton per mile from freight traffic increased slightly until 191 1, and declined during the next five years. Following 1917 both freight and passenger earnings ad- vanced rapidly because of the general increases in rates and fares. 184 RAILROAD TRANSPORTATION Another difference between the freight and passenger services arises from the fact that freight has to be loaded and unloaded at terminals, and yards and depots have to be provided for storing cars and goods. The terminal costs in the freight service — labor, yardage, and storage — constitute a larger share of the total expenses than is the case in the passenger branch of the business. In the large cities, passenger stations are large structures located where real estate is valuable, but they cost less than do the facili- ties for handling freight, and passengers not only board and leave the trains without assistance, but do so promptly upon the arrival of the train, so that the railroad company is obliged to provide neither extensive yardage for the coaches nor housing accommodations for the traveling pub- lic, except for the brief time they must wait for trains. Another fact affecting the cost of the service, the utiliza- tion of cars, and the methods of conducting the business, is that passenger travel is practically the same in each di- rection. People who leave home return to their homes; but commodities are shipped from the places of production to the localities where they are to be used or consumed; and while everyone who produces is also a consumer, those who supply the world with foods and raw materials dispose of much more tonnage than they purchase. In the United States the freight from the Western and Southern States to the seaboard and to the manufacturing centers is much heavier than that toward the interior of the country. If freight traffic were equal in each direction, the average train load would be heavier and the costs of transporta- tion would be less. In spite of the equilibrium of travel to and fro, the average passenger train carries only 76 persons, or about five and one-half tons of paying load, so strong are the forces compelling frequency, speed, and luxury in the service. If travel, like the movement of commodi- ties, were mainly in one direction, the coaches would contain PASSENGER SERVICE 185 fewer passengers on the average than they now do, and the fares would need to be higher than under existing condi- tions. The number of passenger trips taken on American rail- roads in 1900 was 576,865,230, and in 1918, 1,084,997,896, an increase of 88 per cent. The aggregate length of trips taken in 1918 was 42,676,579,199 miles, the average jour- ney per passenger or the average length of trip being 39-33 miles. The increase in the speed of trains and in the comforts of travel was accompanied by a greater amount of long-distance travel, the average trip having lengthened over fifteen miles since 1890. The revenue derived directly from the passenger service was $323,715,639 in 1900 and $1,027,014,627 in 1918. The income from the carriage of mail and express, and from other earnings attributable to the passenger service, was $74,300,000 in 1900 and $196,000,000 in 1914. From the operation of passenger trains slightly more than one- fourth (25.21 per cent in 19 18) of the operating income of rail- roads is received. In New England the passenger revenues comprise a much larger share of the total, almost one-half of the earnings from operation being derived from passenger trains. In general, the passenger receipts as compared with those from freight are relatively greater the more thickly the region served by the railroads is settled ; but such a dis- trict as that occupied by the Rocky Mountain and Pacific Coast States of the United States is an exception to the general rule. That part of the United States ranks next to New England as regards the ratio of passenger revenue to total receipts from railroad traffic. The foregoing figures show that the people of the United States travel frequently; but a comparison of our country with the European countries having the most highly de- veloped means of transportation indicates a greater use of the railroads for travel by some foreign people than by 186 RAILROAD TRANSPORTATION Americans. Although there is a far greater mileage of rail- road in the United States than in any other country, the network of lines is spread over a vast extent of territory, and in a large part of the country serves a scattered and sparse population; while in the United Kingdom nearly half as many people as there are in the entire United States dwell within an area the size of three American States of medium proportions. Long distances deter people from traveling for pleasure, and induce men, when possible, to do business by mail and telegraph. The conditions favor- ing travel are a dense population living mainly in cities and having an average income large enough to make travel possible. The people of the United Kingdom take about one-fourth more trips than do the people of the United States, although there are more than twice as many people in the United States. In 1913 the average number of trips per year , per person taken by the Briton was about 28.5, while for the inhabitant of the United States the average was 10.4. In the number of passenger trips taken yearly the rank of the United States among other countries is approximately as follows : the United Kingdom, 28.5 ; Germany, 26.4 ; Belgium, 24.1; France, 13; United States, 10.4; Canada, 6.2 ; Italy, 2.5. The significance of these figures is modified by the greater average length of the trip taken by the American, who travels a few more miles each year than do the inhabitants of the leading European countries. The passenger traffic on European railroads is much denser than on those in the United States. An equal mileage of road accommodates a much greater traffic in Europe than in the United States. This is shown by dividing the total number of miles traveled by all passengers (the "passenger miles") by the miles of railroad. Such a calculation shows the miles traveled per mile of railroad to be about 600,000 in the United Kingdom, 678,000 in Germany, 432,000 PASSENGER SERVICE 187 in France, and 137,000 in the United States in 1912.* In all countries, the United States included, passenger ac- commodations of different degrees of excellence are pro- vided by the railroads, the charge for the best class of serv- ice being more than for the lower classes. In European countries, from three to five grades .or classes of service are offered. In the United Kingdom and most of the Con- tinental countries there are three classes — first, second, and third ; but in Germany there are four classes, besides special accommodations for the military, which may be considered a fifth class. In the military and fourth classes the coaches are but little better than box freight cars fitted with benches. The third-class car, or compartment, contains comfortable seats, often without upholstery. In the second class the passenger is given more room, he has an upholstered seat, and there are adequate toilet facilities. The first-class compartment has more elegant fittings and appointments than the second class, but the comforts are practically the same. In the United Kingdom there is not a great dif- ference between the accommodations afforded by the second- class and third-class services, both of which compare fa- vorably with the second-class service of Germany. On a few railway lines in England the second-class service has been entirely dispensed with. In nearly all European countries workmen's trains are run at certain times during the day, offering a special service at very low rates to laborers whose work takes them some distance from their homes. The traveling public in Europe desires the classification of passengers for two reasons : one economic, and the other purely social. The great majority of the people wish to travel inexpensively, preferring economy to luxury, and their demand for a cheap service is met by the railroads in 'Statistics of travel since 1913 do not give a satisfactory basis of comparison because of the conditions created by the World War. 188 RAILROAD TRANSPORTATION the third and fourth classes, and in the slow trains upon which lower fares are charged than on the fast trains. The minority of the passengers are able to pay high fares for more elegant accommodations and for the social dis- tinction attaching to traveling in a class above that taken by most people. In countries where social divisions are sharply drawn, the larger fares exacted for the second and first classes as compared with the third are paid mainly because the first and second classes are taken by only a few people. In countries where there are only three classes, about nine-tenths of the passengers ride third class, and where there are four classes somewhat more than nine-tenths choose the two lower classes. The first class is patronized less than any other. The division of passengers among the several classes in several representative foreign coun- tries is shown by the following table. Divisions of passenger travel in various classes in various countries Country Year Per cent of all passengers in class Military class Total Germany Switzerland Belgium (state) . . India Norway Sweden (state) . . . Denmark United Kingdom, Prance Austria Hungary 1912 1911 1911 1912 1911 1912 1912 1913 1911 1912 1912 o.io 0,57 0,90 7,50 7,18 10,62 0,82 3-22 4-9 9,2 0,98 18,38 59 14,6 42,00 86,78 88,48 96,20 96,72 93,8 90,6 96,9 77,4 92,6 82,2 49,20 S.48 2.782 1,1 2,1 100 100 100 100 100 100 100 100 100 100 100 1 Special class. 2 Intermediate class between 2d and 3d. In the United States the passenger traffic is not classi- fied to the extent that is customary in Europe, but the railroads furnish different grades of service corresponding Comparative data concerning passenger traffic in selected foreign countries and the United States Country Year Number of passengers (in millions) Number of passenger miles (in millions) Number of passengers per head of population Germany _ United Kingdom France Canada Japan United States. . . 1913 1912 191X 1913 1911 1914 1,797 1,294 SII 46 ISI l,0S3 2S,S93 14.123 10,899 3,266 3,382 35,258 26.8 28. S 13 6.2 2.9 10.7 I Country Year Number of passenger miles per head of population Average length of trip in miles Receipts per passenger Germany United Kingdom. France^, Canada Japan United States. . . 1913 1912 1911 1913 19x1 19 14 382 309 275 421 64. 358 14.2 8 21.3 71 22.4 33 61 cents 12.9 16.6 31.8 140 IS.S 66.4 Country Year Receipts per passen- ger per mile Number of passengers per train Revenue per passen, ger train mile. (From passenger service only) 1913 1912 191 1 1913 1911 1914 cents 0.91 1.52s 1.49 1.973 .69 1.982 84 '6^ 62 III 56 cents 76 103 122 77 no Country Year Passenger den- sity. (Passenger miles divided ; by miles of railroad) 1 Freight density. (Ton miles di- vided by miles of railroad; net tons) 1913 1912 1911 1913 1911 1914 678,38s 602,506 432,625 111,440 683,351 144,278 1,078,580 559.578 573,095 786,000 474.317 United States 1.176,923 190 RAILROAD TRANSPORTATION in a general way to the classes found on foreign roads. Broadly speaking there are two standard and regular classes of passenger service in this country. By far the most important is the "first-class" coach service which is used by more than 95 per cent of the passengers carried annually. Above this service nearly all railroads have, on their long- distance trains, sleeping cars and parlor cars, in which accommodations may be secured by the holders of first-class tickets on the payment of an extra fare. Over the main routes of long-distance travel nearly all trains carry both parlor and day coaches — that is, they regularly provide two classes of service, and some of the best trains on those routes consist entirely of parlor, sleeping and dining cars. In addition to the "first-class" service and the Pullman service, as the sleeping and parlor car accommodations are called, the railroads of the United States ofifer certain special and irregular services inferior to the first class, the most important of which are the so-called "second-class" service, the immigrant service and the colonist service. Until recently most of the railroads sold second-class tickets - for all kinds of travel, but the use of these tickets in local service has now been nearly everywhere discontinued. How- ever, second-class tickets for long-distance travel are sold generally west of the Mississippi River. Ordinarily the holder of a second-class ticket is entitled to a seat in the smoking car, or sometimes in the day coach, and is not permitted to purchase accommodations in the "Pullman" cars. In some parts of the West special second-class coaches, 'and "tourist sleeping cars," in which berths may be secured by the holders of second-class tickets, are provided. Sec- ond-class passenger traffic has never been encouraged or stimulated in the United States, and the volume of that class of travel is probably declining. This may be ex- pected to continue until the railroads change their policy and PASSENGER SERVICE 191 run second-class trains and cars as a regular part of their service. The immigrant service offered by the railroads rose in response to the need for a means of giving adequate protection to the newly arrived foreigners and of distribut- ing them from the eastern seaports to other sections of the country. The immigrant traffic originates chiefly at New York, where the greatest portion of the foreign immi- grants land in the United States, though there is a small traffic at other eastern and at southern ports. At New York the railroads organized in 1886 the Immigrant Clearing House, the agents of which care for the immigrants from the time they are landed until they are placed on board the train. The traffic is divided among the various roads according to joint arrangements and to some extent it serves as a means of equalizing the through passenger business of competing lines. The accommodations provided for the immigrants are inferior and the fares are naturally low. The equipment used in the service usually consists of old first-class passenger cars, that are comfortable and safe, the immigrants providing whatever sleeping facilities they desire. Ordinarily the traffic is handled by special trains, but when the number of passengers is small they are forwarded in a separate car attached to a regular train. The "colonist fares" offered by railroads are low fares, effective for periods varying from 30 to 60 days, during the spring and fall, from points in the East to the Pacific coast and far Western States. Their purpose is to en- courage the movement of settlers to the West. Another important feature of the passenger traffic of American railways is the large excursion service. It is a general custom for railroads to make low round-trip fares for special occasions, such as presidential inaugurations, conventions, world, state, and county fairs, and hundreds of other large and small events. Seasonal excursions to 192 RAILROAD TRANSPORTATION pleasure resorts — to the seashore, lakes and mountains in the summer, to the South in the winter — are regularly provided, and Sunday and holiday excursions are arranged for the benefit of the laboring and professional classes. By offering cheap excursion services the railroad companies induce m.any persons to travel, who, without such services, would stay at home. The traffic increases each year with the growth of population and the increase of the prosperity of all classes. The character of the service depends upon the class of travelers being appealed to and the purpose of the excursion ; some of the trains contain only high-grade Pullman equipment, while the cheapest excursion trains are made up of more or less out-of-date day coaches. Freight and passengers are classified in a different way and for unlike purposes, but in some particulars the rea- son for the classification is the same. Differences in the cost of the service and in the ability of the article to paj" charges determine the class to which a commodity is assigned and the rate which it must bear ; likewise the fares collected for each of the several grades or classes of passenger service are fixed with reference to differences in the costs of the service and in the ability and willingness of various classes of travelers to pay. In the passenger, as well as in the freight business, the range of charges as between the higher and lower classes is much greater than the difference in the costs of service. Most American railroad companies, unlike those in for- eign countries, place the sleeping, parlor, and dining car services in charge of a separate company. The Pullman Palace Car Company, of Chicago, from the beginning of this service in the years 1865-1866 has owned and operated most of the cars in use. For many years the Wagner Palace Car Company, of Buffalo, built and managed from one-fourth to one-third of the sleeping, parlor, and dining cars, the Vanderbilt interests controlling the company. Ip PASSENGER SERVICE 193 1899 the two companies consolidated under the name of the Pullman Company, and at the present time that company controls all these extra-fare cars excepting the relatively small number operated by the railroad companies. The Chicago, Milwaukee and St. Paul, the Canadian Pacific, the Great Northern, and a few other companies own and oper- atesleeping cars. [The respective rights and obligations of the Pullman Com- pany and^ffie railroads over whose Tines its cars operate are definitely fixed by contract. The contracts with various railroad comipanies differ considerably, but there are several provisions that are common to a number of them. The railroad company carries free the employees and officers of the Pullman Company; provides quarters where tickets may be sold; hauls, switches, and inspects the cars; makes ordinary running repairs; and pays a rental or mileage for the use of each car. The amount of the mileage payment is usually graduated according to the annual gross earnings of the car from Pullman tickets, and on most roads if the annual earnings exceed a certain sum, no mileage pay- ment is required. The Pullman Company on its side fur- nishes sleeping cars sufficient in number to meet all re- quirements ; furnishes conductors, porters and other needed servants, and agrees not to rent more than one stateroom or section against one ticket unless with the consent of the railroad company. The Pullman Company receives for its cars, in addition to mileage payments from the railroads, the extra fares paid by the passengers for the privilege of riding in the parlor or sleeping cars. The railroad company receives the regular fares paid for the first-class tickets, and in addition a surcharge equal to one-half the amount of the Pull- man fare. On some especially fast trains the railroads charge more than the usual first-class fare, to cover the additional expense of running the trains at a high 194. RAILROAD TRANSPORTATION speed. The parlor and sleeping coaches are much heavier than the ordinary first-class day coach, and have accom- modations for fewer people; hence the profits received by the railroads from the parlor and sleeping car traffic are really smaller than those obtained from the day coach service. Some one has said that "the man who sits up all night in the day coach helps pay the fare of the man who rides in the Pullman car." This, however, is not strictly accurate, because the parlor and sleeping car service is probably not often conducted at a loss. The railroad companies have found it to their advantage to rent the parlor and sleeping coaches instead of owning them, because the Pullman Company, having control of a great number of cars, is able to supply the railroad with just the number of cars required. The number of Pullman cars required by a railroad company varies with the volume of travel, which is greater in some seasons of the year than in others, and which may temporarily be largely increased by some convention, exposition, or other extraordinary event. When one railroad company or one section of the country has a large demand for coaches, some other com- pany or section will probably not need more than the usual quota, and the Pullman Company is thus able to distribute the cars economically according to the needs of the service. If each railroad company owned coaches enough to supply^ its needs when the travel over its lines was heaviest, some companies would have on hand a large number of idle coaches much of the time. This condition, however, is being changed by the railroad consolidations and the develop- ment of systems serving large sections of the country. A railroad system such as the Southern, the Pennsylvania, the Vanderbilt, or the Hill lines, operates over such a wide stretch of country that the volume of travel on its system as a whole must vary within a small enough range to enable the company to employ its parlor, sleeping and dining car PASSENGER SERVICE 195 equipment economically. No such company as the Pull- man could absorb practically all the field were it to start under the conditions now prevailing, but having acquired the business as it developed, the Pullman Company will doubt- less continue for some time to come to perform the service it is now rendering. Eventually, however, the large rail- road companies will probably own and operate the sleep- ing, dining, and parlor cars used on their several lines. Corresponding to the shipping papers used in the freight service are the passenger tickets used in the passenger serv- ice. There are many types of tickets issued to meet par- ticular needs. In general there are two classes: local tickets, good for transportation between points on the same road, and interline tickets, valid on connecting lines; but there are many forms of each of these two classes. The most common are the first-class tickets (local or inter- line) which may be single-trip or round-trip; excursion tickets, which are usually limited as to time and class of service and are non-transferable; and reduced- fare tickets including second-class, commutation, mileage, immigrant, clergy and children's tickets. Every ticket bears the names of the points of origin and defefination, certain contract provisions between the railroad company and the purchaser, the printed signature of the head of the passenger traffic department, a consecutive number and a form number. All first-class tickets and some of the other forms of tickets entitle the holder to have a certain quantity of baggage transported to his destination free of charge. Each piece of baggage is tagged with a "check," a duplicate of which is given to the passenger to enable him to claim his property at the end of the journey. The baggage arrange- ments in the United States are superior to those in most foreign countries, and the American railroads are especially liberal in the weight of baggage which a passenger may take without extra charge. In the United Kingdom the 196 RAILROAD TRANSPORTATION passengef receives no baggage check, and is obliged to identify and claim his "luggage" at the end of the trip. On the Continent of Europe the passenger receives a check for his baggage, but the weight of baggage which he may check without extra payment is usually limited to 56 pounds, and in some countries nothing but hand baggage is exempted from charges. In the United States the railroads permit the passenger to carry as much hand luggage as he wishes, and on most tickets will check 150 pounds without charge. This extra baggage service should be taken into consideration in comparing passenger fares in the United States with those abroad. In most passenger trains there are more seats vacant than occupied, the average number of passengers per train in the United States being only 76. Over many routes an increase of 50 per cent in the number of persons carried would add little or nothing to the expenses of operation. Under these conditions, profits rise very rapidly with even a moderate increase in business, and consequently the railroad company always has a strong incentive to enlarge the pat- ronage of its road. Many means are employed to accomplish this. The companies advertise to some extent in the daily, weekly, and monthly journals, and place descriptive literature in conspicuous places. Ticket offices are located in the most central sections of the large cities; agents are employed to solicit patronage, and excursions for many purposes and to many places are organized by the railroads. Some official in the passenger department has general charge of the excursion business. Among other devices to increase travel are the "personally conducted" tours which many companies are now successfully organizing. The "resort" traffic and suburban traffic, or what is fre- quently called the commutation business, are zealously stimu- lated by reductions in fares and by ofifering an attractive PASSENGER SERVICE 197 service. With the growth of wealth in the United States and the increase in the number of those who can afford recreation the summer travel between the cities and the seashore and mountain resorts is rapidly expanding. Like- wise the change from city to suburban residence for a part or all of the year is taking place with accelerating rapidity as the inconvenience, discomfort, and expense of getting to and from the city are being lessened. In stimulating sub- urban residence the trolley and other electric lines have been quite as influential as the steam railroad, and by their competition have in some instances compelled the railroad companies to make their service more attractive by reducing fares and offering better accommodations. The electric lines have in some cases taken so much of the short-distance suburban traffic away from the steam Hnes as to cause them to curtail or abandon part of the service previously per- formed. However, the result of the electric lines upon tha growth of the suburbs has often been to cause such an in- crease in population as to enlarge ultimately the traffic of the railroads as well as that of their competitors. There are two general methods of inducing people to use the railroads more frequently : one is the reduction of fares, the other is the improvement of the service. The American railroads, generally speaking, have been more inclined to follow the latter plan. They have acted upon the theory that they were serving a people having a relatively high average income and willing to pay liberally for comfort, speed, and luxury when traveling; accordingly, the rivalry of competing companies has led to the introduction of a more expensive and more luxurious service rather than a cheaper one. As was stated above, fares have declined very slowly as compared with rates. A reduction of fares to stimulate traffic has been made in many cases, but greater dependence has been placed upon speed and comfort than upon cheap fares to attract travel. 198 RAILROAD TRANSPORTATION It is possible that a less expensive service offered at rates considerably lower than those prevailing might result in much more travel. There are some students of the sub- ject who think that there would be a large demand for a cheaper service in this country, and who believe that the experience of the foreign railroads, whose inferior but in- expensive service has caused the poor people to travel extensively, would be repeated in this country if the Ameri- can railroads were to offer the masses of people, whose in- come is small and to whom speed and luxury are not of prime consequence, an opportunity to travel for fares much lower than those now charged for first-class tickets. In considering methods for increasing the use of the railroads for travel, the fact should be kept in mind that "the greatest elasticity of demand" exists among those to whom expensive travel is impossible. The desire for travel is universal, and if the costs of traveling can be brought within the means of all with the possible excep- tion of the very poorest classes of society, the number of journeys taken can be greatly increased. The recent ad- vances of charges both in this country and abroad indicate that passenger traffic tends to vary more than proportion- ately with changes in fares. It does not necessarily follow that the revenues derived from the larger traffic at lower fares will be more profitable to the railroads, but there are reasons for believing that the addition to the present passenger business of American rail- roads of a large volume of traffic taken at low fares would add to the net profits of the companies. With an average train load of only 76, it can hardly be doubted that ex- penses will be enhanced but slightly by additional busi- ness. The railroad business is one of "increasing returns" under practically all conditions — a business in which prof- its rise more than proportionately with an increase in the business done — and the passenger service as at present con- PASSENGER SERVICE 199 ducted is one in which the law of increasing returns would operate very strongly. There is, moreover, the practical effect of low fares in other countries to indicate what would probably result from the introduction of a cheaper service at lower fares in this country. During recent years the development of the passenger service has been influenced to some extent by the use of electricity instead of steam for motive power. The growth of the electric railway has been rapid. In 1887 there were 13 short lines, using altogether about 100 cars; twenty years later there were 39,000 miles of electric line in the entire country, Massachusetts, with 2,233 miles, having as many miles of street railways as of trunk-line railroads. In 1919 there were in the United States 48,326 miles of electric railway. In the beginning these electric lines were laid only in city streets but they soon became suburban and interurban roads. They are now sharing with the steam railroad not a little of the short-distance traffic it formerly monopolized, and in several States a large passenger busi- ness for comparatively long distances has been built up by interurban electric railway companies. Chapter V contained a brief discussion of the leading technical advantages which the electric railway possesses over the steam railroad. The unit of service can be mul- tiplied or divided at will; electrical power is clean, safe, and quiet, and it is in many kinds of service more economi- cal than steam power. In the suburban and to a large extent in the interurban traffic, the electric cars are either run on Hues of the connecting street railways or have such close connection with them as to enable passengers to travel directly without delay between their residences and places of business. The great advance in the costs of transportation since the beginning of the World War has affected adversely the prosperity of electric lines to an even greater extent 200 RAILROAD TRANSPORTATION than that of steam railroads, and the prospects for the further construction of electric railways in the near future are not bright. Moreover the profits of the electric rail- ways have been materially reduced by the wide use of the automobile. The trafiSc of virtually all electric lines is chiefly of the short-distance variety, and these roads have felt the competition of the automobile more severely than the steam roads. But while the construction of electric railways has been checked, there is a steady growth of sentiment in favor of the electrification of steam railroads. Electricity may be expected to take the place of steam as the motive power for short-distance traffic, as, indeed, it has begun to do in the steam roads entering New York City, Philadelphia and some other places. Whether electricity will supplant steam in long-distance traffic is, however, not yet certain, but it would be rash to predict what the future development of the electric motor will be. The accomplishments of elec- trical engineers, with their present incomplete knowledge of the force with which they are dealing, lead the world to expect yet greater achievements. The possibilities of electricity are doubtless greater than those of steam, and the ultimate use of the electric motor in all branches of the transportation service seems a rational expectation. REFERENCES Weyl, W. E. "The Passenger Traffic of Railways," in Publi- cations of the University of Pennsylvania (1901). [The book contains much historical and statistical information.] Prout, H. G. "Railroad Travel in England and America," in Scrihner's Magazine, October and November 1894. Report of the Industrial Commission, IV, 758, 759 (1900). Bureau of the Census. Street and Electric Railways (1912). Johnson and Huebnee. Railroad Traffic and Rates, II, parts iv and v (1911). CHAPTER XIII THE EXPRESS SERVICE OF THE RAILROADS General character of the express service, 201. The origin of the express service and its subsequent development, 203. The or- ganization of the American Railway Express Company, 203. Express shipping papers, 207. The contractural relations be- tween the American Railway Express Company and the rail- roads, 207. Express rates, 209. Volume of express business, 213. The parcel post and the express service, 214. Should the present express service be discontinued? 215. Refer- ences, 216. The express business is here studied as a part of the transportation service performed by the railroads. Not all domestic express matter is transmitted by rail, but the railroads have now spread so generally and so thickly over most sections of the United States that the saddle- horse, the stage, and the steamboat have come to be little used by the express companies. In the service between the United States and all foreign countries except Canada and Mexico, the steamship is necessarily the carrier em- ployed. There are but few of the important phases of the business performed by the express companies of the United States not manifest when the subject is viewed from the standpoint taken in this study. In general, express traffic consists of the commodities, other than mail matter and personal baggage, transports on passenger trains. This statement does not cover quite all the business, because some express goods are sent by fast trains carrying no passengers, but that is exceptional at the present time. Among the articles most frequently carried 201 202 RAILROAD TRANSPORTATION by express are parcels of commodities of light weight and high value, valuable papers and documents, books, maga- zines and other printed matter, paper money, coins and precious stones, and perishable products requiring more rapid transportation and prompter delivery than the rail- road companies can offer in their freight service. In addi- tion to the transportation services performed by the express companies, they sell to travelers "express money orders," payable at any of their foreign offices, and they sometimes do an order and commission business, collect accounts and execute papers. We are here concerned only with the carrying business of the express companies. Strictly speaking, the express business is a part of the freight service, both consisting of the movement of commodities as contrasted with the carriage of persons, which is the passenger service; nor is there any sharp line of distinction between the traffic handled by the express companies and by the railroads as fast freight. The express company will accept virtually any commodity, and the shipper, whatever may be the nature of the goods he is forwarding, has the option of sending his articles as freight on trains running about 15 miles an hour — the consignee to call at the depot for the goods — or by paying about four times the ordinary freight rate, hav- ing an express company call at his house or place of business for the packages to be shipped, dispatch them on a train making 30 to 50 miles an hour, and deliver them at the street address of the person to whom the articles are sent. In actual practice, the competition between the express and freight services is neither so general nor so keen as the statement just made might indicate, partly because the relations of the express and railroad companies are regulated by contract, and partly because the railroad com- pany may frequently receive more for carrying goods for the express company than would be obtained as freight EXPRESS SERVICE OF RAILROADS 203 charges paid by the shipper of the commodities — ^that is, the railroad company's share of the express charges may be greater than the total charges would be if the goods were carried as freight. In the past railroad companies have sometimes favored the shipment of such bulky commodities as oysters, milk, and fresh fruit by express, but with the recent development of the fast freight service the tendency is to restrict the express trafific to parcels. During the first decade of the history of the railroads of the United States there was no special organization for handling express matter. Those wishing to send valuable packages quickly to their destination usually entrusted them to the conductors or baggage agents of passenger trains, who left them with the station agents to deliver to the con- signee when he called for them. About 1839, William Harn- den, perceiving the need for a systematic and responsible service, began receiving parcels for transmission by respon- sible agents between New York and Boston. He arranged with the railroad and steamship lines to carry his messen- gers and their packages, and soon organized a service be- tween New York and Philadelphia, and between the United States and Europe. By 1850 his business had been extended into the southern United States. Harnden's business seems to have been profitable from the start, for in 1840 Alvin Adams began to compete for the New York and New England business. Harnden found the European business so attractive that he emphasized that more than the domestic service, and thus gave Adams a favorable opportunity to enlarge his field of operation. In 1854 Adams and Company, Harnden and Company, and two other smaller firms, Thompson and Company and Kinsley and Company, consolidated and became the Adams Express Company. The firms that united to form the Adams Express Company antedated any others in the serv- ice, but the American Express Company was established 204 RAILROAD TRANSPORTATION in 1850 by the union of the Livingston Company, founded in 1 841, and the Wells Company, organized in 1845. Wells, Fargo and Company started in 1852, taking hold of the California business 17 years before the first railroad to the Pacific was completed, and at a time when the stage- coach and ponies were used to transport packages, and when the express agents had many a thrilling episode with Indians and highwaymen. Bandits seem to derive a pecul- iar satisfaction from "holding up" the carriers of express and mails, the train robbers continuing to follow their nefa- rious business even at the present time. The Southern Express Company was organized in 1886, its field of activ- ity lying mainly in the region south of the Potomac and east of the Mississippi. The United States Express Com- pany was organized in 1854. It took the central West as its special field and at the time of its dissolution in 191 4 most of its business was carried on in that region, though it had several hundred miles of lines in New York, Penn- sylvania and West Virginia. The Western Express Com- pany was founded in 1894, and its field of operation being chiefly in Michigan, Wisconsin, Minnesota and North Da- kota. Two express companies other than the ones already named have had a part in the development of the express service. The Pacific Express Company, organized in 1879, operated in the southwestern portion of the United States until August, 191 1, when its business was taken over by Wells, Fargo and Company; the National Express Com- pany, founded in 1853, carried on business in New York and New England until July, 1912, when its contracts were assumed by the American Express Company. When the Federal operation of railroads began late in 1 91 7 the four large express companies — Adams, Wells Fargo, American and Southern — controlled about 95 per cent of the express business of the United States, operat- ing over approximately 92 per cent of the railroad mileage EXPRESS SERVICE OF RAILROADS 205 of the country. The Director General of Railroads objected to carrying out the contracts which the express companies had with the railroad corporations. He notified the ex- press companies that if they would organize a single cor- poration to take entire charge of the railway express busi- ness he would make a contract with such a corporation. The four large companies first secured by lease the business of the smaller companies, and then proceeded to organize a new corporation, the American Railway Express Com- pany, which took over all the property of the four large companies, giving in exchange the capital stock of the new corporation, amounting at par to $34,642,000. This cor- poration for a time operated as a private agency under contract with the United States Railroad Administration, but it too was finally taken under direct Federal control and operated by the government as the railroads were operated. On December 24, 1919, President Wilson issued a proc- lamation announcing that he would relinquish control of the express business on March i, 1920, at the same time that Federal control of railroads would terminate. It be- came necessary to decide whether the American Railway Express Company should be continued, or whether its business should again be distributed among the companies which had originally formed the consolidation. There was a feeling among government officials and among the offi- cers of the American Railway Express Company that the consolidation should be permitted to continue. The Trans- portation Act left the matter to the Interstate Commerce Commission, providing that the Commission might, if it thought it to be in the public interest, authorize the contin- uation of the consoHdation, if application for the Com^ mission's approval should be made within thirty days after the passage of the Transportation Act. Formal applica- tion for approval of the consolidation by the Commission 206 RAILROAD TRANSPORTATION was filed on March 22, 1920. A number of State authori- ties and several shippers' organizations opposed the consol- idation because they believed that the elimination of com- petition would injure the efficiency of the express service. Notwithstanding this objection the Commission gave its formal approval of the consolidation in a decision handed down on December 7, 1920. The American Railway Express Company was not des- tined however to maintain a complete monopoly of the express transportation business. Early in 1921 a new ex- press company, the Southeastern, was organized to conduct an express business over the lines of the Southern Railway and the Mobile and Ohio Railroad. The new company operates over some ten thousand miles of line. It is not unlikely that additional express companies will be organ- ized in the course of time, unless the railroad corporations adopt a policy of conducting the express business them- selves. The internal organization of the American Railway Ex- press Company is not a complicated one. The executive officers have titles and fimctions similar to those of any other large private business corporation. The company has a board of directors, a president, a secretary, and a treasurer, and vice presidents in charge of certain depart- ments. One vice president has charge of the company's finances, another is in charge of the accounting organiza- tion, and a third heads the traffic department which solic- its business, publishes rates and settles claims. The country is divided into five operating regions or departments, with a vice president having general supervision of the business in each region. Under the operating vice presidents are a number of general superintendents having direct super- vision of the service in particular territories, and usually the territory of each general superintendent is subdivided, and each subdivision placed under the im_med!ate control EXPRESS SERVICE OF RAILROADS 207 of a division superintendent. Responsible to the division superintendent are the station agents, who receive and de- liver goods, the messengers, who have charge of the articles while in transit, and route agents who regularly inspect the work of the various routes and agencies. At large agencies a number of clerks, drivers and express handlers are employed under the direction of the agent. The person delivering goods to an express company for shipment receives a receipt corresponding to the bill of lading issued by a railroad for freight shipments. The receipt contains the name and address of the consignor and of the consignee, a description of the goods, their declared value, the express charges, a statement of the contract between the express company and the shipper, and the signature of the agent. The receipt is non-negotiable. On every shipment, except money, the agent of the express company is required to affix a label indicating whether the express charges are prepaid or are to be collected from the consignee. A "prepaid" label is printed on yellow, and a "collect" label on white paper. The goods shipped are ac- companied by a waybill similar to a freight waybill, stating the weight and value of the package, the consignor and consignee, destination, charges, prepaid or unpaid, and ship- ping directions. A "waybill" label made in duplicate with the waybill, and containing the same information with the exception of the shipping directions, is attached to each shipment. Diflferent colored waybills are used for prepaid, collect, and C. O. D. shipments. The express messengers turn the shipments over to the station agents, who make delivery to the consignee. Usually the consignee receipts for the shipment by signing the delivery book of the driver of the express wagon, but some companies use a delivery receipt, made out with the waybill and the waybill label and sent to the receiving agent with the waybill. The American Railway Express Company has definite 208 RAILROAD TRANSPORTATION contracts with the railroad companies over whose lines tne express service is conducted. With virtually all roads it has a uniform contract, the financial provisions of which were approved by the Interstate Commerce Commission in December, 1920. The railroad agrees to furnish facilities for transportation of express traffic and messengers on passenger, mail, or express trains and to provide terminal space for handling the express traffic, the express company agreeing to pay a reasonable compensation in case it is necessary to construct a special station. The railroad also provides free transportation for the personal property and supplies of the express company and for its officers and employees. The express company assumes all risk of loss or damage to property or persons, and carries free of charge for the railway all money or packages pertaining to the business of the railway. The railroads of the country are divided into four groups — an eastern, a southern, a western, and a Mountain-Pa- cific — and the express company makes a financial settle- ment with the railroads of each group as a whole. From its gross receipts the express company first pays operating charges, rentals and other expenses, and deducts an amount sufficient to pay the interest and discount on funds borrowed and expended for additional property and equipment. The sums thus borrowed, as long as they remain unpaid, are not considered as a part of the capital value of the express company's property. The sum remaining after these de- ductions are made is termed "income for division." From this is first set aside 2J/2 per cent for the express company. The remaining balance, designated as "net income for divi- sion," is distributed among the railroads in each group, each separate railroad company receiving an amount in the proportion that the gross express transportation revenue earned as its line bears to the revenues earned by all the lines in the group. Section of Expeess Map Showing Method of Numberinq Blocks EXPRESS SERVICE OF RAILROADS 209 Should the 2^ per cent of the "income for division" re- served by the express company exceed 6 per cent of the capital value of the express company's property, the ex- press company agrees to divide the excess "profit" equally with the railroads. The one-half accruing to the express company is to be accumulated until it reaches a sum equal to lo per cent of the capital value of the company's prop- erty, after which the excess profit is to be divided one- fourth to the express company and three-fourths to the railroads. The railroads' share of the pro-fit is distributed first among the groups and then among the individual car- riers on a stipulated basis. The system of rates and classification used by the ex- press companies on traffic shipped in interstate commerce at the present time was promulgated by the Interstate Com- merce Commission, July 24, 191 3, and went into effect February i, 1914. Previous to 1906 the express companies were not subject to regulation by the Interstate Commerce Commission and they based their rates largely on the monopoly powers secured by exclusive contracts with rail- road companies. Not being required to file tariffs with the Interstate Commerce Commission, the companies ordinarily made out a schedule of rates applicable to shipments from each station. A great deal of discrimination prevailed, the long and short haul basis for making rates being generally ignored, and much higher rates charged at exclusive offices than were charged at competitive points. By the Hepburn Act of 1906 the express companies were required to file their tariffs with the Interstate Com- merce Commission, and it became necessary for them to simplify their rate system. The system devised, however, was not satisfactory to the patrons of the express com- panies, and many complaints were filed with the Inter- state Commerce Commission of unreasonably high and dis- criminatory rates and of other abuses, such as double collec- 210 RAILROAD TRANSPORTATION tion of charges, indirect routing, and delays in the settle- ment of loss and damage claims. Moreover, the classi-^ fications and the tariffs of the express companies were expressed in such a confusing manner that the public was compelled to depend almost entirely upon the express agents for information concerning rates, and large shippers were enabled to secure lower rates by taking advantage of ob- scure rules concerning which most of the public remained uninformed. The almost universal dissatisfaction led to the promulgation of- an entirely new system of rates, as above mentioned. The actual rates which the express companies were authorized to charge have been increased several times since 191 3; but the system of rate making remains the same. The express classification authorized by the Interstate Commerce Commission at the time the rate system was revised provided that all commodities not specifically pro- vided for in the classification sheet, except food products and beverages, and some articles taking third-class rates, should be charged the first-class rate. The classification was therefore in reality a "classification exception sheet." Some articles are rated higher than first class if the risk of transportation is great, or if they are light and bulky, and are charged a multiple of the first-class rate. The new rates devised for express shipments consisted of three factors, first a flat allowance of 20 cents per ship- ment for collection and delivery service ; second, a rail terminal allowance of 25 cents per 100 pounds, except in the region of the Rocky Mountains where it was 55 cents; and third, a charge for rail transportation varying with the weight of the shipment and the distance carried. Rates on second-class shipments were not to exceed 75 per cent of the first-class rates, except that the minimum charge was to be the charge for 10 pounds unless the first-class pack- age rate for the actual weight was less, in which case the EXPRESS SERVICE OF RAILROADS 211 first-class rate was to apply. The third-class rate which was applicable to only a small number of commodities was one cent for each two ounces or fraction thereof, minimum charge, 15 cents. It was provided that the order of the commission was not to apply to any commodity rates which the express companies might make. To establish the new scheme of rates the Interstate Com- merce Commission first divided the map of the United States into 950 "blocks," formed by the intersection of the parallels of latitude with the meridians of longitude. The blocks are numbered so that each number indicates the tier (horizontal) and the row (vertical) in which the par- ticular block is located. Beginning with the first tier the block farthest west is No. loi ; directly under that is No. 201 ; under that No. 301, and so on. The other blocks are numbered consecutively from west to east. By this method the tier of the block is indicated by the "hundreds" figure of its number, and the row by the "tens and units" figures. For example, Block No. 748 is in the 7th tier and the 48th row. Each of the blocks is subdivided into 16 squares or "sub-blocks" designated by the letters of the alphabet from "A" to "Q," the letter "J" being omitted. The map is again divided into five zones, each zone pos- sessing in a general way a certain diversity in the volume and character of express traffic. A general basis of rates was adopted by the commission for each zone, the minimum rate per 100 pounds in Zone I, which corresponds closely with the Official freight classification territory, being 60 cents, and in Zone IV, which includes the Rocky Moun- tain States, $1.05. After the country was thus divided into blocks a scheme was devised for indicating in a simple manner the express rate between any two express offices in the country. This was done by compiling a Directory of Express Stations, two Rate Tables, and a Rate Scale. The Director'^ of Ex- 212 RAILROAD TRANSPORTATION press Stations gives a complete list of all express stations in the United States, showing in which block and sub- block each station is located, and indicating the express company or companies operating at each place. Rate Table I contains for each block, in order, the number of the rate scale applying to shipments made to all blocks which are not adjacent; and Rate Table II shows for each block the number of the rate scale applicable between any of its sub-blocks and between its sub-blocks and those of ad- jacent blocks. The Rate Scale contains 294 numbered schedules of rates, each scale indicating an amount to be charged on first-class merchandise express packages varying in weight from i to 100 pounds. The rate on all shipments weighing more than 100 pounds is obtained by charging the per pound rate of a 100-pound shipment. The express agent at each station is provided by his company with a directory, a classification, the rate tables for the block in which his station is located, and a rate scale showing the charges on both first-class and second- class shipments weighing from i to 100 pounds. To as- certain the rate on a package the agent first finds in the directory the block location of the office to which shipment is desired ; then if the block is not adjacent to his own, he consults Rate Table I and finds the number of the rate scale applying; after which he turns to the rate scale and finds under the number the charge to be made if the weight of the package is less than 100 pounds. If the package weighs more the charge may be ascertained by a simple computation. For example, to secure the express rate from Harrisburg, Pa., to Peoria, 111., on a package of first-class traffic weighing 150 pounds, the Harrisburg agent finds in the directory that Peoria is in Block No. 936; Rate Table I for Block 949, in which Harrisburg is located, shows that the rate scale applying to shipments to Block No. 936 is No. 36; Rate Scale No. 36 gives $3.19 as the charge on EXPRESS SERVICE OF RAILROADS 213 packages weighing loo pounds. At the per pound rate of such a shipment the amount to be charged on a package of 150 pounds is $4.79. The rates given in the rate scales apply only to property declared by the shipper to be of a value of $50 or less, for any shipment weighing 100 pounds or less, or not exceed- ing in value 50 cents a pound actual weight for any ship- ment in excess of 100 pounds. When the declared value exceeds these amounts the rates are 10 cents greater for each $100 or fraction thereof in excess of the values above given. The Interstate Commerce Act authorizes the Inter- state Commerce Commission to permit carriers to establish rates dependent upon declared or released values for all kinds of property except ordinary live stock, and the addi- tional charges imposed by the express company for articles of exceptional value have been sanctioned by the Com- mission. Since 1906, when the express companies were made sub- ject to the provisions of the Interstate Commerce law, the Interstate Commerce Commission has been able to collect and issue certain statistics concerning the business of the express companies. Annual reports of the earnings, ex- penses and financial condition of the express companies have been made since 1908, but in only one of these reports, the first, has there been given a statement of the volume of express traffic. The gross receipts from the express trans- portation business in 1918 amounted to $254,000,000, of which about 50 per cent was paid to the railroads. The operating expenses were so high in that year that the busi- ness suffered a deficit of some $16,000,000. Previous to January i, 1913, the express companies had a virtual monopoly of the merchandise traffic on passenger trains in the United States. The limit of weight of one package of merchandise that could be sent through the mails was four pounds and the rate was one cent per ounce. 214 RAILROAD TRANSPORTATION Third-class mail matter (printed matter other than period- icals) could be mailed for one-half cent per ounce, the same limitation of weight applying, except on single books. With the beginning of the year 1913, a parcel post system was put in operation, the weight limit of fourth-class matter being placed at 11 pounds, since increased to 70 pounds for packages not to be carried for more than 300 miles and to 50 pounds for packages to be carried farther. It was thought that the new parcel post service would to a great extent replace the service given by the express companies, and while it has met with great favor and has absorbed much of the traffic formerly handled by the ex- press companies, the express service still possesses certain advantages which commend it to shippers. Among these advantages may be mentioned the following: the express company handles fragile articles and small packages in safety trunks, while the post office handles such shipments in sacks ; the express company gives a receipt for each shipment, the post office gives a receipt only for insured parcels ; the express company assumes liability for all loss or damage, while the Government insures only against total loss ; the express company carries bullion, money and val- uables, assuming full risk; the express company accepts packages of any weight, making special rates for carload shipments. Moreover, the express company, at larger sta- tions, will not only deliver packages to the consignee, but will collect them from the shipper, while parcel post ship- ments are only delivered. In the matter of rates if the insurance charges on parcel post matter are taken into con- sideration the rates on long-distance traffic are in most cases higher than the present rates on express traffic. The chief advantage possessed by the parcel post is the cheaper rates on short-distance traffic and, in places where the express company affords a collection service, even this advantage is in a measure offset. In rural communities where the EXPRESS SERVICE OF RAILROADS 215 post office conducts a free delivery service extending sev- eral miles from central stations, the parcel post service has the most favoring conditions. Then, too, the cheap rates on uninsured packages attract a large amount of traffic, inas- much as the percentage of losses is comparatively small, and many shippers are willing to assume the risk. By a reduction of rates and a few changes in its service it might be possible for the post office to secure a very large portion of the traffic now handled by the express companies. Such a transfer would not greatly affect the service of hauling the cars now performed by the railroads ; in fact a combination of the present mail and express service might possibly result in the reduction of the number of cars which it would be necessary to run. In case the Government modified its service so as to secure a large por- tion of the small package shipments now handled by ex- press it is not unlikely that the railroad companies would find it advantageous to extend their freight service so as to include all the express traffic which would not enter the mails. The express business was organized as a separate service by companies distinct from the railroad corporations at a time when the railway systems were small and when their facilities for handling traffic expeditiously over short or long distances were undeveloped ; but those conditions have ceased to exist now that the railroads of the country have been grouped into large systems. There are single systems of roads comprising almost as many miles of line as were formerly covered by the service of the large express com- panies, and it has for some time been largely a matter of expediency with many of the railroad companies whether they shall themselves handle the express business done over their lines or whether they shall delegate the service to some other corporation. With an extension of the parcel post service, the assumption of the express business by the rail- 216 RAILROAD TRANSPORTATION road companies themselves might seem a logical conse- quence of the present conditions of railway organization and management. The express service as now performed has the merits of safety, speed, and concentration of responsibility, but a strong objection to the present organization is that two companies are engaged in doing a work that could be per- formed by one — that the express company is a wheel within a wheel — and that the delegation of the express traffic has caused the railroads to be less zealous in extending their fast freight service, and in developing a speedy local freight service which would be of especial advantage in certain lines of production and trade. The improvement in the fast freight facilities of railroads in recent years has shown that it would not be impossible to create a more highly specialized service which would perform in an ade- quate and satisfactory manner a large portion of the work now carried on by the express service. REFERENCES U. S. Census, i88a. Agencies of Transportation in the United States, 594-610, 855-856. Ihid., 1890. Report on Transportation Business in the United States, part ii, 491-498. Stimson, a. L. History of the Express Companies, and the Origin of American Railroads, 489-532 (2d ed. 1858). Report of Massachusetts Railway Commission, 69-75 (1870). Testimony Taken by the Commission to Investigate the Postal Service. Part i, 29-62, statement of John J. Valentine, president of Wells, Fargo and Company; pp. 512-532, state- ment of Henry S. Julier, general manager American Ex- press Company. Part ii, 687-696, statement of Levi C. Wier, president Adams Express Company (Sen. Doc. No. 89, 56 Cong., 2 sess., 1900). EXPRESS SERVICE OF RAILROADS 217 Dabney, W. D. The Public Regulation of Railways, chap, ix (1889). Johnson and Huebner. Railroad Traffic and Rates, II, chaps, xxxviii to xHii (191 1 ). Chandler, W. H. The Express Service and Rates (1914). Interstate Commerce Commission Reports, XXIV, 380; XXVIII, 131. [These two reports contain the orders of the commission for the revision of express rates, and give the new system.] Ibid., XXXV, 3. [This report contains the order for the in- crease in rates of July 14, 1915.] Interstate Commerce Commission. Statistics of Express Com- panies (annual since 1909). CHAPTER XIV THE MAIL SERVICE OF THE RAILROADS The mail service increases with the progress of civilization, 2i8. Classification of mail matter, 219. The pafcel post rate system, 220. General statistics of mail traffic, 223. Mail transportation, 223. The railway post office, 225. The services performed by railroad companies in transporting the mails, 226. Railway mail pay, 227. The postal deficit and its cause, 232. Refer- ences, 234. The transportation of the mails, like the freight, pas- senger, and express services, is a distinct and separately organized department of the activities of the railroads. The details of the organization of this department differ in sev- eral particulars from those of other branches of the rail- road service, because the mail traffic has several unique characteristics. In studying the railway mail service we are considering only a part of the general postal service of the Government, but the part under consideration occupies a central and indispensable place in the entire service, and a clear pres- entation of the chief facts regarding the railway mail service reveals something concerning most branches of the postal service. For a detailed study of the activities of the post office the references at the close of this chapter will be of assistance. The volume of the mail traffic is growing rapidly, more than proportionately with the increase in population. The more highly organized business methods become and the wider the territory reaches over which men extend the 218 Section cpf Parcel Poejt Map fok Unit No. 8G9 MAIL SERVICE OF RAILROADS 219 activities of their business, the more largely the mails are used. The more general education becomes, the more time wage-earners and their families have for letter writing and for reading, and the more surplus income they have for the purchase of stamps and literature, the more largely is the postal service employed. The growth of the mail traffic is a general index of the progress of civilization, and as the great bulk of mail matter is transported by the railroads, their mail business is an equally instructive in- dex. Mail matter as well as freight is classified, but diiiferent principles govern the two classifications. Freight is classified with reference to maximum traffic and maximum revenue, whereas the aim of the Government is not to derive a surplus revenue from the postal service, but to administer the post office in such a way as to make it contribute most largely to the convenience of business and to the promotion of public intelligence. If total receipts equal total expendi- tures, the Government is satisfied ; and in order to make the educational value of the mails as great as possible, most printed matter is carried at a loss, some not being charged any postage whatever, the deficits in that portion of the service being made good wholly or partially from the receipts from other parts. The four classes of mail matter comprise: First, letters, post cards, all written matter, and all sealed packages, the rate being two cents an ounce (one cent for post cards) ; second, newspapers, magazines, and other periodicals issued at intervals not exceeding three months. The rate on this class of mail is one cent for four ounces, when mailed by the general public; when mailed by the publishers a zone rate system is used. Local newspapers circulate free of postage within the county of publication, an exception being made of the circulation in cities having a free-delivery serv- ice. Third, miscellaneous printed matter weighing less than 220 RAILROAD TRANSPORTATION four pounds, excluding books, the rate being one cent for two ounces. Fourth, parcel post matter, made up of all mailable merchandise, including farm and factory products, books, and miscellaneous printed matter weighing more than four pounds. The size of parcels is limited to 84 inches combined length and girth, and the weight to 70 pounds for parcels to be carried for a distance of not more than 150 miles and 50 pounds for parcels to be carried farther. The rate on parcels weighing four ounces, or less, except books, seeds, plants, bulbs, etc., is one cent for each ounce, for any distance; on parcels weighing eight ounces or less containing books, seeds, cuttings, bulbs, plants, etc., one cent for each two ounces, regardless of distance ; on all other par- cels the rate varies according to weight and distance. The parcel post rate system is explained in the following para- graph. Much mail of all classes is carried free, the "frank- ing" privilege being granted to Congressmen and Govern- ment officials for all official business. In devising the parcel post rate system, the United States and Territories, except the Philippine Islands, was divided into units of area 30 minutes square, each unit identical with a quarter of the area formed by the intersecting parallels of latitude and meridians of longitude. The units were num- bered in the following manner : A map of the United States including a strip one-half degree wide, north of the 49th parallel of north latitude, which constitutes the northern boundary of the western part of the United States, was divided into units each 30 minutes square. In the strip just north of the 49th parallel, the unit farthest east was designated o, the next 50, the next 100, and so on. With these as initial numbers the remaining units in each vertical row were numbered consecutively from north to south. Each unit thus has a number greater by 50 than the ad- joining unit to the east; the units are designated by larger numbers as one proceeds westward. Each unit is the basis MAIL SERVICE OF RAILROADS 221 of eight postal zones. The first zone comprises all units included in or intersected by a circle with a radius ex- tending 50 miles from the center of whatever unit is taken as a basis ; the outer boundary of the second zone is a circle of 150 miles radius; the third, 300 miles; the fourth, 600 miles; the fifth, 1,000 miles; the sixth, 1,400 miles; the seventh, 1,800 miles; and the eighth includes all beyond 1,800 miles. Each post office is supplied with a parcel post map, showing all the units and the zones for the particular unit in which the post office is situated, and with a parcel post guide, which indicates the unit location of every post office in the country. By consulting the guide the postal clerk ascertains the unit in which the post office of the addressee of a parcel is located, and by consulting the map he finds out the zone. The post offices in the larger cities are now each supplied with a zone key, which is a directory indicating the zone location of all other post offices. A zone key makes it possible to dispense with the guide and the map. The parcel post rate system is very simple. For packages intended for local delivery either at the post office or by carrier, the rate is five cents for the first pound and one cent for each additional two pounds or fraction thereof. In the first and second zones the rate for the first pound is five cents and in the succeeding zones in order, 6, 7, 8, 9, II, and 12 cents. For each additional pound after the first, one cent is charged in the first and second zone, and in each succeeding zone in order, 2, 4, 6, 8, 10, and 12 cents. The table on the opposite page shows the various parcel post rates. When the parcel post was first established, January i, 1913, the limit of weight of all parcels was 11 pounds, the rates were somewhat higher than at present, and books were not included. In August 1913 the limit of weight was increased to 20 pounds in the local, first and second zones, and postage rates were reduced in the same zones. Parcel Post Rates Weight in pounds Zones Local ist 2d Up so to to SO ISO miles miles 8th Over 1,000 1,400 1,800 1,800 miles miles miles miles miles miles 3d ISO to 300 4th 300 to 600 Sth 600 to 6th 1,000 to 7th 1,400 to I ..lo.os $0 2 06 3 06 4 07 S 07 6 08 7 08 8 09 9 09 10 10 II 10 12 II 13 " 14 " IS " 16 13 l7 '3 18 14 19 14 iO IS :!i IS 22 16 23 «6 24 17 2S 17 26 If 27 '8 28 19 29 19 30 20 -.1 20 32 21 33 " 34 " 3S " 36 23 37 23 38 24 39 24 40 2S 41 2S 42 26 43 26 44 27 ti::::::::::::::: 'M 47 28 48 29 49 29 so 30 SI 30 S2 31 S3 31 54 32 ss 32 S6 33 57 33 S8 34 59 34 60 35 61 3S 62 36 63 36 64 37 65 37 66 38 67 38 68 39 69 39 yo 40 OS |o 06 07 08 09 10 .23 .24 .25 .26 .27 .28 .29 .30 .31 .32 .33 ■ 34 .35 .36 .37 .38 .39 .40 .41 .42 .43 .44 .46 ■47 .48 .49 .50 .51 .52 .53 • 54 .55 .56 .57 .58 .59 .60 .61 .62 .63 ■^.* .65 .66 .67 .68 .69 .70 .71 .72 .73 .74 OS $0 .06 .07 .08 .09 ,10 .11 .12 .13 .14 .15 .16 .17 .18 .19 .20 .21 .22 .23 .24 .25 .26 .27 .28 .29 .30 .31 .32 .33 .34 .35 .36 .37 .38 .39 .40 .41 .42 .43 .44 .45 .46 .47 .48 .49 .50 .51 .52 .53 .54 .55 .56 .57 .58 .59 .60 .61 .62 .63 .64 .65 .66 .67 .68 .69 .70 .71 .72 .73 .74 ,06 Jo, 07 Jo. 08 Jo. 09 Jo. II Jo. 12 ■.It .48 .60 .72 it 1.08 1.20 1.32 .IS .19 .23 .27 .31 .35 .39 .43 .47 .28 .51 ..10 .55 .32 .59 ■ M .63 ..16 .67 ..18 .71 .40 .75 .42 .79 .44 .83 .46 .87 .48 .91 ..50 .95 .52 .99 .54 1.03 ..S6 1.07 .S8 I. II .60 I. IS .62 1. 19 .64 1.23 .66 1.27 .68 1. 31 .70 1.35 .72 1.39 .74 1.43 .76 1-47 .78 I. SI .80 I.5S .82 1.59 .84 1.63 .86 1,67 .88 1. 71 .90 1,75 .02 1.70 .04 1,83 .06 1.87 .08 1. 91 .00 1,95 .02 1.99 .04 2.03 .06 .08 .14 .20 .26 .32 .38 .44 .SO .56 .62 . .68 .74 .80 .86 .92 .98 1.04 1. 10 1,16 1,22 1,28 1,34 1.40 1.46 1.52 1.58 1.64 1.70 1.76 1,82 1,88 1.94 2.00 2.06 2.12 2,18 2,24 2,30 2,36 2,42 2,48 2,54 2,60 2.69 2.72 2,78 2,84 2,90 2.96 3.02 17 .21 25 .31 33 .41 41 .51 49 .61 57 .71 .65 .81 .73 .91 81 1. 01 80 I. II 07 1. 21 OS 1. 31 13 1. 41 ,21 1. 51 29 1, 61 .17 1,71 4S 1, 81 .53 1, 01 .61 2.01 1,69 1,77 1. 85 1.93 2.01 2.09 2.17 2,25 2,33 2.41 2.49 2.57 2.65 2.73 2.81' 2.89 2.97 3. OS 3.13 3,2.1 3,29 3,37 4S 53 61 69 77 85 93 3, 3. 3. 3. 3. 3. 3. 4. OX 2,11 2.21 2.31 2.41 2. SI 2.61 2.71 2.81 2,91 3.01 3. 11 3,21 3, 31 3,41 3. SI 3.61 3.71 3. 81 3,91 4.01 4. II 4.21 4.31 4.41 4.51 4,61 4,71 4,81 4,91 5.01 1.44 1.56 1.68 1.80 1.92 2.04 2.16 2. 28 2.40 2.52 2.64 2.76 2.88 3.00 3.12 3.24 3.30 3.48 3.60 3.72 t 4.08 4.20 4.32 4.44 4.56 4.68 4.80 4.92 3.8. 3.9< 6.00 The local rate applied to parcels mailed [ . 12 under the following conditions: [.14 [ . 16 1'. At any post office for local delivery [.18 at such office. [ .20 [ . 22 2. At any city letter carrier office, or at t . 24 an^r point within its delivery limits, for [ . 26 delivery by carriers from that office. I. 28 [.30 3. At any post office from which a 1.32 rural route starts, for delivery on such 1 . 34 route, or when mailed at any point on a 1 . 36 rural route for delivery at any other point r.38 thereon, or at the offic; from which the 1 .40 route starts, or for delivery on any other X . 42 rural route starting from the same office. 1.44 MAn. SERVICE OF RAILROADS 223 In March, 1914, books and catalogues were admitted to the parcel post. The rates and weight limits indicated in the table have been in effect since March 15, 1918. A parcel post package may be insured against loss in an amount equivalent to its actual value, but not to exceed $5, on payment of a fee of 3 cents ; not to exceed $25, on payment of a fee of 5 cents ; not to exceed $50, for 10 cents ; and not to exceed $100, for 25 cents. Receipts are issued to the senders of insured packages. The sender of a parcel post package may have the price of the article collected from the addressee, the fee being 10 cents for an amount not to exceed $50 and 25 cents for an amount not to exceed $100. This service is applicable only to packages mailed to offices where postal money orders are issued. Accurate statistics of the amount of mail matter handled annually by the Post Office Department have never been collected, though estimates have been made from time to time. In 191 7 it was estimated that the total mail traffic on the railroads amounted to 826,090,715 ton-miles. This represented an increase of more than 50 per cent in four years. Since the beginning of the parcel post system the volume of the mail has increased greatly. In his report of 1920 the Postmaster General estimated that more than 2,250,000,000 parcels had been received during the fiscal year. The only class of mail about which accurate statis- tics are available is the second-class matter, mailed by the publishers. Of this class, in 1920, there were 1,307,227,130 pounds at the pound rates, and 61,528,172 pounds free in county. The Government employs railroads, steamships, stage- coaches, and messengers to carry the mails, but probably 90 per cent of the total weight of mail and equipment is transported by the railways. A part of the mail trans- ported by the railroads is carried in closed pouches in baggage cars. In the fiscal year of 1920 the closed-pouch 224 RAILROAD TRANSPORTATION railway mail service had an aggregate mileage of 150,- 124,721. A much larger amount of mail was carried in the "railway post offices" or cars equipped as a post office. These cars are in charge of messengers who sort the mail as it is received and place in separate pouches the mail for each city, and if the city is a large one, for various sections of the city. Some times the railway post offices occupy an entire car (some trains being composed only of mail cars, post office and storage), and sometimes they occupy a part of a car, usually the baggage car, in which an apartment is fitted up as a post office. In 1920 a total of 61,497,173 miles of service by full-sized railway post-office cars was authorized, while the authorization of 30-foot and 15-foot apartment post-office car service amounted to 220,644,985 miles. The Second Assistant Postmaster General estimates that during the fiscal year 1919 the railway post-office clerks made 14,962,066,979 distributions and redistributions of pieces of first-class mail. In addition to this they handled 89,933,071 packages and cases of registered mail. In addition to the railroads, the Post Office Department utilizes steamboats, electric railways, motor trucks, wagons and airplanes for the transportation of the mail. In sev- eral parts of the United States, but particularly in the Western States and in Alaska, there are a number of "star routes," over which the mails are carried under contract to the lowest bidder by wagon, on horseback or by motor car service, between places not reached by railroads or steamboats. The free delivery of mail in rural districts is one of the important branches of the mail service. In 1920 there were 43,445 rural free delivery routes in opera- tion, covering 1,151,832 miles. The Air Mail Service was inaugurated in May, 1918, between Washington and New York. In 1921 this service was conducted over routes aggregating some 4,000 miles. Mail was transmitted by air- MAIL SERVICE OF RAILROADS 225 plane from New York to San Francisco in 24 hours less time than it can be carried by rail. The assorting of mail while in transit was begun in this country in 1862, when Mr. William A. Davis, who was then chief clerk in the mailing department of the post office at St. Joseph, Mo., fitted up the first railway postal cars. These cars were run on the Hannibal and St. Joseph Railroad, and were put in service to facilitate the prompt forwarding of the overland mails westward from St. Joseph, an important distributing point at which the mails were then transferred from the railroad to the "overland stages." The advantages of having the mails reach the distributing point assorted ready to be forwarded without delay to their several desti- nations were quickly recognized, and the traveling post office was soon established on the principal lines of railroad. In 1919 there were 2,000 whole cars equipped as post offices and 4,500 more containing postal apartments. In most cases these postal cars are run singly as a part of a passenger train, but on routes where the mails are heaviest "fast mail-trains" are run, composed entirely of postal cars. The mail service over a particular route is generally an ad- junct of the passenger service until a weight of 50,000 pounds is reached for a single mail, and when that weight is exceeded fast mail trains are put into service. The postal cars now being put in service are models of the car-builder's art. They are 60 feet in length, built entirely of steel, mounted on the best of trucks, and are lighted and heated by the most modern appliances. The Government specifies the kind of cars to be used, and every effort is made to insure the safety of the mails and the messengers and to facilitate the accurate and rapid assortment of the mails. By a law enacted August 24, 1912, it was provided that after June, 1913, not less than 25 per cent of the railway post-office cars of any railroad company, not constructed entirely of steel or with steel underframe. should be annu- 226 RAILROAD TRANSPORTATION ally replaced with cars constructed of steel. In these trav- eling post offices much of the work is performed that was formerly done at the offices in the distributing centers. A change in the organization of the railway mail service was made in 1911 by the establishment of terminal railway post offices at the railway stations of the large cities. By han- dling at these post offices a part of the mail formerly sorted in the post-office cars a large reduction was made in the car space and the number of railway postal clerks needed. The terminal post office makes possible the use of labor-sav- ing devices which could not be installed in cars, and also brings about the elimination of much of the rehandling of mail matter. The services performed by the railroad companies in the transportation of the mails consist chiefly of providing and equipping the postal cars and hauling those and the other cars used for carrying the mails over the routes designated by the Government. Many people suppose that these are the only services rendered by the companies ; but there are several other duties performed by the railroads in connection with the carriage of the mails. The employees of the rail- road company are required to load the mail into the cars, and when the mails are not in charge of a messenger they are unloaded by the company's agent. The transfer of the mails from car to car and from station to station, when that service is necessary, is made by the company. Except in the large cities, where the carting of the mails is done by the post office, the railroad company carries the mails be- tween the station and the office. At way stations and in- termediate post offices the companies are not obliged to carry the mails more than 80 rods, but at terminal stations there is no limit to the distance. In large cities the postal cars must be placed in the central station at a convenient place for loading, and at stations not having terminal post offices they must remain there several hours before the departure MAIL SERVICE OF RAILROADS 227 of the train by which they are taken, in order that the clerks may have the assortment of the mail well under way when the train pulls out. It is of course a matter of considerable expense to the railroad companies to provide space for the mail cars in their usually crowded passenger terminals. The labor and terminal expenses incurred by the railroad com- panies in the mail service are said by the companies to be appreciably greater than for the express business. The Government requires that postal cars be attached to fast trains, and the mails must be taken by such trains as the Government may select. The companies are not per- mitted to leave any mail behind; whatever the demand for space may be, the demand must be met, and, as has already been stated, the Government stipulates the kind of cars to be used for the postal service, requires the cars to be sta- tioned at the terminals where they can be readily loaded and unloaded ; stipulates that companies shall attend to the han- dling of the mail immediately on the arrival of the trains, and under certain conditions that they shall carry the mails between the stations and the post offices. These strict regu- lations are necessary to secure the speedy and reliable mail service enjoyed by the public; but they make the transpor- tation of the mails an expensive service, for the perform- ance of which the Government makes large outlays. The Government paid out more than $105,000,000 in the fiscal year 1920 for the transportation of the domestic and foreign mails, exclusive of expenditures for rural free delivery service. This was somewhat less than one-fourth of the total receipts of the Post Office Department which for that year amounted to $437,150,212. The railroads re- ceived $70,714,391 for carrying the mails and maintaining the post-office car service. The method of paying the railroads foi the transporta- tion of the mails was for many years a cause of much con- troversy between the carriers and the Post Office Depart- 228 RAn.ROAD TRANSPORTATION ment. In 1838 Congress enacted a law declaring that all the railroads in the United States at that time, and all that might be constructed thereafter, should be post routes. The Postmaster General was authorized to make the necessary financial arrangements for the transportation of the mails by rail, subject to certain arbitrary limitations which the law imposed, and which were modified from time to time during subsequent years. As time passed the compensa- tion of the railroads for their service failed to grow as rapidly as the mail traffic increased. After the introduction of post-office cars the railroad companies protested vigor- ously against the inadequate rates of pay allowed by Con- gress. In 1873 a law was enacted providing for a new method of payment. Under this act the carriers received a certain sum per mile per year according to the daily weight of mail carried. The rate per pound was lowest upon those routes where the mail traffic was heaviest. The railroads also received additional compensation for pro- viding and hauling full-sized post-office cars, though they received no additional pay for apartment cars. The aver- age daily weight of mail carried over a route was ascer- tained by weighing the mails every four years for a period of 90 successive working days. The country was divided into four "contract sections," and the mail weighed in one section each year. The average daily weight for the weigh- ing period was taken as the average upon which payment was computed for the following four years. The rates of pay established in 1873 were reduced ten per cent in 1876, and two years later were again reduced five per cent. In 1907 a law was passed providing for another five per cent reduction on those routes having an average daily mail traffic of more than 5,000 pounds. In 1907 the Postmaster General issued a "divisor order" which efifected a reduction of about $5,000,000 in the annual payments to the railroads for mail transportation. MAIL SERVICE OF RAn.ROADS 229 This order required that the total number of days in the weighing period, including Sundays, should be used as a divisor in ascertaining the average daily weight of the mails, instead of the number of successive working days. In 191 1 the Postmaster General brought about another diminution of railway mail pay by issuing an order requir- ing that certain periodicals be carried by freight instead of in the mails. All the Postmasters General were desirous of making a favorable financial showing for the Post Office Department, and each one seemed to select the railroads as the chief object of his efiforts toward economy. When in 1913 the volume of mail matter was greatly increased by the inauguration of the parcel post service. Congress enacted a law authorizing the Postmaster General to grant to the railroads upon which the mail was not weighed in 191 3 an increase in mail pay not to exceed five per cent. This small increase was not enough to compensate the railroads, at the established rates, for the additional traffic they were forced to carry. The railroad companies protested against the successive reductions in the rates of pay for carrying the mails. On the other hand the Post Office Department claimed that the rates of railway mail pay were too high. The statistics of the mail service unquestionably supported the conten- tions of the carriers. While the total revenues of the Post Office were advancing from $152,826,585 in 1905 to $287,- 248,165 in 1915, an increase of 88 per cent, the amount paid to the railroads advanced from $45,040,564 to $59,- 576,288, an increase of only 32 per cent. The method of compensating the railroads was obviously defective. The infrequent weighing of the mails forced the railroads to carry a much heavier traffic than they were actually paid for hauling. It was unjust to require the roads to provide apartment cars and to transport the mail between post- offices and railway stations for nothing. 230 RAILROAD TRANSPORTATION In 1 91 2 a Joint Congressional Committee was appointed, with Senator Jonathan Bourne, Jr., as chairman, to inves- tigate the question of railway mail pay. After an exhaust- ive investigation the committee made a report two years later in which it declared that the railroads were entitled to more liberal compensation, but recommended a complete change in the method of payment. The committee favored the use of space as a basis of payment, the railroads to receive compensation according to the amount of car space devoted to hauling the mails. A bill embodying the rec- ommendations of the committee was introduced in the Sen- ate, but neither this bill, nor another introduced in the House at about the same time, providing also for payment on a space basis, but at much lower rates than those car- ried in the Senate bill, was passed. The controversy between the Post Office Department and the railroads continued. Finally in July, 1916, Congress took action, passing a bill providing that the Interstate Com- merce Commission should fix and determine from time to time fair and reasonable rates and compensation for the transportation of the mails for the railroads, prescribing the method or methods, by weight, space, or bothior other- wise, for ascertaining such rates and compensation. The law provided further that pending action by the Commis- sion the existing rates of pay should continue in effect on all routes, except those which the Postmaster General might select to place upon a space system of pay, at certain rates named in the law. It was stipulated that if the rates of pay established by the Commission should be higher than those named in the law the Postmaster General should read- just the compensation of the carriers on the routes .which he should select for experimentation with the space system of payment. The Postmaster General, instead of selecting a limited number of routes for testing the space method of payment, MAIL SERVICE OF RAILROADS 231 announced that he would place virtually all the railroad mail routes of the country upon the space basis, except the closed-pouch routes. The railroads objected strongly to this procedure. The Commission upheld the Postmaster General, and the railroads were placed upon the space basis of pay on November i, 1916. The carriers and the Post Office Department then agreed upon a weighing and statis- tical period, lasting from March 27 to April 30, 1917, dur- ing which information was collected concerning the bag- gage, express, mail and passenger service, in order to ascertain the revenues and the expenses of each service. This information was carefully tabulated and submitted to the Interstate Commerce Commission, together with the arguments of the carriers and the Post Office Department as to what the methods and the rates of pay should be. The Post Office Department favored the continuation of the space method, while the railroads advocated a return to the weight basis, with a more frequent weighing of the mails and higher rates of pay. The decision of the Commission was rendered December 23, 1919- It adopted the space. method of payment, and declared fair and reasonable rates of payment as from November i, 1916, to January i, 1918, to be: Cents For each mile of service by a 6o-ft. R. P. O. car 27 For each mile of service by a 30-f t. apartment car 15 For each mile of service by a 15-ft. apartment car 10 For each mile of service by a 60-f t. storage car 28 For each mile of service by a 30-ft. storage space 15 For each mile of service by a 15-ft. storage space 8 For each mile of service by a 37-ft. storage space 4!4 For each mile of service by a 33-ft. storage space iVi For each mile of service by a iS-ft. closed-pouch space 10 For each mile of service by a 7-ft. closed-pouch space 5 For each mile of service by a 3-f t. closed-pouch space 3 On separately operated railroads not exceeding loo miles in length and not less than 50 miles in length the Commis- sion allowed rates 20 per cent in excess of those given above, while on roads less than 50 miles in length it allowed 50 per cent higher rates. On roads which had received 232 RAILROAD TRANSPORTATION land grants from the Federal Government, the rates were, as before, 80 per cent of the rates oh other roads. The Commission decided that on and after January i, 1918, the rates should be 25 per cent higher than the rates prescribed for November i, 1916. For the performance of "side, terminal or transfer service" the Commission ordered that the carriers be given a separate compensation, to be based upon the actual cost of performing the service. The Postmaster General, asserting that the rates desig- nated by the Commission were too high, asked for a rehear- ing of the case and a revised finding, and a number of railroads petitioned that the case be reopened and a modi- fication made in the order of the Commission. All peti- tions for a rehearing were denied by the Commission, and the rates which it prescribed went into effect. Since the rates were considerably higher than the tentative rates es- tablished in the law of 1916, it was necessary for the Post Office Department to readjust the compensation of the car- riers for the period beginning November i, 1916. The revenues of the Post Office Department have usu- ally been less than the expenditures. One of the chief causes of postal deficits has been the cheap rates of postage charged on the large volume of second-class matter. For many years previous to July i, 1918, the rate on second- class matter mailed by publishers was one cent a pound. The revenues derived from second-class mail were less than one-fifth the cost of handling it. It was repeatedly urged by various heads of the Post Office Department that the postage rates on second-class matter be increased. In March, 191 1, Congress authorized the appointment of a Commission on Second-Class Mail Matter, which was di- rected to investigate the cost of handling second-class mail and make recommendations concerning rates. This com- mission, of which Justice Charles E. Hughes was chairman, came to the conclusion that the cost of handling second- MAIL SERVICE OF RAILROADS 233 class mail at that time was 5^2 cents a pound, and recom- mended that the rate to publishers be increased to two cents a pound. This recommendation was not followed by Congress, but in the War Revenue Act of 1918 a section was included providing for a substantial increase in pub- lishers' rates on second-class matter. To all publications of which more than 5 per cent of the contents consisted of advertising matter, zone rates were appHed on the por- tion devoted to advertising, while uniform flat rates were retained on the non-advertising matter. The rates pre- scribed for non-advertising matter were ij4 cents a pound from July i, 1918, to July i, 1919, and lyi cents a pound thereafter. The rates prescribed on the portion of pub- lications devoted to advertising were as follows: Rates per pound on portions of publications devoted to advertising Parcel post zone July I, 1918 to July 1, 1919 July 1, 1919 to July 1, 1920 July 1, 1920 to July I. I92I On and after July 1, 1921 First J.OIV • oijj .oiH .02 .02)i •02^ .03 .03ji J.oiH .01}^ .02 .03 .03H ■ 04 • OS .05}^ f.oi5i ■ 01% ■ o^H .04 .04Ji ■ osH .07 .07% $.02 Third .03 Fourth .05 Fifth .06 Sixth .07 Eighth i 10 The new rates met with vigorous opposition on the part of publishers of newspapers, magazines and other periodi- cals. There can be but little doubt that there was ample justification for an increase in second-class postage rates, but there is considerable question whether it was advisable to apply zone rates. If the zone rates should lead to re- gional variations in the subscription rates to newspapers and periodicals the result will probably be a restriction to a limited territory of the circulation of many periodicals which have had a national circulation. Such a result would tend to encourage provincialism, making it more difificult 234 RAILROAD TRANSPORTATION for the people of one section of the country to understand the point of view of people living in other sections. The postal service should be an agency for the promotion of national unity and not an instrument for the encouragement of sectionalism. REFERENCES Annual Report of the Postmaster General. [The reports of the assistant postmasters general contain a detailed account of the workings of the different branches of the jnail service.] TuNELL, G. G. Railway Mail Service (1901.) [A volume containing much information, especially regarding the pay- ments received by the railroads for carrying the mails.] . Railway Mail Service : A Historical Sketch. [A pamphlet of 24 pages published by R. R. Donnelley and Sons, Chicago, 1902.] History of the Railway Mail Service. (Exec. Doc. No. 40, 48 Cong., 2 sess., 1885.) Testimony Taken by the Commission to Investigate the Postal Service. Three volumes, parts i and ii dealing with "Rail- way Mail Pay," and part iii with "Second-Class Mail Mat- ter," "Pneumatic Tube Service," etc. Part ii contains a most instructive "Special Report on Railway Mail Pay," by Prof. Henry C. Adams, former statistician to the In- terstate Commerce Commission. (Sen. Doc. No. 89, 56 Cong., 2 sess., 1900.) Report of the Joint Committee on Postage on Second-Class Mail Matter and Compensation for the Transportation of Mail. (Bourne Committee; House Doc. No. 1155, 63 Cong., 2 sess., 1914.) Report of the Commission on Second-Class Mail Matter, (Hughes Commission; Washington, 1912.) Railway Mail Pay. 56, I. C. C, I. [Decision of the Interstate Commerce Commission on rates and method of railway mail pay.] CHAPTER XV THE ORGANIZATION OF THE SERVICE The corporate organization of a railroad company, 235. The secre- tary's department and law department, 236'. The treasurer's department, 237. The accounting department, 237. The oper- ating department and its subdivisions, 238. The traffic depart- ment, 241. Other departments, 241. Organization of the Penn- sylvania Railroad Company and the lUin&is Central Railroad Company, 242. References, 249. A RAILROAD company is a large corporation with complex activities carried on over wide areas by an army of em- ployees sometimes numbering tens of thousands. To per- form its services with precision, to maintain authority, en- force responsibility, and insure financial honesty throughout all grades of officials and employees, and thus to conduct its services with benefit to the public and profit to itself, the cor- poration requires a detailed and highly specialized organiza- tion of maximum efficiency. There must be an unbroken line of responsibility from the lowest subordinate to the president, and the organization by which this is accomplished must have flexibility enough to permit of improvements in the service and the adoption of new technical and financial methods. The railroad company in common with other corporations has in its organization departments and officials for the man- agement of its financial and legal affairs. The stockholders composing the company choose directors to serve as a gov- erning body, and the directors select a president, secretary, treasurer, comptroller, and a legal counselor. Within this general corporate organization there is also built up a special- 235 236 RAILROAD TRANSPORTATION ized organization to accomplish the work which the company exists to perform — the safe and speedy transportation of persons and things. The special transportation organization is concerned with four general duties. One is to provide and maintain in condition for use a roadway; another is to obtain, keep in order, and operate vehicles of such number and variety as the traffic may require ; the third is to furnish facilities that will enable passengers and shippers to use the vehicles and roadbed ; and the fourth is to arrange the financial and busi- ness relations of the carrier with its patrons in such a way as to promote the interests of both parties. - The president of the railroad supervises and controls all branches of the service, and under his immediate direction there is, corresponding to each of these several kinds of cor- porate and specialized activities, a department of the rail- road company's organization. Two departments are con- cerned strictly with the affairs of the company as a cor- poration, the secretary's office and the law department. The secretary's department has charge of the company's records, and of a great volume of correspondence carried on within the corporation, and with outside organizations and indi- viduals. The secretary keeps minutes of the meetings of the board of directors, notifies the stockholders of regular and special meetings and has custody of all leases and con- tracts authorized by the board of directors. Under the sec- retary are a transfer clerk, who has charge of transfers of stock and of the books showing its ownership,, and a regis- trar of stock, whose duty it is properly to register certificates of stock as they are issued. At the head of the legal depart- ment is the general counsel, who with the solicitors under his direction has charge of the legal business of the company ■—the preparation and execution of contracts affecting the bttsjness activities of the corporation, and the direction of all litigation in which the company becomes involved. THE ORGANIZATION OF THE SERVICE 237 The treasury department is concerned with the financial affairs of the general corporation, and is the fiscal agent of the special organization by which the transportation serv- ice is performed. It has nothing to do with operating the transportation machine, its duties being connected solely with the receipts and disbursements resulting from con- ducting the transportation business. This highly important department is usually under the supervision of one of the vice presidents of the company, who is assisted by the treas- urer and the cashier. The duties of the treasurer are those ordinarily pertaining to that office in all business organiza- tions. He must account to the corporation for all its income and for all money paid out, his chief duty being to see that none but properly authorized payments are made from the funds intrusted to his care. A registrar of bonds, under the direction of the treasurer, has charge of the transfer and registration of the registered bonds issued by the company. The accounting department also is usually under the su- pervision of one of the vice presidents of the company, the leading subordinate official being the comptroller, who has in charge the immediate direction of the work of the depart- ment. The comptroller and the auditors under him are the bookkeepers of the corporation, charged with the duty of keeping a detailed record of all the receipts from freight, passenger, mail, and express services and from other sources, and a record of all expenditures for equipment, supplies and labor, and of such disbursements as interest and divi- dends. The comptroller has in his office a general set of books containing a complete record of all the business trans- actions of the railroad; he informs the president at stated intervals of the earnings and expenses of the company, compares regularly the accounts of the treasurer with his own accounts, and directs the inspection of the accounts of all officers and agents intrusted with the handling oi care of the money of the company. Another very impor- 238 RAILROAD TRANSPORTATION tant duty of the comptroller is to verify and approve for payment all vouchers, pay rolls, and other evidences of in- debtedness. The comptroller's approval must be given be- fore the treasurer can make any payment of money. In the comptroller's oifice also elaborate statistical compila- tions are made for the information of officials in charge of the different departments of the railroad, and for the reports published by the National and State governments. The financial and traffic data furnished by the treasurer and comptroller, and the facts regarding car and train move- ments given by the car accountant's office in the operating department, supply most of the material used by the presi . dent and directors in preparing their annual reports to th« stockholders composing the company. The part of the railroad organization which is directly and solely concerned with transportation is divided into the operating and traffic departments, each of which is large, and for the purposes of efficient administration is necessar- ily subdivided into several distinct branches. The operat- ing department is the most comprehensive of all. It pro- vides, maintains and operates all the physical equipment used in transporting passenger and freight traffic, and col- lects from the patrons of the road the charges for the serv- ice, turning the money so collected over to the treasury de- partment. In doing this the operating department per- forms three general duties: it provides and maintains the roadway and all the structures pertaining to the line ; it sup- plies and maintains the locomotives and cars; it runs the trains and conducts the service at passenger and freight stations. Each of these three duties is made a special branch of the service. The operating department as a whole is under the supe''- vision of a vice president, though the official in immediate control is the general manager, who is the niost responsible and usually the hardest worked subordinate officer in the THE ORGANIZATION OF THE SERVICE 239 organization. Sometimes the same individual holds both the ofifice of vice president and that of general manager. The first of the three main divisions of the operating department is the roadway department, which constructs and maintains all the fixed physical property connected with the road — the track, bridges, buildings, pumping-machinery, and signal apparatus. This engineering work is done un- der the supervision of a chief engineer who establishes the standards according to which the work must be done. Sub- ordinate to the chief engineer are engineers in charge of maintenance of way, maintenance of bridges and buildings, and maintenance of signals. Each of these engineers has the necessary force of assistants and workmen. The branch of the operating department in charge of the construction and maintenance of locomotives and cars is usually called the machinery department. Some companies buy all new equipment, and, in their case, the machinery branch of the service is busied only with repairs and main- tenance, but many of the large railroad corporations build at least a part of the locomotives and cars used on their lines. The repairing and constructing of locomotives is in charge of a general superintendent or chief engineer of motive power, assisted by a master machinist, a master car builder, and the requisite foremen and subordinates. The other main division of the operating branch of the organization is the transportation department, which op- erates the equipment provided by the other two divisions and performs the actual work of moving persons and freight. In general charge of this department is the gen- eral superintendent of transportation, who has supervision of all station, train and yard service and of the distribution and use of locomotives and cars. It is his duty to establish and enforce rules which will secure the prompt, safe and economical handling of traffic. Under his direction are a superintendent of freight transportation and a superin- 240 RAILROAD TRANSPORTATION tendent of passenger transportation who oversee the de- tails of the service, keep a record of the movement of all cars and locomotives on the line, and keep a record of the amounts due to or from other companies for the use of interchanged equipment. The services of the transportation department as a whole are performed by two sets of em- ployees, those composing the station forces and those op- erating the trains or the train crews. Each of these forces of men has its own organization in charge of a chief respon- sible to the general manager. The station forces, though directly responsible to the officials of the operating depart- ment for the execution of their work, must comply with the instructions issued by the traffic, treasury, and ac- counting departments with regard to the billing of freight, the sale of tickets, and the accounting for money received. On a large railroad it is manifestly impossible for the general officers of the operating department to exercise immediate control over the many activities of the service, and consequently a territorial division of the work is made. A large system is divided into a number of grand divisions, and each of these is subdivided into a number of divisions. The "division" is the unit of operation. For the execu- tion of the details of the operating work there have been worked out two different modes of organization known respectively as the divisional and the departmental types. The divisional type is based on a territorial separation of the operating work as a whole, a single official, the division superintendent, having charge of all three branches of oper- ation on a division; while under the departmental type of organization the work of each branch of operation is divided territorially, a separate official, responsible only to the head of his particular department, having charge of each branch of the operating work on a division. With the departmental type of organization there is no official below the general manager having control over all three parts of the work THE ORGANIZATION OF THE SERVICE 241 of operation; under the divisional type the division super- intendent bears the same relation to the division that the general manager does to the entire road. In the United States the operating departments of nearly all the large rail- ways are organized on the divisional plan, the New York Central system being the only noteworthy exception. In England, on the contrary, the departmental type of organi- zation is general. The relations of the carrier and its patrons are adjusted by the traffic department, which solicits business, classifies the traffic, determines charges, settles as far as possible the claims of passengers and shippers for lost baggage and freight, and in general concerns itself with increasing the traffic and earnings of the company. It is the business of the operating department to conduct the transportation service economically, expeditiously, and safely; it is the object of the traffic department to secure the maximum passenger and freight business at remunerative rates. One of the vice presidents of the company usually has super- vision of this department, the work however being under the immediate direction of a freight traffic manager and a passenger traffic manager, who are assisted by a general freight agent and a general passenger agent, whose duties are indicated by the title of their positions. Under the general passenger agent are the division passenger, ticket, and baggage agents, and under the general freight agent are the division freight agents and the managers of the fast freight lines. Sometimes the freight claim agent is subordi- nate to the general freight agent, and sometimes is co- ordinate with that officer. Some companies have a chief claim agent subordinate only to the traffic manager and those above him. The general passenger agent usually has charge of the mail and express services. A large railroad requires a great variety of supplies, and for the purchase and distribution of these supplies it has 242 RAILROAD TRANSPORTATION Z o u o -) I-) lb o z o '*" c8 2 *o'o'3 b ^ b o o o ** *j *; 3 3 3 (0 eg <4 In*" S U M U R ^ O hjs S 3 o 5io " *4 o o o cgti: g o ti tri |4 t4 1-)^ ^ U (4 |.2.5.5.^-g,S S.5 d c4 (d !^0-SD-2Z J=-3 .aO.sz fc S <; < ZOi si 8 *> 4) O, O ■** rt 1 1 bo w OT OJ <§ U !> « S a ^ 9 *^ n SgSg 4- la** .9 M ^ M £ III ^ a) S u Y ** 4* S 3 ^ Z m 'in U^M OJ o 4; u *u'n ri C ^ d C » u o 0) :] u V •<, : rs B 3j3 £§28 Sic XNaoisaHd 'saoxDanra THE ORGANIZATION OF THE SERVICE 243 so OHVoa 'SHaaiOHHDOxs 244 RAILROAD TRANSPORTATION a H K H S 03 >< .£j CO O «! Z V 1 h) U zo < la et gs H A. O z o H h < z i o ii! ■t' (d rt-^ u Ass ssist ener Ass" hief w 23 XNaaisaHj 'SHOxoasia THE ORGANIZATION OF THE SERVICE 245 it 4.; 2 1 5l auditor auditor auditor auditor 1 1 4 Ass't Ass't Ass't Ass't 4» "a <: :.-|g :>g ' h t; U (9 g So 055^5-0 ^•^ t< Ui ^ k> Iri ki v> ^(SOOrtOOOO " S.-B.ti*..-a.-e.-s-S g a (3 B§|8 8-a "•-; »4 ui iri h *» g o o o o J2 B'd'O'd'a ""• »> 3 a s a u '^ B 5 d fl ^ O *"5 •■=B ES Ifl (A bN •i^g ft ?• EfS'S o B ♦1 B 1 &i B c CO ™ ■g S n-0 g.6'89 4> i4 H . ^5 •B.S ♦■a B BO .H't& ■Sub II ill illi •3 . S.B^ ■s " Soi S-3 O.S OlU JO QHVOa 'SHaa70HH30iS 246 RAILROAD TRANSPORTATION > j2!S a-s h 3 ^ S, a ■C 3 £*■ MB +* ri San « S h u C Qi C o rt •!) ? CB' as o o <»! gll .Sf3 .B"5 Is . . J. - »§ 1 Su lis 1 l-s e f i nt trea sing ag tate ag tant ng dep depart ry, pu tate, a 1 sista rcha ales coun perat raffic reasu real es c t- <|i.(i!n RAILROAD TRANSPORTATION ■anything but promising. A number of the weaker roads, unable to withstand longer the adverse conditions against which they had been struggling since 1910, went into bank- ruptcy. At the same time several large systems which had once been highly prosperous, were forced into receivership •because of financial mismanagement. The Rock Island and the Frisco systems, and several of the overcapitalized rail- roads of the Gould system in the Southwest collapsed under ■their burden of excessive fixed charges. The Wabash, im- poverished by its expensive venture of constructing a ter- minal in Pittsburgh, likewise became bankrupt. The once ■prosperous New Haven system, its liabilities increased from $93,000,000 in 1903 to $417,000,000 in 1913, disin- tegrated, bankruptcy overtaking a number of its constitu- ent, lines, and a receivership for the main system being nar- rowly averted. By October i, 191 5, nearly 42,000 miles bi railroad, one-sixth of the railway net of the United States, representing a capitalization of $2,250,000,000, had passed into the control of the courts for operation by receivers. ■ I. The credit of the railroads was so impaired that it was impossible for them to obtain the funds needed for exten- sions, and improvements. Railroad construction came to a complete stop and all thought of carrying out projects for the improvement of railway facilities was for the time be- ing abandoned.^ President Wilson, in his annual message to Congress in December, 1915, called attention to the plight of the railroads, and suggested that Congress create a commission "to ascertain, by a thorough canvass of the whole question, whether our laws, as at present framed and administered, are as serviceable as they might be in the solution of the problem." In answer to this suggestion Con- gress appointed an investigating commission to undertake fi study of the entire railroad question. The commission held a series of hearings, but before it could formulate. a GOVERNMENT OPERATION 493 program of action, the war brought about such changes in the railroad situation that it abandoned its work, not even making a report. The fiscal year of 1916 witnessed a temporary change for the better. The war in Europe stimulated great industrial activity in the United States, and the traffic of the railroads increased enormously in volume. The rapid rise in prices,, which came as a result of the war, did not begin until the latter part of 1916, and as a result the financial reports of the carriers were exceptionally favorable. The operating ratio for the year ending June 30, 1916, dropped to 65.44, and the revenue both gross and net, was larger than it had been in any previous year. The change, however, was only temporary. While the volume of traffic and the amount of gross revenue contin- ued to grow, operating costs began to mount with much greater rapidity. The four great railroad labor organiza- tions, locomotive engineers, engineers and firemen, railway conductors, and railway trainmen demanded of the carriers a "basic" eight-hour day instead of the ten-hour day previ- ously in effect, and overtime pay at the rate of time and a half. Since the hours of train service could not easily be shortened the demand of the unions was merely a demand for a large increase in pay. Conferences between represen- tatives of the employers and of the employees failing to result in any agreement, the railroad managers offered to submit the controversy to arbitration. The union leaders, refused to accept this proposal and insisted that their de- mands be granted. President Wilson invited the opposing factions to a conference at Washington, and as a solution of the difficulty he proposed that the eight-hour day be adopted with pro rata pay for overtime, offering to have a commission appointed to study the results of the change and make suggestions for whatever measures of financial relief might be found necessary to enable the carriers to 494. RAILROAD TRANSPORTATION meet the added cost. The union leaders signified their will- ingness to accept the President's proposals. The railroad managers refused, and the union leaders promptly called a country-wide railroad strike for September 4. President Wilson went before Congress on August 29, and recommended that a law be enacted providing for the eight-hour day for train-service employees. He also ad- vised that the Interstate Commerce Commission be en- larged, that a commission be established to study the ef- fects of the eight-hour law, and that a measure be enacted prohibiting railroad strikes until after an official investiga- tion of matters in controversy could be held. On Septem- ber 2, Congress hastily enacted the Adamson Eight-Hour Act. This law provided that the eight-hour day should become effective on January i, 191 7, and created an inves- tigating commission. The other recommendations of the President were disregarded. The railroad managers, asserting that the Adamson Act was unconstitutional, sought injunctions in the Federal courts to prevent the enforcement of the law. On Novem- ber 22, Judge Hook of the United States District Court at Kansas City declared the law unconstitutional, in order to hasten a final consideration of the matter by the Supreme Court. Argument before the Supreme Court took place on January 8, 191 7, the railroad managers having entered into an agreement with the Attorney General to continue the ten-hour basic day, but to give the men back pay due from January i if the law should be upheld. The labor union leaders refused to wait for the decision of the Su- preme Court. On March 15 they called a strike for March 17, later however postponing action until March 19. On the morning of the 19th, chiefly because of the threatening state of the international relations of the United States, the railroad managers decided to yield. They signified their acceptance of the terms of the Adamson law, and GOVERNMENT OPERATION 495 the strike was averted. On the afternoon of the same day the Supreme Court handed down its decision on the Eight- Hour Law, reversing Judge Hook's decision, and declaring the act constitutional. Meanwhile the railroad problem had been further com- plicated by operating difficulties. The war in Europe caused a greatly enlarged foreign demand for American food- stuffs, munitions, and various military supplies. The great increase in railroad traffic in 1916 had been caused partly by the increased export trade. Unfortunately little effort was made to coordinate the railroad facihties of the coun- try and the facilities for ocean transportation. The rail- roads reaching the interior of the United States accepted larger and larger quantities of export traffic billed to east- ern seaports. The activity of the German submarines re- duced the tonnage of ships available for transatlantic traffic, and the fact that the nations allied against Germany found it necessary to use a large amount of tonnage in European transport service still further limited the shipping services between America and Europe. Inadequate shipping caused the terminals of eastern railroads to become congested with cars loaded with traffic destined for Europe. When the terminals at the seaports became overcrowded with cars, the terminals farther inland were used for storage pur- poses until in the winter of 1916-17 virtually every railroad terminal east of the Mississippi River was congested. Un- der these conditions the operation of the railroads became exceedingly difficult. It became necessary for many lines to embargo all traffic except food and a few other necessi- ties of life, and even these necessities could be moved only with great difficulty. A great many of the loaded cars in the eastern terminals belonged to western roads. As the accumulation of cars grew in the east the number of cars available for use on western roads steadily declined. Even when western cars were unloaded in the east, the eastern 496 RAILROAD TRANSPORTATION lines did not return them, finding it to their advantage to retain them for local service. The failure of the eastern lines to return promptly the empty cars belonging to their western connections was a direct violation of the car service rules of the American Railway Association. In an endeavor to relieve the situation the association established a Com- mission on Car Service at Washington in December, 1916. This Commission was authorized to obtain weekly reports of the car situation and issue orders with regard to the return of cars. Even this drastic step did not result in much improvement, as some of the roads failed to carry out the orders of the Car Service Commission. Meanwhile the Interstate Commerce Commission had been investigating the problem of car service. In January, 1917, it issued a report on car supply and methods of car distribution, and prescribed a new code of car service rules for the carriers to follow. There was some doubt as to whether the Interstate Commerce Commission had statu- tory authority to issue orders with respect to car service, but the order had the effect of stimulating the carriers to greater activity. The Car Service Commission was reor- ganized and the carriers agreed to abide by the rules which it should prescribe. The Interstate Commerce Commission then postponed the effective date of its order, and took steps to cooperate with the carriers in making their self-imposed regulations effective. Late in May Congress removed all doubt as to the power of the Interstate Commerce Com- mission to regulate car service by passing the Esch bill, which expressly conferred upon the Commission the nec- essary authority. When war was declared on April 6, 191 7, the railroad managers immediately took steps to operate the railroads in such a way as to meet the needs of the Government. In the Army Appropriation Act of August 29, 1916, a provision had been included for the creation of a Council of Na- GOVERNMENT OPERATION 497 tional Defense, consisting of six cabinet officers; and the President had been authorized to appoint an Advisory Com- mission consisting of not more than seven persons, who should be specially qualified to assist in mobilizing the eco- nomic resources of the country for national defense in case of war. President Wilson chose as the transportation expert of the Advisory Commission Mr. Daniel Willard, the president of the Baltimore and Ohio Railroad. At Mr. Willard's suggestion the American Railway Association on February i6, 1917, created a special Committee on Na- tional Defense, consisting of eighteen railway officials from various parts of the United States. This special committee met in conference with the Secretary of War and other War Department officers on March i, and drew up plans for the cooperation of the railroads with the military forces of the Government. Immediately after war was declared the Council of Na- tional Defense requested Mr. Willard to "call upon the railroads to sO' organize their business as to lead to the greatest expedition in the movement of freight." Mr. Wil- lard thereupon called for a general conference of railway executives at Washington. Nearly 700 railway presidents, representing virtually all the railways of the United States, assembled at Washington on April 11, and signed the fol- lowing resolution: Resolved : That the railroads of the United States, acting through their chief executive officers here and now assetobled, and stirred by a high sense of their opportunity to be of the greatest service to their country in the present national crisis, do hereby pledge them- selves with the Government of the United States, with the Govern- ments of the several States, and with one another, that during the present war they will coordinate their operations in a continental railway system, merging during such period all their merely individ- ual and competitive activities in the effort to produce a maximum of national transportation efficiency. To this end they hereby agree to create an organization which shall have general authority to formu- 498 RAILROAD TRANSPORTATION late in detail and from time to time a policy of operation of all or any of the railways, which policy, when and as announced by such temporary organization, shall be accepted and earnestly made effect- ive by the several managements of the individual railroad companies here represented. To carry out the plan for a "continental railway system" the Special Committee on National Defense of the Ameri- can Railway Association was enlarged to thirty-three mem- bers. An executive committee of five, known as the Rail- roads' War Board, was selected from this committee. The War Board established headquarters at Washington and undertook, with the help of several subcommittees, to bring about a better coordination of the railroad service. The Railroads' War Board made an earnest effort to improve the railroad service, and in view of the obstacles against which it was forced to struggle, it achieved an amazing degree of success. Without legal authority to compel cooperation, it called upon the individual carriers for voluntary action. It organized car pools for the more equitable distribution and more rapid movement of cars; it carried on an intensive educational campaign to induce shippers and consignees to load and unload cars with greater promptness; it encouraged economy and efficiency by sug- gesting the elimination of duplicate passenger train service, the heavier loading of freight cars, and the curtailment of all special services. For the most part the suggestions of the War Board were readily complied with, and traffic statistics of 1917 showed a steadily increasing efficiency of the railroad service. Notwithstanding this increasing efficiency, the conditions of railroad transportation in the fall of 1917 did not appear greatly better than in the preceding fall, and the coming of the winter season with its difficulties of operation was looked forward to with no little apprehension. Though the carriers were handling a larger and larger volume of GOVERNMENT OPERATION 499 traffic, the amount of tonnage cifered for transportation grew at a more rapid rate than the amount of tonnage car- ried. The mihtary operations of the Government — the construction of camps and the concentration of troops and supplies — caused the business of the railroads to expand enormously. While the war traffic was growing, little or no effort was made to curtail the volume of ordinary indus' trial traffic, and as time went on the burden of the roads became constantly heavier. One reason for the inability of the carriers to cope with the situation was the lack of sufficient equipment. The shortage of traffic and the shortage of revenues in the years since 1910 had been reflected in diminished purchases of cars and locomotives, so that when the great volume of shipments poured in during 1916 and 1917 there was not enough rolling stock to meet the needs of the country. The railroads were also adversely affected by the labor situation. The struggle over the eight-hour law had served to promote discord between managers and employees, and they did not work together as harmoniously as would have been pos- sible under other conditions. Moreover, many railroad employees began to leave the railroad service, some to enter the army and others to accept better paying employment in munition plants, steel mills, shipyards and other factories. The workmen who remained with the carriers, faced with a greatly increased cost of living which came with the steady rise of prices throughout 1917, began to demand another large increase of wages. Meanwhile the railroads had failed again to secure any substantial increase in freight rates. The eight-hour law and the rising prices of fuel and other supplies caused the cost of operation to mount more rapidly than ever, and in the early months of 1917, notwithstanding the increasing volume of traffic, there was a sharp decline in net revenue. In the eastern district in particular, where the effect of ris- 500 RAILROAD TRANSPORTATION ing prices of coal and other materials was first felt, and where, because of the large number of employees, the bur- den imposed by the Adamson Act was greatest, the rail- roads suffered heavy losses. In March and April all the railroads of the country appealed to the Interstate Com- merce Commission for permission to make a general ad- vance of 15 per cent in their freight charges. In a decision handed down on June 27 the Commission permitted a small increase of class rates and a small increase in certain com- modity rates in eastern territory. The applications of the southern and western carriers were denied, except for slight increases in rates on coal, coke, and iron ore. Again the Commission based its judgment upon the statistical reports of previous months, and particularly of the pros- perous year of 1916, and refused to permit its decision to be influenced by tendencies, which it could not say with certainty would continue. An analysis of the official statis- tics employed by the Commission in reaching its decision showed that the financial condition of the railroads was by no means alarming, certainly not so alarming as the car- riers endeavored to make out. But there was a widespread belief that the Commission should have treated the carriers more generously and that it should have made greater allowance for the probabilities of the future. The financial conditions of the railroads became steadily worse, just at the time there was need of greatest strength. By the end of 1917 the costs of operation were so high that much more than a 15 per cent increase of rates was needed to avert impending deficits on many railroad systems. Another difficulty which the Railroads' War Board met with, in addition to insufficient equipment and inadequate revenues, was the matter of securing complete cooperation among the various railroad systems. Notwithstanding the resolution signed by the railroad officials on April 11, the railroads were not "coordinated in a continental railway GOVERNMENT OPERATION 501 system," and the "many individual and competitive activi- ties" of the various lines were not "merged." The railroads of the United States had been developed under a system of competition, and the managers could not in an instant, by mere resolution, sacrifice the competitive advantages which they had obtained in the struggles of the past. Coordina- tion was particularly difficult in view of the financial posi- tion of the roads. Each carrier was under the strongest compulsion to use whatever strategic advantage it possessed solely for its own benefit. Each road held fast to its own terminal facilities; there was not always a scrupulous obe- dience of the orders of the War Board with respect to car service; many roads declined to carry out plans for the elimination of duplicate services because of the fear of lost patronage; many lines accepted traffic for shipment, when there was much doubt of their ability to carry it to destination, merely because they did not care to abandon any business to rival lines. The chief excuse given for the failure of the carriers to unify their operations to a greater degree was that they were forbidden to do so by the Sherman Antitrust Law and the Interstate Commerce Law. As a matter of fact neither of these laws forbade the common use of the physical facilities of railways, though they forbade the financial cooperation, which, in ordinary times, would have been necessary for the adoption of a comprehensive plan of operating unity. Still another obstacle to the efficient operation of the railroads was the diversified system of governmental con- trol which came into existence during the early stages of the war. By an act passed August 29, 1916, the railroads were required, upon the demand of the President, to give preference in transportation to troops and military sup- plies. Under authority of this law officials of the Army, the Navy and the United States Shipping Board gave to the carriers large numbers of priority orders. Agents of 502 RAILROAD TRANSPORTATION the Food and the Fuel Administrations likewise ordered preference to be given to shipments of food and fuel. The Interstate Commerce Commission was authorized to con- trol car service. On August lo, 1917, Congress enacted a Priority Law, under the terms of which the President was empowered during the continuation of the war, to direct all carriers, both rail and water, to give preference in transportation to such traffic as in the President's judg- ment was essential to national defense. On August 29 a law was passed enlarging the membership of the Interstate Commerce Commission from seven to nine. While all the provisions for expediting the movement of freight were admirable in purpose, they served to produce confusion and disorganization, because there was little coordination among the different regulating authorities. The railroads protested against the multitude of priority orders emanat- ing from so many different sources. After the appointment of Judge Robert S. Lovett, Chairman of the Executive Committee of the Union Pacific Railroad, as Director of Priority Shipments on August 18, there was a distinct change for the better in the issuing of priority orders, and it became possible to secure the expeditious movement of essential traffic, to the exclusion of traffic of less importance. Notwithstanding the efforts of Judge Lovett and the War Board, the railroads became more and more con- gested. Late in November the carriers in the eastern dis- trict took the drastic step of pooling "all available facilities on all railroads east of Chicago ... to the extent neces- sary to furnish maximum freight movement." An operat- ing committee was appointed, with headquarters at Pitts- burgh, to direct the operation of the pooled lines. All export shipment of steel products, except those intended for the use of the United States Government, was ordered to be diverted from the Pittsburgh gateway; all other freight which ordinarily passed through Pittsburgh was GOVERNMENT OPERATION 503 ordered to be diverted to other lines North and South ; the Pennsylvania's finest train, the "Broadway Limited," was discontinued; all "fast" freight service was suspended; and the use of open top cars for the team track loading of coal was discontinued. Had this step toward operating unity been taken several months sooner, it is probable that the private operation of railroads would have been contin- ued. Unfortunately it had not been possible to obtain such action earlier through the voluntary cooperation of the eastern lines. By December it had become apparent that the railroad problem was approaching a crisis, and that radical action was necessary to prevent the transportation system from breaking down. The problem, for the time being at least, was entirely a problem of operation. Time did not permit a great increase in the facilities of the carriers ; it was nec- essary to operate existing facilities with a greater degree of efficiency. Only a complete unification of the railroads in the congested districts could save the situation. On December i, the Interstate Commerce Commission, in a special report to Congress, reviewed the railroad situation, and recommended that (i) the President assume control of the railroads and operate them for the duration of the war, or that (2) whatever legal obstacles prevented unified operation by the carriers themselves be immediately re- moved, and that the Government give the roads any needed financial assistance. Commissioner McChord, in a separate statement, asserted that even with the suspension of all antitrust legislation, voluntary cooperation among the car- riers could not be achieved because of their long-standing competitive dififerences. He recommended that the Gov- ernment take direct charge of the railroads and accomplish by compulsory methods the necessary unification of oper- ating facilities. The policy of complete government control had been 504 RAILROAD TRANSPORTATION followed both in Germany and Great Britain since the be- ginning of the war. In Germany the lines owned and operated by the various states of the Empire had been taken over by the Imperial Government and operated as a single system. In Great Britain, the railroads, privately owned as in the United States, had at the beginning of the war, passed at once under the control of the Govern- ment, in accordance with the terms of a law enacted in 1871. In the Army Appropriation Act of August, 1916, Con- gress had authorized the President in time of war, through the Secretary of War, to take possession and assume con- trol of the transportation system of the United States and operate it, to the exclusion of other traffic, for the transfer of troops, war material and other equipment. Acting under the authority of this law, President Wilson, on December 26, 1917, issued a proclamation providing for his assump- tion of control of the steam railroads of the United States at twelve o'clock noon, December 28. He named William G. McAdoo, the Secretary of the Treasury, as Director General of Railroads. The President had decided that the unification of railway facilities could be obtained only through the operation of the railroads directly by the Government. Mr. McAdoo, for the time being, retained intact the operating organization of the individual railroads. He created a central administrative system at Washington, and took immediate steps to weld the many lines of the coun- try into one great system, employing their facilities in a manner which produced a maximum of transportation serv- ice, without regard to the welfare of the single roads. He soon divided the country into three great operating dis- tricts or regions, placing an experienced and competent railway official in charge of each region. Gradually the entire system of administration was changed. The various railway presidents were relieved entirely of their duties as GOVERNMENT OPERATION 605 the operating heads of the railroads, and "Federal Man- agers" appointed in their place. Some of the Federal Man- agers were chosen from among the railway presidents, in which case they were required to surrender their positions with the railroad corporations and become solely officials of the Railroad Administration. The presidents who re- tained their connection with their corporations gave up all their duties and responsibilities of operation. A Federal Manager was frequently given supervision over lines or parts of lines which previously had had no financial or operating relations with one another. The identity of indi- vidual lines was disregarded. The system of administration finally worked out consisted of two parts. At Washington there was a central staff organization having general supervision of all branches of the railway service. This organization was made up as follows: Director General of Railroads. Division of Public Service and Accounting. Division of Law. Division of Finance and Purchases. Division of Capital Expenditures. Division of Operation. Division of Traffic. Division of Labor. Division of Inland Waterways. Each division was in charge of a director, who was as- sisted by a staff of experts. The operating organization was made up of seven regional administrations, the regions being the Eastern, the Allegheny, the Pocahontas, the Southern, the Northwestern, the Central Western and the Southwestern. Each region was in charge of a Regional Director to whom the Federal Managers were responsible. The operating organization below the Federal Managers was very much the same as it had been before Federal control. 506 RAILROAD TRANSPORTATION Not all the railroads of the country were subjected to Federal control. Some of the "short lines" were not taken over by the Railroad Administration, and some which were taken over at the beginning were released before July i, 1918. Virtually all the Class I roads were operated by the Government, however, and a number of the smaller systems. The Pullman car service also passed under Government con- trol. The express companies were required to consolidate into a single company, and in November, 1918, the opera- tion of this company was likewise assumed by the Gov- ernment. While the action of the President in assuming control of the railroads was taken by virtue of the act of August 29, 1916, it was necessary to enact further legislation to deal with the problems which immediately arose. On March 21, 1918, a Railroad Control Act was passed. This law guaranteed to each railroad corporation, whose lines were taken over, an annual payment not exceeding its average net operating income for the three years ending June 30, 191 7, it being stipulated that the President should make an agree- ment with each company to determine the exact amount of compensation payable. It was provided that in cases where agreements could not be arranged the problem of just compensation should be submitted to boards of referees, and if a decision acceptable to a carrier could not be reached it should have the right of appeal to the Court of Claims. It was stipulated that the Government should pro- vide for all maintenance, repairs and renewals, that the property of each carrier should be returned "in substan- tially as good repair and in substantially as complete equip- ment as it was at the beginning of the Federal control," and that the United States should be reimbursed for all additions and betterments not justly chargeable to the Gov- ernment. A revolving fund of $500,000,000 was created to pay the expenses of Federal control and to finance the GOVERNMENT OPERATION 507 operation of the roads. The President was authorized to initiate all charges, classifications, regulations and prac- tices, by filing them with the Interstate Commerce Com- mission. The Commission was deprived of its powers of suspension, but it retained the power to investigate the reasonableness of all rates and regulations and make such orders as it was authorized to make by the Interstate Com- merce Act. A final provision of the law was that the roads should be returned to their owners within one year and nine months following the ratification of the treaty of peace. The Railroad Administration made a number of impor- tant changes for the purpose of bringing about a greater degree of operating unity in the railroad system. Perhaps the most important innovation was the joint use of termi- nals, equipment, repair shops, and other physical facili- ties owned by the separate lines. An arbitrary control of the routing and distribution of traffic relieved the conges- tion on crowded roads, and obtained more service from the lines that had not been operated to full capacity. A greater effort was put forth to control traffic at the source, shipments being accepted only when official permits showed there was no obstacle in the way of prompt delivery at destination. The elimination of duplicate passenger serv- ices did much to conserve motive power and labor, and if passenger trains were more crowded and the service not so speedy, the public made but little complaint. Consolidated time tables of passenger trains and consolidated ticket of- fices were measures of economy, which also afforded con- veniences not available under competitive methods of opera- tion. The Railroad Administration purchased a consider- able number of new locomotives and freight cars. By ad- hering to more nearly standardized equipment and by introducing standardization into repair work, the Govern- ment saved money and secured faster production than would otherwise have been possible. 508 RAILROAD TRANSPORTATION In dealing with labor the Railroad Administration adopted the principle of collective bargaining with all classes of employees, whereas under private operation the railroad companies had dealt collectively only with a few groups. When government operation began, the wages of railroad employees were considerably lower than the wages paid in other lines of industry, a condition which was causing the daily loss of both skilled and unskilled work- men. One of the first acts of the Railroad Administration was to appoint a non-partisan Railway Wage Commission, the workmen receiving assurance that whatever increase the Commission granted should be efJective as from Janu- ary I, 1918. On the basis of the Commission's report the Director General issued an order in May, providing for a substantial increase in the wages of all classes of em- ployees. Subsequently a Board of Railroad Wages and Working Conditions was created, consisting of three rep- resentatives of railroad labor and three representatives of railroad managements. This Board considered the special claims of individual classes of railroad employees and made recommendations upon the basis of which other wage in- creases were ordered. Three bipartisan boards of adjust- ment were created to settle controversies which could not be settled by the workmen and the local managements. The eight-hour day was established throughout the railroad service. While the Railroad Administration dealt with railroad labor organizations, it did not discriminate between those workmen who belonged to labor unions and those who did not. The last increase in wages, made by the Railroad Administration, came early in 1919. By that time the wages of railroad labor had been raised to the general level of wages in other lines of industry, though there were some industries in which wages were lower than in the railroad service and others in which wages were higher. One feature of the labor policy of the Railroad Adminis- GOVERNMENT OPERATION 509 tration which was much criticized was that wages were standardized throughout the United States. The stand- ardization was the cause of excessive increases of pay in the case of many individual employees ; while wide varia- tions in the cost of living throughout the country produced great inequality in real wages. Higher wages and higher costs of fuel and equipment necessitated increased revenues. On May 25, 1918, the Director-General issued an order providing for a 25 per cent increase in all class rates on freight traffic, an increase of approximately 25 per cent in all commodity rates, and an increase of passenger fares to three cents a mile. Com- mutation fares were advanced 10 per cent and Pullman fares were also made higher. Higher minimum charges on less than carload and on carload freight shipments were established, export and import rates were temporarily can- celled, and various other changes made in rates and fares with the purpose of increasing the income of the railroads. Intrastate charges and interstate charges were treated as a whole and all advanced in a uniform manner. Numerous protests were made against the advanced rate order, not so much because of the increased charges as because of the disturbance of long-standing rate relationships. The Rail- road Administration recognized the desirability of main- taining intact, as nearly as possible, the rate structures which had been brought into efifect in the course of the industrial and commercial development of the nation. It therefore brought about the organization of a number of regional and district rate committees. A novel feature of these committees was that they all had in their membership representatives of the shipping interests as well as repre- sentatives of the railroads. The committees took the place, during the period of government operation, of the traffic associations formerly maintained by the railroads. From the standpoint of operating results the manage- 510 RAILROAD TRANSPORTATION ment of the railroads by the Government was on the whole satisfactory. Arbitrary measures were necessary to obtain the movement of essential traffic, and such arbitrary meas- ures as were desirable the Railroad Administration could and did put into effect. The unification of the physical facilities of the railroads and the redistribution of traffic made it possible to relieve the congestion which existed when Federal control began, and throughout the twenty- six months of government operation the record of traffic movement was good. There were numerous complaints on the part of individual travelers and shippers, and there was unquestionably much reason for complaint, but in nearly all cases the inconveniences suffered by individuals were the necessary result of making the military activities of the Government the matter of paramount consideration. From a financial standpoint the results of Federal con- trol were not so satisfactory. The advances in rates initi- ated by the Railroad Administration were insufficient to meet the greatly increased costs of operation, and through- out the period of Federal control there was a deficit. The excess of operating expenses and rentals over operating revenues for the twenty-six months' period amounted to approximately $900,000,000. It is po-ssible that several million dollars more must be paid in taxes before the obli- gations of the Government are met. Some railroad com- panies will unquestionably present large claims on account of the under-maintenance of their properties. On the other hand the Government has large sums due from the carriers on account of additions, betterments and loans. It was the opinion of Mr. Walker D. Hines, who succeeded Mr. McAdoo as Director General of Railroads early in 191 9, that the balance against the Government would in the end be comparatively small. It will be several years before a final accounting of results can be had. When hostilities came to an end in November, 1918, the GOVERNMENT OPERATION 511 railroad situation offered one of the most important prob- lems of domestic reconstruction. Government operation had not achieved much popularity with the public, and while a few groups were in favor of its indefinite continu- ation, the great weight of public opinion was in favor of a speedy restoration of private control. It was generally conceded, however, that before the railroads could safely be returned to their owners it would be necessary for Con- gress to enact legislation providing for a radical alteration of the railroad policy of the Government. A new Federal railroad policy was finally worked out and embodied in the Transportation Act. This measure, which became a law on February 28, 1920, is by far the most important piece of railroad legislation that Congress has enacted. It will be discussed in the following chapter. REFERENCES The Five Per Cent Case. 31 I. C. C. 351 ; 32 I. C. C. 325. The Fifteen Per Cent Case. 45 I. C. C. 303. Special Report of the Interstate Commerce Commission of December i, 1917. 47 I. C. C. 757. Dixon, Frank H., and Paemelee, Julius H., War Admin- istration of the Railways in the United States and Great Britain. 1918. Annual Reports of the Director General of Railroads, 1918- 1920. The Railroad Problem: A Discussion of Current Railway Issues. Annals of the American Academy of Political and Social Science, November, 1919. (Contains articles deal- ing with government operation in the United States, pro- posals for railroad legislation, and railroad labor ques- tions.) Railroad Legislation. Proceedings of the Academy of Pol- itical Science in the City of New York, November 21-22, 1919. (Opinions on the railroad problem by railroad finan- ciers, railroad presidents and other executives, labor lead- ers, economists, and members of Congress.) CHAPTER XXIX THE TRANSPORTATION ACT OF 1920 Reconstruction plans, 512. The Cummins and the Esch bills, 514. The Transportation Act, 515. Labor disturbances, 523. Rate increases, 524. The business depression, 525. Operation of the law, 528. References, 533. President Wilson, in his annual message to Congress in December, 1918, urged that the railroad problem should receive speedy consideration. He had no constructive plan of legislation to offer, his only suggestion being that the old railroad policy "of restraint without development" should be modified. The Interstate Commerce Commission, in its annual report for 1918, made certain general recom- mendations as to what changes Congress should make in the law in the event that the principle of private operation and public regulation should be retained as the basis of future railroad policy. Mr. McAdoo, the Director General of Railroads, advised that the period of Federal control should be extended for at least five years beyond January i, 191 9, asserting that such action would take the railroad question out of politics, would give time to restore the credit of the carriers, and give opportunity to study and test the feasi- bility of Government control under normal conditions. Mr. McAdoo's proposal met with little favor among the shipping interests of the country or with the railway exec- utives and the owners of the railroads. The commercial and financial interests of the nation were almost unanimous in urging the speedy restoration of private management under such laws as would conserve railroad credit and per- mit the expansion of the railway facilities to meet the needs of commerce. In January, 1919, the Association of Rail- 612 TRANSPORTATION ACT OF 1920 613 way Executives published a plan of railroad legislation, the most important feature of which was the creation of a Federal Transportation Board which should take over the purely administrative functions of the Interstate Commerce Commission and also certify to the Commission the amount of revenue needed by the railroads in order that they might be properly maintained and their owners receive an ade- quate return. Other commercial organizations likewise sub- mitted "plans" for the guidance of Congress. The Na- tional Association of Owners of Railway Securities, of which S. Davies Warfield was president, proposed a plan, the central feature of which was the establishment of a statutory rule of rate making, which would serve to protect the interests of railway investors. Other plans were sub- mitted by the Citizens' National Railroads League and by the National Transportation Conference organized by the United States Chamber of Commerce. The plan which provoked the greatest discussion was that known as the Plumb plan, named for its author, Glenn E. Plumb, who had for some time acted as general counsel for the four railroad brotherhoods. Virtually all the advo- cates of the principle of government ownership of. railroads centered their energies upon the promotion of this plan. It proposed, in effect, that the Government should purchase the railroads and entrust their operation to a board of direc- tors in which the railway laborers were to have the con- trolling voice. It was indorsed by the leading officials of the railroad brotherhoods, by the head of the Railroad Em- ployees' Department of the American Federation of Labor, and by the officer's of many other labor organizations. The Plumb plan met with scant approval by the public at large.. It soon became evident, likewise, that Congress was overwhelmingly opposed both to the principle of gov- ernment ownership and to the continuation of Federal oper- ation for a longer time than was necessary to enact a new 514 RAILROAD TRANSPORTATION railroad law. The enactment of a satisfactory law, how- ever, presented a problem of no little difficulty. There was a wide divergence of view among the interests which de- sired the speedy restoration of the railroads to their owners, and their divergence of view was reflected in the varying opinions of the members of Congress who were responsible for passing railroad legislation. A special session of Congress was called in May to deal with a number of problems of domestic reconstruction. Hearings on the railroad problem were held during the en- suing months both by the Senate Committe on Interstate Commerce and by the House Committee on Interstate and Foreign Commerce. Testimony was given by the advocates of all the "plans" for railroad regulation. In October the Senate committee reported out the Cummins bill, named for Senator Cummins, the chairman of the committee. The Esch bill was reported in the House of Representatives on November lo and passed by the House on November 17. When it was sent to the Senate, it was amended by the substitution of the Cummins bill, which received a favor- able vote on December 20. The disagreement of the two branches of Congress made it necessary to entrust the work of framing the definitive bill to a conference committee rep- resenting both houses. The conference committee began its deliberations during the Christmas holidays. It seemed for a time that it would be impossible for an agreement to be reached. When on December 26 President Wilson issued a proclamation de- claring that he would return the railroads under control to their owners on March i, 1920, it became apparent that Congress could not avoid taking definite action. The mem- bers of the conference committee finally compromised their differences and returned a bill which differed in many re- spects from both the Cummins and the Esch bills. The conference bill was passed in the House by a large majority TRANSPORTATION ACT OF 1920 515 on February i8, and five days later it was passed by the Senate. It was signed by the President on February 28, two days before the expiration of the period of Federal control. The Transportation Act, as the new law was called, was made up chiefly of amendments to the old Interstate Com- merce Act. It also contained certain provisions covering problems connected with the return of the roads to their owners, and it created an administrative machinery to deal with railroad labor controversies. The law guaranteed to the carriers, for a period of six months following the resumption of private operation, a net return equal to the rentals paid during the period of Federal control. The carriers were permitted to make a choice of accepting the Government guarantee, or of as- suming complete financial independence after March i. The law also gave financial assistance to those short lines which the Government had operated for only a short time or had not operated at all. An appropriation of $200,000,000 was set aside, from which the railroad corporations might secure loans, upon the approval of the Interstate Commerce Commission, for a period of two years after the passage of the law. Those carriers which were indebted to the Governmerit, because of advances of cash for capital ex- penditures made during the period of Federal control, were authorized to fund their obhgations for a period of ten years, with an interest rate of 6 per cent. It was stipulated that rates and fares in existence at the termination of Fed- eral control should not be reduced during the guaranty period of six months, except with the approval of the Inter- state Commerce Commission, and that during the same period the railroad companies should make no reductions in wages and salaries. The labor clauses of the Transportation Act were a sub- ject of much controversy. There was a widespread belief 516 RAILROAD TRANSPORTATION that railroad strikes should be prohibited and that the car- riers and their employees should be required to accept the principle of compulsory arbitration of labor disputes. The Cummins bill, as passed by the Senate, forbade railroad strikes ; the Esch bill did not contain any compulsory labor clause. The conference report followed the Esch bill. The Transportation Act does not prohibit railroad strikes and it does not provide for compulsory arbitration, but it de- clares it to 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 growing out of any dispute between the carrier and the employees or subordinate offi- cials thereof," and provides for official machinery by which all disputes may be settled without resort to extreme methods. The law authorized the creation of Railroad Boards of Labor Adjustment. These boards may be established by agreement between any carrier, group of carriers, or the carriers as a whole, and any employees or subordinate offi- cials of the carriers. Disputes involving grievances, rules and working conditions, not capable of being settled by direct conference of carriers and their employees may be referred to these boards for hearing and adjudication. The establishment of the boards is entirely optional. In addition to providing for Boards of Adjustment the Transportation Act created a salaried Railroad Labor Board, consisting of nine members, three representing the railroad employers, three representing the employees, and three representing the public. This Board is authorized to hear all disputes concerning wages, and any dispute in- volving grievances, rules, and working conditions not ca- pable of being settled by the Adjustment Boards. The act stipulated, too, that in case Adjustment Boards should not be organized, the Labor Board should have jurisdiction TRANSPORTATION ACT OF 1920 517 over questions which otherwise would have fallen within the province of the Adjustment Boards. The members of the Labor Board are appointed by the President, with the approval of the Senate, the three members representing respectively the employees and the employers being chosen from nominees designated by these interests. The method by which the employees and employers make and offer their nominations to the President are prescribed by the Interstate Commerce Commission. In the adjudication of the disputes involving wages and salaries the Railroad Labor Board decides what rates of pay are in its opinion just and reasonable. In determining what is reasonable the Board is required to take into con- sideration the scale of wages in other industries, the rela- tion between wages and the cost of living, the hazards of employment, the character and regularity of employment, and various other factors which must be taken into account in the consideration of controversies over the reasonable ness of wages. The Board is authorized to require the attendance of witnesses, and it has access to any railroad documents and records that may have a bearing upon the cases which arise. Its decisions have no binding effect either upon the carriers or upon their employees. No pen- alty is incurred if the decisions of the Board are disre- garded. Its effectiveness as an agency for the settlement of disputes depends entirely upon the willingness of em- ployers and employees to accept its decisions. The most important part of the Transportation Act con- sists of various amendments to the Interstate Commerce Law. The amendment of chief significance is that pre- scribing a rule of rate making to be followed by the Inter- state Commerce Commission. For many years railway managers and railway investors had been claiming that the Commission had been inclined to treat the railroads in a somewhat niggardly manner, and it was the insistence of 518 RAILROAD TRANSPORTATION these interests that brought about the inclusion of the statu- tory rule of rate making in the Transportation Act. The Commission is authorized to divide the country into rate districts or territories and to initiate rates in each territory so that the carriers will "under honest, efficient and econom- ical management and reasonable expenditures for mainte- nance 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 railway property of such carriers held for and used in the service of transportation." The Commission determines the value of the property devoted to transportation, and also decides from time to time what percentage of the prop- erty value constitutes a "fair return." The law stipulates, however, that during the two years following March i, 1920, the Commission shall take as a fair return a sum equal to 5)4 per cent of the value of the railroad property, but it is authorized, in its discretion, to add a further sum not to exceed one-half of i per cent, to make provision for additions, betterments and improvements. The framers of the Transportation Act were confronted with many difficulties in devising a rule of rate making for the Commission to follow. The most serious problem arose from the fact that the railroads of the United States are by no means on an equal basis with respect to oppor- tunities to obtain traffic and with respect to costs of opera- tion. In the same sections of the country may be found "weak" roads, which serve districts that yield compara- tively little traffic and which have high operating costs, and "strong" roads, which have large gross receipts and rela- tively low operating costs. Congress recognized the fact that rates on competitive traffic must be uniform. If the rates in any region are made high enough to enable the weak roads to prosper, the strong roads will inevitably obtain excessive revenues, while if the rates are established TRANSPORTATION ACT OF 1920 519 upon a basis which affords a fair return for the strong roads, the weak roads will soon become bankrupt. Cor - gress acknowledged the necessity of preserving ihe weak roads, because they are "indispensable to the communities to which they render the services of transportation" ; at the same time it was clear that a system of uniform rates which would sustain the weak roads would enable the strong roads to "receive a net railway operating income substantially and unreasonably in excess of a fair return upon the value of their railway property." In an effort to solve this problem there was included in the Transportation Act a provision that a carrier receiving in any year a net railway operating income in excess of 6 per cent should turn over one-half of the excess income to the Interstate Commerce Commission. The half retained by the carriers is to be placed in a reserve fund. The reserve fund of any carrier need not be accumulated beyond a sum equal to 5 per cent of the value of its property. When a fund of 5 per cent is attained the carrier may dispose of its por- tion of annual excess income in any lawful manner. In years when its net railway operating income falls below 6 per cent it may draw upon the reserve fund for the pur- pose of paying interest and dividends. The excess earn- ings which the carriers turn over to the Commission con- stitute a "general railway contingent fund." It may be used to make loans to carriers which need funds for cap- ital expenditures, or the Commission may use it to pur- chase transportation facilities and equipment to be leased to carriers under such conditions as the Commission may deem proper. To a great many members of Congress it appeared that the proper solution of the problem of the "strong" and "weak" railroads was to require that all the roads be con- solidated into a Hmited number of great competitive sys- tems. The Cummins bill provided for the compulsory con- 520 RAILROAD TRANSPORTATION solidation of the railways into not less than twenty nor more than thirty-five great systems. In the final measure the compulsory feature of the Cummins bill was eliminated, but the Interstate Commerce Commission was directed to "prepare and adopt a plan for the consolidation of the rail- way properties of the continental United States into a lim- ited number of systems." It was stipulated that competi- tion should be preserved as fully as possible; that, wher- ever practicable, existing routes and channels of trade should be maintained; and that the several systems should be so arranged that the costs of transportation as between competitive systems and as related to the value of railway property should be the same, as far as practicable, so that the systems could employ uniform rates on competitive traffic and under efficient management earn substantially the same rate of return. When the Commission has agreed upon a tentative plan of consolidation it is to be made pub- lic and a formal hearing is to be held, at which all objections to the tentative plan may be presented. Thereafter the Commission will adopt a definite plan for consolidation. The carriers may then voluntarily make consolidations in harmony with the Commission's plan. The Commission is now preparing its plan of consolidation. It is highly probable that when its work is completed a law will be passed requiring the compulsory combination of the rail- roads into the systems proposed by the Commission. The other amendments to the Interstate Commerce Law, contained in the Transportation Act, consisted largely of provisions giving new powers of regulation to the Inter- state Commerce Commission. The most important addi- tional powers, those authorizing the Commission to regu- late the capitalization of railroads and giving the Commission a large measure of control over intrastate rates, have been discussed in previous chapters. An im- portant addition to the rate making power of the Commis- TRANSPORTATION ACT OF 1920 521 sion was that it received authority to name minimum as well as maximum rates. Whereas before 1920 the Com- mission could only prescribe rates which the carriers should observe as a maximum, it may now prescribe the exact rates which carriers may charge for particular services. If rival carriers should now endeavor to engage in a rate war it is possible for the Commission to bring their de- structive competition to an end and require them to charge uniform rates sufficiently high to preserve their financial stability. The authority which the Esch car service act of April, 1918, gave to the Interstate Commerce Commission was somewhat amplified in the Transportation Act. The Com- mission may give orders with respect to the distribution of cars, and in time of emergency may exercise arbitrary con- trol over the car service of the railroads. The control of the Commission over railroad facilities was also extended by requiring the carriers to obtain from the Commission a certificate of public convenience before undertaking the construction of any extensions or branch lines. The Com- mission was given the power, in another amendment, to require one carrier to permit the use of its terminal facili- ties by another carrier, on such terms as the carriers may themselves agree upon, or in the event of a failure to agree, upon such terms as the Commission may fix as just and reasonable. The economies which the Railroad Ad- ministration achieved during the period of Federal con- trol by the unification of terminal facilities constituted the chief reason for giving the Commission this important power. There are many large shipping centers in the United States in which the railroad service could be greatly improved if the carriers would cooperate to a greater de- gree in the use of their freight and passenger terminals. In one important respect the authority of the Interstate Commerce Commission was curtailed. In the Mann-Elkins 622 RAILROAD TRANSPORTATION Law of 1910 the Commission was authorized to suspend proposed changes in rates for an initial period of 120 days, and then for a further period of six months, pending an investigation of the reasonableness of the proposed changes. In all the advanced rate cases from 1910 to 1917 the Commission consumed much time in reaching its deci- sions. The railroad managers protested against the delay. They were all strongly in favor of shortening the time of suspension, and most of them were in favor of depriving the Commission of the authority to suspend proposed changes in rates. While the Commission retains its power of suspension, the Transportation Act provides that the second period of suspension shall not be longer than thirty days. If the Commission finds it impossible to reach a con- clusion with respect to the proposed rates within 150 days, the rates go into effect. If the new rates increase the charges for the transportation of freight, the Commission may require the interested carriers to keep an accurate account of all amounts received by reason of any increase, and when a decision is reached, may order the carriers to refund, with interest, such part of the increased charges as may be found not justified. The membership of the Interstate Commerce Commis- sion was increased to eleven by the Transportation Act, and the salary of each Commissioner was advanced to $12,000 a year. The most important changes in the Interstate Commerce Act, other than those already mentioned, were a modifica- tion of the antipooling clauses in section 5, and a modifica- tion of the long-and-short haul rule of section 4. The legal- ization of pools was discussed in Chapter XIX. The prohibition against charging more for a short haul than for a long haul, on the same line and in the same direction, the shorter being included within the longer distance, with- out the express approval of the Interstate Commerce Com- TRANSPORTATION ACT OF 1920 523 mission, was continued, but certain limits were set as to the extent of discrimination permissible. As the law now stands the Commission may not permit the establishment of a charge to or from the more distant point that is not reasonably compensatory for the service performed; and if "a circuitous rail line or route is, because of such circuity, granted authority to meet the charges of a more direct line or route to or from competitive points and to maintain higher charges to or from the intermediate points on its line, the authority shall not include intermediate points as to which the haul of the petitioning line or route is not longer than that of the direct line or route between the competitive points." Furthermore, authority to charge more for the shorter haul than for the longer may not be granted on account of "merely potential water competition not actually in existence." On March i, 1920, the railroads were returned to their owners and private operation was resumed. The return did not take place, however, under favorable conditions. The rolling stock of the individual railroads had been dis- persed and scattered throughout the country; the proper- ties of many companies showed the results of undermain- tenance during the period of Federal control; the costs of operation were so high that notwithstanding the large amount of traffic hauled, most of the roads, both large and small, showed an operating deficit; and the railway labor- ers, whose wages had been increased but little in I9i9' were clamoring for higher wages to offset the increase in the cost of living. The financial stability of the carriers for the six months following March i was insured by the government guarantee, but it was obviously necessary that some provision be made for the time when the aid of the Federal Treasury would no longer be available. The most pressing problem at the time when Federal control terminated was the labor problem. During the later 524 RAILROAD TRANSPORTATION months of 1919 there had been several "unauthorized strikes" — strikes not called by the action of labor organ- izations — among certain classes of employees, who felt that their compensation was inadequate. These strikes had been brought to an end by the firm action of Director Gen- eral Hines, but the grievances of the workers had not been removed. In April, 1920, there was a recurrence of strikes in several large railway centers, so many men quitting work that the operation of the leading eastern railroads was crippled. On April 15 the Railroad Labor Board, created by the Transportation Act, was organized, and it proceeded at once to enter upon a hearing of the pending disputes between the carriers and their employees. On July 30 the Labor Board rendered its decision. Taking into account the fact that previous to 191 7 railroad wages had not ad- vanced so rapidly as the cost of living and that throughout 1919 there had been no substantial increase in pay, it or- dered a general advance in the rate of compensation of nearly all classes of railway labor. It was estimated that the decision added approximately $718,000,000 to the an- nual operating expenses of the carriers. Meanwhile, the Interstate Commerce Commission had undertaken its task of initiating such railroad rates as would enable the carriers to earn the "fair return" provided for in the Transportation Act. It was clear that it would be necessary for the Commission to make a general increase in rates and fares. After numerous hearings the Commis- sion handed down its decision on July 29. It assumed the value of the railroad property devoted to transportation to be $18,900,000,000 and endeavored to establish a body of rates which would yield a return of 6 per cent on this val- uation. Dividing the country into four rate districts — Eastern, Southern, Western and Mountain Pacific — the Commission ordered that freight rates be increased 40 per cent in the Eastern district. 25 per cent in the Southern, TRANSPORTATION ACT OF 1920 525 35 per cent in the Western and 25 per cent in the Mountain Pacific. It ordered that joint rates applying from any one district to another should be advanced 33)^ per cent. Passenger fares, excess baggage rates and rates on milk and cream carried on passenger trains were increased 20 per cent, and upon passengers traveling in Pullman cars a surcharge of 50 per cent of the Pullman fare was imposed, the revenues from the surcharge to accrue to the railroad companies. It was provided that the new rates could be put into effect upon five days' notice to the Commission and to the pubhc by the filing and posting of tarififs in accordance with the rules of the Commission. In nearly all cases the increases became effective before the end of August, 1920. The net revenues of the carriers were so small during the period of Federal guaranty that the Government became obligated to the railroads for an amount approximating $600,000,000. The operating ratio of the railroads as a whole during this period was about 95 per cent, the highest point it had ever reached. Notwithstanding the adverse conditions it was generally believed, when the period of Federal guaranty ended, that the railroads would enter upon a period of prosperity. The Commission had permit- ted a generous increase in rates, railway labor was satis- fied, and a steady increase in the volume of traffic handled during the summer had shown that the railroads had suc- ceeded in reestablishing their organizations and were im- proving steadily the efficiency of service. The favorable outlook proved to be of short duration. Had the volume of traffic continued to grow — or even had it remained undiminished — the increased rates permitted by the Interstate Commerce Commission might have yielded the fair return which the Transportation Act called for. Unfortunately for the railroads, the volume of traffic began to show a sharp decline. During the summer of 1920, the 526 RAILROAD TRANSPORTATION period of business expansion which followed the termina- tion of the World War, reached its peak, and a reaction set in. Prices began to recede, and business activity stead- ily declined. By the close of the year the United States was suffering from a general business depression which affected virtually all branches of industrial and commer- cial activity. Foreign commerce, which had been unusu- ally active since 1914, showed a marked decline, and domes- tic trade likewise was greatly contracted. Factories and mines curtailed their operations, building activity was checked, the demand for the products of the farms dimin- ished, thousands of laborers were thrown out of work. The result of the industrial depression was immediately reflected in a substantial decrease of the volume of rail- road traffic. For nearly five years the shippers of the United States had sufifered inconvenience because of a shortage of cars. The car shortage was now succeeded by a car surplus, which continued to grow until by May i, 1 92 1, more than 400,000 cars, nearly one-sixth of the freight car equipment of the railroads, were standing idle in the railroad terminals. The railroad managers did what they could to meet the adverse conditions which confronted them. They econ- omized on maintenance expenditures, spent as little as possible on new facilities, and decreased their working forces by dismissing thousands of employees. Despite all these measures of economy there was no perceptible im- provement in the railway situation during the early months of 1921. The total expenses of operation were reduced, but the reduction was much less than the decline in the gross revenues of the carriers. The unfavorable financial re- ports of the leading roads caused a steady fall in the value of railway securities; several roads, with records of unin- terrupted dividend payments covering long periods of time, were compelled either to reduce or to omit entirely their TRANSPORTATION ACT OF 1920 527 customary dividends ; it was manifest that if the gross rev- enues of the carriers could not be materially increased or the expenses of operation greatly reduced it would be only a question of time until many railroad corporations would be insolvent. An increase of gross revenues could be effected only by the enlargement of the volume of traffic carried at existing rates or by some readjustment of rates. With the general business situation such as it was there was small hope of an early advance in freight and passenger traffic. It was the consensus of opinion among railroad officials and ship- pers that railroad rates were already as high "as the traffic would bear," and any further advance in charges could not be seriously considered. In fact, it was the opinion in many sections of the country that freight rates were en- tirely too high, that the diminution of railroad traffic was caused in part by excessive charges. There was a disposi- tion in some quarters to ascribe the commercial depression to the increase in freight rates, but it was apparent that many other causes had contributed to the business reaction, which had begun, as a matter of fact, before the advance in railroad charges became effective. With little prospect of an early recovery of traffic the railroad managers turned their attention to paring down expenses by a readjustment of the wages paid to railroad employees. The nation-wide depression in business had brought about a marked decrease in the cost of living and also had forced a reduction in the wages of nearly all factory employees and farm workers. The railway executives felt that they were justified in seeking a reduction of labor costs commensurate with the reduction that had taken place in other branches of industry. The labor costs of operation constitute by far the larg- est part of the railroad expenses, and these costs in 1920 and 1 92 1 were proportionally much greater than they had been in any previous years. In part the high labor costs 528 RAILROAD TRANSPORTATION" were due to high wages, and in part they were due to "working agreements" adopted during the period of Fed- eral control, which resulted in the payment to several classes of labor of amounts entirely out of proportion to services rendered. Just before the termination of Federal control the Railroad Administration entered into several costly agreements with the shop workers, maintenance employees and clerical forces of the railroads. These agreements pro- vided for excessive payment for overtime work and estab- lished rules which frequently made it necessary to employ a half dozen men to do work which could easily be accom- plished by a single employee. They also eliminated all piece work in railroad shops, substituting in its place pay- ment by the hour. The result had been a material decline in the efficiency of shop service and a large increase in total maintenance costs. The railroad managers began an at- tempt, shortly after the period of Federal guaranty ended, to secure a modification of these working agreements. The Transportation Act had provided that the carriers and their employees might establish Adjustment Boards to consider all disputes not involving rates of wages. When the question of establishing such boards arose, the rail- road managers and the railroad labor unions differed as to the type of boards which should be created. The unions were in favor of National Adjustment Boards for the dif- ferent classes of workmen, while the railroad officials, mindful of the different conditions existing on different roads, desired Adjustment Boards for each railroad sys- tem, or at most, a number of regional boards. The oppos- ing groups failed to reach an agreement, and the Railroad Labor Board held that the question of what kind of Adjustment Boards should be created was not a question which it was authorized to decide. The result was that no Adjustment Boards were created. At the time the Railroad Labor Board held its hearings concerning the TRANSPORTATION ACT OF 1920 529 advance in wages, in 1920, the matter of continuing the national agreements was presented for consideration. In its decision of July 20 the Board declined to modify the agreements because there had been insufficient time for adequate consideration. It ordered that the national agree- ments be continued in efifect and announced that a further hearing would be held as to their reasonableness. The Labor Board entered upon a hearing of the dispute relating to the working agreements early in January, 1921. On January 31, the representative of the railway executives, asserting that the financial condition of the railroads was becoming so alarming that summary action was needed to prevent a general collapse, urged that the Board order all rules and working agreements entered into by the Railroad Administration to be terminated at once and that the rules in effect when Federal control began be reestablished. He also asked that the Board set aside its decision of July 20, 1920, as to what constituted reasonable wages for unskilled labor and substitute the prevailing rate of wages in the various regions served by any carrier. The Labor Board, in a decision issued February 10, declined to set aside the national agreements and substitute therefor the rules existing at the time Federal control began, on the ground that in its decisions it was bound by the terms of the Transportation Act to establish working conditions which in its opinion were just and reasonable. Since no evidence had been offered as to the reasonable- ness of the working conditions which the railway managers asked to have restored, it could not legally take the action urged by the cerriers. It likewise refused to order into effect a lower rate of wages for unskilled labor on the ground that it could not consider disputes over wages until the carriers had endeavored, in accordance with the terms of the Transportation Act, to settle disputes by conference with their workmen. No conferences had been held with 530 RAILROAD TRANSPORTATION respect to the reductions which the carriers asked on Jan- uary 31. After this decision was rendered the Labor Board con- tinued its hearing on the question of modifying the national agreements. The managers of the various railways called conferences with the various classes of employees and pro- posed to their workmen a general reduction of wages. In nearly all cases the workmen refused to accept the sug- gested reductions, and the carriers filed petitions with the Labor Board. On April 14 the Labor Board reached a decision on the question of working rules. It ordered that the national agreements adopted during the period of Federal control be abrogated on July i, 1921, and directed that before that time the carriers endeavor to negotiate with their employees a new and "reasonable" system of rules. The Board an- nounced that in case of the failure of the carriers to reach an agreement with their employees it would promulgate such rules as it deemed just and reasonable as soon as pos- sible after July i. In rendering its decision the Board laid down certain general principles for the carriers to follow in establishing new working agreements. It upheld the right of the carriers to maintain necessary discipline, rec- ognized the right of the employees to organize and carry on negotiations through representatives of their own choos- ing, declared that the laborers had a right to be consulted concerning any proposed change in rules or wages, ap- proved the principle of the eight-hour day, and urged the necessity of complete cooperation between workmen and employers. Following the decision on the question of working agree- ments the Board took up the numerous appeals which the carriers had filed concerning the reduction of wages. On May 17 the Board published a resolution declaring that it was necessary, and likewise just, both to the carriers and TRANSPORTATION ACT OF 1920 531 their employees, that some reduction be made in the pre- vailing rates of wages, basing its decision primarily upon the fact that there had been a material decline in the cost of living since it had given its wage decision the previous year. It did not at this time give a decision as to what reduction it considered reasonable, but on June i, an- nounced a new schedule of wages, to take effect a month later. The new schedule provided for a general reduction of about 12 per cent in the wages of railroad employees. The plight of the railroads became so serious during the early months of 1921 that Congress adopted a resolution providing for a general inquiry into the entire railroad sit- uation. This inquiry was due not only to the financial reverses of the carriers but also to a widespread demand among agricultural, lumbering, and mining interests that the level of railroad rates be reduced in conformity with the general decline of commodity prices. The Congres- sional investigation began in May, 1921. It is not unlikely that the investigation will result in further legislation for the purpose of improving the financial stability of the carriers. With declining costs of operation and with favorable prospects for a revival of general business prosperity the outlook for the railroads is considerably brighter than it has been at any time since the termination of Federal con- trol. But the transportation system will probably suffer for several years to come from the unfortunate conditions that it was subjected to during the war and during the period of reconstruction. The misfortunes of the railroads have been due in a large measure to the unwise financial policy of the Railroad Administration. There was no jus- tification for the Administration's policy of operating the railroads at a loss. While the war was in progress the costs of operation in all kinds of business mounted at a rapid rate, but in all industries except the railroad business. 632 RAILROAD TRANSPORTATION prices were advanced to such an extent that not only were the leading business establishments able to make large prof- its but they were able to accumulate a handsome surplus with which to tide over the initial stages of the period of reaction, when costs for a time were outrunning revenues. Instead of accumulating a surplus for the use of the rail- roads the Railroad Administration kept rates unreasonably low and incurred a deficit. When the railroad owners assumed control of their properties they were compelled to put railroad rates up, just at the time when prices in all other lines of business were coming down. This action had an unfavorable influence upon business, and it also was an obstacle to securing the consent of the railroad workers to necessary reductions in wages. Had railroad rates been advanced during Federal control to the same extent that commodity prices had been advanced, the Government would have suffered no loss; it would have accumulated a large fund to tide the carriers over during the period of business depression; it would have been possible to reduce rates in 1920 instead of advancing them ; the establishment of a lower wage level would have been an easier achieve- ment, and the reduction of rates would have had a stabi- lizing and perhaps a stimulating efifect upon business, whereas the advance of rates only tended to accentuate the business depression. It was a grave error to permit the current of railroad finance to run counter to the cur- rent in other branches of economic activity. To remove the efifects of this error it may be necessary for the Govern- ment to extend financial aid to the railroads by funding the obligations of the carriers to the government, or by making long-time loans bearing a low rate of interest. Whatever may be the trend of the railroad situation in the immediate future, it must not be supposed that the railroad system of the United States will be permitted to undergo physical and financial collapse. Of all the great TRANSPORTATION ACT OF 1920 533 economic activities of the country none is so indispensable as adequate transportation. The Transportation Act gives evidence that Congress is disposed to adopt a constructive policy under which the railroad business will become strong and prosperous, so that it can expand at a normal rate, maintain its credit, and serve the needs of the nation. The law has been in effect but a short time and conditions have been so abnormal that it is yet impossible to determine whether further legislation will be necessary. It would be unwise to make any radical changes until the present law has been adequately tested under normal conditions. REFERENCES United States Congress. House Committee on Interstate and Foreign Commerce, .Hearings on the Return of the Rail- roads to Private Ownership. 3 vols., 1919. Interstate Commerce Commission, The Interstate Commerce Act, 1920. (Contains all Federal laws for regulation of rates and services of railroads, including the Transporta- tion Act.) Johnson, Emory R. The Problem of Railroad Control. Politi- cal Science Quarterly, September, 1921. CHAPTER XXX THE COURTS AND RAILROAD REGULATION Laws are partly court made, 534. Function of the judiciary in railroad regulation, 536. Development of judicial review, 536. State rate regulation, 537. The relation of the courts to un- reasonable rates made by railroad companies, 541. Injunc- tions to prevent rate advances, 543. Injunctions to prevent rate wars, 544. Injunctions against secret rebates, 547. Injunctions and labor disputes, 548. The general law regarding strikes, 548. Injunctions to protect property and personal rights, 549. In- junctions compelling railroad employees to work, 550. Use of the injunction in the Debs strike of 1894, 551. Regulation of the use of the injunction by the Clayton Antitrust Act, 553. Railroad receiverships, 554. Railroad insolvency in the United States, 556. Causes of railroad insolvency, SS7- Objections to the present system of railroad receiverships, 559. Suggested changes, 560. References, 561. The function of regulating railroads is shared jointly by all three branches of the Government — the executive, legislative, and judicial. The scope and limits of the legislative powers of railroad regulation have been fixed by the courts, and the courts have so modified both State and national legislation as virtually to have shared with the law-making branch of the State legislatures and with Congress the exercise of legislative functions. Much law is accurately styled court-made, and this is particularly true of the laws regulating railways. This influence of the courts upon the laws regulating railways is strikingly illustrated by the decision of the Supreme Court in United States v. Trans-Missouri Freight Association (166 U. S. 290), in which the court decided 534 COURTS AND RAILROAD REGULATION 535 that the Sherman Antitrust law of July 2, 1890, ap- plied to railway companies, and made illegal the agree- ments of competing railway companies for the maintenance of reasonable rates. This law was not generally supposed to apply to railway rate agreements. Indeed, this view of the law was entertained by the United States Circuit Court and the Circuit Court of Appeals in the Trans-Missouri Freight Association case ; but the Supreme Court by a close decision — five judges approving, four dissenting — decided that the law of 1890 made unlawful all agreements between rival railroads for the maintenance of reasonable rates. The interpretation thus put upon the law by the Supreme Court compelled the reorganization of railway traffic asso- ciations, modified the methods of railway management, and gave a new phase to the governmental regulation of rail- roads. The division of the functions of government in the United States among its three branches — ^the legislative, executive, and judicial — while sharply drawn, is not complete. The legislature exercises executive functions, the executive par- ticipates in legislation, and the judiciary by interpreting and applying the laws validates or invalidates laws and restricts or widens the scope of legislation. The courts also cooper- ate with the executive in the enforcement of laws. The powers of the judiciary as regards transportation and all other subjects are derived from three sources : the or- ganic law of the constitutions, the statutory laws, and the common law. The national and State constitutions confer upon the judiciary the general power of inter- preting and applying the law, and enumerate the sub- jects over which the courts shall have jurisdiction. The powers over railways conferred upon the courts by State and Federal statutes are given in the three preceding chap- ters. The courts are required to assist the commissions. State and Federal, by compelling recalcitrant witnesses 536 RAILROAD TRANSPORTATION to appear and testify before those bodies; the State's at- torneys are the officers charged with the duty of prose- cuting the violators of laws for the regulation of rail- ways, and for prosecuting those who disobey or ignore the orders of the commissions ; the Federal statute of 1887 made the validity of the commission's orders dependent upon the decrees of the courts, and by doing this it made the courts what Congress had no intention of making them — joint investigators with the commission of the facts concerning transportation questions arising under the law. This was wisely changed in 1906. The power of railway regulation which the judiciary has in its equity powers is far greater than its statutory powers, and of much more significance to the public wel- fare. The authority which the courts have been given by statutes is definite and fixed, but the scope of equity jurisdiction, except where determined at certain points by law, may be extended at the will of the judiciary. Indeed, the rapid extension of the equity powers of the courts is the most characteristic fact of the past century's legal history. It has been in the exercise of their equity powers over three subjects that the courts have exerted their strongest influence upon governmental regulation of railways. Those three subjects are (i) the fixing of rates and fares by governmental authority; (2) the intervention of the govern- ment in railway labor disputes; and (3) railway receiver- ships or the management of insolvent railroads by the courts. A court has no authority to make railway rates but it has the power to unmake rates established by legislative authority. When either the State or the Federal Govern- ment makes an order establishing rates to be observed by the railroads, such an order may be set aside by an injunc- tion issued by a court of competent jurisdiction. State COURTS AND RAILROAD REGULATION 537 courts are confined to the consideration of rates on intra- state traffic only, but the Federal courts may determine the reasonableness of the rates made either by State or by Federal legislative authority. That is, the Federal judiciary has original jurisdiction over rate regulations established by Congress acting through the Interstate Commerce Com- mission, or by State legislatures acting directly by statutory requirements or through State commissions. The attitude of the Federal courts towards rates fixed by State law has had an interesting course of development. When the American States began to exercise the function of fixing rates, the railroad companies sought to prove that the railway companies alone, and not the State legis- latures, had the power to fix charges, and that if a shipper or passenger considered himself to have been overcharged, his recourse must be to the courts and not to the legisla- ture. In the famous "granger cases," decided in 1877, which were the first suits in which the right of the State legisla- ture to establish rates was questioned, the railroad com- panies claimed "that the owner of property is entitled to a reasonable compensation for its use, even though it be clothed with a public interest, and that what is reasonable is a judicial and not a legislative question." (Munn v. Illinois, 94 U. S. 114.) The reply of the court was: In countries where the common law prevails, it has been customary from time immemorial for the Legislature to declare what shall be a reasonable compensation under such circum- stances, or, perhaps more properly speaking, to fix a maximum beyond which any charge made would be unreasonable. . . . The controlling fact is the power to regulate at all. If that exists, the right to establish the maximum of charge, as one of the means of regulation, is implied. . . . We know that this is a power which may be abused ; but that is no argument against its existence. For protection against abuse by the Legislatures the people must resort to the polls, not to the courts, 538 RAILROAD TRANSPORTATION *" In another of the same group of cases {C. B. & Q. R. R. Co. V. Cwtts, 94 U. S. 15s), involving the validity of the Iowa law regulating railroad rates, the Supreme Court up- held the power of the State to fix charges and declared that railroads were subject to legislative control as to their rates and fares unless specifically protected by their char- ters ; while in still another case {Peik v. Chicago and North- western Rhvy. Co., 94 U. S. 164) the court upheld a Wis- consin statute which provided maximum charges not only upon the interior traffic of that State but upon interstate traffic entering and leaving Wisconsin.'^ The court again declared : Where property has been clothed with a public interest, tht legislature may fix a limit to that which shall in law be reason^ able for its use. This limit binds the courts as well as the people. If it has been improperly fixed, the legislature, not the courts, must be appealed to for the change. In the next important group of cases testing the validity of State laws for the regulation of rates, the Mississippi Railroad Commission cases (116 U. S. 307-347), decided in 1885, the Supreme Court declared that a charter which granted to a railroad company the power "from time to time to fix, regulate and receive the toll and charges" to be secured for transportation did not deprive the State of the right, within the limits of its general authority, to declare what rates should be deemed reasonable. But though upholding the power of a State to regulate transpor- tation charges the court made the following extremely significant observation : From what has thus been said it is not to be inferred that this power of limitation or regulation is itself without limit. ' This power to fix charges on interstate traffic was denied the States in the Wabash case of 1886 (118 U. S. 557). See p. 478. COURTS AND RAILROAD REGULATION 539 This power to regulate is not a power to destroy, and limi- tation is not the equivalent of confiscation. Under pretense of regulating fares and freights, the State cannot require a railroad corporation to carry persons or property without re- ward; neither can it do that which in law amounts to a taking of private property for public use without just compensation, or without due process of law. Five years later, in 1890, in the Minnesota Railroad and Warehouse Commission case (C. M. &■ St. P. R. R. Co. v. Minnesota^ 134 U. S. 418), the Supreme Court annulled as unconstitutional a Minnesota law which permitted a commission to establish railroad rates which were to be final, and forbade the courts to interfere with the orders of the commission. The court declared that "the question of the reasonableness of a rate of charge for transportation by a railroad company ... is eminently a question for judicial investigation, requiring due process of law for its determination." Four years later in the case of Reagan v. Farmers Loan and Trust Company (154 U. S. 362), the Supreme Court again asserted the right of the judiciary to pass upon the reasonableness of rates fixed by law, and sustained a portion of a decision of the United States Circuit Court for the Western District of Texas, which actually set aside certain rates established by the Texas Railroad Commission because they were so low as to violate the fourteenth amendment of the Federal Constitution which declares that no "State shall deprive any person of life, liberty, or property without due process of law." Another important assertion of its equity powers over railway charges was made by the Supreme Court in 1898. A Nebraska statute, passed in 1893, fixing "reasonable maximum rates to be charged for the transportation of freights," gave the railroad companies of the State the right to bring action in the Supreme Court of the State 540 RAILROAD TRANSPORTATION to test the reasonableness of the rates fixed by the legis- lature. If the court considered the rates to be unrea- sonably low and unjust, it could order the State Board of Transportation to raise the rates. The constitutionality of the law was soon tested. The railway companies took the ground that the rates fixed by the Nebraska statute were unreasonably low, and certain of their stockholders not citizens of Nebraska sued in the United States Cir- cuit Court for an injunction prohibiting the enforcement of the rates fixed by the State law, and such an injunc- tion was granted. It was claimed by the attorneys for the State of Nebraska that the Federal Court had no equity jurisdiction in the suit, because the statute had given the railroad companies an adequate remedy at law by granting them the right to appeal to the Supreme Court of the State for an order on the Board of Trans- portation to correct any unreasonable rate. The Federal courts, however, did not accept that view, and the Su- preme Court held that one who is entitled to sue in the Federal Circuit Court may invoke its jurisdiction in equity whenever the established prin- ciples and rules of equity permit such a suit in that court; and he cannot be deprived of that right by reason of his being allowed to sue at law in a State court on the same cause of action. (Smyth v. Ames, 169 U. S. 466.) The Supreme Court, moreover, affirmed the decision of the Circuit Court, and set aside the rates established by the Nebraska statute of 1893, because the court believed they were unconstitutional. By this decision the Supreme Court fully established the right of the Federal judiciary to invalidate rates pre- scribed by law. This right was reaffirmed and strengthened in the ex parte Young case of 1908 (209 U. S. 123), when the Supreme Court sustained an injunction issued by the COURTS AND RAILROAD REGULATION 541' Circuit Court for the District of Minnesota to prevent the Attorney General of the State of Minnesota from en- forcing a rate law of that State. The Supreme Court again declared that the reasonableness of a State-made rate was a Federal question which could be taken directly to the Federal courts for adjudication. On many occasions in recent years the Federal courts have heard cases in- volving the validity of rates established by law, and in so doing they have assumed an important position in the regulation of railway rates by the Government. With regard to passing upon the reasonableness of rates established by the railway companies, the courts have now but little to do, inasmuch as questions involving the rea- sonableness of railroad charges are now brought before State commissions and the Interstate Commerce Commis- sion. Formerly when carriers charged unreasonably high or extortionate rates a shipper had the right, under the common law, to sue in the courts for damages, and if such an action was brought it was necessary for the court hear- ing the suit to determine the question of the reasonableness of the rate charged. Theoretically, this privilege gave each individual protection against losses from excessive or un- just charges for railroad transportation, but in practice this protection was inadequate, because most persons preferred to bear an injustice rather than to assume the trouble, expense, and business risks that a lawsuit would involve. Furthermore, the business losses resulting from an un- reasonable rate are seldom covered by the excessive amount of the charge; the chief losses are those caused by the in- jury done to the complainant's business. A discriminating or unreasonably high rate may seriously cripple or ruin a shipper by diverting his business to a more fortunate com- petitor whose railroad charges are lower. One reason for the establishment of the State railroad commissions and the Interstate Commerce Commission was to provide a 542 RAILROAD TRANSPORTATION __ public agency whereby the aggrieved shipper or passenger might secure legal redress without undue expense or trouble. Though the Interstate Commerce Act provides that "any person or persons claiming to be damaged by any common carrier subject to the provisions of this Act may either make complaint to the Commission ... or may bring suit . . . for the recovery of damages ... in any district or circuit court of the United States of competent jurisdiction," the Supreme Court has wisely held that action for damages in a court, to recover losses due to an alleged unreason- able rate, will not be sustained until the commission has passed upon the question of the reasonableness of the rate complained of {Texas and P. Rlwy. Co. v. Abilene Cot- ton Oil Co., 204 U. S. 426). Were not this the practice of the courts a situation might easily arise in which the same rate would be held reasonable by the judiciary and un- reasonable by the commission. As the Supreme Court said in another decision {B. and O. R. R. Co. v. Pitcairn Coal Co., 215 U. S. 481), "any other view would give rise to in- extricable confusion, would create unjust preferences and undue discriminations, would frustrate the purposes of the act [to regulate commerce], and, in effect, cause the act to destroy itself." The Supreme Court has also held that mere negative orders of the commission are not subject to court review. That is, if a shipper complains that a rate is unreasonable and the commission, after full hearing, decides upon the evidence presented that the rate is reasonable, and dis- misses the complaint, the shipper has no right of appeal to the courts for a reversal of the commission's finding. If the courts should sustain an appeal under such circum- stances, they would be exercising the administrative func- tions which belong only to the commission {Procter & Gamble Co. v. United States, 225 U. S. 282; Hooker v. Knapp, 225 U. S. 302). COURTS AND RAILROAD REGULATION 543 While the Federal courts under the Interstate Com- merce law do not determine the reasonableness of rates established by the railroads, they nevertheless have exercised not a little control over the rate making practices of the carriers. For example, the courts have at times prevented the railroads from advancing rates. An instance of this occurred in November 1898, when the United States Cir- cuit Court at Denver, Col., issued a temporary injunction restraining the Southern Pacific and other railroads from putting into effect a proposed advance of 33 per cent in the rates on iron and steel from Colorado points to the Pacific coast. The application for this injunction was made by the Colorado Fuel and Iron Company, whose products were in part marketed on the Pacific coast. The reasoning of the court in this case states very clearly the inadequacy of legal processes for the recovery of damages resulting from unreasonable rates. Among other things the court said: If the rate shall be raised as proposed and complainant shall be excluded from the market, as stated in the bill will be the case, in case this notice is carried out, no compensation which can be obtained in damages would be adequate. It would be impracticable to show in an action at law what the losses resulting from such a procedure might be, and so it would seem that equity can afford the only adequate relief under such circumstances. The provision of the Mann-Elkins Act of 1910 giving the Interstate Commerce Commission the power to suspend proposed changes in rates, pending an investigation into their reasonableness, was framed to protect shippers from the danger of losses which would be incurred from increased rates which could be legally charged until declared unreason- able by competent authority. Just previous to the enact- ment of this law there had been a concerted movement among the eastern and western trunk line railroads to put 644 RAILROAD TRANSPORTATION into effect a general increase of rates. A temporary in- junction was issued against the western carriers, preventing the increase on the grounds that the simultaneous action of the railroads was a violation of the Sherman Antitrust law. Before the date set for the final hearing of the case the railroad companies withdrew the proposed schedules and legal proceedings were discontinued. The carriers probably feared that their traffic associations, through which their informal rate agreements are arranged, would have to be abandoned and the way thus prepared for entirely unrestricted competition. By withdrawing the pro- posed rates and permitting the discontinuance of the in- junction suits, the traffic associations were saved ; the Mann- Elkins Act gave the shippers more and better protection against increases in rates than could be secured in ordinary court proceedings. The courts have used their powers of injunction not only to prevent the railroads from charging excessive rates, but also to enjoin them from cutting rates. In preventing advances the courts have acted in the interests of shippers; in stopping rate reductions action was taken for the relief of the owners of the railway securities and of the ship- pers whose business might suffer. There is at least one instance of a rate war having been checked by injunc- tions of the courts. In July 1896 a controversy arose between the Seaboard Air Line and the Southern Rail- way Company, two corporations controlling a large part of the traffic of the southeastern section of the United States. The Seaboard Air Line began the rate cutting by taking one-third off its rates on traffic to those points south of Baltimore where it had to meet the competition of its rival. The Southern Railway Company met this cut, whereupon the Seaboard extended the cut to its traffic from Boston, Providence, New York, and Philadelphia to southern cities, and announced that if the Southern Rail- COURTS AND RAILROAD REGULATION 54S ' way should meet the cut a further reduction would be made in the Seaboard's charges. The reply of the Southern Railway to this challenge was the announcement of a cut of 80 per cent, to go into eifect 10 days later, August i, 1898. At this stage of the war the United States District Court of North Carolina, Judge Simonton, was asked to enjoin the contending roads from carrying out the rate reductions that had been announced. The prayer for this injunction was made by the receiver of the Port Royal and Augusta Railway, an insolvent company forming one of the connections of the Seaboard Air Line. The prayer was based on the plea that the threatened rate war would result in "the certain destruction of the railroad property in the hands of the receiver." The court appealed to granted a temporary injunction until the 15th of August, but on that date the injunction was not made permanent, be- cause some of the companies affected by the injunction were outside of the jurisdiction of the District Court of North Carolina. With the removal of Judge Simonton's injunction the rate war broke out afresh, but the Federal courts were again successfully appealed to. This time an association of merchants, the Wholesale Grocers' Association of Augusta, appealed to Judge Speer of the United States District Court of Southern Georgia, sitting in Augusta, for an injunc- tion against the railroads, on the ground that the low rates to Atlanta constituted an unjust discrimination against Augusta, Macon, and other cities, and violated section three of the Interstate Commerce law. Section twenty-two of the act passed in 1887 gives the district and circuit courts power to issue such an injunction as was asked for by the Augusta merchants, and on September 10 Judge Speer granted a temporary injunction, enjoining the railroad companies to restore the rate that had been in force September 5. The 546 RAILROAD TRANSPORTATION date for the hearing was fixed for the 24th. The Southern Railway Company restored its rates according to the order of the court, and the Seaboard did the same with its charges to some places. The Seaboard, however, had no line enter- ing Atlanta, and there was some doubt as to the extent of the jurisdiction of the court that had issued the injunc- tion; consequently, it did not restore its rates to all points. This difficulty as regards jurisdiction was settled by the issue of an injunction by Judge Hughes of the United States Circuit Court for the Eastern District of Virginia, sitting at Richmond. This injunction of the Circuit Court is the most sig- nificant of the three that have been mentioned, because it was issued to protect the owners of railway bonds. The complainants were the Baltimore Trust and Guarantee Com- pany and other financial institutions holding railroad bonds, who sued for an injunction on the ground that the rate war was destroying their property, and that they had no means of preventing that destruction by an action at law. Before the ist of October all rates were restored and the war was brought to an end. The courts did actually terminate a rate war, and did so by enjoining the rail- I'oads against charging rates that were unjustly low. One injunction was issued to prohibit illegal discrimination; the other two were to prevent the destruction of property. Inasmuch as the questions at issue in these cases did not reach the Supreme Court for adjudication, it was not finally settled that the Federal courts actually possess the power to declare rates unreasonably low as well as unreason- ably high, but that the courts do have this power is rendered very probable by the issue of the above injunctions by three different Federal courts. When the Mann-Elkins Act was passed it was suggested that the railroads be given the same protection against the unreasonable cutting of rates by rival lines as was given the COURTS AND RAILROAD REGULATION 547 shippers against unreasonable increases by the railroads. It was not until the Transportation Act of 1920 was passed that adequate provision was made to protect rail- ways from the effects of rate wars. This was accom- plished by giving to the Interstate Commerce Commis- sion authority to establish minimum as well as maximum charges. Another use of the equity power of the courts to con- trol railway charges has been to enjoin railroad companies from secretly cutting rates. It was found by the Interstate Commerce Commission at the close of 1901 that the rates on grain, grain products, and packing-house products were being secretly cut, and that the published rates were not being observed. The giving of secret rates was a criminal offense, and the United States Department of Justice was informed by. the commission that the Interstate Commerce law was being violated, but in this case, as in former in- stances, the Government was unable to enforce the criminal provisions of that law, because the persons who had knowl- edge of secret cuttings of rates were loath to give to the State evidence that might cause those who gave the special rates (often their own business acquaintances) to be sent to prison. Realizing that the reliance upon criminal prose- cutions for the prevention of rate discriminations would not secure the observance of the law, the Interstate Com- merce Commission applied to the Federal Circuit Court at Kansas City and Chicago in March 1902, to enjoin the leading railway companies of the central West to observe their published schedules of rates. Temporary injunctions were granted as requested; indeed, most of the railroad companies concerned were said to have welcomed the in- junctions, because the restraining orders of the courts would enable the companies to enforce their published rates. Rail- roads do not usually cut rates because they wish to, but because they think they must in order to secure or hold 548 RAILROAD TRANSPORTATION traffic. Arguments as to making the temporary injunc- tions permanent were not heard in Chicago until December igo2. The injunctions were allowed to stand, and the Elkins law of February 17, 1903, gave the courts definite power to issue such writs of injunction. Injunctions in Labor Disputes In connection with the disputes between labor and cap- ital, the equity powers of the courts have frequently been employed to protect the interests of one or the other of the contending parties or of the general public. By their intervention in railway labor controversies the Federal courts have exercised a regulative authority of consider- able importance over the railroad service. As the law in regard to striking has been interpreted by the American courts, railroad employees and other workmen have a right either singly or in a body to quit their employment at any time, provided they do not vio- late a contract in doing so, and provided they quit peace- ably, without violence, and without concerted actions in- tended to injure their employer or his business. It is permissible for laborers to refrain from working, and to advise and encourage others, by peaceable argument and persuasion, to quit their employment. A strike may be legal, but in many, if not most cases, the strikers are led to resort to illegal acts, because the succejs of the strike depends upon their preventing their employer from securing other men to fill the places of the strikers. To accomplish this, intimidation and violence are frequently necessary. In the case of railroad employees several exceptions have been made by State and Federal statutes to this gen- eral law of strikes. In order to prevent the loss of Hfe and the destruction of property, laws have been passed making it a penal offense for a locomotive engineer, conductor, COURTS AND RAILROAD REGULATION 549 brakeman, baggage-master, or other railroad employee to abandon his engine, car, or train when it is en route to its regular destination, or to injure or disable any enginp or car so that it will not be fit for immediate use. The courts have also held it to be unlawful for an engineer on one road to aid a strike against some other road by refusing to haul the cars of such connecting company. In numerous instances railroad companies and other employers have appealed successfully to the courts for thp issue of mandatory writs enjoining strikers from destroy- ing the property of the companies, from intimidating men to prevent their taking the places vacated by the strikers, and from doing such other acts as will render it impos- sible for the railroad company to perform its services to the public. In the past the courts have often made these injunctions very comprehensive, and have prevented persons not only from destroying property and using threats, intimidation, or force to induce men to quit the service of a railroad or not to engage in its employment, but also "from in any manner interfering with" the move- ment of the trains. Moreover, and, what is more impor- tant, these injunctions, instead of being directed against only those persons named in the bills, have included "all persons combining and conspiring with them, and all other persons whomsoever." Because of their wide scope, these writs have been popularly called blanket injunctions, and their purpose and ' effect have been to substitute for the punishments provided by the statutes against crimes the surer and speedier remedy of the mandatory processes of the courts sitting in the exercise of their equity powers. The courts may in some instances order railway em- ployees — while they remain in the service of their em- ployer — to perform their regular services. Such an order was issued in 1893 by a Federal court in connection with a strike on the Toledo, Ann Arbor and Northern Michi- 550 RAILROAD TRANSPORTATION gan Railroad. This railroad connects with the Lake Shore road at Toledo, and the engineers on the Lake Shore were ordered by their brotherhood not to haul the cars received from the Ann Arbor line. The Ann Arbor company, acting in accordance with the provisions of sections ten and twenty- two of the Interstate Commerce law, appealed to the courts for a mandamus to compel the Lake Shore to receive and haul the freight offered. The court granted the writ, and enjoined both the officers and employees of the roads con- necting with the Ann Arbor to receive and forward its freight. The court admitted the right of the engineers to leave the employment of the roads connecting with the Ann Arbor, but held that while the engineers continued in their employment they must handle the freight received from the Ann Arbor company. This ruling of the lower court was upheld by the Supreme Court. In refusing to haul the freight received from the Ann Arbor company the engineers of the Lake Shore and other roads were obeying a by-law of the Brotherhood of Locomotive Engineers re- quiring its members to refuse to handle the traffic from roads where an authorized strike was in progress. The Federal courts held this rule to be a violation of the anti- trust law of July 2, 1890, and the brotherhood was ordered to abandon the rule, which was done. In 1894 an order was made by Judge Jenkins of the United States Circuit Court, sitting in Milwaukee, en- joining the employees of the Northern Pacific (which road was then insolvent and was being managed by receivers appointed by Judge Jenkins) "from combining and con- spiring to quit, with or without notice, the service of said receivers." The purpose of the order was to prevent a threatened strike. This order was, however, overruled by the Circuit Court of Appeals, as was also an injunction, issued the same year, enjoining the employees of the Union Pacific Railway (then insolvent and in charge of receivers) COURTS AND RAILROAD REGULATION 551 from striking when the receivers should put into force an announced reduction of wages. There was much popu- lar opposition to these injunctions, and it is doubtless fortu- nate for the public that the lower court was not upheld in its endeavors to prevent men from striking or to compel them to work. A conspiracy in restraint of trade or commerce among the several States is made illegal by the antitrust law of 1890, and the obstruction of the mails is forbidden by Section 3995 of the United States Revised Statutes. The enforce- ment of these and similar laws is ordinarily accomplished by indicting and punishing those persons who may break the laws; but in extraordinary times, when a disregard of law is causing or threatening to cause loss of life, de- struction of property, or serious public inconvenience, • the courts may temporarily exercise their mandatory power of injunction to preserve order and insure the observance of the laws. This power was exercised by the Federal courts in a forcible and effective manner during the strike inaugurated at Chicago by the American Railway Union in July 1894, the so-called "Debs Strike." On the nth of May 1894 the employees of the Pull- man Palace Car Company, at the town of Pullman, near Chicago, went on a strike. These Pullman employees were members of a large organization of railway men, the Ameri- can Railway Union, whose president was Eugene V. Debs. On the 26th of June the Railway Union inaugurated a boycott against the Pullman Company by voting that no member of the union should handle Pullman cars. The purpose of this "sympathetic strike" was to tie up the railway business of the country, and thus to force the Pullman Company either to grant the demands of its striking employees or to agree to an arbitration of the grievances. The boycott had the effect of stopping the movement of passenger trains, and consequently the mails.. 552 RAILROAD TRANSPORTATION into and out of Chicago, and at other places in the United States. At Chicago, violence, disorder, the destruction of property, and the loss of Ufa followed soon after the strike began, and on July 2 the United States Circuit Court, Chief Justice Fuller presiding, issued an order en- joining Debs and the other officers of the American Rail- way Union, "and all other persons combining and con- spiring with them," and "all other persons whomsoever," from in any way interfering with the movement of trains or the transportation of the mails over the 23 railroads entering Chicago. This injunction was disregarded, and in accordance with President Cleveland's orders nearly 2,000 of the United States regular troops were sent into Chicago- between the 3d and loth of July to assist the courts in en- forcing their orders. The United States Marshal also em- ployed about S,ooo deputy marshals. There were in addition to these the police force of the city of Chicago and the 4,000 Illinois State militia ordered on duty between July 6 and 11. President Cleveland ordered the Federal troops to Chicago without being requested to do so by the Governor of Illinois, the troops being sent "to protect Federal prop- erty, to prevent obstruction in the carrying of the mails, to prevent interference with the interstate commerce, and to enforce the decrees and mandates of the Federal courts." The strike was broken by the exercise of military force and by the arrest and imprisonment of the leaders of the strikers, particularly the officers of the American Railway Union. These officers were attached and imprisoned on the 13th of July for contempt of court in disobeying the in- junction issued July 2. This action of the Federal Circuit Court was sustained by the Supreme Court, to which appeal was made by Mr. Debs and the other officers of the Ameri- can Railway Union. The courts made such large use of their power of in- junction to intervene in labor controversies of all kinds that COURTS AND RAILROAD REGULATION 65S popular indignation was often aroused. Labor organizationy long demanded legislation which would limit somewhat the activities of the courts, and due to their demand, and also to the insistence of many other organizations and individ- uals who felt that the courts had often gone too far in the exercise of their power of injunction, Congress included in the Clayton Antitrust Act of 1914 certain provisions for the regulation of the use of injunctions in labor troubles. The chief rules of the law governing the use of such injunctions are: 1. No preliminary injunction may be issued without notice to both parties. 2. No temporary restraining order may be granted with- out such notice unless it appears that an immediate and irreparable injury will result to the applicant before a hearing can be held. Such temporary orders expire in ten days, but may be renewed for good cause. Any party served with a restraining order issued without notice may^ upon two days' notice to the applicant, appear before the court and ask for the dissolution of the order, and a hear- ing must then be had. 3. Every restraining order or injunction must set forth fully the reasons for its issuance and indicate with reason- able definiteness the acts restrained. 4. No injunction or restraining order shall be issued in labor controversies unless necessary to prevent irreparable injury to the property of the applicant, for which injury there is no adequate remedy at law. 5. No injunction shall prohibit a strike, peaceful picket- ing, advising others to strike or boycott, assembling for peaceful purposes, or payment of strike benefits. 6. Disobedience of a restraining order or an injunction, if the act also is a criminal offense against Federal laws, shall be punished as contempt of court only after a jury trial if the defense demands it, except that contempt com- 554 RAILROAD TRANSPORTATION mitted in the presence of the court or disobedience of an order or injunction in a suit brought by the United States may be punished without a jury trial. 7. No action can be brought against a person for contempt unless begun within a year from the time of the act com- plained of. This law gives to strikers and others engaged in labor disputes ample protection against overhasty action by the courts, but at the same time it permits the courts to make use of their powers of injunction when necessary. The injunction, properly used, is an extremely powerful weapon for social defense ; only its misuse has caused it to be looked upon as an instrument of oppression. There are many cases of emergency in which it is the only means available of pre- venting acts of violence and disorder, which, if not antici- pated, would occasion loss of property and life, which no action at law could replace. Railway Receiverships When a railroad company becomes insolvent — ^when it cannot pay the interest on its debt or meet its other financial obligations — the creditors of the road may ask a court to take possession of the property. If the court grants the request of the creditors, the property is taken from the management of the directors and officers of the company and put in charge of an officer of the court called the receiver. If the company is not hopelessly insolvent the road will be operated by the receiver, who will cooperate with the creditors and the owners of the road in reor- ganizing the company and placing it on a solvent financial basis. If, however, the liabilities of the company are found to be so great as to make impossible a return to solvency by means of reorganization, the court will instruct the re- ceiver to sell the property for the benefit of the creditors; but whether the property is sold or not every effort will be COURTS AND RAILROAD REGULATION 556 made to keep the railroad in operation, because the value of the property invested in a railroad depends almost entirely upon what it can earn as a railroad. It cannot be used for other purposes. The foreclosure suit which the creditors institute against an insolvent railroad is seldom instituted to compel a sale of the property; indeed, the owners of the junior liens and the stock of the company are usually willing' to make considerable present sacrifice to prevent the dis- ruption of the property, because a reorganization of the company makes it possible for the subordinate liens and the stock to become valuable in the future. In order to secure the funds temporarily required to operate the road and to rehabilitate the property, the receiver borrows money by the sale of certificates which constitute a first claim on the property, outranking even the first-mortgage bonds. While the receiver is improving the property with the capital thus obtained, and is increasing the earning capacity of the road, committees representing the financial interests concerned are at work on a plan of reorganization. This plan usually involves an assessment on the stock, and some- times on the holders of the junior mortgages, and frequently requires the exchange of some of the bonds for stock and the displacement of some of the old bonds with a new issue bearing a lower rate of interest. The purpose of the changes is to reduce the capital charges so that the earnings of the road will be able to meet the fixed charges. When the court having control of the insolvent road is satisfied that a plan of reorganization has been worked out that will insure the solvency of the company, it accepts the plan and restores the property to the management of the stockholders. If the receivership has been successfully managed, the court has not only avoided selling the property under the hammer, but has put the road in a better condition for handling traffic. The total capitalization of the com 656 RAILROAD TRANSPORTATION pany may have been reduced, but that does not always Occur; it has sometimes been found possible to reduce the interest and other fixed charges while actually increasing not only the stocks but the indebtedness of the company. Usually in prosperous times most railroad companies are solvent, and the courts have charge of but a short mileage ; but in times of severe business depression the courts have operated a surprisingly large part of the railway systems of the country. The business panics of 1873, 1885 and 1893 were notable for the number of railway receiverships oc- curring, and the years of business stagnation, beginning in 1912, were marked by a recurrence of railway insolvency. During the 18 months ending July i, 1894, 43,000 miles of railroads — 24 per cent of the total mileage of the coun- try — were taken in charge by the courts. In some instances the duration of the receivership was only for a few months, but in other cases the roads were under the control of the courts for several years. From November 1893 until Novem- ber 1896, the number of miles of railroad in charge of receivers was at no time less than 20,000 miles, the maximum number of miles at any one time being 40,818. It was ilot until the spring of 1899 that the total mileage in the hands of receivers became less than 10,000. After that year the railroads became much more prosperous. On June 30, 1906, only 34 roads in the United States, with a total mileage of 3,971, were being operated by receivers. There was an increase to 10,000 miles during the depression in 1907-08, but the prosperous year of 1910 witnessed a reduc- tion of the amount to less than 6,000 miles, and by June 30, 191 1, the number of miles operated under supervision of the courts had declined to 4,593- On June 30, 1912, the mileage in the hands of receivers was 9,786, and it continued steadily to increase until in the summer of 191 5 it amounted to approximately 42,000 miles, or nearly 15 per cent of the mileage of the entire country. On January i. 1916, the COURTS AND RAILROAD REGULATION 557 number of miles in' bankruptcy was 38,661; the par value of the stock issued by the companies which had controlled these lines was $747,004,801, and the bonded indebtedness $1,607,895,500. The large number of railroad receiverships in the United States has been the result of several causes, of which the first and most potent has been overcapitalization. In many instances the original investment for the construction and equipment of the railroad represented but little more than the amount of first-mortgage bonds. The junior liens were frequently sold at a great discount, and the stocks were distributed as a bonus to the purchasers of the bonds. The securities other than the first-mortgage bonds were used as the inducement by which men were influenced to invest in the enterprise. The value of the stock and, to a large ex- tent, of the junior liens depended on the growth of the traf- fic of the railroad. Many roads were highly prosperous I almost from the start, and rapidly gave actual value to ithe fictitious capital. Other companies were not so fortu- nate. They found that their system of roads had been extended more rapidly than the growth of the country demanded, or that the completion of their lines was fol- lowed by a business depression which cut down their an- ticipated traffic and increased the difficulty of financing their enterprise, or they found that some other company followed them closely with a new and rival line. During the years from 1868 to 1873, and from 1880 to 1885, railways were constructed with great rapidity, particularly in the central and far western sections of the country, and , the tendency toward overcapitalization and specula- tion was excessive. Many companies found they had over- estimated the future increase in their traffic, that competition became keener and rates dechned faster than had been expected. The result was insolvency and the temporary management of the roads by the courts. Some railroads 568 RAILROAD TRANSPORTATION were built almost entirely for speculative purposes by per- sons whose object was to profit from the construction of the road. Such speculators built the line entirely with borrowed capital, made large sums from the construction contracts, and then permitted the insolvent road to pass into the hands of the security holders. The increase in the number of railway insolvencies begin- ning in 1912 was not due so much to overcapitalization by railway builders as to other causes. One reason for the unusually large mileage in the hands of receivers was that at least two extensive systems — the St. Louis and San Fran • cisco, and the Chicago, Rock Island and Pacific — comprising nearly 14,000 miles of line, or more than one-third of the -mileage in the charge of the courts, were wrecked by ths; financial mismanagement of their olificers and directors.' The receiverships which overtook several other lines, among which were the Pere Marquette and the Wabash, wen; likewise due in a large measure to unwise and ill-considered financial operation; moreover, it was a noteworthy fact that, with few exceptions, the important systems in the con . trol of receivers were located in the Southwest, a district long notorious for the speculative character of the manage- ment of its railways. In large part, however, the distresses of the railroads following 1912 were due to the falling off in the volume of traffic, which invariably accompanies a busi- ness depression, to the great increase in operating expenses occasioned chiefly by increases in wages and taxes and higher costs of materials and supplies, and to the inability of the railroads to raise their rates until they had secured the permission of governmental authorities in whose control the regulation of rates was vested. '/. C. C. Reports XXIX, 139; XXXVI, 43. See also E. R. Dews- nup, "Recent Financial Investigations by the Interstate Commerce Commission," in Annals of the American Academy of Political and Social Science, LXIII, January 1916, pp. 199-214. COURTS AND RAILROAD REGULATION 559 It is fortunate for the country that railways are not now so frequently projected ahead of business needs and that it has become more difficult for a new company to enter a field already occupied. There is also noticeable an in- crease of conservatism in railway financiering as the cor- porations become older and larger. The opportunity for the irresponsible speculator has been greatly narrowed, although, unfortunately, he has not been driven entirely from the field. The tendency toward overcapitalization is not so general as it was a few decades ago, though it seems still to be practiced, or else one must conclude that the same results that follow overcapitalization have been obtained through the improper manipulation of the securities of solvent lines. Railroads need the confidence of the public if they are to prosper. Unfortunately, the public does not usually discriminate between those railroads which deserve its confidence and those which do not, and it is for this reason, more than for any other, that the railways as a whole have not been accorded as generous treatment in recent years as they formerly received. When the specula- tor is driven from the railway business and cases of gross mismanagement become less frequent and less conspicuous, railway credit will be greatly strengthened both through the increase of public confidence and because of the improved methods of financial management of the railroad companies themselves. It has been urged against the present system of raiU road receiverships that they impose on the courts duties with which the judges are ordinarily not prepared to deal; that they confer on the judges too great power and too much patronage; that our present methods of reor- ganization of an insolvent company do not cure the evil of stock watering; and that reorganizations under the present plan are unduly expensive. Much, moreover, is made of the fact that the proceedings for receiverships 660 RAILROAD TRANSPORTATION are frequently instituted by the directors of the compa nies, or those friendly to them, for the purpose of pro- tecting themselves against the real creditors of the com- pany. It frequently occurs that when the directors or officers of a road see that the company is threatened with insolvency they will apply to a court for the appoint- ment of a receiver. In making the application the offi- cials usually suggest one of their own number, often the president of the company, as the person they would like the court to select for the receiyer, and as the judge knows he must secure the services of someone who is familiar with the affairs of the road, he is usually disposed to appoint the person recommended by the applicants. The term "friendly receiverships" has been applied to such a proceeding, and the 'practice is open tO' the objection of continuing in virtual control of the road the very person or persons under whose management the company has be- come insolvent. While the company is in the hands of the receivers it does not have to pay interest on the bonds, and money for the improvement of the road can be borrowed by the sale of certificates. As Prof. Henry C. Adams has said, the law of receivership was originally intended for the protec- tion of the creditor; but it has been used ... as a means of carrying the management of large properties through a period of general commercial depression without fear of interference from creditors or from interested parties ambitious of control. To prevent the objectionable results of friendly receiver- ships it has been suggested that a law should be enacted stipulating that the first receiver appointed by the court should be a temporary appointee, and that the permanen': receiver should not be selected until after the creditors of the company have had an opportunity to be heard. Some persons have advocated the establishment of a special COURTS AND RAILROAD REGULATION 661 Federal court for the management and reorganization of insolvent railroads. The judges in a special court would become experts, and as there would be but one court there would be no conflict of jurisdiction between different courts. It would be to the advantage of the existing courts to re- lieve them of the management of railroads. In times of prosperity the need for a special court is not especially ur- gent, but in periods such as that following 1873, or 1893, or 1912, when the number of applications for receiverships is very large, it would probably be of distinct advantage for the business to be looked after by a special Federal court. REFERENCES On the power of the Federal courts over railway rates consult : The "granger" decisions, 1877, particularly Munn v. Illinois, 94 U. S. 114, and Peik v. Chicago and Northwestern Rail- way, 94 U. S. 164. The commission cases, 1886 — Stone et al. v. Farmers Loan and Trust Company, 116 U. S. 307. The Minnesota case, 1890 — Chicago, Milwaukee and St. Paul Railway Co. v. Minnesota, 134 U. S. 418. The Nebraska Maximum Freight Rate case, 1898 — Smyth v. Ames, i6g U. S. 466. On the employment of injunctions in labor disputes read: Dunbar, W. H. "Government by Injunction," in Publica- tions of the American Economic Association, Economic Studies, III, No. i, 1898. Stimson, J. F. Labor in Its Relation to Law (1895), On railway receiverships consult: Swain, H. H. "Economic Aspects of Railroad Receiver- ships," in Publications of the American Economic Associa- tion, Economic Studies, III, No. 2, 1898. [A concise dis- cussion of the nature and functions of receivers, the history and statistics, the effects and the future of receiverships. The appendix contains a critical bibliography of sources of information.] 562 RAILROAD TRANSPORTATION Daggett, S. Railroad Reorganisation (1908). Ripley, W. Z. Railroads: Finance and Organisation (1915). Young, James T. The New American Government and Its Work (1915). Dewsnup, E. R. "Recent Financial Investigations by the In- terstate Commerce Commisison," in Annals of the Ameri- can Academy of Political and Social Science, LXIII, Janu= ary 1916. CHAPTER XXXI THE PROBLEM OF GOVERNMENT OWNERSHIP AND GOVERNMENT REGULATION IN THE UNITED STATES The twofold nature of the prohlem of government regulation, 563. The two methods of government control, 564. Government ownership a question of expediency, 565. The experience of one country not necessarily a safe guide of action in another, 566. Should the United States adopt a policy of government ownership? 567. Probable effect of such a policy upon the rail- Toad service, 567. Probable effect upon rates, 569. Socialization of rates and fares possible under government ownership, 571. Effect of government ownership on politics and government, 572. The success of government regulation in the United States, 573. Need for a constructive policy, 575. Refer- ences, 577. The problem of the government regulation of railways varies in its concrete manifestation from time to time, but the general problem is a permanent one. There are two parts to this permanent problem of government regu- lation of railroad transportation, two duties devolving upon the state. One is to adjust the relations of the carriers with each other; the other is to maintain an equitable re- lationship between the public and the carriers. The aim sought by the carriers is an increasing business at rates that will yield as large profits as can be obtained without interfering with the growth of traffic; the interests of the public served by the railroads require that the service shall be progressively efficient, that the charges shall be as stable as general business conditions warrant, and shall be neither unreasonably high nor unjustly discriminatory as between 664 RAILROAD TRANSPORTATION persons, places, or kinds of traffic. It should be the duty of the government (i) so to adjust the relations among the railroads that they are protected from unrestricted compe- tition, but at the same time so to supervise their cooperative activities that they may not make an unjust use of their quasi-monopoly privilege, and (2) so to adjust the rela- tions between the carriers and the public that adequate serv- ice is provided at equitable and reasonable rates. When railway transportation was in its earliest stage of development it was believed that the interplay of com- petitive forces and the struggle of rival interests would result in an equitable and satisfactory adjustment of the relations of the carriers with each other and with the public, but this belief was not borne out by experience. The history of railway transportation in all countries shows conclusively that the solution of the various phases of the railway problem cannot be accomplished without the interference of governmental authority in one way or an- other. The twofold problem presented to the government by the railway business may be dealt with in either one of two ways : the government may own and operate the railroads or it may intrust the business to private corporations and regulate by law the services and charges of these com- panies. The former method has been followed to a greater or less extent by the majority of countries, but the United States and in general the countries of North and South America have adopted the plan of private ownership and government regulation. Because of the very large mileage of railways in America, where private ownership has gen- erally prevailed, the mileage of privately owned roads in. the world is considerably greater than the state-owned mileage, but, excluding the railways of America, the mileage of roads owned and operated by government authority is greater than that controlled by private agencies. GOVERNMENT OWNERSHIP 565 Mileage of railways of the world owned by governments and by private corporations, igii—iQi2 Continent State Private Total Percent- age, State Percent- age, private Europe . . . America. . Asia Africa . . . . Australia. Total 107,663 12,190 36,710 11,478 18,027 99,632 314.693 26,581 11,412 1.235 207,295 326,883 63.291 22,890 19,262 519 3-7 58.0 50.1 93-6 48.1 96.3 42.0 49-9 6.4 186,068 453.553 639,621 29.1 70.9 The question as to whether the more satisfactory method of dealing with the railway problem is by government own- ership or by private ownership and government regula- tion has given rise to much controversy. Before entering upon any discussion of the relative merits of these two methods of railway control it may be well to say that the question is, for most people, not a matter of principle but solely a matter of expediency. This is not true for all persons, however, inasmuch as socialists, and others who believe in the ideas which socialists have with respect to the relation of the government to productive industry, look upon the question entirely as one of principle. To them government ownership of railways is a part of an ac- cepted political program, and no argument as to expediency in particular cases would be likely to induce them to abandon the general principle involved. Most people, however, be- lieve that the government should interfere with individual economic activity only to the extent that is necessary for the protection of the interests of society as a whole, and among such people the question of government ownership of railways is merely one of expediency. All will admit that the development of the railway business in every country has given rise to difficulties which have made neces- sary the interference of the government. Whether this in- 666 RAILROAD TRANSPORTATION terference should proceed to the extent of nationalization of the railways depends upon whether the railway problem in particular cases can be solved best by such a program, and whether the general interests of society would be best served by the adoption of such a plan. It must be borne in mind too in the discussion of this problem that the experience of one country is not neces- sarily a safe guide of action for the people of another country. The fact that government ownership has proved successful in Prussia is no reason for believing that it would prove successful in the United States, and the fact that private management failed in Italy offers no safe ground for the conclusion that it would have failed in Prussia. Each nation has its own peculiar social, economic and political conditions and the problems of each nation must be worked out on the basis of experience and with reference to its particular conditions of national life. For this reason it cannot be assumed that either method of railway control is the better method for all countries, nor can it be said with certainty that the time will ever come when all countries will adopt the same means of dealing with the railway problem. One thing, however, which seems reasonably certain, is that no country will find it permanently advantageous to have both private and government operation of rail- roads within the same region. The dual system of private railroads and government lines has been shown by the experience of European and other countries to be imprac- ticable. Private ownership and government regulation have been found to work successfully in certain countries; like- wise government ownership and operation have proven satisfactory in a number of countries; but the lesson of experience is that the success of government ownership depends upon the complete nationalization of railroads and upon the management of the nationalized system with refer- GOVERNMENT OWNERSHIP 567 ence to the furtherance of clearly defined political and economic ends. There are many persons who believe that as a matter of expediency the Government of the United States should acquire and operate the railroads of the country. Would it be wise for the people of the United States to bring about the adoption of this policy? In seeking for an an- swer to this question the point of chief importance to keep in mind is that the primary interest of the public in the railways is to secure adequate service at rates which are reasonable and equitable; and consequently the first ques- tions to consider are : Would the railways, if owned by the government, offer as adequate service as when operated by private agencies? And would the rates be any more nearly just and equitable? The adequacy of the service which railways offer depends upon the progressive improvement of all the railway equip- ment and upon the efficiency with which the lines are operated. If the Government of the United States owned the railroads, presumably the appropriations for improve- ments and extensions of the service would be made by Congress. When one considers the way in which public money has been distributed in the past for such purposes as the improvement of waterways and the construction of public buildings, there is small ground for hope that ex- penditures for railway improvement would be made eco- nomically or distributed wisely. It would be virtually im- possible to prevent the appropriation of money for im- provements, the chief purpose of which would be to cause the expenditure of government funds in certain districts. Political considerations might too often have more weight than the needs of the railways, and the leaders of the political party in power might insist that railway improve- ments should be made where they would be of most ad- vantage to the party. 668 RAILROAD TRANSPORTATION Moreover, there are few who believe that the opera- tion of the railways by the government would be as effi- cient as operation by private corporations. The stress of competition which acts as a constant incentive to greater efficiency in private business is absent in the administration of government affairs. While it cannot be said that either railway transportation or any other kind of productive ac- tivity in the United States has been carried on with as high a degree of efficiency as is possible and desirable, yet the administrative capacity displayed by government officials usually suffers in comparison with that of the officials of leading business corporations, and certainly there has been more rapid progress and improvement in the con- duct of private business than in the conduct of the af- fairs of the various governmental agencies of the United States. One way in which the efficiency of the railways would suffer under government ownership would be through the employment of a less capable and effective force of laborers and officials. Though most employees would be chosen by means of competitive tests under civil service rules and regulations, yet the temptation for political leaders to reward "deserving" members of their parties with official positions would probably be too great to be resisted; and either the railway service would be intrusted to the supervision of incompetent officials, or a large number of sinecures would be created for favored individuals, who would receive pay for the work done in a large measure by others much more worthy of recognition. The present methods of select- ing high-salaried postmasters and of choosing thousands of other employees and officials of the Federal, State, and local governments show that ability and fitness are only too often not given substantial consideration in appointments and elections. That it would be possible, under the present system of government in the United States, to eliminate GOVERNMENT OWNERSHIP 669 the political "spoils system" from a government railway service is difficult to believe. With regard to rates, the adherents of the policy of gov- ernment ownership claim that the government could avoid the expenses due to competition and to the maintenance of a large number of corporations, and that inasmuch as the government would not seek to make a profit out of the operation of the railroads, it would, therefore, be able to charge lower and more "reasonable" rates than are charged by the private corporations. Though the government would be forced to go heavily into debt to purchase the existing systertls, yet the rate of interest it would have to pay would be so low that, if the government continued to exact the rate of return now secured by the railroad companies, it would have not only enough to pay annual interest charges, but a surplus to contribute to a sinking fund by which the debt eventually would be extinguished. In this way there would be for a long time a constant and progressive reduction in rates. In such a calculation as this, however, it is assumed that operating expenses would be no more in proportion to operating revenues than they are when the railways are privately owned, that is, that the operation of the railroads by the government would be equally as efficient as operation by private corporations and that wages, costs of supplies, and other expenses would be equally as low under state as under private management. As has already been said there is good reason to doubt that the government would maintain the degree of efficiency reached by private corpora- tions. Moreover, it is a well-known fact that the govern- ment usually pays higher wages and exacts shorter working days than do the private corporations. However desirable this might be from a social point of view, the fact would remain that it would probably cause an increase in operat- ing expenses sufficient to prevent any decrease in rates.; 670 RAILROAD TRANSPORTATION in fact the increase might make it necessary to charge higher rather than lower rates. It is by no means certain that government operation would prevent discrimination in rates. Here again the influence of political considerations and the dominance of certain groups of economic interests would have telling effect. The history of tariff legislation in the United States reveals a continuous struggle among rival industrial interests and among different geographical sections for preferential treat- ment in the determination of import duties. If the nation is unable to apply scientific methods to tariff legislation, it is useless to suppose that a method of fixing railroad rates would be established in which satisfactory consideration would be given to all the varied economic interests of the country. In considering only the questions of service and charges it is diificult to avoid the conclusion that government owner- ship would be an unwise policy. There are, however, certain features of the problem of railway transportation, other than the question of service and rates, which must be taken into account in weighing the advisability of govern- ment ownership of railways in the United States. One ad- mirable feature of government ownership would be that the more or less speculative stocks and bonds of railway companies would be converted into sound investment se- curities. Railway securities would take the form of govern- ment 'bonds in which individuals, insurance and trust com- panies, and banks might safely invest surplus funds. It is certainly desirable that some method be devised to prevent such needless destruction of the value of securities as has been witnessed in recent years in connection with the man- agement of the New Haven, the Rock Island, and other railroads. The removal of railway securities from the field of speculation would unquestionably be one of the com- mendable results of government ownership. GOVERNMENT OWNERSHIP 671 It would be possible, if the railways of the United States were nationalized, to fix rates and fares with regard to the promotion of social progress. Under private manage- ment rates and fares are determined almost entirely by business considerations, and even when the government establishes "reasonable" rates and fares, which railroad corporations are required to observe, consideration is given chiefly to the cost of the service to the railroads and to the value of the service to the shippers, and seldom, if ever, to the social and economic needs of the nation as a whole. In foreign countries where state ownership prevails, passenger fares have been arranged with reference to increasing travel for educational purposes and to relieving the congestion of population in urban districts, freight rates have been adjusted to promote certain lines of economic development, and railroads have been constructed in furtherance of particular national policies of military defense or aggression. In the United States the primary objects kept in view in the determination of railway rates and fares have been the necessary income of the railroads and "what the traffic will bear." The general welfare of society, except as it has been affected by these considerations, has been given but little thought. It must be said, however, that in attempting to adjust freight rates for the purpose of promoting and encouraging particular industries, there would be an inevitable clash of interests which would, in all probability, result in discrimina- tions against the less powerful. Discriminations of this sort exist in Germany, and they would be even more likely to occur in the United States. The selection of the industries to be favored would be a political question, and while the choice might be that of the majority of the people, the resulting discrimination would not, for that reason, neces- sarily be just. Attempts to sociaHze passenger fares under government ownership would in all probability produce 572 RAILROAD TRANSPORTATION much better results than attempts to socialize freight rates. In dealing with the question of government ownership of railroads one must consider not only the effects which the adoption of such a policy would have upon the trans- portation business and its relation to the public, but must also look for the probable effects which the change would have upon politics and government. One of the immediate results of nationalization would be the increase in the number of government employees by nearly two million, most of whom would be voters. An effective organization of such a large number of voters would be able to exercise an overwhelming influence upon State and national politics. It might be said that such a statement would be equally true if the railroads were to remain under private man- agement, but it must be remembered that the incentive to exercise political power would be much greater if the govern- ment were to have entire control of the railroad business. The history of past efforts to deprive the interests in control of the railways of their power to exercise an unwholesome influence in politics should be sufficient warning against creating a force which would be even more powerful and equally injurious to public morality. Conditions which make it possible for a particular interest to become the immediate and direct beneficiary of a legislative program are an in- vitation to attempts to secure political favoritism. A great deal of the corruption of politics in the United States in past years has arisen because special interests have sought to exercise an undue influence on legislation, and because political leaders have often followed a course intended to attract, and sometimes even to compel, the support of sijch interests. Before one can finally dismiss as unwise the suggestipn that the Government should own and operate the railroads in the United States^ it is necessary to inquire whether GOVERNMENT OWNERSHIP 673 private ownership and regulation can show any better results than are to be expected should the policy of state ownership be adopted. Can the railway problem be solved by govern- ment regulation, and can it be solved without effects on the transportation service and the public equally as in- jurious as the effects which would probably follow railway nationahzation ? The policy of railway regulation was inaugurated in the United States because the public served by the railroads was being subjected to unfair and discriminatory treat- ment by the railway companies. The railroad interests uniformly opposed all endeavors which were made to regu- late their business by law, and it took nearly 20 years after the enactment of the Interstate Commerce law of 1887 for the Federal Government to establish a scheme of regu- lation by which adequate protection against unfair rates and practices was accorded to the general shipping and traveling public. It was during this period that govern- ment ownership of railways began to be discussed as the only possible means of escape from the situation. If it were impossible for the government to regulate the rail- ways under private ownership, the only alternative was for the government to own them. Eventually, however, the task of supplying suitable machinery for regulation was accomplished, and the right and power of the government to protect the public from discriminatory and unfair treat- ment by the carriers was completely demonstrated. Ade- quate protection against improper rates was obtained by the laws enacted in 1903, 1906 and 1910. The legislation of those years was strengthened by the Transportation Act of 1920. Moreover, in the law of 1920 Congress gave the Interstate Commerce Commission the authority to regulate railroad capitalization, in furtherance of the policy of pro- tecting the public interest against unfair railroad practices. There is no doubt that the public can secure adequate 574 RAILROAD TRANSPORTATION protection against unjust practices by the railroads as well by government regulation as through government owner- ship. Moreover, government regulation affords an effective means of correcting offensive discriminations and of pre- venting unduly high charges, without inviting the grave political consequences which would probably follow gov- ernment ownership. In no important particular does gov- ernment ownership offer advantages not now secured un- der government regulation, unless it be in the matter of the socialization of rates and fares. While an adjustment of rates and fares with a view to promoting certain social changes instead of for the purpose of meeting the financial needs of the carriers might be highly desirable in many respects, it is doubtful if the practice would compensate for the disadvantages which the policy of government own- ership would entail. But while government regulation has afforded an ade- quate means of protecting the public against unjust action by the railway companies, does it offer an effective solution of the other phases of the transportation problem which confronts the government? It must be remem- bered that this problem is twofold, involving the regulation of the relations between the carriers themselves and the regulation of the relations between the public and the carriers. As has been pointed out in the chapters discussing rail- way regulation in the United States, the railway laws, both State and Federal, previous to 1920, were framed with the one idea of affording the public protection from the unfair methods employed by the railroad companies in adjusting charges and services. Laws for the regulation of the rela- tions between the carriers and the public contained provi- sions designed to prevent the railroads from charging un- duly high and discriminatory rates ; little thought was given to the fact that in establishing equitable relations GOVERNMENT OWNERSHIP 575 between the carriers and the public, it was equally impor- tant that the carriers should not be prevented from charg- ing rates which would provide an income large enough to permit the maintenance of efficient service and to invite the investment of new capital. In regulating the relations between carriers the early laws were framed to prevent combination and cooperation of competing lines, with the idea of protecting the public from monopoly; no recogni- tion was given to the obvious historical fact that competi- tion and not cooperation had been the source of the most important features of the railway problem, and that in the regulation of the relations among the carriers the greatest interest at stake was that of the carriers and not of the public. In a word, the point of view of those who framed the laws for the regulation of railroads in the United States before 1920 was one-sided; it was this fact which caused most of the confusion, complexity and inadequacy of the former methods of regulation. It must be said, however, that there was much justifica- tion for this point of view. As long as the railroad inter- ests strenuously opposed the efforts made to correct condi- tions which were obviously a source of injustice, there was unquestionably a need for regulation directed against the railways. There can be no doubt whatever that the most vital phase of the railway problem in the United States has been the need of compelling the carriers to accord just and equitable treatment to all their patrons. It was appar- ently forgotten that there were other factors of the problem. These forgotten factors eventually came to occupy the posi- tion of chief importance in the railroad problem. The failure of legislators to grasp the problem of railway regu- lation in its entirety resulted in the enactment of laws based upon false theories and in the adoption of methods of reg- ulation, the value of which was open to serious question. The passage of the Transportation Act in 1920 was a be- 576 RAILROAD TRANSPORTATION lated recognition of the inadequacy of previous legislation. This law should do much to remove the objections to the former railroad policy. While it seems clear that government regulation rather than government ownership is to be, and ought to be, favored in the United States, it is equally apparent that the past methods of regulation have not been entirely sat- isfactory. Whether the policy embodied in the Transporta- tion Act will prove adequate to the needs of the country remains to be seen. In other words, public regulation is still on trial, and until it proves completely successful, the alternative of government ownership, regardness of its con- sequences, it not impossible. The fact of pressing impor- tance is that adequate railway transportation is absolutely necessary to the prosperity of the country, and if it cannot be obtained under private ownership other methods must be tried. If government regulation retards railway prog- ress or results in retrogression rather than advance, either it must be modified and adapted to suit the needs of the country, or private ownership of railways must be dis- continued. It is most unlikely, however, that government ownership will come in the near future. Government regulation has by no means been a failure. It has accomplished a great amount of good, but it has not been an unqualified success. Congress, in its recent legislation, has shown a disposition to work out a con- structive policy which will permit the continuance of pri- vate ownership under conditions in which the interests of both the public and the railroads will be properly conserved. The retention of private ownership, under adequate regu- lation, seems a far wiser policy, at least for the immediate future, than for the Government of the United States to attempt the enormous and even dangerous task of pur- chasing and operating two-fifths of the railway mileage of the world. GOVERNMENT OWNERSHIP 57T REFERENCES Dunn, S. O. Government Ownership of Railways (1913). Johnson, E. R. Elements of Transportation, chap, xviii ( 1909) . Lewis, D. J. Railway Nationalisation. (Senate Doc. No. 53, 56 Cong., I sess., 1900.) Library of Congress. A List of Books Relating to Railroads in Their Relation to the Government and the Public (.1907). . Select List of Books on Railroads in Foreign Coun- tries; Government Regulation (1905). Bureau of Railway Economics. List of Publications Pertain- ing to Government Ownership of Railways (1914). QUESTIONS AND TOPICS IN PRINCIPLES OF RAILROAD TRANSPORTATION QUESTIONS AND TOPICS IN PRINCIPLES OF RAILROAD TRANSPORTATION INTRODUCTION— DEFINITION AND SCOPE OF TRANS- PORTATION Define transportation. Distinguish the transportation system from the service. The three purposes of the study of the transportation service. Define transportation economics. Define economics or political economy. How may the place of transportation economics in political economy be explained? Define production, Intrinsic utility, place utility. Justify the statement that transportation is a part of the process of production. Explain how production is influenced by consumption. How is the consumption of wealth affected by transportation development ? Define commerce, and state the relation of transportation to commerce. Of what three factors is wealth the product? What is the income from each factor? What two kinds of rent are there? Which is determined by transportation facilities ? What is the twofold relation of transportation development to interest? How does transportation development affect real wages? What transportation facilities are provided by the government? Is the railroad company a public corporation or a private cor- poration? Is its service of a public or a private nature? What is meant by "a service of a public nature"? In what sense is the study of transportation a part of the study of political science? 581 582 QUESTIONS AND TOPICS II ORIGIN OF THE AMERICAN RAILROAD I. Development of Highways 1. Why did highway improvement come later in the United States than in Europe? 2. What local governments constructed the early highways in New England ? In the middle States ? In the South ? 3. Why were toll roads called "turnpikes"? 4. When did turnpike companies begin road construction? What is a turnpike company ? 5. Give an account of the Lancaster Pike. 6. The extent of turnpike construction in Pennsylvania. 7. Give the history of the Cumberland Road or National Pike. 8. Why did the Federal Government stop constructing and later stop aiding road building? 9. When did the States take up the work of road building? 10. Why did the States abandon highway construction? 11. The "good roads" movement beginning about 1890. 12. Present highway policies of the States. 3. Development of Inland Waterways 13. Beginning of the agitation for improvement of waterways; Washington's connection therewith. 14. The two purposes of early canal systems: (a) to connect an- thracite coal fields with the seaboard ; (b) to connect the At- lantic seaboard with the Great Lakes and Ohio River. 15. The anthracite tidewater canals: Lehigh Navigation; Dela- ware Division Canal (Bristol to Easton) ; Schuylkill Navi- gation; Delaware and Hudson Canal (Honesdale to Ron- dout) ; Morris Canal (Easton to New York Harbor) ; Dela- ware and Raritan Canal (Bordentown to New Brunswick) ; Susquehanna and Tidewater Canal. 16. The canals connecting the East and the West: Erie Canal and other New York canals. Pennsylvania public works. Chesa- peake and Ohio Canal. 3. Origin of the Railroad 17. The industrial revolution inaugurated by the locomotive. QUESTIONS AND TOPICS 683 i8. The Quincy tramway. 19. The invention of Stephenson's "Rocket." The two mechanical features that made the Rocket a success. 20. The beginning of the Baltimore and Ohio Railroad. 21. Beginning of the New York Central. 22. The Camden and Amboy, and the Philadelphia, Wilmington & Baltimore. 23. The early lines in New England. 24. The Charleston and Hamburg Railroad. 25. The Columbia Railroad. 26. The origin of the Reading Railway. 27. Discuss the relative value of highways, waterways, and steam railroads as means of transportation. 28. Would it be a wise policy for the United States Government to construct a comprehensive system of artificial waterways in the territory east of the Mississippi River? Ill GROWTH OF THE AMERICAN RAILROAD NET 1. Reasons for studying the railroad net. 2. Where were the railroads of the first ten years of construction located? Cities from which they radiated. 3. Characteristics of the period of 1840 to 1850: a. Slow growth from 2,818 to ftoai miles. Reasons. b. Most construction still along the Atlantic. c. Beginning in the middle West. d. Feasibility of railroads as freight carriers not fully recognized. e. Advance of technical knowledge not rapid during the decade. 4. The period from 1850 to i860: a. Rapid growth from 9,021 to 30,626 miles. b. Reasons for rapid growth: (i) An era of industrial growth; (2) westward expansion; (3) larger use of farm machinery; (4) California gold discovery; (5) public land grants; (6) a decade of speculation. c Where was construction most active? d. Beginning of railroad consolidation. e. The consolidations by which the New York Central system was established. 584 QUESTIONS AND TOPICS f. Early history of the Pennsylvania Railroad. 5. Period of the Civil War to 1890: a. Where was the bulk of railroad construction? b. Great rapidity of construction from 1868-1873 (28,000 miles) and 1880-1890 (90,000 miles). c. Interruption caused by panic of 1873. d. Large Federal land grants. e. What was the effect of government land grants? f. What and when was the first transcontinental rail- road constructed? Reasons for the building of this line. Difficulties encountered, g.- Atchison, Topeka and Santa Fe. h. Northern Pacific, i. Great Northern, j. Other transcontinental lines, k. Construction in the South. 6. Period 1890 to 1900. What were the reasons for the decreased rate of construction? 7. Construction since igoo. 8. How does the mileage in the United States compare with that in Europe? 9. How does the capital invested in railroads compare with that of other industries? 10. What will be the probable trend of future railway construction in the United States? 11. Why is railroad construction more expensive now than in former years? IV THE MECHANISM OF THE RAILROAD— DEVELOPMENT OF TRACK AND LOCOMOTIVE 1. Early track construction in the United States. 2. The development of the railroad rail: a. Form and material. b. Weight and length. c. Methods of manufacture. 3. The railroad crosstie : a. Leading kinds of wood used. b. What has prevented the extensive use of- metallic ties? c. Leading methods of tie preservation. QUESTIONS AND TOPICS 585 4. Ballast: purpose; chief materials. 15. E^rly history of the locomotive in the United States. 6. What were the chief early improvements in locomotives made by American inventors? 7. The American type of locomotive. 8. The development of other types. 9. Classification of locomotives. 30. What are the leading types of locomotives used in freight service? In passenger service? 11. What are the advantages of the compound locomotive? 12. Why has the compound locomotive not been used extensively in the United States? 13. The superheater. 14. The weight of modern locomotives. 15. What are the chief advantages of heavy locomotives? 16. What types of locomotives are used for freight and passenger services on the railroads with which you are most familiar? 17. Why are switching locomotives usually constructed without truck wheels? THE MECHANISM OF THE RAILROAD (Concluded)~THE CAR, TERMINAL AND OPERATION 1. The development of the passenger car. 2. Leading types of passenger cars. 3. Advantages of the steel passenger car. 4. The development of the air brake. 5. The development of the freight car. 6. How are freight cars specialized? 7. What are the advantages of large freight cars? 8. What are the essential parts of a passenger terminal^ 9. The chief features of a passenger station : a. Train shed and tracks. b. Concourse. c. Waiting rooms. d. Ticket and baggage offices. 10. The freight terminal : a. Freight houses, team tracks, industrial sidings. b. Freight yards. c. Transfer house. 686 QUESTIONS AND TOPICS 11. Locomotive terminal facilities. 12. The electric telegraph and train operation. 13. The science of signaling. 14. The substitution of electricity for steam as motive power on railroads. In what fields of steam railroad service can electricity be most advantageously used as motive power? 15. Why is the problem of electrification of steam railroads likely to become of great importance? 16. What influence have specialized freight cars had on economic development in the United States? 17. How do European passenger cars differ from those used in the United States? VI THE PRESENT RAILROAD SYSTEM OF THE UNITED STATES 1. Into what three and into what seven territorial groups may the American railroad system be divided? What are the characteristics of each? 2. What is meant by "community of interest" and what is its effect? 3. What are the leading purposes of consolidation? 4. What are the leading methods of consolidation? 5. Where and what are the leading constituent lines of the Van- derbilt system? 6. Where and what are the leading constituent lines of the Pennsylvania system? 7. Where and what are the leading constituent lines of the Morgan system? 8. Where and what are the leading constituent lines of the Hill system? 9. Where and what are the leading constituent lines of the Union Pacific- Southern Pacific system? 10. Other leading railroad systems. 11. What relation is there between the consolidation of rail- roads and the territorial groups? 12. Present tendencies in railroad consolidation. 13. What are the two methods of measuring the supply of railway facilities ? 14. How do the railroad facilities of the United States compare with those of Europe? QUESTIONS AND TOPICS 587 15. Is the United States adequately supplied with railroad facili- ties? 16. Would it be a wise policy to permit complete territorial consoli- dation of railroads? VII THE RAILROAD CORPORATION AND ITS CHARTER 1. Define a corporation. 2. Distinguishing features of a corporation; a partnership; a lim- ited partnership; a joint-stock association. 3. Organization and officers of the corporation. 4. Distinction between the private and the public corporation. 5. The railroad company is a private corporation created to per- form a service of a public nature — i. e., the railroad company is a quasi-public corporation. 6. How does Elliott characterize a railroad corporation? 7. The services and charges of all transportation companies are subject to public control. The reasons why this is necessary. 8. The legislative power of the States over railroads. 9. The power of the State courts over railroad charges. ID. The legislative power of the United States over railroads. 11. The scope of the power of the Federal courts over railroad charges. 12. The extension of the powers of the Federal Government re- sulting from the regulation of railroads. /3. What is a charter? What pov^ers have the United States and the States, respectively, to charter railroad companies? 14. Early efforts to regulate railroads through charter provisions, and results. 15. What is "the railway question"? What accounts for the existence of this question? 16. Is compulsory Federal incorporation of railroads desirable? 17. The distribution of the shares of railroad corporations in the United States? 18. Account for the fact that the control of railroads is being steadily concentrated in the hands of a small number of men, while the holding of shares is being more widely dis- tributed. 19. When is a railroad insolvent? 20. What are the aims sought to be accomplished by placing a railroad in the hands of a court? 588 QUESTIONS AND TOPICS 21. What are "friendly receiverships"? 22. Which type of business organization is most suitable for con« ducting the railroad business? Why? VIII RAILROAD CAPITAL 1. Define railroad capital and state why bonds are included? 2. What are the various classes of railroad bonds. Define each. 3. What are the various classes of railroad stock? Define each. 4. What is the extent of American railroad capital at present? 5. To what extent are railroad securities distributed among the investing public? 6. How does the capitalization of railroads in the United States compare with that of British railroads? Why? 7. What is "watered stock"? 8. What are the motives for stock watering? 9. What are the methods of stock watering? 10. What is the work of the railroad promoter? 11. What is the work of the security "underwriter"? 12. What are the objections to stock watering? 13. Discuss the various views as to the proper basis for railroad capitalization. 14. How is railroad capitalization regulated in Massachusetts, New York, and Pennsylvania? 15. What ought to be the policy of the States as regards the regulation of the issue of railroad bonds and stock? 16. The report of the Hadley Commission upon Federal regula- tion of railroad securities. 17. Federal regulation of railroad capitalization. 18. Give an account of the financial history of some railroad. IX EARNINGS, EXPENSES AND DIVIDENDS 1. What are the railroad company's sources of revenues? 2. What share of total revenue is derived from passenger serv- ice? From freight service? 3. What are the principal classes of operating expenses? 4. Show what calculations must be made to ascertain the net in- come of a railroad. QUESTIONS AND TOPICS 689 5. Income statement of the railroads considered as a single system. 6. The ratio of operating expenses to income from operation, or the operating ratio. Its significance. 7. Why do a third of American railway stocks yield no dividends? 8. Compare and explain the curves of fluctuations in freight revenue and operating expenses. (Chart.) Also the curves of gross earnings from operation and net income available for dividends. 9. Growth in freight train load since 1898. 10. Growth in volume of traffic during same period. 11. Freight rates since 1898. 12. Effect on the prosperity of railroads of increased efficiency in operation, of growth of traffic, and maintenance of rates and fares. 13. Recent relationship between gross earnings, expenses and net income. 14. Read the income statement of a particular railroad. What is the operating ratio of the road? X THE FREIGHT SERVICE— FREIGHT CLASSIFICATION 1. Why is the freight service of greater economic and social importance than the passenger service? 2. Statistics of freight service for year : a. Total tons reported . b. Less duplications . c. Ton-mileage d. Number of freight cars e. Freight and switching locomotives Character of freight traffic for year a. Products of agriculture per cent. b. Products of animals per cent. c. Products of mines per cent. d. Products of forests per cent. e. Manufactures per cent. f. Merchandise per cent. g. Miscellaneous per cent. 690 QUESTIONS AND TOPICS 4. What is meant by "freight classification"? Why is it nec- essary? 5. Discuss the origin and development of classifications. 6. Name the three leading freight classifications of the United States and indicate the territory in which each is used. 7. The minor classifications. 8. The consolidated classification. 9. Why is the number of "ratings" larger than the number of items ? 10. Why do goods shipped in carload quantities receive lower ratings than when shipped in less-than-carload quantities? 11. What is meant by "carload minimum"? What is the general carload minimum in each of the great classification districts? 12. Who makes the freight classifications? 13. What are some of the factors which determine the classification of an article? 14. What is a "commodity tariff"? 15. What is meant by "uniform classification"? Discuss the work of the uniform classification committee. 16. The railroads of Great Britain have a uniform classification. Why has it been impossible to secure uniform classification in the United States? 17. Distinguish between "local" and "interline'' freight. 18. Distinguish between "class traffic" and "commodity traffic." 19. How does a freight agent ascertain the rate for a particular shipment of traffic? XI THE FREIGHT SERVICE— BUSINESS ORGANIZATION 1. Freight shipping papers : a. Bills of lading: straight, order, export, live stock contract. b. Waybills : local, interline, card. c. Arrival notice, delivery receipt, freight bill. 2. What is the extent of a railroad company's liability for lost or damaged freight? 3. Describe the system of "unit billing." 4. Describe in detail how a freight shipment is cared for from shipper to consignee. QUESTIONS AND TOPICS 591 5. What is "fast freight"? 6. Demurrage, track storage charges, reciprocal demurrage. 7. Give an account of the origin and development of "fast freight lines.'' 8. Describe the present methods of handling through freight. 9. Upon what basis does a railroad company pay for the use of cars belonging to another company? 10. Describe the work of the car record office. 11. How do American railroad companies settle their accounts with one another? What system is employed by British railroads ? 12. Private cars and car lines: origin, development, and present services. 13. What have been the chief objections to private car lines? 14. Why is it necessary for railroads to charge demurrage? 15. Describe the operation of a clearing house for banks. 16. What would be the advantages of a railroad clearing house? XII THE PASSENGER SERVICE Statistics of passenger traffic for year a. Number of passengers carried . b. Passenger miles . c. Receipts per passenger per mile . d. Passenger revenue per train mile . e. Freight revenue per train mile . f. Average length of passenger journey . g. Average number of passengers per train . 2. What are the leading differences between the passenger and freight services? 3. How do American railways compare with European railways as to frequency of travel? 4. How are the passenger services classified in England and Germany? To what extent are the various classes used? 5. Classification in the United States: Pullman service, first-class, and irregular services, such as the excursion, immigrant, colonist and second-class services. 6. Describe the railway immigrant service. 592 QUESTIONS AND TOPICS 7. What are the relations between the Pullman Company and the railroads? 8. Why do most railroads rent instead of own their sleeping and parlor cars? 9. What are the leading types of passenger tickets? 10. Outline the method of handling baggage in the United States. 11. How is baggage handled in England and continental Europe? 12. What are the chief methods of developing the passenger business ? 13. What advantage has the electric over the steam railway? 14. Describe some recent additions to the conveniences of Ameri- can passenger service with which you are familiar. 15. What is the volume of the passenger traffic of some of the leading railroads of the United States? XIII THE EXPRESS SERVICE OF THE RAILROADS 1. What traffic is shipped by express? 2. General relation of express and freight traffic. 3. History of express business. 4. History of the American Railway Express Company. 5. Classification of express traffic. 6. Express rates. 7. Business organization of the express company. 8. Express shipping papers. 9. Volume of express traffic. ID. Contractual relations between the American Railway Express Company and the railroads. 11. Government regulation of express companies. 12. Compare the express service with the parcel post service. 13. Should the railroads develop their fast freight services and collect and distribute parcels at city terminals? XIV THE MAIL SERVICE OF THE RAILROADS 1. How is mail matter classified in the United States? 2. What are "star routes," mail messenger routes? QUESTIONS AND TOPICS 693 3. Mail routes in the United States in -: Number Mileage a. Railroad b. Steamboat c. Star 4. Describe the parcel post rate system. 5. Describe the introduction and present use of "railway post- office cars." 6. What is the "fast mail service"? 7. Which class of mail contributes the greatest part of the total weight of mail carried? Which class yields the most revenue ? 8. What are the mail services performed by the railroads and required by the Post Office Department? 9. How are the railroads paid for their mail services? ID. How is the rate of pay determined? 11. Reductions in mail pay in 1906 and 1907. Increase for parcel post service in 1913. 12. Postal revenues and expenditures for the year : a. Receipts, $ . b. Expenditures, $ . 13. Total railway mail pay for the year . $ . 14. How has the rate of increase in railway mail pay compared with the rate of increase of other post office expenses? 15. What have been the chief causes of postal deficits? 16. Is the present system of railway mail pay an equitable one? 17. Give a summary of the controversy over railway mail pay. XV THE ORGANIZATION OF THE SERVICE The railroad company's corporate and its special transporta- tion organization. The duties and place in the company's organization of: a. The secretary's department. b. The legal department. c. The financial department. d. The accounting department. e. The operating department. 594. QUESTIONS AND TOPICS 1. Maintenance of way. 2. Machinery. 3. Transportation. f. The traffic department. Freight— through, local. Passenger. g. Purchasing, real estate, insurance and relief depart- ments. 3. General organization of the Illinois Central Railroad. 4. General organization of the Pennsylvania Railroad. 5. Divisional and departmental types of organization of the operating department. 6. The organization of a division. 7. Describe the organization of a railroad with which you are familiar. 8. Name the presidents of some of the leading American railroads. XVI THE ACCOUNTS AND STATISTICS OF THE RAILROAD SERVICE 1. Outline the organization of the accounting department of a railroad. 2. From what sources are the accounts regarding traffic, receipts, and expenditures compiled? 3. From what sources are those of train, car and locomotive per- formance obtained? 4. Outline the contents of a railroad report. 5. Advantages of uniform accounting. 6. What are the leading functions of the comptroller? 7. What are the leading functions of the auditor of merchandise traffic and the auditor of coal traffic? 8. What are the leading functions of the auditor of passenger traffic? 9. What are the leading functions of the auditor of disburse- ments ? 10. What are the leading functions of the auditor of miscellaneous receipts ? 11. What are the leading sources of railroad statistic^? QUESTIONS AND TOPICS 595 12. What are the leading omissions of desirable data in the pres- ent statistical publications concerning commerce and trans- portation ? 13. Secure a railroad report of recent date and tabulate the most important items of information which it contains. XVII INTERRAILWAY RELATIONS— RAILROAD COMPETITION AND AGREEMENTS TO MAINTAIN RATES 1. The public nature of the railroad business. 2. Railroad cooperation is necessary, and competition is unavoid- able. 3. The growth in the length of the railway systems from 1850 to 1890. 4. Railroad consolidation and confederation after 1890. 5. Character of through passenger and freight service in 1850. 6. The establishment of express companies, fast freight lines, Pullman services and private car lines to provide better through traffic services. 7. Railroad competition in the fifties, in 1869, and 1874. 8. The differential rates to the north Atlantic ports. 9. Early railroad competition in the middle West and South. 10. The nature and economic cause of railroad competition. Ne- cessity for regulating or limiting it. 11. The agreements railroad companies may make to restrain com- petition. 12. Early rate agreements of the trunk lines. 13. The Saratoga Conference of 1874, and its results. 14. Why rate agreements, without pooling, were a failure. XVIII INTERRAILWAY RELATIONS '(Continued)— FOOLS AND TRAFFIC ASSOCIATIONS 1. Define railway pools. 2. Explain how the pooling of freight and the pooling of earnings are arranged. 596 QUESTIONS AND TOPICS 3. Does competition continue when rival railroads pool their com- petitive traffic or earnings therefrom? 4. What is the distinction between a railroad traffic association and a pool? 5. The Chicago-Omaha pool of 1870. 6. The Southern Railway and Steamship Association, its origin, territory occupied, plan or organization, its operation in practice, its disruption. 7. The anthracite coal pool, 1872, and thereafter. 8. The live stock and oil "eveners," 1875-1879. 9. The formation of the Trunk Line and Central Traffic Asso- ciations in 1877. Territory occupied by each. The west- bound trunk line pool. ID. The Joint Executive Committee of the Trunk Line and Central Traffic Associations. The three tasks it existed to ac- complish. 11. What was the adjustment of the "seaboard differentials" in 1879? What has been the subsequent history of these rates? 12. What were the effects of railway pooling from 1870 to 1887? 13. The legal status of pooling before 1887. The provisions of section five of the Interstate Commerce Act of 1887. 14. The effects of the prohibition of pooling upon the organiza- tion and development of traffic associations from 1887 to 1897. /5. What have been the arguments for and against legalizing pool- ing? XIX INTERRAILWAY RELATIONS (Concluded)— TU-E PRESENT SITUATION History of the Joint Traffic Association. The two grounds on which it was held to be illegal. Decision of the U. S. Supreme Court in the Trans-Missouri Freight Association case. Legal status of rate agreements before and after this decision. Effect of decision upon the traffic association. Necessity for concerted action among carriers making com- petitive rates. Existing railway traffic associations. The four classes. Name and give the territory of the leading associations of the first class. QUESTIONS AND TOPICS 597 6. The organization of the Central Freight Association. 7. Informal rate agreements. 8. Reasons accounting for the rapid consolidation of railroads after 1898. ; 9. Four methods by which consolidation is brought about. ID. The meaning of "community of interest." How may it be established? 11. The legislation of pooling in 1920. 12. The present attitude of the law toward railroad consolidation, XX MONOPOLY AND COMPETITION IN THE RAILROAD SERVICE 1. What is meant by monopoly? 2. Is the railroad business a complete monopoly? 3. What are the monopolistic features of the railroad business? 4. What are the two forms of railroad cooperation? What is the attitude of the law toward each? 5. What are the competitive features of the railroad business? 6. Industrial and commercial competition and rate making. 7. Water competition and rate making. 8. Interrailway competition and rate making. 9. Fixing rates at "what the traffic will bear." 10. Influence of competitive and monopolistic factors on passen- ger fares. 11. Social considerations in rate making. 12. Is a railroad company ever justified in charging more for a short than for a long haul over the same line and in the same direction, the shorter distance being included within the longer? Reasons. 13. What has been the influence of the competition of electric rail- way lines on the rates and fares of steam railroads? XXI THEORY OF RATES AND FARES I. Cost of service as a factor in rate making : a. General application. b. Application to particular commodities. 698 QUESTIONS AND TOPICS c. Show that it receives practical consideration. d. Can you give an instance in which a railroad would be justified in charging more for a particular serv- ice than for a similar service which it costs more to perform? 2. Value of service as a factor in rate making; meaning of the term; its influence in rate making; criticism. 3. Value of commodity as a factor in rate making. Its use in practice. 4. Capitalization as a factor in rate making. 5. Government regulation as a factor in rate making. 6. The general rate policy of American railroads. 7. The passenger fare policy of American railroads. 8. Influence of theoretical considerations in the making of pas- senger fares. 9. What is meant by the socialization of rates and fares? 10. Why is the study of theories of rates and fares of importance? 11. Can you cite instances where theories have been given con- sideration in practice? XXII RATE MAKING IN PRACTICE 1. The machinery of freight rate making: a. Who makes freight rates? b. Higher supervisory ofiicials. c. Sources of information of rate making ofiicials. d. Freight traffic associations. 2. Classification the first step in rate making. 3. What forces govern the decisions of a traffic official in fixing rates ? 4. Why does rate making in the United States present difficult problems ? 5. The eastern trunk line rate system. 6. Rates in the Southern territory. 7. Rates in the West and Southwest. 8. Transcontinental rates. 9. Import and export rates. 10. The machinery of fare making: a. Who makes fares? QUESTIONS AND TOPICS 599 b. Higher supervisory officials. c. Sources of information. d. Passenger traffic associations. 11. How does the problem of fixing passenger fares differ from that of making freight rates? 12. How have the rate policies of railroads in the United States differed from the policies of the railroads in continental Europe ? 13. Have social considerations affected in any way the charges on American railroads? xxni THE RAILROADS AND THE STATE. REGULATION IN THE UNITED KINGDOM AND GERMANY 1. The twofold relation of the state to the railroads. 2. Why is some form of government control of railroads nec- essary ? 3. What four forms may the relation of the state to the railroads take in the matter of regulation and control? 4. How may the absence of government aid to railroads in the United Kingdom be explained? 5. What forms of railway consolidation have been employed in Great Britain? 6. What has been the general attitude of the British Government toward railroad consolidation? 7. What has been the attitude of the British Government toward agreements entered into by the railroads for the purpose of controlling competition ? 8. What has been the general plan of rate regulation followed bj the British Government? 9. Maximum tolls fixed by charters. 10. Legislation before 1854. 11. The Act of 1854 and its results. 12. The Act of 1873 and its results, 13. The Report of the Select Committee of 1881-1882. 14. The Cheap Trains Act of 1883. 15. The Railway and Canal Traffic Act of 1888: a. Organization of the Commission. b. Powers of Commission. 600 QUESTIONS AND TOPICS c. General provisions of the law. d. The "conciliation clause." e. Provisions for readjustment of rates. ,6. The maximum rate laws of 1891-1892. 17. The Railway and Canal Traffic Act of 1894. 18. The law of 1913. 19. British railways during the World War. 20. The Ministry of Transport Act of 1919. 21. Probable nature of the future British railway policy. 22. The reasons for government aid to early railroads in Germany. 23. Influences which brought about the nationalization of railroads in Prussia. 24. What was the railway policy most favored by Bismarck? Why was it not carried out? 25. What powers with respect to the German railways were pos- sessed by the Imperial Government? 26. Organization and management of Prussian railways : a. Department of Public Works. b. 21 operating Directories. 27. Rate making on Prussian railroads. The system of advisory councils. 28. Other German railway associations. 29. Financial results of state management in Prussia. 30. Results with respect to facilities, services and rates. 31. German railways during the World War. ;!2. The present German railway policy. ,'■13. What accounts for the variations in the railway policies of dif- ferent nations? 84. Why is public ownership displacing private control of railroads ? XXIV PUBLIC AID TO RAILROAD CONSTRUCTION IN THE UNITED STATES J. State Aid to Railroads 1. Origin of the policy; influence of the distribution of the Fed- eral surplus in 1837; the early aid consisted of State pur- chases of stocks and bonds. 2. Amount of aid given by the nineteen States that gave assistance. 3. Small res"lts accomplished ; reasons why the States failed. QUESTIONS AND TOPICS 601 2. National Aid 4. Federal surveys; policy regarding tariff on railroad iron; free rights of way. 5. Land grants and land-grant policy, 1850-1862. 6. Form of grant — the Illinois Central grant of 1850. 7. Land grants and land-grant policy, 1862-1871. 8. The land grants to aid the Union-Central Pacific line. 9. The Credit Mobilier scandal, and the opposition to land grants after 1872. 10. The forfeiture act of 1890. 11. The Federal loans to the Union-Central Pacific companies, and the final repayment of the debts by the companies. 12. Purpose and results of the Federal land grants to the railroads. 3. Local Aid 13. Amount of county and city bonds issued to aid railroads. 14. Methods employed by the railroads in securing the aid of local governments. 15. Individual aid — methods by which investors were made to lose their investments. 16. Influence which government aid and methods of railway pro- motion had upon public sentiment for government regulation. 17. Has the public been adequately recompensed for the aid given to railroads? 18. Was the land-grant policy of the Federal Government a wise policy ? XXV REGULATION OF RAILROADS BY THE AMERICAN STATE GOVERNMENTS— THE STATE COMMISSIONS 1. Constitutional limitations of the State's power to regulate railways. 2. Legislative as contrasted with judicial functions in regulation. 3. Early regulation: Laissez faire (1840-1870). a. State aid. b. Charter regulation. c. Early rate laws. d. Early commissions. 4. Granger legislation (1870 1880). 602 QUESTIONS AND TOPICS 5. Importance of Supreme Court decisions in granger cases. 6. Gradual development of State regulation (1880-1902). 7. Great increase in State regulation (1903 to the present). 8. Types of State commissions : a. Mandatory railroad commissions. b. Public utilities or public service commissions. c. Corporation commissions. 9. Various degrees of rate making power : a. Advisory power. b. Revisory power upon complaint. c. Revisory power upon initiative. d. Power to make schedule of rates. 10. Powers and organization of the Public Utilities Commission of Illinois. 11. Powers and organization of the Public Service Commission of Pennsylvania. 12. Powers and organization of the Public Service Commissions of New York. 13. Powers and organization of the State Corporation Commission of New Mexico. 14. Tendencies in commission legislation. 15. State regulation by statute : a. Maximum rate laws. b. Anti-rebating and discrimination laws. c. Laws requiring notice of rate changes. d. Laws requiring that rates be published. e. Passenger fare laws. f. Mileage book laws. g. Antiscalping laws. h. Antipass laws. i. Antitrust laws. j. Car service laws. k. Laws as to stations and terminals. 1. Train service laws. m. Regulation of live stock traffic. n. Laws regulating private railway sidings, o. Jim Crow laws. p. Public safety statutes, q. Train crew statutes. 16. Criticisms of State regulation. 17. The conflict of State and Federal authority. QUESTIONS AND TOPICS 603 i8. The Transportation Act of 1920 and the problem of State regulation. XXVI RAILROAD REGULATION BY THE FEDERAL GOVERN- MENT—THE ACT OF 1887 1. The agitation for Federal regulation of railroads ( 1872- 1 887 ) : a. The demand for cheaper rail rates in the early seventies. b. Influence of the granger legislation of the States. c. The Windom Committee and its report in 1874. d. The McCreary bill of 1874. e. The Reagan bill of 1878. f. The Cullom Committee and its report, 1886. g. Decision of the U. S. Supreme Court in Wabash v. Illinois in 1886. h. Enactment of the Interstate Commerce law in 1887. 2. The operation of the Act of 1887: a. Orders of Commission not binding. b. Admission of new evidence by courts. c. The lack of power of the Commission to compel witnesses to testify, 1890-1896. d. The Commission did not possess the power to fix maximum rates. e. The Commission could not effectually prevent per- sonal discrimination. f. The interpretation of the long and short haul clause. g. Discriminations in import rates. 3. The beneficial results of the law. 4. Five needed changes in the law, igcx). XXVII FEDERAL LEGISLATION FROM 1903 TO 1914 The Elkins Act of 1903: a. Corporations as well as agents liable. b. Receiver of rebate guilty as well as giver. c. Only published rates legal. 604 QUESTIONS AND TOPICS d. Penalty of fine for departure from published rates. Penalty of imprisonment restored in igo6. e. Federal courts authorized to order the observance of published rates. 2. Expediting Act, 1903. 3. Hepburn amendment to Interstate Commerce Act, 1906. Lead- ing changes in law : a. Law made applicable to other transportation agencies. b. Rates not to be changed except on 30 days' notice. c. Free transportation regulated. d. Interstate Commerce Commission enlarged. e. Commission given rate making power. f. Orders of Commission made binding unless set aside by courts. g. Commission authorized to prescribe system of uni- form accounting. 4. Judicial review of the Commission's orders. 5. The Mann-Elkins Act of igio: a. Commission given power to suspend proposed changes in rates. b. Long and short haul clause made effective. c. The Commerce Court. d. Minor features of law. 6. Amendments to Interstate Commerce Act in igi2 and 1913. 7. Other Federal legislation for railway regulation: a. Sherman Antitrust Act of i8go. b. Clayton Antitrust Act of 1914. c. Safety appliance laws. d. Erdman Act of i8g8; amended by Newlands Act of igi3. 8. Criticisms of the system of regulation in effect in igi4. XXVIII NEW RAILROAD PROBLEMS: GOVERNMENT OPER- ATION 1. Financial condition of railroads, igio-igi7. 2. The Five Per Cent Case of igi3. 3. The Adamson Act. 4. Operating problems during the early years of the European War. QUESTIONS AND TOPICS 605 5. The Council of National Defense. 6. The Railroads' War Board. 7. The Advanced Rate Case of 1917. 8. Special Report of the Interstate Commerce Commission, De- cember I. 1917. 9. The railroads taken over by the Government. 10. Organization of the U. S. Railroad Administration. 11. The Federal Control Act. 12. Operating results during Federal control. 13. Financial results of Federal control. 14. The need of a new railroad policy. XXIX THE TRANSPORTATION ACT OF 1920 1. The "plans" for railroad regulation. 2. The attitude of Congress and the public tovard government ownership. 3. The railroad problem in Congress. 4. The Transportation Act passed. 5. Financial provisions of the Transportation Act. 6. Labor provisions of the Transportation Act. 7. Amendments to the Interstate Commerce Act. a. The rule of rate making. b. The commission authorized to name minimum rates. c. Federal control of railway capitalization. d. Federal control of intrastate rates. e. Legalization of pooling. f. Modification of the "long and short haul" clause. g. Control of car service and terminals by the com- mission, h. Plan for railway consolidation. 8. The resumption of private operation. 9. The advance of wages and rates. ID. The business depression and its effect on the railroads. 11. Work of the Railroad Labor Board. 12. The financial condition of the railroads. 13. Tfie main provisions of the Interstate Commerce Act as amended to date : a. Act applies to railroads, pipe line companiesj telegraph, 606 QUESTIONS AND TOPICS telephone and cable companies, express companies and sleeping car companies, and to interstate and foreign traffic not carried entirely by water. b. Charges must be reasonable, absolutely and relatively, as between persons, places and commodities. Passes prohibited with certain exceptions. C. Carrier must not be both producer and carrier of commodities, except timber and manufactured prod- ucts thereof. d. Carriers must construct switch connections where reasonably practicable. e. Carrier must not charge more for a short haul than for a long haul over the same line in the same direction, the shorter distance being included within the larger, unless permitted to do so by the Inter- state Commerce Commission. f. Pools may be established and maintained with the consent and under the supervision of the Interstate Commerce Commission. g. Railroads not to own competing water carriers. h. Schedules of rates and fares must be published and filed with the Interstate Commerce Commission, Published rates to be strictly observed. i. Carrier must furnish written statement of rate upon application. j. Carriage of freight must be treated as continuous unless stoppage is in good faith. k. Persons claiming to be damaged by carriers subject to Act may bring suit for recovery either before the Interstate Commerce Commission or in a Fed- eral Court. 1. Penalties for violation of the Act — fines and im- prisonment. m. Interstate Commerce Commission created. Eleven members, term of office seven years, salary $12,000. n. General powers and duties of the Interstate Com- merce Commission : 1. To execute and enforce provisions of Act. 2. To make investigations either upon complaint or upon its own initiative. 3. To correct rates found to be unreasonable. QUESTIONS AND TOPICS 607 4. To suspend proposed rates and pass upon their reasonableness. 5. To initiate rates and keep the general level of rates such as will enable the carriers to earn a fair return upon the value of their property devoted to transportation. 6. To revise freight classifications, to establish through water routes and joint rates. 7. To modify state rates which cause discrimina- tions against interstate commerce. 8. To control car service. 9. To require a carrier to permit the use of its terminals by another carrier. ID. To issue appropriate orders and award dam- ages. Its orders binding unless set aside by Federal courts. 11. To make a valuation of railroads. 12. To control railroad capitalization. 13. To prepare a plan for the consolidation of the railroads into a limited number of competi- tive systems. 14. To permit consolidations which are in harmony with its plan. 15. To prescribe and enforce a uniform system of accounts. 16. To require annual and special reports. 17. To enforce safety appliance laws. 18. To compel railroads to establish connection with ocean lines. XXX THE COURTS AND RAILROAD REGULATION The courts determine the meaning and scope of laws. Illus- tration afforded by the Supreme Court's application of the Antitrust law to railroads. Consequences resulting from leaving to the courts the enforce- ment of the orders of the Interstate Commerce Commission under the Act of 1887. The scope of the equity jurisdiction of the courts in passing upon railroad rates. 608 QUESTIONS AND TOPICS 4. Extension of "court review'' of rates fixed by State laws : a. Position taken by the Supreme Court in the Granger decisions in 1877. Munn v. Illinois. b. In the Mississippi Rate cases in 1885. "This power to regulate is not a power to destroy." c. In the Minnesota Railroad and Warehouse case, 1890. d. In the Nebraska Maximum Rate case, i8g8. Smyth V. Antes. e. In Ex Parte Young, igo8. 5. What is the present doctrine of "court review"? 6. The power of the courts to enjoin a proposed increase in rates. 7. The power of the Interstate Commerce Commission to suspend and prevent proposed rate advances. 8. Power of the courts to enjoin the railways from charging unjustly low rates. The history of the rate war between the Seaboard Air Line and the Southern Railway Company. 9. Court injunctions to compel railways to charge their published rates. Elkins Act of 1903. 10. The general law of strikes. 11. The exceptions to this general law of strikes in the case of railroad employees. 12. What is a "blanket injunction"? 13. The injunction in the Ann Arbor strike, 1893. 14. Judge Jenkins' order in the Northern Pacific and Union Pacific strikes, 1894. 15. The history of the Debs strike, 1894. 16. Federal regulation of the use of the injunction in labor troubles. 17. What is the purpose of a railway receivership? 18. Periods of railroad insolvency, 1873, 1885, 1893, 1915. 19. Causes of railroad insolvency in the United States. 20. "The bane of friendly receiverships.'' 21. What changes in the present law and practices of railroad receiverships have been advocated? XXXI THE PROBLEM OF GOVERNMENT REGULATION AND GOVERNMENT OWNERSHIP IN THE UNITED STATES 1. The twofold nature of the problem of government regulation. 2. Why has the problem arisen? QUESTIONS AND TOPICS 609 3. How may the problem be dealt with? 4. Government ownership a question of expediency, not of principle. 5. Why is the railway experience of one country not a safe guide of action in another country? 6. The probable effect of government ownership on railroad serv- ice in the United States. 7. The probable effect on rates. 8. Effect upon politics and government. 9. The results of regulation in the United States. 10. What are the chief features of the present problem of govern- ment regulation in the United States? 11. What course should be adopted in attempting to solve this problem ? 12. What are the main arguments in favor of government owner- ship of railroads ; the main arguments against government ownership of railroads? INDEX Accounting, government regulation of, 259. Accounting department, organization of, 250-51. Accounts, need for accuracy and uniformity in, 258; of the railroad service, 250-262; usefulness of, 250. Adams, Alvin, organizes the express company, 203. Adams Express Company, 203-204. Adamson Act, 494. Advisory Commission appointed, 497. Air braJce, 64. Air mail service, 224. Alaskan railroad, 407. American railroad, first for general public use, 22; origin of, 13-23. American railroad net, growth of, 25- 37. American Railway Association, 318; National Industrial Traffic League and, cooperation of, 319. American Railway Express Company, 206; internal organization of, 205. Ann Arbor strike, 549. Antitrust law, application of, to rail- roads, 483; traffic associations, a violation of, 305. Army Appropriation Act, 496. Association of American Railroad Ac- counting Officers, influence of, 260. Atlantic ports (north), rivalry of, 279. Automatic stops, 78. Baggage service in European countries, 196; in the United States, 195. Baldwin Locomotive Works, founding of, 47. Ballast, 45. Ballin, Albert, 394. Baltimore & Ohio Railroad, beginning of, 22; reaches the Ohio River,, 29. Basing point system of rates, 357. Bills of lading, 160. Bismarck, influence of, regarding the railway policy of Germany, 393. Block signals, three kinds of, 77. Board of Mediation and Conciliation, 485. Board of Railway Wages and Work- ing Conditions, 508. Board of Trade, British, powers of regarding railways, 377. Bonds, classes of railway, 109; prece- dence of the holder of, over stock- holder, 110. British Railway Clearing House, func- tions of, 176. British Railways Act of 1921, 389. Buffalo, connection with, by railroad, 22, 28. Camden and Amboy Railroad, char- tered, 23. Canal building, decline of, after 1840, 19. Canal routes, early survey for, 15. Canals, early, 17. See also canals by name. Capital, railroad, 108-130. Capitalization, bases for, 121; chart of, 1890-1918, 115; comparison of, with other industries, 35-37; per mile of line in 1918, 111; proposed Federal regulation of, 128; public regulation of, 124; state laws re- garding, 125; total, 33, 110. Car interchange, 174. Car Service Commission, 496. Carmack Amendment, 471. Cars, postoffice, 231; records of mov- ing, 176; sleeping, 63; vestibule of, 63. Central Freight Association, purposes of, 316, 317. Central Pacific Railroad, 30. Charleston and Hamburg Railroad, 22. Charters, British railroad, 371, 375; foreign, 104, 403; in France, 403; inadequate protection to public, in, 103; limitations of rates and prof- its in, 424. Chesapeake and Delaware Canal, 19. Chesapeake and Ohio Canal, 19. Chicago-Atlantic traffic, struggle for, "279-282. Chicago, first rail connection with, 28. Chicago Omaha pool, 291, Class tariffs, 158. Classification, committees, work of, 151, 157; express, 209, 210; freight, how determined, 153; mail matter, 219; passenger, 187; uniform, 156. Clayton Antitrust Act, regulation of use of injunctions in, 483. Commerce, defined, 4. Commissions, state, types of, 435, 6ii 612 INDEX Commodities clause, of Interstate Commerce Act, 451. Commodity tariffs, 158. Community of interest, 309, 310. Competition, railway, and agreements to maintain rates, 282; and monop- oly in the railway service, 321-333; early in Great Britain, 372; in the West and South, 280, 281; influ- ence of, upon local rates, 330; na- ture of, 274; not confined to junc- tion points, 328; of two kinds, 327; restraint of, a necessity, 284; the Troy Case of 1897, 462. Competition of markets, 329. Comptroller, duties of, 251. Consolidated Classification, 152; Com- mittee, work of, 151. Consolidation, accompanied by an in- crease in capitalization, 119 ; begin- ning of, 28; effect of, 332; in Great Britain, 372; methods of, 308; un- der the Transportatiuii Act, 93. Construction, railroad, in the United States, 1850-60, 26; 1860-70, 30; 1870-90, 31; after 1890, 32; since 1912, 33; public aid to, 407-421. Cooperation, attitude of law towards, 315; in rate making, 354; of two kinds, 326. Cooperative freight lines, 173. Corporation, defined, 97; special char- acteristics of railroad, 99, Corporation Commissions, 43 5. Corporations, insolvent, 106; mileage of railroads owned by, in 1916, 557; of two general kinds, 99; size of railroad, 104. Cost, meanings of the term, 336. County aid to railroad building, 418. Courts, action of regarding orders of Interstate Commerce Commission, 476; attitude of, toward rate regu- lation, 537, 543; early rulings of, regarding Interstate Commerce Act, 456; no authority to make rates, 536; powers of, to review railroad legislation, 102; the, and railroad regulation, 534-561. Credit Mobilier, financial methods of, 118. Crossties, timber used for, 44. Cullom report, 450. Cumberland Road, construction of, "15. Cummins, Amendment to the Inter- state Commerce Act, 164; Bill, 514. Dartmouth College case, 432. Debs strike, 551. Delaware and Hudson Canal, 17. Delaware and Raritan Canal, 1 8. Demurrage, 170. Departmental type of organization, 240. Differential rates to North Atlantic ports, 280. Director General of Railroads, Wm. G. McAdoo, 504. Discriminations, abuses of local in 1887, 460; demand for abolition of unreasonable, 449; Hepburn amend- ment strengthens law against, 477; in import rates, 463; law of 1910 .regarding, 478; may be just or unjust, 346; prohibited in the Interstate Commerce Act, 451, 452, 458, 460; provisions of Elkins Act regarding, 467, 468. Dismal Swamp Canal, 16. Dividends, 113, 115; payments for in 1918, 138. Divisional type of organization, 240. Earnings of American railroads, 1899-1918, 140; expenses and di- vidends, 131-143 ; relation of, to business conditions, 141. Electric locomotive, advantages of. 79. Electrification of steam railroads, 79. Elkins Act, main provisions of, 467, 471. Empire Transportation Co., func- tions of, 172. England, fares in, 388; first railroad in, 22. Erdman Act, of 1898, 485. Erie Canal, construction of, 18, Esch bill, 496, 514. European, and American railroad mileage, comparison of, ZZ; coun- tries, fares in, 388, 400; freight rates in, 388, 400. Eveners, 295. Ex parte Young case, 540. Expediting Act, 468, 474. Express, classification, 210; compa- nies, contractual relation of, with railroads, 208 ; how an agent ob- tains rate, 212; internal organiza- tions, 205 ; leading company, 206 ; organization of American Railway Express Co., 206; rates, the system of, and classification, 211, 212; ship- ping papers, 207; statistics of, 213. Express service of the railroads, 201-216; advantages of, 214; gen- eral character of, 201 ; origin of, 203; parcel post, and the, 213. Fares, passenger, comparison of with freight rates, 182; need of a theoretical basis for, 334; prob- lem of fixing, compared with freight rate problem, 361. Fares and rates, theory of, 334, 348. Fast freight lines, decline of, 1 74 ; formation of, 171. Fast mail trains, 225. Federal Commission of Mediation and Conciliation, 485. Federal employers' liability law, 485, INDEX 613 Federal Government, railroad regu- lation by the, 448-466. Federal regulation, present system of, 486 ; the greatest obstacle to adequate, 486. See also Regula- tion and Government regulation. Federal managers appointed, 505. Fink, Albert, 296. Fixed charges, 135. France, railroads of, 402-403. Franchises, 8. Freight, classification of, 149; how an agent ascertains rates on, 158; through and local, 159. Freight car, capacity of, 67 ; many designs of, 66; steel, 68. Freight ' service, business organiza- tion of, 1 60-1 80 ; classification of freight, 147-159. Freight shipping papers, 160. Freight terminals, classification of cars in, 75 ; requisites for, 72 ; transfer freight house, 76. Freight traffic, pool, description of, 288; United States statistics, ad- ditional required, 267; volume of in United States, 148. Full crew laws, 441. Gallatin, report of, to Congress, 17. Germany, post war organization, 400; railroad policy of, early, 391; prewar organization of, 396; rela- tion of the railways to the states in, 392; war increases of rates, 400; war organization of, 396. Gladstone, William E., 377. Gould railroad interests, 87. Government aid to railroad construc- tion in the United States. 407-421. Government control of railways in foreign countries, 402-405. Government operation, 489-511; Army Appropriation Act, 504; board of railroad wages and working condi- tions, 508; Council of National De- fense, 497 ; Director General, Wm. G. McAdoo, 510; Federal managers, 505; organization, railroad adminis- tration, railroad control act, 506; preference freight, under authority of United States Shipping Board, Navy, Food and Fuel Administra- tion, 508; Railroads' War Board, 498 ; twenty-five per cent rate in- crease, 509; Walker D. Hines, 510. Government ownership, a question of expediency, 565 ; effect of, upon politics and government, 567; in the United States, an unwise policy, 570; of railroads, mileage of, in 1912, 565; probable effect of, in United States, 568; probable ef- fect of, upon rates, 569-570; should the United States adopt a policy of, 567; socialization of rates and fares. possible under, 571; the question of. 389. Government ownership and govern- ment regulation in United States, the problem of, 563-577. Government regulation, early causes of demand for, 419; need for con- structive policy regarding, 575; success of, in United States, 574; two methods of, 564; twofold problem of, 563 ; uniformity de- sired in, 442. Government regulation and govern- ment ownership in United States, the problem of, 563-577. Government regulation of railroads in the United Kingdom, 367-389. Granger laws, modificaion of, 433; opposed by the railroads, 432; reasons for, 430; upheld by Su- preme Court, 433. Granger legislation, 537. Granger lines, 87. Great Britain, effect of World War upon rates and fares, 387 ; methods of railroad cooperation in, 372; post war control, Ministry of Transport Act, 1919, 387; Rail- ways Act, 1921, 389; regulation of railway combinations, in, 374; siunmary of complaint against railways in, 380; war time opera- tion, 385. Grouping of railroads, by ownership and control, 88; territorially, 85. Hadley Commission, report by, on railroad securities, 127. Harnden, William, founder of ex- press service, 203. Hepburn amendment, main provi- sions of, 471. Hepburn Committee, report of, 297. Illinois, law of, regarding public utilities, regulation, 437. Illinois Central R