Jftliata. N. ^• ICibtacs Cornell University Library HE 1601.M7 Railroad administration 3 1924 014 003 879 Cornell University Library The original of tinis 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/cu31924014003879 APPLETON'S RAILWAY SERIES EDITED BY EMORY R. JOHNSON, Ph.D. RAILROAD ADMINISTRATION RAILROAD ADMINISTRATION BY RAY MORRIS, M.A. H^NAOINa KDITOB OI* IH£ "BAIL WAY AOS QAZETT£," 1903-1810 NEW YORK AND LONDON D. APPLETON AND COMPANY 1920 COPVMGHT, 1910, 1920, BY D. APPLETON AND COMPANY PBINTED IN THE UNITED STATES OF AUERICA PREFACE I AM interpreting the title of this volume broadly, to cover the executive work involved in building and operating railroads. The problems are largely those of organization. The Union and Southern Pacific railroad systems, for ex- ample, employ some eighty thousand men, directed by a single headquarters management. The means by which these eighty regiments are made to work efSciently and harmoniously, and the methods, equally arduous, of organ- izing the company's credit so that great expenditures can be financed at a minimum interest cost, have been made the subject of relatively little discussion outside of the technical press. No attempt has been made to set forth, in detail, the routine part of railroad work. A complete description of the auditor's duties would become a treatise on applied accounting; an exhaustive study of the profession of the chief engineer, or of the superintendent of motive power, would involve the equivalent of a three-years' course in higher mathematics, supplemented by field work. But it is distinctly possible, within the limits of a single volume, to show how the railroad executive so organizes his forces as V vi PREFACE to apply to the best advantage the knowledge which a dozen kinds of specialists possess. In other words, I have tried to give the non-technical reader the manager's viewpoint toward the problems of actual railroad administration in this country, with a glance at certain comparative condi- tions in other countries. For constructive criticism I am specially indebted to Professor Emory R. Johnson, of the University of Penn- sylvania, at whose suggestion this book was written; to William J. Harahan, assistant to the president of the Erie Railroad; to William H. Boardman, editor of the Railway Age Gazette; and to Neville Priestley, general manager of the South Indian Railway. Sir Charles J. Owens, general manager of the London & South Western; Fairfax Har- rison, vice president of the Southern Railway ; J. A. Kay, managing editor of the Railway Gazette (London), and many others have aided me by furnishing organization diagrams and by answering questions that have arisen in the progress of the work. R. M. FOREWORD In the decade since this book was first published certain features of raikoad administration have undergone more important changes than in any similar period since the first railroads were built. We are now nearing the end of two years of Government control and operation under war con- ditions, which will soon be reUnquished under conditions still to be fixed by Congress. We are thus on the eve of further changes which may be expected to restore some measure of stability to the principles of railroad regulation and control, but the nature and extent of which no one can now foretell with any precision. In these circumstances it seems unwise to proceed now with a thorough revision of the book for a new edition long in contemplation, but it is worth while to take advantage of the opportunity offered by a new printing to review and analyze the changes of the decade to see if they give us the basis for any clear judgment of the future. In the beginning it must be pointed out that these changes relate to the regulation and higher-up control of the coun- try's raihroad system as a whole, and affect only slightly the direct problems of operation and administration with which vii viii FOREWORD the book principally deals. In only one important respect, to be noted later, is the text as originally written defective. Hence the reader, if he will keep in mind the changes and special circumstances outlined in this foreword, will find the balance of the volume a working account of the problems and methods of railroad administration in fundamentals and in detail. The year 1910, poUtically speaking, occurred in the middle of President Taft's administration, at a time when there was a certain amount of reaction from President Roosevelt's aggressive measures, but when political history was, nevertheless, continuing along distinctively progressive lines. The railroads really ceased to be independent, private enterprises, several years earlier; the strict enforce- ment of the Sherman Law, supplemented by numerous other legislative enactments and by a rapidly increasing tendency to enlarge the power of the Interstate Commerce Com- mission and the coordinate state commissions, was abeady intensifying a condition where the owners of the properties had little or no discretion in rate-making, and were subject to a mass of conflicting state enactments and regulations regarding the details of service and equipment. In 1908, President Roosevelt had taken a strong position against wage reductions; consequently the roads were beginning to realize that their income was controlled by one govern- mental agency and their expenses by several other agencies, all outside the control of the owners, and not pulling together with any common or agreed purpose. In other words, we were regulating the great railroad industiy piecemeal, and, in the process, we had managed to FOREWORD ix > separate authority from responsibility; the governmental agencies with full authority to determine the vital questions of income (rates) and outgo (service and wages) recog- nizing no responsibility for the solvency of the enterprise which they regulated. Unfortunately, the operating margin, as a factor of safety, was too narrow to permit long-continued operation on these terms, so that the subsequent revenue difficulties, which have played so large a part in the railroad history of the last nine years, had abeady begun to be mani- fest. Receiverships multiplied, and the process of reor- ganization was beset with so many difficulties that a quite unprecedented amount of railroad mileage was unable to meet its stated obligations, and was tending to remain insolvent, owing to the growing reluctance of investors to hazard their funds in the securities of roads of weak or doubt- ful credit. This reluctance worked in two ways: it was nearly iin- possible to finance weak roads or to reorganize them out of receivership, and there was no speculative inducement to undertake new enterprises. Under earlier and more for- tunate conditions, the thickly settled parts of the country had been supplied abundantly with railroad facilities, but the normal extension into newer regions, in connection with the construction of local lines and feeders, tended steadily to grow less, instead of developing with the growth of the country. The first chapter of this volume describes in some detail the way these enterprises formerly had their origin, and arrived at the stage where the public would join in the venture by supplying construction funds. This chapter is worth preserving as an illustration of the kind of con- X FOREWORD siderations thai governed the building up of the American railroad system, but it is noteworthy that the situation has entirely changed. A railroad construction project like the one described was the commonplace of corporation finance in 1910; to- day it would stand no chance of serious consideration. Railroad securities, for more than a generation the usual and conservative vehicle for private investment, are to-day regarded with much doubt and apprehension, so that new financing in large amounts can be attempted only by a small group of the strongest roads. From the standpoint of a possible solution of the ex- ceedingly important and difficult problem of restoring railroad credit while at the same time preserving, in the public interest, an adequate amount of government regula- tion and control, the crisis presented by our entry into the war, in the spring of 1917, came opportunely. We were drifting rapidly towards government ownership, in default of successful private ownership under the difficult terms and conditions with which it was confronted. The brief experi- ment of complete government administration, however, has served like a laboratory test to illustrate, graphically, some of the special objections to government ownership in this country; objections always clearly enough understood by a minority, but hitherto unappreciated by large masses of voters. These objections may perhaps be summarized, briefly, as follows : ' ' I have quoted this excerpt in nearly its original form, from a paper on "The Railroad Problem,"^ which I contributed to "American Prob- lems of Reconstruction," published in 1918. FOREWORD xi (1) It is believed, and probably correctly, that private ownership is more flexible and more resourceful than govern- ment ownership, partly for reasons of competition and partly because private ownership is at all times the subject of criticism, suggestion and regulation, whereas govern- ment ownership can be effectively criticized or regulated only at the polls, and this process is not conducive to ad- ministrative betterment in detail. In a word, private ownership means better service. (2) There is genuine fear, perhaps well founded, of building up a huge body of political servants attached to the party in power, by the same kind of influences that affect city employees. New York and Philadelphia have afforded the classic instances of this danger, but the application of the principle has not been confined to these two cities. (3) The "pork-barrel" method of balanced appropria- tions, with local prestige rather than economic utility the test of extensions, improvements, and efficient service, is perhaps the most glaring danger which threatens govern- ment ownership under our political system. A similar danger, although difficult in terms, is typified by the pen- sion legislation of the last forty years. It would take special legislative courage to resist cumulative wage in- creases for political reasons. (4) Although the immediate exchange of government obligations, direct or contingent, for the present railroad securities (assuming that the complex questions of valua- tion could be worked out) would perhaps effect some present saving in disbursements, our experience with inefficient government would hardly lead us to expect that the roads xii FOREWORD would continue to earn as good surpluses under government ownership as they have earned heretofore. In that case the governmental obligations would occasion a tax biurden unless rates were increased in proportion to the inefficiency of the management. The result, in either case, would probably be expensive to the country. The crisis in private operation came in 1917. After our entry into the war, the time factor was so urgent and the essential program so enormous that it was of the first im- portance that all the economic strength of the country should be exerted as nearly as possible as a single unit. The transportation companies at that time were experiencing to the fullest extent the difficulties which have been men- tioned. The requirements of enforced competition, with special application to the pooling of traffic, did not at all fit the needs of wartime operation, and it was abundantly clear that maturing railroad bond issues could not be met, or emergency equipment provided, under the conditions which prevailed, and certainly not without serious competi- tion with the government's program of war finance. To meet this urgent situation, President Wilson acted promptly and courageously. Under authority, conferred on him by the Army Appropriation Act of August 27, 1917, he took possession of all the railroads of the United States on December 28, 1917, and appointed William G. McAdoo, then Secretary of the Treasury, as Director General. Secretary McAdoo at once appointed regional directors, utilizing the services of skilled railroad executives for this purpose, and then placed each road in the hands of a Federal Manager, who reported through his Regional Director, to FOREWORD xiii the Director General. This was an excellent and funda- mentally sound type of organization, looking toward the temporary amalgamation of all the roads into what may be described as a single operating unit, and the appointments were made on the basis of operating experience, and were non-political. To provide continuity of representation in the stockholders' interest, each road was also allowed a corporate president, but the functions of the corporate president were greatly restricted, and worked out to be those primarily exercised by a custodian, as trustee, for properties operated by others. Generally speaking, the operating organizations reporting to the Federal Manager were not disturbed, but the traffic organizations were materially modified, many offices for the solicitation of freight and passenger traffic being closed or consolidated. Viewing this organization broadly, it is apparent that it brought about, over night, the concentration of authority with responsibility so essential for the successful operation of any enterprise. The President, acting through the Director General, was responsible for both revenue and expenditures, and could modify one to meet the demands of the other. By subsequent enactment (March, 1918) the ultimate rate-making power was lodged with the Interstate Commerce Commission instead of with the President, and this was undoubtedly a move in the wrong direction, tending, theoretically, to separate the responsibility to produce sufficient revenue from the authority to initiate expendi- tures. As a practical matter, however, the Commission proved quite ready to follow the wishes of the Administra- xiv FOREWORD tion in rate policy, this policy being to n^ake immediate and large increases, both in freight and passenger rates. Compensation to the owners of the properties thus taken over was provided, both here and in England, on the basis of past performance. By primary authority of the Regu- lation of the Forces Act of 1871, supplemented by mutual agreement between the Government and the railroads, virtually the whole raibroad system of Great Britain was taken over by the Government on August 5, 1914, the British treasury agj-eeing to pay to the railroads such sums of money as would bring their net income for the period to the level of a test period ultimately fixed as the 1913 year.^ Our own procedure was similar, the President's proclamation stating that Director General McAdoo should "enter upon negotiation with the several companies looking to agree- ments for just and reasonable compensation for the pos- session, use and control of their respective properties on the basis of an annual guaranteed compensation, above accruing depreciation and the maintenance of their properties, equivalent, as nearly as may be, to the average of the net operating income thereof for the three-year period ending June 30, 1917, the results of such negotiations to be reported to me for such action as may be appropriate and lawful." In both these instances past performance was adopted as a yardstick, or measure of compensation, on the correct theory that there was no time to work out a more scientific measure. Incidentally, it is worthy of note that the plan worked more smoothly in England than it did in the United * F. H. Dixon and J. H. Pannelee. "War Administration of the Railways in the United States and Great Britain." FOREWORD XV States. Roads were allowed to claim special circumstances, such as new construction in progress, as affecting the basis three-year period, and the adjustment of these claims rather frequently took the form of a long-drawn controversy with the Railroad Administration, whose legal department seemed, at times, more concerned with technical legal victories than with an impartial adjustment, equally fair to both sides. Nevertheless, the plan on the whole worked well, although considerable incidental hardship was inflicted on certain "short line" roads, first deprived of individual initiative by the President's proclamation, and subsequently turned back to their owners by the Director General, without guar- antee of compensation. At the time of writing. President Wilson has announced ■his intention to return the war-operated properties to their owners at the close of 1919. In view of the fact that the exceptional wage and cost disturbances, incident to the war, fall with especial severity on fixed incomes, and that public utility rates are not easy to adjust rapidly enough to meet advancing expenses, so that they have many characteristics similar to fixed incomes, the problem thus presented is a serious one. The railroad system of the country, viewed as a unit, is now being worked at a heavy loss, and some method must of course be found, after the roads are turned back to their owners, to protect them from general bank- ruptcy until the reaction in prices sets in. This subject, however, bears only an indirect relation to the specific problems of railroad operation and adminis- tration with which the present volume deals. It is perhaps sufficient to say that the broad problem of making it possible xvi FOREWORD for private owners to operate the railroads of the country under a full measure of regulation in the public interest, is receiving the attention of the public to an extent hitherto unprecedented, and that the chances of a workable solution are much increased by the fact that the discussion, so far, is non-political, and has been marked by a general spirit of fairness. Many plans have been presented, most of them characterized by the idea of regional groups of railroads, with ultimate control of rates and service lodged in a govern- mental office similar in its functions to that charged with a similar function in most European countries before the war. The essence of this kind of governmental control is that local, or regional boards, familiar with local conditions, should advise and report to a general government office, but should not administer the properties. In France, for example, where most of the mileage has been privately owned, governmental control under pre-war conditions was effected by the Public Works Office, headed by a Minister , of Public Works, who was advised by four permanent boards as committees dealing with various branches of the service. In England, the Railway and Canal Commission, a body in some respects analogous to the Interstate Commerce, judges of the reasonableness of rates, but the Board of Trade, which is a branch of the government with its Secretary a cabinet member, formulated the maximum rate schedules of 1891-1892 for enactment by Parliament, and is in every sense a national administrative body. In both these coun- tries, and in pre-war Germany and Italy as well, the govern- ment exercised authority and also accepted responsibility for the outcome, and there is much reason to hope that in FOREWORD xvii this respect, at least, our new railroad plan, whatever detail form it may take, will comply with the requirements of a workable and enduring policy. Another constantly recurring feature in the plans now under discussion both in and out of Congress, is the prin- ciple of allowing a certain percentage, if earned, on. actual property investment, and then of dividing any profit balance in some agreed manner between the individual property and the government. This idea has the obvious merit of bringing in the government as an interested partner, or more correctly, beneficiary, of the administration that is trying to make profits for its stockholders. It also has some disadvantages, one of which is the extreme difficulty in determining what the true investment is. Before the war we were slowly and painfully working along the line of thought that the measure oi" fair return to the owners of a railroad property was some percentage (not yet fixed) on investment as determined by valuation. The Interstate Commerce Commission's Division of Valuation, by an exceedingly slow, laborious, and costly process, has been endeavoring to get at a figure representing' "cost of repro- duction new" as required by the congressional enactment. Were this information at hand to-day for all the railroads of the country, it would undoubtedly be of value, although by no means a complete solution of the problem, but the work has developed some difficulties of a very fundamental character. Perhaps the foremost of these is the apparent endlessness of the task of compilation, which makes it certain that whatever national plan is adopted to meet the present xviii FOREWORD situation will, from the nature of the case, have to be adopted long before the valuation figures are available. There are two other formidable difficulties, however, which confront the valuation plan. One of these concerns the construction of the phrase " cost of reproduction new." Take as an instance the famous Ogden-Lucin cut-off across Great Salt Lake. When the Union Pacific-Central Pacific system was pushed through to the coast, it was beyond the possibilities of current fimance to undertake this immense and costly project, and a roundabout detour was made, which carried the traffic for many years. According to the construction of the law by the Division of Valuation, the "cost of reproduction new" of the through line could not contemplate the fact that the stockholders had previously provided, and then discarded, an alternative route. Similarly, the straightening out and rebuilding of all the principal systems has resulted in the abandonment of many thousand miles of earlier con- struction, unfit for modern traffic requirements by reason of grades or curvature. It is obviously unjust to deprive stockholders of a return on what is termed "built-up" reproduction cost, as against the present reproduction cost of the finished product, since it could never have been perfected without the groundwork of the earlier and cruder lines. On the other side of the question, if "the Commission values the holdings of the New York Central in New York City, or of the Pennsylvania in Philadelphia, at "cost of reproduction new," it is going to arrive at huge figures, enormously in excess of original costs. The valuation rule, FOREWORD xix in other words, should undoubtedly apply both ways if it is to receive the final sanction of the courts. In one of these cases it is manifestly unfair to the stockholders; in the other, to the public' Prior to the establishment of a definite plan, it is scarcely worth while to elaborate this subject further. Certain tendencies likely to be manifested in the subsequent legisla- tion have been noted, but considerable time may pass before the working solution is reached. In the meantime, I think it is a fair statement that the very apparent difficulties and dangers in the raib-oad situation are probably at their worst, and that the chances favor the construction of a new system of relationship between private capital and Govern- ment regulation which will be approximately fair to both, and will permit the resumption of the railroad development work that the country so urgently needs. This belief rests on two premises; first, that the discussion of the problem thus far has tended to be fair and non-political; second, that the special operating difficulties that have kept revenue and expenditure out of balance for the last three years are already beginning to correct themselves, and show unmis- takable signs of following the same course they have fol- lowed in the past after other, though less severe, periods of disturbance. Our raikoad operations have always followed a certain cycle, as affected by recurrent periods of commercial depres- sion and exceptional activity. After a depressed period the general change of conditions usually manifests itself * I have quoted here at some length from the paper, previously referred to, in "American Problems of Reconstruction." XX FOREWORD first in gains in gross revenue accompanied by dispropor- tionately large gains in net income. Then, as the com- mercial activity reaches a higher pitch and nears its climax, traffic becomes congested, materials rise rapidly in price and are hard to obtain promptly, and labor asks, and re- ceives, higher pay, and at the same time tends to become less efficient. The result of all this, in the raikoad revenue account, is a rapid gain in gross earnings, little of which can be made to appear as final net, so that it has frequently happened that years of exceptional commercial prosperity have ended with smaller profits than those earned in years when gross revenue was much less. Then the curve bends downward; gross earnings decline, but the special pressure and congestion disappears, and commodity costs go down. Wages exhibit less change, but the efficiency of the indi- vidual, at a time when jobs are scarce; increases very greatly, so that, as a result of all these things, a dollar of gross revenue produces considerably more net gain. If we view the present traffic and operating situation broadly, it has many points of similarity with the congestion and excitement of the latter part of 1906 and the early months of 1907, and there are many reasons to indicate that operating efficiency will improve in the immediate future, in company with the downward tendency of commodity prices and the general slowing up which is to be expected of the reconstruction period. It should be kept in mind, moreover, that the worst railroad crises in the past have followed periods of over-building, when there was not enough traffic to go around. Present conditions, of course, are exactly the opposite of this, and the assurance of abundant traffic density will be a new, and very helpful, factor in the working out of whatever plan is adopted. Rat Morris. CONTENTS CHAPTER I.^The Beginning of a Railroad ... II. — The Organization Required tor the Management OF a Small Railroad . ... III. — The Organization of a Large Railroad IV. — Divisional versus Departmental Organization . V. — The Officers .... .... VI. — British Railroad Organization VII. — Types of Government Railroad Organization VIII. — Railroad Financial Organization IX. — The Public Relations of a Railroad X. — Control Through Statistics XI. — ^Tendencies of Railroad Development Appendices: Appendix A. The Unit System op Railroad Organi- zation ... 279 Appendix B. French Railroad Organization . . 296 1 29 46 76 90 123 151 178 202 224 250 TABLES I. — Operations for the Year 1908 17 II. — Operations for the Year 1908 . 21 III. — The Virginian Railway Organization Chart facing 23 IV. — Organization for a Road Fifty Miles Long . 36 V. — Working Organization of GuU Line Railway . 44 VI. — Organization of the Norfolk and Western Railway, 1910 . . . facing 50 VII. — Operating Organization of the Union Pacific and Southern Pacific Systems . facing 66 VIII. — Organization of the Pennsylvania Railroad Company, 1909 .... . . facing 63 IX. — Departmental Operating Organization of the Leased and Operated Lines of the New York Central and Hudson River Railroad, March 1, 1908 facing 66 X. — Organization of Mechanical Department; Lake Shore and Michigan Southern Railway . . .69 XI. — Lake Shor^ and Michigan Southern — Organization of the Master Mechanic's or Locomotive Operating Department; Western Division . . . facing 71 XII. — Operating Organizations in their Simplest Form facing 79 XIII. — Organization of the Buffalo, Rochester and Pittsburg, 1910 . . facing 83 XIV. — Operating Organization of the Rock Island in 1904 facing 85 XV. — OutUne Organization, London and Northwestern Railway, 1910 (unoflBcial) . . facing 127 XVI. — Skeleton Organization of the Lancashire and York- shire Railway, 1910 facing 130 xxiv TABLES PAQB XVII. — Organization of the London and South Western Railway, 1910 133 XVIII. — Control of the Passenger Train Conductor, or Passen- ger Guard 137 XIX. — Control of the Locomotive Engineer, or Engine Driver 139 XX. — Dining Car and Refreshment Room Manager 141 XXI. — Control of the Freight Train Conductor, or Goods Guard . . 143 XXII. — Control of the Track Laborer: England and America 145 XXIII. — Simplified Organization Diagram of the Prussian State Railroads . . facing 161 XXIV. — Organization of the East Indian Railway at the Time of the Robertson Report, 1903 . . . facing 175 XXV. — Louisville and Nashville Railroad. Extract from Locomotive Performance Sheet, November, 1908 and 1909 ... . . facing 244 XXVI. — Organization of the Paris-Orleans Railway Company, 1910 . . . . . . facing 296 XXVII. — Organization of the Paris, Lyons and Mediterranean Railway Company, 1910 facing 296 RAILROAD ADMINISTRATION CHAPTER I THE BEGINNINGS OF A RAILROAD Types of railroads: military, political, and commercial — The inception of a commercial railroad— Incorporation ; early financing; estimated costs and traific prospects — What the bankers want to know — Methods of estimating traffic — The maximum-and-minimum form of analogy — ^Differences in the outlook of a new local line and a branch of an existing railroad with established credit and through traffic connec- tions — Construction organization ; the commissary ; the headquarters staff and the field staff; diplomacy versus the right of eminent domain — Various types of obstruction likely to be encountered — The new line finished and turned over to the operating organization. Railroads are built for reasons which may be military, political, or commercial. The political and military reasons are often found in combination; so are the political and commercial ones, and it sometimes happens that all three operate together as moving causes. The Baltimore & Ohio Railroad was built for a political reason — to further the interests of the City of Baltimore — and the Cincinnati Southern Railway is still owned by the City of Cincinnati, which built the road in the '70s for commercial protection against Louisville. The Trans-Siberian Railway is an ex- cellent example of a military road, built primarily to en- 1 2 RAILROAD ADMINISTRATION. able Russia to mobilize troops throughout the Siberian provinces, many of which were scarcely defensible against invasion until this vital line of communication was estab- lished. The Union Pacific Railroad, built to bind Califor- nia to the Union, had its origin in a mixture of political and military purpose.^ Many competent observers believed there would be two republics in this country, one east of the Rocky Mountains and one west. The construction of the railroad prevented this. In discussing the preliminaries of railroad organization, we are concerned in the present chapter only with com- mercial projects, which we can define for present purposes as projects which are built for direct or indirect commer- 1 The organization for the construction of the Union Pacific Rail- way was purely upon a military basis. Nearly every man working upon it had been in the Civil War; the heads of most of the engineer- ing parties and all of the construction forces were ofiScers in the Civil War; the chief of the track-laying 'force, General Casement, had been a division commander in the Civil War; and at any moment I could call into the field a thousand men, well ofiicered, ready to meet any crisis or any emergency. There was no law in the country, and no court. We laid out the towns, ofiicered them, kept peace, and everything went on smoothly and in harmony. Two or three times at the end of our tracks a rough crowd would gather and dispute our authority, but they were soon disposed of. I remember one incident when I was West, near Salt Lake, of receiving a dispatch that a crowd of gamblers had taken our ter- minal point at Julesburg and refused to obey the local oflScers we had appointed over it. I wired General Casement to take back his track force, clean the place up, and sustain the officers. When I returned to Julesburg I asked Casement what he had done. He replied: "I will show you." He took me up to a little rise just beyond Julesburg and showed me a, small graveyard, saying: "Gen- eral, they all died in their boots, but brought peace." — Memoirs of Oen. Grenville il. Dodge. THE BEGINNINGS OF A RAILROAD • 3 cial profit, without dependence on any external source of income. The ordinary investor, who builds and operates commercial railroads, can be induced to interest himself in a project only from hopes of prospective profit; he may be presumed to have but a moderate interest in political or in military considerations. Yet there are two broad divi- sions of commercial railroads: those built by people who are interested primarily in coal lands, or timber lands, or mineral lands, which seek transportation facilities, and those built for the calculated profit likely to accrue to them as common carriers, without reference to the development of any commodity. In the first instance, the question whether the railroad will be profitable or not is largely an academic one; the proprietors are making their money by the sale of the commodities which the railroad hauls to market, and they can pay out of one pocket and into the other just as much or just as little as they choose. For the purposes of the present study, therefore, no reference is made to projects which have anything but plain, commercial railroading to depend on. The pre- liminary arrangements and financing of a road built solely to develop a specific tract of lumber or of coal lands per- tain rather to the lumber and coal industries than to the railroad business. Let us assume that a group of men have satisfied them- selves that a railroad sixty miles long can be operated at a profit in a certain part of the state of Georgia. Their first step is likely to be that of incorporating the company and securing a charter from the state legislature. This pro- ceeding is ordinarily simple and inexpensive. Evidences 4 EAILROAD ADMINISTRATION of good faith must be presented by listing the names and residences of the incorporators and certain additional in- formation about them which may be required, and the proposed route must be set forth. In Georgia, as in most states at the present time, incorporation is had under the general railroad law of the state, and the charter is subject to the approval and confirmation of the state Railroad Commission.' The certificate of incorporation gives the company the power to do business under its corporate name, and limits the liability of the incorporators to the equity which they may have in the assets of the company; the charter authorizes the railroad to build along a specified route, and to exercise the right of eminent domain, in cases where property owners along the route endeavor to obstruct the project. Incorporating and securing a charter are the first pre- liminaries. Next comes the financing. If we assume, roughly, that it costs $12,000 a mile ^ to build and equip lightly a single-track line in a part of Georgia where the projected railroad is to be laid out, this totals $720,000 for a sixty-mile line; a sum which it is altogether improbable that the incorporators can raise by private means. These persons, therefore, set about their task of interesting the public in the work at hand. 1 Some states wisely require the promoters to obtain from the railroad commission a " certificate of necessity " before they author- ize them to go ahead. This may be opposed at a public hearing, so that existing roads have some protection against ill-advised compe- tition. British practice is similar to this. 2 Well-built roads, in hilly country, cost far more than this, but the Georgia plains permit very cheap construction. THE BEGINNINGS OF A RAILROAD 5 There are several ways in which this can be done. If the counties along the route are as anxious to have the road built as counties along the route are apt to be, they may perhaps subscribe county-aid bonds ' to cover a portion of the costs, the arrangement generally being that the county will deliver bonds at a specified rate — perhaps $6,000 per mile — after the county engineer has certified to the con- struction of the railroad. Towns along the route are also apt to give aid in the shape of land for terminals or station sites, and a good deal of the right-of-way can often be secured without cost, owing to the anxiety of the residents to secure railroad communications. This situation often holds good in competitive territory as well as in noncom- petitive, since shippers and passengers are liable to be critical of existing transportation facilities and to en- courage the promotion of new ones. Another kind of aid is sometimes given to a new rail- road project in the form of an arrangement by which the railroad contractors can hire convict labor from the state's prison at a rate materially lower than the prevailing day rate. This kind of labor has its drawbacks, as may readily be imagined, but very, good results have been obtained from it in some instances. At present it is rarely seen, except in one or two of the southern states. North Carolina being among them. It will be observed that all these forms of aid come into effect after the railroad is built in whole or in part; not before. To provide cash for current requirements in ex- 1 County-aid bonds are now in disfavor, but are still common in the South. 6 RAILROAD ADMINISTRATION cess of that which the promoters are themselves willing to put into the enterprise, and before the receipts from any county-aid or town-aid bonds are available, the railroad company ordinarily has two resources; popular subscrip- tion, and an organized financing of the project by a bank- ing house or trust company. Popular subscription has its uses, but can be counted upon with considerable assurance to fall short of the ultimate requirements. Hence, almost all railroad construction work is now financed by financial companies. It may be that a local bank or a combination of local banks will undertake to provide construction funds. More often, however, the company's securities are under- written by banking houses or trust companies located in relatively distant places, generally in large cities. The market for the securities in the eyes of the banking house is a consideration only secondary to the company's solvency, and bankers in New York, Philadelphia, Boston, Chicago, St. Louis, and other large cities, have learned by long expe- rience where construction securities of a certain kind can be placed with customers. In a year of activity, several hundred new railroad lines are apt to be promoted in the United States. Perhaps a dozen or twenty of these are short lines built \inder a separate corporate name in the interest of large railroads already in existence. Of the balance, representing pro- moters' projects unsecured by larger railroad afiiliations, only the tiniest proportion are actually built. It is easy to understand, therefore, that banking houses are very chary about proposals that they shall underwrite new railroads, and the evidence needs not only to be THE BEGINNINGS OF A RAILROAD 7 good, but to be extraordinarily good, to induce them to do so. If the Georgia promoters have had experience in such matters, they will probably start by getting the best map possible of the section of the state showing the location of their proposed line, so as to make plain what the traffic connections are with other railroads. It goes without say- ing that the new line cannot make a living alone. It must get traffic from somewhere and deliver traffic to somewhere, and the " somewhere " in the latter case must usually be a railroad. The promoters must also secure from a reputable civil engineer an accurate estimate of costs, and they will of course endeavor to secure private subscrip- tions, gifts of rights of way, and signed promises of county and township aid. It will not be hard to demonstrate to the bankers what railroads the new line can be connected with, or to convince them that the railroad can be built for a certain approxi- mate sum, although bankers are liable to add something to the civil engineer's figures, as a margin of safety. The traffic outlook will require more demonstration. The pro- moters will have to show very definitely whether need for the new line exists. If it provides a short route for well- established existing industries, which now have a round- about route, and if it can be shown that it would be to the advantage of these industries to move most or all of a large traffic over the new line, the outlook, from a banker's stand- point, will be considerably improved. In general, bankers will not underwrite a line which has no traffic attractions other than agricultural or grazing 8 RAILROAD ADMINISTRATION country. A short line with nothing but agricultural and grazing country to support it has a precarious existence, and the bankers know this well. Timber lands are better, but the quality of the timber, the market for it and its life as a traffic factor, have all to be carefully considered. Mineral and coal lands will be important traffic factors if they are good enough so that people can be got to work them. Yet the bankers know that there is a good deal of coal territory in this country, and a good deal of iron ter- ritory, which can very likely be worked at a profit forty or fifty years hence, when the raw materials become scarcer, but is not commercially profitable to operate at present. Moreover, there is a great deal of coal and iron territory which is right enough in itself, but which is located so far from the nearest open market that it falls short of commercial attractiveness. The situation may be summed up by saying that the railroad builders must demonstrate not only that a certain amount of freight traffic is possible over their line, but that it will be in- evitable. Even assuming that the promoters of the road can con- vince the bankers that it holds out abundant promise of traffic, and that it can be built and operated economically, the general competitive situation in the district is a factor of great weight, which must receive thorough consideration. In competitive territory traffic relations frequently arrive at a point of tension or overstrain which has no particular effect so long as a careful balance is preserved, but which is capable of serious things if that balance be disturbed. Without any specific written documents in the case, one THE BEGINNINGS OF A RAILROAD 9 railroad system froqiiontly makes it perfectly plain to an- other railroad system that the latter must keep out of its territory unless it expects retaliatory invasion. Sometimes this kind of warfare has been carried on at great length, and lumdreds of miles of costly railroad have been built for purposes of commercial war rather than of commercial developmout. The fact that the short line or local road is projected as an indopondent project is not of very much significance, because new railroads generally are projected as independent projects, regardless of their ultimate affilia- tions. The important thing is that the projected new line shall not draw upon itself the lightning of disturbed traffic tension, and shall not upset existing arrangements and actually force some larger road to compete with it until it drives it into bankruptcy. Another dangerous traffic situation which often em- barasses a new railroad project is occasioned if this project is dependent upon a single through line for its connection with the rest of the world. If the management of this larger line for any reason becomes hostile, the chances are that it will be quite within its power to damage the short line to the point where the promoters and owners will find it cheaper to sell it out at a loss than to continue a losing venture. MTiere a local line is dependent on a single large connection in this manner, the bankers asked to underwrite its securities want to know all about the re- lations between the large road and the small one; even so, there is ample cause for caution. "Where a short line con- nects two rival roads, however, and can supply traffic to either or both of them and receive some back-haul in re- 10 RAILROAD ADMINISTRATION turn, this danger disappears and the situation looks better. Yet, even with the best of prospects, the bankers never for- get that a tremendous proportion of short, local railroads fail through one cause or another to come up to their pro- moters' expectations, and either go through insolvency or are taken up by some larger system on a basis which may be well below the original construction costs. The purpose of this chapter, however, is to deal with live railroads and live projects; not with dead ones. Hence, we will assume that the sixty-mile railroad under consideration in the state of Georgia has such excellent traffic possibilities and has so much local support that a private banking house in New York has decided to under- write its securities. The engineer estimates that the line can be built and equipped in good enough shape to start with for $12,000 a mile, or $720,000 total. To meet this cost in part the promoters are putting up $10,000 of their own money, and have secured stock subscriptions of $12,000 more locally. They also have a signed promise of $120,000 county-aid bonds, which will become available at the rate of $2,000 per mile as fast as actual miles of completed rail- road are certified by the county engineer. This leaves a net cost of $578,000 to be raised. In eases where underwriting is difficult to secure, five or ten miles of road between two promising points are often built for a starter, to inspire confidence in the solvency of the project, and to create a basis for further subscription. In the case which we are considering, however, the bankers agree to underwrite first mortgage five per cent bonds on the line at the rate of $11,000 a mile, paying $900 for each THE BEGINNINGS OF A RAILROAD 11 $1,000 bond. This process raises $594,000 of the $720,000 necessary, plus the subscriptions and county-aid contribu- tion, a total of $736,000. To provide for interest on the bonds during the construction period, and to leave the road some working capital to begin business with, each bond- holder also subscribes to one share of five per cent first preferred stock at $50 a share. This action puts $33,000 more into the treasury of the company, which now has enough to pay construction costs if they do not exceed the estimate; to pay interest on the bonds for one year, and to leave a slim margin for working capital. But the risk and uncertainty of this enterprise is very great. As part of their bargain, to give them a speculative chance at high recompense for their risk, the bankers therefore receive ten shares of the company 's common stock for each bond which they have bought. Nothing has been paid on this stock; the chances of its earning a dividend for the next few years may perhaps be mathematically demonstrable on the basis of the traffic estimates, but will probably not be esti- mated very high by experienced underwriters.^ 1 In accordance with the follovring provisions of the Georgia law, this financial plan must then be submitted to the state railroad commission : " Sec. 8. Each of the companies or corporations over which the authority of the railroad commission is extended by law shall be required to furnish said commission a list of any stocks and bonds the issuance of which is contemplated, and it shall be unlawful for any of said companies or corporations to issue stocks, bonds, notes, or other evidences of debt payable more than twelve months after the date thereof, except upon the approval of said railroad commis- sion, and then only when necessary and for such amounts as may be reasonably required for the acquisition of property, the construc- tion and equipment of power plants, car sheds, and the completion. 12 RAILROAD ADMINISTRATION This type of financial organization approximates the one upon which a good many thousand miles of railroad have been built in this country, subject, of course, to many modifications of detail. The first mortgage bonds repre- sent what the promoters believe to be a reasonably good risk; the preferred stock represents a fairly good specula- tive risk, while the common stock carries the voting power, and waits for the country to grow up. By the purchase of five per cent first mortgage bonds at ninety, the interest rate works out at about five and a half per cent for current extension, or improvement of its facilities or properties, or for the improvement or maintenance of its service, or for the discharge, or lawful refunding of its obligations, or for lawful corporate pur- poses falling within the spirit of this provision, the decision of the commission to be final as to the validity of the issue. "Before issuing such stock, bonds, notes, or other evidences of debt as above mentioned, such corporations or companies shall secure an order from the commission authorizing such issue, the amount thereof, and the purpose and use for which the issue is authorized. " For the purpose of enabling the commission to determine whether such order should be issued, it shall make such inquiry or investigation, hold such hearings and examine such witnesses, books, papers, documents, or contracts as it may deem advisable or necessary. Such corporations or companies may issue notes or other evidences of indebtedness for proper corporate purposes and not in violation of any provision of this Act, or any other law, payable at periods of not more than twelve months from date, without such consent, but no such notes or other evidences of indebt- edness shall, in whole or in part, directly or indirectly, be refunded by any issue of stocks or bonds or by any evidence of indebtedness, running for more than twelve months, without the consent of the commission." The commission has recognized the fact that new railroads cannot well be built in Georgia without some form of a stock bonus, and has asked the legislature to inform it what constitutes a reasonable bonus. At time of writing, the legislature has not yet shed any new light on this delicate question. THE BEGINNINGS OF A RAILHOAD 13 holdings, and at a larger rate if the bonds are held until maturity and retired by the company at par. This is not a large return for a risky investment, but the promoters have also $100 worth (par value) of preferred stock for each bond, and have only paid $50 for this stock, which they hope will pay them at the rate of ten per cent on their actual investment in it, and they have an additional ten shares of common stock which did not cost anything, for each bond which they hold. Walter L. Webb, in his "Railroad Construction, " ^ mentions three ways of estimating probable volume cf traific and the probable growth of a projected road. By his first method he divides the actual gross revenue derived by all the railroads in that section of the country by the total population of the section, thus determining the average annual transportation expenditure per head of population. Then he multiplies this annual contribution by the population which may be considered as tributary, and thereby obtains a. valuation of the possible traffic. Mr. Webb points out, however, that, such an estimate is unre- liable, because the average annual contribution may not fit that particular locality, and because it is very difficult to estimate the real tributary population, especially where other railroads are working in the same general territory. Mr. Webb's second method is to take some road whose circumstances are as nearly as possible identical with the road to be considered, a©d assume its actual revenue, mile for mile, as the revenue of the projected road. This 1 " Railroad Construction — Thteory and Practice,^' by Walter L. •Webb,_G. E. 14 RAILROAD ADMINISTRATION method also is faulty, because it is quite sure to err in assuming that the character of the two roads is identical, or else does not estimate correctly the differences between the old road and the projected one. His third method is that of the laborious calculation from an actual study of the route — determining the possi- ble output of all factories, mines, etc., the amount of farm produce and of lumber that might be shipped, together with an estimate of probable passenger traffic based on that of like towns similarly situated. Mr. "VVebb considers this the best method when properly done, but points out that there is always danger of leaving out sources of income and of overestimating various kinds of traffic from expected sources. Both the first and third methods mentioned by Mr. Webb are apt to produce results which vary widely from the subsequent experience of projected roads. The first method is open to the objection of mixing the returns from the main line mileage of through railroad systems with the returns of short lines that have only their small, originating business to support them, while the third method is almost certain to err widely from the optimism of the promoter. A good check on the prospects of a proposed railroad can be obtained by a comparatively slight variation of Mx. Webb's second method. The method of estimating the maximum and minimum probable results from the opera- tion of the new railroad by analogy to the results of all similar railroads operating in the same territory under comparable conditions gives perhaps the safest check of all, and it is the method which bankers who underwrite THE BEGINNINGS OF A RAILROAD 15 the securities of new railroads are apt to like best. The advantage of this method of calculation is that it deals in probabilities instead of in possibilities. It is easy to illustrate what may be termed the maxi- mum-and-minimum form of analogy.^ We will suppose 1 W. J. Harahan makes the following interesting comment on this method of estimate : "I note what vou suggest as being the proper method, and the reasons tou give therefor. I agree with Tou, except that it has seemed to me that the country through which the prospective railroad is to be built should also be looked over to determine ^rhether the conditions are above or below the average which the result which you suggest would produce. It seems to me that the great trouble with many estimates that are made of prospective trafSc is that they are made by people who do not know how to do such things, and who are optimistic from the fact that they are not acquainted with the difficulties arising in the actual opera- tion of a railroad. I have in my mind an actual example in my own experience, where a man made an estimate of the probable traffic of a railroad running through a territory in which there was a large amount of stone business developed on the line of an existing rail- road. He found out how much business this railroad was doing at that time and estimated that the new railroad would do an amount equal to at least half of the business that the exising line was doing. He did not discover, however, that the field was quite solidly taken up by the existing quarries, and that the existing rail- road had side tracks into these quarries in such a way that in almost every case the ground was occupied in such a manner that another railroad could not get into them, and also that the existing railroad owned the side tracks so that when the new railroad was put in operation it got an extremely small amount of this business because of the reasons herein shown. " A great many people think that all that is necessary to do is to get to a big city where there is a large amount of tra;Tie and that they will then be enabled to depend on that traffic. Ihere is nothing -more fallacious, because of the necessity of getting into the indus- tries where the business originates. Simply putting Ln a depot or team tracks in the heart of a large city does not mean that a large traffic will be enjoyed from that city." 16 RAILROAD ADMINISTRATION that a new railroad is projected to be built reaching timber, sawmill and agricultural country in Wisconsin. The pro- jectors plan, first of all, to build thirty miles of road. The country is easy, and the construction can be done very cheaply. The projectors estimate that they can build and equip the line for $18,000 a mile ; that it will earn $3,000 per mile of road from forest products, gi'ain, hay, and miscellaneous trafSc, and that it can be operated for fifty per cent. To demonstrate the improbability of these premises, compare them with the statement in Table I of a group of the most successful short-line railroads now doing business in Wisconsin. This table tells its own story pretty well. It excludes certain short-line railroads, such as the Chicago, Lake Shore & Eastern, which are controlled by larger systems or by outside concerns, and are thereby enabled to do an extraordinary amount of business, and it illustrates the operations of a group of short-line railroads which are among the most successful in the state. Some of them have been established for many years, and all but one have con- nections with at least two entirely distinct railroad systems, so that they cannot well be cornered, or forced to accept divisions of rates below what may be termed the ordinary commercial basis for their locality. It will be observed that not one of these roads earns $3,000 per mile, gross.^ The Stanley, IMerrill & Phillips, forty-five miles long, comes closest to it, with $2,595 a mile, 1 Of course 1908 was a poor year. Operations for 1909, not re- ported at time of writing, would be somewhat better. 00 o O O (N t> OJ 656? I>OIOCO Tt(-* —1 riO 1-ito oo N OS ■* M OS lO ■* OS.-I dcido uji-lCO ■-l' Ol :S ; ; . -73 . • • 3 • •o • : : 03 ■ u -s : i :-£ : i '■ 11^ |§3 -S-Sj^- : a m c . Sn m O CQ a oi'S . m 13 3 3 1-H ^ o (M 00 rH rn.-a t^ ■* t^ lO CO 3 |S U 03 C<3 t^ lO i-l*^ F4 « i-H o N t~ >n to °*6 00 .-1 to 1-H 05 (N lO l-H o. 9 d I-H |-§| CO i-H CO I— t CO 00 l> CO I-H 00 ll rH "3 OS 1— 1 «o CO o 00 CD OS to 1— ( 00 i-H CO IN o CD •3 6 05 00 00 CO 9 CO CO 00 CO OS ,1 8 I— t 1-H 8 l-H a S o CO I-H CO "3 rH CO CO d 6§ 6? 6§ 6? I-H 6§ Net Mile in Wise. 1> CO 00 CO 5 00 CO 05 I-H -)- l-H l-H Gross MUe'in Wise* i oT o CO CO t^" ¥ 1 1-H s (M I-H l-H 1 00 (§ i 1 •s 1 P »8 1 s ii 21 22 RAILROAD ADMINISTRATION together, although this credit actually rests, to a surprising degree, upon theory. After the project for building a new railroad or for extending an old one has gotten through its preliminaries successfully, and has been financed, the construction organ- ization is next to be considered. It is needless to enlarge on the basic similarity between the railroad construction camp and the army of invasion ; in both cases a large body of men must be fed, protected from special dangers, and kept healthy. No army and no railroad camp will work at its maximum if hunger or typhoid fever are added to the difficulties of the pioneering — a rule which was known and acted upon by Japanese army officers in the war with Russia, but was largely ignored in our own war with Spain. Railroad construction may take place where commissaiy and disease-preventing arrangements are of the simplest, as, for example, in New England, or it may be carried on where the greatest of all the problems confronting the en- gineer is to feed his men and keep them in condition to work. The Madeira-Mamore Railroad, in equatorial Brazil, has been building its short but important line for a genera- tion and has not completed it yet because the two problems of supplies and of the prevention of wholesale sickness were too big for the engineers who successively attempted it. The work is now going forward again, with its best hope in the exceedingly efficient medical department which has been organized. Certain stretches of road in west Africa have been built at fearful cost of human life be- cause these things have been neglected, yet it is distinctly TABLE III THE VIRGINIAN RAILWAY ORGANIZATION CHART I Mu Matter Mechanic Supt. Motive Power Mnsti-i- Coi' Builder Vice Pivs.fS: Geii.Manager Stcietaiy & Treasurer Assistant Ti-cnsurer Gen. Fi'eight & Pass Agent Mech. Draftsmen General Counsel Ass't Gen. Manager I Puichasing Dopt. Cliief Engineer Industrial Dept. Division Counsels Assistant Attornej' liight of Way Agent Road Musters Prin. Aes't Engineci-s on New Construction Superiuteiitlcnts Cliief Dispatcher Car Accountant Station Forces Operato Electric Operatoi-s Ahs't Chief Engineer Kes. Engineei's ou Mai ute nance Engr. of Structures Div.Engi-s. New Const, Locating Parties Siii)ervJsui-s of Driilgca Bridge Inspectoi-a Supt. Coal Terminal Res. Engiucei's & Parties on New Coustruetiou Yard Master THE BEGINNINGS OF A RAILROAD 23 within the power of the construction engineers to make bad natural conditions better, and they can frequently over- come them entirely, or almost entirely. As regards the commissary, a railroad is better off than an army because it can usually, though not always, maintain unbroken rail communications with its base, and nobody is trying to cut its supply chain. A characteristic construction organization is that of the Virginian Railway, shown herewith. The Virginian Rail- way runs from the bituminous coal fields of West Virginia to Norfolk and Sewalls Point, Virginia, a distance of 441 miles, through mountainous country; the main line was completed in 1908. The diagram as shown in Table III is really a combination construction and operation one, but the division will not confuse anybody. In general, a construction organization consists of two main parts : the headquarters staff, which is responsible for finances, plans, standards, and supplies, including both materials and the commissary; and the field staff, which carries out the work outlined by the headquarters staff. The chief engineer is the connecting link between the two ; he may be located either at headquarters or in the field, but wherever he is, he is ordinarily responsible for the field work. He is apt to have two kinds of officers reporting to him, and these — to use a figTire derived from army practice — may be described as staff officers and line officers. The staff officers are specialists who prepare plans or work out problems or act as eyes and ears for the chief engineer; the line officers command forces in the field and see to it that the work of these forces is done properly. It has been 24 RAILROAD ADMINISTRATION well said that the staff is responsible for things, the line for men. In a small organization the locating engineers report to the chief engineer direct; in a large organization they usually do the same, but occasionally report to the head- quarters staff. Where the new construction is of an ex- ceptionally heavy and important character, or where it crosses a number of states with strict statutory require- ments regarding the construction of new railroads, the job is often broken up into a number of component parts, tied together by the control which is exercised over them by the general officers of the headquarters company. An example of this has recently been shown in the con- struction of the Pacific coast extension of the Chicago, Mil- waukee & St. Paul. In building the new line west from the Missouri River to Seattle and Tacoma, a number of subsidiary companies were formed, including the Chicago, Milwaukee & St. Paul Railway Company of South Dakota, the Chicago, Milwaukee & St. Paul Railway Company of Montana, and then the Chicago, Milwaukee & Puget Sound Railway, which proceeded to absorb the construction com- panies. Since the chief engineer is usually the authority to whom both staff and line officers report, he is apt to have an assistant chief engineer, as in the case of the Virginian Railway, who carries on the actual field construction work. The assistant chief engineer is reported to by division en- gineers of new construction, or by engineers with some equivalent title. The division engineers are reported to by resident engineers, and the territory of these men is such THE BEGINNINGS OF A RAILROAD 25 that they can personally supervise the work of grading, track laying, etc. The bridges are apt to be assigned to the direct supervision of a bridge engineer's gang, and there is not infrequently an engineer who devotes his entire time to the study of the future supply of water for the locomotives, and proceeds with his own forces to build reservoirs and to erect and pipe water tanks. "While the construction work is going on, the head- quarters staff has a large number of important questions to work out, some of which are quite complex in their environ- ment and require skilled legal counsel and the exercise of much diplomacy. This is particularly true before the final location of certain parts of the work is decided upon. A railway, by virtue of its charter, has the right of eminent domain; that is to say, it may acquire necessary rights of way by the exercise of condemnation proceedings. It is a well-known fact, however, that land bought under con- demnation costs a great deal more than land acquired by private purchase, and the diplomatic forces of the new railroad labor long and earnestly to obtain their rights-of- way without going to the courts for them. , The attitude of different communities toward a new railroad varies widely. As a general rule, all localities are extremely anxious to get new railroad facilities and are willing to do a good deal of cooperative bargaining to secure that end. Consequently, a good deal of the right-of- way costs nothing, and, in some cases, as we have seen, the railroad not only gets its right-of-way free, but has im- portant gifts of cash or of land given to it. Among the chief inducements to our early transcontinental railroad 26 RAILROAD ADMINISTRATION builders were large grants of adjacent lands, in alternate sections, deeded to the railroad companies by the govern- ment.* It frequently happens, however, particularly in well settled parts of the country, that an individual or a group of individuals of speculative tendencies make a shrewd guess where a projected line is likely to go and obtain im- portant holdings of land across its path, at prices far below those which they feel confident the courts will give them if the condemnation privilege is exercised. In cases like this, the diplomatic forces of the new railroad must use their best ingenuity. Sometimes the course of the road is al- tered radically because of these hold-ups ; sometimes, again, such strong local pressure is brought to bear by boards of trade and other public-spirited bodies that the speculators are frightened out of their positions, but it may be as- sumed as a matter of course that every railroad will have to pay a great deal more than it ought for certain portions of its right-of-way, and it is the duty of the headquarters department to see to it that these portions are reduced to a minimum. ■ In these days, a more frequent kind of obstruction is that interposed by an existing railroad whose territory is being invaded. Here both parties are shrewd and de- termined ; both are well advised and both are apt to have large capital behind them. The importance of actual pos- session of certain coveted locations is so great that this 1 The governments of Canada and Mexico are now giving impor- tant aid to new transcontinental lines in the form of a direct cash subsidy. THE BEGINNINGS OF A RAILROAD 27 possession is often obtained by force of arms, and the dis- puted points are left for final determination by the courts, possibly months afterwards. An example of this has re- cently been shown in the desperate struggle between the HiU lines and the Harriman lines for the control of the best locations in the canon of the Des Chutes River in central Oregon. Similarly, the Western Pacific had a struggle in the courts and with armed forces which lasted more than a year for the possession of certain rights-of- way in Oakland, California. The headquarters forces in charge of construction must be prepared to cope with such emergencies rapidly and effectively, for time is an all-important element. Even apart from the effect of days and hours in a race for the possession of a low-grade route through a mountain pass where there is room for only one such, the headquarters staff has always in mind the fact that a vast sum of money — ^it may be ten or fifty or a hundred million dollars — is tied up in the work, paying from five to seven or eight per cent interest, and utterly unproductive until the road can be opened for business. Every day that this opening is delayed means an absolute loss of the interest on this capital, which can never be recovered, and will stand as a charge against the project in perpetuity. Hence, every one of the thousand things which can cause delay to a new construction enterprise must be attacked promptly and with vigor, and somehow gotten out of the way. When the line is built, the chief engineer turns it over to the operating forces, and thereafter the rails and the ties and the ballast and the cuts and the fills are primarily 28 RAILROAD ADMINISTRATION under the supervision of the engineer of niaintenance. On a small road it is probable that the same man is chief en- gineer and engineer of maintenance; on a large road the duties are certain to be divided. No matter how vi^ell the new road is built, a long time must elapse after its completion by the chief engineer's forces before it is in shape for safe operation at high speeds. New banks do a good deal of settling, especially in wet weather, and it is difficult, if not impossible, to tell how the drainage of certain cuts is going to work out until heavy rains or snows occur. A new line is subject to wash- outs and to holes in the sub-grade which occasion low spots in the track and lead to broken rails and derailments. The organization for watching over the new railroad during these troubled days is apt to be divided between the operating forces and the construction forces; between the division superintendent and the division engineer, but as soon as trains begin to be operated carrying , freight or passengers, the general character of the organization changes ; the army of invasion has given place to the army of occupation. CHAPTER II THE ORGANIZATION REQUIRED FOR THE MANAGEMENT OF A SMALL RAILROAD The four principal kinds of railroad officers — A typical organ- ization for a small road — The Hearne & Brazos Valley organization — The Salt Lake & Ogden organization — The operating, traffic, and treasury' departments on a road fifty miles long — General Order No. 1 of the Gulf Line Railway, seventy-eight miles long, outlining the duties of all officers and employees of that road and illustrating the principles of organization control. As a broad classification, it takes four kinds of officers to run a railroad, and their duties are, in the main, en- tirely unlike. It is customary to group under one head executive, financial, and legal ofiieers, since these deal with the property as a whole; appoint secondary officers, are directly in charge of capital and current funds, and are answerable to the directors on the one hand, and to muni- cipal, state, and national authorities, on the other. The other three classifications provide for operation, engineer- ing, and the solicitation of traffic. A properly constructed organization diagram begins with the stockholders at the top, followed by the directors, whom the stockholders elect to represent them. The di- rectors in- turn appoint a president of the company, who 29 30 RAILROAD ADMINISTRATION usually sits on the board, and to whom, theoretically at least, is given the power to fill, or use large influence in filling, the entire operating force. In practice this power is much modified by conditions, as will subsequently be shown, but the railroad organization in its simplest form can be plotted on a diagram shaped like an hour glass ; the stockholders concentrating their authority, through the directors, upon the president, whose own powers are dele- gated through vice-presidents, the general manager, the superintendents, etc., over progressively widening areas. The treasury officers who have their places in the same group are, in the simplest form of organization, merely the president's office staff, and the legal officers do not exist at all in the case of the very small concern. "When the president wants frequent aid from his legal advisers, how- ever, the position of general counsel or general attorney is created, and the law department of a large railroad ac- quires great importance and is often headed by a vice presi- dent. The secretary also belongs in this first group, the characteristic of which is that it deals with and directs the property as a whole, while each of the other groups deal with a department of the property, considered as a going machine. In the case of the smallest roads of all — little isolated lines built to develop a known kind of traffic in a definite locality, with the underlying hope or expectation of ulti- mate sale to the larger railroad which they feed — ^it frequently happens that the principal owner becomes presi- dent, even though he may have no operating duties what- ever, and may live a thousand miles away from his prop- MANAGEMENT OF A SMALL RAILROAD 31 erty. Then executive responsibility is centered upon a resident general manager or vice president. The Hearne & Brazos Valley Railroad gives an illustra- tion of this. The road is eighteen and a half miles long, running irom Hearne to Stone City, Texas, and owns one locomotive, two passenger cars and three freight cars. The president lives in New York. Actual executive power is concentrated upon the vice president and general manager, who lives at Hearne, Texas, and has two officers on his staff: a secretary-treasurer, and a general freight and pas- senger agent, who is also auditor. In such a case, the duties of the president may be assumed to be largely con- fined to decisions about any tentative sale, lease or exten- sion of the property (subject to the approval of his directors) ; to judgment on important purchases, and to general supervision of the work of his general manager as indicated in the current returns from the property. If any new financing is to be done, the president is in charge of it, whether he is resident or nonresident, and he makes recommendations to his directors about dividend payments. The vice president and general manager of the Hearne & Brazos Valley, having officers in the traffic and auditing departments to assist him, will naturally supervise their work, but will take direct responsibility for the three other departments — operation, maintenance of way and struc- tures, and maintenance of equipment. In operating the road, he is assisted by the following staff: One locomotive engineer, One fireman, 32 RAILROAD ADMINISTRATION One train dispatcher, Thirteen telegraph operators (who are joint employees of the traffic department, since they are station agents as well as opera- tors), One passenger conductor. One freight conductor, One passenger brakeman, Two freight brakemen. In maintaining the road, the general manager of the Hearne & Brazos Valley is assisted by a roadmaster, a fore- man, and a more or less permanent track gang of four men. Additional men are brought in for special work, as they may be needed. The roadmaster is also capable of making necessary repairs to bridges, culverts and structures, with temporary assistance when necessary. For purposes of maintaining the rolling stock, the com- pany has a small shop, in charge of a master mechanic, who employs such machinists and carpenters as may from time to time be necessary. The general manager sees the master mechanic frequently, and is advised by him about all equipment that is being repaired or that needs to be. The general manager is in close touch with the treasury and traffic departments ; he has a daily statement of tickets sold and of cars moved, and watches, either in person or by proxy, the business done by all the other roads in his territory, so as to be sure that his road is getting its share. It is his duty 1o decide on 'the rates which will induce new MANAGEMENT OF A SMALL RAILROAD 33 business, and to see to it that his regular customers are satisfied. The Salt Lake & Ogden Railway, in Utah, fifty miles long, is a type of the next stage in transition. This is a busy line, with ten locomotives and one hundred and one cars. In this case, the president is the active executive head, and, being general manager as well, it may be said that he combines static and dynamic functions in rela- tion to the property. He is assisted by a vice president, a secretary, a treasurer, an auditor, a purchasing agent, a general passenger agent, a general freight agent, a superin- tendent, a master mechanic, and a chief engineer, each of whom is reported to by his own force. The chief engineer has charge of maintaining track and structures. The master mechanic is in charge of the company's shops, and is responsible for the physical condition of the cars and engines, reporting to the superintendent. The superin- tendent is the busiest man in the employ. Responsibility for the actual operation and maintenance of the line is in his hands, except when he refers important decisions to the president and general manager. •These three officers — superintendent, master mechanic, and chief engineer — work more or less closely together, their duties, though subdivided, uniting in the basic fact that they must provide for the business which the traffic department gets. The traffic department on the Salt Lake & Ogden Railway is represented officially by the general passenger agent and the general freight agent, who are neither superior nor inferior in authority to the superin- tendent, but who report, as he does, to the president. Their 34 RAILROAD ADMINISTRATION business, concisely stated, is to sell the transportation which the superintendent furnishes. A certain amount of busi- ness wiU come to the road whether there are any traffic officers or not. A great deal more can be gotten if these officers are alert. The general freight agent of the Salt Lake & Ogden Railway must see to it that shippers are made satisfied with the accommodations he furnishes them for moving goods; he must make rate schedules, and study the needs of special industries, which can be induced to build along his road if freight rates from their factories to their place of market can be quoted which are more favor- able than those they are now receiving ; he must be perfectly informed about the natural advantages offered to certain kinds of manufacture or agriculture along his line. Be- sides securing new business, he must see to it that existing business is conducted smoothly ; that the station agents are performing their work with integrity and efficiency, and that the clerical force in his department keeps the work in thoroughly good shape without blunders and without unnecessary expense. The general passenger agent is responsible for the local ticket agents and the headquarters' clerical force; he must ask for additional trains when he needs them, and must cooperate with the superintendent in laying out the pas- senger time table. On a small line, his opportunities for creating new business will be less than those of the general freight agent, but he must be watchful for opportunities to run special excursions, to secure and advertise fairs, con- ventions, etc., and to encourage suburban development along his line. Whether his railroad be large or small, he TABLE IV ORGANIZATION FOR A ROAD 50 MILES LONG Vote tlist station aeentA aremsiiBllT-telegraph operatora also. lo that case they report primarily to 4h« Bnperintendent, hut take train ordeiB from the chief despatcher. 36 MANAGEMENT OF A SMALL RAILROAD 37 is likely to spend a good deal of time in answering people who are not satisfied with the quality or the speed of the service, or who want additional trains run. The auditor bears somewhat the relation to the treasurer that the traffic department does to the operating depart- ment. The treasurer is custodian of the company s funds ; the auditor brings him the funds. On a large railroad, the machinerj- for getting all the money, which the agents collect, into the auditor's hands is exceedingly elaborate; on the Salt Lake & Ogden it is comparatively simple. In brief, any auditor checks the agents by tissue copies of all waybills issued and by the stubs of the tickets, and collects for the sums indicated. The accompanying diagram (Table IV) will illustrate what may be termed a characteristic organization for a rea- sonably busy road about fifty miles long. Authority is con- centrated from a large body of stockholders on about a dozen directors, and these directors, who may or may not delegate responsibility to an executive committee, elect a president. The president is generally a member of the board, ex officio, and reports to his associates at each meeting. His active work lies principally along three lines: in supervising the direct responsibilities of the vice president and general manager and in dealing with outside bankers when the road wants to raise any new funds, and with outside lawyers when it wants to do extension work, when it is involved in any difficulty vnth constituted authorities, with customers or with claimants, and when legal questions of any sort arise. The chances are that a road fifty miles long makes habitual calls for legal aid on the same adviser or firm of 38 RAILROAD ADMINISTRATION advisers; but these gentlemen very likely have no title in connection with the road, and their services are sporadic and are paid on the basis of professional work done, with possibly a small retainer, to keep them from being em- ployed against the road. The vice president and general manager is in direct charge of the work of the road through the four officers who report to him. It will be seen by the diagram that two of these officers in the case of a small road are not apt to have many people with distinctive titles reporting to them. The secretary and treasurer has his cashier and stenographer, and the auditor has quite an office force, but the clerks are under his constant supervision; they do not do independent work, and their work is more or less vari- able, according to the needs of the day. The general freight and passenger agent is the head of the traffic department of a small road, unless traffic hap- pens to be the special training of the vice president and general manager. The general freight and passenger agent is the salesman for the road; he gets just as much freight shipped over it as he can, and must induce as manj* pas- sengers and excursions to travel over it as possible. The station agents receive various circulars of instruction from him relating to the conduct of their work. The station agents account to the auditor for tickets and waybills sold, as has been stated. They are also responsible to the super- intendent on questions of general conduct. The four branches of service reporting directly to the superintendent are represented by the master mechanic, who has charge of the mechanical force; by the chief en- MANAGEMENT OF A SMALL RAILROAD 39 gineer, who has charge of the maintenance force and also of the new construction (though all roads let much new construction to outside contractors) ; by the trainmaster, who supervises the actual performance of work by the train crews, and by the chief dispatcher, who deals directly with the telegraph operators. In ordinary practice the master mechanic, the chief engineer, and the chief dispatcher keep pretty close to their headquarters, while the roadmaster, re- porting to the chief engineer or division engineer, aeeordiag to the size of the property, and the trainmaster, keep pretty constantly on the road. The superintendent generally ar- ranges his time so that he spends something like half of it on the road and half in his office. Considerable space has been devoted to this character- istic small-road organization, because the organization of the largest railroad systems is founded directly on the prin- ciples here outlined, the differences arising mainly through subdivisions of authority. All roads alike, great and small, are apt to be subdivided into operating divisions of from fifty to four hundred miles, and each operating divi- sion is pretty sure to have an organization very much like that shown as reporting to the superintendent in the dia- gram. In a larger system, of course, the higher executive, financial, and legal officers deal with the entire property; but the work of the superintendent actually in charge of a division has definite physical limitations. Only in the case of the departmental organization, rare in American practice, is immediate authority over the workers on a division, or part of them vested in an officer higher up than the superintendent. 4 40 RAILROAD ADMINISTRATION The working organizatioa of a short line, as independent roads less than one hundred miles long are often called, is well shown in the following excerpts from general order No. 1 of the Gulf Line Railway. The Gulf Line Railway is seventy-eight miles long, running from HawkinsviUe to Bridgeboro, Ga., and is not a part of any larger railroad. Its principal commodities are cotton, cotton products, fer- tilizer for cotton growing, etc., and lumber. The traffic manager has charge of all freight, passenger and baggage traffic; commercial and soliciting agents re- port to him and conductors and station agents observe his instructions as regards rates and as regards the handling of freight, passenger, and baggage traffic. The soliciting and commercial agents make frequent reports, daily if necessary, to the traffic manager as to the condition of moving and prospective movements of freight and pas- sengers at all points on the line, inward and outward. The commercial, soliciting, and station agents are expected to keep themselves fully informed as to all prospective ship- ments of freight and passengers, when they are moving in any unusual volume or number and when one or more car- loads of freight are to be moved in territory within the jurisdiction of the station agent. If the agents are not satisfied that they can control the routing themselves, they are expected to caU on the commercial agent or any other officer of the company who can help them to secure the routing over their own line. The traffic manager and the commercial agents also keep before them a revised list of all the soliciting agents of the connecting lines, and they communicate with them freely by letter and wire, to secure MANAGEMENT OF A SMALL RAILROAD 41 routing on all shipments destined to points on their line or to points which may be reached with their line as a part of the through routing. The traffic manager is also responsible for a small industrial department under the direction of the president. He is expected to be informed well in advance about probable new movements and new shipments, and to establish routings, rates, divisions and connections on all manufactured and other products that it may be necessary to handle, if these are not taken care of already. The traffic manager reports direct to the presi- dent. In the operating department the general superintendent reports direct to the president, and he has charge of per- manent way and structures. He receives reports direct from the trainmaster and from the dispatchers, station agents and trainmen. His responsibility is extended over the ordinary operations of the equipment and over the supply of water, and he has physical charge of the tele- phone and the telegraph lines. The general superintendent is required to systematize the track work of each foreman, dividing it into periods and apportioning specified periods for each class of work. That is to say, for surfacing, ditching, renewing ties, etc., he must keep himself informed of the progress which each foreman is making, and must report progress to the presi- dent at frequent intervals. The section foremen are ex- pected to keep themselves fully informed about their own local track conditions, and to consult with each other and ex- change ideas with the general superintendent and the man- agement from time to time. They are encouraged to feel 42 RAILROAD ADMINISTRATION that they are in line of promotion to be roadmasters, or for further advancement. Their general orders outline for them the standards of maintenance to which it is desired that they shall conform, these standards being determined by the president and general superintendent. Station agents report jointly to the general superin- tendent, to the traffic manager, and to the auditor. They are expected to be active traffic soliciting agents at all times ; they are required to remit their cash to the auditor daily when they have ten dollars or more on hand; they must use great care in keeping their passenger stations and freight houses in order and in serving the public and, in addition, they are required to report each instance where they see trainmen damaging freight by careless handling. They are specially admonished to keep in mind the fact that they have a dual task to perform ; they must be faith- ful and courteous attendants to the customers of the road, and they must be efficient and faithful in the exercise of their specific duties to the company. Trainmen report to the trainmaster on operating details and to the mechanical foreman on mechanical details, the mechanical foreman and the trainmaster alike reporting to the general superintendent. Their current actions in per- forming the business of the road are fully covered by the book of rules with which they are supplied, and they are aided in operating trains safely by the car inspectors, who look after the condition of the equipment in service and report on defects at once to the mechanical foreman or to the general superintendent. Once a month there is held in the company's general TABLE V WORKING ORGANIZATION OF GULF LINE RAILWAY Board of Direcfors £xecDtive Committee Secretary and Treasurer Commercial Amenta Traffic Manager lx>cal Agents I. Snperintendent Claim Agent 7 Pespatchers Car Acconntant & Train Master 7 Master Bfecbanic Station Ageota Shop Forces 44 MANAGEMENT OF A SMALL RAILROAD 45 office a management meeting, at which the president, the traffic manager, and commercial agents, the general super- intendent, the trainmaster, and the counsel discuss the en- tire affairs of the company and exchange ideas. The essential workings of this organization in detail are shown on the accompanying diagram (Table V). It will be seen that in actual daily practice the president has direct control over the workings of the treasurer, accounting and law departments, and indirect control over the operating and traffic departments. The general superintendent, who re- ports to the president, has entire chai'ge of the civil and mechanical engineering work, as well as of operation, ex- cept where this work involves a change in the existing status. In that case the details are pretty sure to be handled directly by the president. The traffic manager, who reports to the president, has entire charge of getting the business, except where the problems are so difficult that he calls on the president for advice and cooperation. It should be noted that the diagram of the Gnlf Line Railway has been simplified somewhat, but fairly represents actual conditions. CHAPTER III THE ORGANIZATION OF A LARGE RAILROAD Charles E. Perkins's comments on the work of the general manager — '^he organization of the Norfolk & Western Rail- way, with a graphic diagram and excerpts from the general rules — On the Norfolk & Western the third vice president gets the business, the second vice president moves it, the first vice president is the head of the treasury and account- ing departments, and the president coordinates all depart- ments and is the connecting link between the owners and the operating forces — ^Extension of these principles on larger systems; the Atchison, Topeka & Santa Fe; the Harriman lines — Details of the organization of the Union Pacific and Southern Pacific; Mr. Kruttschnitt's comments — The part which statistics play — ^A defect — Two contrasting types of large railroad organization, the Pennsylvania and the New York Central — The organization of the Pennsylvania com- pared with the organization of an army — Advantages and disadvantages of the departmental organization of the New York Central — ^Mechanical department organizations shown in detail — What good organization means, and how team- play is brought about — Few roads really know whether their mechnical departments operate at a profit or at a loss — The manager and the labor unions. Perhaps as clear a statement of the work of the man- ager of a large railroad as was ever made, is that contained among the economic papers of the late Charles E. Perkins, formerly president of the Chicago, Burlington & Quincy. 46 ORGANIZATION OF A LARGE RAILROAD 47 Mr. Perkins was not merely a highly successful railroad president, but had the unusual gift of being able to analyze his own work and to tell why he did things, as well as how. His memorandum on the subject of railroad organization is reprinted herewith.^ " The question, what is the best organization for the management of a large railroad property, is one which will admit of so much discussion, and of such wide differences of opinion in the end, that it would be presumptuous to say that any given or particular plan is the correct one. It is, nevertheless, very necessary that there should be a well- defined organization of some kind, in order to produce the best results ; and it is obvious that, the form of the organ- ization being determined upon, it cannot, and should not, be changed without the most careful consideration by those who are primarily responsible for the management of the property. " "When the property to be managed is small, the ques- tion of organization is tolerably simple; and it may vary to suit the varying tastes, and whims if you choose, of dif- ferent managers. The president of a company, or vice president, may himself act as general manager, and general superintendent, and chief engineer, when his road is two or three hundred miles long; and, if the traffic is not too heavy, he may find it good economy to combine all these offices in himself. But the great railroad systems are con- fronted with new and quite different situations; the one- man power in matters of detail must cease, and straight 1 By courtesy of Mr. Perkins's daughter, Mrs. Edward Cunning- bam, Jr. 48 RAILROAD ADMINISTRATION lines must be drawn. They must provide for obtaining the advantages of the large property and large organization, without losing the advantages of the small property and small organization. A company owning five thousand miles of railroad, and consuming correspondingly of all kind.s of material and supplies, ought to buy cheaper, and can afford to inspect more scientifically and rigidly, than a company with only five hundred miles, and ought also to carry less stock in hand, in proportion to the extent of its property, than the smaller concern. Again, the large concern, employing thousands of men, and needing con- stantly to replace men in places of responsibility and trust, can afford to, and should, have more regard to some system for preparing and educating men, than would be practicable or necessary in the management of a small property. " On the other hand, the great advantage which the manager of a small property possesses, is in being able to look after details himself, and how to organize the large concern so as to get the same economy and efficiency in these details, is the most difficult, as well as the most important, part of this question of organization. " There are two essentially different methods practiced by the large railroad systems. One method is, to spread the working organization, so to speak, over the entire sys- tem ; while the other makes a number of different working organizations, or units of management, each complete in itself. The latter method is the one which I have con- cluded to recommend for adoption by the C. B. & Q. Com- pany. It seems to me to possess great advantages, which I ORGANIZATION OF A LARGE RAILROAD 49 think a careful reading of the plans I propose will tend to make apparent. It involves a somewhat more expensive management ; but I believe this is far more than made up by the great efficiency and economy in the details. To spread one working organization over the entire property gives heads of departments too large a field for anything like careful attention to details, and makes necessary their dependence on subordinates who are far removed from their immediate oversight, while the plan of separate and distinct units of management, on the other hand, confines heads of departments to smaller fields, and makes them directly responsible to a local head, or manager, who has general charge of the service within his jurisdiction of limit." The two principal methods referred to by ^Ir. Perkins have been the subject of much earnest discussion for a great miany years, in view of the rapid growth of railroad properties and the consequent responsibilities placed in the hands of the central administration. The method which Jlr. Perkins refers to as that of spreading the working organization over the entire railroad is known as the de- partmental system, and has always been the prevalent sys- tem of organization in Great Britain and in countries where the railroads are operated by Englishmen, although this tendency has been much modified in recent years. The other method of organization referred to by Mr. Perkins, which he describes as making a number of dif- ferent working organizations or units of management each complete in itself, is known as the divisional, and is the characteristic form in use in the United States, as will be 50 RAILROAD ADMINISTRATION seen by reference to the accompanying diagrams. The characteristics of these two general kinds of railroad organ- ization will be discussed more fully in Chapter IV. At present, we are dealing rather with the concrete workings of a number of American railroad organizations as we find them. The first diagram (Table VI) covers the organization of the Norfolk & Western Kailway, which is 1,942 miles long and has approximately 950 locomotives and 37,000 cars. About seventy per cent of the total freight traffic of this road consists of coal, coke, ores, and other mine products; the other traffic of the road is well diversified and the bound- aries of the property are Columbus and Cincinnati, Ohio; Norton, Ky. ; Bristol, Tenn. ; Winston-Salem and Durham, N. C. ; Norfolk, Richmond, and City Point, Va., and Hagers- town, Md. It wiU be observed that this organization is neither clearly divisional nor clearly departmental. The division superintendent has direct supervision over the track maintenance forces, but not over the mechanical forces. The rules of the Norfolk & Western Railway define the duties of the executive officers ' as follows : President. — Subject to the^ control of the board, the president shall have general charge, control and supervision of all business and operations of the company and over all its officers, agents, and employees; he shall, in the absence of the chairman of the board, preside at all meetings of the board of directors and shall be ex-officio a member of 1 A more extended discussion of railroad officers' work is con- tained in Chapter V. TABLE VI ORGANIZATION OF THE NORFOLK & WESTERN RAILWAY, I9l0 Stockholtlei-8 Agiiciiltiiiul it Iiidustridl Aj^'t GoiuTul Counsfl IstYk-erifsiilint General Solicitor Locul Attornt.'j'3 Ass't Gl-uI Soli.'itui- Abs't Solicitor Auditor oC Receipts Auil'i' Disljui-seiiicuts ■5^ 2nd Vice Piosidcnt & Gen'l R[»iiapt'r r 1 ^~" 1 ^■^ 1 1 2 t e ^ c. s. "^ 5 05 n 5 f^. Pt rt s & .i '^ H 3id Vice President & Tiamc 3Ian«gcr ruicliiiBiny Agent Gen'l Stoiekeeiiei Stoiokeepei-s cm r 1 s o s 1 a 1 51 ? j= a S ^ "=! ^ I 5 O >,1 u '-/•^ S o < ORGANIZATION OF A LARGE RAILROAD 51 the executive and finance committees; he shall preside, in the absence of the chairman of the board, at meetings of the stockholders, and he shall, unless directed by the board, attend in person or by substitute appointed by him and act and vote on behalf of the company at the meetings of any corporation in which the company holds stock. First Vice President. — Shall supervise the treasury and accounting departments. Second Vice President and General Manager. — Shall, under the direction of the president, have charge of the operations of the transportation department; shall have general supervision of the railroads and property of the company and shall be responsible for the safe and econom- ical management of the same. Third Vice President and Traffic Manager. — Shall, un- der direction of the president, have general control and direction of the traffic department and shall be specially charged with the development of traffic upon the lines of the company and with the traffic relations with connecting and competing companies. The Norfolk & Western is a good example of the organ- ization of a large railroad in its simplest form. It will be seen that there are three main departments ; one, headed by the first vice president, is entirely fiduciary and statistical, dealing with the company's current revenues and keeping exact record of those revenues and of the statistics of train movement, commodity movement, etc. The second vice president is also general manager, and has all the direct operation of the road in his hands, including the chief en- gineer's department and the whole civil engineering forces 52 RAILROAD ADMINISTRATION of the road, and the superintendent of motive power's de- partment and the whole mechanical forces of the road. The third vice president is responsible for getting the busi- ness, both passenger and freight. In brief, on the Norfolk & "Western it may be said that the third vice president gets the business, the second vice president moves it, and the first vice president collects and pays the bills and keeps the records. It is the duty of the president to see to it that the three broad divisions of the work are all conducted in harmony; on the Norfolk & "Western he also receives a report from the purchasing agent direct, although this is rather unusual, and the gen- eral counsel and the agricultural and industrial agent also report to him. Moreover, as a member of the executive and financial committees of the board of directors, he is the essential connecting link between the representatives of the owners and the men in direct contact with the work done ; he knows the point of view of both. The stockhold- ers cr proprietors of the road elect a board of directors to carry out their ideas. The board of directors, being itself somewhat too large for efficient administration, elects an executive committee, which has full authority in the con- duct of ordinary business. The president sits in the ex- ecutive committee and thus the ideas, first of the stock- holders, then of the directors and then of the executive committee, center on him, and he puts them into execution through his three, vice presidents, each of whom has his own staff and attendant organization. The organization of the Atchison, Topeka & Santa Fe is an excellent example of the administration of a road ORGANIZATION OF A LARGE RAILROAD 53 materially larger than the Norfolk & Western, and yet handled in very much the same way. The Atchison, To- peka & Santa Fe is a railroad 9,792 miles long, and on June 30, 1909, it had about 1,872 locomotives, 1,176 passenger train cars and 54,698 freight train cars. It riins from Chicago to San Francisco with a long branch from its main lines in Kansas to Galveston, Tex., and it also reaches Denver, Colo., and El Paso, and has an extremely large and important branch line mileage in the grain states of the central West and elsewhere. The company does a large transcontinental freight and passenger business, and its tonnage is unusually well diversified; coal and other mine products amounted, in the year ending June 30, 1909, to 28.39 per cent of the total freight moved; agricultural products to 23.08 per cent; manufactures to 19,81 per cent ; forest products to 13.67 per cent ; products of animals to 8.24 per cent; grain, distinguished from general agri- cultural products, to 8.37 per cent, and merchandise to 6.81 per cent. . Chief in authority are, of course, the stock- holders; then the directors, then the executive committee, and then the president. On the Santa Fe, the general counsel, whose work is very voluminous, reports to the executive committee instead of to the president," as is gen- erally the case. The Norfolk & Western has three vice presidents; the Santa Fe has five. Three of these we recognize at once, since they have charge of the broad divisions into which tbe administration of all railroads must fall — operation, traffic, and accounting. . On the Santa Fe, however, the vice president in charge of account- ing has also added to his responsibilities the land and tax 54 RAILROAD ADMINISTRATION department, the affairs of the subsidiary companies, and the timber and fuel properties. The purchasing department on a railroad as large as the Santa Fe has enormous possibilities of careful or of careless administration, as the case may be, and the man in charge of that department is very properly a vice presi- dent. New construction also has its department, with a vice president at the head. The Atchison, Topeka & Santa Fe has been doing an enormous amount of new construc- tion in the last ten years, and it would obviously be imwise to expect the vice president in charge of opera- tion to cover this entirely different field also. In the case of the Norfolk & Western it was perfectly possible to arrange matters this way, because, while constantly en- gaged in grade revision and improvement work of this kind, the property is sufficiently compact so that the president himself can keep in personal contact with this work. On the larger systems, however, the construction department is often organized separately, with a vice president at the top. It should be noted that on both these roads, and in- deed on almost all roads, what may be called the Static civil engineering — ^the maintenance of the property as it exists at a given period — is largely controlled by the division superintendent, who directs the work of the roadmasters and their gangs. The greatest company-worked railroad organization in the world, in point of miles of line and of diversity of con- ditions as well, is that of the Union Pacific and Southern Pacific systems, built up by the late E. H. Harriman. Mr. Harriman placed 18,600 miles of rail lines and 35,600 miles ORGANIZATION OF A LARGE RAILROAD 55 of steamer lines under a single, highly efficient administra- tion, which has been conspicuously successful in getting things done in an orderly and systematic fashion, and in keeping a working record of the conditions of the property and of the business. Mr. Harriman himself was president of both roads, and the leading spirit in both executive com- mittees. Since his death, the same positions have been ably filled by his associate. Judge Robert S. Lovett. Reporting to the president, the Harriman organization provides for a director of maintenance and operation, and a director of traffic. All the other current business depart- ments except the fiduciary are subordinated 'to those two, which may be adjudged equal in importance — one getting the business, the other moving it. Of course, it was essential in so huge an administration that the exceedingly respon- sible managers should be relieved of detail ; otherwise their time would be frittered away on minor matters, or on the affairs of one road or one division, and the property as a whole would not be managed at all. To effect this, an enormous amount of subdivision was essential, with the re- sponsibility carefully graded, and placed in the hands of thoroughly competent men. The traffic end of the business naturally subdivides more readily than the operating end. The traffic director has his headquarters staff of capable assistants; he has traffic managers located at all important strategic points, and these managers in turn direct the host of local agents, solicitors, etc., keeping their chief 'fully informed of all that is happening, and working out problems in accordance with his instructions. 5 56 RAILROAD ADMINISTRATIO The operating organization was a much more compli- cated matter, because it embraced such a diversity of things, including not only the operation of a multitude of train services, but the effective maintenance of way, struc- tures and equipment; purchases; new construction; elec- trical equipment; marine equipment and operation; signal- ing, etc. The working out of this is shown in the accompany- ing diagram (Table VII) . The director of maintenance and operation is reported to by six operating vice presidents, one subsidiary president, a manager of water lines, a direc- tor of purchases and supplies (also a vice president), a consulting engineer, an electrical engineer, a mail traffic manager (jointly with the director of traffic), two staff assistants, and a special representative — fifteen persons in all, of whom ten are the heads of large organizations, and five are staff specialists and assistants. Each of the operating vice presidents, and the sub- sidiary president, is at the head of what is in effect a complete railroad. The vice president in charge of the operation of the Union Pacific Railroad, for example, has jurisdiction over 4,000 miles of line — an operating entity just about double the size of the Norfolk & Western. He has his own chief engineer, superintendent of motive power, purchasing agent, and general superintendent, and the subsidiary organization reporting to each of these officers is in no important respect different from what it would be if the Union Pacific were operated as an inde- pendent railroad. As Julius Kruttschnitt, director of maintenance and operation, expresses it, " The theory of the organization is TABL] OPERATING ORGANIZATION OF THE UNION I UiiioD PiicifK' Stoc-khnldei-s 1 Boaiii of Diiectoi-s 1 ■■ csidciit iiiid ChnivuKin uf Boanl Diifftor of Muiutc- Asat. to Pi'e&ideDl Special liepresentativea t-o MaiUTittffio Managei- (Joint with Trariic Department) Director of Purchases & Supplies 1 General Stationer Vice President & General Manager J_ GCD, Storekeeper Stationer - Storokeepera — U.k li. CurpenlerB I yigDalmen I I RouJ Masters |- F^^^ Electrical Enjjineer u J □> - I ^ (0 — ™ Vice President & General Mannj^i-i General Storokoeper Stationer > ^=^ All Stcntnboal Emplojees Gen Forcinau 1 11.4 B. Carpent^rn Sinnal Bupi!r»*i['or 1 SUcial MniDlaiDere |- Rondmastcr 1 Section Foremen r * Track Laborers fetation Atrcnt' h-C I 1- I I Ei^gnu-era I __ Uliiuf " ■ ' Dlapatcher Train men I _ „, . . I ^ Dispatcher X I !— Clapatchini; Ij ^ Oporatii .J Consulting Enpineer Vice President & ( Chirf Ln'/iiiw ABftCblcf Train rteent I Electrical EngiGstr Gea.BriJgo inapeclar Dial. ^- Engineer B.4: B. Corpenlera Div.Supta. =1= We^-tii T I 1 I Operators \ I Rood MasierB M L... ,. .. ^1 Section ForemeDJ r Track Laborers! [ Yard Masters ] I "L.. D!3piit.'lili.g Operators k: >- TABLE VII TION OF THE UNION PACIFIC AND SOUTHERN PACIFIC SYSTEMS Southern Pacific Company Stockholders Board of Dii-ectore Pi-esident nud Chairman of Board Dii-ector of Mainteiiauce & Operation Asst. to President, Louisiana Lines S4i 9>s Assistant Director of Maintetiftnce & Operation Vice President & General Manager SU|.t.l)iDillK .'ars iiml l(u(,-ls Scuretar; Ry- Cluba L— Assistant to Director of Maintenance & Operation Vice President & General Managei- V'liiel Special Ajpnt EH "T Chief Trnln Agent I Supt, Telegraph Pi«t. Eoplneer T r TravellnE Engineers Cnipentera Supervisor I Rcaldenl 1 I I Master Car Repairer I Statloi IL jSection Fore station Clerks r Traok .l^borera I T ard Masters T v- I Dlflpatobers | I Dlspatoblug: Operators I ^1 ^4 Engine men LJ fj Signal Sii|)ervTsur I SigpalwtD I Road Mnsters ■ Li Operating Engineer Cut Betvico Agent , Supt. Tclesropli D.^ B. StatiuD Asents I I Opt;niturB L Station Clerks I Dlapatobers I Dispatching Operators ^ Englneincr^ -) H ^"'°°- I Knglneer llain.or Way — %■% General Manager Chief lilnglneer :nit BurcbaslDJ Agent Chief Dispatch CI L ■ TralDiueu Port Captain Stcvfdorea Lonphorcmen VT 11 ss Manager Clerks Keepers Supt. of Tugs Captains of Tugs Captains of Lighters Machinerj InapectoT i^upl. of Itulls & Maohlner? Chief Etigloefrs Eleclrlciau . ForemoD Carpenter Engineers of Lighters ORGANIZATION OF A LARGE RAILROAD 57 tjiat the different properties must be brought into close relationship with each other, yet preserve a full measure of autonomy. It is intended that a superintendent shall be the general manager of his division; and the general manager, in turn, be the responsible operating head for the property. The director of maintenance and operation has charge of all new construction. The general managers are responsible for new construction in their respective terri- tories. In the building of new branch lines, location and grading are usually under the immediate direction of the respective chief engineers. The superintendents do not become responsible until the track-laying stage is reached, and sometimes not until the track is completed. . . . The office of the director of maintenance and operation stand- ardizes and correlates, supervises and investigates, com- mends and criticises, equalizes and differentiates as among different properties, but leaves each to work out its own problems of administration. Its noninterference with de- tails is shown by the fact that comparatively few positive instructions have to be given. " The management of the properties is vested in seven operating vice presidents,^ each of whom, with his corps of assistants, is- working out solutions of problems on his lines which are common to all. A study of seven solutions of the same problem must necessarily demonstrate that one of the solutions is the best. "... With a view to systematic working out of de- tails for standard practices and uniform devices, the gen- i This number includes the president of one subsidiary company. 58 RAILROAD ADMINISTRATION eral superintendents, the superintendents of motive power, the chief engineers and the signal engineers meet in semi- annual conferences. These meetings, while separately organized for each branch of work, occur simultaneously in the same city, so that some joint sessions may be held to discuss overlapping subjects of common interest. Ap- propriate committees are appointed to initiate or consider details. The minutes of the various parent bodies have the force of recommendations, and contain a recorded vote of the members whenever action is not unanimous. These minutes are forwarded through the various general man- agers, who append their own frank comments and criti- cisms. The director of maintenance and operation approves these minutes wholly or in part. Recommendations so approved become the standard, and remain the standard until otberwise ordered. After a fair trial, any officer or employee is at liberty to reopen the subject and to sug- gest through the proper channels a substitute or modifica- tion. Initiative is preserved by leaving the meetings untrammeled. They are legislative bodies assisted by the individual general managers as expert advisers and subject to the approval or veto of the director of maintenance and operation. A very large percentage of such actions of the director are confirmatory ; only a slight portion is nugatory. Still another part consists in referring back for further consideration questions on which ther^ is too marked a divergence of opinion. When time does not permit await- ing the semiannual meeting, a mail vote is taken through the general managers. . . . Our officers appreciate that they are working out an experiment in railroad operation, ORGANIZATION OF A LARGE RAILROAD 59 and the knowledge that a new idea or successful device of any sort, if proven successful, will be adopted as standard practice on all of the associated lines acts as a powerful stimulus to originality and initiative. " The coordination of so many units in so great a variety of territory, the maintenance of discipline among an army averaging over 80,000 officers and employees, the conduct of affairs which of necessity overlap jurisdictions of general managers, the duty of reporting conditions and results to the president in New York, all demand the utmost possible legitimate information promptly reaching the responsible head, the director of maintenance and operation. His office is administered upon the theory of a minimum of direct action made possible by a maximum of information, he assisting each one of the units below from the bounteous lessons of experience furnished by all. ' ' This long extract from a recent address by Mr. Krutt- schnitt before the New York Railroad Club is given verbatim, because it shows so clearly the general admin- istrative theory upon which, by preserving local autonomy and relieving the director of maintenance and operation of an 18,000-mile system of direct management, he is able indirectly to produce the highest kind of operative effi- ciency, and to make the best practice the practice of all the lines. The part which statistics bear in this work is im- mense. They cover all vital facts relative to the business done and the facilities for doing it; they are so arranged as to be comparable readily, division with division, and present period with past periods, and they include in their scope a series of competent estimates of the business likely 60 RAILROAD ADMINISTRATION to be done in the near future, so that adequate provision for it can be made. A single illustration ^ will show at once the value of applied statistics of a certain sort iind the possibilities of economy through centralized administration of great prop- erties. The assistant director of maintenance and opera- tion, among other duties, handles the larger movements of the equipment of the system, which is pooled. He has a daily statistical record of the location of the 75,000 freight cars under his jurisdiction, showing loaded and empty cars on hand at an enormous number of points ; cars in transit ; orders for loading; cars interchanged with foreign lines; bad order ears, etc. With this information at hand, he can move cars from regions where there is a surplus to regions where there is a shortage, and the Ilarriman car pool, in two years after its inauguration, brought about a reduc- tion of fifty-four million miles movement of empty freight cars! The economies effected in some other departments are comparable with this, though they cannot all be shown so graphically. It is easy to understand that the centralized purchasing department of the Harriman lines, for example, has a huge advantage over small roads, and is in position to get the best materials at bottom prices, working in con- junction with the policy of standardization already de- scribed. The only material defect which the writer has observed in the working of the Harriman organization is one arising 1 See also Chapter X, dealing with Control Through Statistics. ORGANIZATION OF A LARGE RAILROAD 61 directly from the size of the property and from the con- scientiousness of its chief organizer. Mr. Harriman had a prodigious grasp of facts and circumstances; it used to be said of him that he knew the location of every side track on the system and the record of every roadmaster. At all events, he scrutinized personally nearly every recommenda- tion for a physical change in any part of his properties. This close personal attention to detail kept him almost perfectly in touch with all that was going on; it also pro- duced delays, sometimes vexatious ones, in the conduct of the work. Recommendations for minor grade revision ; for the con- struction of new passing tracks; for laying heavier rail on certain sections, would come up through Rlr. Mohler, or Mr. Calvin, or some other one of the vice presidents acting as general managers of the main operating entities. They would be passed upon by Mr. Kruttschnitt, in Chicago, and then forwarded, with his approval, to Mr. Harriman, in New York. There the secretary of the associated com- panies would take them in charge, and present them in batches to Mr. Harriman, who would review them with great rapidity, note the comments of the director of main- tenance and operation, and add his own judgment, which was partly the opinion of a critical observer with the whole plan of the properties fresh in his mind, and partly the opinion of the financier, deciding whether the present time was favorable for the suggested improvement work. Mr. Harriman would thus review and accept plans for perhaps a million dollars* worth of work in half an hour, forming an actual opinion on each project as it came up. The 62 RAILROAD ADMINISTRATION wisdom of these decisions was seldom questioned, but then the papers had to be referred back to Mr. Kruttschnitt, and he, in turn, had to note the action of his chief and com- municate it to the local general manager, who had no authority, until that moment, to organize his engineering forces and proceed with the work. This plan was not perfect. The actual time required to pass documents up and down this official flight of stairs was considerable, and in the meantime, if the situation was a competitive one, there was always the danger that an opportunity would be lost, or that some important shipper in noncompetitive territory would be alienated from cordial relations with the road because of the delays in providing needed facilities of one sort or another. The tremendous advantage of having all betterment work passed on by a financier in close touch with the whole property and with the money markets of the world was, to a degree, offset by the essential slowness of the process, and if the chief executive had been less capable, a situation analogous to the operations of a governmental bureau might easily have arisen. There is no obvious reason why the final authority in these cases, up to a large, specified limit, should not be vested in the director of maintenance and operation, since that officer is in frequent touch with the president, in New York, and would probably not be less efficient if he added close watchfulness of the current financial situation to his other responsibilities. The president would then have greater freedom to consider the inter-relation of the prop- erties, physical problems and traffic problems of unusual magnitude, and new financing and refunding. TABLE VIII ORGANrZATION OF THE RENNSYT.VAN1A RAIT-ROAD COMPANY, 1909 Seci-etary Ist Vice PrcBideiit Assistants to the Presideut Asat.St^cretaries ABfits.to the Secretaiy Transfer Clerk Asuiutunt Transfer Clerka Assistant to the Ist Vice President Ileal Estate Apent Assistant Real Estate Agents Purchasing' Agent Aast.Pnrchnsing Agents Asst.to the Pui-chiisiiig Agent Superintendent Insurance Dept,. Asst. Superintendent Insurance Dept,, Board of Officers Pension Depart nieut Rt<.c'kli..ldcrfl Jiniud of Directors President 2nd Vice Pi-esident Assistant to the 2nd Vice Pi-esident Engineer of Branch Lines Chief Entriucer 1 1 Prin. Asst. Engineer of Branch Lines AsBt. Chief Engineer Assistant to the Chief Engineer Engineer of Bridges & Buildings Comptroller Assistant Comptrollers Asflt. to Comptroller Aud. Mdse. Fi't. Receipts Asst. Aud. Mdse. Frt. Receipts And. Coal Frt. Receipts Asst. Aud. Coal Frt. Receipts Aud. Passenger Receipts Asst. Aud. Passenger Receipts Auditor Miscellaneous Receipts and Accounts Asst.Auditor Miscellaneous Receipts and Accounts Auditor Disbursements A&'jt.Auditor Dishursenieuts Auditor Union Line Asst.Auditor Union Line Asst. to Aud. Union Line 3rd Vice President Freight Tuaffic Manager General Freight Agent of through Traffic General Freight Agent of locnl Traffic Assistant General Freight Agent x: Division Freight Agents J- Freight Claim Agent Assistant Freight Claim Agent General Coal Freight Agent Coal.Freight Agent Manager of fbe Empire Line Western Supt. of the Empire Line Manager of the Union Line Western Supt. of the Union Line Eastern Supt. of the Union Line Passenger Traffic Manager General Passenger Agent Assistant General Passenger Agent Division Ticket Agents District Passenger Agent« General. Baggagr^ Agent 4th Vice President Asst. Trcasni-ers AsRintants to the Treasure Assistant Cashier. Registrai-s of Bonds Assistant Registrars of Bonds Chief Paymaster Paynmsterg Superintendent Employees' Saving Fnnd General Superintendents Principal Asst. Engineers Superintendents of Motive Power Division Supeiiuteudents Ili^aiun, Hu^ineers Geneinl Manager Assistant to the General Manage General of Motive] Chief Engin Maintenance Engineei Maintenance Supt. o£Tel Supt. Voluntary Relief Department I Asst. Supt. Voluntary Relief Dept. TABLE VIII ORGANISATION OF THE EENINSYLVANIA RAILROAD COMPANY, I 909 JBoard of Directoi's President 2nd Vice President Assistant to the 2nd Vice Piesident EnjrineiT of Branch Lines Chief Entrineer 1 1 Prin.Asst.Engiueer of Braufh Lines Asst. Chief Engineer Assistant to the Chief Entfineer Enjfineer of Biidtres & Building Comptroller Assistant Comptiollei-s Asst. to Comptroller And. Mdse. Frt. Receipts Asst. Aud. Mdse. Frt. Receipts Aud. Coal Frt. Receipts Asst. Aud. Coal Frt. Receipts Aud. Passenger Receipts Asst. Aud. Passenger Receipts Auditor Miscellaneous Receipts and Accounts Asat.Auditor Miscellaneous Receipts and Accounts Auditor Disbursements A&st.Auditoi' Disbursements Auditor Union Line Asst.Auditor Union Line Asst. to Aud. Union Line 3rd Vice President Freight TEaftic Manager General Freight Agent of through Traffic General Freight Agent of local Traffic Assistant General Freight Agent 31 Division Freight Agents Freight Claim Agent - Assistant Freight Claim Agent General Coal Freight Agent CoaLEreight Agent "Manairer of Che Empire Line Western Supt. of the Empire Line Manager of the Union Line Western Supt. of the Union Line Eastern Supt. of the Union Line Passenger Traffic Manager General Passenger Agent Assistant General Passenger Agent Division Ticket Agents District Passengei' Agents General Baggage Agent 4th Vice President Asst. Treasurers Assistants to the Treasurer Assistant Cashieri Registrars of Bonds Assi.stant Registrars of Bonds Chief Paymaster Paymasters 5th Vice President Superintendent Employees' Saving Fund General Manager General Superintendents Principal Asst. Engineers Superintendents of Motive Power Division Superintendents liijuainn. Engineers Assistant to the General Manager GenlLSupt.of Transportation T Supt. of Freight Transportation Supt. of Passengar Transportation General Supt. of Motive Power Chief Engineei- of Maintenance of Way . Engineer of Maintenance of Way Supt. of -Telegraph Supt. Voluntarj' Relief Department Aset. Supt. Voluntary Relief Dept. General Counsel Chief of Motive Power Three Asst, General Counsels Chief Claim Agent Claim Agents SpeciaLAgents General Solicitor Assistant General Solicitors District Solicitors ORGANIZATION OF A LARGE RAILROAD 63 Under Judge Lovett's administration, the executive committee performs much of the work which formerly was really done by Mr. Harriman personally, and there is observable a wholesome tendency to reflect authority back to the two chiefs in Chicago, responsible to the executive committee for maintenance and operation and traffic.^ Two contrasting types of large railroad organizations are furnished by the Pennsylvania and the New York Central. The lines directly operated in the Pennsylvania system are divided into three main groups, including the Pennsylvania Railroad, and the Northwest and Southwest systems of the Pennsylvania Lines west of Pittsburg and Erie. To show the respective organizations of two large and exceedingly busy railroads operating in Trunk Line territory, we are here comparing the Pennsylvania Railroad proper with the New York Central & Hudson River Rail- road proper, excluding the western lines affiliated with both systems. The Pennsylvania organization has been well termed a military one, since it clearly differentiates line and staff officers, and full power of meeting present conditions is vested in the line officer in command. As may be seen from the accompanying diagram (Table VIII), there are five vice presidents, one in charge of the purchasing, real estate, in- surance, and pension departments; one in charge of new construction and also of the comptroller's department; one in charge of traffic ; one of the treasury, and one of opera- tion. 1 For details of an important change in unit organization which is being tried out on the Harriman lines, see the Appendix. 64 RAILROAD ADMINISTRATION The general manager and the chief of niotive power report to the vice president in charge of operation. The general manager is a line officer, the chief of motive power a staff officer, responsible to the fifth vice president for the company 's mechanical standards. Reporting to the general manager are the general superintendents and the general superintendents of transportation, the former line officers, in charge of operation, the latter staff officers, harmoniz- ing the work of the operating department to the needs of the traffic department, and specifically in charge of car supply. Each general superintendent likewise has staff and line subordinates, the principal assistant engineers and the superintendents of motive power being staff officers, in charge of things; the division superintendents being line officers, in charge of men. The actual responsibility of operating the road, division by division, rests with the division superintendents, each of whom has his master mechanic, his division engineer, trainmaster, roadmasters, and dispatchers. The staff officers instruct the mechanical and civil engineering forces how to do their work; the division superintendent tells them when to do it, so far as it relates to current operation. Thus the staff officers build bridges, shops, and branch lines with their own organiza- tions, and then turn them over to the division superintend- ent to operate and maintain. The general superintendent supervises several divisions ; the general manager, the whole road. Let us see how this compares with the organization of an army. The board of directors is the war council, or ORGANIZATION OF A LARGE RAILROAD 65 general staff ; the president is field marshal or general ; the vice presidents are major generals; the general manager corresponds well enough to a brigadier general. Each gen- eral superintendent compares with a colonel ; his principal assistant engineer and superintendent of motive power would be majors of engineers, and his division superin- tendents would be captains, each with his own subordinate officers and company of privates. There are many depart- ments of the army which do not fall within the scope of the captain's duties. He need not know how to use a transit, or calculate the stresses in a bridge, or set the valve gear on a locomotive, but he must be able to com- mand his company, and he must accept all current respon- sibility for his position; technical assistance of every sort needed will be furnished him by the brigadier general and his staff. This is a good working organization. Armies and rail- roads alike have to be prepared always to meet emergencies involving rapid, clear-headed action under all sorts of dif- ficulties; they both must include a staff of the best obtain- able experts to decide the details of procedure so long as there is time to decide them. The army and the railroad have nearly the same need for civil engineers ; the military commander's need for engineers of ordnance, or of sanita- tion, is balanced by the railroad's need for mechanical engineers and a traffic organization. A railroad managed on the departmental plan, however, is not comparable to an army. The company, or division, here has several partial commanders, reporting to head- quarters through different channels; the lines of authority 66 RAILROAD ADMINISTRATION do not concentrate short of the general superintendent or of the general manager. Such a situation would be created in an army if one lieutenant in each company was in charge, let us say, of small-arms practice, reporting neither to the captain nor to the colonel, but to an adjutant on the brigadier general's staff, while the other lieutenant was a lieutenant of engineers, reporting likewise to the briga- dier general's staff. "With a mobile unit, like a military company, such an organization is unthinkable ; with a fixed unit, like a railroad division, it can be managed, though the results are questionable. The New York Central organization is more or less like this as is shown in Table IX. » It will be observed that the senior vice president (who has become president since this diagram was constructed) is reported to in the operating de- partment by a vice president and general manager, and by two staff officers. The vice president and general manager is reported to by thirteen officers. His direct operating aide is an assistant general manager, who is reported to by two general superintendents and a signal engineer, also by a superintendent of telegraph and a superintendent of freight transportation, on current operation. But the unit of operation is the division ; let us compare the authority of the division superintendent on the Pennsylvania and the New York Central. The Pennsylvania division superin- tendent is reported to by a master mechanic, a division engineer, a trainmaster, roadmasters, yardmasters and dispatchers. That is to say, he has full control of op- erating his division, and of current maintenance of way, structures and equipment. On the New York Central, the TABLE IX DEPARTMENTAL OPERATING ORGANIZATION OF THE LEASED AND OPERATED LINES OF THE NEW YORK CENTRAL & HUDSON RIVER RAILROAD, MARCH I, 1908 Snpt. Ti-legrnph As-st, Gen. M|,t. Tiuiisportalion Gi'n. pujit Koudi of /ll.niij- I Su|,(. of I'li-iLTlit Ti-aiisportiiUuu L^liiii'i;;:;'! HL'S^ ll'^ ^I £'ii'2 2; L'^iraii' '^ j I Gtn. t^uiu. SiKiial Eiigii ^ Gi Wt-st 11. Siipl. .t Alhaiiy ?biff Siiptrvisor of Signals Signal ^Slll)l.■^visol•s Si-ninr Vi.u rirsiJimt (NnwPmsidLMit) GL'n'l Puivliasiug Agent Gfnt'ijil Manager u, Supl. Mdlive IViwer, lioUing Stoct A 5[i\cIiiopry Chict Engiiiff A..,t. Gvn- lilt'i. Maiiiteiiuuce of Way As^^t. Ck'H. iMgr. I'lihlic Ki'lations ;c. 1 _L^^ a a S a ■5 = a W 'o W^ a a s 1! a to a ft w -1 ^r, P 2 fa c p 3 .2 ^ £. a 1 ai m Mia a 5 3 -- ag ^a i3& Asst. tuGon. Mgr. Stnt'tics A Cnnh-'tt 1 1 3 a 5 « s ts "T* S 2 i5' t: fl 5 a £ :3 Gen'l Stc.rtKfi pi-r r^ ■n, ^ s 3« ?■ •s a 3 S ° s .a B ■s fli — ^a ^ ORGANIZATION OF A LARGE RAILROAD 71 reporting to the master mechanic of the western division, selected as typical, is shown in Table XI. The following excerpts are also quoted from this same excellent paper in the American Engineer (December, 1908) : " The effectiveness of an organization must be judged by its ability to increase the efficiency of the department, or concern, as a whole. This result can only be obtained by improving the efficiency of each individual in the organ- ization, from its head to the least important employee. This requires ample supervision working along definite lines and based on certain important fundamental prin- ciples. " It is possible for a strong and gifted leader, by pure force of personality and with a poor organization to back him, to bring about a fair result ; but let him leave it even for a short time, and the efficiency immediately falls off. It is further true that in a large organization of this class he cannot bring the efficiency above a certain point because he will be swamped by details, even though he is of excep- tional capacity, and cannot give sufficient thought and attention to the larger problems which must be solved to guide it properly. ' ' One of the cardinal principles of a good organization is that every officer and foreman in it should see that he has under him a man who can successfully take his place, either temporarily or permanently. A test of a good or- ganization is whether the efficiency is appreciably affected by the absence of any one man. " Good organization means that there is team work and 72 RAILROAD ADMINISTRATION cooperation between its different branches or departjnents, in fact, that department lines are practically lost sight of, and the men press on enthusiastically, shoulder to shoulder, not for the success of any one department, but for the suc- cess of the organization as a whole. "... The master mechanic has in his desk what is known as an efSeiency card for every fireman and engine- house employee. Eventually, he will have a card for every man under his charge. One of the fundamental principles of good organization is that the efficiency of each man be increased to the maximum. The efficiency of such men as work under piece work is automatically increased, but necessarily a large proportion of the men do not come under this head, so that gauge must be placed on them. . . . By thus locating the poor and weak men they can be encouraged to improve, and if they do not show the neces- sary improvement, they may be dropped from the service. . . . Every three months a power meeting is held in the office of the master mechanic, at which the road foreman of engines, engine-house foreman, shop superintendent and his assistant, and general foreman are present. The master mechanic has a card index before him showing the condi- tion of each locomotive boiler when last reported. As the engine number is called out, the road foreman of engines under whose jurisdiction it comes, reports on the condition of machinery. If the conditions are such that it will be necessary to make repairs during the next three months, the class of repairs and the month during which the engine will be shopped are decided upon." This meeting is one of a number of stated gatherings ORGANIZATION OF A LARGE RAILROAD 73 for the direct purpose of promoting efficiency. The staff officers meet frequently with their chiefs to discuss stand- ards, or the kinds of things that are to be done; the line officers are held strictly accountable for the way these agreed methods are put into practice. Thus a railroad, organization is not merely a device for insuring that specific tasks are accomplished; it must also insure that they are accomplished as cheaply as is consistent with agreed standards of excellence. Rather more railroad mechanical departments than otherwise are defective, in that the management never really knows what specific pieces of work are costing it. Many items enter into cost, and unless both the line supervision and the staff super- vision are carried out with a high degree of orderliness and efficiency, the elements of petty waste all through the organ- ization will add up to an appalling total. This fact has peculiar weight in the organization of a great railroad. An industrial concern, manufacturing car wheels, or repairing locomotives by contract, is always cer- tain to know whether it is operating at a profit or a loss. But a railroad mechanical department is engaged in the simultaneous performance of many manufacturing jobs, using the same plant and the same force of employees for tasks which differ widely from day to day, and the finished product is not sold to the public, but is turned over to the operating departnient for company use. It is obvious that a large amount of such work must be done on every rail- road, hence shops and employees must be provided. It is the duty of the organization to make sure, not only that the work is done when it should be and in the required 74 RAILROAD ADMINISTRATION manner, but that nothing is manufactured in the company's shops which the company could better afford to buy else- where, when all circumstances are taken into account. This can only be accomplished by the strictest and most in- telligent kind of cost keeping; by constant comparisons with the most efficient outside organizations for doing the same kind of work, and by incessant effort to increase the efficiency of the individual employee. Without going very far into the intricacies of this sub- ject, it is sufficient for our purpose to note that the shop manager seeking to promote efficiency is apt to find himself constantly at odds with the labor union. The labor union is the great leveler; it fights sturdily for a standard wage, and wants that wage to be measured by time rather than by output. If it is measured by output, the control of the union over its members is by that much lessened, since the best men get a rate of pay dependent upon what they are doing for themselves, and higher than the rate which the cooperative effort of the union can get for them. Labor is often suspicious of piece work, or premium work, in its varying forms, because of the unfortunate fact that payments on an individual effort basis have not always been free from an attendant disposition on the part of shop managers to make the exceptional record of one season the minimum standard of the next, so that the only result of brilliant work was to make it progressively harder for the average worker to earn his living. Needless to say, this is shortsighted practice. It is generally recognized now that a premium must not turn out to be a punishment for somebody else; if it is to produce any useful result it ORGANIZATION OF A LARGE RAILROAD 75 must be a genuine reward for ability, with no strings tied to it. Otherwise, the pressui-e exerted by the fellow work- ers will be so great that the most skillful will deliberately curtail their output. The hardest problem confronting any railroad manage- ment is the task of dealing with its own employees in such a manner that the employee will clearly see that his inter- ests are the same as the interests of the company. This is a task of the first magnitude, because the individual employee cares onlj' that his personal share be as large as possible, while the railroad is equally concerned in keeping the whole expense account as small as possible. The solu- tion, so far as there is one, evidently lies in paying for things instead of for hours, but in practical application this requires an amount of fairness on both sides that is not always attainable. Real progress has been made in the last ten years, especially in the mechanical department, where conditions used to be nearly, if not quite, the worst. But the road is long. CHAPTER IV DIVISIONAL VERSUS DEPARTMENTAL ORGANIZATION The seven divisions of work which must somehow be done — In a pure departmental organization these divisions would not meet short of the board of directors — But on a large rail- road there must be subdivision somewhere; in a depart- mental organization it is based on the kind of work; in a divisional the subdivision is largely territorial — This does not apply to the traffic or accounting departments, which are more or less uniform on all roads — American practice tends strongly to divisional organization, British practice to departmental — ^Departmental organization on the Lacka- wanna, the Buffalo, Rochester & Pittsburg, and the Rock Island — Arthur Hale's comments; the departmental organ- ization the best training school for specialists ; the divisional organization the best school for all-around railroad men. We have seen that a railroad has four main kinds of work to do. But the work subdivides naturally into seven distinct parts. The business must be brought in, and this is performed by the traffic department; it must be moved, and this is performed by the operating department. The civil engineering department has to do with the track, roadbed, bridges, tunnels, and stations; the mechanical en- gineering department handles the construction and main- tenance of the locomotives and cars that move over the roadbed; the financial department is responsible for the 76 DIVISIONAL VERSUS DEPARTMENTAL 77 coUection and disbursement of all funds however received, ■whether from current income or from capital; the pur- chasing department does the railroad's shopping, and the law department must judge of every contract entered into by the company, and must be the ultimate authority on questions arising from tenure of land, claims made by in- dividuals, government orders, etc. Of course, in the eon- duct of a large railroad there are many minor departments also, as, for example, the insurance department, which is closely allied to the financial department, and the industrial department, which is closely allied to the traffic department. But the seven subdivisions of work enumerated above are common to all railroads, and are entirely unlike, although in the case of a small road the functions of two or more of them may be discharged by the same officer. In a purely departmental organization, these seven de- partments would meet nowhere short of the board of direc- tors; there would be a responsible head for each one of them, and each would carry on its share of the work of the road, observing the requirements of fellow officers en- gaged in different branches, but not being under their direct authority. It is obvious, however, that no general manager, how- ever competent he may be, can actually attend to the details of operation of a railroad, say, 5,000 miles long; he must delegate authority to a great many helpers. The natural way this delegation works out is the creation of the division. This division may be long or short; a busy rail- road terminal in a large city is often made a division by itself with its own division superintendent; while, on the 78 RAILROAD ADMINISTRATION other hand, a division superintendent may handle success- fully several hundred miles of track in the open country and generally has more than 100 miles to take care of. The Northern Pacific Railway, 5,700 miles long, has sixteen division superintendents, or one for approximately every 350 miles of line, on the average; the Southern Railway, 7,500 miles long, has twenty-three superintendents, or one for every 325 miles, on the average; the Pennsylvania Railroad, operating 6,200 miles east of Pittsburg, has twenty-four division superintendents, one for every 250 miles, approximately. No matter what the theory of organ- ization be, there must be a man in actual direct charge of the operation of each designated section of the property. From this fact has arisen the divisional organization. It is obvious that the division superintendent must, in any case, have large authority. The operation of trains carry- ing goods and passengers — passengers who must at all costs be protected in life and limb, and goods which are often perishable, usually valuable, and for which the railroad company is at all events liable as a common carrier — means that the authority of some executive who has almost in- definite powers to deal with emergencies, must be felt by everybody. In the pure divisional organization this executive ofSeer, the division superintendent, is made a lit- tle king over his small domain. He does not solicit trafBc nor does he collect or disburse funds, nor is he a lawyer nor primarily an engineer, but everybody actually employed on the division reports to him on questions of current operation. Even in the strictest form of divisional organization, TABLE XI LAKE SHORE & MICHIGAN SOUTHERN ORGANIZATION OF THE MASTER MECHANIC'S OR LOCOMOTIVE OPERATING DEPARTMENT! WESTERN DIVISION TABLE XI LAKE SHORE & MICHIGAN SOUTHERN ORGANIZATION OF THE MASTER MECHANIC'S OR LOCOMOTIVE OPERATING DEPARTMENTi WESTERN DIVISION Mastec Mecbaaio Asst. JVIuster jHechanic :i Engine Housu Foi^emun Gi'iiiiij Rapids Engine House Poi-eiiiau Adi-iciii Foiomau Elkhart Entjine House Enp. Dispatcliei' Cullers Night Foioman Elkhart E. H. iluuli. SItop Foi-enian Boiler Mater Foreman Hea\y Repuira Maihinists Mntli, .Vjips. Ciii'peiitei-9 Paiiitei-8 FipL' Fitters Blucksiiiitb B.S. Helpei-8 Tiusuiith Sta. Eni^iueer Sta. Fiieumu Hostlers Cinder Pit Men Wipei-8 Cinnei) MeD Eutfiue Toole r Matl. Men Tool Kuoni Ma a Helpei-3 Machinist Foreman Boiler ^Makers B.M, Helpers B.M. Apps. Boiler Wabber B.W. Helpei-8 Mjii'hiuists Mftth.Helpei-s Mnih.Apps. Engine Dinpatchei Ciilleis Machinists Tank Men Air Brake Man Engine Tooler Pas8.Ho. Wiper Inspectors Mach. Helpers Shop Fii-eman Helpers Cinder Pit Men Hostlci-s Sta.Eii'cnieD S.F. Helpei-8 Engine House Foreman Deti-oit Foreman Air Line Jc. Engine House 1 1 Asst. Foreman Asst. Foi-enian Toledo Air Line Jc. Ent'ine House Engine House Mach nists 1 ^Jachi nists Muih. IIi-l|ie.-s Math. Helpei-s luspc-ctoi-s Inspectors Boiler Makei-s Boiler Makei-a B.M. llelpew B.M. Jlelpei-B Boiler Waslier Boiler Washer B.W. Helfera B.W. Helpeia Shi. Kngineer Sta. Fireman Aast.Sta.EiifT. Paintei' Sta. Fii-emaa Wipe« Painter Bo per WijJer Shop Fiisanan .Doper Callers Shop Kii-enian Phone Clerks Callers Hostlers Phone Clerks Helpeia .Hostlei-8 Flue Setters Helpers Tinnei-3 Traveling Fireman. Superintendent of Shops. lioad Foitinan of Engines Boilur Shop Foreman Tin Copper & Pipe Shop Assi, Foreman Boiler Shop Engineei-s Firemen Fore m (in Tauk&Liu'ht Sheet Iron Wk. Flai.ger Layer Out Boiler iMakei-s B.M. Hclpei-s Rivet. Hearera Punch & Shear Oper.utoi-s BrilLPiess Openitoi-s B.M- Apps. Piece Work Inspectors Foi't'inan Macluue & Erecting Side Foreman Erecting Side Foreman Frame Gang Coppersmiths Tinsmiths Pipe Fittere P.F. Helpers BoiletMakers B.M. Helpers B.M. Apps. Shop Instructor Draftsman w pq > < -[ < a z oc 111 I- co 111 X H o CO z O a 111 I I- z o I- < N Z < o DC o BRITISH RAILROAD ORGANIZATION 135 by an oiBcer described as chief passenger agent. The North Eastern, which has been the most advanced of all British railroads in its desire to work out a scientific plan of organization, has in effect copied American practice in the appointment of three divisional superintendents, each one of whom has charge of one section of the entire system, including, roughly, the supervision of all the work on his section, except that of the mechanical engineer. A change along the same lines, but even more radical, was made in 1909 on the Midland Eailway, which went one step farther along lines of American organization and divided up the work of the mechanical department. For- merly there were in this department two main sections; one for building and repairing locomotives and for main- taining the various machinery, and the other for handling the engines in service, this department also supervising the work of drivers and firemen. The current control of drivers and firemen does not yet find its way into the hands of the district superintendent, but a new officer, termed the superintendent of motive power, is created, who has full responsibility for the equipment which is in service, while the chief mechanical engineer is responsible for sup- plying the equipment and for repairing it. Thus it will be seen that a feeling exists that the old hard and fast departmental organization had defects. The changes which are being made to cure these supposed de- fects have not yet arrived at the point of view of railroad managements in this country in concentrating current control of all operation, including the work of the mechan- ical and the civil engineering departments, upon the divi- 10 136 RAILROAD ADMINISTRATION sion superintendent, while .the higher officers in the re- spective departments have staff rather than line functions, and the traffic department alone is separated. A very important fact, however, in relation to the success with which department work is coordinated in England is the comparatively small area covered even by the largest rail- roads. The Great "Western has more mileage than any other British road, operating approximately 3,000 miles, but the two most distant points on the system are only about 250 miles apart by air line distance, and there is not a railroad in England which could not be encompassed with a circle having a radius of 150 miles. The following five diagrams (Tables XVIII, XIX, XX, XXI, XXII) prepared from the general organization plan of the Lancashire & Yorkshire show the respective char- acteristic divisions of authority in England and in Amer- ica. British railroad administration could doubtless have been simplified and made more economical in a good many particulars if there had been a strong central body which represented the interests of all the roads, and at the same time was on the lookout for the interests of the public — a body corresponding to the general administrative councils in Prussia or in Italy. It has been a characteristic trait of British managers to be jealous of other enterprises in the same field. Perhaps no argument was more frequently heard in opposition to the campaign for ton-mile statistics than that these statistics would give business secrets to rivals. This fear is doubtless what has prevented British railroads from forming an effective central union to direct TABLE XVIII CONTROL OF THE PASSENGER TRAIN CONDUCTOR^ OR PASSENGER GUARD. ENGLAND General Manager Chief Traffic Manner Passenger Snpeiintendent Passenger Superintendent District Passenger Saperinteudent Station Masters Inspectors Passenger Train Conductor AMERICA Vice President in Charge of Operation General Manager General Superintendent Division Superintendent 137 TABLE XIX CONTROL OF THE LOCOMOTIVE ENGINEER, OR ENGINE DRIVER. ENGLAND Oeoeral Man&ger Chief Mechanical Engineer Assifitaat Chief Mechanical Engineer Assistant : Loco. Running Dept. Assistant to Above Running Shed Foreman AMERICA Vice President in charge of Operation Q Supt. Motive Power General Manager Local SupL of Motive Power General Superintendent Master Mechanic 139 TABLE XX DINING CAR AND REFRESHMENT ROOM MANAGER ENGLAND AMERICA General Manager Secretary Note:- Ou some Bntish lines the dmiug' car and refreshment room manager reports to goueral managei', dii-ect. Freaident VioG President in Charge of Ti-affic General Ti-affic Manager Passenger Traffic Manager Diuing Car and Refreshment Room Manager 141 TABLE XXI CONTROL OF THE FREIGHT TRAIN CONDUCTOR, OR GOODS GUARD. ENGLAND GeuenI ManaKor Chief Traffilo Manager Goodi Trains Saperiatendent Assistant Goods Trains Saperintendent AMERICA Vice President in charge of Operation General Managrer General Superintendent Division Superintendent 143 TABLE XXII CONTROL OF THE TRACK LABORER; ENGLAND AND AMERICA AMERICA Chief Engineer Engineer Main, of Way BRITISH RAILROAD ORGANIZATION 147 the general conduct of affairs. Much the same situation exists in this country, although from different reasons. The American Railway Association is a weak body, con- cerned far more with detail than with general constructive questions of policy. Within the last few years the British Railway Associa- tion has been much strengthened, and it is now becoming to be somewhat representative, but it is at least as far from eiBcient working as the American Railway Association is. The British Railway Clearing House is on a different plane entirely. In spite of the jealousies and suspicions that have existed between companies from the earliest times, it was recognized many years ago that there was an obvious need for a central body to deal with the propor- tions accruing to specific companies on traffic routed over two or more lines. Even before the first British railroad was built, in the old coaching days, there was a clearing house of the proprietors of stage coaches which had its headquarters at Golden Cross, Charing Cross, and arranged between various stage coach proprietors the amounts re- spectively due from passengers or parcels booked for a journey by way of state coaches owned by perhaps half a dozen concerns.^ The British Railway Clearing House was established in January, 1842, Each company joining in the clearing house agreement is represented by its chairman or by one of the directors, who forms part of a committee which meets from time to time to provide the necessary laws and 1" Railways," by E. R. McDermott. 148 RAILROAD ADMINISTRATION regulations governing the conduct of the business, and to supervise through a subcommittee the work which the clearing house is doing. The secretary of the clearing house reports to this subcommittee once a month, while a general body, composed of the general managers of the railroads joining in the clearing house, meets quarterly to discuss matters bearing directly or indirectly on through rates and their apportionment. Parliament stands behind the clearing house by an important act which provides that whatever is declared to be due by the clearing house shall be legally due and must be paid, and from the deci- sions of the clearing house in this respect there is no appeal. In 1904, according to Mr. McDermott, the Railway Clearing House was responsible for almost 700,000 goods wagons, whenever these wagons were traveling off their own lines. As has already been mentioned, the clearing house has a large force of outdoor clerks, who are stationed at all junction points and take the numbers of all goods wagons which leave or come on a specified road. There are over five hundred men engaged in this work. In a single year they trace some thirteen million journeys of pas- senger coaches and goods wagons on lines which do not own them. The clerk at the junction has in his note-book a history of each goods train which goes from one line on the rails of another. Abstracts from this are sent once a week to the clearing house, where four hundred indoor clerks arrange and check the results. Then, after allowing two days as free time in which a car must be unloaded, the clearing house calculates a charge against the line detaining the cars at the rate of three shillings per day, although BRITISH RAILROAD ORGANIZATION 149 ears of costly construction or of large size take a higher rate, which sometimes runs as high as twenty shillings a day. The bearing of the clearing house on British railroad administration is important. Without it, the work of the officers responsible for ear supply and car distribution would be very heavy, although probably no heavier than in this countrj', where the companies have not yet been able to get together on a general ear clearing arrangement. It is noteworthy that Arthur Hale, who is at the head of the committee ^ of the American Railway Association concerned with the general questions arising out of car distribution, is gradually inducing one road_ after another to clear its car balances through his office, and there seems fair likeli- hood that the greater part of the railroad mileage of the United States will some day clear its cars in that manner. At present, the car accountant or superintendent of trans- portation of each road must keep his own records. Viewing British railroad organization and administra- tion in its broader aspect, the American observer gets the impression that the work of the country is done by men of a high order of integrity who execute routine matters with great fidelity, but are apt as a class to be rather slow in changing inherited forms of administration for new ones, to meet current requirements. There are reasons to believe that the departmental type of organization has resulted in duplication of effort, and that economies could have been gained by the concentration of current responsi- 1 This has now been given the title of American Railway Clearing House. 150 RAILROAD ADMINISTRATION bilities some distance below the committees of the board of directors who now handle them. I am inclined to think that British railroad managements have also suffered from lack of thoroughgoing control through statistics. In both these important particulars, however, there has been a great change in England during the last five years, and the younger blood in the management appears quite willing to undertake broad administrative changes which were looked at askance by older generations. The problem of the fearful load of capital which every British railroad must carry is more serious. This is a complex topic, which does not belong in the present chapter, but is discussed somewhat fully elsewhere in this book. Whether or not British administration has cost somewhat more than it need to have cost in proportion to the service rendered, the fact must not be lost sight of that the quality of this service has been high. CHAPTER VII TYPES OF GOVERNMENT RAILROAD ORGANIZATION The government's different position from that of the private company — Voluntary and reluctant government control — Voluntary control in Germany; the Italian experiments; reluctant government control in India — ^Details of railroad administration in Prussia, showing the subdivisions of au- thority and the system of national and of circuit councils — The Betriebs Inspehtor and the American division superin- tendent — Classification of Italian railroads — The difficulties encountered in administration on a quasi-private basis — The Acts of 1905 and 1907 evidently based on Prussia — Efforts to develop the Indian railroads without concessions unsatisfactory to the government — Capital and earnings in India — The 1896 regulations — The Robertson report in 1903 and the finance committee report in 1907 — General results in India good. Viewing railroad organization in the broader meaning of the word, as connoting the administrative framework which makes it possible for railroads to be built and op- erated in a country, it is evident that the government has a somewhat different position, as an administrator, from the private corporation. The government's credit is broader than the corporation's credit, and it has the im- portant advantage of possessing the law-making power, so that its administrative regulations have the force of 11 151 152 RAILROAD ADMINISTRATION btatutes. On the other hand, as soon as any kind of an enterprise is relieved from the direct necessity of making its own living, economic inefficiency in varying forms is almost certain to be developed, while political needs and economic needs may be widely at variance. Leaving out of consideration government regulation of railroads in which the state has no capital invested, there are two clearly distinguishable types of government rail- road organization. One type may be described as voluntary control, as a result of direct policy; the other, as involun- tary, or reluctant control, assumed because it seems to be the best way out of a present difficulty. The Prussian state railroads furnish a capital example of successful vol- untary government control; the government railroad sys- tems in India and in Italy stand as important instances of reluctant state control, with varying degrees of reluctance and varying results. The German empire wished to control its railroads for purposes of industrial development and for military ex- pediency. It did not propose to have them become a drain on its resources. All these ends could have been attained under private ownership, and doubtless would have been, for the system was growing rapidly through corporate venture before the government policy of buying and of building railroads was put actively into effect in 1880. But the new Germany was developing along military lines ; the government wanted all the power it could get, and it was most natural that the railroads should have been in- cluded in the policy of centralization. In Italy there has been an abundance of experimenting, GOVERNMENT RAILROAD ORGANIZATION 153 both with private and with state control. In the early days of Italian railroads, the control was largely private, but the ventures were mostly unprofitable, and there was no incentive to corporate capital to extend them, especially in view of the political situation, the jealousies between the states, and the national reluctance to permit foreign control of the transportation system. For nearly a decade following 1870, therefore, attempts were made by the gov- ernment to take the lines over, and considerable mileage was actually purchased. But the general policy was periodically altered by changes in the ministry, until finally, in 1878, a commission was appointed which stud- ied the subject exhaustively for three years and then, in 1881, reported against a state railroad system.^ Meantime, while the commission was at work, more mileage had been taken over by the government, but the national credit was extremely weak, and resources were wholly lacking to meet many of the purchases which had been arranged for. Contracts were finally made in 1885, in accordance with which the roads were to be purchased and operated by private companies, but the state was to be primarily con- cerned in making improvements and extensions. This contract could be terminated in 1905, and was duly ter- minated at that time, since operation of the system as a whole remained unprofitable, and dissatisfaction over de- tails of the service was widespread. The government had to do one of two things, advance new sums and readjust 1 This account ia condensed from Hadley's " Railroad Trans- portation." 154 RAILROAD ADMINISTRATION matters with the companies, or take the lines back into its own hands again. It chose the latter alternative.* 1 The following account of the situation in 1905 is condensed from an article in the Zeitung des Vereins Deutscher Eisenbahnverwal- tungen for February 15, 1905, published in the Railroad Gazette: " July 1, 1905, marks the end of the twenty years' period during which the Italian railroads, while almost exclusively owned by the government, have been operated under contract with private com- panies. Previous to 1885 the Italian railroads were owned and operated in a great variety of ways. Some were owned by the government, but operated by private concerns; others were owned by the latter and operated by the former. Some were owned and operated by the government; others by private companies. As a result of these experiences, the government in 1885 acquired the ownership of the railroads, but farmed out their operation to four great companies (the Southern, Adriatic, Mediterranean, and Si- cilian companies) for seventy-five years, the government, however, reserving the right to terminate the contracts in twenty years, that is, in 1905. These contracts have been the source of endless litigation and quarrels. The government bureaucracy has frequently been accused of dilatoriness in carrying out its share of the agreements with the railroads. Needed extensions have thereby been indefinitely delayed. Through the indifference and mismanagement of the govern- ment, needed changes in railroad rates, time tables, and general traffic arrangements have been made impossible. The poor connec- tions between the various lines, the inferior station accommodations, and the insufficient rolling stock are largely accounted for in this way. " Neither the government in owning nor the companies in oper- ating the railroads directly assumed the responsibility of renewing and enlarging the equipment and rolling stock. To meet these expenses a series of reserve funds were created by the contracts. These funds were to consist of annual contributions of given per- centages of the railroads' gross earnings. These, it was unfortu- nately assumed, would amount to a certain figure in 1886, and would increase in a certain proportion. In point of fact, the initial figure was put too high, and the increase fell far below the original expectations. For instance, the fund intended to meet the cost of improving and enlarging the railroads' equipment should have amounted to $20,000,000 in 1895. In reality, it barely reached GOVERNMENT RAILROAD ORGANIZATION 155 In India the government did not want to own railroads if it could avoid it, but it very much wanted to develop the vast areas of the empire, and the problem in recent $2,000,000 by that year. As a result of these miscalculations, the roadbed, rolling stock, and stations rapidly deteriorated, and have long since fallen far below the requirements of mpdern railroad traffic. The terminal facilities of such an important port as Genoa are antiquated and very deficient. Elsewhere the roadbed is in a bad condition; the rails are often in a condition dangerous to traffic. The government has had no means to make improvements. At least $100,000,000 is necessary to put the railroads in proper condition. The poor condition of the rolling stock is known to all travelers. In the original contracts of 1885 the life of the cars was put at too high a. figure — for passenger cars and locomotives forty years, for freight cars sixty years. In Prussia the similar figures are twenty-six, twenty-one, and twenty-five years. (The life of an Amer- ican freight car is ordinarily assumed to be ten years.) " The worst feature of the railroad contracts of 1885 was the fact that they did not encourage the railroads to develop traffic. The contracts provided for much building by the private companies, and the terms were such as to make it more profitable for the companies to build new lines in distinction from operating them in a far-sighted way. Moreover, in providing for a division of profits between the government and the companies a distinction was made between lines that had a gross revenue of $3,000 and more per kilometer and those that had a smaller revenue. The necessary result was that the companies did not encourage heavy traffic. Beyond a certain figure increased traffic was unprofitable to them. By general agreement the arrangement which is now drawing to an end has been unprofitable to both the government and the companies, and harmful to the community. None favored the continuance of the contracts, and they are to terminate in a few months. A new policy is to be inaugurated, by which the government will both own and operate the railroads. This will call for roughly $200,- 000,000, half of this sum for the purchase of the existing rolling stock and the other half for impending and necessary improvements. It will be no easy matter to raise this amount by government loans, and there are grave doubts whether government management will bring about a marked improvement in the railroads." 156 RAILROAD ADMINISTRATION years has been how to get the lines built. Government aid was indispensable, for the inducement to private capital to build government-regulated lines was not sufficient. But if the government lent its credit to the builders, or guar- anteed them a minimum return, it proposed to supervi-so their work. In the course of Indian development, more than twenty thousand miles of railroad have come under direct government control, some being owned and worked outright, some purchased by the government from com- panies and leased to the companies to work, and some promoted by companies on government guarantee. It is worth while to compare the administration of rail- roads in Prussia, Italy, and India, since no stronger in- stances can be found of state operation as a result of direct policy, state operation arising out of the political situation, and state operation springing from the fact that private capital would not undertake to provide a great colony with transportation facilities on terms satisfactory to the govern- ment. First in order comes Prussia. The German Reich, or imperial government, has the right of railroad control throughout the empire, by virtue of the constitution of 1871, but it has left actual construc- tion to the various states. Of these, Prussia is the largest, and the Prussian government not only owns and operates a great railroad system of its own, but leases additional mileage in Alsace-Lorraine and Hesse. The authority exercised by the imperial government in practice is regu- lative rather than administrative, and the regulation is potential rather than direct. At the head of actual administration of the Prussian GOVERNMENT RAILROAD ORGANIZATION 157 state railroads is the Minister of Public Works, who gathers about him an administrative staff with chiefs of operation, traffic, construction, and finance. He must ap- prove all rates, whether of the state or of the private roads, and he is the final administrative authority for both.^ Current administration, however, is vested in the Royal Railroad Directories, of which there are twenty-one. Each Konigliche Eiseniahn-Direktion has its division, the amount of mileage assigned to each varying, and handles all the affairs of the division, traffic as well as trans- portation. This is a stronger application of the divisional theory of organization than exists anywhere in this country, since traffic affairs are outside the jurisdiction of all American division officers, on roads having more than one division. Yet, within each grand division, the organization is sharply departmental. Each Prussian directory has four depart- ments, or Inspektionen, charged respectively with the man- agement of traffic, operation, motive power, and shops. The civil engineering organization (Bau-Abteilung) is managed somewhat differently, much as the American chief engineer is a general officer rather than a division officer. Thus, in 1909, the Altona Division, embracing 1,212 miles of line, and equipped with 925 locomotives, 2,045 passenger cars, 13,456 freight cars, and two steam ferries, 1 An excellent brief paper on Prussian Railway Administration, from which this account is largely taken, was published by Ernest S. Bradford in the March, 1907, Annals of the American Academy of Political and Social Science. 158 EAILROAD ADMINISTRATION had a directory consisting of a president and twenty-two other members, aided by twelve assistants, with clerical forces, treasurer, and accounting department. The head- quarters of the division is at Altona, near Hamburg, and the directory employs fourteen operating managers or superintendents (Betriebs Inspektors) , seven mechanical engineers {Maschinen Inspektors), five shop superintend- ents {Werkstatten Inspektors), five trafiic managers {Ver- kehrs Inspektors) , and a civil engineer engaged at specific betterment work. The Berlin Division, with dense traffic movement, consists of only 382 miles, but has a directory with twenty-eight members and seven assistants; eleven operating superintendents, five mechanical engineers, ten shop superintendents, four traffic managers, and a fully- equipped central office. The Konigsberg Division, on the other hand, where traffic is relatively light, handled, in 1909, 1,639 miles of line. The Konigsberg directory is composed of sixteen members and twelve assistants, and employs seventeen operating superintendents and two assistants; four mechanical engineers, five shop superin- tendents, five traffic managers, and six civil engineering superintendents. Thus each division on the Prussian state railroads is roughly comparable to an American railroad, five hundred, a thousand, or fifteen hundred miles long, with a president, and a large board of directors which is its own executive committee. But these operating units do not perform their work unaided and unregulated. Perhaps the best, and at all events the most characteristic feature of Prussian rail- road administration, is the system of advisory councils. GOVERNMENT RAILROAD ORGANIZATION 159 dealing with rates and classifications. At the head of this system is the national council, and there are nine circuit councils, aU representing the shippers, and making con- stant recommendations to the railroad management, which is obliged to consult with them, although not required to carry out the suggestions made. The aim of the circuit councils is to represent all the important shipping interests. The national council insets twice a year and considers the broader questions of administration; the circuit councils maintain standing committees which receive local com- plaints and suggestions, and pass them along to the full council with recommendations. Outside of the direct scheme of administration but having an important bearing on it, there is also a general conference of all German railroads, which maintains a rate commission and a committee of shippers, and there is a society of German railroad managements, which con- siders international traffic questions under the Berne treaty.^ Viewing this Prussian organization from the functions of the smallest operating unit, the district in charge of the Betriebs Inspektor reporting to a divisional directory, it appears that this officer has responsibilities both of opera- tion and of maintenance which class him fairly closely with the American division superintendent in a divisional or- ganization. But the Prussian superintendent has a terri- tory only about a third as great as that under the jurisdic- 1 This international freight traffic agreement commenced in 1893, embracing 94,785 miles of railroad. At the beginning of 1910 it covered fourteen different countries, with 150,230 miles of line. 160 RAILROAD ADMINISTRATION tion of the American superintendent, and his authority does not extend over motive power or shop work, two de- partments which are united in this country, but kept separate in Germany. The Prussian division, however, which corresponds well enough in mileage to the territory in the hands of an American general superintendent, con- centrates far more administrative power than is to be found in any American grand division, and is in effect an independent railroad, subject to the Prussian headquarters administration and the Imperial administration, and con- ferring constantly with the traffic councils. If there was as much friction between these separate bodies in authority as there is apt to be between the American railroad man- agements, the state commissions and the Interstate Com- merce Commission, the result would probably be a series of administrative blockades. But the Prussian situation is very different from ours. There, power was conferred by the federal and state governments upon the railroad man- agers; here, the power which railroad managers supposed they possessed under their charters is gradually being taken away from them by the two, or five, or ten govern- ments to which they may be subject, and the process naturally generates friction. The Prussian plan works well. The rate-making power is used much like a protective tariff, giving German pro- ducers certain marked advantages in competitive fields. The original idea of giving railroad service to the country at cost has been abandoned, however, airid rates are kept high enough so that the railroads yield an immense revenue to the state. In 1905 the net profit to the Prussian State TABLE XV OUTLINE ORGANIZATION, LONDON & NORTH WESTERN RY., 1910 (UNOFFICIAL) 8 000 Shareholdei-3 ChaiiTDan, Deputies and other Directors General Manager Audit Cnniraittee J \ I ETH ITZL is ^ -^ 3 ■Z ^ \ % Z. -3 3 s' GOVERNMENT RAILROAD ORGANIZATION 161 from its railroad ventures, after charging off interest, special funds, etc., was over $120,000,000.^ A graphic chart of the Prussian railroad organization can be drawn as illustrated in Table XXIII. A noteworthy feature of this organization, difficult to illustrate graphically, is the concentration of certain kinds of work pertaining to the whole system or specified direc- tories. Thus, car supply for all the Prussian state rail- roads is handled by the Magdeburg directory, and pur- chasing, auditing, and the appointment of junior officers is similarly centralized. In the case of Italy, it took two years to work out a satisfactory scheme of government control after the deci- sion,, in 1905, that it should be effected. The physical condition of the lines was deplorable, and instances were cited where goods had been hauled sixty, miles or more by wagon because the railroad service was so bad. The public blamed the railroad companies, and the companies, which had been able to earn less than six per cent on the capital they had paid the state in accordance with the 1885 agree- ment, blamed the government. The government, on the other hand, had been obliged to spend on betterment work and on the up-keep of various reserve funds far more than it had received from the percentage of gross returns which the companies had paid it.^ On June 30, 1905, the following classification could be made of the Italian railroads : 1 B. H. Meyer. 2- Much of this material is condensed from a series of articles in the Railroad Gas/ette hj an Italian railroad councilor. 162 RAILROAD ADMINISTRATION Kailroads belonging to the state 5,592 miles " " " state and private companies .... 90 " "• " " Mediterranean Company 245 " " " " Southern Company 1,135 " " " " Adriatic Company 279 " " " " Sicilian companies 149 " " " " various companies -i . . 211 " Because of lack of preparation, doubtful credit, and want of harmony between the state and the companies, the Italian government was not in position in the spring of 1905 really to solve the problem on a permanent basis; its action was almost purely political. Therefore the ministry presented a temporary plan, by which the state should own the lines and the companies work them, under the general supervision of a manager appointed by the state, and an administrative council appointed by the manager from among the state employees and those of the railroad com- panies. As might have been expected under the circumstances, the results partook of the worst of both forms of admin- istration. But the government persevered; in 1906 the Southern companies were taken over, after much bargain- ing about their subventions, and in 1907 an Act was passed placing operation, as well as ownership of the principal Italian lines in the hands of the state. The new Act, dated July 7, 1907, did not repeal the Act of April 22, 1905, except in cases where the provisions of the new Act were in direct opposition to those in the Act of 1905. The administration of the state railroads remains subject to the control of the minister of public works, and an administrative council and general manager are placed GOVERNMENT EAILROAD ORGANIZATION 163 at the head of the operating force, members of the council and the general manager to be appointed by royal decree on the nomination of the minister of public works, with the consent of the council of ministers. Rates can be raised only by an Act of Parliament. Tem- porary reductions for definite quantities of goods from definite points to definite destinations may be authorized by the general manager after the administrative council reports in favor thereof. Equality of rates and service are to be granted to everyone under equal conditions. Every five years a general revision of the classifications of goods is to be undertaken. A line is to be operated with three passenger trains daily in each direction if the gross receipts from passenger and quick freight service do not exceed 9,000 lire per kilo- meter ($2,900 per mile). When the gross receipts exceed this sum and are less than 12,000 lire per kilometer ($3,860 per mile), a fourth passenger train is to be run in both directions. When the gross receipts exceed 12,000 lire per kilometer, other daily passenger trains may be run. But in cases where the passenger trains are hauled by electric traction or motor cars exclusively, these rules do not apply. All employees of the railroads operated by the state are considered public servants, which makes the penalty for going on strike severe. A general traffic council is provided for,, consisting of the minister of public works as president, the general man- ager as vice president, three of the higher officers of the railroad nominated by the administrative council and other citizens, among whom is to be a rqtresentative of the 164 RAILROAD ADMINISTRATION Italian Press Association, representatives from the local consulting commissions, and representatives of the two most important shipping companies in Italy. This , general traffic council has merely advisory functions. The general manager, or director general, is assisted by two vice director generals, and by a council of administra- tion with eight members, two selected from among the higher railroad officers, three from officers of the state, and three from nonoffieial citizens. There is also a " cen- tral inspection " board, reporting to the administrative council, and composed of thirteen members. This admin- istrative council has general supervision of the operation of the roads, and must approve proposed work on the line or purchases of over 50,000 lire ($10,000). The general offices are at Rome. Members of the administrative council and the general manager are responsible to the state for any losses resulting from a breach of laws or from gross negligence. Reporting to the managing board are thirteen chiefs of departments, charged, respectively, with correspondence, law, appointment of junior officers, operation, maintenance of way and structures, maintenance of equipment, ac- counts, sanitation, purchases and stores, time-tables, opera- tion of rolling stock, new construction, and insurance. These officers all have their headquarters at Rome.^ The entire state railroad system is divided into eight 1 The Act of 1907 is published in English in the April, 1908, Bulletin of the International Railway Congress. A personal account of the organization was published by Edward P. North in the Rail- road Gazette, September 28, 1906. GOVEENMENT RAILROAD ORGANIZATION 165 sections, each of which has from 1,600 to 3,200 miles of line, and the intention has been that each section should handle, roughly, an equal amount of traffic. Each section is manned by 11,000 to 12,000 employees, and the grand division headquarters are at Rome, Venice, Turin, Genoa, Milan, Florence, Naples, and Palermo. Each grgnd division has a chief, who is assisted by a local council, made up of two local officers of the road, four local representatives of industry, commerce, and agricul- ture, and two members selected by the Minister of Public Works from among other representative citizens not in rail- road service. He has also a staff, with a secretary and six department chiefs, in charge of legal matters, accounts, operation, sanitation, maintenance, and motive power. The grand-division chiefs usually have a telephone Eon- ferenee daily with the director general, and with each other. Once a month they are required to come to Home for a general conference lasting a day or two. Much as on the Prussian railroad system (which was obviously the model for the Italian government) the grand-division chiefs and their staffs are authorized to use such authority as is necessary for the proper conduct of affairs in their territory, subject to the general limitations fixed by the administrative council and the general management. They have only an advisory voice in rate adjustment, but they are expected to investigate and explain to the management the relations of the rate structure to commercial needs, and the way traffic demands are being met in their districts, and to make suggestions for increasing traffic or for better- ing service. 166 RAILROAD ADMINISTRATION To summarize the Italian situation, it may be said that the administrative organization is a fairly close copy of the Prussian organization of to-day, but the financial organiza- tion resembles that of the German Beich thirty years ago, when the state purchases were begun on a large scale, with the important difference that Italy has little surplus capital to invest in the venture. Mile for mile, the Italian lines earn not much more than a quarter what the Prussian lines earn, and they are in defective physical condition. Yet if they do not prove to be self-sustaining almost from the outset, there is danger that the rapid changes in party politics will uproot the seeds thus carefully planted, to see why they have not sprouted. The Act of 1905 provided that the national treasury should place at the disposal of the Minister of Public Works, on application, 65,000,000 lire ($13,000,000) for new equipment during 1905 and 1906, repayable in forty years and bearing 3.75 per cent interest for the first five years and 3.5 per cent thereafter. It also provided that an additional $6,000,000 should be advanced to the railroad administration during 1906 and 1907, and that for supplies, the railroad administration might contract a loan of $1,600,000 at the Bank of Italy. The Act of 1907 states, hopefully, that the railroad administration shall provide for expenses by drawing the necessary sums from the receipts, but estimates for the railroad budget covering extraordinary expenses for new works, amortization, etc., as well as current income and expenditure, are to be sub- mitted to Parliament as an appendix to the estimates for the budget of the Minister of Public Works. A reserve GOVERNMENT RAILROAD ORGANIZATION 167 fund fcr unforeseen expenditures is also created by means of an annual charge of two per cent to be deducted from gross railroad receipts until there is $6,000,000 in the fund, when the charge will only be made in amounts sufficient to keep it up to that sum. The companies' rolling stock was bought by the state for about $100,000,000. Thus the state has embarked boldly in its railroad ven- ture, and has noted and adapted to its peculiar needs the general type of administrative framework which has been so successful in Prussia. But the Prussian railroads earn well above $18,000, gross, per mile of line ; the Italian rail- roads a scant $5,000, and the diflference between the earn- ing powers thus expressed may conceivably have an im- portant effect on ultimate Italian state policy. There can be no doubt that the present attempt to grasp the entire situation gives better promise than earlier half-hearted at- tempts to get the benefits of state control without assuming its responsibilities. As an example of reluctant but efficient state railroad organisation, the situation in India is of considerable inter- est. In 1853, when the Indian railroad system had its beginnings, as to-day, the problem has been to develop the immense potential resources of a country with an enormous population of unskilled, backward people, producing a very small amount of freight traffic in proportion to their num- bers, and having exceedingly low individual purchasing power. From a military standpoint, it was highly im- portant to the British government to have and to control transportation routes through India; from a commercial standpoint, some inducement better than the assured nat- 12 168 RAILROAD ADMINISTRATION ural return was required to interest private capital in this development. Yet the government of India did not want, to assume the entire financial responsibility of providing a- railroad system, and there were many years when such responsibility would have embarrassed it seriously. As a result of these causes, the railroads in India have been developed under every shade of government control and exhibit many curious contrasts of policy resting on the two main assumptions that the government must have power to regulate, and that, with that power, its financial liability must be kept as low as possible. On April 1, 1908, the Indian railroad mileage could be classified as follows: Miles. Government lines, worked by Government of India 6,233 " " " " companies 17,125 Companies' lines receiving various forms of direct subsidies or guarantees from Government of India 1,776 District boards' lines, direct and subsidized 311 Native state lines, worked by native states or state railway agency 1,593 Native state lines, worked by companies 1,945 Companies' lines receiving various forms of subsidies from native states 128 Branch line companies' railways assisted by rebates from imperial government 901 Leased lines 79 Unassisted companies' lines 42 Lines in foreign territory 73 Grand total 30,206 The total capital outlay on lines open for traffic amounted, in that year, to $1,373,057,000 (assuming three rupees equal to one dollar), which is at the rate of $44,906 GOVERNMENT EAILROAD ORGANIZATION 169 per mile. Gross earnings were $149,423,000, or $4,887 per mile, and the lines operated at sixty per cent. But the year ending April 1, 1908, was a bad one in India, which added crop failure and famine to the general commercial depression felt throughout the world. In 1906-1907, the best year in the history of Indian railroads, gross earnings were $157,683,333, or $5,263 per mile on the lines then open, and the operating ratio was fifty-two per cent of gross. A situation much the same as the present one, as re- gards the status of government aid and of the general physical railroad situation, existed in 1903, when Thomas Robertson, C. V. 0., special commissioner for Indian rail- ways, made his report on the subject to Parliament. Mr. Robertson considered the entire scheme of Indian railroad development, and made recommendations concerning the way in which the lines ought to be managed, and the kind of aid the state ought to give new enterprises. His blue book is an important document in the records of govern- ment railroad organization and administration, especially when the railroads are located thousands of miles away from the home government. Mr. Robertson grouped the railroads of India into two main classes, which included all the subclassifications we have shown on a previous page. In 1902, the year he reviewed, there were 5,462 miles of railroad for which the government had no financial responsibility, and 20,474 miles for which it had full financial responsibility. All the roads, in both classes, were actually controlled by the government of India, but the forms in which this control 170 RAILROAD ADMINISTRATION was exercised varied widely. The reason for this was simply that the government never really wanted to be the proprietor of its railroads, but it wished definitely to exercise a rather complete control of their operations ; con- sequently, since the earliest construction it had changed its form of administration periodically to meet the neces- sities of the situation. Under the contracts first made, the Indian government guaranteed the railroad companies five per cent on their capital, and divided surplus profits over five per cent on the half year's earnings at a fixed rate of exchange. But rail- roads which saw no prospect of earning surplus profits had small inducement to economy, since their dividends were assured them whatever their income might be. Rail- roads which did a larger business in one half year than in the other and which saw a prospect of surplus profits in one half year and not in the other were encouraged thereby to confine as much as possible of their revenue expenditure to the bad half year, since the lower expenditure in the good half year increased their dividends; while the higher expenditure in the bad half year did not affect the mini- mum return guaranteed by the government. Consequently, the interests of the government and of the companies were apt to be antagonistic, and it was necessary to bring regu- lative pressure to bear to prevent extravagance in construc- tion and waste in maintenance and working, and to insure that expenditures were charged to the proper half year. These old contracts have now expired by limitation, but during the process of transition various other forms of contracts have been tried. In 1896 the government set GOVERNMENT RAILROAD ORGANIZATION 171 forth a new system of dealing with new railroad projects. Under the 1896 arrangement a private company was al- lowed to build approved branch lines and to pay interest out of capital during the construction period, and was allowed a division up to the full extent of the net earnings of the main line from traffic interchanged with the branch, to increase its own earnings so as to permit a dividend of 3.5 per cent on its capital.^ A few railroads were built on these terms, but the new 1 The 1896 regulations for building branch lines forming feeders (excluding lines longer than 100 miles and mountain branches) pro- vide: Main line administrations have prior right to build. Govern- ment must approve (1) financial status of applicant; (2) gauge; (3) route and dimensions. Proposed railway must be subject to all acts; Proposed railway subject to government inspection re standards. Government is prepared to aid: (a) Company will receive absolute guarantee of interest at not exceeding three per cent, and a higher return if the net earnings of the branch are suffi- cient to pay more than the guaranteed dividend. (6) It may be provided that company receive from main line a, three-and-one-half- per-cent dividend on actual expenditure, provided the payments to the branch do not exceed the net earned for the main line by the branch. If the branch earns more than three and a half per cent, it gets it. Company has no power to increase capital without author- ity of Secretary of State, and has limited borrowing power. State railway rates shall be enforced. Interest may be charged to capital during construction. Land provided free for line, yards and stations. Telegraph and appliances supplied by Government of India at usual charges. Results of existing surveys given free. Materials for the branch will be carried over state railways at special rates. Govern- ment reserves the right to buy branch after twenty-one years, or subsequent ten-year periods, on twelve months' notice, the purchase price being twenty-five times the yearly average net, not including rebate payments for three years previous to the purchase, with a maximum price of 120 and a minimum of 100, cost price in rupees. Government reserves right to fix and vary rates and classifications, and to exercise a general control regarding train schedules. 172 RAILROAD ADMINISTRATION conditions were unpopular. The government only allowed the companies to undertake the projects which were the least promising, and the government found it very difficult to induce capital to take up railroad schemes without some form of guarantee. Mr. Robertson complained that at the time of his in- vestigation in 1903 all funds required for capital expendi- ture by railroads for which the government had entire financial responsibility was governed by what was known as the Programme, under which the railway department was annually allotted a sum of money, the amount depend- ing on the state of the treasury, the money market, and the general conditions of the country at the time. The money so allotted is apportioned at the commencement of the year among all the roads which look to the government for sup- port, and also among certain new projects. Consequently, no railroad knows or can form an accurate estimate of the sums which it is going to receive during a series of j^ears, or even during two successive years, and the allotment i? made all the more difficult of economical use because all unspent balances lapse at the close of the year. If a road is not carrying on its work quite as fast as was con- templated, its allotment is apt to be taken away from it before the close of the year and given to some other com- pany in order that the entire sum allowed the department may somehow be used during the year. At other times, the exigencies of the state have required that the grant be reduced while work was in progress, in- volving high cost for nonproductive capital and serious eomplieationi? with contractors and others. GOVERNMENT RAILROAD ORGANIZATION 173 Ml-. Robertson enumerated nine specific objections to the state railroad management in India, as follows: (1) The difficulty in which the government often finds itself through having to act as judge in disputes or dif- ferences in which the government itself is really one of the interested parties. (2) Danger that the interests of the state railroad may be sacrificed to serve some object political or otherwise, which it is desired to attain, or because it is less difficult to yield to the other party's demand than to resist it. (3) The danger that something necessary to the interest of some other railroad or to the public may be withheld because it may be regarded as injurious to the state railroad interest. Thus the general good is liable to be sacrificed to the specific object of the state railroad administration, and from this, of course, there is no appeal. (4) The difficulty of working government railroads on strict commercial principles when part of the staff is pen- sionable and is not confined to one railroad. (5) The danger that continuity of policy will be absent from the management of the property. In this connection Mr. Robertson pointed out that in the five years 1898 to 1902 there were no less than seven changes in the head government railroad management. (6) The great difficulty in differentiating between the railway department and the other departments of state and the difficulty of treating the business of the railroad as a merely commercial undertaking, and of regulating the salaries of its employees by the same considerations that govern skilled labor in similar undertakings managed by 174 RAILROAD ADMINISTRATION companies. Thus Mr. Robertson pointed out that the salaries paid railroad department heads had to be gauged to a certain extent by the rate of pay in other branches of the government, while the private companies paid mate- rially higher salaries and consequently were apt to get materially better officers. (7) The great difficulty experienced in getting rid of inefficient men, whether superior or subordinate, pension- able or nonpensionable. (8) The difficulty of ignoring the claims of seniority when there is nothing special against a man, but when he is not the best selection for an appointment. (9) The absence of that healthy control which a strong and judicious board of directors is capable of exercising. Mr. Robertson points out that when a body of men have a personal interest in and responsibility for the ^^'plfare of the business intrusted to them, their dividends depending on their proper conduct of it, they necessarily have a more powerful influence for good than can be obtained by any system of control which lacks personal responsibility for results. Mr. Robertson felt that the disadvantages of direct state railroad management not only outweighed its possible advantages, but were much heightened by a situation where state management and private management existed side by side, and he recommended that the government should lease all its railroads to private companies to operate. His recommendations were not carried out in their entirety, and his recommendation that the state put the operation of all the lines in private hands, was not carried TABLE XXIV ORGANIZATION OF THE EAST INDIAN RAILWAY AT THE TIME OF THE ROBERTSON REPORT, 1903 Secretai-j- of State in Council ENGLAND Company's Board of Directors Company's Consulting Eugince Governient Director, appoint<*d to the company's board of directors by the Secretary of State. £x officio , a member of all conimittees appointed by the company. Has absolute veto power. Kemovable only by the Secretary of State. INDIA I Govemoi- General in Council. Full authoi-ity, through Publiu' Works Department, over railroad administration and expenditure, but cannot appoint nor discharge any company employee. RaiLi'oad Branch of Public Works Dept. ; Goverment of India Member of Viceroy's Council: Xon-tecbnical. Secretary Deputy Secretary Traffic Deputy Secretary Accounts Deputy Secretary Con-itruction Under Secretary and Assistant Under Secretary and Assistant Under Secretaiy and As-sistant Consulting Engineers Goveiniiieut Examiners of Aixiunts Agent's Secretary Company's Agent Chief Medical Officer CbiL-r Engiu Agent's Statf General Traffic Manager Locomotive Supt. Colliery Supt. EuU departmental organization on British plan GOVERNMENT RAILROAD ORGANIZATION 175 out at all. But certain important changes in the scheme of government organization and administration followed his report. In 1905 the arduous duties performed in rela- tion to new railroad projects by the secretariat of the gov- ernment of India were transferred to a general railway board, and railroad administration as a whole was trans- ferred to this board from the Railway Branch of the Public Works Department, which was given increased powers. But in 1907 the government decided on some modifications of the control which it had exercised over the capital ex- penditures of Indian railroads through the body of consult- ing engineers (see Table XXIV). This control had been very detailed, extending not only to matters of engineer- ing and expenditure, but to almost all questions, both executive and administrative, connected with railroad work- ing. Therefore, in January, 1908, certain powers of sanc- tion and of administration were delegated to the com- pany's boards, which were requested to intrust their chief representatives in India with a considerable portion of their own powers, the government reserving the right to reimpose more detailed powers of control if circumstances should require it, while thg appointment and duties of the provincial consulting engineers were abolished, except that it was provided that their work as inspectors should be carried on by officers specially charged with that duty. Subsequently, a finance committee, appointed in 1907, made a report in March, 1908, through which the railway board became the railway department of the government of India. From the organization viewpoint, the most important recent changes have been the increase in the powers given 176 RAILROAD ADMINISTRATION the companies' local agents and the reduction in the authority granted the consulting engineers. The defect in the old arrangement was that the consulting engineer had so much authority that he was practically a controlling officer at the same time that he was a government inspector ; a concentration of authority absolutely wrong in principle. The underlying idea of the recent reduction of the powers of this consulting board to cover inspection only is that the government, while retaining full power of control, shall exercise very little control. To summarize the situation in India, it may be said that the control of railroads for which the government assumes financial responsibility (and these constitute most of the mileage) has, on the whole, been satisfactory and harmo- nious. The difficulties have been occasioned by two prime causes: the existence side by side of government admin- istrative officers and company administrative officers and the attempt to refer too many decisions on current affairs to the home board in England. As we have seen, the board of directors of a British railroad takes its responsibil- ities seriously, and likes to pass on matters which in this country would be delegated at least to the executive com- mittee, and probably to the general manager. This form of administration works well enough when the board meets frequently and is close to the railroad; but when it is separated by the distance between London and Bombay or Calcutta, results are bad. To meet these difficulties the government has apparent- ly done the two important things : it has made the consult- ing engineers, who were formerly administrative officers. GOVERNMENT RAILROAD ORGANIZATIOIN 177 inspecting or staff officers only, and it has urged the com- panies to give their agent, or Indian general manager, full current authority. It is rather curious that the earnings of the Indian railroad system and the Italian railroad system are about the same, averaging not far from $5,000 per mile gross. But the Indian system works for about fifty pei* cent of expenses, with rates and fares which are quite low, espe- cially the passenger rates, while the Italian system, with rates and fares which are quite high, has never been able to operate for very much below seventy-five per cent of gross. The conditions in the two countries are enormously differ- ent, and it would be extremely hazardous to make any strict comparison of operations. But the Italian railroads, un- fortunately for them, have always been in politics; the attitude of the government toward them has seldom been sincere, but has been influenced largely by the effect that a certain course of action or a certain set of promises would have on the politicians. This is a very grave defect, and the administration of most British colonial governments has been singularly free from it. The administration of the railroads of India has been conspicuously honest, and it has been placed in the hands of competent men, who used their best efforts to handle the property as it ought to be handled. There are grounds for thinking that if the gov- ernment of India and the government of Italy should change places, it would not be many years before the Italian railroads were being operated for fifty per cent of gross, and the Indian roads for seventy-five per cent. CHAPTER VIII RAILROAD FINANCIAL ORGANIZATION The financial organization deals with credit, as the operating organization deals with men — The assets of a railroad are less fixed and tangible in value than the assets of a mill or of a plantation — Two broad divisions of railroad financing: the proprietor and his stock; the creditor and his bonds, debentures, or notes — The way financial needs are met — The part played by the banker as underwriter of the rail- road's securities — The transformation of small roads into big ones and the progressive changes in financing — ^What a bond is; the mortgage and its provisions — The organization necessary to market securities — The great American bank- ing houses and the lesser ones; the work done by each group — The reasons why railroads need Ijankers. The operating and traffic organizations of a railroad are organizations of men. The financial organization is an organization of credit. In one case the problem is so to plan things that an army of men — eighty regiments, on the Harriman lines — can be made to work in an efficient and highly standardized manner. In the other case, the man- agers must so arrange that ten or twenty thousand share- holders and creditors can furnish, and will want to furnish, the huge capital funds which must be invested in the prop- erty before a dollar can be earned. An immense amount of clerical work attaches to the financial department of a 178 RAILROAD FINANCIAL ORGANIZATION 179 railroad, and it must be carefully organized, especially to prevent fraud and carelessness. This is a task that pre- sents few problems that distinguish railroad fiscal work from the collections and disbursements of a large bank or of a trading company, however, and the principal features of it have already been outlined in the chapter on the oflScers. The organization of railroad credit is a subject by itself, differing in some important respects from the organization of any other kind of credit. The factory manager can borrow on his buildings and machinery, present or prospective; current prices fluctuate, but their ordinary limits are pretty well known, and he can start with a small plant and enlarge it by degrees, his credit resting on tangible physical assets, with due allowance for manage- ment. The merchant negotiates loans based on his stock in trade ; the realty operator borrows against known land values ; the farmer can obtain credit up to a percentage of his normal crops ; the banker makes a small beginning and increases his working capital by degrees, secuting his loans by collateral which is presumed to be convertible. But the railroad needs a large sum of money to start with, and its values are neither fixed, easily ascertainable, nor convertible. To build and equip a line 100 miles long in hilly country, where there are occasional streams to be crossed, will probably cost $3,000,000; in some districts it will cost double or treble that sum. No public state- ment has been made of the cost of the Western Pacific, or of the Virginian Railway, or of the Carolina, Clinch- field & Ohio, three roads recently built with low grades in 180 RAILROAD ADMINISTRATION exceptionally difficult country, but it is a safe presumption that no one of the three was built for less than $100,000 a mile. This great sum must be secured in advance, on faith, and the best trafSc expert in the world does not know what the new line will earn. He knows what similar lines, else- where, have earned, and this is his best guide, but there are many variables, many differences to be considered which cannot be measured by any certain rule, especially when it must be decided whether it will pay better to have a line with high first cost and low operating expenses, or low first cost and high operating expenses. To induce public participation in the enterprise, in view of these facts, two kinds of financing have been devised, which broadly cover the whole field. One rests on the cer- tificate of joint proprietorship, called, in this country, stock ; the other, on the railroad company's promise to pay a speci- fied sum at a specified time, with periodic interest at a speci- fied rate. These promises to pay exist in a considerable variety of forms, which will be discussed later; in their most frequent forms they are called bonds. The difference between the two forms of financing is elementary. The railroad does not promise to pay the stockholder anything, but he is a proprietor of the enter- prise. "With the other proprietors, he is entitled to a pro- rata share in all the profits, after expenses, including bond interest and taxes, have been met. The bondholder, on the other hand, is not entitled to any share in the profits at all, but he is a creditor, and must be paid all that is due him before the proprietors can divide anything. Broadly RAILROAD FINANCIAL ORGANIZATION 181 speaking, therefore, the bonds are intended to attract the investor who is willing to receive a small return on his investment if it be well assured; the stocks, to attract the man who is willing to take a risk for the sake of larger potential returns. In American practice, the managers of a new railroad usually calculate what they estimate to be the safe mini- mum earnings of the line they are about to build, and then issue bonds in such amounts that the total interest charge will not exceed this minimum revenue. But the money received from the sale of these bonds usually is not suffi- cient to pay construction costs; therefore stock is issued also, in such amounts that good dividends can be paid on it if the venture is a success. Let us suppose that the promoters of the line 100 miles long, already referred to, feel confident that it can be built for $3,000,000, and that it will earn an assured minimum of $4,000 per mile, gross, and operate for seventy per cent. On this basis total gross earnings would be $400,000 a year, with net earnings of $120,000. This will pay the interest on $2,400,000 of five per cent bonds. These bonds cannot be sold at par, however; there are plenty of securities on the market far better secured which yield the investor five per cent on his money. The new road will do well if it gets them underwritten at 90, or $900 cash for each $1,000 bond, and this will give it only $2,160,000 of the needed $3,000,000. To make up the difference, the underwriters agree, let us say, to take an additional issue of $2,400,000 : stock— $500,000 five per cent preferred stock at 70, and $1,900,000 182 EAILROAD ADMINISTRATION common stock at 40. The finances of the new road may now be tabulated as follows: To cost of road $3,000,000 By sale of $2,400,000 Interest on bonds dur- bonds at 90 $2,160,000 ing construction. . . 120,000 By sale of $500,000 Working capital 150,000 preferred stock at 70 350,000 By sale of $1,900,000 common stock at 40 760,000 Total $3,270,000 Total $3,270,000 Thus the new road has secured its construction costs, and a slim working balance as weU. Let us assume that it actually earns the contemplated $4,000 per mile, gross, and operates at seventy per cent during the first full year after it is built. In that ease, bond interest can be paid without diminishing the working capital of $150,000, and taxes, at the outset, are light. Then times are good; industries locate along the line, and additional agricultural land is put in cultivation, while one or two little " boom " towns spring up, with considerable attendant increases in the freight traffic of the road, and the passenger traffic as well. The next year gross earnings have risen to $4,800 per mile, and operating expenses, which do not quite follow gross, have fallen to sixty-six per cent because the main- tenance costs and officers' salaries are substantially un- changed from the year previous. This leaves net earnings at thirty-four per cent of $480,000, or $163,200. Taxes ab- sorb, say, $13,200, and the remaining $150,000 pays bond interest and leaves a margin sufficient to pay the full pre- RAILROAD FINANCIAL ORGANIZATION 183 ferred stock dividends if the directors think it safe to sail so close to the wind. Meantime, the country continues to develop; the " boom " towns take root and increase in size, while, as is the case with all new communities, made up almost wholly of enterprising, producing men, the per-capita payments for transportation service are very high. Five years from the inception of the enterprise the railroad finds itself earning more than double its fixed charges, and paying small dividends on the common stock, which now has a market value, say, of $75 per share, in anticipation of in- creases in the dividend rate. The managers have been successful; they are confident of further success if they build several extensions. More- over, no such difficulties present themselves in financing these extensions as were present at the beginning of the enterprise; the earning power of a railroad in this par- ticular district is no longer a matter of great uncertainty, and the company has established credit. The question for the directors to determine is the precise form of financing, or of organized credit, which will best suit their particular needs. As security for a new loan they have not only the branch line mileage which they propose to build, but also the equity in the earnings of the old line, over and above its charges. Their former loan was secured by a first mortgage on 100 miles of railroad; to build 100 miles of branches, with somewhat lighter construction, they figure that they need $2,000,000 additional. Therefore they de- cide to create a " first and refunding mortgage " on the whole system, and to authorize $5,000,000 of bonds under IS 184 RAILROAD ADMINISTRATION it. Of this sum, $2,400,000 is specifically reserved, un- issued, to retire the old debt at its maturity; $2,000,000 is to be issued, at the rate of $20,000 per mile for branch line mileage as it is built and certified to by the chief engineer, and $600,000 is not issued at present, but is reserved for future contingencies. The managers will not be able to get these bonds under- written at par, but the bankers' commission will be smaller than in the previous instance, because the earnings of the old road are sufficient to make it reasonably sure that the company can pay its interest charges, even if the branch lines do not bring in the contemplated revenue. The issue is ultimately underwritten at 95, or $1,900,000 for the $2,000,- 000 construction bonds, and the company meets the balance required by a small additional issue of preferred stock. Ten years later additional important extensions are made. The company has done well ; it is paying seven per cent on its common stock, and this stock is selling at 120. Thus the credit of the enterprise is excellent, but it is somewhat difficult to place bonds effectively because the old firsts have not yet reached their maturity; the first-and- refundings are next in line, and the lien of new bonds on the older portions of the line would be rather remote. On the whole, the sale of new stock seems the best way of extending the credit organization. This new stock is offered to holders of the old stock at par, on the basis of one share of new for every two shares of old. Thus the company, in effect, pays seven per cent for its money, but creates no new obligation, and is that much further away from insolvency in times of panic. RAILROAD FINANCIAL ORGANIZATION 185 The road is now 200 miles long; solvent and prosperous. The inanairors wish to build lloO miles of extensions and make an entry into territory which they feel assured will well repay them, but it would be a serious strain on the credit of the old road to llnanee the project. Consequently, as directors of the successful North & South Railroad Com- pany, they propose to their bankers that tliey underwrite tlie securities of the Southern Extension Kailroad Com- pany, with the nnderstandiug that the North & South Railroad Company control the Southern Extension Rail- road Company b>- the ownership of all its conunon stock, and that the older company guai-antee the bonds of the youujrer. This financiuLr may be plotted as follows : To cost of -i.^O milos By sale of $6,250,000 ■' Southern Extd by North & and int«xest duriiig South R. R. from construction 551,000 sale of its ^liOO.OOO unissued bonds at !)6 576,000 By sale of $1,000,000 Southern Extension R. R. preferred stock at 60 600,000 Total $0,801,000 Total $0,801,000 The maririn of working capital is none too great, and it is found in this case (as it usually is found) that construc- tion costs exceed the engineers' estimates. To meet a de^ciency of $(>00,000, the North .S: South Railroad issues 186 RAILROAD ADMINISTRATION three-year notes, whicli are simply promises to pay, un- secured, and accepts in return second mortgage bonds of its protege, the Southern Extension Railroad. The situation is now precarious. The North & South Eailroad is a good earner ; there is every reason to suppose that the Southern Extension Railroad also will be, but as. yet it is earning nothing, and the charges of a 500-mile line must be met by the earning power and credit of a 250-mile line. If the management is lucky — if its own capital needs come in a period when the security market is brisk, and if its extension proves a good earner from the start — the crisis can be tided over, but if the elements of chance run against it, a receivership will be the probable outcome. Then interest on the bonds and notes is de- faulted, and the bondholders, as creditors, take possession of the property. When times are again propitious, there is a reorganization; usually the former shareholders are assessed, pro rata, to provide current funds, and the prop- erty again becomes solvent and prosperous. Assuming that the North & South Railroad and the Southern Extension Railroad escape receivership, however, and that the new line is able to carry itself, the next step is usually a merger of the two properties. The North & South Railroad already owns all the Southern Extension common stock; at a favorable time it creates a general mortgage, and offers the new bonds in exchange for all the outstanding bonds of both companies, and offers bonds or stock for the preferred stock of the Southern Extension Railroad, on terms advantageous to the original holders. Very likely this offer is made at the time when the original RAILROAD FINANCIAL ORGANIZATION 187 North & South bonds fall due ; in that ease the new bonds become a first mortgage on the old line. On the new lines, some of the bondholders will accept the exchange offered and some will not, the result being that the new general mortgage bonds are a mixed lien, becoming a first mortgage on part of the line and a second mortgage on the rest, with a reduced amount of prior liens taking precedence of them. The processes outlined above have been exemplified again and again in American railroad historj-, subject to many greater or less variations. The financing of the Western Pacific by the Denver & Kio Grande is a reason- ably close parallel to the illustration afforded by the imaginary case of the North & South Railroad and the Soathem Extension. The St. Paul extension, incorporated first as several distinct local roads which were subsequently merged into the Chicago, ililwaukee & Puget Sound, was financed originally by the sale of Chicago, ililwaukee & St. Paul stock to former stockholders, additional funds having been provided later on by a new issue of the parent com- pany's bonds. The whole growth of local railroads into great systems has been accomplished by a gradual extension of the credit organization, accompanied by a good deal of inevitable complexity in the issue of new securities. Out of this situation has grown an immense list of bonds, of every imaginable degree of security, from the old first mortgage bond outstanding at a low rate per mile on a gilt-edge main line, to the discredited income bond having no lien on any- thing except surplus earnings, if there happen to be any. A bond is a promise to pay, as has been pointed out. 188 RAILROAD ADMINISTRATION But in American railroad practice it is customary to secure this promise by making over to a trustee " to have and to hold " a certain tangible piece of physical property, until principal and interest in full have been met on the original loan. The lostn rests on a mortgage, which is a formal and technical document deeding the property mortgaged to a third party in trust, subject to repossession by the original proprietors after they have performed the stipu- lated obligations which they impose upon themselves. In case the proprietors are unable to carry out their agreement with the bondholders, the mortgaged property " reverts automatically to the trustee, who acts, under supervision of the courts, in such manner as best safeguards the inter- ests of the creditors. The form which this agreement takes can best be shown by excerpts from existing mortgage indentures. For example, in the case of the Louisville & Nashville Unified 4s, the agreement is stated as having been entered into by and between the Louisville & Nashville Railroad Company, a corporation created and organized under the laws of the State of Kentucky, and the Central Trust Company of New York, designated the Trustee. A recital of the powers granted the company under its charter is then made, fol- lowed by a statement of the purpose of the company in issuing these bonds; its existing indebtedness is various in property covered, rates of interest, and maturities, and it wishes to unify this debt, as each of the underlying securi- ties falls due, by purchasing the old obligations or ex- changing new, uniform bonds for them. To carry out this purpose " and the other lawful pur- RAILROAD FINANCIAL ORGANIZATION 189 poses of the company," the company has determined to borrow money, " and to make and issue its bonds to an amount not exceeding in the aggregate of the principal thereof, $75,000,000; each of said bonds to be dated the second day of June, 1890, and to be payable at the office or the agency of the company, in the City of New York, on the first day of July, a.d. 1940, in gold coin of the United States, of or equal to the present standard of weight and fineness, and to bear such rate of interest not to exceed four per cent per annum, as shall be, from time to time, determined upon by its Board of Directors,^ free from all United States, State, and Municipal taxes that may be required by the law to be deducted from said in- terest." Then follows a description of the form of the bond, and of the company's determination that each bond shall be certified by the Trustee in a prescribed manner. On the face of each bond is printed an agreement, which provides, among other things, that if the company or its successors shall make default in the payment of any semiannual in- terest on the bond for six months from the time said inter- est becomes due, and payment thereof is demanded, " then the principal hereof shall, on the terms and conditions provided in the mortgage securing this bond, become due and payable, and may at once be enforced." The state- ment on the face of the bond also affirms the fact that all the bonds of this series as may be issued are equally secured by, and subject to the provisions of the mortgage, 1 This provision is unusual. Ordinarily the rate is fixed. 190 ' RAILROAD ADMINISTRATION duly executed and delivered by the Louisville & Nashville Railroad Company to the Central Trust Company, " con- veying to said Trust Company, in trust, the railroad prop- erty and other property, equipments, franchises, rights, and privileges of said Railroad Company now or hereafter acquired as mentioned in said mortgage, upon the terms and conditions therein set forth, to which reference is hereby made." Seven printed pages of the mortgage indenture are devoted to listing the property thus " granted, bargained, and sold, transferred, assigned, set over, released, conveyed, and confirmed " to the Central Trust Company. A char- acteristic item, for example, lists " the Bardstown Branch of said railroad, extending from Bardstown Junction, on said main line, to Bardstown, in the State of Kentucky, a distance of 17.37 miles." The property list, moreover, includes various holdings of the securities of subsidiary companies. But we know from the purpose of the com- pany in creating the mortgage that it is subject to a num- ber of underlying liens. These are all set forth in great detail, the recital filling four printed pages. Then the mortgage indenture proceeds to state formally the various facts about the amount of the issue and the form of the bonds, many of which were previously men- tioned, descriptively, in the preamble — ^the ' ' whereas ' ' part of the indenture. But the formal statement goes into detail which is supposed to be exhaustive, prescribing with the utmost minuteness the purposes for which the new bonds may be issued and may not be issued, so that original purchasers shall be in no uncertainty in regard to the RAILROAD FINANCIAL ORGANIZATION 191 action of future boards of directors. For example, " It is understood and agreed, however, that the Company shall in no case use and disburse, in the purchase of prior out- standing bonds, the proceeds of more than one thousand dollars, par value of said bonds sold in advance, for each one thousand dollars, par value, of prior outstanding bonds purchased." The company also covenants that the out- standing prior liens do not exceed $4:1,917,660, and that this sum shall not be increased, ' ' directly or indirectly, in any manner whatsoever." The mortgage specifies that bonds may also be issued, at par, at a specified rate per mile against certain classified Muds of new extensions and specified forms of betterment work, purchases of additional railroads, etc. These authorizations and limitations fill fourteen pages of the mortgage. Then follows a stipulation that, " until default shall be made by the Company, in the payment of the principal or interest of the bonds hereby secured, or some of them, or in respect of some act or thing, covenant or agreement, herein required by it to be done, performed, or kept, the Company shall be suffered and permitted to possess, manage, operate, and enjoy the said lines of rail- road, divisions, and branches," etc. Provisions are then made in fuU detail outlining the procedure of the Trustee in case of default, and the Trustee is also vested with cer- tain authority to release from the mortgage property included under it which, in the Trustee's judgment, is im- necessaiy. There follow certain further definitions of the Trustee's duties and pledges of good faith on the part of the company in the execution of its contract, and finally 192 RAILROAD ADMINISTRATION there are many pages of printed forms which the clerks of all county courts sign, in the district traversed by the railroad, attesting that they have received and recorded the mortgage. The entire mortgage, with its certificates of attestation, is a document rather more than half as voluminous as this book, and it is by no means exceptional in this regard. Thus the formalities with which the mortgage creditor sur- rounds himself are in striking contrast to the proprietor's certificate of capital stock, the entire authority for which ordinarily rests on the recorded action of the directors, usually brief, while the certificate itself contains the name of the railroad, a statement of the par value of the stock and of the number of shares which the certificate repre- sents, and, occasionally, a statement of the total capital issue of which it is a part. The railroad's promises to pay take a good many forms, and many of them are technically unsecured ; that is to say, no specific property is deeded in trust to cover them. A form of financing common a generation ago and to-day, though it was not used by railroads for many interven- ing years, is the convertible debenture. The indenture of an issue of debentures, whether convertible or not, often provides that, " so long as any of said debentures are outstanding and unpaid, the railroad company will not make any new mortgage upon its railroad (other than upon leased lines) without also thereby including there- in every debenture issued under this indenture equally and ratably with every bond or debenture issued under and secured by any such mortgage; but this covenant RAILROAD FINANCIAL ORGANIZATION 193 shall not prevent the renewal or extension of any exist- ing mortgage."^ In the case of the convertihle debenture, the holder is given the additional privilege of exchanging his debenture for the company s stock, sometimes at his option, but usually after the lapse of a specified number of years. The price of stock at which this conversion may be affected is stipulated ; sometimes the exchange may be made dollar for dollar ; sometimes the conversion power of the debenture calls for a less amount of stock than that represented by the par debenture value. The Union Pacific Convertible is were convertible into stock at 175; that is to say, it took $175 par value of debentures to obtain in exchange $100 par value of stock. So long as the market value of the stock was below $175, the conversion feature of the debentures had only a speculative value, but when the stock went above $175, the market value of the debentures rose accordingly. Convertible debentures have been popular as " business men's investments," because, while ranking ahead of all the stock and having many of the properties of a bond, though unsecured by deed of specific property, their hold- ers could share in the prosperity of the company, if at any time within the period during which conversion might be effected, the capital stock, at the specified rate of exchange, should prove more desirable than the mere promise to pay a specified sum with specified interest. The holders were creditors if times were bad ; they could become proprietors on advantageous terms if times became good. 1 Michigan Central Debenture 4s of 1909. 194 RAILROAD ADMINISTRATION Collateral trust bonds are bonds secured by a deposit with a trustee of various securities, either stocks or bonds or both, which, in case of default, are sold for the benefit of the collateral bondholders. They may be described as secondary, rather than as primary securities, since they rest on some other promise to pay, or certificate of pro- prietorship, than their own. Perhaps the note is the simplest of all the forms taken by a railroad's promises to pay. Usually unsecured (ex- cept in the case of equipment notes, discussed below), this form of financing would have little attraction for investors if it covered protracted periods. In practice, the use of the note is to tide the company over brief periods when it needs a limited amount of new capital, but is unwilling or unable to place a new issue of bonds or stock on a satisfactory basis. A note issue is, in effect, a gamble that conditions for permanent financing will be better in one, two, three, or five years than at the time. If they do not prove to be so, the company is worse off than it was before it issued the notes. But they usually cover a relatively small sum, representing some pressing need rather than a systematic plan, and, by paying a high interest rate for a brief period, the company, if it is fortunate, avoids paying a rate which it deems excessive on long-term bonds. Around 1906 large amounts of notes were issued, because the market was exceedingly unfavorable to new issues of stocks and bonds. Equipment notes, or car-trust notes, are a different matter. A railroad negotiates a loan on new cars and loco- motives, which it has ordered, and deeds them over to the RAILROAD FINANCIAL ORGANIZATION 195 trustee, just as main line mileage is deeded over. But equipment wears out in service, and is destroyed in fires and wrecks ; consequently equipment notes usually run for a period well short of the probable life of the equipment — say ten years — and provision is made for their retirement serially, so that at the end of the ten years or less the equipment, or what is left of it, is owned by the railroad company in fee, while all the pledged equipment remains in trust until full final payment. These notes have been well described as a deferred charge against the income which the equipment is expected to earn ; their security and sala- bility are usually good. It would be possible to enumerate many other forms of corporate obligation on which railroads raise capital in this country, but all could be broadly classified as secured or as unsecured promises to pay. The forms of security vary tremendously ; an income bond, for example — which should scarcely be called a bond at aU — usually promises merely a first call on surplus income. Market value rests directly on the security, as appraised by bankers and investors, in conjunction with salability — ^the relative ease with which a bond of this special character can be sold in a special market. The financial organization of a railroad does not consist merely in devising good and safe forms of bonds, however ; it must also find the market for them, and keep in expert touch with that market at all times, since, so long as the country continues to increase in population and trade, rail- roads will continue to do new financing. The early rail- road builders probably expected to pay off their bonds at 196 RAILROAD ADMINISTRATION maturity, but nobody expects anything of the sort now; there is a great difference between the kind of freight and passenger rates that suffice to earn six or seven or ten per cent on the capital investment, and the kind that would earn enough to make securities marketable and also to pay them off at maturity. Nor is there any economic reason why proprietors should forego a return on their present investment for the sake of presenting to future generations a railroad system free of debt. Only where property wears out or is used up is it necessary to provide for extinguishing the debt on it, and a railroad, maintained out of current income, neither wears out nor is used up. So its capital debt need not be paid off, but provisions must be made for refunding capital issues as they fall due. The railroad will give the bond- holder his cash at maturity, " in United States gold coin, of a standard of weight and fineness equal to the present standard, " if he wants it, but most bondholders are willing to exchange old bonds for new ones, provided the invest- ment is made as attractive as any other current use to which their funds could be applied. Otherwise, old bond- holders will not take the new bonds, and the issue will be thrown back on the underwriters, who must pay the old bondholders off and receive the new bonds themselves. This brings us to the position of the underwriter in railroad financial organization. Theoretically, this third party, intermediate between the issues of bonds and the final buyer, could be dispensed with. A new venture often has no underwriting at all, the bonds and stock being ped- dled locally among residents along the projected route. But RAILROAD FINANCIAL ORGANIZATION 197 this sj'stem has many disadvantages. Farmers and country merchants are not ordinarily large buyers of securities of any kind; they are producers themselves, and need their money in their own business. The best market for the securities of a railroad in Oregon is quite likely to be among the wealthy individual investors and investing in- stitutions, such as the great insurance companies in New York City. But the Oregon railroad cannot itself keep in touch with these investors, three thousand miles away ; that is a business by itself, requiring years of experience and a large and efficient selling organization. In renewals of existing bond issues, the problem is even more critical. A railroad has a $50,000,000 bond issue maturing June 1st. Its cash and liquid assets amount to $6,000,000, or perhaps to only $3,000,000. The directors plan their new financing so as to offer each old bondholder a new bond that will satisfy him, taking current market conditions into account, but if they plan mistakenly, they are liable for the whole of the $50,000,000 in cash at the expiration of the time stipulated in the mortgage ; perhaps sixty days after the bonds fall due. If they cannot find this cash or find something that the old bondholder will accept instead, their company is insolvent. Moreover, even with the best of financing, a certain proportion of the old bondholders will elect to receive cash instead of new securi- ties, and to provide this cash new bonds must either be sold in increased amounts to other old bondholders, or new investors must be found, and found instantly. No railroad will assume any such responsibility, if it can avoid it. So the new financing is underwritten, or 198 RAILROAD ADMINISTRATION insured, by a large banking house or trust company, which buys from the railroad the entire issue, or contracts to buy all which present creditors do not seek in exchange, at a specified sum which will enable the railroad to meet its obligations. This is a very important service; naturally it is not performed for nothing. The financial ofScers of the rail- road either ask for bids on their new issue or else bargain privately 'with the banking house where their credit is strongest, and the banker quotes a price which his expe- rience has taught him will enable him, with a fair degree of certainty, to sell again at a profit. The amount of profit he calculates on depends wholly on the risk he must assume; if the bond market is brisk and the securities are excellent, he is willing to underwrite the issue for a small profit; if the market is bad and the bonds are shaky, he will properly require a large margin, since his prospective profit may readily be converted into a loss. When the underwriting is completed and the appointed time arrives, the railroad receives the entire sum of money from the bankers, and has no further share in the problem of finding the new funds. But the work of the banker has only just begun, except in these rare cases where he re- ceives more applications for the new bonds than he has bonds to sell — ^where the issue is oversubscribed, as it is termed. Ordinarily, he himself must borrow the money which he pays the railroad, depositing the railroad's securities as collateral for his loans, and then he must exert his selling organization to place these bonds which he himself has al- ready bought, and paid for with borrowed money. This RAILROAD FINANCIAL ORGANIZATION 199 borrowed money is drawing interest every day; if the market for securities is rising and call-money rates are moderate, this fact may be of relatively small importance, but if the market is growing worse and the money rate is high, time is an element of -first importance ; every day that the securities remain unsold reduces the banker's profits at both ends — ^through the interest rate he himself pays, and through periodic reductions in the price he can hope to obtain for the issue he has underwritten. A study of the reasons why the American security market is peculiarly subject to wide variations, making the work of the underwriters especially hazardous, would in- volve a long digression from the subject at hand, so it is not attempted here. The way that the placing of the bonds covered by these great underwritings is effected is of considerable interest. There are three great banking houses in New York which are preeminent as primary underwriters of securities on a huge scale, J. P. Morgan & Co., Kuhn, Loeb & Co., and Speyer & Co., the house of J. P. Morgan & Co. being considerably the greatest of the three, with its affiliated group of banks and trust companies. Around each of these financial centers there are a large number of lesser private banking houses which in effect supply the sales force for the primary underwriters. These lesser houses do considerable amounts of primary under- writing themselves, either singly or in combinations, but the biggest issues and the toughest financial problems naturally fall to the leaders. One of these great houses underwrites a large refunding issue of bonds, say at 95 per cent of par value, and immediately offers blocks of the u 200 RAILROAD ADMINISTRATION securities to the junior banking houses, perhaps at 97, or a two-point profit. The junior houses then proceed to act as retailers, placing the bonds among their own customers all over the country. For mutual protection, the primary underwriter usually specifies a minimum price at which the bonds can be retailed. Thus the distribution, which is the work of many hands, is spread out widely, while the orig- inal credit is concentrated and at 'the same time the risk of the original underwriter is greatly reduced, or removed entirely. In cases where a railroad provides new funds by offer- ing new stock to former stockholders, pro rata, at an attractive price, the work of the underwriter is minimized, but a contract is usually made with some banking house to take, at a specified price, all the new stock which is not subscribed. The railroad cannot efficiently maintain a stock-selling organization, and must arrange to have this part of its work done for it. In practice, each great Ameri- can railroad is apt to' do its financing through the same channels for long series of years, and there thus arises an obligation on the part of the banker, very real, if he wants to hold the business, to stick to his customer through thick and thin, and aid and protect it in times of stress. This sort of relationship has been well exemplified in the financing of the Erie and the Southern Railway by J. P. Morgan & Co. Thus it is seen that the financial organization of a rail- road, the credit organization, is no less tangible and con- stant than the operating organization, but that it is main- tained largely outside of the railroad ofBces. The basis of RAILROAD FINANCIAL ORGANIZATION 201 the credit rests squarely on the physical assets and op- erating record of the road, but a railroad is organized to sell transportation, not securities, and for this latter task, which must be performed continuously and ably if it is to do business at all, it must turn to the specialists in credit. CHAPTER IX THE PUBLIC EELATIOXS OF A RAILROAD Belations with customers and with governing bodies — Corpo- rate bad manners — The passive attitude of the American Kailway Association — The Roosevelt legislation and the new commissions — An estimate of the Interstate Commerce Com- mission — The three great sources of the unpopularity of the railroads : rebates, claim departments, and station agents — The difficulties which beset an attempt to give honest and popular service — There is still room for improvement in the diplomatic work of the railroad — The value of harmony, and some methods for securing it — The overturn of the old corrupt system — The fallacy that an overcapitalized road can raise its charges in competitive territory — Cost of serv- ice and value of service in rate-making — Statutory attempts to prevent overcapitalization. A HAiLROAD has two kinds of public relations. It comes into public contact with its customers, and also with gov- erning bodies, municipal, state, and national. At the present time, determined efforts are being made by the roads in every part of the country to keep relations with their customers constantly adjusted on a friendly and reasonable basis, but this has by no means always been the ease. There cannot be the smallest doubt that a persistent condition which may be described as corporate bad manners was in large measure responsible for the exceedingly bitter 202 PUBLIC RELATIONS OF A RAILROAD 203 attacks upon railroads which characterized the so-called Granger period, in the seventies, and, more recently, in the Roosevelt administration. In large measure, but not ■wholly, for there was also the element of mere bigness, and that of absentee ownership. It was easy for the Iowa farmer who had some petty grievance against the railroad to feel that he — an American citizen and the legal equal of every other American citizen — was being crushed by a huge corporation which was well out of his reach in the courts, and could be as arbitrary as it pleased in all the details of its arrangements to perform transportation services for him. The aggrieved farmer or small shipper did not consider how much better he was served by an arbitrary railroad than anybody could possibly have been served before the railroad came ; he knew that the largest concerns, with whom he had to compete, got their transportation on more favorable terms than he did, and he saw obvious evidences of strong-handed control of state legislation in the railroad interest. That he himself and his neighbors were electing representatives who have been well described as legislative highwaymen, did not concern him; he observed only the laws that were enacted, not those that were threatened, and withdrawn for a consideration. Any fair-minded analysis of American railroad legislation must take into consideration the fact that there was a long list of deplora- ble wrongs on both sides of the ledger. But it was extraordinarily shortsighted of the railroad managers to let these wrongs pile up until they provided an inexhaustible store of ammunition for the politician 204 RAILROAD ADMINISTRATION seeking a party issue. The American Railway Association has a heavy responsibility for this situation. Purporting to represent the joint interests of the railroads of the coun- try, it has buried itself in formalities and trivialities; it has resisted public opinion when it should have led it, and it has remained inactive while the cure for recognized abuses has been applied by the clumsy hands of the law- maker. The American Railway Association ought to have stopped rebating; it ought to have been alive to every broad complaint of discrimination, and of lobbying, and of excessive charges for service performed. The difficulties in its way were great, but they were not insuperable, and hundreds of the able executives who have been included in its membership must have foreseen the trend of affairs. It is one of the most unfortunate things in American railroad history that this great association should have put itself in the position of working against the government, instead of with it, in the correction of many curable defects of admin- istration.^ It is impossible to make even an approximate estimate of the real public feeling that was behind the Roosevelt 1 1 have been criticised for the point of view here expressed, on the ground that the association was purely an operating body, and rarely, if ever, considered traffic problems. But at a time when the people were conscious of grievances and were in a temper to enact hostile legislation, it seems to me that the only body competent to deal with the situation was the existing conference of presidents, vice presidents, and general managers. If the American Railway Association had broken away squarely from its tradition of non- interference in 1905, and by majority vote had used its potential strength in the interest of the common good, I believe the political history of the last five years would have been very different. PUBLIC RELATIONS OF A RAILROAD 205 legislation. The issues were popular, because they in- volved doing something to big people for the supposed benefit of little people, and the Congressional hearings on rate regulation and its attendant circumstances were ably conducted. But of the mass of hysterical state legislation that followed in the wake, only a tiny proportion was a careful, efBcient expression of tangible public grievances; the railroads found themselves a political issue, and the angriest speaker went farthest in the public favor, while hostile sentiment throve on the food given to it. The re- sult found expression in two forms : direct legislation, such as that fixing rates, especially passenger rates, since these were tangible and readily computed on a mileage basis, and indirect legislation, creating commissions with power over rate making and many other features of railroad manage- ment, including, frequently, the tem:s on which new securi- ties could be issued. Much of the direct legislation, conceived in a state of public excitement, has since been declared unconstitutional, after certain historic clashes between the state and federal courts, especially in the South. The indirect, or commis- sion-making legislation, has fared better. The state rail- road commissioners, as a class, are not well equipped for their work; their responsibilities are hea^y, and particular care has often been taken to choose men without any actual experience in railroad management.^ But the worst of the 1 The following facts about the state commissions in 1908 are Btunmarized from an article by Samuel O. Dunn in the Railway Age Gazette. January 15, 1909: The commissioners of eighteen states are appointed by the gov- 206 RAILROAD ADMINISTRATION commissioners, whose training and interest was purely political, have not cared for the incessant attention to busi- ness that their appointments called for, and their negli- gence has had the effect of moderation. On the whole, a surprisingly large number of the appointees have really tried to grasp the complex situation and to be fair. With every succeeding year of their tenure in office, they have understood the problems of a railroad a little better, and, in spite of occasional irritating and costly blunders, it is safe to say that the state commissions are growing wiser, and that their administration is less harmful than the best judges thought it was going to be. emors, and of twenty-two are elected by the people. The number of lawyers on the commissions (forty-two) is much larger than the number of men from any other vocation. Many of these lawyers have been active politicians, but four were formerly judges — an excellent qualification. The commissions also include thirteen for- mer railroad employees, including the ex-foreman of a blacksmith shop, a telegraph operator, and three conductors. They include five " business men," three merchants, two cotton factors, two real estate dealers, two newspaper men, five manuiacturers, three engineers, twelve farmers, six bankers, an insurance agent, a contractor, a liveryman, a coal operator, a teacher, a lumberman, an economist, a state land agent, a sheriff, a commissioner of labor, and a physician. The salaries paid these commissioners do not tally well with their responsibilities, and constitute an additional reason why it is hard to get good men for the positions. In Florida, the commission- ers are paid $2,500 each; in North Dakota, $1,200 each; in South Dakota, $1,500 each; in Vermont, the chairman is paid $1,500 and the other commissioners $1,200; in Iowa, $2,200 is paid; in Georgia, the chairman gets $4,000 and the other commissioners $2,500. Ex- cluding the chairmen's salaries, there are only ten states which pay $4,000 or more, and \ew York ($15,000) is the only state which pays more than $8,000, although the commissions occasionallj' hire valuation experts and counsel at a higher salary than the commis- sioners themselves receive. PUBLIC RELATIONS OF A EAILROAD 207 Tbey add enormously to the difficulties of the railroad manager, however. Almost all railroads of consequence are interstate ; they are subject to the rulings of the Inter- state Commerce Commission and perhaps to half a dozen state commissions as well, and a state order changing a specific rate or group of rates is liable to affect the traffic structure and trend of traffic movement over immense areas outside the jurisdiction of the commission making the order. The work of the interstate commission is materially better than that of the state commissions. It is composed of men with a better and longer training, and its direct work, on the whole, is nonpoUtical, although the commis- sion has constantly sought extensions of its powers, already immense. The obvious defect of all commission rate regu- lation is the tendency it creates toward inflexibility; man- ai/ers rightly hesitate to make temporary rates or special rates to enable the movement of certain low-value com- modities, if these rates are to be made a criterion for all the business of the road. It seems inevitable that the net effect of endowing the Interstate Commerce Commission and a group of state commissions with strong powers of rate regulation will be to keep freight and passenger rates at a somewhat higher level than they would be if un- regulated. The creation of these commissions has one extremely wholesome effect on the public relations of the railroad, however. They are at once the best possible safeguard against a government-ownership campaign, and the best assurance that there will not soon again be an anti-railroad 208 RAILROAD ADMINISTRATION storm throughout the country. The popular feeling of helpless oppression by a tyrant corporation can find little expression when the tyrant is broken to harness, and guided by a commission chosen directly or indirectly by the electors. Moreover, a political campaign cannot be made very effectively on additional minor issues of the details of administration by the commissions ; these matters are too intangible to arouse any enthusiasm in a mass of voters. The situation may be summarized by saying that the commissions are not likely to accomplish any permanent useful results in the fields for which they were created, but that their indirect effect as safety valves, and as pro- moters of harmony, ought to be considerable. It is more important to have a court of appeal than to use it; the great thing is accomplished when the public is satisfied that it is being treated justly, and that somebody is looking after its interest. In the public relations which a railroad has with its customers, it is possible to localize under three principal heads the principal direct sources of unpopularity. These are, discrimination, the claim department, and the station agent. Discrimination has been removed from the situa- tion by law; it ought to have been abolished years ago, but the difficulties in the waj' were great. Essentially a competitive device, it existed in a hundred forms, and no force short of the American Railway Association was com- petent to deal with it. The claim department, on the other hand, is an essential part of every railroad organization, but it takes the nicest judgment to make it at once efficient and fair. Railroads are beset by a perfect horde of im- PUBLIC RELATIONS OF A RAILROAD 209 posters in everj- accident case. The " ambulance chaser," or shj-ster lawyer on the lookout for a share in jury- awarded damages, is as well known on the western prairies as he is in New York City. Everj- decrepit animal that is killed by a train is alleged to be blooded stock; every package of merchandise damaged in shipment is charged to tlie carrier, no matter how flimsy the original packing. Even where the claim agent can establish the clearest proof against the shipper, or show how slight was the actual injury to the passenger, a local jury will almost inevitably find in favor of its neighbors and against the great cor- poration. The work of the claim agent, who must know all the facts and interview all the witnesses, is exceedingly toil- some, and there is much about it to make him suspicious of mankind in general. Yet, with full allowance for these undisputed facts, many railroad claim departments have been so administered as to stir up unbounded ill feeling, much of which was clearly merited. The claim agent must fight the impostor to the last ditch, unless it is cheaper to compromise with him. but when he is dealing with meritorious cases of actual damage, with the shipper whose perishable freight has been ruined by delay in transit, or with the merchant whose consignment of f urni- t\ire, weU packed, has been damagred by careless handling, he owes it just as much to his company as to the public to make prompt and equitable settlement. On some roads this business is handled with admirable fairness: on others, the settled policy seems to be to pay no claim, just or uhjust, that can be circumvented or out- 210 RAILROAD ADMINISTRATION lawed by continued delay. The agent takes a week to answer the original complaint, and his answer is evasive. The second and third letters he forgets entirely ; the fourth he replies to by confusing the issue with a preposterous counter claim. In the end, the man with the most influence or the loudest voice gets paid; the more obscure or more courteous claimant does not. Consequently, the swindler with a jury case gets his damages in a week, while the honest man without a jury case is defrauded, a perversion of justice that has been the cause of a tremendous amount of bitterness on the part of the small shipper and consignee toward the railroad. The case of the station agent, as a trouble maker for his employer, is different. The station agent is the only representative of the road with whom most travelers and many small shippers ever come in contact. To provide an agent for every station, big or little, naturally requires a tremendous organization; the work is laborious, but not skiUed, and appeals to a man of no capital and no special training. Consequently the pay is small and the opportu- nity for advancement not particularly good. When all these facts are taken into account, the general personnel of the station agent force throughout the country seems sur- prisingly good, yet there have been many special instances where the contrary was true. An agent who is rude, or dictatorial, never fails to make enemies for his company, and not infrequently is the source of an accumulation of petty grievances that find their expression at election time, or in the local jury's attitude of mind. Yet this is one of the hardest features of railroad operation to control, and PUBLIC RELATIONS OF A RAILROAD 211 there were many years when it was largely ignored by the management, unless the cases were flagrant. Much care was taken to guard the company from theft; little atten- tion was paid to petty evidence of local hostility. This situation has greatly changed for the better in the last few years. Almost all railroads now appreciate the value of good public feeling as an asset, and they go about securing it in a more or less systematic way. Yet there is still room for improvement in what may be called the railroad diplomatic corps. Even the least of governments, the smallest of principalities, has an army to repel invasion, and a diplomatic corps to economize the use of the army. But a railroad, which has a good many points of analogy to a government in its public relations, has no efficient defensive forces. Yet it has especial need of them, because it is a very curiously shaped kingdom, being a thousand miles long, let us say, and a hundred feet wide, and wholly surrounded by other governments, which may or may not be friendly. The principality of Monaco, surrounded by the French department of the Alpes Maritimes except on the side toward the sea, contains about eight square miles of territory. It has an army of one hundred and twenty-six men, and a well-organized diplomatic corps. The railroad kingdom, a thousand miles long and a hundred feet wide, occupies about nineteen square miles of territory, but has neither army nor diplomatic corps, except in so far as the traffic department keeps in touch with the principal ship- pers. Two ways of meeting this need have been tried. The alert superintendent or general manager reads the local 212 RAILROAD ADMINISTRATION papers, and tries to find and remove the causes of criticisms of the company or of the service. This is especially care- fully organized on the Harriman Lines, with their press clipping bureau under the supervision of the director of maintenance and operation's office. In this way the political attack can be differentiated from press criticism resting on genuine grounds, and the management can grad- ually localize real sources of complaint and take measures accordingly. Another way of promoting local harmony, much used in recent years, is for the president or one of the vice presi- dents to travel extensively on his line, meeting boards of trade and speaking at banquets, so that to the leading citi- zens at least he is something more than a figurehead. This tends to correct some of .the misunderstandings growing out of absentee management, but it has the disadvantage of requiring a vast amount of time, which is urgently needed in the direct conduct of the company's affairs. "When the president is away, his work must either be done for him by somebody else, or it must accumulate on his desk. Either arrangement is unsatisfactory. Probably the best ultimate solution of the difficulty is going to be found in a combination of these two methods. Eailroad managers realize to-day more clearly than ever be- fore that they cannot afford to neglect local sentiment, and that petty grievances and misunderstandings are just as costly in the railroad business as they are in the grocery business, although the costliness manifests itself in a dif- ferent way. During the past two years many circulars have been issued from general offices to subordinate employees. PUBLIC RELATIONS OF A RAILROAD 213 insisting on courtesy in dealings with the public, and there is a pronounced tendency to follow this up, and see whether or net the instructions are being observed. Gen- eral harmony, from day to day, is best promoted by the watchfulness of the division officers, and they are sure to be watchful if the president and general manager really want them to be. For occasional hard jobs, where hos- tile legislation is threatened or efforts are being made to organize competing lines, the personal work of the senior officers of the road is urgently needed, in the open, where everybody can see it. Not many years ago, President Mellen, of the New York, New Haven & Hartford, created something of a public sensation by appearing before a committee of the Connecticut legislature in person, and explaining exactly why he thought a projected competing line should not be given a charter ; to-day, this sort of frankness on the part of railroad presidents is fairly common, and is exceedingly well received, as evidencing an intention to play fair, instead of working through the medium of the lobby. The im- portance of this both to the railroad and to the community can scarcely be overestimated. The atmosphere of the state legislatures in this country has not been a healthy one ; a condition which the railroads have done much to foster by their shortsighted belief that the paid legislative agent was their only protection against the demagogue. At times, when the paid agent and the demagogue were one and the same, it must be admitted that there was founda- tion for this belief. A situation existed which could not be remedied without long, costly, and uncertain warfare, at gl4 RAILROAD ADMINISTRATION the expense of the stockholders, and so the railroad man- agers paid blackmail, and bought privileges, too; it was all part of the same vicious system. One happy result of the legislative storms of 1905, 1906, and 1907 was to overturn this structure balanced in unstable equilibrium, and the ablest managers are now wiser than to try to set it up again. They believe that the same drift of affairs that has purified national legisla- tion since the fifties is going to be felt at the state capitols, and few of them care to reestablish the old lobbies. The legal department of a railroad is not apt to be successful at the broad task of establishing harmony with the public. The local board of trade wants to be in touch with the principal, not the agent; the legislative committee sees so much of the attorney representing special interests that it discounts his arguments, and pays more heed to the operating or trafiic officer who makes his appeal at first hand. The work that President Finley, of the Southern Railway, has done in bettering public relations in the South, and that Janfes J. Hill and Howard Elliott have done in the Northwest, could not have been duplicated by counsel. These efforts to improve the relations between the rail- road and the community have no parallel in any other part of the world. In Great Britain the railway chairman is often hard beset by his shareholders at the semiannual meeting, but the public at large does not have to be con- ciliated; it has faith in the railway department of the Board of Trade as its representative in physical questions affecting way and structures, rolling stock, and safety PUBLIC RELATIONS OF A RAILROAD 215 appliances, and in the venerable Railway & Canal Commis- sion, on matters of rates and finances. On the Continent, where private and government ownership exist side by side, the influence of the government is dominating; only in a democracy, with privately owned lines and a national habit of perpetual law making, can a situation like that in this coimty arise. For the future, the commissions, state and interstate, give the best promise of relief, both to the coun- try and to the railroads, but it looks as if their utility was likely to be in inverse ratio to their activity. Their value, as has been said, lies in the public confidence they beget, not in the rates they make. The public relations created by the issuance of railroad securities have recently attracted a good deal of attention in this country, and it seems almost inevitable that national legislation will be enacted restricting the power of inter- state railroads to issue new stocks and bonds except under statutory limitations. Such legislation has already been enacted in many states, and almost always on the totally false economic concept that the rates charged for the trans- portation service are affected by the capitalization. A mem- ber of the Interstate Commerce Commission recently had the hardihood to assert, at a large public dinner,^ that the over- 1 This was at the January, 1910, meeting of the New York Eco- nomic Club. Referring to the refinancing of the Alton, after the change of management in 1899, and to the Stock Exchange scandal when John W. Gates got control of the Louisville & Nashville, and had it subsequently bought away from him at a large profit to himself, " in both these cases," said Commissioner Clements, " th«, added amount in stocks and bonds was taken out of the pocket of the public in increased rates.'' 15 216 RAILROAD ADMINISTRATION capitalization of the Chicago & Alton and the Louisville & NashviUe had been paid for by the public in the form of higher rates. Commissioner Clements 's text gives a good opportunity for the discussion of this popular fallacy. The Chicago & Alton changed hands in 1899, and the new management proceeded to capitalize betterment work which had previ- ously been charged to income for a long series of years. In the process the total of the company's stocks and bonds jumped from $33,010,450, in 1898, to $64,944,450 after the conclusion of the readjustments. This was bad financing, because it seriously damaged the company's credit. The Alton's wings were clipped by this transaction; it was thereby denied access to the money markets of the world for a long period of years, except on terms which might fairly be considered prohibitive. But the statement that the Alton recouped itself after this financial debauch by raising its rates, or that it could have done such a thing, was nonsense. The Chicago & Alton runs from Chicago to St. Louis and Kansas City, serving a district which may be fairly described as the most highly competitive traffic territory in the United States. We may be pardoned for wondering what the Wabash, the Illi- nois Central, the Cleveland, Cincinnati, Chicago & St. Louis, the Chicago, Burlington & Quincy, the Chicago & Eastern Illinois, and the Pan Handle and Vandalia were doing while the Chicago & Alton was endeavoring to collect the amount of its increased rates between Chicago & St. Louis. It would be interesting, also, to know who chloroformed the Wabash, the Chicago, Rock Island & Pacific, the Chicago, PUBLIC RELATIONS OF A RAILROAD 217 Burlington & Quiney, the Atchison, Topeka & Santa Fe, the Chicago, Milwaukee & St. Paul, and the Great Western while " the added amount in stocks and bonds was taken out of the pocket of the public in increased rates " between Chicago and Kansas City. Of course, the contention that an isolated road in a highly competitive group can raise its rates for any cause whatever, whether based on its own stem necessities or on the pleasure of the chase, and stUl do business, is foolish- ness. In regions where there is either actual or potential railway competition, overcapitalization cannot affect the rates; it can seriously damage the minority stockholder, and, therefore, is wrong morally ; it has a bad effect on the financial credit of the railroad which is the victim of it, and therefore is bad railroad practice. But the rates charged by the Chicago & Alton Railway have not been in- creased to the extent of one cent because of the overcapital- ization of this property. We have discussed the case of the Alton rather than that of the Louisville & Nashville because the principles in- volved are more sharply pointed. In the Louisville & Nashville affair the overcapitalization was not serious — a fact conclusively demonstrated by the company's high financial credit at the present time. But the Louisville & Nashville could no more take the increased capitalization out of the public in the form of higher rates than the Alton could. The Louisville & Nashville is a less simple and com- pact property than the Alton ; it has one kind of competi- tion between Cincinnati and New Orleans and another kind between the Birmingham district and the Atlanta district, 218 RAILROAD ADMINISTRATION while between Louisville and Memphis or Nashville and Memphis it has yet a different kind of competition. But in the whole Louisville & Nashville system there is not one single line which has not some effective competitor, unless we except two or three minute branch lines which are not important enough to attract competition. What would the Queen & Crescent, or the lUinois Central, or the St. Louis & San Francisco, or the Mobile & Ohio have done if the Louisville & Nashville had attempted to increase its rates at the cost of the public? They would have taken all the company's business, and left a very handsome raUroad en- tirely idle. Court decisions on the basis of reasonable rates have almost always adhered to the " cost of service " principle, because it was tangible, and the proposition that the entire corporate income should not exceed a ' ' reasonable ' ' return on the capital invested in the business looked equitable. Yet only if we assumed the total absence of aU competition, local and national — competition of carriers, competition of markets, and competition of commodities capable of substi- tution for one another — could rates be made in accordance with what the work cost the railway, or with what the rail- way would like to earn. In real practice, they always have to be made on a basis which will permit the traffic to com- pete effectively in the markets of the world. If rates on an existing group of railways were suddenly altered on the " cost of service " theory there could be no competition in the country at all, since the line with the lowest operating costs would get all the business, and the other lines serving the same points would get none whatever. PUBLIC RELATIONS OF A RAILROAD 219 To illustrate this point without undue elaboration of detail, it may be mentioned that butter and eggs from Den- mark compete sharply in the London market with butter and eggs from Devonshire ; that Australian wool and Mon- tana wool compete at Boston; that Texas oil competes at Calcutta with oil from Baku, and that Florida oranges, Ja- maica oranges, and California oranges sell on a quality basis — not a distance basis — in New York City. Railroads and steamship lines that cannot see their way clear to make rates that will place their commodities in the markets of the world at a price that will enable them to be sold in competition with other commodities, must simply give up the business entirely; nobody will pay high freight rates out of sympathy for the carrier's heavy expenses. And if rates are fixed by statute on an inflexible basis to yield the minimum revenue which wiU support the most efficient car- rier in each group, then all the other carriers in the group must become bankrupt. That is why railroad valuation as a basis for rate making is futile. If the railroads hauling oranges from Florida were compelled by statute to charge the same ton-mile rate for them that the railroads hauling from California do, the result would simply be to exclude California oranges entirely from the New York market; if the Pennsylvania could prove that it had actually spent twice as much per mile of line as the Erie, between New York and Chicago, that fact would not enable it to add one cent to its freight rates, unless the additional charge cov- ered quality of service, not cost of service to the railroad. As a matter of fact, the Erie is the historic example of a road overburdened with watered capital (not with cost of 220 RAILROAD ADMINISTRATION road) which cannot collect enough freight charges to pay dividends. Public regulation of railroad capital cannot effect freight charges, therefore ; it can only serve as a protection for the individual investor, and as a safeguard for the community against the general disadvantages arising from the presence of an insolvent corporation. But it is almost, if not quite, impossible to frame laws rigidly so that they can accomplish any useful protection of this kind without incidentally doing vastly more harm than good. Massachusetts has made perhaps the most intelligent effort of any state to frame this kind of legislation. The Anti-Stock-Watering Act of 1894 provided that whenever a steam railroad, a street railway, or a gas, electric light- ing, aqueduct, water, telegraph or telephone company, should increase its stock by an issue exceeding four per cent of the existing capital stock, the amount necessary for the contemplated purpose should be offered to shareholders at its market value at the time, as determined by the Board of Railroad Commissioners . . . but no share to be sold or issued at less than par. The feeling throughout the state gradually became widespread that, while this law effectu- ally prevented stock-watering, it was a millstone around the neck of industry, and in the summer of 1907 an exceed- ingly able commission was appointed by the legislature to find out whether this law or some other thing was oppos- ing the material development of the state. This commission reported in March, 1908. It found, first, that when the state prescribed a price above par as the minimum basis on which new stock could be offered, PUBLIC RELATIONS OF A RAILROAD 251 it thereby put itself in an impossible position with regard to anj' subsequent eflforts to determine what vras a fair rate upon investment, and consequently impaired its own efforts to control the ser^ ice performed by the corpora- tion. It found, also, that capital had been kept away from the loiritimate enterprises of the state by the requirements of the law. and the eonnnission placed emphjisis on tlie point of view that the concern of tlie public with what a railroad earns is very slight, whereas its concern with what the railroad does is verj' great. The eonnnission finally added a modest recommendation tliat the idea of punish- ment be left out of new corporation legislation entirely, and that the state find wa\-s to benefit its own commerce and industry instead of devK^ting its best energies to re- A'cnge for supp<.^sed misdeeds by its rtn-porations. This point of view was too adA'anced for the Massaelm- setts legislature in its entirety, althoT^h the law was so amended that the price at which new stook should be issued was to be lixe^l by the stockholdei-s instead of by the Rail- road commission. Yet the flat failure of the law in Massa- chusetts, and the actual deterioration of the transportation properties on accotint of it, since no one would buy new semirities from them at the market price of the old ones. will probably not prevent it from being tried in many other states, and not improbably by the national gov- ernment. After all. laws to prevent overcapitalization are much like laws to prevent tisury, or to tix the price of corn-, if enforced at all, they tisually have an opposite effect from what w«s intended. The railroad which is allowed to issue 222 EAILROAD ADMINISTRATION no capital except for the actual cost of specific additions and betterments, for example, will see to it that no- addi- tions and betterments escape uncapitalized. But it is just this practice which is bringing the British railroad system closer to insolvency every year, as we shall presently see. The British government scrutinizes all railroad share and debenture issues closely, yet its transportation system is seriously overcapitalized; our government has hitherto not scrutinized railroad securities at all, and yet we may feel reasonably certain that the railroads of the country could not be replaced for the securities standing against them. Gross fraud in the manipulation of corporation securi- ties has not been imcommon in our economic history. The scandal of the looted Metropolitan Street Railway is ever present with the citizen of New York, and examples of the same kind of maladministration, though of lesser degree, can be found in many parts of the country. But no legis- lature can frame laws in advance to prevent this sort of thing, because the methods of it are different in every in- stance, and a stern chase is proverbially a long chase. The manipulators are fully as clever as the legislators, and have the incomparable advantage of finishing their work before the legislators begin. In such cases it is the stockholder who is most wronged, not the community. It is certain that the community will be better served in its corporation regulation if it makes fewer laws and wiser ones, and works away from what the Massachusetts commission described as the punishment idea. But the lesson-s of the last five years have taught the railroads the PUBLIC RELATIONS OF A RAILROAD 223 costliness of dictatorial methods, and the importance of keeping in touch with the personal wishes and inclinations of the persons for whom they do business. On its commer- cijkl side the railroad is a salesman, and no salesman can afford to make enemies ot nis customers. CHAPTER X CONTROL THROUGH STATISTICS The plant with which a railroad bperates is spread over a great territory, increasing the difficulty of efficient control — Sta- tistical control consists of establishing units and comparing them with fixed or relative performances — Ton-miles and passenger-miles in England and America — The division of working statistics among primary and secondary officers for practical application — Daily, weekly, and monthly reports on the Erie and other roads — Tonnage ratings; yard and ter- minal statistics; the freight-car situation — The part which statistical work plays in the traffic department — Statistical control in the mechanical department; locomotive perform- ance sheets — The danger of statistical comparisons by a layman — The danger of using statistical records as an end in themselves. The business of a railroad can be divided into two parts — soliciting traffic and moving it — ^wbich correspond quite closely to the customary separation of industrial en- terprises into the selling end and the manufacturing end. The railroad manufactures one commodity only, transpor- tation, and sells it, in characteristically different forms, to passengers, shippers, express companies, and the United States Post Office Department. The main distinction between the manufacturing done by a railroad and that done by a cotton mill or a coal mine, 224 CONTROL THROUGH STATISTICS 225 from the standpoint of management and control, lies in the fact that the plant and equipment of the railroad is spread over a tremendous physical stretch of country, so that all supervision has to be delegated, while most of the work is done by transportation units which are constantly moving from place to place, so that they cannot be supervised, ex- cept sporadically. An unusually large number of the em- ployees of this industry must work without direct supervi- sion, yet the margin of operating profit is exceptionally small, as compared with average returns on the capital in- vested in manufacturing or in farming, and the chance of costly damage suits is exceedingly great, since the courts require the railroad practically to insure, at its own cost, the human lives and valuable property which it conveys at high rates of speed over open country subject to storms, under circumstances which make it unusually easy for a vicious employee or a negligent one to damage the property. Besides these serious physical limitations, the business of transportation tends readily to become highly competitive, not alone as between two or more carriers serving the same localities, but, as we have seen, between carriers serving different localities which compete in the same market. In the early days of railroading, control of operations through the use of statistics was very imperfect, and the need for it was slight. Competition was not usually im- portant, and railroads were compact, reaching a limited ter- ritory only. Moreover, the margin of profit was large on rates amounting to only a fraction of the cost of hauling similar goods in wagons or on pack trains. But the profits of the enterprise brought in much new capital ; competition RAILROAD ADMINISTRATION was established ; rate wars took place ; lines were extended, and the effectiveness and solvency of railroads soon became a matter of close and careful management. The general manager of a great railroad may in some cases spend half his time in inspection, but under normal conditions he does not actually direct any part of the move- ment of trains. If he actually saw one per cent of his company 's business moved, it would be an occasion for com- ment, and so, since the eye of the master is so limited in its vision, other means of control for the property must be provided. Roughly speaking, the method of accomplishing this is to split all the operations of the road into rigid, clearly defined units, and then to compare these units with similar ones on other railroads, or with the same railroad at other periods, or with arbitrary standards set up like yardsticks. Railroad control through statistics might be de- fined as the process of finding the unit in each operation, of seeing to it that these units are rigid, that they are col- lected and reported accurately, promptly, and economically, and then of taking the necessary measures to correct the defects which they indicate. Statistics are the clinical ther- mometer of industry. The leading unit in the movement of freight is the product of the ton and the distance. In America, the mul- tiplication is actually performed, and the ton-mile is cre- ated. In England, as a rule, the multiplication is not actu- ally performed, but the manager has his daily statement showing the movement of all trains, and specifying what each train contains when it leaves the starting point. Ton-miles and passenger-miles have recently been made CONTROL THROUGH STATISTICS 227 the subject of a Board of Trade inquiry in England. A strong committee was appointed to consider and report what changes, if any, were desirable in the form and scope of the accounts and statistical returns rendered by railway companies under the railway regulation acts. The North Eastern, distinguished for its mineral trafiBc, is now the only railway in Great Britain which keeps ton-mile and passenger-mile statistics, although the Great Western tried them some years ago but discontinued them. Sir George Gibb, former general manager of the North Eastern, spoke strongly in favor of the general adoption of these statistics in Great Britain, on the ground that they afforded the only scientific and complete measure of work done, and said that the supervision of the affairs of the North Eastern had been totally different, more searching, more intelligent, and more fruitful in result than it ever was before ton-mile and passenger-mile statistics were tried. The testimony of most British railroad managers who appeared before the commis- sion, however, was against the use of these statistics. They were accustomed to gauge their results by the train-mile unit, while the superintendent directly in charge of opera- tion was provided with a good deal of additional data. Thus, on the London & North Western, monthly statements are prepared dealing with the loadings of each individual car at the starting point, classified to show the results for each station, for each district, and for the entire line. On the Great Central the starting load of each car is recorded ; the average for each station is prepared monthly, and the average number of ears per train is similarly recorded. These statistics provide the necessary material for the com- 228 RAILROAD ADMINISTRATION pilation of figures showing the average starting load per train for the whole line, and train miles are recorded. The distance each load travels, however, does not appear in the statistics which reach the general manager, although it is noted by local ofiScers daily, in the form of a statement giving the amounts and the destinations of the business done in their territory on the day previous. The British commission was evidently impressed with the utility of the ton-mile and the passenger-mile, but was not disposed to recommend that they be made compulsory, in view of the skepticism with which many managers re- garded them. Nevertheless, they are regarded as an in- dispensable part of the executive ofScer's equipment in this country, and, indeed, in nearly all foreign countries except Portugal and Belgium. British traditions change slowly, and it is fair to assume that temperamental inertia and the dislike of radical innovations had some weight in the atti- tude of the dissenting managers. The important statistics deducible from ton-miles and passenger-miles were clearly stated by this commission, as follows : (1) The average train load of freight and passengers, obtained by dividing ton-mileage and passenger-mileage by train-mileage. (2) The average car load, freight and passenger, ob- tained by dividing ton-mileage and passenger-mileage by the respective car-mileages. (3) Ton-miles per engine-hour. (4) The average length of haul for passengers and freight respectively, obtained by dividing passenger-mileage CONTROL THROUGH STATISTICS 229 and ton-mileage by the total number of passengers carried and the total tons moved. (5) The average receipts for passenger-mile and per ton-mile, obtained by dividing freight receipts by ton-miles, and passenger receipts by passenger-miles. (6) The average density of traffic per mile of road, ob- tained by dividing ton-miles and passenger-miles by the length of road. ilr. Hays, president of the Grand Trunk Railway of Canada, summarized the applied use of these statistics by saying that they put the manager on the defensive as to what he was doing. " He has to explain why, because an- other manager does a thing, he does not produce the same result as his neighbor does." Entirely apart from such explanations, however, the de- fect in the prevalent British statistical system is that the manager actually never knows what his neighbor is doing ; he has no opportunity, as the American manager has, to whet his curiosity on the good performances which some- body else is making. Consequently, improvements in Brit- ish practice spread but slowly, whereas in this country every efficiency-producing device is studied and imitated as soon as it makes itself apparent in the ton-mileage figures. In the United States, ton-miles are made up from the waybills, a process which is somewhat elaborate, but lends itself readily to mechanical labor-saving devices, and is not very costly, ilr. Hays estimated that ton-mile statistics occasioned an extra cost to the Grand Trunk of $3,000 per year — say 75 cents per mile, and that passenger-mile statis- tics, made up from ticket sales, cost $1,500, or 37^ cents per 230 RAILROAD ADMINISTRATION mile. It should be noted, parenthetically, that passenger- mile statistics are not exact, as they include, on some roads, a heavy commutation movement, tickets for which are sold by the month, entitling the purchaser to an arbi- trary number of rides, which he may or may not use up in the restricted period. Ton-mile and passenger-mile statistics reach the general manager five or six weeks late. While of high value in determining general efficiency of operation, it is necessary to have a rough-and-ready current record as well. There are several ways of accomplishing this. Perhaps the most universal daily vehicle of information in this country is the train sheet, which is received daily by the train masters, the division superintendent, and often by high officers as well. The train sheet records the movement of all trains on the division, stating how many cars each contains, and how these cars are divided between " loads " and " emp- ties." It may also state how many passengers were car- ried on each of the passenger trains, and may give infor- mation about the observance of schedule time, the causes of delays, etc. It may be said, in general, that statistical control of railroad operations is brought about by concentrating upon a number of primary officers as much detail information about the working of the road as each one of those officers can scrutinize with advantage. The statistical results of this primary officer's scrutiny are then passed on to an officer higher up, who receives reports from two or three, or perhaps from twelve or fifteen, of these primary officers. Thus, by a gradual process of concentration, the workings CONTROL THROUGH STATISTICS 231 of the road are reported with detail constantly reduced, to officers increasing in rank until the president is reached, while certain statistical detail may keep right on until it reaches the executive committee of the board of directors. The most important primary officer in the operating de- partment is the division superintendent. He receives com- plete returns every day from operations in his own ter- ritory. These returns usually cover the number of through trains of loaded cars, empty cars, and total cars received and dispatched in each direction at each terminal, together with the same facts for train movement at certain midway points. The superintendent must know, also, the entire train movement, both freight and passenger, in each direc- tion, together with the number of cars in each train and the tonnage movement, and he must have a full statement of delays and their causes. He is informed about the con- dition of each yard on his division, and also about outside yards which have an effect on his operations; he knows what the demand is for freight cars at each important ship- ping point, and he knows how many ears are in sigjit to meet this demand. Moreover, he receives a good many detailed reports on matters embraced within the general topics which have been mentioned, and he is advised at once of all important news affecting his division of the railroad. On many roads, in addition to this daily information, the division superintendent has a number of statistical cards prepared monthly, which show in condensed form the comparative result of a large number of operations on the division, one month as against another month, one day as If 232 RAILROAD ADMINISTRATION against another day, and one year as against another year. These cards often contain a horizontal ruling for each day in the month and a vertical ruling for two or three con- secutive years, so that the superintendent can readily see, for example, what has been the average weight and the average time of a certain class of freight trains day by day in the present year, as compared with the same trains day by day in the previous year. These cards cover an immense amount of statistical information; a division superintend- ent on a busy division of the Pennsylvania will have a pack of cards the right size to carry in his pocket showing some forty or fifty different things, such as the interchange of cars at a number of specified junction points ; the number of passengers carried; the conditions of temperature and weather; the average weight of trains moving between a number of specified points, etc. Next beyond the division superintendents in the operat- ing department come the general superintendents and su- perintendents of car service. On the Erie Railroad, which has a heavy traffic in through trunk-line business, a heavy traffic both in anthracite and in bituminous coal, and a heavy suburban passenger traffic out of Jersey City, the general superintendent receives the following reports each day. Statement of delays to passenger trains. Daily telegraphic report of freight cars handled and of switch engines in service. Report of cars moved by divisions. Report of cars in yards. Report of condition of each yard. CONTROL THROUGH STATISTICS 233 Report of the sitaation at Cleveland, including coal and ore. Keport of the situation at Bujffalo, including grain and package freight. Report of the anthracite coal movement on the line. Report showing how many cars the company is short, classified by divisions. Report of the coal-car situation, daily at 4 p.m. Report of the engine situation at specified points, sum- marized also by divisions. Report of the nixmbpr of car loads of company material on hand for unloading, and unloaded during the twenty- four hours ended at 5 p.m. Statement of through freight engines in service and mileage made by them for the twentyrfour hours ending at midnight. This statement covers, by divisions, the num- ber of engiaes assigned, the total number of through freight engines shown on the train sheete, the number of through freight engines out of shop and available for service before midnight, the number of through freight engines in shop for repairs and reported as coming out within the next twenty-f om- hours, the number of through freight engines in shop for repairs that will not be completed within the next twenty-four hours, the total mileage made by through freight engines in service, the average mileage made by through freight engines in service, special engine assign- ments, classified according to way freights and pick-ups, passenger engines and switch engines ; and general remarks. Report on the number of cars on storage at five o'clock in the morning. 234 RAILROAD ADMINISTRATION Report by stations of the number of cars of merchan- dise on hand to-day and unloaded yesterday. Report of traffic exchange with the Central New Eng- land Railway. General summary of mining reports, including number of cars moved, number of cars in yards, condition of yards, anthracite-coal condition, etc. Detail report of the situation at Buffalo in car loads, classified into grain, iron ore, package freight, coal and salt, etc., and including a statement of the number of grain boats at Buffalo and of the boats unloaded during the last twenty-four hours. Statement of anthracite coal in transit for Hammond and Buffalo at 5 a.m., and loaded at mines during the pre- vious twenty-four hours. Coal report telegraphed at 7 a.m. from Buffalo, giving amounts received yesterday in box cars and in coal cars, stock on hand, etc., subelassified into a number of divisions, such as box cars reeonsigned, Erie system box ears on hand, coal cars reeonsigned, etc. Telegraphic report of coal at Weehawken at 5 a.m. for local delivery classified. Statement of commercial coal loaded at mines and re- ceived from connections during the twenty-four hours end- ing at 5 P.M., classified into 675 items. Mine situation report for the twenty-four hours ending 5 P.M., with special reference to car supply. Report on loaded cars interchanged and cars loaded at stations for the twenty-four hours ending at 5 p.m. Report on the weather. CONTROL THROUGH STATISTICS 235 Report giving a statement of all ear detentions and the reasons for them. The superintendent of car service receives in general these same reports, so far as they apply to the location and use of freight ears. The vice president in charge of operation, however, re- ceives a smaller number of reports, covering only the main topics. There are approximately ten reports which reach the vice president in charge of operation daily, covering trains and cars handled over the principal suburban di- vision ; passenger train delays ; number of cars handled and of switch engines in service; report describing with some detail the car movement, the condition of each yard, the condition at Cleveland and Buffalo, the anthracite coal movement, and the car shortages ; reports showing the coal- car situation, by divisions ; general report summarizing the reports of the morning, including seven or eight items; report on the weather ; report on ear detentions, and report on the general position and the schedule time of through trains, both regular and special. It is obvious that no general superintendent could really exercise close watchfulness over tlie tliousands of separate items which these daily reports cover ; as a matter of fact, he does not have to. A general superintendent not trained on the property could at first make only scanty use of the greater part of these figures, since their value is not so much absolute as relative, and nine tenths of the statistical matter in these daily reports must be judged comparatively to be of any use. Knowing all these conditions, and how the property ought to operate, the general superintendent EAILROAD ADMINISTRATION can look for deviations from the kind of practice he is ex- pecting. It may fairly be said that his system of govern- ment and of control is largely based on deviations. Among the current statistics received by the manage- ment of the Harriman lines may be mentioned the fol- lowing : Statement of all expenditures on account of road and equipment, itemized ; received monthly from each grand di- vision. Comparative statement and explanation, itemized, of all large increases and decreases in amount of traffic and in operating expenses; reported monthly. Division superintendent's periodic report to the general superintendent of unsatisfactory conditions, as follows: FORM 2218 R.R. Division. -19- General Superintendent. Dear Sir: I transmit herewith explanations of fluctuations in op- erating expenses for 19 — com- pared with same period of previous year, having personally reviewed the month's exhibit. The fluctuations shown in the following amounts are regarded by me as unsatisfactory, and I have taken action indicated to improve results in future periods: CONTEOL THROUGH STATISTICS 237 Account No. Increase, Decrease. Action Taken. The general superintendent or general manager receives and studies this report from his division superintendent, and then makes it the basis of a new report to the director of maintenance and operation, stating what additional ac- tion he, the general superintendent, has taken. Another form presents a comparative monthly state- ment of bad-order cars, as follows : Caks Undergoing and Awaiting Repairs March 1, 1909. March 1. 1909. Feb. 1, Mar. 1, 1909. 1908. CD 1^ •§ 1^ «*; 4^ 6s 09 4> 03 Eh g 1 "o o.S- 1 s 6 & ■§■3 Union Pacific Railroad. . . 594 3.9 82 676 4.5 787 -14 855 -21 .20 Oregon Short Line 408 5.5 66 474 6.4 . 496 -5 702 -32 .19 Oregon Rail- road & N . . 78 2.5 8 86 2.8 94 -8 130 -66 .05 Southern Pa- cific Co. P. System .... 1,912 7.1 136 2,048' 7.6 1,215 -F69 1,374 -1-49 .48 Louisiana Tiines 716 4.2 42 758 4.4 905 -16 1,558 -51 .23 Total. . . . 3,708 5.3 334 4,042 5.8 3,497 -M5 4,679 -14 .26 1 Increase due to reduction of worliing hours in shop. 238 RAILROAD ADMINISTRATION Another monthly form, making comparison with the sta- tistics of the same month in the previous year, gives the operations of each important freight station in detail. This form covers the following items: 1. Number of freight cars originating at station, loaded by station men. 2. Number of freight cars handled in station yard. 3. Tons of freight loaded by station men into cars originating at station. 4. Tons of freight loaded by station men into cars passing station. 5. Tons of freight unloaded by station men. 6. Total tons of freight handled by station men. 7. Total tons of freight handled by station men, shippers, etc. 8. Average tons of freight loaded per car by station men into cars originating at station. 9. Agency expenses for freight service, agents, and clerks. 10. Agency expenses (dollars) for station labor. 11. Agency expenses, total. 12. Expenses, yardmen and switchmen in freight service. 13. Total agency and yard expenses for freight service. 14. Yard expenses per freight car handled. 15. Cost of agents and clerks per ton handled by station men. 16. Cost of station labor per ton handled by station men. 17. Miles run by switch locomotives. 'Number of cars interchanged with connections. 18. Received from 19. Delivered to 20. Total. For both freight and passenger service elaborate monthly cost reports are made, covering such items as freight loco- motive-mileage ; ton-mileage; tons of coal burned; locomo- tive miles run per ton of coal, per pint of lubricating oil and per pint of illuminating oil ; cars per locomotive, loaded and empty; cost per locomotive mile, divided into repairs, wages, roundhouse expenses, fuel, etc.; cost per 100 ton- CONTROL THROUGH STATISTICS 239 miles, also subelassified into seven heads ; average miles run daily per freight locomotive, etc. The enumerated report forms cover only a relatively small portion of the statistical information periodically gathered; a task requiring an immense amount of clerical labor, in the aggregate. Yet it is obvious that no measur- ing can be done without a unit of performance, or without a standard by which that unit can be measured. So the units are industriously sought, in every branch of the ser- vice, and then are set up alongside similar units found on other divisions or in other years. Thus the management is always in position to know what sort of results are being accomplished, in detail, on every part of the huge system. The facts are at hand, and some of the forms we have shown stating what action is being taken to correct unsat- isfactory conditions, indicate at least the intention to make the statistics accomplish things. Each class of engine in service has an arbitrary ton- nage rating assigned to it, which is, in effect, a more or less scientific calculation of the weight of train which an engine of a given cylinder capacity ought to be able to haul over a certain stretch of track, due allowance being made for grades and curves. If the reported loadings fall systematically short of the ratings, the motive power is not doing the work it was bought to do, and coal consumption and the wages of train crews will both run too high in eon- sequence, when measured on a ton-mile basis. The assign- ment of engine ratings is one of the important theoretic calculations with which the mechanical department is con- stantly engaged, the ratings usually being expressed in Ms, 240 RAILROAD ADMINISTRATION or thousand-pound units. Local conditions, however, effect the actual results materially. The train masters, who spend most of their time on the road, have as their principal duty the investigation of ac- tual service results in train performance as compared with the standards set by the mechanical department and the division superintendents, and they ordinarily make the first report on any divergence from standard conditions, as in- dicated by the daily statistics of loading. The exact condition of yards and terminals is a subject which is of first-class importance to the operating depart- ments; sometimes reports on this are received as often as every four hours. At times of traffic congestion it is the nicest sort of a problem to keep cars of perishable goods and other " time " freight from being blockaded in great collecting and distributing yards by the in-and-out move- ment of slow freight trains. Trains can only move for- wards and backwards — they cannot move sideways — and when an enormous freight terminal appears to be packed solid with cars, it takes a cool head and long experience to get the right car to the right place at even approximately the right time. Indeed, the whole freight-car situation is a matter that depends utterly upon the prompt collection and efficient use of current statistics. The management must know at all times how the apparent need for cars at every shipping point on the line tallies with the apparent supply ; it must know how many cars are coming, and where they are com- ing from, and how many cars are going, and where they are going to. And if there are yards and sidings full of CONTROL THROUGH STATISTICS 241 idle cars, it must know where these ears are, how many there are of them, and whom they belong to. Freight cars complying with certain standard minimum requirements are used indiscriminately by all railroads, regardless of their ownership, but their owners are paid by the user a certain fixed ' ' per diem ' ' rental, which is ordinarily about twenty-five cents per car per day, but may be raised to fifty cents, or even more, at short notice in times of car short- age. Thus every ear on every road must be accounted for daily ; a task performed by men stationed at all junction points, who take the numbers and the owner's initials of every car entering or leaving each line. The superintendent of transportation, or car accountant, or car service manager, as he is variously described, must have the car situation clearly in hand, or at least in mind, at all times; the summaries of his daily records go to the general manager, who plans how a shortage, actual or prospective, may best be met, and who observes the per- centage of bad-order cars, and notes the efficiency with which the shops are making repairs. If his per diem is costing him too much, it is very likely an indication that he should buy more equipment. Steel underframe cars of 80,000 pounds capacity cost about $1,000 apiece, in a normal market. If his road can borrow money at five per cent this makes the cost of the interest on his $1,000 investment about 13.7 cents per day. If the life of the car be assumed at ten years, the amortization charge is $100 per year, or 27.4 cents per day additional. His steel-underframe cars ought to last longer than ten years, however; the calculation is somewhat uncertain, but the total cost of owning a freight 242 EAILROAD ADMINISTRATION car of this description is doubtless somewhere between thirty and forty cents a day. This is above the usual per diem rate ; on the other hand, it is hard for a road deficient in cars to bargain for the loan of them advantageously in times of shortage, and the actual car-day earnings when traffic is moving weU should be more than ten times the car- day cost of ownership. All these general considerations, and many other local ones, the manager has clear in his mind, but accurate sta- tistical information must be the basis of his judgment in any specific case. He must also receive constant advices about the current productive power of his district; the state of the wheat crop, or of the cotton crop, or of the lumber market, so as to be able to foresee future traffic movement, as well as to watch current movement. This again is merely a matter of statistical organization, but it can be made to yield large results in actual operating effi- ciency, and hence in dollars saved and earned. The traffic department and the operating department come close together in their investigation of probable fu- ture business, although from different motives. The traf- fic manager is interested only in car supply, and in train service when it is very good or very bad, but, as has been mentioned in the chapter on the work of the officers, it is his duty to secure for his road the largest possible number of routings of the business actually in sight, and also to plan ways of creating business that is not in sight. His business is divided into two main classifications — local traf- fic and competitive traffic ; he wants daily statistics of local traffic to see how it compares with his expectations, or CONTROL THROUGH STATISTICS 243 with other seasons, and it is vital to him to know how his local agents are handling the competitive situation. Even the local traffic is probably competitive with the traffic of other roads serving other markets, and the traffic manager must gauge the prosperity of his local industries largely in terms of their output. In competitive freight routings the influence of the local agent is immense. Routing goes much by favor, in cases where rates are necessarily equal and time is either approxi- mately equal or a secondary factor, and an active agent who keeps in constant touch with the local shippers, and does them favors, like procuring quick and accurate infor- mation about the location of consignments which they are expecting, can get and hold almost all their business. So the freight traffic manager must watch the local situation at every point on his line, and he does so by means of daily reports which show him both what his own people are doing and what the competitors are doing, so far as the com- petitors' work can be sized up by outsiders. In rare cases this amounts to espionage ; ordinarily, it is simply the gos- sip of the soliciting agent, who knows well that there are, 500 bales of cotton or forty boxes of oranges to be shipped on a certain day, and takes pains to inquire the destination of those which he did not himself receive. The working of the mechanical department is especially susceptible to statistical control. It deals with plain units ; tons of coal consumed per specified service, or engine-miles between trips to the repair shop, or axle-miles per hot box. There are almost countless details in the mechanical per- formance of cars and locomotives which can be standard- 244 RAILROAD ADMINISTRATION ized by means of statistical records, so that deviations from the normal or the ideal standard will stand forth plainly, and investigations can be set on foot to locate the cause. The superintendent of motive power and his subordinates are constantly engaged in these investigations, which serve to determine, with great exactness, the most ef&cient type of locomotive for a given service, or the kind of car wheel which is cheapest in the long run, or the comparative cost of using existing shop facilities or of providing new ones. The accompanying extract (Table XXV) from one of the monthly locomotive performance sheets of the Louisville & Nashville Railroad illustrates a familiar form of mechan- ical-department statistical control. The actual performance sheet covers eighteen divisional classifications — we have reproduced but seven — and has col- umns analyzing the cost of coal, roundhouse expenses, and the cost of waste for lubrication, besides the items noted. A car performance sheet, giving similarly classified lubri- cation costs, is also issued monthly. Statistics of earnings and expenses are the ultimate check on all the other records, and, when taken in conjunc- tion with the statement of work done, present the final picture of the operations of the road. Without knowledge of the work done, however, earnings and expenses are not an adequate means of control. Many roads west of the Transcontinental Divide operate for fifty per cent of gross earnings or less,^ while in the eastern states the average is well above sixty per cent. Thus, the operating ratio is an iThe Oregon Short Line usually operates for about forty per cent. TABLE XXV LOUISVILLE AND NASHVILLE RAILROAD Extract from Locomotive Performance Sheet, November, 1908 and 1909 DiTisioNa. Kind of Service. Niim 3er of Average Mileage. Valve Oil. I.UBHICATINQ OiL. Cost of Valve and Lubbicatino Oil. in Service. Mileftge. Pints. Miles to One Pint, Pints. Miles to One Pint. Total. Per 100 Miles, [ Cents. j moo. 1908. 190',). 1908. 1909. 1908. 1909, 190H, 19U0. 1908. 1909. 1908. 1909. 1908. 1909. 1908. 1909. 1908. Kentuckt Div. Passenger Freight .Mixed 17 28 1 10 2 58 13 29 "9" 3 79,972 107,377 1,794 33,854 3,858 61,911 94,517 30,891 7,142 4,704 3,835 1,794 3,3S5 1,929 4,762 3,259 ' 3,432 2,381 3,601 775 1,872 38 435 3,186 582 1,582 "362 116 2,642 103.19 57.36 47.21 77.83 .58 45 71.20 106.38 59.75 ' 85'33 61.56 73.60 2,568 4,205 52 688 157 2,487 3,806 ""670 300 31.14 25.54 34 , 50 49,21 24.58 24.89 24.83 '46.11 23.81 26.77 139.21 266.95 3.68 44.99 9.62 112.31 236.18 "46'44 17,92 17.41 24.86 20.51 13.29 24.94 18.14 24.99 isiog 25.09 Switching Work Train. . . . Total 54 226,855 194,461 3,911 7,670 7,263] 29,58 464.45 406,85 20.47 20.92 Cixcix. Div. Lextx(_;tox Br. Shelby Branch. Bloomfield Bk.^nch -AND FraXKFORT it Pius-senger Freight Mixed 12 16 12 18 62,063 75,262 .56,979 71,222 5,172 4,704 4,748 3,957 654 1,279 .532 1,249 04.90 .58.84 107.10 57.02 2,364 2,527 2,278 2,372 26,25 29,78 25.01 30.03 123.38 180.17 117,49 171.87 19.88 23.94 20.62 24.13 Switching (Work Train 15 1 16 1 62,879 1,958 202,162 53,337 2,.509 4,192 1,958 4,595 3,334 2,509 3,916 819 30 2,782 600 41 2,.521 76.78 65 27 72.67 76.30 61.20 73.01 1,166 68 6,125 1,055 53,93 79 28,79 5,784 33.01 50.56 31.76 31.82 80.72 4,54 70,50 5,64 365,50 12.84 32,19 13.22 22.48 ClNC!XX.\TI Ry. Total 44 47 184,047 388.81 19.23 19.86 Main Stem l.ST Division B. i- S. BR.\.NrH Leb,\non Branch. CiREEXSBURii Br. Glasgow Ky. Pas.senger Freight Mixed. Switching Work Train. . . . Total 15 4S 3 19 1 86 14 42 3 19 1 79 6,S,S.S4 1(J8,021 7,1,52 61,451 3,016 308,524 02,. 581 144,S06 6,706 .5',),4S0 2,977 276,556 4,502 3,. 500 2,384 3,234 3,016 3,.')S7 4,470 3,448 2,235 3,131 2,077 3,.501 (i76 2,904 82 863 48 4,573 722 2,.545 84 841 52 4,244 101.90 57 . 86 87.22 71,21 62 . 83 67 . 47 86 . 68 56 . 90 70.83 70 . 73 57.25 65 . 16 3,283 7,801 146 2,023 105 2,814 6,272 184 1,014 141 20.98 21.54 48.99 30. 38 2S.72 23.10 22.24 23.09 36.45 58.66 21.11 26.53 166.94 498,71 8,77 106,11 6,88 151.16 425.41 10,44 80,65 9,51 24.23 29.68 12.26 17.27 22.81 24.15 29.38 15.-57 13.56 31.94 13,358 10,425 787,41 677.17 25,52 24.49 CL-MBERLAND ^' alley Div. M'boro R.K. Passenger Freight Mixed. Switching Work Train Total 4 27 2 3 36 4 22 '> 2 18,700 83,663 2,864 8,.5.55 627 10,4.')4 70,011 2, 7011 7,056 243 100,367 1,60S 3,122 1,132 2,,S.",2 3,1S1 4,864 3,234 1,3.50 3,52S 3,346 200 1,510 56 116 12 1,894 186 1,414 142 lOS 4 93 05 .55.41 51.14 73 . 75 52 . 25 60.45 104.. 59 .50.15 19.01 65 . 33 60.75 54.14 300 2,404 110 MS 10 3,077 478 2,696 9G 15S ,s 47 . 45 34 . 80 26 . 04 57.80 33 . 00 37.21 40.70 26.. 30 28.12 44.66 30.37 29.21 27.. 30 190.83 6.75 11.85 1.30 2.38.03 29.32 186,45 12,07 12,20 .45 14,53 22,81 23.57 13.85 20.73 15.07 26.29 44,70 17.29 18,52 23.96 30 114,499 1,854 3,4.36 240.49 20.79 Maix Stem 2d Division' Chesapeake ct Nashville Br. Passenger. . . . ! G Freight 11 Mi.xed 5 13 24,53:1 51,133 21,s,-,3 16,000 4,089 3,652 4,971 3,634 220 903 272 868 108., 57 56.62 01.37 .54,03 810 1,647 977 1,849 30.29 31.05 25.44 25.37 42.17 120.69 52.68 133.54 17.19 23.60 21.20 28.47 Switching j Work Train. , . . Total 1 1 1 1,434 1,179 3,083 344 1,434 3,083 1,179 20 33 20 5 71.70 03 . 42 67 . 84 ,58 . 05 68 . 80 62.90 20 62 2,, 539 20 6 2,852 71.70 49.72 58.95 57.33 25.69 1.75 3.98 168.59 1.75 .49 12.20 12,91 14.84 14.24 22 19 80,183 73,276 3,645 3,857 1,182 1,165 31.58 188,46 21.03 25.72 N. & D. Div. N., F. & S. Div. Passenger Freight IMixed Switching Work Train.... Total 9 3.T 1 6 1 9 34 ■5' 1 45,476 118,883 1,708 17,386 1,498 185,011 45,025 107,751 '16, 44.3 3,080 172,299 5,053 3,397 1,768 2,«98 1,498 3,,5.5S 5,003 3,169 ' 3,289 3,t)80 3,516 1.58 2,326 54 289 25 510 2,32S ' "230 45 99 . 29 51.11 32.74 60.15 ,59.92 58.69 88.28 46.28 "7l'49 68.44 1,479 5,541 88 461 32 1,543 5,182 "501 104 7,330 30.74 21.45 20.09 37.71 46.81 29.18 20.79 '32^32 29,61 78.47 369,77 5,58 29.59 2,. 58 82,53 347.55 "29'66 6.17 17.25 31.10 31.56 17.02 17.22 26.27 18.32 32.25 17:67 20.03 62 49 3,152 3,113 55,34 7,601 24.34 23.50 485.99 465,31 27.01 S. & N. Ala. R.R. AND M. & P. Branch. Passenger Freight Mixed 9 49 2 15 1 9 44 2 13 1 46,924 153,382 2,555 48,1.33 1,262 48,021 148,268 1,660 44,293 1,606 243,848 5,214 3,1.30 1,278 3,209 1,262 5,3.36 3,370 830 3,407 i,eo6 468 2,760 49 765 22 4,064 453 2,741 30 788 9 4,021 100.26 .55.57 52.14 62.91 57.36 62.07 106,00 54,09 53,33 56.20 178.44 1,876 7,579 102 1,101 49 1,810 7,613 77 1,195 19 25.01 20.23 25.05 43.71 25.75 26.53 19.47 21 , 55 37,06 84.52 107.34 508.98 7,14 75,85 3.41 702.72 100.61 493.47 4.67 85.45 1,28 685.48 22.87 33.11 27.94 15.75 27.02 27.85 20.95 33.28 28,07 19.29 7.97 28.11 Switching Work Train. . . . Total 76 69 252,256 3,319 3,534 60.64 10,707 10,714 23.55 22.75 CONTROL THROUGH STATISTICS 245 uncertain test of efficiency ; the high, rates in the newly set- tled parts of the country make relatively easy a showing which the best operation in the world could not accomplish in a region of intense competition of long standing, where the struggle for business has reduced the margin of profit to the railroad to a minimum. These comments apply primarily, of course, to the sta- tistical use of the operating ratio by the banker, or broker, or student of railroad affairs who is trying to judge one property in terms of another. The manager of the road, confronted habitually by the same set of conditions, can form a great many accurate opinions from the reported earnings, and they are of the highest statistical importance to him. Where detail knowledge of the property is absent, however, there could scarcely be a more perilous standard of railroad efficiency than the relation which operating ex- penses bear to net earnings. A road in mountainous coun- try, like the Denver & Rio Grande, must pay a relatively high sum for every ton moved because of the necessity of double-heading, or of breaking up trains into short sections ; a road operating in swampy country, like the Yazoo & Mississippi Valley, is likely to have an abnormal track maintenance cost ; a road hauling large proportions of mer- chandise will have a high ton-mile rate, but also a high ton- mile cost, because of the necessity of partial loadings and rapid service. A railroad operating in the cotton belt or the wheat belt will fluctuate greatly from one season to another; a railroad in Canada, or close to the Northern border, will report a marked increase in operating costs during the winter months. 246 RAILROAD ADMINISTRATION Similar difficulties confront the outsider in making com- parisons of efiSciency based on the ton-mile. When 1,000 tons are moved 100 miles, a service of 100,000 ton-miles has been performed, regardless of the nature of the commodity. The "Virginian Railway, built to haul coal from the West Virginia fields to tidewater, and nearly perfect in its physi- cal equipment, frequently produces 100,000 ton-miles by moving a 4,000- ton train 25 miles, with a single engine and train crew. On the other hand, a road loading light manufactured articles — ^baby carriages and bird cages, to use a historic example — ^would do well to load three tons per car, and it would take a single train moving approxi- mately 1,000 miles, or forty trains moving each 25 miles, to produce 100,000 ton-miles, under ordinary service con- ditions. The worst of it, from a statistical standpoint, is that most railroads are moving a thousand different kinds of traffic, all at the same time, and cannot always manage even to haul their coal and their baby carriages in separate trains. The ton-mile, in consequence, is an average figure, composed of a multitude of dissimilar parts. This does not confuse the general manager, however. He has been watching the operations of the Great Valley division for twenty years, and if his new superintendent there increases the average train loading from 280 tons to 310 tons, he regards it properly as a measure of efficiency, because he is comparing the results of a known territory operating during a certain season under known circum- stances, with the same territory and the same circumstances in another season. Even this intelligent and discriminating use of the ton- CONTROL THROUGH STATISTICS 247 mile, as expressed in the terms of average train load, often leads to its own peculiar form of error, however. Pro- vided traffic is handled smoothly, at efficient speeds, big train loads almost always mean economical working, be- cause they indicate that the business is being done with the fewest possible locomotives and train crews. But if freight is held at terminal points longer than competitors are hold- ing it, in order to get a maximum loading, or if the ratings are pushed to the limit, with resulting engine failures, blockaded traffic, overtime for the crews, and abnormal coal consumption, the big train load may prove a very expensive economy. Seven or eight years ago we passed through a period in this country when there was a disposition in Wall Street and elsewhere to admire the train load for its own self, and there were a good many instances where condi- tions existed not imlike those described. This example of an overdone economy is doubtless chargeable to control through statistics, but it serves to illustrate a point already noted. Statistics are only of use comparatively, when measured against similar performance elsewhere, or against a standard arbitrarily calculated and assigned in advance. But the analogy must be a real one ; it is useless to compare results obtained with dissimilar commodities, or with the same commodity handled under different conditions of grade, curvature, and motive power. The following statistics gleaned from the current Louis- ville & Nashville annual report show some of the measures of operating efficiency commonly employed. These are the final, audited figures presented to the public as official, but they differ only slightly from the more hastily prepared 17 248 RAILROAD ADMINISTRATION statistics which are set before the management for its daily, weekly, and monthly use : Q Freight Traffic. 1908-9. 1907-8. Per Cent. In- crease. De- crease. 25 Miles run by revenue trains 15,351,129 13.57 4,255,981,335 968,785 174.40 262.9 19.36 $7,390.20 $2.00 0.763 16,367,659 12.32 4,020,348,694 924,686 172.87 233.6 18.96 $7,207.08 $1.82 0.779 i6'.i4 5.86 4.77 0.88 12.5 2.11 2.S4 10.14 6 21 30 36 Loaded cars per train.. Number tons carried 1 mile . . 37 Number tons per mile of road 38 Miles each ton was 39 40 45 48 57 Tons per train Tons per loaded car.... Freight earnings per mile of road Freight earnings per revenue train mile. . . Freight earnings per ton-mile 2.05 The total items of passenger and freight statistics pre- sented in the annual report embrace sixty -three accounts, of which only ten have been quoted. But it is clear from the figures herewith that the road has done several interesting things this year. Ton-mileage was nearly six per cent greater than in the year previous, yet revenue train-mileage was more than six per cent less. This indication of better loading is illustrated again in the tons per train, twenty-nine tons greater this year. Thus, in spite of an average rate 2.05 per cent less per ton-mile than in 1908, revenue train mile earnings were greater. The Louisville & Nashville does not publish commodity statistics in its annual reports ; if it did, we should probably find part of the causes for these changes in a largely increased movement of coal, CONTROL THROUGH STATISTICS 249 taking a low rate per ton, but lending itself to large train loadings, and hence to better revenue-train-mile earnings. Of course it is understood that the current operating control of a railroad is based on many kinds of reports be- sides the ones made public annually. It has been men- tioned that ton-miles are approximated daily ; usually from the conductors' reports, based partly on special records car- ried with the car; partly on enlightened guesswork. But these current approximations run usually within six or seven per cent of the final figures; often closer than that. CHAPTER XI TEJTDENCIES OF RAILROAD DEVELOPMENT The tendency toward government ownership — The situation in England and America contrasted — Government under a democracy does not conduct public business very efficiently — Tendencies of governmental regulation — Four types of railroad combinations in the United States — Laws to pre- vent them have not been effective — The tendency to physical betterment — The labor situation — The principal groupings of railroads in the United States and the leading charac- teristics of each group — Traffic resources of territory not yet fully developed — The situation in the East, the South, the Central West, the Pacific States, and the Canadian border. The trend of railroad development in a special country, or in a group of countries, is a thing that has very impor- tant bearing on the way the properties there are handled. This book is not intended to deal primarily with railroad development; that is a very big and important subject by itself, but it is necessary to glance at it in order to grasp the problem which confronts the administrators. The tendency toward government ownership of rail- roads has been a progressive one, making headway not quite evenly, but with a constantly increasing amount of mileage finding its way into the hands of the government. In many countries, including France, Germany, Belgium, Russia, 250 TENDENCIES OF DEVELOPMENT 251 India, and Japan, government ownership and private own- ership are going on side by side; in Italy there has been first one thing and then the other, with unsatisfactory man- agement both ways. In Germany all but about nine per cent of the railroads belong to the various states of the Empire, by far the largest mileage being in the hands of Prussia. Spain has privately owned railroads, not very efficient; Austria has rathei more private than state rail- road mileage; Russia has more state than private; so have India, Australia, and Africa. In Sweden the private rail- roads have much greater mileage than the state railroads; in Norway the reverse is true. It would be a bold man who would state from the known results of railroad work- ing in Europe, Asia, Africa, and Australia that the state operation in those countries, viewed as a whole, was more or less efficient than private ownership in the operating re- sults achieved. Professor Johnson has well said that government owner- ship is a question of expediency, not of principle ; for vari- ous reasons, it is becoming increasingly expedient in a num- ber of countries. The two principal examples of success- fully managed railways imder private ownership are the United States and Great Britain; the United States with about 230,000 miles of railroad; Great Britain with about 23,000 miles. Yet there seems to be fair likelihood that government ownership will become an active issue before very long in British politics. The reason for this is special. There never has been any thought in Great Britain of building railroads to open up new country, as was the case in the United States. Conse- 252 RAILROAD ADMINISTRATION quently, the railroads have always been obliged to bid for the right to build, while in this country extraordinary in- ducements have at various times been offered them. The British people were willing that railroads should be built, but they imposed rather severe requirements, which went into much detail with regard to station structures, over- head crossings, and many other physical features. Com- pliance with these orders has been very costly; moreover, the earliest railroad builders in Great Britain made the grave mistake of assuming that they could foresee condi- tions long years ahead, and they built massive structures of stone and brick so close to the rails that it has been impos- sible to widen the clearances to allow operation on the most economical basis. Another fact needs to be taken into account : the tend- ency on the part of British railroad management from the earliest days to meet current expenses, keep the line up to the condition in which they found it at the beginning of the year, and then divide the balance of receipts among the shareholders. A very small margin has been left to pro- vide for improvement work of various kinds, and most of this work has been charged to new capital. But it has not always been directly productive, since a good deal of it has been done to meet the competition of other companies; to hold traffic rather than to create traffic. In any business, as soon as nonproductive work is charged to capital account, an unsound condition is cre- ated, and the British railroads now find themselves saddled with enormously high fixed capital charges which must be met annually, while these charges tend, on the whole, to TENDENCIES OF DEVELOPMENT 253 increase somewhat faster than the surplus earnings in- crease.^ Consequently, old railroad shares which have been regarded as the strongest kind of securities by their hold- ers, have been falling off severely in value during the last ten years ; the average dividend rate has declined, and the British railroad system, as a whole, seems to be drifting very slowly but quite surely toward final insolvency. This being the case, it may well be that some form of government control will provide a present remedy for the situation when it becomes acute. The government can bor- row more cheaply than the railroads can, and some form of substitution of government securities for railroad securities could doubtless be arranged which would reduce the an- nual outlay for funds, although the effect of so tremen- dous a transaction on the credit of the government would be bad. In the United States the conditions have been wholly different. The very fact that much of our early financing was unsound has brought its own remedy, and a very wholesome one. There are few railroads that have not passed through receivership or severe financial embarrass- ment at one time or another in their career, but values have been readjusted and the managers have learned the importance of making all changes which are not clearly productive from current income rather than from capital account. As a result, American railroads, on the whole, 1 Strictly speaking, dividends are not charges, but the British investor has been trained to rely on them, and the credit of the company depends on its ability to pay something like the " usual rate." 254 RAILROAD ADMINISTRATION have tended to get stronger and stronger every year, and there has been a marked tendency for the average dividend to slant upward rather than downward, although our years of sharp commercial depression have changed the trend of the curve temporarily. On the grounds of solvency, therefore, there is no reason to anticipate a move for government ownership in the United States. It is quite possible that the demand may be made by one or the other of the great political bodies ; but for reasons quite different from those prevailing in Great Britain. It is not overstating the case to say that government under a democracy is among the worst possible devices for the efSeient conduct of most public business. The qual- ities required to handle a railroad or a great manufacturing industry with skill and efficiency are not at all the qualities which attract the mob ; the closer the so-caUed common peo- ple get to the selection of their representatives in the govern- ment, the surer we are that those representatives will have to depend for their public existence on a group of traits almost the exact opposite of those which we associate with administrative judgment and capacity. The organization of our political system on the basis of a periodic contest between two or more great parties, how- ever, supplies a rather important offset to the danger of government ownership in this country. If one party is in favor of it, the other party will be against it, and, by a piece of statistical good fortune, the arguments against gov- ernment ownership in the United States far outweigh the arguments in its favor. Any statistical comparison of TENDENCIES OF DEVELOPMENT ^55 charges on the railroads of the United States and the rail- roads of Europe indicates that the railroads of this country- do their work far more cheaply than the railroads of Eu- rope. As regards long movements, they certainly do, but the fact must be kept in mind that this is a country of great distances ; that we move our raw materials from Cali- fornia and Oregon to New York and Massachusetts, and that our railroads do not mix in their average freight rates the charge for express service and for collection and deliv- ery, which commonly figures in European statistics. "With- out elaborating on this subject, it is sufficient to say that a tonnage movement, composed, to a predominant degree, of raw materials going long distances and maintained inde- pendent of collection and delivery service, cannot very well help showing a low ton-mile rate. But the person to whom the politician makes his appeal is not skilled in statistics, and he is not accustomed to hav- ing abstract arguments presented to him. Consequently, the fact that our average freight rate is extremely low is of real importance in a campaign on the subject, and is a strong argument in favor of leaving present conditions un- disturbed. It is unnecessary to summarize the reasons which lead most economists to believe that government ownership and operation of railroads would be a great national misfor- tune in the United States. The subject is scarcely an urgent one at present, since the strongly expressed trend of popular thought in the country is in favor of government regulation of railroads rather than of government owner- ship. One comes near to being a substitute for the other ; 256 RAILROAD ADMINISTRATION as a matter of fact, it is probable that the government would be averse to operating railroads itself under the con- ditions it has imposed on private corporations. In the work on the Panama Canal the government has found both its railroad laws and its navigation laws far too severe for its liking, and has paid very little attention to either. The tendency for continuous and progressive consolida- tion of transportation units into larger and larger systems has been a marked one, all over the world, ever since rail- roads began. Yet, wherever operation has been carried on by private corporations instead of by the government, con- stant efforts have been made to resist this tendency by laws requiring competition. Charles Francis Adams has pointed out that it had always been the theory in England that the railroads ought to compete, until the commission of 1872 demonstrated that in the forty years since railroads began English railroad legislation had never accomplished any- thing which it sought to bring about, nor prevented any- thing it sought to hinder. Thirty-three hundred useless enactments had cost the companies 80,000,000 pounds, but the commission reported that competition between railroads existed only to a limited extent, and that it could not be maintained by legislation. The commission cited the case of the North Eastern Railway, formerly composed of thirty-seven independent competing and more or less bank- rupt companies, but in 1872 (as to-day) prosperous, and giving general satisfaction, and found that in view of such facts as this it was clear that amalgamation had " not brought with it the evils that were anticipated, but that, in any event, long and varied experience had fully demon- TENDENCIES OF DEVELOPMENT 257 strated the fact that, while Parliament might hinder and thwart, it could not prevent it, and it was equally powerless to lay down any general rules determining its limits or character. ' ' The railroad law in this country rests on the assumption that the roads must compete — and then a commission is placed over them with elaborate powers which tend to re- duce competition to a minimum. The chapter on public relations has discussed somewhat more fully this aspect of the situation; the point now to be observed is the perse- verance with which railroad consolidation in this country has gone on. If pooling was not to be allowed there must be established some other form of joint control, either through " community of interest," or through actual con- solidation, or through the device of the holding company. The Sherman antitrust law will probably prevent the operation of " parallel and competing lines " under com- mon ownership. We say " probably," because the courts are still far from deciding what this law means, or from giving it a broad and general interpretation, and the ob- scurity of the original act has been much intensified by the obscurity of the decisions intended to clarify it. At pres- ent nobody knows how to define parallel and competing lines, but it is reasonably certain that there are a lot of them now operated in this country under common own- ership. It seems fairly well established, however, that the law does not prevent the consolidation of lines which are not parallel and which do not directly compete with one an- other, and this kind of consolidation is going on all the 258 EAILROAD ADMINISTRATION time. The groups of roads embraced in the Gould control and the Vanderbilt control and the Pennsylvania control have been the subjects of a good deal of attention and of considerable economic literature in this country; the at- tempt and failure of the Hill lines to obtain definite cen- tralized control through the device of a holding company (the Northern Securities Company) , because the law did not permit them to exercise this control directly, has also been widely discussed. The expansion of the Harriman lines has been extremely rapid in recent years; at the time of ilr. Harriman 's death he exercised control, direct and indirect, but always influential, over more than 50,000 miles of rail- road and over a large group of steamer lines as well, ilore recently we have seen the formation of the Hawley group of roads, which now embraces the Chicago & Alton; St. Louis & San Francisco; Missouri, Kansas & Texas; Ches- apeake & Ohio; Toledo, St. Louis & Western; Minneapolis & St. Louis; Iowa Central; Texas Central, and the Kansas City, Mexico & Orient, with a total extent of between 14,- 000 and 15,000 miles. It is possible to distinguish more or less clearly four types of railroad consolidations in the United States, and it is worth while to compare them. The kind of consoli- dation exemplified by the major Harriman lines, the Penn- sylvania system or the Vanderbilt roads, may be described as strong, since it has been brought about by actual major- ity ownership of the capital stock of the properties repre- sented. This majority ownership may be vested in any one, or in two or three of the roads embraced in the group. If vested in two or three roads, it is apt to be progressive ; TENDENCIES OF DEVELOPMENT 259 for example : road A owns the securities of roads B and C ; road D owns the securities of road A and road E ; road P owns the securities of road D. A weak combination, or one controlled through minor- ity ownership, is represented in the Hawley roads. No one of these roads and no single corporation or individual owns or holds actual control of the stock of all the rest of them ; but the same group of capitalists has a good-sized minority interest in all of them ; and, in the absence of any organized opposition by the majority stockholders, this serves well enough for the purpose of securing temporary control of the executive committee of each road by persons represent- ing the same party. In the specific case of the Hawley roads there exists a mixture of the strong and the weak forms of combination, since one of the properties has been made a holding company for actual control of three of the others. By far the largest proportion of the system mile- age, however, is outside the specific grasp of this little hold- ing company. The Hill roads furnish an example of a different type of combination. The Northern Pacific, the Great Northern, and, to a certain extent, the Chicago, Burlington & Quincy, are all of them to a greater or less degree parallel and com- peting lines within the apparent meaning of the antitrust law. Yet these three lines are operated under conditions of the utmost harmony, and they adhere to a common and consistent line of general policy. In this case, strong or actual control of the Burlington is held through joint bonds issued by the Great Northern and the Northern Pacific. The Great Northern and the NortherD Pacific have not 260 EAILROAD ADMINISTRATION a single director in common, and are operated by different officers. Yet James J. Hill has in effect directed the gen- eral policy of both roads quite closely for a great many years, and harmony between them is established partly through family ownership of securities, and partly through the workings of a minority party of capitalists, somewhat in the fashion of that shown in the formation of the Haw- ley system. Thus, after all the turmoil of the Northern Securities case and of subsequent Supreme Court decisions bearing on details raised by it, control of the three Hill lines — the Great Northern, Northern Pacific, and the Bur- lington — has remained in common interest, and the gov- ernment has failed entirely to make these roads quarrel, or compete, in the ordinary sense of the term. The form of control exercised in the case of the Gould lines is different from any of these ; it may be described as being primarily a strong or majority control exercised by the members of a single family, the descendants of Jay Gould, who actually have majority stock of the various com- ponent parts of the system locked up in their own strong boxes. This statement is not exhaustive ; the control of the Western Pacific by the Denver & Rio Grande, for example, is direct and proprietary, without any third party interven- ing. But. the actual control of such roads as the Texas & Pacific and the St. Louis Southwestern is supposed to be distributed throughout the Gould family, individual owners in this case performing the same function that is often ex- ercised by a holding company. In passing, reference should be made to an erratic form of control recently shown, which is of rather curious inter- TENDENCIES OF DEVELOPMENT 261 est. The New York, New Haven & Hartford had for some time been acquiring actual majority stock control of the Boston & IMaine. The Boston & Maine could in no sense be regarded as a parallel and competing line, but the issue unfortunately became entangled with Massachusetts local politics, and the political party dominant at the time so blockaded things that the transfer of this stock could not be made to the New York, New Haven & Hartford in such form that the New Haven road could exercise its full rights as owner. To get aroimd this obstacle, control of the Boston & Maine was transferred to John L. Billard, a banker living in Meriden, Conn. No contract could pass requiring that Mr. Billard do or refrain from doing any particular things with this stock, for any such contract would have been in violation of the law. Therefore, the New York, New Haven & Hartford directors had simply to rely on the belief that Mr. Billard saw the matter as they did, and that he would act as the railroad company wanted him to. He was well advanced in years at the time of the transfer; if he had died great com- plications might have ensued. The railroad took the chance, however, and placed control of the Boston & Maine abso- lutely beyond the reach of the law. It would be hard to devise a statute which could be drawn to prevent a private person from buying a railroad if he wanted to, and legal proof could not be established either that Mr. Billard had not bought the road for his personal use, as he would buy a horse, or that there was any kind of sympathetic relation existing between himself and the New York, New Haven & Hartford Railroad which might be construed as illegal. RAILROAD ADMINISTRATION Sympathetic relations ^ are pretty well out of the reach of the lawmaker ! We have gone with some detail into these various means of combining into a single more or less efficient organiza- tion a number of railroads, because, looking over the Ameri- can railroad situation as a whole, two indications stand out ; one, that the law will probably regard railroad consolida- tion with suspicion or disfavor for a good many years to come; the other, that consolidation will go right on almost regardless of the law, simply altering its form to meet or to avoid specified conditions. There are obvious economic advantages in large organizations, both in the transporta- tion field and the manufacturing field, and where a situa- tion of this kind exists the law is quite helpless. The world has learned after long years of experiment that laws to regulate the prices of commodities or the interest rate of money either have no effect or else make things dearer; laws to enforce competition are based on a principle which is just as unsound, and in time this will doubtless be recog- nized, although the time now seems distant in this country. Although the law is powerless to prevent railroads from being friendly with each other, it is distinctly within its powers to prevent strong consolidation of roads, with one company acting as a holding concern for the shares of the others, and with one full-powered general office which can coordinate and standardize and systematize the work of the whole. This is the worst danger to be anticipated from the present trend of belief in this country that combinations 1 This expression is borrowed from Clarence Deming. TENDENCIES OF DEVELOPMENT 263 ought to be broken up. But, viewing the situation largely, it is no very important matter after all. The laws of cer- tain states now require through railroad systems to be broken up into theoretically separate units with separate officers; but it is impossible to prevent the instruction of these officers by wise chiefs, located in some distant city, with regard to the broader details of their conduct. Where control exists organization can be made to exist also, although the way of it may be round about. In viewing the tendencies of railroad development geo- graphically some facts stand out rather plainly. There is, for example, the ecaistant and obvious tendency for all the roads of the country to improve the physical condition of their lines, taking out grades and curves, substituting heavy rails for light rails and powerful engines for small ones, in- troducing large capacity cars, installing block signals and paying increasing attention to ballast, culverts, bridges, and all the details that go to make good and sound track, while the standard of both freight and passenger service is con- stantly improving. American railroads were built rather hastily, to serve gr^at stretches of country that could not be populated without transportation facilities. Consequently the annual toll of railroad accidents in this country has always been a terrible one, because railroads built hastily and cheaply are especially liable to accidents occasioned by purely physical causes. At the present time, however, physical causes account for far fewer accidents than does the national habit of taking chances, which induces the en- gineman to run by a danger signal and encourages dispatch- ers and operators and brakemen and switchmen and flag- 18 264 RAILROAD ADMINISTRATION men, all of them, to do things which save time or trouble at a possible cost of life and property.^ In young countries it is difficult to find men to per- form routine service. Where general industrial develop- ment is extremely rapid everybody in the commonwealth feels that he must share in the general prosperity, and he does not scrutinize closely his own qualifications to do so. The population of a really new commonwealth is largely composed of men of action and ambition who do not con- tent themselves with routine, except as a last resort in ease of- failure. In an older state, however, there grows up a class of men who are less sanguine as to their own earning power, since they are sons and grandsons and great-grandsons of men who have spent their lives in subordinate positions. A man of this habit of mind makes a far better railroad employee in the subordinate grades of service than a young conqueror setting out to make his own fortune in a new country. If the United States is no longer to be classed as a very new commonwealth, it is certainly not an old one, and it has recently shown in marked degree a trend toward the condition found throughout the older countries of Europe, where there is a clear distinction between the class of peo- ple in the community who are rising and progressive and the class of people who are satisfied, on the whole, with sub- ordinate posts. Not much more than a generation ago cer- tain railroad and street railway companies had a pretty 1 Another expression of this chance-taking habit is found in the fearful death toll of trespassers. TENDENCIES OF DEVELOPMENT 265 sharp contest with some of their employees on the question of wearing uniforms, the employees maintaining in effect that a uniform was a badge of service, and that they did not propose to • serve anybody, in that sense of the word. Nowadays this question never arises, and the theoretical equality of all free citizens, which used to trouble men's minds so much in the earlier days of the Republic, is now recognized to mean little except equality of opportunity. Really safe railroad operation in the United States needs greatly a class of men like that from which the railroad servants in England, France, and Germany are recruited, and there is reason to believe that in comparatively few years, perhaps in another generation, this condition will be realized. At the present time the railroads of the country may best be considered in six groups, each group having plainly marked characteristics. In the New England states the railroad system is in a good many respects comparable with that in Great Britain. The lines of principal travel are in admirable condition, and do a very heavy business, in which manufactured goods play an important part, with a high average of freight receipts per ton-mile in consequence. In the South an entirely different condition prevails. On the sandy loam prevailing throughout a considerable part of the region east of the Alleghany and Blue Ridge moun- tains and south of the Potomac River, the cOTistruction of railroads has cost very little. Consequently there has been a large overproduction of small and weak lines, with very little business and small present prospects of improving it. Three great companies — the Southern Railway, the Atlan- 266 RAILROAD ADMINISTRATION tie Coast Line, and the Seaboard Air Line — have gathered together groups of these little roads, and by constant effort have created fairly efficient railroad systems out of them, although the earning capacity of that district has never been great enough to warrant really first-class construction, ex- cept in scattered places of small extent. It took the South thirty-five years to recover from the Civil War; even now, it has its peculiarly difficult labor problem with three well-defined industrial classes : prosper- ous whites ; negroes, who work with their hands ; and poor whites, who ought to work with their hands, but will not, because the negroes do. But the areas in the world where cotton can be grown are strictly limited, and the popula- tion of the world increases steadily in numbers and in pur- chasing power.^ This fact, coupled with intensive cultiva- tion, is the great economic asset of the South. With the increasing tendency to transfer manufacturing to points near the region of production, and the increasing influx of new capital to the South, the outlook is exceedingly bright for these states and their transportation lines. More- over, the South Atlantic states and the Gulf states both expect an increase in business resulting from their pro- pinquity to the Panama Canal, which is likely to occasion a change in the routing of many commodities moving to the Pacific Coast from the Central states. For many years the absorption of the short lines, or lat- iPerhaps the clearest statement ever made of the present eco- nomic condition of the South is that running through the novel called " The Southerner,'' written by the author signing himself Nicholas Worth. TENDENCIES OF DEVELOPMENT 267 eral lines, by the three great southern systems was almost continuous. Recently this process has been checked. In- vestors have a very proper dislike of a system with a large proportion of weak branch-line mileage; the branch lines perform useful service as feeders when times are good, but seldom carry themselves in dull years, and are a potent cause of receiverships. Moreover, local sentiment has a curious effect on railroad earnings in the South. It is char- acteristic of this region for the commercial output of each small town to be controlled by four or five citizens. Compe- tition is keen, owing to the cheapness with which the roads can be built, and these citizens like to give their business to local railroads, in which they are stockholders, or directors, rather than to the great companies with absentee owners, unknown and distrusted. I have in mind the case of a local railroad which was absorbed by one of the great companies, and proceeded to operate at a cost of one hundred and ten per cerjt of its own gross earnings. This was expensive, so the road was formally detached and given local directors, with the result that it has since operated for around sev- enty per cent, although frankly owned and controlled by the system which had previously operated it at a loss. This disposition to provide for the main routes and let the laterals stand on their own ballast — or lack of it — is undoubtedly a sound principle, and should tend to increase the financial and the physical stability of the principal lines, which, though competing at most of the largest cities, are now agreed in avoiding new competitive entrance into each others' territory. Between the Alleghanies on the East and the Dakota 268 RAILROAD ADMINISTRATION Bad Lands and the Rocky Mountains on the West, and ex- tending from the Canadian border on the North to about the thirty-fifth parallel of latitude on the South, is the great Central district of the country. Although many kinds of conditions prevail in this big territory, it may fairly weU be considered as a unit in studying the tendencies of railroad development. The characteristic change which is taking place in this region is the substitution of the culti- vated farm for the open prairie, while, at the same time, there is a rapid increase in manufacturing, and the prin- cipal cities and lesser towns alike are showing tremendous growth from year to year. Railroad construction is rea- sonably easy in most parts of this territory. The lines cannot ordinarily be laid on an unprepared right of way and left to take care of themselves, as they can in Georgia, but there are no important mountains to be crossed, and the chief obstacles to railroad building are the rivers. Year by year the railroad occupation of this territory has been made more complete. Forty years ago there was substantially no local railroad development west of Omaha and Topeka, except in California. By 1880 this develop- ment of local lines had been pushed more than half way across Nebraska and Kansas, and there was also develop- ment in the Rocky Mountain region. During the next ten years Kansas became well filled with local lines, and the development was very marked in the northern part of this Central district, in the eastern part of North and South Dakota, and in Minnesota. Since 1890 there has been a constant tendency to build additional branch lines throughout the states lying just east TENDENCIES OF DEVELOPMENT 269 of the Rocky Mountains. Railroad gross earnings in Ohio, Indiana, Illinois, Wisconsin, and Michigan have rather more than doubled in the last ten years ; and gross earnings in the group comprising Iowa, Minnesota, Nebraska, North and South Dakota, Wyoming, and Montana have increased about two and a half times within the same period.^ The characteristic trend of railroad development in these Central states has been quite unlike that in the South. Although natural difficulties were not very great, they were too great to permit the easy construction of short local lines by men of small capital; consequently a good part of this development has been in the form of branches built by more or less strong railroad systems. The map of the Bur- lington, or of the Chicago, Milwaukee & St. Paul, or of the Great Northern, or of the Chicago & North Western, shows well the way in which these branch lines have been run out wherever there was promise of traffic; farther south the same thing is shown in the development of the Santa Fe or the Rock Island. Each of these roads has been increasing its branch-line mileage at the rate of several hundred miles a year for a good many years, and yet the portion of this territory lying west of the Missouri River and of the west- em border of the state of Missouri is by no means over- developed as yet. Between the Mississippi and the Missouri rivers, and in that part of Missouri south of the Missouri River, the terri- tory is now quite well occupied, and new construction is 1 The progressive development of railroads all over the United States is well shown graphically in the series of maps accompanying Professor Johnson's " American Railway Transportation." 270 RAILROAD ADMINISTRATION not likely to go on as rapidly as it used to. Between 1860 and 1900 Iowa built almost 9,000 miles of railroad; since 1900 the increase has been not quite 1,000 miles. North Dakota, however, has increased its mileage from 2,731 miles in 1900 to about 3,910 miles in 1908, and Oklahoma has increased from 828 miles in 1900 to approximately 3,000 miles at the present time. The indications are that the western part of this Central territory will be occupied within the next fifteen or twenty years almost as fully as such states as Kansas and Minnesota are now, and that there will be the same kind of growth of manufac- turing industries which has characterized some of the states farther east, particularly with regard to handling raw materials as near as possible to the place where they are produced. The same thing that applies to the Central portion of the country applies in general to the Southwest also, except that here we are considering two entirely difi'erent kinds of country. In the East agricultural conditions are extremely good, whereas in the "West there are alkali plains where there is no agricultural development at all, and the only hope lies in irrigation. The railroads crossing the great stretch of territory lying between the Colorado River and the good lands in eastern Texas practically serve as a traf- fic bridge over which passengers and freight are carried from the East to the West and the West to the East ; the intervening region produces almost nothing. It has one strong traffic town, El Paso, which is a gateway to Mexico, and is reached by all the through lines crossing this barren land in the Southwest. It seems improbable that there will TENDENCIES OF DEVELOPMENT 271 be much new railroad development of this region or much change in the present general plan of railroad control there, except in so far as good farming lands can be pro- duced by irrigation. "West of the Transcontinental Divide the situation changes radically. There are four great Pacific cities — San Francisco, Seattle, Los Angeles, and Portland. Spokane, west of the Divide but east of the Cascade Mountains, and situated in a tremendous valley, well described as the ' ' In- land Empire," also belongs in this group, though far from the coast. By rail distance, however, Seattle is 185 miles from Portland and 400 miles from Spokane. Portland is 772 miles from San Francisco, and San Francisco is 475 miles from Los Angeles. The Columbia River lies between Seattle and Portland; the Cascade Mountains between Se- attle and Spokane ; the Cascade and Shasta ranges between Portland and San Francisco ; the Coast range and the San Bernardino Mountains between San Francisco and Los Angeles. These are natural difficulties of the first magnitude. Southern Pacific freight trains crossing the Shastas and the Siskiyous are usually handled by four locomotives apiece, while the Coast range presents not only the diffi- culties of rugged and lofty mountains, but also of a geo- logical structure which, in places, causes diagonal strata of rock to become lubricated in severe rains, and to slip, tak- ing the track with them. But the Pacific Coast has great traffic resources. Be- sides the tremendous stand of uncut timber in "Washington, Oregon, and California, there is the mineral wealth of the 272 RAILROAD ADMINISTRATION mountains, and the valleys are exceedingly fertile, enjoy- ing a climate much more like that of Southern France than of any eastern state. Moreover, San Francisco, Seattle, and Tacoma are great gateways to the Orient, with its un- bounded possibilities as a consumer of American products if only its purchasing power can be a little increased. They say on the coast that if Columbus had landed at San Fran- cisco, New England would not yet be discovered — a phrase which rests on something more substantial than the Cali- fornia state of mind. In the early days California was reached via Panama, the Straits of Magellan, or Cape Horn. Then, when the Union Pacific Railroad was completed, manufactured arti- cles moved west over it if they could afford to pay the freight rates, and there was some compensating eastbound movement of California raw materials and of Oriental goods. It is still true that the Pacific Coast is backward in manufacturing, but it has had an extraordinary growth since the Civil War, and it is now reached directly by eight lines of railroad — ^the Canadian Pacific, Great Northern, Northern Pacific, Chicago, Milwaukee & Puget Sound, Union Pacific and allied lines, "Western Pacific and allied lines, Atchison, Topeka & Santa Fe, and Southern Pacific. The San Pedro, Los Angeles & Salt Lake, owned jointly by the Harriman interests and Senator Clark, connects Salt Lake City with Los Angeles ; the Denver, Northwestern and Pacific has made a start west from Denver ; the Kansas City, Mexico & Orient has a line half built from Kansas City to Topolobampo, at the mouth of the Gulf of California, and the Tehuantepec route crosses the narrowest part of Mex- TENDENCIES OF DEVELOPMENT 273 ico with a substantial and economically worked railroad, connecting with steamer lines at both ends. Much of this development has taken place in the last decade for reasons which may perhaps best be summarize^ in the following comparison of recent building operations on the coast and in the eastern and central states. Building Operations, 1908 San Francisco $31,668,341 Philadelphia $28,408,580 Seattle 13,777,329 Pittsburg 12,141,138 Portland 10,405,151 Kansas City 11,670,468 Los Angeles 9,931,377 Boston 8,552,425 Spokane 5,927,548 Baltimore 6,544,706 Salt Lake City 4,728,380 Cincinnati 6,428,888 $76,438,126 $73,746,203 The trafQe situation in this far western country is com- plicated by water competition at all the ports, and felt even at points located well to the eastward, by reason cf the back movement from the ports. As a result of this, rates to the coast cities from the East are relatively low; rates to interior points, where water competition is felt remotely, if at aU, are relatively high. The interior points complain bitterly of this, and the Interstate Commerce Commission, though recognizing the principle of water com- petition, has recently shown a disposition to order arbi- trary reductions in the rates to the interior cities. Thus, on one hand, we have a region where construc- tion is exceedingly costly; where there is little short-haul, high-rate movement of manufactured articles, and where water competition at exterior points causes rate reduction which cannot fully be compensated at interior points. The 274 RAILROAD ADMINISTRATION railroads cannot equalize by raising rates to the coast cities; if they did, the water routes and the Tehutotepee route would get the slow freight away from them. If they equalize by reducing rates to interior points to the same distance basis as the coast rates, the total profits would be so small that it would not be attractive to them to spend large sums for new construction in this mountainous region. Like most economic developments this situation seems likely to work out along lines of compromise. The interior cities will get part of what they want ; the railroads, part of what they want. Meantime, it seems inevitable that there will be a heavy growth of new communities in this great, fertile, empty, western section of the country, so that increasing density of traffic will make it possible for the railroads to charge lower rates and at the same time to work at a profit. The outlook for the next ten years, how- ever, seems likely to include a good deal of pretty sharp competition between certain lines working now with no sem- blance of harmony. The railroad situation in Canada and along the north- ern border of the United States combines two elements: through traffic to and from the Pacific Coast, and originat- ing traffic in raw materials, especially wheat and lumber. More and more of the wheat-producing area within the United States is occupied every year for other purposes, while the consumption of this staple increases rapidly all over the world. Consequently, Canada is becoming the granary for America and much of Europe, and Canadian wheat-growing is being pushed farther and farther north, into the Hudson Bay region. The Canadian Northern is TENDENCIES OF DEVELOPMENT 275 now the great wheat-country explorer; the Grand Trunk Pacific is building through to the coast; the Canadian Pa- cific has been there for a good many years. The Great Northern has thrown many branch lines into the border wheat country, and all the northwestern lines report enor- mous traffic both in wheat and lumber, combined with their through, far-western business. Thus, in 1909, the Canadian Pacific carried 97,000,000 bushels of grain and 1,750,000,- 000 feet of lumber. Now it is characteristic of this mixture of exceedingly long-haul through business in merchandise, etc., and of grain and lumber traffic, also taking a long-haul, but orig- inating at intermediary points, that there is not much to attract the little fellow among railroad builders. Construc- tion may be quite economical or quite costly, according to the locality, but the great distance separating cities and towns is the controlling factor. There is no local business, in the eastern sense of the word; consequently local lines in the Northwest are scarce, and seem likely to remain so for a good many years. It is possible that the settlement tendencies of the Middle West will, in time, manifest them- selves along the border, but there is no indication of this yet, and Washington, Oregon, and California have such su- perior attractions to offer that the settling of the western portions of the Canadian border may be postponed for generations. This study of the topographical and sociological condi- tions that favor or hinder railroad development in various portions of America does not purport to be exhaustive. There are many minor topographic divisions lying within 276 RAILROAD ADMINISTRATION each of the principal ones which have been outlined, just as the lesser conditions affecting lawmaking and the labor situation are innumerable and unstable. But certain main tendencies have had a reasonable amount of time in which to show themselves, since the beginnings of railroads in this country, and there now is reason to believe that changes in development are likely to be progressive rather than fundamental. APPENDIX A THE UNIT SYSTEM OF RAILROAD ORGANIZATION Major Chaeles Hine is attached to the staff of the di- rector of maintenance and operation of the Harriman lines, his duty being to report on matters relating to organiza- tion. He has devised, and put into effect on a number of divisions, his unit system of organization, which is, in effect, a continuance of the divisional system below the grade of division superintendent, partly with a view to the elimina- tion of correspondence, partly to train young officers broadly, and partly to promote general administrative har- mony, ilajor Hine described this system as follows, in a recent address before the Western Railway Club : The most difficult task in any organization of human endeavor is to correlate the activities of the workers on the outside with the necessary requirements of correspondence, records and accounting on the inside. The artisan in the shop, the traveling salesman on the road, the soldier in the field, the sailor at sea, the railroad man on the line, all have their troubles with the man in the office. "When the inside man knows the outside game at first hand such dif- ferences in points of view are minimized, friction avoided, and therefore money saved. Railway operation is the most 19 279 280 RAILROAD ADMINISTRATION exacting of human tasks. Likie the conduct of a household, a farm, a hotel or ship, it is a continuous performance. Unlike those exacting occupations it must maintain its own communications over hundreds or thousands of miles of territory. So complex is its administration that chances should not be taken of losing money through half baked de- cisions of partially trained office occupants. Most railway officials flatter themselves that when on the line they main- tain a grasp on the office. Yet every hour in their absence action must be taken on matters which, apparently trivial in themselves, have far-reaching results. This statement is not a reflection upon the splendid ability and earnestness of railway offlcials. It is merely a recognition of the fact that a man can be in only one place at a time; that there are only 24 hours in the day and only 365 days in the year. The salary of one ofScial is negligible as a percentage of the operating cost of the average unit. Accordingly the system insists that the second best man of the unit, with practical outside training, shall stay at headquarters and sit on the lid. In some cases it has been found necessary to appoint another offlcial to perform the previous outside duties of the senior assistant. In other cases it has been found that the outside work could be divided up among the other members of the staff. In any system of organization the most important unit is the individual. It is claimed that when one man signs the name of another the first by so much loses initiative and individuality. A man's name is his birthright, his signa- ture his patent of enlightened manhood. Long habit on railways has perhaps minimized the pernicious effect of APPENDIX A 281 unconsciously building up one individual at the expense of many. Such industrial feudalism, however, can no more permanently endure than did the feudal serfdom of the middle ages. The unit system, therefore, insists that every man shall transact the company 's business in his own name. There is nothing new in this. The whole system is really an extended application of the simple principles of train dis- patching. A train order is addressed impersonally " Con- ductor and Engineman. ' ' Where proper discipline obtains, the signatures to the orders are genuine. When the oldest conductor lays off, the youngest extra man does not sign the former's name to orders and reports. Addresses in official matters should be impersonal because of the possible diffi- culty of identification; because of the resulting elasticity in interior administration. One does not ordinarily ad- dress a letter to an individual attache of a firm, a bank, a hotel or a newspaper. He does not normally attempt to dictate who shall handle his communication. He leaves that to the intelligence and discretion of the organization .that he is addressing. Under the unit system communica- tions are addressed to the office — except when personal. The action taken, however, is by a real live man, whose identity is not concealed. The position is assumed that the recipient of a communication has the right to know what person is responsible therefor. The principle is established that except for a strictly personal staff, as for example a private secretary, all persons report ordinarily to a head- quarters or an office and not to an individual. The author- ity of such headquarters or office is always exercised by an individuaL Authority, in an enlightened organization of 282 RAILROAD ADMINISTRATION society or industry, should be impersonal. Its exercise is highly personal. The application of the above established principle to the reorganization of an operating division requires that the assistant superintendent shall become the senior assistant. If previously there is no assistant superintendent the train master or most probable successor of the superintendent becomes the senior assistant. The next step in making the division a complete unit with its head, the superintendent, in effect general man- ager, is to move the division master mechanic and the trav- eling engineer (road foreman of engines) to the same build- ing with the superintendent. The division shop as a sub- unit is left in charge of a general foreman. The old theory has been ,that a master mechanic if located at the shops can better supervise the shop forces. It is believed that the volume of business and complexity of modern conditions have outgrown this theory. It is found in practice that the master mechanic spends much of his time in an office near the shop writing letters to the superintendent, the super- intendent of motive power, and other officials. Again, hu- man nature is such that the master mechanic so located may unconsciously dwell on the plane of the division shop foreman at the expense of the former's mechanical respon- sibilities along the road and at outlying terminals. "When this results his value as a division official is diminished. The governing reason for locating the master mechanic and the traveling engineer with the superintendent is not only to gain a closer personal touch. Such contact is largely a matter of personal equation and of training regardless of APPENDIX A 283 location. The main object is to eliminate red tape by mak- ing possible a consolidation of files in one office of record. It has been demonstrated that relieved of a bureau of un- necessary correspondence the master mechanic can and does spend more hours among his men whether in shops, on the road, or at terminals. Assuming that the division engineer, the train master, and the chief dispatcher are already located in the same building with the superintendent, the division is ready for reorganization. The general superintendent and the in- structor visit division headquarters where are assembled the division officials and their old chief clerks. In an in- formal lecture of two or three hours* duration the prin- ciples of the system and its unwritten laws are outlined. Explanations are given of the revised standard circular of organization, which reads as follows: RAIL. . . . COIVIPAXY. DIVISION OFFICE OF SLTPEEnSTTENDENT CIRCITIiAR NO 191.... Effective 191 , this Division discontinues among its officials the use of titles — ^Master Mechanic, Di- vision Engineer, Train Master, Traveling Engineer, and Chief Dispatcher. 284 RAILROAD ADMINISTRATION The following-named officials are designated : 1. Me. E. P. .. . . . . Assistant Superintendent. 2. Mr. G. H. .. . . . .Assistant Superintendent. 3. Mr. I. K. .. . . . . Assistant Superintendent. 4. Mr. L. M. .. . . . .Assistant Superintendent. 5. Mr. N. 0. .. . . . . Assistant Superintendent. 6. Mr. P. Q. .. . . . .Assistant Superintendent. They will be obeyed and respected accordingly. Bach of the above-named officials continues charged with the responsibilities heretofore devolving upon him, and in addition assumes such other duties as may from time to time be assigned. Such of the above as are located in the same building have one consolidated office file in common with the super- intendent. All reports and communications on the company's busi- ness, originating on this division, intended for the superin- tendent, or for any assistant superintendent, should be ad- dressed simply. " Assistant Superintendent " (telegrams "A. S."), no name being used unless the communication is intended to be personal rather than official, in which case it will be held unopened for the person addressed. It is intended that an assistant superintendent shall always be on duty in charge of the division headquarters offices during office hours. The designation of a particular assist- ant superintendent to handle specified classes of correspond- ence and telegrams is a matter concerning only this office. Each official transacts business in his own name, and no person should sign the name or initials of another. The APPENDIX A 285 principle to guide subordinate officials and employees is to be governed by the latest instructions issued and received. Train orders will be given over the initials of the train dispatcher on duty. The modifications of preexisting organization and meth- ods herein ordered have been carefully worked out to ex- pedite the company's business by the reduction and simpli- fication of correspondence and records. It is expected and believed that officials and employees will insure a success- ful outcome by lending their usual intelligent cooperation and hearty support. Officials and other persons outside the jurisdiction of this division are requested to address official communica- tions, intended for the superintendent or any assistant su- perintendent, ' ' Superintendent, Division, " (telegrams " Supt."), without using the name of the Superintendent except for personal matter. C. D. Superintendent. Approved : A. B. General Superintendent. It will be observed that no distinct grade of senior as- sistant is created. The unwritten law is that whatever assistant is assigned to the charge of the headquarters' office becomes the senior for the time being. It was orig- inally intended that different assistants should be detailed as the senior for certain definite periods. In some cases such a rigid rule may be necessary. The experience of a 286 EAILROAD ADMINISTEATION year indicates that the incidents and casualties of the service toay usually be depended upon to let the situation work itself out. This is gratifying, since in such matters self- suggesting procedure is preferable to rigid rules. For ex- ample, if an assistant sprains his ankles or mashes his foot the superintendent can assign him to the office and send the then office man out on the road. Vacations and en- forced absences afford the superintendent an opportunity to cover the situation by a common-sense assignment. On one division the senior assistant was necessarily absent for some weeks. The maintenance assistant who happened to be next in rank was busy outside relaying the division with new steel. The third man, the mechanical assistant, had few troubles of his own in summer, and to him fell the opportunity to be broadened by a tour in the office. The superintendent and the other assistants, including the old traveling engineer, did the engine chasing. No circular was necessary, and there was less confusion than if two dispatchers had exchanged tricks. In order that their authority may not be restricted when meeting a given emergency it is necessary to give the division officials the uniform title of assistant superintend- ent, without the limiting effect of a descriptive phrase. If anyone can coin titles that will describe duties and not, under railway customs, restrict authority, such titles will be welcome. When a vacancy occurs the circular states, " Mr is appointed an assistant superintendent vice Mr " His assignment to duty by the superintendent is verbal. If a superintendent should find himself with an assistant unfitted by temperament or ex- APPENDIX A 287 perience to cope with a wider range of duties he could quietly restrict such assistant to a prescribed limit. The assistant superintendents when at headquarters, ex- cept the senior assistant, have equal rank. On the road they have the relative rank indicated by the circular or the cur- rent working time-table. In case two or more find them- selves together and an interruption to traffic or other emergency requires, the highest on the list takes charge and becomes responsible. The system forces more officials to assume responsibility and by so much increases the pro- tection to the company 's interests. ]\Iore and more is heard about " this division," and " the company," and less and less about " my department." Most division officials have welcomed the title of assist- ant superintendent as a real promotion and as an increase in opportunity. Some still feel the loss of a distinctive title. Time alone will prove that railroading has become great enough as a profession to carry its own marks of distraction and to permit of a properly balanced specializa- tion along the lines of greatest aptitude. Men like Julius Kruttschnitt, James McCrea, L. F. Loree, Epes Randolph, J. W. Kendrickj F. A. Delano, and W. W. Atterbury have not lost any reputation as civil and mechanical engineers because of their greater prominence as railway executives. For the same reason that a chief engineer blushingly ac- cepts the title of vice president, a division engineer should modestly aspire to the position of assistant superintendent. This is one of the features of the unit system that it wiU take a generation to work out. Eventually an official can- not hope to perform the duties of chief engineer, or super- 288 RAILROAD ADMINISTRATION intendent of motive power, until he has had experience in the grade of division superintendent. "When superintend- ents are selected from diversified sources this will be pos- sible. An advantage of the uniform title of assistant super- intendent is that, as in the ease of vice presidents, it neces- sitates speaking of a particular official by name. "When any official is away from his headquarters, he is addressed by name. The unit system makes a distinction between superior or coordinate units and subordinate units. Employees ad- dress ' ' assistant superintendent. ' ' If they addressed ' ' su- perintendent " there would be an implied obligation on the part of the superintendent to answer. If his personal action is desired he must be addressed by name. Even though " assistant superintendent " is addressed, the reply may be signed by the superintendent himself. Subject always to his superior's wLshes, the superintendent makes his own office rules as to what he shall personally handle. It is up to him to see all, a part, or nothing for a given period, just as he sees fit. Should the superintendent's letter call for further information from the employee, the latter 's re- ply would still be addressed, " assistant superintendent." For all that the sender knows the particular official may be necessarily absent when the letter is received. Numerous old conductors have expressed their appreciation of the fact that a man knows what official has addressed him, and that it is no longer possible to be jacked up by a clerk using the name of an official. Communications from superior or coordinate authority are addressed to the head of the unit, the superintendent. APPENDIX A 289 In his absence routine matters for higher or coordinate au- thority are signed by the senior assistant who appends to his own title the explanatory phrase, ' ' For and in the ab- sence of the superintendent." Going down on the division no such explanation is necessary, as the authority of any assistant superintendent carries over the division itself. The superintendent being in effect general manager of his division is given charge of division stores as well as di- vision shops. He must, therefore, obey the instructions of the general storekeeper as well as the superintendent of motive power. The general storekeeper has thus placed at his disposal all the administrative machinery of the divi- sion. Instead of a lack of practical sympathy between the stores and the users of material, it is made the duty of the superintendent and the assistant superintendents to watch material costs as well as labor costs, to help keep down in- terest charge on stocks as well as overtime. A railway com- pany harnesses the forces of nature, including its divinely human elements, for one purpose, the manufacture and sale of an intangible commodity, transportation. The more closely interwoven the constituent parts of production the more efficient and economical should be the output. When weaknesses develop, when education is needed as to the in- creased importance of a given element, the remedy is not necessarily the creation of a separate department. A gen- eral storekeeper there should be, whatever his title, techni- cally expert in his important specialty, responsible to the general manager and in a position to insist upon efficiency to the extent even of ordering material moved in special trains when it is true economy for the company to do so. 290 EAILROAD ADMINISTRATION It will be noted that the superintendent, as the repre- sentative of all so-called departments on his division, has about as many superiors as he has assistants. The work of these superiors is balanced by the general manager. The scheme will not be fully effective imtil the unit system is applied to the general offices, making the general superin- tendent, the chief engineer, the superintendent of motive power, the general storekeeper, the car service agent, the superintendent of telegraph, the signal engineer, and the superintendent of dining cars all assistant general man- agers with one consolidated office file, and their activities coordinated by a senior assistant general manager at head- quarters. Thus far only one general office, that of the new Oregon & Washington Railroad at Seattle, has been re- organized in accordance with this conception. The number of divisions now reorganized is twenty- one with eleven still to follow. The number of assistant superintendents on a division varies from three to twelve. Every superintendent has shown his ability to handle as many assistants as the management may give him. The most gratifying feature of the reorganization is the fact that in all cases the talent at hand has been sufficient. No importations have been necessary. The incumbents of offi- cial positions have responded splendidly to the confidence reposed in their ability. Some divisions have gone farther than others. This always has been and always will be the case. Everyone, however, has made real progress, some of it unconscious. The human element has been recognized. Division officials who from lack of early breadth of oppor- tunity have not the qualifications for senior assistant are APPENDIX A 291 not required to fill the position. Their services to the com- pany have been too faithful to warrant humiliation or elim- ination. Their grasp of present conditions is greater than could be that of student successors. When, in the course cf nature, a new crop of officials matures it will be ripened younger but attain a fuUer growth. Consideration has been shown for the clerical forces affected by the changes. No individual has had his salary cut. As vacancies occur through natural causes salaries are readjusted; some increased, some diminished to meet the new conditions. All of these matters are left to the local ofiicials. Principles are enunciated, suggestions made, but responsibility for details is left to the officials on the ground. The system means more officials and eventually fewer clerks. Probably by a cheese-paring effort enough clerks could be elimiaated to offset such increases in official salary lists as have been found necessary. The manage- ment has felt that increased supervision will warrant the outlay. This liberal policy is justified by good business sense rather than by the prosperity of the Harriman lines. The poorer a road the more money it should spend for supervision and the development of esprit de corps. Formerly office work was grouped around officials. This resulted in petty principalities and bureaucratic adminis- tration. By tearing down some office partitions there were razed those figurative department walls, which so often operate to keep in the man who is trying to keep the other fellow out. Under the new conception the work is grouped by classes. The technical term among business experts is " The concentration and coordination of routine and re- RAILROAD ADMINISTRATION lated processes. " At a small roundhouse a handy man may be machinist, boiler maker, and car repairer. In a large shop for obvious reasons the boiler makers and machinists are segregated. So, in an office, stenographers may be pooled, accountants segregated, and clerks concentrated for the general good of the office work rather than for the fan- cied importance of a particular phase. The key to success in the unit system is a properly handled file room. It is given preferred attention and whatever force is necessary. When all the clerks of the division are pooled no difficulty is experienced in finding sufficient to handle the file room. Williams's Railroad Classification is being installed with a view to uniform filing over the Harriman lines. As a general proposition officials at headquarters should not exchange written communications among themselves. Superintendents must apply this principle without hard and fast rules. For example, the superintendent of a heaA'y division being on the line some 200 miles from head- quarters very properly addressed a joint letter to each of his ten assistants, calling their attention to a wreck he had just picked up and as the lesson to be learned enjoining upon them a vigilant enforcement of certain rules. It has been found possible to reduce the correspondence of divi- sions reorganized from thirty to fifty per cent. Even with reduced clerical forces night and Sunday office work have been eliminated. The great reduction is made possible by the constant presence of the senior assistant who is alert to discourage the letter-writing propensities of headquarters. It is expected that when all of the units under the Chicago office are reorganized there will be a net saving of at least APPENDIX A 500,000 letters per year. Every letter costs a few cents to produce. Its retarding effect upon administration cannot be measured in money. Its dwarfing influence upon the in- dividual initiative of the man below is likewise indetermi- nate. It is expected also that when the reorganization is completed numerous routine reports can be dispensed w.ith. It is not expected that a mere change of title or an as- signment by a superintendent will make a man a skilled mechanic or an experienced engineer. For technical ques- tions arising on a division the most expert knowledge avail- able will continue to be utilized. It is claimed, however, that as the average division official has been in the service at least ten or fifteen years, he cannot fail to have acquired some familiarity with the requirements of the various branches of the work. The old train master may as third trick dispatcher have ordered an engine taken down and towed in without awakening the master mechanic. By so much more should he with wider experience be able to say whether or not the company's interests are being best ob- served in the handling of a locomotive that may happen to come imder his notice. The mechanical assistant cannot be everywhere, and any help that his fellow officials can render the company should receive. Conflict of authority is avoided by the common sense and courtesy of the assist- ants, and by the attention of the superintendent. Nothing makes men so conservative as responsibility. It is claimed that the superintendent on the ground is better able to decide these questions intelligently than is a hard and fast code formulated by a man behind a distant desk. What is construction to-day will be maintenance to-morrow. What 294 RAILROAD ADMINISTRATION is motive power at the turn-table becomes transportation at; the switch. Each official continues responsible for his branch of the work until otherwise indicated by the superintendent. The maintenance assistant is not allowed to plead transpor- tation duties as an excuse for defective track. With him track must come first. When the train stops he cannot in- spect track until it resumes. Meantime he may be able to minimize the delay by seeing that employees perform their duties promptly. He is not allowed, except for insubor- dination, to discharge employees on another assistant's pay- roll. He is expected, however, tactfully and politely but forcefully, to insist that the rules be obeyed. The faithful old employees need only encouragement to perform their duties well. The young and inexperienced require constant supervision and instruction. Due to its great extent of ter- ritory a railway exercises less control over its employees than any other line of organized effort. The safety of lives and property demands the greatest possible intelligent su- pervision. Adaptability to changed conditions is largely a matter of temperament. Among his intimates one can usually pre- dict in advance what position a particular person will take on a question of politics, religion, or organization. Some men believe in an early convergence of authority, in wide latitude of discretion. Others believe that the best results are obtained by postponing decisions until the highest pos- sible authority is reached. On important questions there are usually two schools of opinion. Nearly every civilized country has two great political parties. On the railways APPENDIX A 295 of America there will always be diversity of opinions and practices as to the organization of forces. The executive officers of the Harriman lines have felt that the individual will be broadened and the service correspondingly improved by the inti-oduction of the elastic methods herein outlined. "While many are enthusiastic, not all of the persons affected are convinced. It is to the credit of the latter that in spite of honest doubts all have contributed more or less to the success of the scheme. The work is being kept on a high plane, guided by those exalted ideals of duty: freedom from personalities; and the good of the service. 20 APPENDIX B FRENCH RAILROAD ORGANIZATION For comparative purposes the diagrams (Tables XXVI and XXVII) of two great French companies, the Paris- Orleans and the Paris-Lyons-Mediterranean, are shown herewith. The scope of the present volume does not permit an extended discussion of these organizations. It will be noted, however, that the functions of getting the business and of moving it are combined in the " Service de I'Exploitation, " much as in England. The P-L-M Company has a president and two vice presidents, whose supervision is scarcely direct enough to enable them to be placed, comparatively, at the head of the diagram. It has also twenty -one active " Ad- ministrateurs " and a " Secretaire du Conseil," ranking the central administration. French practice absorbs the carriage and wagon departments in the mechanical depart- ments, as we do in this country, instead of separating them, as in England. In general, it will be observed that the organization is strongly departmental, except for the con- centration of authority upon the chief traffic manager. 296 TABLE XXVI ORGANIZATION OF THE PARIS-ORLEANS RAILWAY COMPANY, 1910 Eoard of Directors Traffic (Exploitation) I Chief Traffi'-' Manager Two Chii'f Assistants Two AesistnntE General Manager Assistant General Manager I Gieneral Secretary Traffic (Tran!>portalion) Dept. Com mercial (Goods) and Auditing Dept. Jnspector General (.Superintendent of the line or of transportation) 2 Chief Assistants Principal Infipeilms 5 Inspectoi-s fi Assistant Inspei'toi-s 6 Chief aerks 2 Heads of Divisions Chief Assistant Principal Inspector Inspector 2 Assistant Inspectoi-s 10 Chief Clerks Outdoor (Operating) Dept 8 Division Inspectorships Paris Orleans Tours Poitiei'S Periguewx Nantes Moritlucon Toulouse Way and Works I Chief Way and Works Engineer Chief Assistant Two Ass't Engineers (Ingenieui-s Principaux) Engineer in Chief of Technical Dept. Engineer in Chief of Stores Dept. Engineer in Chief of J!»tallic Sti-uctures Dept. On the system District E.ngineei-s at Paris Tours Poitiers Perigueux Monti ucoa Toulouse Limoges Locomotives dL- HolUng Stock Chief Mtchnnical Engineer Chief Assistant Two Assistant Engineers Engineer in Chief Electrical Dept. Engineer in Chief Passenger liolling Stock Dept. Engineer in Chief . Workshops Engineer in Chief Loconiolive Engineer in Chief Goods Wagons Chief Rolling Stock Dept. Accountant Chief Storekeeper Chief Chemist On the sytifem District Locomotive Superintendents at Paris Orleans Tours Peritrueux Auditing and Financial Dept. Legal Dept. Medical Dept. I I I Chief Accountant Chief of Ix-gal Dept. Chief Medical < lll.cer Chief A.--sistant I Chief Assistant 6 Medical Ir.spectors (qu the system) TABLE XXVII ORGANIZATION OF THE PARIS, LYONS AND MEDITERRANEAN RAILWAY COMPANY, 19:0 r Non-Operatintr Departments ('Services Annexes a la Direction") Eiifrineeriiip Department ("Service de la Construction") Traffii Department ("Service de 1' Exploitation") Atlmiuirtration Centmle Cliief Mechanical Engimi'r'e Department ("Service du Matericljet de la Traction") ■\Vay and Works Department ("Service de la Voie") ^ Eepristration and Real Estate Department Acconntant's Department Legal Dept. Chief ^ledlcal Ollicer inl Ent^incLiingr Department ("Sei-vice Central de la Construction") Division Paris 2m] N Division Lyons ■3 1 iS a •= . a c .i a <3° ^t3 V. let Division Sectelariat-Staff-Cheeking expenditure Slid Division Tiaffic-Trafiic Movement Statistics ( Tecliiiical Dopt. Signals Intei lucking'. Telegraphs & < Lighting. Station Installntione. ("Services ^ Techniques") ith Division Audit Dept.-Checking Iteceipts- Traffic Statistics. 5th -Division "Li'gal and Claims Dept. tith Division Tariirs and Commercial "JIatters. 7th Division Outdoor (Operating) Department. Cartage and delivery in Pai-is J. r is. 2ml 3rd 4th 5tb Cth 'N Division Division Divisi.m Division Division Division Paris :N\'vers DiJDti Lyons Cieriitont St.Etienne 7th sth flth 10th llfh Division Divi'iion Division Division Division Vaientie ilarseilles >;inies Grenoble ChumLery r Kolling Stuck and Locomotive Dept. ("Service du Materiel") 1st Div: 2nd Division Otillins 3rdN Divisioi All Central Mechnnical Department (■■Service Central du Materiel et de la Traction") Paris A Central "Way and Works Departme ("Service Central de la Vole") Supplies Dept. Divisio Paris 2nd Division Dijon 3rd Division Lyons Kuuniug Department ("Service de la Traction") A r Ith Division Nevei-s 5th Division St.Etienne 6th Division Chaiiibery Tth Division Nimes Stii N Division Mariaciltes 2nd Division Paris Division Dijuu yth Division Valence 6th Division Marseilles I3th Division Js7ines 7tli Division Lyons Sth Division Chatnhcry dth Division Grenoble 101 h Division ftevers mil ■riiioiit 12th Division Lyons "h INDEX INDEX Abbotsford &. North Eastern Railioad, 17. Accidents, investigation of, $7. American record, 263. Accounting department. 111. Adams, Charlea Francia, 25& Adriatic Company (Italy), 154, 162. Ahnapee & Western Railroad, 17. Altona Division (Prussian), 157. AiAbulance chaser. The, 209. American Railway Association, 147. responsibility for Roosevelt feg- istation, 204. Amerkan Railway- Clearing House, 149.- Annals of the American Academy of Political and Social Science, 157. Assistant general-' manager. New York Central Railroad, 68. Atchiscm, Topeka & Santa Fe, Organization, 52. Prewdent, 93. Traffic situation, 217. Reaches the coast, 272. Atlantic Coast LiBe,-dev^opment of, 266. Atterbury, W. W,, 287. Auditor, Salt Lake & Ogden Rail- way, 37. Duties, 111. Baltimore & Ohio Railroad — why built, 1. Organization, 1901, 85. President, 93. Bankers — ^work of, 198. J. P. Morgan & Co., 199. Kuhn, Loeb & Co., 199. Speyer & Co., 199. Secondary houses, 199. Bau-Abteilung (Prussian), 157. Berlin Division (Prussian), 158. Berne Treaty, 159. Betriebs Inapektors (Prussian), 158. Billard, John L., 261. Board of Trade, British, 214. Bonds— Railroad, 10, 180, 188. Louisville & Nashville Unified 4s, 190. Union Pacific Convertible 4s, 193. Collateral trust, 194. Income, 195. Underwriting, 196. Renewals, 197. Boston & Maine, 261. Bradford, B. »., 157. 299 soo INDEX Branch Lines— theory of construc- tion, 19, 183. Bridge engineer, 25. British Railway Association, 147. British Railways, organization, 81, 123. Chairman, 92. London & North Western, 123. Great Western, 123. Shareholders, 124. Directorate, 124. Administration, theory of, 125. Superintendent of the line, 127. Rolling stock superintendent, 128. District, The, 127. Station master, 128. Lancashire & Yorkshire, 130, 136. London. & South Western, 132. Horse superintendent, 132. North Eastern Railway, 132. Great Northern Railway, 132. Chief passenger agent, 135. Midland Railway, 135, Association, 147. Clearing House, 147. Overcapitalization of, 222, 252. Conditions of building, 252. Outlook for government con- trol, 253. Buffalo, Rochester & Pittsburg, departmental organization, 68. Building operations, 1908, 273. Bulletin of the International Rail- way Congress, 164. ' Dyers, M. L., 91. Canada, railroad situation in,! 274.. ; Canadian Northern, 274. ,„ Canadian Pacific Railway, 272, 275. Capital and rates, 220. Car accounting, 101. British Clearing House, 148. Magdeburg directory (Prussian), 161. , Statistical control, 237. Car service, 241. Carolina, Clinchfield & Ohio, prob- able cost, 179. Car trusts, 194. i Cash, transmission of, 112. Central District, roads in, 267. Chairman, of a British- Railway, 92, 214. Charter, securing, 4. , Chesapeake & Ohio, 258. Chicago & Alton, capitalization, 216. Hawley group, 258. Chicago & Eastern Illinois, 216. Chicago & North Western, opera- tions in Wisconsin, 21. President, 93. General manager, 96. Chicago, Burlington & Quincy, President Perkins' organi- zation, 49. General superintendents, 98. , TraflSp situation, 216, 21.7. Hill Lines, 259. Chicago Great Western, 217. Chicago, Milwaukee & St. Paul, operations in Wiscionsin, 21. Pacific Coast Extension, "24, 187, 272- TraflSc situation, 217. Chief dispatcher. Salt Lake & Ogden Railway, 39. Duties,. ?83. ,, INDEX BOl Chirf'bngitteer,'23, 39,'roe. ■" " Chief passenger agent ■ (British)", •■ 135. Chippewa Valley & Northern Railroad, 17. Cincinnati Southern Railroad, why built, 1. ' '^ Civil eflgineering-^i'ailroad, 107. Claim' agent, 120. ;' i '■ As a source of unpopularity for his railroad, 208, . " ' Clearing- House, British Railway, 147. American Railway, 149. Clements, Commissioner, 215. Cleveland, Cincinnati, Chicago & St. Louis, 216. „ .. Commissions, Georgia, 11. Wisconsin, 20. ";- .: ' ■ !. Statistics of state, 20. , ■':' Rate (Prussiany,:159.-'' Interstate commerce coniliiis- sion, 207. "" ■' State — personnel, 206, . '' Railway and Canal (British), 215, -- Mas&chusetts, 220.."- ' Versus competition; 257. Community pamphlets, Harriman Lines, 119. ' '.' Competition,' 218, 256. Comptroller, 109. CondehJnation' privilege, 25. "• Consolidation, 256,258, 262. ! Construction organization, 22. Construction bonds, 184. ■ Cdiisulting engineer, 107. ' '<■'■> Convict labor, 5. Corporate bad manners, 202. Costofrailr6ads,:l7Sj l8l. ' ": C6st' M service - andt; value of ser- vice, in rate making, 218. GoUhcilS '(Prussian), advisory, "158. ■ .-.■•'• National, 158. Circuit, 168. County aid bonds, 5. Courtesy, as an asset, 213. Credit, railroad, 178; DebentiireS; 192. Default in bond interest, 189. Delano, F. A., 287. Denver & Rio Grande, financ- ing of the Western Pacific, 1S7. . 'Reference, 245. , Control of Western Pacific, 260. Denver, Northwestern & Pacific, 272. ■ - • Departmental organization, 49, ■ 76. ' Argument for, 80; ' "On the Lackawanna, 80. On the Buffalo; Rochester & Pittsburg, 83.. , ; On the Rock Island, 83. ».- ^ Delaware, Lackawanna' & West- ern, departmental 'organi- zation, 68. ' ;'r Dewsnup, E. R,, 91. '^' . ' ; Diplomatic corps, need of, 211. Directpr of maintenance and op- eration; 55. Directprs, 29,' 52. •',';' British 'and; American, 124. ';; Lancashire & Yorkshire, 130. Discrimination, 208; '' iJistrict, the (British), 127. Division, the, 77, 102^ Under iiAii system, 282. ' Division engineer, 24, 1 08; 283. ■ Divisional organization, 49; 7.6, 279. S02 INDEX division supointeBdent New York Central, 67, 103. Under divisional organization, 78. Rock Island, 1904 organization, 84. Investigating accidents, 87. Duties, 101. Louisville & Nashville, 102. Harriman Lines, 103. Use of statistics, 231. Under Hine system, 282.- Dodge, Gen. Grenville M., refer- ence to Memoirs, 2. Duluth, South Shore & Atlantic, Operations in Wisconsin, 21. Dunn, Samuel O., 206. Earnings, prospective, of new lines, 180. (See also under Prussia, Italy and India.) Equity in earnings, 183. Car-day, 242. East Indian Railway, organization diagram, 1903, 175. Elliott, Howard, 214. Eminent domain, 25. Employees, 264, 288. ' (See also labor unions.) Engineer of construction, 107. Equity in earnings, 183. Equipment trust notes, 194. Erie Railroad, president, 93. Financing, 200. Rates, 219. Statistics kept, 232. Estimates of railroad tra£Sc, 13. Executive committee, 52. Executive officers, 29. Extensions, 183. Field 8^^ in 6oti8tm6t)(in, 23. Finaadng, 4, 10, 11, 12, 37. Financial organization, 178. Stock, bonds, etc., 181. Mortgages, 183. ' Bankers' commission, 184. Hypothetical case of the North & South Railroad, 185. Receiverships and reoigimiz^ tions, 186. Debentui'es, 192. Union Pacific Convertible '48, 193. Notes,' car trusts, etc., 194. Income bonds, 195. Underwriting, 196. Renewals, 197. Finley, W. W., 214. Foremen, 41. Freight traffic agreement, inter- national, 159. Freight traffic' manager, duties, 14, 144. French Railroad organization, 296. Gates, John W,, and the Louis- ville & Nashville, 216. General coun^, 120. General freight agent. Salt Lake & Ogdto Railway, 34. Duties, 115. General manager, duties, 95. British, 126. Lancashire & Yorkshire, 131. Supervision, 226. General passenger agent, Salt Lake & Ogden Railway, 34. General storekeeper, 289. General superintenxlent, Gulf Line Railway, 41. mDEX 303 General saperi&tendent, Gulf Iin6 Railway, duties, 98. Chicago, BurGngton & Quincy, «8. Pennsylvania Railroad, 100. Use of statistics, 235. Unit plan, 283. General superintendent of trans- portation, Pennsylvania Railroad, 64, 99. Georgia, railroad incorporation in, -4. Goods Wagons, British control of, 148. Gould system, 258. Government ownership, 250. France, Germany, Belgium, Russiil, India, Japan, Italy, 250. ■ Government railroad organim- tion, types of, 151. Grand trunk Railway, 229. Granger legislation, 203. Great Northern, 259, 2^, 275. Great Northern Railway (British), 132. Great Western (British), 123. Green Bay & Western Railroad, 18. Gulf Line Railway, general order No. 1, 40. Organization diagram, 43. Hadley, A. T., 155. Hale, Arthur, organiitation, 85. Car clearings, 149. Harahan, W. J., comments on traffic estimate!^, 15. Harriman, E. H., 54t 93. Hafriman lines in the Des Chutes Canon, 27. Organization, 55. Harribian lines in the 'Des Chutes Canon, car pool, 60, General managers, 97. Community pamphlets,!' 119. Reference, 178. Diplomatic work, 2J2. Use of statistics, 236. Expansion, 258. (See also under Union Pacific and Southern Pacific;) Hawley Roads, 258, 259. Hays, Chas. M., 229. Headquarters staff in construc- tion, 23. Hearne & Brazos Valley Railroad, organization, 31. Hill, James J., 214, 260. Hill Lines in the Des Chutes Canon, 27. , .And the Northern Securities Co., 258. Consolidation, 259. (See also Great Northern, Nor- thern Pacific and Chicago, Burlington & Quincy.) Hine, Charles, 279. Horse superintendent (British), 132. Illinois Central, 216, 218. Income bonds, 195. Incorporation, 4. India, railroads in, 155, 167. Earnings, 169. Regulation of 1896, 171. Programme, Indian, 172. East Indian Railv^ay organiza^ tion, 1903, 175. Industrial Department, Gulf Line Railway,' 40. , Norfolk & Western Railway, 52. 304 INDEX Industrial Department, "Harri'man Lines, 119. Inspektionen (Prussian), 157. Interstate Commerce Commission, 207, 273. International Freight TraflSo Agreement, 159. Iowa Central, . 258. Italian Railroads, 152, 161. Rates, 163. Organization, 164. . ■■■'.■J i Johnson, Emory R., 251, 269. ' Jury cases, 210. Kansas City, Mexico & Orient,. 258,272. Kendrick, J. W., 287. Kirkman, M. M., 90^ 107, 111. Konigliche Eisenbahn-Direktibn, 157. Konigsberg (Prussian), division, .158. Directory, 158. Kruttschnitt, Julius, 56, 287. Kuhn, Loeb & Co., 199. Labor unions, 74. Lake Shore & Michigan Southern mechanibal organization, 68. Lancashire & Yorkshire, operat- ing organization, 130. Work of the general manager, 131. Detail control diagrams, 136. Legal counsel, short lines, 37. Legislation, Roosevelt, 203. State, 2Q5. Prank methods versus the lobby, 213. And rates, 220. Legiila^oii, Anti-Stock-WateringJ' Act, 220. Sheridan Anti-Trust Law, 267. (See also railroad commissions.) Local agent, 117. Influence of, 243. Local industries, 115. " •' (See also industrial dept.) Locating Engineers, 24. . London & North Western, 123. Secretary, 127. Superintendent of the liile, 127. ' Operating organization, 127. . ' London & South Western, 132. Loree, L. P., 83, 287. . Louisville' &' 'Nisishvilte,' superin- ' tendent of transportatiqn, , :■ 99. ;,:• ■ ^-y' ': Division superintendent,"102. Chief engiheer, 106. Traffic manager, 115. Mortgage, Unified, 4s, 188'. John W. Gates cdntrol, 215i' 217. ■ • • Mechapi^cal department, 244; . Statieitics in annual report, 248. Lovett, Roberts.^ .55. ' '■ • "■ Madeira-Mamore Railroad, 22. Marriott, H., 130. Maschinen inspektors (Prussian), 158. Massachusetts, Anti-Stock-Water- ing Act of 1894, 220. Mast'er niechanic; Salt Lake & Ogden Railway/ 38.' • Organization of department on' Lake Shore & Michigan Southern, 70: ' ■ Dlities, 105.: Use of time, 282. McCrea, James, 287. INDEX' 305^ McDermbtt, E. R.V 147. ^ ' - Mechanical department, '243. Mechanical engineer, British, 125. Mediterranean Company (Italy),, 154,162. Mdlen, Charles S., 213. Metropolitan Street Railway, 222. Meyer, B. H., 161. Midland Railwaty, reorganization; of mechanical department, 1909, 135. MmerM Point & Northern R. R., 17. ' Mihfaeapolis & St.' Louis, 258, Minneapolis, St. Paul & Sault Saintfe Mkrie,' operations in Wisconsin, 21. Missouri, Kansas & Texas, 258." Missouri Pacific, president, 93. Consulting engineer, etc., 107. Mobile & Ohio, 218. MoBaco,''Diplomatic Corps of, 211. Morgan, J. P. & Co., 199. Mortgages, 183. Provisions, 188. Louisville & Nashville Unified 4s, 188. New England, roads' in, 265. New railfbads, preliminary con- siderations, 7. New York Central, organization, 66. President; 93. General manager, 97. Chief engineer, 106. New York, New Haven & Hart- ford, 213. Control of Boston & Maine, 260. Norfolk & Western Railway, rules, 50. Ndrfcdk- & ' Western Railway, or-^ ganization diagram, 50. Officers, 51. Chief engineer, 106. North Eastern Railway, 132, 256. North, Edward P., 164. Northern Pacific Railway, super- intendents, 78. President, 93. Hill roads, 259. Early development, 272. Northern Securities Co., 258. Notes, 194. Equipment' trust notes, 194. Obstruction encountered in rail- road building,. 26. , Officers, 29. Duties defined, 90. Operating costs, 246. Operating ratio, the, 244. Oregon & Washington Railroad, 290. . Oregon Short-Line, operating cost, 244. Organization, small roads, 29. Salt Lake & Ogden Railwa,y, 32. Gulf Line Railway, 43. Atchison, Topeka & Santa Fe, 52. Union and Southern Pacific, 54ff. Pennsylvania Railroad, 63. New York Central, 66. Delaware, Lackawana & West-' ern, 68. Buffalo, Rochester &, Pitts- burg, 68. Lake Shore & Michigan South- ern, 70. Mechanical department, 70. 306 rNDEX OrgamS^on, divieiotial aA 217. (See also rate regulation, com- missinn^, etc.) Cost of service versus value of service, 218. Basis of, 219. American and European, 255. Rate commission, IVussian, 159. INDEX 307 Rate regulation, 205. Effect of, on rates, 207. Rebates, 204. Receivership, 186, 253. Reorganization, 186, 253. Regulation, in the United States, 255. Road fifty miles long, organiza- tion, 35. Roadmaster, 38. Robertson, Thomas, 169. Rock Island system, departmental organization, 1903,. 83. Traffic, 216. Roosevelt legislation, 203. St. Louis & San Francisco Rail- road, brftndh line mileage, 20. Traffic situation, 218. Hawtey group, 258." St. Louis Southwestern, 260. Salt Lake & Ogden RaiMky; 32. San Pedro, Los Angeles & Salt Like, 272. Seaboard Air Line, development of, 266. Seci^tttry, duties, 121. British, 126. Shareholders, British, 124. Sherman Anti-Trust Law, 257. Shipper, attitude ofthe small, 203. Shop foreman, duties, 105. Short-Line Railroads, 16S. Absorption of, ' in the South, 266. Sicilian Company (Italy), 154, 162. South, railroads in, 265. Southern Company (Italy), 154, 162. "The Southerner," 266. Southern Pacific Railroad, operate ing organization, 54. President, 93. Annual meeting, 124. Reaches the coast, 272. (See also Harriman Lines.) Southern Railway, superintend- ents, 78. President, 93. .Traffic department, 113. Financing, 200. Development, 265. Southwest, roads in, 270. Speyer & Co., 199. Stanley, Merrill & Phillips Rail- road, 16, 17. State railroad management, dif- ficulties with, in India; 173. Tendencies, 253. Station agents, 42, 79, 112. As a source of unpopularity for their railroads, 208, 211. Station Master (British), 128. Statilstics, State commission, 20. Reference, 60, 119. Control through, 224. Ton-mile, in Great Britain, 136. In America, 226. Passenger-mile, 227. Board of Trade inquiry, ,227. Cost of, 229. Erie Railroad, 232. Stock, Railroad, 10, 180, 200. Stockholders, 29.i Superintendent of car service, duties, 101. Superintendent of .freight trans- portation, Pennsylvania Railroad, lOQ. 308 [NDEr Supentitendenl of inotivei' power," duties, 104. Superintendent of passenger trans- portation, Pennsylvania Railroad, 100. Tehuantepec Railway, 272, 274. Texas & Pacific, 260. Texas Central, 258. ' . '. Through' systems, adVant&ges over short lines; 20. * Ticket accountiAg, 111; ' Toledo, St. Louis & Western, 358. Ton-mile statistics in Great Brit-^ ainj'iae.' (See also under statistics,) Tonnage rating, 23^. Traffic, 216, 218. Resources of the Pacific Coast, 271.. _."'" . '.:";, Situation in Far West, 273. (See -also rates.) , , , Traffic «duncil, Italian, 163. (See also under councils.) Traffic departmeflt,' Salt Lake & Ogden ilailway, 33,' . -, Gulf Line Railway, 40. ' Duties, 113. Louisville & Nashville, ll5. British, 131. ' " ' And car supply, 242. Traffic estimates, 13: Traffic, maximum-and-minimum form of analogy, 15". Traffic percentages, short lines, 17. Trainmaster, 39, 104. .' ■'/ , ■ '•- Duties, 240, 283. ' Train service, 119., Train sheet, the, 230, Trans-Siberian Railway,' why • built, 1. Traveling auditor, 111. ! Treasurer, llOi"^' . 'm"'-.., -,>.*•>; ' Trustee, 189. Underlying liens, 190. Underwriting a' new railroad^ 7ff. i Underwriting railroad securities, 181,196. Union 'Pacific Railroad,' why ! built, 2. I Construction organization, '2. Operating organization, ;54. Chief engineer, 106. ' Comptroller, 109. Convertible 4s, 193. Early devfelopihieht, 272. Unit system of railroad organiza- tioii, 279. Unpopiiiarity of raiIroa;d8, 117 Three sources of, 208. ': Valuation of railroads, 219.' ■ VandaKa' Railroad, 216. Variderbilt.'roids, "253. ■ ■ (See also Nfew York Central, Lake Shore' & Michigan Southern and' Michigan Central.) Verkehrs inspektors (Prussian); 158. Vice Presidents, Norfolk &Westi ern Railway, 51. 'Harriman LinesJ 56. Virginian ^ailiray, organization, 23. /Probable cost, 179. Ton miles on, 246. Wabash, 216. Webb, Wa;Uer L., ralilroad traffic ' " ' estimates, 13. Werkstatten inspektors ' (Prus- sian), 158. ' ,' INDEX 309 Wtetem PMifie, 27. Cost, X79. Control by Denver & Rio Grande, 260. Reaches the coast, 272. Wisconsin, New railroad in, 16. Short lines in, 17. Through lines in, 21. Wisconsin & Northern, 17. WiAconsio Central, traflSc stiitis- ties, 21. Yards and terminals, 240. Yaioo & Mississippi Valley, ftlgfi cost of maintaining, 245. Zeitung des Vei%ins Deut. Eisenb., 154. (5) THE END