."I ..- 
 
 1013 
 27 
 
He 
 
 1013 
 
 CORNELL 
 
 UNIVERSITY 
 
 LIBRARY 
 
 FROM 
 
 The 'Estate of Ch-js,'- .F-ll 
 
Cornell University Library 
 HE1013 .W27 
 
 Address of S. Davies Warfield ... on the 
 
 olln 
 
 3 1924 030 119 154 
 
Covit^eviVs. 
 
 Ac^clvess... orv ih-e. occasion of the amner 
 o^\^re.\^ »vi Wis Vionor I)ecewiber \'i,l<HilD, aVHie- 
 W«x\dorf - |\sVor'i<x Viot-c\ ^ "rtew VovK. c-l'i^Oj 
 
 ;L . Avic\\yS15 oV Uvi'itccl SVcxtes S uV2>r€vn-c Co uvhs 
 clriaractev- oV tv-a.v» s portcvV. on oVj\i ^o-KoviS 
 
 Hcx'ViovKxl Covn'^ereviae, o\ Mutual Savings "Banl^s 
 
 afBo&tovi, Apr. I a^, )qao. eH^iOj 
 
 M- Acidvess... beVoY-tL. Hc*-t'iovia\ A^sodi ati ovi ot 
 
 M^A■tucvi 5av^\1^S "Ba-nVs , HtV> annviCil covive\at/0V7, 
 
 5. Car "bViortcxc^e — tVi€, tjcrvviancv^l" Yew\eav xl^^'ij 
 
ADDRESS 
 
 OF 
 
 S. DAVIES WARFIELD 
 
 President, National Aasociation of Owners of Railroad Securities 
 President, The Continental Trust Company, Baltimore 
 
 ON THE OCCASION OF THE DINNER 
 
 GIVEN IN HIS HONOR ON MONDAY EVENING, 
 
 DECEMBER 13. 1920 
 
 AT THE WALDORF-ASTORIA HOTEL 
 
 NEW YORK 
 
 WITH 
 INTRODUCTORY REMARKS OF 
 HON. MYRON T. HERRICK 
 
 AND 
 
 LETTER FROM 
 
 FORMER SENATOR ELIHU ROOT 
 
 NATIONAL ASSOCIATION OF OWNERS OF RAILROAD SECURITIES 
 HEADQUARTERS. BALTIMORE. MD. 
 
Cornell University 
 Library 
 
 The original of this book is in 
 the Cornell University Library. 
 
 There are no known copyright restrictions in 
 the United States on the use of the text. 
 
 http://www.archive.org/details/cu31924030119154 
 
BEMARKS OP HON. MYRON T. HERRICK INTRODUCING MR. 
 WARFIELD. MR. HERRICK'S ADDRESS IN PART:— 
 
 Guests, Ladies and Gentlemen: 
 
 The requirements of the directing head of a voluntary 
 organization, such as the security owners Association, are 
 manifold. The various problems to be solved and in- 
 terests to be served, demand unusual characteristics. The 
 man who would undertake the responsibilities of such a 
 position must make up his mind to sacrifice personal 
 interests to the necessities of great public emergencies. 
 
 Only an extensive and well-grounded experience meets 
 these requirements. It requires intimate knowledge of a 
 railroad in its various ramifications; a thorough knowledge 
 of finance in order that those who seek information in 
 framing legislation might know the essentials of credit. 
 
 It requires experience in public or political affairs to 
 avoid the pitfalls which often destroy effective results. 
 
 Above all, there is required a fearlessness in thought and 
 action, a quality continuously called upon. All great 
 movements bring resentment from personal or other 
 motives. 
 
 It requires the necessity to forego self in the incentive 
 to perform a great public service without regard to per- 
 sonal consequences. The return of the railroads from 
 government operation for war service to their owners re- 
 quired a foresight as to conditions which few men possess. 
 
 One of the conditions of this dinner was that I should 
 refrain from any remarks which might be considered 
 eulogistic in respect to the man to whom it is tendered. 
 The condition was that there are great and serious prob- 
 lems yet to be met; and this was the only inducement im- 
 pelling him to accept in order that those conditions might 
 be briefly outlined. In fact, when the time had been set 
 for November nth, and arrangements accordingly made 
 prior to the announcement to our guest, the request was 
 made that he preferred it should not take place. But it is 
 
proper for this membership, this remarkable gathering, to 
 know what intimate relations extending over a number of 
 years has given me the opportunity to say and without 
 infringing upon the promise made. 
 
 I will not dwell upon the financial experience of our 
 guest; one of the largest financial institutions of the 
 South, of which he is President, was organized by him; 
 nor his experience in railroad work — it is well known to 
 you. President Cleveland called him while head of a 
 manufacturing company bearing his name, to take charge 
 of the Baltimore Post Office — the youngest postmaster it 
 ever had. An illustration of a public office conducted on 
 strictly business and Civil Service lines was given. 
 
 This calls to mind the relations between Theodore 
 Roosevelt and our guest. Mr. Roosevelt was, you will 
 recall, one of the Civil Service Commissioners; a fast 
 friendship was formed between these two men, both 
 characteristically fearless. Upon the election of President 
 McKinley, I recall, one of the first suggestions made by 
 Roosevelt to McKinley was to reappoint our guest to 
 this office. This was done. It was during these periods 
 that he organized the trust company. When Theodore 
 Roosevelt became President, he also insisted upon a re- 
 appointment. The exactions of the trust company would 
 not permit acceptance, although serving two years during 
 President Roosevelt's administration. 
 
 My reason for these words is to convey to you that here 
 is a man who served under three Presidents, one Demo- 
 crat and two Republicans. I know the terms of intimate 
 personal friendship existing between our guest and the two 
 great Presidents, Cleveland and Roosevelt, and the close 
 relations he enjoyed with President McKinley. These ex- 
 periences, financier, railroad chairman and that of public 
 relations, brought to this position the full measure of re- 
 quirements to which I have alluded. 
 
 I remember John K. Cowen, a son of Ohio, who took 
 Maryland as his adopted state, a great jurist, a great 
 railroad lawyer, who became President of the Baltimore 
 and Ohio Railroad, characterized Mr. Warfield, in alluding 
 to his connection with better political conditions in Mary- 
 land, as the greatest organizer he had ever known. When 
 
I look at this assemblage of nearly a thousand men 
 gathered here tonight, representing all sections of the 
 country, with guests representing the public, in the dis- 
 tinguished public men who grace the occasion, others 
 representing universities and colleges, great shipping and 
 traffic organizations, great investment institutions, and 
 bankers' associations and recognizing that this has been 
 made possible by the security owners Association which 
 was the inspiration and was organized by the man we 
 honor this evening, I am convinced that Cowen was right. 
 I take pleasure in introducing our honored friend and 
 guest — S. Davies Warfield. 
 
ADDRESS OF S. DAVIES WARFIELD 
 
 Mr. Chairman, Ladies and Gentlemen: 
 
 When Governor Herrick, Chairman of the Committee 
 of Arrangements, informed me of the intentions of the 
 Committee in respect to this evening, I made the request 
 that no such recognition be given of what may have been 
 contributed by me to the results of the activities of the 
 National Association of Owners of Railroad Securities of 
 which I am President. But with the energy with which 
 Governor Herrick does things — the same that played such 
 a part in the selection of the nominee of the National 
 Republican Convention, shortly to take office as our Presi- 
 dent — he went ahead anyhow, together with Mr. Kings- 
 ley, Mr. Fiske, Mr. Pulleyn and Mr. Ecker, the other 
 members of the Committee who have always taken an 
 advanced position in every activity of the Association. 
 Without the active co-operation of these gentlemen and 
 other members of our Committees, whatever aid the Asso- 
 ciation was able to give the Committees of Congress in 
 reaching their conclusions when they framed the Trans- 
 portation Act would not have been possible. 
 
 I should have preferred to avoid the embarrassment I 
 feel this evening in being wholly unable to adequately 
 express my appreciation of the compliment you pay me. 
 But I am only part of a great movement. We are con- 
 fronted with questions of serious concern to the country 
 and to the members of the Association. It was therefore 
 clearly my duty to yield personal inclinations or prefer- 
 ences to the opportunity this occasion would present for 
 discussing with you who have a vital interest in this situa- 
 tion, the necessities of the immediate future rather than 
 past performances. There is much yet to be done growing 
 out of the constructive railroad legislation enacted by the 
 last Congress, The same co-operative spirit you have 
 shown during the three and a half years of the Associa- 
 tion's life will, I am sure, be welcomed by the governmental 
 
authorities who will undertake the solution of the questions 
 at issue. To enlist your co-operation, it becomes necessary 
 to burden you with some past details that you may the better 
 follow suggestions dealing with immediate requirements. 
 
 The Work of the Association 
 
 The National Association of Owners of Railroad Se- 
 curities was organized with definite policies. It is dis- 
 tinctly public in its representation. It speaks for millions 
 of people who directly or indirectly own securities of rail- 
 roads and I doubt if lo per cent of the number, prior to 
 the Association's campaign of education, realized their 
 ownership or its responsibilities. It represents no par- 
 ticular railroad, for its membership owns, or holds for 
 others, all classes of bonds or other securities issued by 
 railroad companies. It has therefore been able in its 
 activities to view the transportation system of the country 
 as a whole without respect to any individual railroad com- 
 posing that system. 
 
 For some time it had been recognized that the great 
 investment institutions of the country could not continue 
 to invest the funds entrusted to their care in railroad 
 securities unless there was a change in method of deal- 
 ing with rates upon which railroads live and depend 
 to pay interest and the principal of the securities issued 
 by them. The railroads had largely relied upon these 
 institutions as an outlet for their securities. By invest- 
 ment institutions I particularly mean the great life 
 insurance companies and the mutual savings banks 
 which alone, taken collectively, hold in their keeping rail- 
 road investments upon which over one-half of the popula- 
 tion of the country largely depend for their livelihood or 
 for the protection of those who are to come after them. 
 For the holders of fifty-eight million life insurance policies 
 outstanding, protecting forty million lives, and the ten 
 million depositors in the mutual savings banks are the real 
 owners of the investments held by these mutual institu- 
 tions. Before the organization of the security owners' As- 
 sociation, there was no means to give collective expres- 
 sion or effect to what those occupying positions of trust 
 
in these great institutions considered requirements for 
 continuing to invest these trust funds in securities of the 
 railroads. 
 
 Full realization of the responsibilities devolving upon 
 them in acting for these millions of people is evidenced 
 by the fidelity with which the officials of the great life 
 companies and mutual savings banks that hold member- 
 ship in this Association conduct their trust. If more were 
 required than the thought that it was worth while to be 
 helpful in the proper solution of problems of such public 
 concern upon which so vast a number of people depend, 
 the example of these men would be compelling. Since its 
 organization, together with our attorneys they have been 
 at the command of the Association at all times. This be- 
 gan with the public hearings before the Interstate Com- 
 merce Commission in 19 17, through the negotiations with 
 the Railroad Administration in respect to the standard 
 form of Railroad Contract under Federal control, and then 
 the Transportation Act. With such a representation of 
 the investments of the people and with representatives of 
 other fiduciary as well as educational institutions and pri- 
 vate investors also co-operating, there is no organization 
 more fully representative of the public than this Associa- 
 tion of security owners. 
 
 Association's Relation to Legislation 
 
 The Association's committees believed that its rela- 
 tion to Congress and other legislative or governmental 
 bodies was not to subject members to influence, but to 
 show how dependent were these millions of people repre- 
 sented upon the proper solution of the questions involved 
 and submit facts and figures in support of suggestions 
 made dealing with the subject. The members of these 
 Congressional Committees sought and desired it. The 
 Association had a large corps of experts preparing data 
 in order to submit helpful information. The Senate Com- 
 mittee on Interstate Commerce, headed by Senator 
 Cummins, that fine example of the statesman, and the 
 House Committee, headed by its able and effective 
 chairman. Representative Esch, whose absence from Con- 
 
gress after March 4th next will be a profound loss, invited 
 from all sources such information as would be useful to 
 their committees. The public committee hearings con- 
 tinued for months. The country has never witnessed more 
 painstaking and intelligent consideration of any subject 
 than given to the solution of the problems confronting 
 the members of these committees. The result of their 
 tremendous study and work is the Transportation Act 
 of 1920, and whatever the Association contributed to this 
 work we should feel gratified in having helped at the time 
 of a great public emergency. 
 
 Rate Adjustment Not Judicial Function 
 
 It was under such conditions that the problems of the 
 railroads were approached. The adjustment of railroad 
 rates is not a judicial function, it is a very practical ad- 
 ministrative matter. In the light of the present method 
 of rate adjustment as prescribed by the Transportation 
 Act, it is hard to realize that it is only a short while ago 
 when the officials of the railroads with their attorneys 
 were arrayed on one side of the hearing room of the 
 Interstate Commerce Commission and the shippers and 
 the public, with counsel, on the other, the Commission 
 sitting as judges. Each railroad official was required on 
 the witness stand to undergo cross-examination by both 
 sides, more as a prisoner at the bar than the head of an 
 enterprise asking sufficient revenue from rates to enable 
 his railroad to produce adequate transportation service 
 upon which the business and prosperity of the country 
 depended. The Commission had no definite guide as to 
 what Congress had in mind when its former Act stated 
 that railroad rates must be "reasonable," giving no 
 definition of what was meant by the term "reasonable." 
 The majority of the shippers of the country wanted serv- 
 ice and did not appear at these hearings to object to a 
 fair return on money properly invested and represented 
 in railroad property. But a small minority might hold up 
 the necessities of proper transportation facilities by enter- 
 ing an appearance and protesting under such a procedure. 
 Those of us on the Committees of the Association were 
 
unable to understand how it could be believed this pro- 
 cedure could continue and the railroads live or that a so- 
 called statutory rule of rate making would alter it, which 
 members of the Interstate Commerce Commission them- 
 selves stated would give to the Commission no power to 
 solve the problems other than they already possessed. 
 
 If a change in the old-time method for the adjustment 
 of railroad rates by the Commission was found necessary 
 prior to the war, how much more necessary. was it when 
 these properties were to be returned to their owners after 
 the war. Their organizations were disrupted, their credit 
 gone, the Railroad Administration had used their cash and 
 was to return them with none, with maintenance both of 
 way and equipment impaired. I do not say that a differ- 
 ent result was possible under war conditions. 
 
 Rates Must Yield Living Return 
 
 Under the present Act, not only present and prospective 
 owners of railroad securities will know what each railroad 
 can do but the public will know. If rates adjusted by the 
 Commission do not yield a return limited to a rate level 
 below which adequate transportation facilities cannot be 
 furnished, the public interest is protected by the require- 
 ment that they must be readjusted to yield that living 
 return. A return of less than 6 per cent on the aggregate 
 value of railroad property properly arrived at and devoted 
 to the public use will not furnish adequate service. No 
 shipper depending on transportation by rail would expect 
 rates to yield less if such rates are fairly and properly dis- 
 tributed and the division of those rates fairly apportioned 
 among the respective carriers. Railroads must first live 
 before they can serve. These are questions that traffic and 
 shipping organizations must consider, leading representa- 
 tives of which are guests here this evening. 
 
 Those not entirely familiar with the Act may believe 
 that each railroad is to receive 6 per cent on its individual 
 property value; in fact, some have thought that the 6 
 per cent is a return on capital stock or other class of secur- 
 ity. Neither is the fact. The railroads are grouped in the 
 four rate territories arranged by the Commission and rates 
 
 8 
 
adjusted to yield 6 per cent on the aggregate value of the 
 property devoted to transportation of all the roads in each 
 group.^ Each railroad in a group must work out its own 
 salvation and can earn on its individual property value 
 only what efficiency in management will entitle it to re- 
 ceive from rates adjusted to yield 6 per cent on the aggre- 
 gate value of the group. Some may earn 2, 3 or up to 6 per 
 cent, at which point the division takes place between the 
 railroad earning it and the transportation fund which is to 
 be used by the Commission in the interest of transporta- 
 tion as a whole. It is not a question of the amount of se- 
 curities issued, the return is made on real value of railroad 
 property in the aggregate, not on securities. What is 
 earned on stock or other securities a railroad has issued is 
 entirely dependent upon the relation the amount issued 
 bears to the value of its property upon which its per- 
 centage return from rates applies, and these rates are 
 adjusted to the aggregate value of the group and not to 
 that individual railroad's value. 
 
 Inherent Difficulty to be Met 
 
 Such suggestions as were made by the Association before 
 the Committees of Congress in respect to the financial 
 rate-making provisions of the Act were based upon the 
 belief that the time had arrived when railroad securities 
 should be taken out of the class known as speculative 
 securities. It was recognized that regulation of railroads 
 was a fixed and proper governmental policy. But that 
 regulation as it then existed was working toward a con- 
 traction of the earning power of the railroads to the extent 
 of imperiling their credit and their existence as privately 
 owned properties. A practical difficulty inherent to the 
 transportation system had to be met. Rates that were 
 essential to the life of the great majority of the railroads 
 yielded revenue to the minority which, were they alone to 
 be considered, could not be permitted either by the Com- 
 mission or by the public. This had been the underlying 
 difficulty in the adjustment of rates under so-called statu- 
 tory rate provisions. So we suggested that after a mini- 
 mum base rate, which Congress placed at 6 per cent, was 
 
earned under the conditions stated, that earnings beyond 
 that should be divided. We contended that there was no 
 hardship to the owners of the securities of the railroads 
 in creating a fund to be used in the interest of transporta- 
 tion from a division of the proceeds of rates made and paid 
 by the shippers and the public after a reasonable basic re- 
 turn on aggregate value had been realized, and that there 
 was sufficient incentive when a railroad company could 
 retain one-half the earnings beyond its basic return. This 
 was not a popular move among some railroad officials and 
 many others. It was bitterly contested before Congress. 
 
 Association Before Congress 
 
 In January, 1919, the Association in its first appearance 
 before the Committees of Congress having railroad legis- 
 lation under consideration opposed compulsory Federal 
 incorporation of the railroads, with the unsettling of con- 
 ditions and the legal difficulties incident to endeavoring to 
 compel existing railroad companies to transfer their corpora- 
 tions, organized under state charters, to others organized 
 by Federal Act. We were not in favor of enforced or com- 
 pulsory consolidations of the railroads, but we advocated 
 permissive consolidations under the jurisdiction of the 
 Interstate Commerce Commission and as now prescribed 
 by the Act. We did not favor a department, board or sec- 
 retary of transportation. We believed that the Interstate 
 Commerce Commission, given powers now contained in the 
 Transportation Act, was an experienced and the proper 
 body to solve the problems of the railroads. We believed 
 that the State Commissions should be maintained in the 
 respective states but under such provisions as are now 
 contained in the Act which would vest in the Interstate 
 Commerce Commission powers over intrastate rates 
 which burden the interstate rate structure. There are 
 now difficulties in respect to the attitude of some State 
 Commissions. Several have not allowed the rates made 
 by the Interstate Commerce Commission to carry out 
 what Congress and the Commission considered essential 
 to maintain transportation as a whole. Our attorneys 
 inform us that in their opinion Congress clearly has the 
 
 10 
 
right to empower the Commission to prescribe rates within 
 a state that are a part of the general rate structure which 
 the Commission considers essential to maintain trans- 
 portation as a whole and produce the results called for 
 under the provisions of a Congressional Act. We believe 
 the Interstate Commerce Commission will be sustained 
 in its position in respect to the recent declination of several 
 State Commissions to agree to rates put in effect in inter- 
 state commerce by the Interstate Commerce Commission 
 under the power given by Congress. 
 
 National Public Corporation 
 
 I will now discuss in some detail the method advanced 
 by the Association for supplying railroad equipment to 
 meet the country's needs. If put in full operation I believe 
 this method will be regarded as great a step forward in 
 modern business methods as is the mandate of Congress to 
 the Commission, now in the Act, that a reasonable stated 
 yield is essential from rates to enable the carriers to 
 finance themselves and perform service. 
 
 I believe it will help in the solution of many perplexing 
 railroad problems which now confront the shipping or 
 traffic organization particularly and that it will materially 
 lower railroad rates in comparison with the requirements 
 under existing conditions. 
 
 As the means to accomplish the results desired, we pro- 
 posed at the first hearing in 19 19 before the Committees 
 of Congress that a national public corporation be or- 
 ganized by Act of Congress, which should be operated 
 without profit. This corporation, among other spheres 
 of usefulness, to finance equipment for the railroads and 
 in that connection furnish the vehicle through which the 
 excess earnings or transportation fund could be used direct- 
 ly in the interest of the shippers and the public who pay 
 the rates that produce it. This was an important part of 
 the Association's plan then presented. We asked Con- 
 gress to incorporate this company as a corporation or 
 an association and delegate to it or to the Interstate Com- 
 merce Commission to be used through it, certain powers 
 in the employment of which it was believed the best 
 
 II 
 
results at the lowest cost would be secured in the interest 
 of the shippers and the public through the railroads of the 
 contry, as a whole. We asked that all or a part of the ex- 
 cess earnings or transportation fund referred to, and under 
 the control of the Commission, be employed in the pur- 
 chase of equipment to be leased by this public corporation 
 to the railroads at a nominal rental, the cost of such equip- 
 ment not to be capitalized for rate-making. Assume that 
 $100,000,000 may be the amount of this fund accumulated 
 yearly under normal conditions. This money could be 
 utilized for the direct purchase of equipment — using it all — 
 or it could be employed as a margin in the sale of the cor- 
 poration's securities or obligations and thus obtain double 
 or treble the equipment than if used directly in pur- 
 chase. This equipment utilized through this corporation 
 by the Commission in conjunction with the power which 
 has been given the Commission to divert existing equip- 
 ment, would give to such an agency and the Commis- 
 sion a floating volume of equipment subject to order from 
 one railroad to another or from one section of the country 
 to another to meet the demands of business at all times. 
 A railroad under these conditions would be required 
 to own equipment to meet its normal requirements 
 only, securing equipment for seasonal requirements from 
 the corporation, without carrying an over-surplus of either 
 engine power or cars. This would institute a large saving 
 in the capital expenditure for equipment of the railroads 
 of the country. 
 
 Use of Excess Earnings Fund 
 
 Consider for a moment the possibilities of this corpora- 
 tion. The Commission using $100,000,000 from the excess 
 earnings or transportation fund can secure in normal times 
 $200,000,000 to $250,000,000 additional through the sale 
 of notes or other obligations of the corporation. This 
 would purchase $300,000,000 to $350,000,000 of equip- 
 ment. After obtaining equipment for normal requirements, 
 further amounts from the transportation fund could be 
 used to retire, from time to time, the corporation's obli- 
 gations then outstanding. So you would gradually bring 
 
 12 
 
the charge to the railroads for the use of the equipment to 
 a nominal figure, thus working toward a reduction in rail- 
 road rates. This fund thus expended and used would 
 provide the best insurance the business interests of the 
 country could have, for equipment would always be sup- 
 plied to meet the demands of the country at the least possible 
 cost. The saving to be made can hardly be overestimated. 
 
 The management of this corporation as originally pro- 
 posed before the Committees of Congress, contemplated 
 a board of trustees, composed, in part, of all or several 
 members of the Interstate Commerce Commission. The 
 trustees to also include men experienced in railroad affairs 
 — traffic, operation and finance. This Board may be com- 
 posed of the nominees or representatives of the Interstate 
 Commerce Commission, also others of varied experience, 
 with separate committees named to co-operate with the 
 board. These committees to be named by the Commission 
 or otherwise selected from among the members of this 
 Association, the railroads and the shippers to give a broad 
 and comprehensive management in the various fields of 
 operation, undertaken directly by the corporation or in 
 carrying out the instructions of the Interstate Commerce 
 Commission. 
 
 We had advocated placing in the hands of the Com- 
 mission, to be used largely through this agency, the 
 right to divert cars from one railroad to another for the 
 purposes stated. We had also advocated giving the Com- 
 mission control over the divisions of rates. These two 
 powers are in the Act. The purpose was that the Com- 
 mission could best use these powers through such an 
 agency as the corporation would provide. 
 
 The conditions required to be met since Federal con- 
 trol have demonstrated to the country the importance of 
 these two provisions of the Act, particularly that relating 
 to diversion of equipment to meet congestion. Had this 
 power not been given by Congress to the Commission, 
 Mr. Daniel Willard, president of the Baltimore and Ohio 
 Railroad, who stepped forward in the emergency, would 
 not have had the opportunity in co-operation with the 
 Interstate Commerce Commission to meet the situation. 
 In this work, Mr. Willard has shown signal ability. 
 
 13 
 
National Corporation Co-ordinates Service 
 
 The successful operation of such an agency as the 
 National corporation would meet the principal argument 
 of advocates of government ownership. This argument 
 is that the transportation system of the country can only 
 function properly as a whole under government ownership, 
 because unified service is possible only under a single head 
 given power by Act of Congress, like a Director-General 
 of Railroads. The national public corporation if given 
 power by Congressional Act will shatter this argument in 
 every respect. Instead of a single politically appointed 
 head the corporation would have the advantage of a 
 management composed of men of large and diversified 
 experience drafted from active service in their businesses 
 in different sections of the country. It will meet it far 
 better than would be possible under a single operating 
 head appointed by the Government or otherwise. As great 
 an opportunity for unification of service and facilities 
 would be obtained as though all the railroads were com- 
 bined in a single corporation and yet you do not lose 
 a single advantage now possessed in a transportation sys- 
 tem composed of a sufficient number of separate railroad 
 companies or systems to ensure competitive service, each 
 operating under individual private management as a sys- 
 tem in itself. 
 
 Equipment Gauged to Transportation as a Whole 
 
 With such an agency in full operation each railroad 
 company or system would gauge its expenditures for 
 equipment and for other requirements by the needs of 
 transportation as a whole. By this is meant that a terri- 
 tory, we will say, served by railroad A, which produces a 
 character of freight entirely different from the territory in 
 which railroad B operates may need cars during a period 
 of the year when the requirements of the territory served 
 by railroad B would not need them. Railroad A could use 
 for its seasonal requirements, we will say, ten thousand 
 additional cars which stand unused on the rails of carrier B 
 awaiting its own seasonal requirements. Why should these 
 ten thousand cars be owned by railroad B. They could 
 
 14 
 
perform the service of both railroads if owned by the cor- 
 poration and fulfill the requirements of each. If surplus 
 cars now owned by individual railroads were the property 
 of the corporation they would perform more than double 
 the service and at less than half the cost of such service 
 under existing conditions. For the corporation would be 
 able to lease them on a basis very much less than were 
 these cars required to be the property of the railroads, a 
 duplication which now increases the capitalization of the 
 roads at the additional cost to the public. Furthermore, 
 when supplied by the Corporation, their cost would not be 
 capitalized for rate making. Why should a method requir- 
 ing the total of 2,360,000 freight cars now in the service of 
 all the railroads, which cost approximately $2,500,000,000, 
 continue, when less that 2,000,000 cars, costing say 
 $400,000,000 less — ^based on average cost before the war, 
 at today's prices this figure would be near $1,000,000,000 
 — ^would perform the same and better service under 
 the system proposed for handling cars by the National 
 corporation. When a shipper applied to a railroad 
 for freight cars to meet his business demands and they 
 were not forthcoming he would apply to the corpora- 
 tion. Influence or "pull" to secure cars would end, 
 as would the many non-essential methods in equipment 
 construction and devices which the master mechanic of 
 one railroad may think necessary when another might 
 think otherwise. Such an agency under the broad manage- 
 ment outlined would supply the Commission with the 
 best means to deal with joint use of terminal and other 
 facilities in the public interest, at the same time every ad- 
 vantage of individual railroad management would be con- 
 tinued, leaving unimpaired the initiative and incentive of 
 private ownership and management essential to competi- 
 tive service. 
 
 The Great Problem of Transportation 
 
 The great problem of American transportation has been 
 to establish an agency which can co-ordinate, subject to 
 the Commission, the natural advantages to be gained 
 from individual railroad management and operation and 
 
 15 
 
not destroy initiative and the incentive which established 
 it and upon which its continued existence depends. This 
 we believe can be effectively accomplished through the 
 operation of the National corporation briefly described. 
 
 Congress did not provide for this agency in the Trans- 
 portation Act, but, as stated, gave some of the powers 
 proposed for it to the Interstate Commerce Commission, 
 Congress did provide a fund of $300,000,000 to be loaned 
 to the railroads under the Commission's jurisdiction to 
 meet the needs of transportation. This presented to the 
 Association an opportunity to revive the advantages to be 
 gained by a public corporation. 
 
 After the passage of the Transportation Act, Senator 
 Cummins called a public hearing in response to protests 
 from shippers that the inadequacy of car service was seri- 
 ously threatening the movement of their products. Rep- 
 resentatives of railroads, bankers and this Association 
 were asked to be present. 
 
 The bankers pointed out the extreme difficulties to be 
 met in financing equipment particularly for the railroads 
 that most required it, owing to the depressed financial 
 conditions, the loans to be made by the Government from 
 the $300,000,000 fund forming a small part of the carriers' 
 necessities in this direction. 
 
 We pointed out the urgent necessity for such a corpora- 
 tion as was suggested by the Association before the same 
 Committee while engaged in framing the Transportation 
 Act, as the best and most economical method for employ- 
 ment of loans from the fund provided by Congress to 
 finance equipment for the roads. 
 
 The financial division of the Interstate Commerce Com- 
 mission called a public hearing on the same subject and to 
 receive suggestions for the use of the $300,000,000 fund, 
 $125,000,000 of which was to be set aside to assist in the 
 purchase of equipment. We here pointed out the urgent 
 necessity of the suggested corporation for this purpose. 
 The Transportation Act did not provide either for the 
 corporation or for loans from the $300,000,000 fund to be 
 made to other than a railroad company. Congress was 
 about to adjourn, and in some quarters it was argued that 
 the time was too short to secure such an amendment to 
 
 16 
 
the Transportation Act. We contended the matter was of 
 such importance that the Senators and Representatives 
 who had framed the Transportation Act would at once 
 recognize its necessity. 
 
 The matter was laid before several Senators in the 
 absence of Senator Cummins and before our distinguished 
 guest, Mr. Esch, who saw the necessity of providing the 
 Commission this additional means for the economical use 
 of the Government loan, with the result that the Trans- 
 portation Act was amended through a provision attached 
 to one of the appropriation bills then in conference. Power 
 is thus given to the Commission to loan to or through a 
 corporation as an agency, part of the Government loan 
 for supplying equipment to the carriers. It has already 
 greatly aided in loans to refrigerator car companies. 
 
 National Railway Service Corporation 
 
 As a result of this action and in order to demonstrate 
 the necessity, practicability and great use of such a means 
 to finance and furnish cars directly to the railroads to be 
 ultimately owned by them, the National Association of 
 Owners of Railroad Securities organized the National 
 Railway Service Corporation under the laws of Maryland, 
 the stock of which is to be transferred to the Secretary of 
 the Treasury. 
 
 Only part of the benefits of such an agency is possible 
 through the provisions of a state charter under which it 
 can now only operate. We hope the Committees of Con- 
 gress will give due consideration to what the enlargement 
 and extension of these benefits by Congressional Act will 
 mean both in economy and service to the shippers and the 
 public. 
 
 Guests here this evening connected with shipping or 
 traffic organizations will, I trust, fully consider the extent 
 to which this Corporation if given power by Congressional 
 Act will provide the means to remedy many past and 
 existing difficulties. 
 
 I will not burden you with the details of the Railway 
 Service Corporation. Ten carriers have either been or are 
 being financed through two series of its equipment obliga- 
 
 17 
 
tions, aggregating $60,000,000, and maturing in fifteen 
 years. Engines and cars are furnished under two plans — 
 one the Conditional Sale Basis, the other the Lease Basis. 
 Sixty per cent of the cash required comes from investment 
 institutions and 40 per cent from the Government loan. 
 
 The officials of the investment institutions already re- 
 ferred to, recognizing the corporation as a public necessity 
 to meet the urgent demands of the country offered to 
 purchase the Corporation's obligations to enable it to be 
 organized and begin operations at once. 
 
 These officials are among the trustees. Others have 
 offered to be of similar service. The trustees of the Cor- 
 poration are: Darwin P. Kingsley, President of the New 
 York Life Insurance Company, New York; Haley Fiske, 
 President of the Metropolitan Life Insurance Company, 
 New York; Myron T. Herrick, President of the Society 
 for Savings, Cleveland; John J. Pulleyn, President of the 
 Emigrant Industrial Savings Bank, New York, and Presi- 
 dent, Savings Banks Association of the State of New York; 
 George E. Brock, President of the Home Savings Bank, 
 and Chairman of the National Conference of Mutual Sav- 
 ings Banks of the United States, Boston; W. W. Mc- 
 Clench, President of the Massachusetts Mutual Life In- 
 surance Company, Springfield, Mass.; Louis F. Butler, 
 President of the Travelers Insurance Company, Hartford, 
 Conn., and myself, being also President of the Corpora- 
 tion. All the trustees are here this evening. The Board of 
 Trustees will later be increased to twenty. 
 
 Time will not permit giving details of the trust agree- 
 ments and carrier contracts under which Prior Lien Cer- 
 tificates taken by the investors and Deferred Lien Cer- 
 tificates taken by the Government are issued. A security 
 is offered of an investment character which, I believe, is 
 rarely surpassed. 
 
 Railroad Consolidations 
 
 An immediate problem with which you are called upon 
 to deal, and very vital because of the far-reaching ques- 
 tions and consequences involved, is the consolidation of 
 the railroads of the country into a few large systems. 
 
 18 
 
The Transportation Act requires the Interstate Com- 
 merce Commission to arrange and suggest consolidations, 
 but they are not made compulsory. When the Commis- 
 sion, after diligent study, shall, however, make recom- 
 mendations in respect thereto, all voluntary consolidations 
 thereafter are required by the Act to follow the Com- 
 mission's recommendations as laid down. So the effect is 
 that the plans of the Commission would be expected to be 
 followed. 
 
 The public corporation organized for the purposes and 
 along the lines briefly described should become of material 
 assistance to the Interstate Commerce Commission in 
 working out the problems presented by consolidations. 
 The corporation would aflford a broad and comprehensive 
 means for assisting in the decision of vital questions in- 
 volved. It would form a groundwork as the saving that 
 would be instituted by this method of supplying equip- 
 ment, which may be both cars and engine power, and from 
 joint terminal and facilities use would become an impor- 
 tant factor to be considered in connection with consolida- 
 tions. There would surely result through this agency very 
 large savings to the properties to be consolidated, hence 
 a certain ultimate reduction in railroad rates. This will 
 considerably modify what now may appear to be reasons 
 for bringing together by consolidation certain railroads to 
 effect results described which may be otherwise obtained 
 through the Corporation. Less concentration will likely 
 result if, before deciding on a very limited number of new 
 consolidated systems, the full effect of this agency, na- 
 tional in the scope of its operations and public in its 
 character, can be realized. The transportation system 
 with the railroads operated with such relations between 
 them thus possible of establishment will produce results 
 difficult now to estimate. 
 
 The size of the consolidations to be proposed is one of 
 very vital concern to the agricultural and business 
 interests. This country has been developed as no other 
 country in the world and under the existing highly com- 
 petitive privately owned and operated system of trans- 
 portation made up of 189 railroads or systems known as 
 Class I. This includes railroads whose gross revenue 
 
 19 
 
equals $1,000,000 or more per annum. In addition there 
 are approximately 2,000 other roads whose gross revenue 
 is less than $1,000,000, many of them are known as 
 "short lines." 
 
 Millions of Acres Awaiting Development 
 
 There are 1,114,000,000 acres of tillable land in the 
 United States. 357,000,000 acres only or approximately 
 32 per cent of this land represents acres in use or that have 
 ever been in use, leaving approximately 757,000,000 acres 
 or 68 per cent undeveloped and unoccupied. It is authori- 
 tatively stated that the acreage in use is yielding less than 
 46 per cent of its possible gross production. Commerce, 
 industrial, mining and agricultural interests of the country 
 are concerned that no step be taken which will contract the 
 facilities for the development of this 68 per cent of un- 
 developed land or set back the prosperity of normal times. 
 
 This country, together with the balance of the world, is 
 just emerging from the effects of war; general business, 
 industrial and agricultural activities are largely suspended 
 awaiting a level to be reached where they can resume the 
 habits of normal business life. The Transportation Act 
 has only very recently been in effect; its provisions have 
 been regarded as constructive and confidence is beginning 
 to dawn in respect to the railroads, subject to temporary 
 depression and the setback through which we are now 
 passing. It was not to be expected under after- war 
 conditions, with the rapidity with which readjustment 
 is now taking place and the high cost of every require- 
 ment of railroad operation, that the Interstate Com- 
 merce Commission could forecast at once the require- 
 ments of all concerned. It is assumed that Congress and 
 the Commission will allow railroad credit, which helps all 
 credit, to adjust itself, as it will be necessary for every 
 sphere of activity to adjust itself. Too rapid a procedure 
 in respect to consolidations would prove unsettling and 
 retard what thus far has been accomplished. Public dis- 
 cussion of proposals that this or that railroad be put here 
 or there are divided up with this or that road is calculated 
 to injure railroad credit and with it general credit and 
 business. 
 
 20 
 
National Corporation and Consolidations 
 
 Personally, I believe consolidations should be worked 
 out through voluntary procedure under the Interstate 
 Commerce Commission. They should come more or less 
 through the processes of evolution rather than revolution. 
 They should come as concentration of service shall grad- 
 ually take place and only after a most extensive and ex- 
 haustive study has been made of the traffic, operating and 
 financial conditions surrounding the railroads, by the 
 Commission and preferably through the employment of 
 such an agency as the National Corporation will supply. 
 
 The security owners Association has as members of its 
 committees two hundred men of wide experience in the 
 questions involved in railroad consolidations and reorgan- 
 izations. These members have given many evidences that 
 they have at heart the general public good, a great many 
 holding positions of public trust. They represent all sec- 
 tions of the country and all classes of railroad securities 
 and investment institutions. Under voluntary procedure, 
 through their aid and with the co-operation of the interests 
 involved, such exchanges or issues of securities as will be 
 necessary to effect essential consolidations can be accom- 
 plished without the legal and other complications bound 
 to follow should it be sought to enforce them by edict or 
 by Congressional Act. 
 
 Basic Necessities for Consolidations 
 
 The basic necessities in connection with consolidations 
 may be briefly stated as follows : 
 
 1. The arrangement of railroads into competitive sys- 
 tems sufficient in number to ensure the development of 
 the country's agricultural, mining and industrial pursuits 
 in the interest of commerce. 
 
 2. That the systems shall be sufficient in number and 
 so arranged as to, and so aligned as not to discourage 
 initiative in development, provide for the movement of 
 traffic along natural and economic lines, laid out to bring 
 under development the unoccupied lands, the improve- 
 ment of which is dependent upon opportunities offered to 
 
 21 
 
reward initiative which is essential to promote develop- 
 ment and enterprise likely to be defeated through desire 
 for too great concentration. 
 
 3. That coal and coal-carrying railroads and the other 
 essentials to railroad operation shall not be concentrated 
 but brought if possible into the various systems, that each 
 consolidated system may sustain itself through the ele- 
 ments to promote economy in operation ; that the port and 
 other terminal facilities be distributed in such relation to 
 the respective systems and to traffic as to obtain the least 
 cost to the producer and the purchaser in the movement 
 and distribution of commerce, both export and domestic, 
 with a view of preventing port and terminal congestion 
 and a fair and economical distribution of freight to all the 
 port terminals. 
 
 4. That no greater disturbance of security issues of 
 railroads be made than circumstances warrant, consistent 
 of course with the value of the respective properties which 
 depend upon a number of considerations, some of which 
 have been stated. 
 
 In connection with the desirability of careful analysis of 
 operating requirements of new railroad systems, take the 
 item of fuel alone. It is estimated that 150,000,000 tons of 
 coal and other fuel is now being used annually in the 
 operation of the railroads. This fuel in 19 14 would have 
 cost approximately $250,000,000; today it is costing ap- 
 proximately $650,000,000, which is two and a half times 
 or $400,000,000 more. There was paid employees in the 
 operation of all the roads in 1914 approximately $1,225- 
 000,000 as against $3,150,000,000 in 1920, two and a half 
 times or about $2,000,000,000 more. The amount re- 
 quired to pay interest and usual dividends on the se- 
 curities of all the railroads in 19 14 was approximately 
 $936,000,000 as against $980,000,000 for 1920, only $44- 
 000,000 greater than in 1914. The total cost of the two 
 items of fuel and payment to employees in 1920 is about 
 60 per cent of the total cost of all railroad operation, 
 whereas the amount required for interest and usual divi- 
 dend payments on the securities of all the railroads is only 
 13 per cent of all operating costs. The cost of these two 
 items alone for 1920 is about four times the amount neces- 
 
 22 
 
sary for interest and the usual dividends paid to the 
 owners of the securities of railroad properties in 1920. 
 The increase in fuel and payment to employees for 1920 
 over 19 14 is 158 per cent while the increase in the amount 
 necessary to pay all interest and dividends to railroad 
 security owners is but 4.7 per cent — startling figures. Had 
 the National Corporation been in existence to provide 
 a full supply of cars, for coal particularly, the saving in 
 railroad operation would have been very great with conse- 
 quently lower freight rates than were required under the 
 Act. 
 
 Bases of Value 
 
 On what basis of value shall these large consolidations 
 be approached. It must be assumed that one of the bases 
 will be the potential earning power of a railroad when 
 fully developed, taken in connection with its physical value 
 and what of value it otherwise can be expected to contribute 
 to a consolidation of railroads. Is not one of these bases 
 for valuation the relative earning power of one railroad with 
 another in the group to which the Interstate Commerce 
 Commission has assigned it, there being four groups, one 
 in each of the four districts into which the Commission 
 has divided the country. The Commission has adjusted 
 or is to adjust rates — for the operation of the Transporta- 
 tion Act in this respect is automatic — to yield 6 per cent 
 on the group value, each railroad earning a fairly definite 
 percentage on its own value. This constitutes an earning 
 capacity in its relation to the other railroads of its group. 
 But more important, the earning capacity of the railroads 
 will be disclosed from rates which have been or are to be 
 adjusted by the Commission to a percentage yield on the 
 aggregate value of railroad property below which ade- 
 quate transportation cannot be supplied and below which 
 money as to rate cannot be secured, certainly not within 
 the two years during which the Act provides the fixed 
 return, namely, 6 per cent. 
 
 Under the Transportation Act, after two years from its 
 passage, the Interstate Commerce Commission is required 
 to announce from time to time the return that it then finds 
 
 23 
 
to be essential to produce adequate transportation as a 
 whole and to adjust rates to produce that return on the 
 aggregate value of the property of each group of railroads 
 in the four districts as now provided or such districts as 
 the Commission may determine will best carry out the 
 provisions of the Act. 
 
 Sufificient time should be allowed for each railroad to 
 demonstrate what it can accomplish in relation to the 
 other roads in its group. The earnings of each road 
 under the Transportation Act, for the first time, will be 
 determined from rates scientifically established and ad- 
 justed to the solution of the "insoluble problem" of the 
 past, at a level to yield a return on all railroad property 
 of a group properly valued, below which the Supreme 
 Court would surely decide rates would not be "reason- 
 able." So until these questions are determined under a 
 uniform rate factor effective over an adequate period, one 
 of the most important elements to be taken into consid- 
 eration — the ultimate relative earning power of each road 
 — cannot be fully considered. 
 
 Elements to be Considered 
 
 In connection with a railroad's relative earning capacity, 
 its physical value when determined must, as stated, also be 
 considered, and, apart from this, other elements of value 
 each road would bring into a consolidated system. It may 
 be coal, it may be terminals, it may be a territory heavy in 
 traffic and highly developed or a territory responsive to ex- 
 tensive development capable of accomplishment through 
 the association to be formed by it with other railroads of a 
 new system. When there has been estimated the earnings 
 of the properties under the Transportation Act as they 
 now exist, their fair value, what each brings to a con- 
 solidated system and what would be the earnings of each 
 consolidated system, and the other elements which are to 
 be considered, there has yet to be determined in each case 
 whether a system has been devised capable of the full 
 development of territory, already settled but even now 
 producing only to the extent of 46 per cent of its full 
 capacity, and the greater question whether the 68 per 
 
 24 
 
cent of the country's total unsettled acres would be 
 brought into use through so great a concentration of 
 facilities as some consolidations proposed might produce. 
 And have those competitive conditions been preserved or 
 obtained upon which the shippers of the country and the 
 public must depend if railroad facilities and service are 
 at all times to be adequate. 
 
 Uniformity in Return Unattainable 
 
 Excepting through Concentration of Facilities 
 Sacrificing Competitive Service 
 
 Mr. Esch has called attention to the fact that the-pro- 
 posed large consolidated systems, under the Act, will be 
 arranged to earn as near as possible the same rate of re- 
 turn upon the value of the respective properties. To ac- 
 complish this would require a concentration of railroads 
 which would approach nearly to the point of only one large 
 company. The territory traversed by one of the large 
 consolidated systems must necessarily develop in a ratio 
 different from the territory traversed by another large 
 system. This would result in property additions to that 
 system to meet changing traffic conditions and necessarily 
 a change in the ratio of the return that would result from 
 the rates originally established to provide the uniform re- 
 turn at the start. In other words, the consolidations hav- 
 ing been worked out on a common basis of return, ex- 
 tensive development of the territory served by one of the 
 railroad systems would permanently throw out of line the 
 uniformity in return which had been the underlying basis 
 for the consolidations, without any power to reopen the 
 consolidation and make subsequent adjustments in order 
 to restore the theoretical uniformity. To bring about the 
 result desired might not only encourage at the outset too 
 great a concentration, thus impairing the development of 
 the country, but, after the consolidations had been estab- 
 lished and the diversity of result had set in, the effort to 
 restore the parity would lead to the employment of 
 artificial means to force arbitrary adjustments. But more 
 important, would not this probably lead to the discourage- 
 ment of extensions into territory • which should be de- 
 
 25 
 
veloped but would not provide the inducement to the 
 railroads, or to the Commission to allow extension therein 
 which would not quickly produce the revenue or return 
 necessary to preserve the uniform parity in return. 
 
 The uniformity in return hoped for by these very large 
 consolidations can only be attained by such a concentra- 
 tion of railroad facilities as will largely sacrifice the com- 
 petition essential to good service and to the development 
 of agricultural and business pursuits. 
 
 Until business becomes more normal doubtless Con- 
 gress and the Commission will proceed slowly, for it 
 would manifestly be inexpedient to proceed under present 
 disturbed conditions. 
 
 The railroads operating in New England, known as "the 
 New England roads" present a situation in respect to 
 consolidations which perhaps does not obtain in other 
 sections of the country. The question of rates and divisions 
 of rates in connection with these railroads, especially the 
 divisions of rates, is now before the Commission. These 
 lines, mostly operating in highly developed territory, re- 
 quiring vast expenditures for facilities, have short mileage 
 in comparison with those expenditures. They therefore 
 have been classed as largely terminal railroad properties. 
 Consequently, when they are considered in their relation 
 to consolidations, they would require treatment on a basis 
 different from properties operating in other sections of the 
 country and under conditions which would permit more 
 normal comparisons. It may be added that in the opera- 
 tion of such a co-ordinating agency as the National corpora- 
 tion suggested the New England roads would be greatly 
 benefited. 
 
 It is the purpose of the Association through its Com- 
 mittees, composed of men of the character and experience 
 stated, to give earnest and intensive study to these great 
 questions^ They involve the welfare of the American 
 people. 
 
 Relations With Employees 
 
 Another question before the country deals with the 
 relations between the railroads and their employees. It 
 
 26 
 
is very desirable to prevent a state of mind obtaining 
 which would result in a repetition of pre-war conditions, 
 when disputes can hardly be said to have been satisfac- 
 torily disposed of. The workers on the railroads in the 
 main are men of standing in their calling. My own belief 
 is that questions which now look difficult of settlement if 
 approached through the employment of proper machinery 
 could be satisfactorily adjusted. 
 
 Except in special cases, it is generally recognized that 
 a man who performs service in a part of the country 
 where living conditions are difficult both because of the 
 cost of living and climatic conditions, if competent, 
 should receive more money than one occupying a similar 
 position in a territory where living conditions are better 
 both climatically and in living cost. It could hardly be 
 successfully contended that an employee in a dry goods or 
 grocery store in a small town in the West, South or East, 
 where living is cheap, should receive the same salary as 
 one at Wanamaker's in the city of New York or Marshall 
 Field & Company's establishment in the city of Chicago, 
 where living is dear. No plan to permanently establish a 
 method by which all men everywhere, under any and all 
 conditions, shall receive equal pay, so manifestly out of 
 keeping with the American spirit, will survive. 
 
 This Association has always favored fairness in dealing 
 with the employees of the railroads. The attitude of the 
 Association toward them is known. It will be remem- 
 bered that an original suggestion of the Association was 
 that one-third of the excess earnings fund be used to 
 provide an insurance fund for the employees of the roads. 
 
 Regional Boards 
 
 In the first presentation of the Association before the 
 Committees of Congress in 1919, Regional Boards of Con- 
 ciliation were advocated, such boards only to be used when 
 the individual railroad failed to reach a settlement in 
 respect to either wages or living conditions with its own 
 employees. The members of the Regional Boards failing 
 to agree, the case was to go to the Appeal Board, which 
 was to be the Interstate Commerce Commission, its 
 
 27 
 
functions corresponding to the National Labor Board now 
 established under the Act. The Regional Boards were to 
 act in the districts established by the Commission, within 
 which the roads are grouped for rate adjustment. It is 
 logical that the groups of railroads arranged in the four 
 rate territories should each select from among their num- 
 ber representatives to serve on a board to take up ques- 
 tions left unsettled and in deadlock between the indi- 
 vidual railroads and their men, the men selecting repre- 
 sentatives on this Board also. Each Board would act 
 for its group of roads in a particular territory where the 
 rates adjusted by the Commission now differ in percent- 
 age from rates allowed another group operating in an- 
 other territory. If operating conditions justify a dif- 
 ference in the rate adjustments of each district, like 
 or other conditions may justify differences in wage 
 adjustments with employees. There are differences of 
 opinion among heads of railroads themselves. Should 
 there not be, therefore, a concrete method for dealing with 
 these important questions other than for each railroad to 
 look out solely and finally for itself, losing the benefit of 
 co-ordinated action. The average living and other con- 
 ditions for a railroad group will be found to be very much 
 the same as those obtaining on any individual railroad in 
 the group. These boards of conciliation would investigate 
 the conditions of work in each territory. No committee 
 representing either the men or the railroads on such a 
 board, if the facts and figures are fairly ascertained and 
 presented, show conclusively that varying conditions 
 of living exist among the four territories, could well con- 
 tend that all the men throughout the four districts should 
 receive the same pay based on the name of the position 
 any employee occupies and not on the manner and the 
 conditions under which he performs service. No such posi- 
 tion could be upheld before the public, which after all, is 
 the best board of adjustment or arbiter in the long run. 
 The public is entitled to the exercise of an endeavor to 
 conciliate differences through a procedure which will give 
 each side an opportunity to be heard before a body con- 
 stituted as suggested. 
 
 I do not see that a National Board of Adjustment has 
 
 28 
 
a place in the original proceedings. You have such a board 
 in the National Labor Board, but it is constituted to 
 act on appeal and is composed of the various interests 
 desirable for a final review — representatives of the public, 
 the employees and of the railroads. It is due this Board 
 that every effort be made to compose such disputes as are 
 possible of settlement and if that is not possible to develop 
 details before coming before the National Board. 
 
 The Commission and Labor Adjustments 
 
 Should not the Interstate Commerce Commission, at 
 some juncture in the proceedings for the adjustment of the 
 pay of employees, be consulted . 1 1 finds the money through 
 rates to pay them. The shipper is in constant contact with 
 the Commission in respect to these rates. One-half of the 
 outlay of railroads goes to pay their employees. It would 
 seem that the governmental agency which controls every 
 action of a railroad and is to find the means to supply the 
 money in so doing, should have a say as to what part of 
 the rate should be used for the payment of half of the ex- 
 penditures made by the roads. Personally, I feel that if 
 Regional Boards of Conciliation fail to agree, that ques- 
 tions at issue should be referred by the Boards to the Com- 
 mission and in turn referred to the National Labor Board 
 with the Commission's recommendation or suggestion. 
 
 In respect to the individual railroad settling its own 
 disputes in finality prior to submission to the Labor 
 Board, I will quote the headlines from a clipping from 
 one of yesterday's papers. It reads: 
 
 "United States Board steps in to stop railroad 
 dispute. Railroad Labor body assumes control of 
 controversy on Norfolk & Western. Strike vote 
 was going on. Both sides to controversy told to 
 wait word from Commission in Chicago." 
 
 Why should this or any one railroad alone decide the 
 issue upon which the National Labor Board shall settle 
 this dispute. Under such a system as a finality, could not 
 any one railroad make the issue not only for the group in 
 which it operates, which may be composed of forty or 
 
 29 
 
fifty railroads, but the issue upon which a decision by the 
 Labor Board would be reached on questions vital to every 
 railroad in the United States without consultation and 
 with the railroads generally uninformed as to the ques- 
 tions raised. I know nothing of the circumstances in this 
 particular case, but that is immaterial. It indicates the 
 weakness in such a procedure. 
 
 In connection with this and other important questions, 
 does not the action of the Commission under the Trans- 
 portation Act in forming four rate districts and arranging the 
 railroads of the country in four groups, one in each district, 
 call for the formation of each group of roads into a perma- 
 nent group railroad organization to handle within itself 
 the question affecting the railroads contained in the group. 
 Henceforth the settlement of group rates, the policy in ref- 
 erence thereto, the questions which will arise in consolida- 
 tion, as well as the relations between the employees, point 
 not only to the desirability but the real necessity for such 
 action. Furthermore, through this means more effective 
 co-operation could be given the Commission. 
 
 The position of the Association that the Interstate 
 Commerce Commission was an experienced and the 
 proper body to solve the problems of the railroads and 
 not divide responsibility in connection with rates and 
 regulatory procedure with another and new agency, such 
 as a Board of Transportation, has been justified by 
 results. No governmental agency could be made up of 
 men more painstaking or more desirous of co-operating in 
 the public interest with the various elements concerned 
 than the Commission. 
 
 Confronted with grave issues and new duties on the 
 termination of Federal control, the Commission, fully 
 alive to its great responsibilities, has, by its constructive 
 interpretation of many provisions of the Transportation 
 Act, been of material assistance in the period of transition. 
 It is carefully but surely building up its organization to 
 discharge the new functions. It is to be congratulated in 
 its selection of the Director of Finance, Col. W. A. Colston, 
 who has accomplished a task of the first magnitude in 
 laying before the Commission his analysis of the financial 
 
 30 
 
requirements of the roads. Much difficult work remains 
 to be done. 
 
 The legal requirements to be met in the activities of the 
 security owners Association, dealing with great and far- 
 reaching problems, have been very exacting. To the emi- 
 nent lawyers who compose the counsel of this Association 
 we owe a debt of gratitude. They have viewed the emer- 
 gency as one of personal concern and have been and will 
 continue to be of vast assistance in guiding the committees 
 of the Association. 
 
 You have as guests this evening three members of the 
 two committees of Congress that framed the Transporta- 
 tion Act of 1920. Senator Robinson, one of the five Sen- 
 ators, and one of the two Democratic members, com- 
 posing the sub-committee of five which largely worked 
 out the details of the Bill. 
 
 You also have present as one of the speakers of the 
 evening Representative Esch, Chairman of the Commit- 
 tee of the House, and Representative Samuel E. Winslow, 
 two of the three Republican members of the sub-com- 
 mittee of five of the House, who performed similar service 
 in that body. 
 
 These three men served as three of the ten Conferees in 
 the final hours of deliberation when the last draft of the 
 Act was made. 
 
 While I have mentioned the politics of these gentlemen, 
 political considerations had no part in the deliberations of 
 the committees or the Conferees. 
 
 To these three gentlemen who have come from a dis- 
 tance tonight to be present as your guests, this country 
 owes much. They approached the solution of the problems 
 before them without consideration of the effect on their 
 personal political fortunes. 
 
 Conclusion 
 
 When I see before me this vast and unusual gathering 
 of men from every section of the country and nearly every 
 sphere of activity it is with feelings which nearly over- 
 whelm one and I am sure you know what a source of 
 gratification this evidence of confidence and friendship 
 
 31 
 
will always be to me. It will ever live in my memory. You 
 will, I know, pardon this personal allusion and understand 
 my meaning when I say that had it not been for this op- 
 portunity you have afforded me to discuss the many 
 questions yet to be settled I should have been loath to 
 accede to the committee's suggestion in connection with 
 this evening. 
 
 You have been burdened tonight with too long a dis- 
 cussion of subjects serious in their nature, but we all have 
 a great and outstanding duty which will not be accom- 
 plished until relations have been established between 
 those who use the railroads, those who work on them, and 
 those who own their securities, satisfactory to all. To 
 this end I confidently look forward. 
 
 32 
 
998 FIFTH AVENUE 
 NEW YORK CITY 
 
 December 12, 1920. 
 My dear Mr. Herrick: 
 
 I regret that I am prevented from attending the dinner 
 to Mr. Warfield. 
 
 I think all Americans are in debt to him for the able and 
 untiring work he did to help enable the Committees of 
 Congress to frame wise and adequate laws for the regu- 
 lation of railroad transportation upon the termination of 
 government control. Transportation problems in this 
 immense country are so complicated and difificult that a 
 great many people having different relations to trans- 
 portation have always differed honestly and sincerely 
 about what the law ought to be. If only a part of these 
 are heard by Congress, we are apt to have a one-sided law 
 which does not work satisfactorily. Thus, for a long time, 
 our laws gave all the authority to the railroad corporation, 
 and, in many cases, the authority was abused. Then we 
 swung to the other extreme, and pretty much all authority 
 was taken away from the railroad corporation, and their 
 earning power was restricted to such an extent that their 
 credit was almost destroyed; development stopped, and 
 the service suffered. In the emergency brought on by 
 the proposed termination of government war control, and 
 the necessity for laws which should at the same time pro- 
 tect the railroads in their right to fair earnings and pro- 
 tect the public against undue exactions, Mr. Warfield 
 brought to the solution of the problem a new force which 
 had really never had a hearing before. He organized the 
 millions of American citizens who had their savings in- 
 vested in railroad securities, either directly or indirectly 
 through the insurance companies and savings banks, and 
 he presented their point of view and their right to be con- 
 sidered before the Committees with great force and 
 effectiveness. This was quite independent of the cor- 
 porations and of the management of the corporations; 
 and the direct appeal of this multitude of individual citi- 
 zens for a just consideration of their interest was free from 
 
 33 
 
a certain traditional prejudice which has long existed 
 against the great rich railroad corporations. The small 
 investor had always been obscured behind the big cor- 
 poration, and nobody thought much about him. When, 
 under Mr. Warfield's leadership, the small investor came 
 out and spoke for himself, he got a hearing practically for 
 the first time. 
 
 I hope this useful experiment will not end here; but that 
 the Association of Owners of Railroad Securities will be 
 maintained, and will continue to aid in the sensible and just 
 development of the system of transportation which is so 
 vital to the prosperity of our country; and I hope that 
 Mr. Warfield may long continue to render the service of 
 leadership for which he has shown himself so competent. 
 
 Faithfully yours, 
 
 (Signed) Elihu Root. 
 
 Hon. Myron T. Herrick, 
 
 Overlook Road, Euclid Heights, 
 Cleveland, Ohio. 
 
 {Many hundred letters were received respecting the work 
 accomplished.) 
 
 34 
 
& 
 
 ANALYSIS OF 
 
 UNITED STATES SUPREME COURT'S DECISION 
 
 WISCONSIN RATE CASE 
 
 NATIONAL CHARACTER OF TRANSPORTATION 
 OBLIGATIONS IMPOSED 
 
 By 
 S. DA VIES WARFIELD, Presidtnt 
 
 NATIONAL ASSOCIATION OF OWNERS OF RAILROAD SECURITIES 
 HEADQUARTERS: BALTIMORE, MD. 
 
 March II. 1922 
 
 \S.iJ 
 
<f x^.0.,^ X. ;^*.^^ 
 
 PART I 
 SUPREME COURT DECISION 
 
PART I 
 
 ANALYSIS OF U. S. SUPREME COURT'S DECISION 
 WISCONSIN RATE CASE 
 
 By S. DAVIES WARFIELD. President 
 
 The recent decision of the United States Supreme 
 Court in the Wisconsin Rate Case is far-reaching in 
 defining the relation of the Interstate Commerce 
 Commission and of the State Commissions to the ad- 
 justment of railroad rates. But as important as the 
 decision is in this respect, even more important is the 
 basis upon which the Court reached a unanimous 
 conclusion. 
 
 This decision establishes principles so fundamental 
 to the continuance of private control of rail carriers 
 that it becomes almost a duty for one to follow the 
 reasoning of the Court, whether his interest be that of 
 a security owner or from a desire to understand the 
 evolution of a great public question, the railroad 
 problem — the most important before the country. 
 
 The opinion, written by Chief Justice Taft for a 
 unanimous Court, fully sustains the broad purposes 
 of the revenue provisions of the Transportation Act 
 of 1920 as embodied in Section 15a. This section 
 contains the rate-making provisions advocated by this 
 Association. The Association of security owners con- 
 tended that it was essential to railway survival that 
 there should be written into the Act a measure defin- 
 ing the minimum operating revenue below which it 
 would not be possible to maintain transportation as a 
 whole, and that, to obtain this result, it was necessary 
 to provide for the disposition of the excess revenue to 
 be produced in connection with such action. The 
 Supreme Court observes in the decision that the sec- 
 tion containing these provisions (15a) is "the most 
 novel and important feature of the Act." 
 
A NATIONAL RAILWAY SYSTEM 
 
 Another section of the Act (13(4)) deals with 
 the relation of intrastate rates to interstate rates. 
 This was the question that was immediately before 
 the Supreme Court, arising from the failure or refusal 
 of the State of Wisconsin to meet the level of inter- 
 state fares prescribed by the Interstate Commerce 
 Commission under Section 15a. The Court recognized 
 that Section 15a brought into the regulation of trans- 
 portation for the first time in any eifective way the 
 element of revenue consideration. The Court refers 
 to this new element as the "most important purpose 
 of the legislation." The Court asserts that disparity 
 between a sub-normal State rate level and the inter- 
 state rate structure presents a case of discrimination; 
 
 "which the operation of the new Act for the 
 first time makes important and which would seri- 
 ously obstruct its chief purpose. " 
 
 The chief purpose was to provide sufficient revenue 
 to conduct transportation as a whole, in the public 
 interest, and to prevent interference with this result 
 on the part of either a State or a railroad. 
 
 The decision in the Wisconsin Case is of profound 
 value to railway survival. It means more than a 
 decision of a rate case. It means that the Supreme 
 Court, by unanimous action, has affirmed our belief 
 that the transportation system, although made up 
 of a large number of individual railroads or entities, 
 and crossing many State lines, must be recognized 
 as and effectively maintained on the basis of what it 
 terms "a national railway system." 
 
This has been the position taken by this Associa- 
 tion in all proposals made to the railroads or before 
 Congress, whether in respect to rates or methods for 
 instituting economies in railroad administration. 
 
 ADMINISTRATIVE DISADVANTAGES OVERCOME 
 
 The proposals for the adjustment of railroad rates 
 to produce svifficient revenue to maintain transporta- 
 tion as a whole, were made in recognition of the 
 relation every carrier bears and should bear to this 
 national railway system. The Commission f oimd that 
 the difficulty in the way of rate adjustment so as to 
 ensure sufficient operating revenue to maintain trans- 
 portation as a whole was because of the territorial 
 conditions under which the respective carriers operate. 
 That the great majority of the country's carriers 
 traverse territories of lighter tonnage density than 
 other carriers, that constitute a minority, which are 
 differently circumstanced and operate in territories of 
 heavier tonnage. Both classes of territory have to 
 be served in competition. That all carriers are units 
 of the national transportation system, and that 
 methods have to be adopted to supply revenue in 
 recognition of these conditions. So the great major- 
 ity of railroads have to be first considered by provid- 
 ing means to produce the minimum operating revenue 
 essential to their survival. 
 
 This problem of rates to sustain a national rail- 
 way system without yielding to certain minority 
 carriers in the system more revenue than the public 
 and public authority will stand for, was the problem 
 of the Transportation Act, solved by Section 15a. It 
 is based on the division, — as provided in Section 15a 
 
of the Act, — of that surplus revenue produced by 
 rates adjusted to the necessities of the majority car- 
 riers which, for convenience, was designated "excess 
 earnings" — as a matter of fact, a misnomer. It is not 
 earnings. In the Wisconsin Case, the Supreme 
 Court properly referred to this excess revenue as 
 being produced under the administration or operation 
 of Section 15a. It is a by-product arising from 
 revenue necessities. 
 
 ASSOCIATION'S POSITION SUSTAINED 
 
 We feel it is not unfair to state that both the 
 counsel for the railroads and counsel for the Inter- 
 state Commerce Commission took a different view 
 of Section 15a from that of the Association's counsel 
 as expressed in the brief submitted to the Supreme 
 Court in this Case. Counsel for the Association at- 
 tached a fundamental importance to Section 15a, 
 asserting that the new element of revenue considera- 
 tion built around 15a was the proper basis for the 
 finding of discrimination by the Interstate Commerce 
 Commission in its order affecting the Wisconsin fares. 
 
 It was plain to Counsel for the Association of 
 security owners that the Commission's orders relating 
 to intrastate fares in Wisconsin could not be sus- 
 tained on the sole theory of discrimination as against 
 individuals and localities, familiarly known as the 
 doctrine of the Shreveport Case. It was considered 
 that not only would the case be lost, but that the 
 broad principle of carrier revenue and the group or 
 national consideration underlying Section 15a would 
 be jeopardized unless the case were decided on broader 
 grounds. The loss of this case would have meant that 
 the orders of the Commission would be reversed and 
 
the railroads be destroyed through immediate restora- 
 tion and perpetuation of inadequate State rates and 
 fares. 
 
 It is gratifying to be able to state that, in complete 
 accord with the Association's uniform contention for 
 a broad application of the revenue consideration of 
 Section 15a, the Court announced its conclusions that 
 the Commission's order raising the Wisconsin fares 
 to the interstate level cannot be sustained on the 
 theory of local discrimination, stating: 
 
 "We cannot sustain the sweep of the order in 
 this connection on the showing of discrimination 
 against persons or places alone;" 
 
 and asserted that while Section 15a did not deal 
 directly with intrastate rates, it was impossible to 
 escape the "dovetail relation" between Section 15a 
 and the provision of Section 13(4) relating to dis- 
 criminatory intrastate rates. 
 
 "If that purpose," said the Court, referring to 
 the consideration of necessary revenue, "is inter- 
 fered with by a disparity of intrastate rates, thei 
 Commission is authorized to end the disparity by 
 directly removing it." 
 
 And so the Court sustained the order of the Com- 
 mission permitting the railroads to advance intrastate 
 fares to the interstate level. 
 
 NEITHER STATE NOR RAILROAD CAN OBSTRUCT 
 NATIONAL TRANSPORTATION 
 
 The Supreme Court has thus declared that no 
 State, through its statutes or its State Commission, 
 can obstruct interstate commerce. It declared 
 that "commerce is a unit and does not regard State 
 lines." 
 
Nor does it regard the terminus of any individual 
 carrier, or owe allegiance to any individual manage- 
 ment. 
 
 If the State can not obstruct the authority of 
 Congress to sustain the national character of an inter- 
 state system of transportation, it is obvious that no 
 railroad forming a part of this system can obstruct 
 that result by contending that rates must be allowed 
 to each carrier in its sole right and free from adjust- 
 ment of revenue in excess of its individual right. 
 
 The full revenue produced would not have been 
 allowed the minority carriers if rates had been made 
 for them alone, and the excess is subject to such dis- 
 position as Congress may make of it in the general 
 public interest in transportation — provided a reason- 
 able return is allowed on the property of the particu- 
 lar carrier affected by the administration of the Act. 
 This over-plus of revenue or so-called "excess earn- 
 ings" does not vest absolutely in these minority 
 carriers as earnings until it comes within the declared 
 purpose of Congress, that one-half of this revenue 
 over and above a return of six per cent on the property 
 of each carrier devoted to the public use shall be 
 allowed that carrier, the other half to go into a trans- 
 portation fund to be used in the interest of transpor- 
 tation as a whole. 
 
 If it were practically possible for the Commission 
 to make rates for each of these minority carriers 
 alone, there is no reason to assume that the rates thus 
 made would yield a return greater, — ^perhaps not 
 as much, — as these same carriers may be expected to 
 receive as a reasonable return on their property da- 
 voted to the pubhc use under the provision of Section 
 15a of the Act, with a division of excess allowed. 
 
 10 
 
DANGERS IF PURPOSES OF SECTION 15a 
 ARE REPUDIATED 
 
 The Court's decision places railroad policy in a 
 new and significant position. It means that private 
 ownership of railroads can only survive if the carriers 
 are willing to acloiowledge themselves as part of a 
 national railway system. But if aid is lent to assaults 
 on Section 15a, through a policy of repudiation of 
 the national aspects of the subject established by this 
 unanimous action of the Supreme Court, that section 
 will go out of existence and private ownership will 
 go with it. It is not overstating the case to say that 
 if the control exercised by the Commission and now 
 sustained by the final authority of the Supreme Court 
 were withdrawn, railroad receiverships will likely 
 result for a large number of the carriers of the 
 country. 
 
 JUSTIFICATION OF POSITION 
 
 A sweeping justification of the Association's posi- 
 tion in the matter of this legislation is found in this 
 significant declaration of the Court: 
 
 "The new meature imposea an affirmative duty 
 on the Interstate Commerce Commisaion to fix 
 rates and take other important steps to maintain 
 adequate railroad service for the people of the 
 United States." 
 
 It cannot be supposed that the excess earnings 
 provision of Section 15a can be shot to pieces by 
 opposition of individual railroads affected, and that 
 the carriers will still be left in unlimited possession of 
 the benefits of Section 15a. This section, which 
 formed, as we have seen, the basis for the Supreme 
 
 11 
 
Court's decision, cannot survive unless the railroads 
 themselves show a proper conception of the national 
 public interest on which it is based. 
 
 CONSIDERATIONS LEADING TO 
 TRANSPORTATION ACT 
 
 These expressions employed by Chief Justice 
 Taft in this case may well be considered: 
 
 "The railroads availed themselves of the weak- 
 ness and cumbrous machinery of the original law 
 to defeat its purpose, and this led to various 
 amendments culminating in the amending act of 
 1910, in which the authority of the Commission 
 in dealing with the carriers was made summary 
 and effectively complete." 
 
 Tracing the adverse conditions which ensued, 
 culminating in Federal control. Chief Justice Taft 
 proceeds : 
 
 "The owners insisted that their properties could 
 not be turned back to them by the Government 
 for useful operation without provision to aid them 
 to meet a situation in which they were likely to 
 face a demoralizing lack of credit and income. 
 Congyess acquiesced in this view. The Transpor- 
 tation Act of 1920 was the result." 
 
 The question now is whether the railroads will 
 themselves attempt to nullify the first and only con- 
 structive and remedial legislation adopted by Con- 
 gress in their interest and for their protection since 
 1884, by disrupting the basis on which that relief has 
 been granted: a national system of transportation 
 of which all essential carriers are parts. 
 
 12 
 
It would be a dangerous conclusion for any great 
 railroad system to feel that its present circumstances 
 will enable it to continue under private operation 
 under any conditions that may arise. 
 
 Should it come to pass that the necessities of trans- 
 portation would force the Government to take over 
 a number of railroads, the position of the remaining 
 carriers would be precarious. In the contingency of 
 Government operation, arising out of the necessity 
 to maintain essential systems, it is a grave question 
 whether it would be possible for the remaining rail- 
 roads, in competition with the Government, to meet 
 operating conditions that might be forced upon them. 
 
 13 
 
PART II 
 OBLIGATIONS IMPOSED 
 
PART II 
 OBLIGATIONS IMPOSED ON ASSOCIATION 
 
 This Association might well have felt that its 
 objects and purposes had been largely fulfilled in 
 the passage of the Transportation Act. But the ex- 
 treme conditions incident to reconstruction forced a 
 situation upon the carriers and the country which 
 made it impossible to obtain the benefits that otherwise 
 would have been attained under the Act. 
 
 There is an implied duty on the security owners, 
 — having insisted that railroad credit demanded 
 definite means for producing revenue, — to assist 
 wherever possible by suggesting methods for efficient 
 and economical administration of the railroads as a 
 condition to the assurance of such revenue. The 
 Transportation Act requires, in express terms, that 
 the benefits of Section 15a are conditioned upon the 
 honesty and efficiency of railroad administration. 
 The decision of the Supreme Court on the broad 
 basis of this Section emphasizes the obligation on the 
 Association to do its part in making good its view, 
 thus affirmed by the Court that transportation must 
 be considered as a whole. 
 
 The Act contains other features advocated by the 
 Association in recognition of this view of transporta- 
 tion, which further enlarges this obligation. The 
 Supreme Court alludes to these features among 
 others, as "other importemt steps" to be taken by the 
 Commission "to maintain adequate railroad service." 
 
 These features embrace: 
 
 The power to the Commission to re-allocate 
 freight cars from one railroad to another in times of 
 emergency ; 
 
 The power to the Commission to adjust divisions 
 of freight rates in recognition of the national char- 
 acter of transportation. 
 
 16 
 
The Association suggested an amendment to the 
 Transportation Act to enable the Interstate Com- 
 merce Commission to make loans from the $300,000,- 
 000 revolving fund established by Congress, to an 
 agency approved by the Commission for financing 
 equipment for the railroads. 
 
 To carry out the purposes of this amendment loans 
 were made by the Commission to the National Rail- 
 way Service Corporation, operating without profit, 
 — ^the entire capital stock being deposited with the 
 Secretary of the Treasury — which was organized by 
 the Association of security owners for the purpose 
 of assisting carriers in acquiring equipment. A num- 
 ber of carriers secured equipment through this source 
 that, under the conditions of the times, could not 
 otherwise have secured it. 
 
 $100,000,000 AVAILABLE TO HNANCE EQUIPMENT 
 
 The fact that the railroads are unprepared, par- 
 ticularly in respect to equipment, to adequately meet 
 a return of normal business conditions has been the 
 subject of concern in many quarters. 
 
 The large number of bad order freight cars now 
 in the country that are unfit for service increases the 
 difficulties of the situation, in that the carriers have 
 not felt justified, owing to their necessities, to make 
 the expenditure necessary to put these cars in condi- 
 tion. 
 
 Appreciating the importance for providing funds 
 to be made immediately available to the railroads the 
 National Railway Service Corporation made applica- 
 tion to the Interstate Commerce Commission for a ■ 
 loan of $100,000,000 from the revolving fund, the 
 right of application for which expired March first. 
 
 This money would be available in connection with 
 the sale of the Equipment Trust Certificates of the 
 Service Corporation for financing the reconstruction 
 or rebuilding of aU or part of the 300,000 freight cars 
 now in bad order ; part of these funds will be applied 
 
 17 
 
to the purchase of new equipment. The loan from the 
 Government would be subordinated to loans to be ob- 
 tained from investors, the Service Corporation's cer- 
 tificates taken by investors holding prior lien. 
 
 The railroads can thus make ready to handle in- 
 creased traffic without being called on for extraor- 
 dinary expenditures from their own treasuries. This 
 would relieve unemployment, give work to many rail- 
 road shops, car manufacturing plants and supply 
 companies, and generally stimulate industry. 
 
 FREIGHT CAR ECONOMIES 
 
 Suggestions were recently made by representa- 
 tives of the Association before the Interstate Com- 
 merce Commission in respect to a more serviceable 
 and economical method for the supply and distribu- 
 tion of freight cars through a general car pool. It was 
 made clear that there was no purpose in the appear- 
 ance before the Commission to have it understood that 
 the economies proposed would be operative in time to 
 influence the Commission's decision in the present 
 rate hearing. It was also made clear that the propos- 
 als in respect to the comjnon use of freight cars in- 
 volve no change of ownership and were entirely apart 
 from the offer to finance the rebuilding and purchase 
 of freight cars through the Service Corporation. It 
 is believed, however, that substantial savings will be 
 effected through the operation of a national pool of 
 freight cars under the conditions proposed. One of 
 the objects of the pool is to require each carrier to 
 furnish its quota of the total number of cars neces- 
 sary to transport the country's products. And the 
 Service Corporation would furnish the money for 
 financing equipment purchases for carriers unable to 
 make them. 
 
 It was suggested that the Service Corporation 
 would be the agency to make effective the proposals 
 made, in collaboration with the American Railway 
 Association, the organization now representing the 
 railroads in matters of car service. 
 
 18 
 
AN ADVISORY BOARD— CONSOLIDATIONS 
 
 The Transportation Act requires the Interstate 
 Commerce Commission to prepare a plan for the con- 
 solidation of the carriers of the country "into a few 
 large systems." Such consolidations would neces- 
 sitate changing the security issues of the respective 
 carriers, and entail vital changes in the corporate 
 organizations of the railroads. 
 
 In order that the Association might be fully ad- 
 vised in respect to consolidations and other subjects, 
 a Board of Economics and Engineering was created, 
 composed of men of recognized experience, to inves- 
 tigate and report on these subjects from an independ- 
 ent and impartial standpoint, which the individual 
 railroad managements by reason of their responsibil- 
 ity to a single interest could not be expected to adopt. 
 
 This Board has filed before the Interstate Com- 
 merce Commission an important report in respect to 
 freight car conservation, supply, and use, reaching 
 to the extent of pooling, already referred to. 
 
 In taking up so important a departure as the 
 proposed consolidations, the Board believed it essen- 
 tial to the subject to secure information that could 
 only be furnished by the railroads. This was con- 
 sidered necessary in order that proper data could be 
 accumulated from which to make an intelligent and 
 comprehensive study of the subject. This informa- 
 tion was requested in September last from all Class I 
 railroads, including terminal switching companies. 
 The carriers were informed that data submitted by 
 them would be considered confidential, and the 
 Board's suggestions in respect to their properties 
 would be submitted to the respective carriers before 
 being used elsewhere. 
 
 Seventy important carriers and systems, constitut- 
 ing about forty per cent of the mileage of the country, 
 have been very prompt in their response, and have fur- 
 nished important data ; of the remaining one hundred 
 and thirty-five carriers, sixty-seven declined to give 
 
 19 
 
the information, the remaining sixty-eight have not 
 been heard from, leaving the supposition that the in- 
 formation asked will not be forthcoming. 
 
 It is regrettable that the Board may not be able to 
 complete the comprehensive study of this subject that 
 was intended and which is of such vital consequence 
 to the country and to the owners of the properties. 
 Sufficient data has been secured, however, although 
 not complete, to make a prehminary study in respect 
 to the New England situation, and a tentative report 
 wiU be submitted shortly by the Board on this impor- 
 tant subject. 
 
 The Interstate Commerce Commission made pub- 
 he a plan of suggested consohdations under the pro- 
 visions of the Transportation Act. The fact that the 
 Commission has proceeded this far with consohda- 
 tions makes it unfortunate that the information sug- 
 gested by the Board has not been secured in 
 order that helpful proposals may be made to the Com- 
 mission in respect to this plan. The plan of consohda- 
 tions proposed by the Commission gives abundant 
 evidence that sucla a study as has been proposed by 
 the Board is essential before proceeding in so impor- 
 tant a matter. 
 
 In the recent appearances before the Commission, 
 the Association's representatives stated that it was 
 beheved that more effective and immediate results 
 can be obtained by consohdating, or extending, the 
 joint use of railroad faciUties, rather than by at- 
 tempting to consohdate their corporate organizations 
 at present. Through the process suggested natural 
 railroad alliances will be formed that will be helpful 
 in advancing corporate consohdations, which it is 
 thought should be left permissive. 
 
 The Board has made progress in respect to joint 
 terminal uses and will shortly report the value to the 
 shipper and the economies to be obtained thereby. 
 Two of the most important terminals in the country 
 are dealt with, as illustrative of the possibilities 
 of joint terminal use. 
 
 20 
 
REGULATED RAILROADS— UNREGULATED 
 BUSINESS 
 
 The impression that a railroad is a private busi- 
 ness and can be conducted on the same basis as an 
 unregulated private enterprise, not a public service, 
 has operated against the carrying out of economies 
 which are incident to the treatment of transportation 
 as a national public service. It is the misconception 
 of this condition, and the loose talk in connection with 
 it, that tends to make difficult the introduction of 
 methods of service and economy which may lead to 
 drastic legislation to enforce them. 
 
 One of the purposes of the Association has been 
 to recognize the desirability of the railroads institut- 
 ing their own methods of service and economy and not 
 call on the Commission to do things they should 
 organize themselves to perform. Objection is raised 
 to what is termed too much regulation, yet the regu- 
 latory agency is immediately applied to when condi- 
 tions arise which the railroads, through their own 
 agencies, are unable to meet. This would seem to be 
 significant of the inadequacy of existing railroad 
 agencies, under competitive relation, unless supple- 
 mented through the proposals we have made. 
 
 IS SECTION 15a TO BE ATTACKED? 
 
 It is currently stated that railroads are preparing 
 to attempt to enjoin the Commission from putting 
 into effect the division of the excess revenue provision 
 of Section 15a of the Transportation Act, through an 
 attack upon the principle of that section. The fatal 
 consequences that must attend the mutilation of Sec- 
 tion 15a have been shown and made clear by the 
 Supreme Court's decision. 
 
 It is also reported that railroads will enjoin the 
 Commission from putting into effect the divisions of 
 rates recently announced by the Commission between 
 the Eastern and New England carriers. Without 
 entering into the merits of these cases, it seems plain 
 that suits of this nature would be contrary to the spirit 
 
 21 
 
and purpose of the Transportation Act, contrary to 
 the Supreme Court's clear recognition of the relation 
 under Section 15a of each railroad to the transpor- 
 tation system as a whole. The right of any raiboad 
 to test the reasonableness or application in detail by 
 the Commission of the basic principles of the Trans- 
 portation Act is not questioned. What is questioned 
 is the propriety or expediency of the attack upon 
 those principles which in themselves are vital to the 
 welfare of the railroads. 
 
 JOINT FACILITY USES UNAVOIDABLE 
 
 We believe that the carriers should invoke meth- 
 ods through joint facility uses that are sound and 
 economical, in recognition of the National character 
 of their business. The country was built up under 
 conditions of competition made absolute; but this 
 system became unwieldy with the great growth of 
 the railroads. While a carrier that has built up a 
 great system of terminals may hesitate to permit its 
 competitor to have joint use of such facilities, never- 
 theless rates that are necessary to maintain such a 
 system are under constant attack as being destructive 
 of business. Whether this is a correct view or not, if 
 uneconomical conditions continue, will not the time 
 soon arrive when the public will require that either 
 private operation shall produce the economies and 
 savings that joint facility uses will contribute to re- 
 duce rates, or, will not the inducement to secure this 
 result lead to such further Governmental control and 
 operation as will force this result even though Gov- 
 ernment operation would prove uneconomical in the 
 end. 
 
 CONCLUSION 
 
 No criticism is intended in this paper; the railroad 
 situation is plainly critical and only those conditions 
 have been considered that must be recognized by an 
 Association, such as this, which has inflexibly pursued 
 a constructive policy in realization of the fact that 
 
 22 
 
transportation must be treated as a whole if economi- 
 cal railroad operation is to be attained. This Asso- 
 ciation represents the owners of securities of various 
 classes and of different railroads. 
 
 The policy governing the existing railroad 
 agencies in the past is the only guide there is as to 
 their future action. 
 
 In this connection, it becomes necessary to revert 
 to the conditions surrounding railroad legislation 
 when under consideration by Congress. The prin- 
 ciples embodied in Section 15a of the Act, proven 
 under the decision of the Supreme Court a Magna 
 Charta for American transportation, constituting the 
 first affirmative legislation for the protection of the 
 carriers enacted in a legislative history of half a cen- 
 tuiy and characterized by the Supreme Court as "the 
 most novel and important feature of the Act," were 
 opposed by the most prominent of the existing rail- 
 road associations, which endeavored to accomplish 
 their defeat. 
 
 The Supreme Court has pointed out that in the 
 past "the railroads availed themselves of the weakness 
 and cumbrous machinery of the original law to defeat 
 its purpose," stating that this continued until the 
 Commission's regulatory authority, by amendments 
 to the Act, was made "svimmary and effectively com- 
 plete." Whether this same policy is to be continued 
 in an attempt to dislodge Section 15a from the Act 
 and the attempt made to defeat its constructive sug- 
 gestions, remains to be seen. 
 
 After the Association's representatives' recent ap- 
 pearance before the Commission with the proposals 
 for the pooling of freight cars, statements were im- 
 mediately made that the existing railroad agencies 
 have been bringing or can bring about the freight car 
 economies that were suggested, without pooling. It 
 was pointed out in the statements that these agencies 
 were cooperating with the Commission and through 
 the powers given the Commission by the Transporta- 
 tion Act to re-allocate freight cars in emergencies, the 
 
 23 
 
service and economies our suggestions contemplate 
 could be obtained. It should be stated that the rail- 
 roads, at the time, opposed the emergency powers, 
 referred to, being included in the Act. 
 
 Upon the return of the railroads from Federal 
 control, and during the freight congestion of that 
 period, the railroads petitioned the Commission to 
 make use of these emergency powers. It might be 
 asked, if the existing railroad agencies could success- 
 fully function in freight car emergencies requiring 
 coordinated relations between carriers, would it have 
 been necessary for the carriers to call upon the Com- 
 mission to make use of its emergency powers to relieve 
 the freight congestion then obtaining. If their asso- 
 ciations or agencies could not function at that time, 
 can they now be solely relied upon to bring about the 
 coordinated freight car relations between carriers, 
 which is one of the "important steps" to effect "a 
 national railway system" to which the Supreme Court 
 alludes. 
 
 We hope that with a better understanding of the 
 purposes and objects of the Association of security 
 owners, progress will now be made. It has been 
 made evident that the proposals in respect to freight 
 cars have not been understood. 
 
 This Association desires to cooperate with and ex- 
 tends cooperation to any agency, railroad or other, 
 that desires to effect what is essential to further the 
 attainment of the substantial economies that will 
 result from the acceptance of the doctrine of the 
 Supreme Coiu-t that transportation must be regarded 
 in its National aspect. 
 
 34 
 

 ADDRESS 
 ON OCCASION OF ORGANIZATION OF THE 
 
 NATIONAL CONFERENCE OF MUTUAL 
 SAVINGS BANKS 
 
 AT BOSTON 
 APRIL 23, 1920. 
 
 BY 
 S. DAVIES WARFIELD 
 
 Pmident, Nalioiial AMocution of Ownen of Railroad Securitiea 
 Preaidenl, The Contiiienul Tniit Company. Baltimore 
 
 NATIONAL ASSOCIATION OF OVIWERS OF RAILROAD SECURITIES 
 HEADQUARTERS. BALTIMORE. MO. 
 
 Ho. 
 
Fr6in National %ssociaJd6n of Owners of ^^^oai Securities'. 
 Headquarters, Baltimore, Md. ' 
 
 THE SUN 
 
 I — ■ ' 
 
 Published Brerr Weok-Day By 
 THH A. S. ABBIjL COMPANT. 
 PAUI, PATTEaiSON. President. 
 
 Entered at the Postoffice at BaMmoro aa second- 
 class mail matter. * 
 
 SUBSCIllPTION RATES: ^,„ 
 CITY AND SUBURBS BY OABRIBB. 
 Momine, Evenine and Sund ay, 26 centa a weel. 
 
 SINGtI..E COPIES : ^ 
 MominE, 2c. Bvenine, 2o. Sunday, oc 
 
 Sunday out-of-town, 8c. 
 
 SUBSOEIPTION PRICES BY MAIL: 
 Payable In advance. 
 
 Momlne. Erenine. Sunday. 
 
 1 month 60o. &0o. .,?§S; 
 
 8 month* S3.0O - S3.00 $200 
 
 1 year 66.00 86.00 $4.00 
 
 OUT-OF-TOWN OPFXCBS: „ ,„ 
 
 Washington 1416 New York ave. N. W. 
 
 New York Times Building 
 
 Chicago Tribune Building 
 
 Detroit Ford BuildmB 
 
 Circulation of TiiE Sun in Dec, 1922. 
 [Ayerago Net Paid Daily.] 
 ,-1922-N ^1921-^ 
 
 Morning 116,721 114,776 Gain 1,945 
 
 Evening ..... 112,617 101,&11 Gain 11,076 
 Sunday 161, 344 1 54,310 Gain 7,034 
 
 MEMBER OP TIIE ASSOCIATED PRESS. 
 
 The Associated Press is exclusively entitled to 
 the use for publication of all news dispatdiM 
 credited to it or not otherwise credited m , this 
 pai^r and also the local news published herein. 
 
 All rishta of republication of special dispatcf 
 herein are also reaerved. 
 
 The contents of this pojagfKi-e 
 protected hy copyrightj^Kpuh- 
 lication without oredit^to ' The 
 Sun is prohibited. 
 
 BALTIMORE, TUESDAY. JAN. 16. 1023. 
 
 TWO ESCAPED PEISONBRS, BB- 
 ing recaptured, told Warden Lank- 
 ford that "it was generally understood 
 among the prisoners that he was to be 
 removed from his position, and that 
 they did not want to stay there [at the 
 "Cut"] unless he would be with them." 
 If ever an excuse was ingenious enough 
 to secure lenient treatment for a wrong- 
 doer, that excuse was the one I It seems 
 Impossible that the Warden's heart 
 should remain hardened against the 
 offenders. Perhaps, however, he remem- 
 bers that one of the men is serving a 
 two-year sentence for "false pretenses." 
 
 RADIO TELEPHONY BETWEEN 
 America and England is an accom- 
 plished fact. At least it is true that 
 President Thayer of the American Tele- 
 phone and Telegraph Company, talking 
 from New York, was heard in New 
 Southgate, 3,400 miles distant. Prob- 
 ably the construction of apparatus by 
 which the listeners will be abl« to r«lfly 
 is only a matter of time «nd money ; 
 and even the present •ehievement is 
 noteworthy. There is a lot of difference 
 between delivering successfully a mes- 
 sage of several hundred words and th* 
 sending through ol a short sentence. 
 Tdephony cannot be called perfect when 
 It is not more dependable than the shouts 
 of a man acrosa a field in ahigh wind. 
 Some of the skouts get across, but moat 
 of the words fire blown away— and then 
 the shouter walks over to his friend 
 »nd tells hijn what he thinks. The new- 
 est development in radio work seems to 
 show that long-distance talking need not 
 depend on accident for its success. But 
 what conversations will be carried on 
 when the whole world can listen in? 
 
 IF BLEMENTAEY AND SEOOND- 
 ary schools could be conducted at 
 Johns Hopkins University with the suc- 
 cess which attended the special school 
 last summer, there seems no reason to 
 doubt that they would be popular. Many 
 children are bright enough to hustle 
 through their studies at high speed. 
 One question, however, has not yet been 
 discussed. What is one to do with a 
 boy or a girl who at twelve years has 
 acquired as much education as the aver- 
 age youth of seventeen? Precocious 
 -youngsters of that type would upset 
 the social system^ 
 
 WINTER IS NOT WHAT IT USED 
 to be. Any or all of the oldest In- 
 habitants of Baltimore will testify to 
 that, especially if the discussion centers 
 on the weather. But one change which 
 seems more significant than the meteoro- 
 logical is evident to any who care to 
 turn over a pafe and. read the news of 
 sporting events. Basketball and soccer 
 . have come to stay — ^not as new events 
 in the field of professional sport, but as 
 
 tion, the serpent of the moonshine still 
 is doing a thriving business. 
 
 One reverend gentleman, assistant su- 
 perintendent of the Anti-Saloon League, 
 virtually admitted that Prohibition was 
 facing a crisis and that the clergy must 
 preach a war of extermination. All re- 
 bellious minorities must be destroyed, 
 he declared. That, of course, is the only 
 way in which it can be enforced thor- 
 oughly. But that is rather a large order 
 and calls for the destruction of more 
 people than perished in the World War. 
 
 And right on top of this gloomy birth- 
 day celebration comes the announcement 
 that Mr. Gompers and the American 
 Federation of Labor are going to make 
 a drive for light win«B and beer. 
 
 We are sorry for little Miss Prohibi- 
 tion in spite of her mean disposition and 
 her airs of superior virtue. She is a 
 mighty stunted, puny little girl for 
 three years of age, and it looks as if 
 she woulAkbe more sj^^ yet on her 
 fourt^^lnday. NoboS^|^ her, not 
 evfli^w parents, to whom^^Bis a dis- 
 intment and reproach. 
 
 ing she can do is to go out 
 cemetery and feed worms. 
 
 THE CAR BHORTA'GEJ PKOBIiEM. 
 
 Discussing tie problem of car short- 
 age, the^ report, of the United States 
 Coal Commission, presented to Congress 
 yesterday, observes : 
 
 "Car shortage occurred at intervals 
 during the war, but since 1916 it has 
 appeared mdre frequently and for 
 longer periods, and its effects upon 
 prices and coal supply have been more 
 serious." 
 
 The testimony that many mines have 
 been working short time for lack of cars 
 is indeed offset by the charges of the 
 Coal Commission that profiteering, 
 over-development and recurrent strikes 
 are largely to blame for chaos in that 
 industry. But this counter-charge does 
 not in any way relieve the railroads for 
 their general failure, In spite of heroic 
 individual efforts, to make transpor- 
 tation facilities keep pace with the im- 
 mense increase in the freight move- 
 ments of the nation. 
 
 It is not forgotten, for instance, that 
 in recent years there has been a wastage 
 of perishable food products estimated in 
 tens of millions of dollars from car 
 shortage. It is not forgotten that blame 
 for such fundamental defects in national 
 organization often traces back to the 
 failure of the carriers to act as a unit 
 in cases where only unified action can 
 meet an emergency. 
 
 On October 15 a joint Commlasion 
 of Agricultural Inquiry, representing 
 both houses of Congress, unanimously 
 recomaiended the pooling of certain 
 classes ol freight cars under a central 
 agency. On December 9 President Hard- 
 ing, in fet» annual message to Con- 
 gress, commended this report and gave 
 his opinion that without "complete re- 
 organization" to effect a better car serv- 
 ice recurrent attacks of transporta- 
 tion paralysis are to be regarded as 
 inevitable. 
 
 In spite of these urgent and non-parti- 
 san warnings from executive and legis- 
 lature, those responsible for solving the 
 problem appear contented with a policy 
 of drift. Yet drift, if indulged in too 
 long, is certain to bring governmental 
 interference of a sort which the railroad 
 operators will be the first to assail. 
 When a man of the type of Julius 
 Barnes, president of the United States 
 Chamber of Commerce, can say that the 
 present handling of the transportation 
 problem is "a rebuke to American intel- 
 ligence" It is obvious thai continued 
 private operation of the railroads, how- 
 ever desirable, is beginning to be in 
 jeopardy. 
 
 In a speech at Cincinnati last week 
 Mr. S. Davies Warfield, himself a rail- 
 road president, showed In a manner 
 difficult to contradict that th'fe periodic 
 recurrence of car shortages results 
 rather from opposition to progress on 
 the part ol those responsible for our 
 transportation systems than from ab^ 
 sence of a workable alternative to the 
 present situation. In this speech Mr. 
 Warfield offered a possible solution in 
 the form of a central clearing house 
 agency, of and by the railroads, operat- 
 it. authorized to work 
 
 or religious r 
 ties. The Ob 
 have good rcasa 
 delegate, and 
 that the repre 
 organizations i 
 laws. Possibl3 
 been guilty . 
 his religious i» 
 himself obnoxiv 
 spirit, if not the 
 But on the fae 
 story from the 
 as if the occas' 
 power of exf 
 and as if the 
 ing for a prt 
 having a real v 
 dent may be e 
 jealousy betwei 
 tier, and foreigi 
 If, however, 
 arbitrary act 
 regretted for 
 for its injurio 
 whom it is d. 
 probably profit '. 
 aroused if f 
 the victim 
 malice, 
 ernnn^will stai 
 of the outsidp 
 it is influence^ 
 erant spirit. 
 
 SHAL.I, THE 
 
 SI 
 
 As a rule, t*" 
 Federal Const 
 Senator Wadsf 
 another fool m 
 that Instrumor.. 
 posal to safegu' 
 of theorists ar 
 It is intended 
 a voice in the 
 and to prever 
 from a share 
 changes the pre. 
 mission of an 
 latures of the 
 the membei's 
 each of the 
 ratify shall be 
 ments have bi 
 State may r(M(v. 
 its Legislature i 
 tion by popular 
 fourths of the f 
 more than one-f< 
 rejected or defer 
 ment, any fe.*» 
 and that no St^ 
 shall be deprive 
 in the Senate." 
 The jusiifica\ 
 is found in oi 
 Eighteenth am 
 ments, especiallj 
 tibrial prohibitic: 
 in the election ' 
 the Legislature 
 ment was subi 
 direct way ii 
 sentiment couia 
 There can be 
 to the safeguardi 
 ment propose 
 the disadvanti 
 such as fear 
 desire to take s 
 of the revolutioi 
 previous Cons) 
 trated in the in. 
 eenth Aniendmi 
 law, and in vi( 
 trines as are i 
 school act, ther 
 be attempted h 
 Federal amendr 
 that a union oi 
 be proposed, tha 
 of religion may 
 that States wh 
 suspicion ma/', 
 form of Oonstitu. 
 ishment ? Anj 
 may appear vi 
 twenty-five yea 
 Amendment wv 
 possibility to tl 
 people of this co 
 All that the ' 
 proposes is te 
 nership in t, 
 ch 
 
NATIONAL ASSOCIATION OF OWNERS OF RAILROA^ECURimS 
 
 HEADQUARTERS 
 BALTIMORE, MARYLAND 
 
 January 16, 1923. 
 
 Dear Siri- 
 
 Pet'haps the largest and most interested* audi ence 
 before whom 1 have d.lscnRf-ed the raxlroari situation was the 
 meeting in Cinoinnati, held on Friday last, of the National 
 League of Commission Merchants (in 31st Annual Convention 
 assembled), to which had baen im;ited members of thw Cincin- 
 nati Chamber of Commerce. 
 
 "Oar Shortage 
 
 Shortage - The Penranant Remedy" --• the snb- 
 ject of the addrer-33 --if! irppermost. in the minds of shippers 
 throT:ighout the United Btates, 
 
 Birco proposals aloi-i,?^ linea of those for which 
 this Association has contended , 'bef;!;innins in 1919, for the 
 permanent remedy of car shortage and related conditions have 
 been recommended to Congress by the President and the Joint 
 Commission of Agricultural Inquiry composed of and appointed 
 by both Houses of Congress, the subject mav be of Interest 
 to you and I therefore enclose a copy of this address. 
 
 The Cincinnati meeting unanimously adopted a 
 resolution approying generally the proposals set forth. 
 
 Very truly yours. 
 
 'l^-{/(X^4A 
 
 P. S. Among several editorials of" endorseraeirfr^T~tTie^^ro- 
 posals of the Association in resweot to the National Railway 
 Service Corporation and its functions \^'e have selected one 
 from the Baltimore Sun, to which we invite your attention.^ 
 
^^.j^'Be.d^^^j^sL^ 
 
 ADDRESS OF 
 
 S. DA VIES WARFIELD 
 
 on occasion of organization of the 
 
 National Conference of 
 
 Mutual Savings Banks, Boston, Mass. 
 
 April 23, 1920 
 
 Mr. Chairman and Gentlemen: 
 
 In organizing a national body composed of the mutual 
 savings banks of the country you have taken an important 
 step toward securing the advantages to be had through 
 collective action on questions affecting the mutual savings 
 banks as a whole, not possible to be secured by individual 
 effort or by the State organizations of your institutions. 
 There is no class of institution quite so close to the people 
 as the mutual savings bank and the mutual life insurance 
 company. They reach millions of people and are perform- 
 ing a great public service, the benefits of which it is difficult 
 to estimate. 
 
 These two classes of institution provide the means for 
 educational work in respect to such matters as concern 
 those who look to them for protection that no other class ' 
 of investing institution can offer. A third of the popula- 
 tion of the country is concerned in the success of the mu- 
 tual savings banks and the mutual life insurance com- 
 panies alone. These people largely constitute what is 
 termed the public; they own the investments their mutual 
 institutions hold for them. They come pretty near being 
 the real owners of the railroads. How few of these people 
 realize this. How few realize that one-fourth of the invest- 
 ments securing their policies of life insurance are railroad 
 
securities. What a change would come over the so-called 
 public if these facts could be brought home. 
 
 The benefits of an educational campaign to reach those 
 who are vitally concerned in matters of a public nature 
 was demonstrated by the campaign conducted by the 
 National Association of Owners of Railroad Securities in 
 connection with the railroad legislation enacted by Con- 
 gress, now known as the Transportation Act of 1920. 
 The question of regulation of excess earnings of railroads 
 provided in this Act was not a popular subject to bring 
 before the people interested. The idea seemed un-Ameri- 
 can and more or less socialistic, yet it was amply demon- 
 strated that if our competitive transportation system is to 
 survive something had to be done to enable the Interstate 
 Commerce Commission to adjust railroad rates to allow 
 the great majority of the railroads sufficient revenue for 
 them to live. The severe criticism of the Commission in 
 the past because the Commission failed to allow rates 
 which were necessary to properly maintain transporta- 
 tion by railroad, was largely unjust. They did not have 
 the power to bring results. As the country grew and the 
 more populous territories produced greater revenue, the 
 less populous territories did not afford sufficient revenue 
 to enable the railroads in them to survive, because of 
 inequality in the productiveness of the two classes of 
 territory. The Supreme Court forty years ago decided 
 that levels of rates might be established arid rates adapted 
 "to the circumstances of the diflferent railroads." It was 
 recognized that as a practical question you cannot make 
 a low rate for one road and a high rate for another with- 
 out sending all the business to the road giving the lower 
 rate. But an adjustment "to the circumstances" is per- 
 missible in order to conserve transportation as a whole. 
 In such an adjustment it was found that rates necessary to 
 maintain the great majority of the roads would result in 
 
earnings to some of the minority railroads in excess of a 
 reasonable return to them. The only practicable means 
 to accomplish the result was to provide that rates be 
 made tentatively so that the majority of the roads could 
 live, and divide the earnings of any individual railroad in 
 excess of 6 per cent on the fair value of its property de- 
 voted to the public use equally between the railroad mak- 
 ing them and a Government fund to be used in the interest 
 of the shippers. This enabled Congress to write into the 
 Transportation Act that the Commission should adjust 
 rates to yield a fixed return of as nearly as may be 5^ per 
 cent on the fair value of railroad property, in the aggre- 
 gate, devoted to the public use, with ^ of i per cent 
 allowable by the Commission for unproductive improve- 
 ments, with the division of excess earnings mentioned. 
 This is the fundamental provision of the Act. We thought 
 and asked that the percentage return clause should read 
 "not less than 6 per cent," but Congress made the return 
 as "near as may be 5^ per cent" with an additional % of 
 I per cent optional with the Commission. We trust the 
 additional >^ of i per cent will be allowed. It was rather 
 unfortunate that Congress did not give the Commission 
 the greater latitude named. 
 
 Through the educational campaign conducted by the 
 Association of Security Owners by the circularization of 
 some five million pieces of literature, and the use of other 
 means of communication with owners of railroad securi- 
 ties, it came to be realized that in a public service cor- 
 poration such as a railroad the public has a right to know 
 the purposes for which the money paid to it for a public 
 service is to be used, and that the conditions that here- 
 tofore prevented the solution of the rate problem had to 
 be met. That railroad credit could not be re-established 
 through the former method of public rate hearings, but 
 legislation definite in its results was necessary if the rail- 
 
roads were to survive under private ownership. On this 
 platform the National Association went before the public 
 and before Congress. 
 
 It was unfortunate that the position taken by the Asso- 
 ciation was combated by a few railroad executives, who, 
 through their Association, vigorously opposed the adop- 
 tion of this method for rate making. There seemed to be a 
 disposition not to meet the issue which the Association of 
 Security Owners did meet. There was a disposition to 
 avoid the unpopular method of a division of the earnings 
 of a railroad, although it was known and fully demon- 
 strated and admitted by representatives of the executives 
 themselves that regulation of excess earnings was neces- 
 sary for the successful adjustment of railroad rates. I will 
 not go into the details of the year's campaign on this legis- 
 lation, nor take your time in discussing the work of the 
 Committees of the Association in respect to the standard 
 form of railroad contract for the Government operation of 
 the railroads. Many important provisions therein were 
 added mainly through the efforts of the Association of 
 Security Owners. Many of the gentlemen present are fa- 
 miliar with the work that was accomplished, and also with 
 the details of the Transportation Act dealing with the 
 method for rate adjustment and yield to the railroads. I 
 wish, however, to dwell for a few moments on the impor- 
 tance to the savings banks of the United States of thework 
 performed. 
 
 Prior to the organization of the National Association 
 the owners of railroad securities had no means through 
 which they could make known to legislative and regulatory 
 bodies, as well as to the public, what they considered 
 essential to the protection of the securities they owned, 
 and to the credit of the railroads that issued them. It is 
 not alone railroad securities which will be benefited 
 through the stabilization of the credit of the railroads, but 
 
whatever affects this great volume of securities — ^the 
 greatest aggregate of securities of any class of corporation 
 in existence, must necessarily have an important influ- 
 ence upon all classes of investments. Therefore all securi- 
 ties that are owned by the savings banks must reflect the 
 good or bad effect of this legislation on railroad credit. 
 
 The passage of this Act does not by any means solve the 
 problems of the railroads. The administration of the Act 
 and the co-operation which must be given the Interstate 
 Commerce Commission in its administration, are matters 
 of great concern at the present time. The responsibilities 
 thrown upon the Interstate Commerce Commission are 
 very great, perhaps greater than have ever been placed 
 upon any governmental agency. Upon the successful ad- 
 ministration and liberal interpretation of this Act depends 
 the question of whether the railroads are to remain as pri- 
 vately owned and operated properties, or whether they 
 shall, perforce, be required to be taken over by the Govern- 
 ment. Government ownership finds a very small percent- 
 age of the people of the country in its favor. Yet, failure 
 to recognize the intention of Congress in the framing and 
 passage of this Act may prove disastrous to the railroads 
 and adversely affect all classes of enterprise which depend 
 upon them for their success. 
 
 Former Senator Root has well said that the most effect- 
 ive means of bringing home the necessities of the situa- 
 tion to the millions of people who are directly or indirectly 
 interested in railroad securities, as well as to the public, is 
 by collective action. That the individual appeal speaking 
 collectively to the public and to the legislative and regu- 
 latory bodies is far different than from the corporation 
 itself which issued their securities. The Association I am 
 here to represent this evening started upon the theory 
 that the first consideration should be the public interest. 
 Proper relations cannot be established until the public and 
 
the shippers realize that it is the intention of these public 
 service carriers to treat them fairly, and expect only what 
 is fair and reasonable in return. 
 
 It is not practicable in a short talk to outline the pur- 
 poses of the Association in standing by a condition with 
 which it had considerable to do in the making. The Asso- 
 ciation represents the small investors of the country to a 
 greater degree than is supposed. In this connection let me 
 read from a speech delivered by an opponent of the rail- 
 road bill in the House of Representatives on the day the 
 conference bill was introduced. This House member said: 
 
 "During the long hearings held by the House 
 Committee on this legislation, covering a period 
 of more than two months and a half, when the 
 proponents of this guaranteed return appeared 
 and urged its inclusion in the House bill, it re- 
 ceived scant consideration, in spite of the able 
 counsel who were employed to urge it upon the 
 committee. I am sure my distinguished friend 
 from Wisconsin, the chairman of the committee 
 (Mr. Esch), will not contradict that statement. 
 It was given so little serious consideration that it 
 was not proposed by anyone in the committee, 
 and it is doubtful whether it would have received 
 a vote if it had been proposed. 
 
 "But there has been in existence during all the 
 consideration of this legislation an organization 
 whose sole object has been to foist this proposal 
 upon the American people. While the people of 
 the Nation have been bending their energies to 
 solve the great problems which have come to the 
 surface as a result of the World War, while they 
 have their minds on other things, this organiza- 
 tion has camped on the doorsteps of Congress, 
 
 6 
 
engaging in and directing the most powerful 
 propaganda ever undertaken in behalf of private 
 interests, and as a result of their activities we 
 find in this measure what I consider the most 
 vicious and insidious departure from established 
 principles of equality and justice ever sanctioned 
 by a legislative body. This poverty-stricken or- 
 ganization has maintained in the National Capi- 
 tal for more than a year luxuriously appointed 
 quarters, with high salaried agents constantly on 
 hand to urge that legislative safeguards be af- 
 forded to them which no other class of industry 
 or investment has ever received or requested." 
 
 This gentleman was one of the leaders of the opposition 
 to the passage of the measure. Over sixty per cent of the 
 savings banks represented in this room tonight are mem- 
 bers of the Association I represent. If there is any interest 
 that may predominate in the management of the Associa- 
 tion it lies with the savings banks and the life insurance 
 companies. Where does the duty of the officials of these 
 institutions lie when the billions of railroad securities 
 they hold for millions of people who own them are made 
 the subject of misleading political debate. What is the 
 interest the "American people" have in this legislation, 
 upon whom the gentleman insinuates we were "foisting" 
 our proposals, which he would have the public believe are 
 unworthy. 
 
 Now, let me read from the opening remarks of Chair- 
 man Esch of the Interstate Commerce Committee of the 
 House, one of the conferees that finally adopted the mea- 
 sure which was passed, who presented the conference bill 
 to the House, and who is your distinguished guest of the 
 evening. Mr. Esch said: 
 
 "But, gentlemen, my time is short. I shall 
 
take up what is known as section 6. You will 
 find it in section 422 of the pending bill. It pro- 
 vides for a rate of return on the valuation of the 
 railroad property either taken as a whole or within 
 a given district or territory. This provision was 
 not in the House bill. Against it the House con- 
 ferees stood for five or six weeks and until the 
 compromise was finally reached. The whole basis 
 for section 6 can be found in these words in the 
 bill, on page 91, paragraph 5: 
 
 "(5) Inasmuch as it is impossible (without 
 regulation and control in the interest of the com- 
 merce of the United States considered as a 
 whole) to establish uniform rates upon com- 
 petitive traffic which will adequately sustain all 
 the carriers which are engaged in such traffic and 
 which are indispensable to the communities to 
 which they render the service of transportation, 
 without enabling some of such carriers to receive 
 a net railway operating income substantially 
 and unreasonably in excess of a fair return upon 
 the value of their railway property held for and 
 used in the service of transportation, it is hereby 
 declared that any carrier which receives such an 
 income so in excess of a fair return shall hold 
 such part of the excess, as hereinafter prescribed, 
 as trustee for and shall pay it to the United 
 States." 
 
 Mr. Esch continued: 
 
 "The large problem that has given difficulty to 
 the Interstate Commerce Commission and to 
 every regulatory body heretofore has been the 
 fixing of rates on competitive traffic which will 
 not allow one road to earn excessive income 
 
 8 
 
while another road on the same rate does not 
 get a sufficient income. No formula has under 
 existing law yet been discovered to meet that 
 situation. You can meet it in two ways — ^by 
 consolidation of all carriers under one system, 
 where there would not be the problem of the weak 
 and the strong, or under the plan suggested in 
 section 422. The valuation of all railroad prop- 
 erty used in the service of transportation in a 
 given district or territory or in the country as a 
 whole is to be made by the Commission. The 
 commission then prescribes such level of rates as 
 will produce, as near as may be, a 53^ per cent 
 return on such valuation. In this House I have 
 strongly contended that we should adhere to the 
 existing standard for rate making — ^that is, that 
 rates should be just and reasonable — ^but longer 
 consideration has driven me to the opinion that 
 capital will not invest in railroad securities on 
 merely a declaration that the commission shall 
 fix just and reasonable rates. 
 
 "Investors want something definite and fixed 
 upon which they can reckon. The provisions of 
 section 422 give that stability, that standard 
 which, I trust, will encourage investment." 
 
 Mark the difference. The leader of the opposition made 
 insinuations for political effect. He stated that not a 
 member of Mr. Esch's Committee was in favor of the 
 fixed return and excess provisions at the time of the House 
 Committee hearings. The Senate and House conferees 
 were in conference for weeks after this. Mr. Esch, with 
 characteristic diligence, ascertained what he believed was 
 essential to maintain transportation as a whole, and when 
 he and two of his House associates on the Conference 
 
Committee made up their minds as to these essentials, in 
 the statesmanlike presentation from which I have quoted, 
 he performed a service you cannot fail to appreciate, and 
 as time goes on the public and those dependent upon rail- 
 road service will attest their appreciation. The Com- 
 mittees of the Association believed it to be their duty to 
 present to the Committees of Congress facts and not in- 
 fluence. How was Congress to know what the men in this 
 room, representing your millions of depositors, had to say 
 in this crisis. What the presidents of the great mutual 
 life insurance companies, speaking for the many millions 
 of policyholders, had to say in respect to what they 
 thought essential to the preservation of the investments of 
 the people who intrust them to their keeping. They be- 
 lieved that it was only necessary to secure the data in supr 
 port of their position and present it to Representative 
 Esch, and to Senator Cummins, Chairman of the Senate 
 Committee on Interstate Commerce, who was also untir- 
 ing in his efforts to secure constructive legislation and to 
 whom we also owe much. These two men took into con- 
 sideration this data and the facts thus submitted, and in 
 connection with other data, information and facts they 
 had at their command, together with their sub-com- 
 mittees, and later a majority of the conferees, after 
 an investigation such as was rarely ever made in any 
 legislative body, they constructed a bill which was 
 presented to Congress embodying the result of their 
 labors and their opinions in respect to the essentials 
 necessary to maintain rail transportation for the benefit 
 of the people as a whole, and the business interests of 
 the country as a whole. Who has a better right to speak 
 for the "American people" than the people themselves, 
 and they are very generally represented through the 
 mutual savings banks depositors and the mutual life in- 
 
 lo 
 
surance companies' policyholders that are members of the 
 Association of Security Owners. 
 
 I have called these discussions in the House to your atten- 
 tion for a purpose. That is, if under our form of govern- 
 ment business enterprise shall go forward and the country 
 develop as it should, there must be recognition of those 
 men who without respect to their political future carry 
 out what they believe to be the interest of the people as a 
 whole, and are not swerved by this or that condition which 
 might inure to their own personal or political benefit. 
 
 There were no "agents constantly on hand" as the 
 House member I have quoted would have the public 
 believe. Representing the Association were Hon. Elihu 
 Root, Mr. John G. Milburn, Mr. John S. Miller, Mr. 
 Hugh L. Bond, Jr., and Mr. Forney Johnston as Advisory 
 Counsel. These gentlemen together with Mr. Luther M. 
 Walter, of General Counsel, assisted in the work of the 
 Association. Messrs. Johnston and Walter, together with 
 myself, were the only so-called "agents" who spent con- 
 siderable time in the City of Washington and who are 
 characterized as having "camped on the doorsteps of 
 Congress." You can be the judge of whether in your be- 
 half and that of the other owners of railroad securities to 
 the extent of ten billion dollars such as are included in the 
 Association membership, which speaks for millions of 
 interested people, your representatives were properly in 
 Washington to assist wherever possible in supplying data 
 and information in respect to the subject under considera- 
 tion by Congress. Whatever I may have done was with- 
 out compensation. Mr. Esch will tell you that during the 
 whole course of his consideration of the measure which has 
 become a law all that was asked was the time necessary for 
 the presentation of facts and data, leaving for hirti and 
 his associates to do what in their judgment was essential 
 for the protection of the railroads and their owners. 
 
 II 
 
Through the organization you are effecting tonight, 
 with the ten million people represented by the mutual 
 savings banks as depositors and therefore vitally con- 
 cerned in the value of the securities which are purchased 
 with those deposits, there is a field for educational work 
 that would go a great ways toward stilling the unrest 
 now sweeping this and every country as the result of 
 the world's war. Is it not just as much the duty of the 
 bank that holds the savings of these people to inform them 
 on subjects close to them and to their institutions as it is 
 to inform them through statements of the business of the 
 bank. When those who represent public policies which 
 the managers of these great savings institutions know to 
 be detrimental to their depositors who intrust these insti- 
 tutions in some cases with their all, and such policies may 
 strike at the foundation of our form of government, 
 should it not be a part of the duty of those officials to 
 keep the people they represent informed on these and 
 other public questions affecting their interests. 
 
 Such a campaign conducted throughout the country 
 openly and above-board by the savings banks and mutual 
 life insurance companies would be a great Americanizing 
 influence, and I believe we would be surprised at the short 
 time required to put an end to the threats of destruction 
 that have been and are continuously made. 
 
 The savings banks and life insurance companies alone 
 own over three billion dollars of railroad securities, nearly 
 one-sixth of the total outstanding securities of the rail- 
 roads excluding inter-railroad holdings. These securities 
 are largely held by the institutions owning them until 
 maturity. How important is it therefore that the rail- 
 roads, the public and the regulatory bodies should realize 
 the importance of stabilizing railroad credit that these 
 avenues of investment may be re-opened to the railroads. 
 There is a grave question whether the railroads them- 
 
 12 
 
selves realize the importance of knowing what your 
 National Conference from time to time may determine 
 is necessary to your continued purchases of railroad securi- 
 ties. They should wish to know the views of such an 
 organization as you have just formed in connection with 
 the many questions to be decided in the relation of the 
 railroads to the administration of the Transportation 
 Act, because that is to be the basis of railroad credit. 
 
 The Committees of the Association of Security Owners 
 have extended an invitation to the Presidents and Boards 
 of Directors of the Class i railroads that each board desig- 
 nate one of their number to act on a committee to meet in 
 conference a like committee of the National Association of 
 Owners of Railroad Securities to discuss questions of pub- 
 lic and legislative character. It is manifest that no such 
 committee is intended or expected to commit the direc- 
 tors of a railroad to any of its actions or to have any 
 Board of Directors delegate any of its powers to this or 
 any other body. The purpose is, of course, to confer on 
 matters of vital concern in the present crisis. Many 
 replies evidence a desire to co-operate, others do not give 
 promise of a desire to accept the invitation in the spirit in 
 which it was extended. Until there is the recognition on 
 the part of those who operate the railroads that the owners 
 of the railroads constitute those who have purchased their 
 bonds or other securities, as well as their stock, the rail- 
 roads will not secure the confidence and support necessary 
 to the stabilization of their credit and their successful con- 
 tinuation under private ownership and operation. 
 
 We ask for the assistance and co-operation of the 
 National Conference of Mutual Savings Banks, so aus- 
 piciously organized, in the work before us. As stated, 
 nearly sixty per cent of the mutual savings banks of the 
 country are now members of the National Association of 
 Owners of Railroad Securities, we hope you will make it 
 
 13 
 
unanimous. The membership of the Association includes, 
 besides savings banks and life insurance companies, indi- 
 vidual investors, universities, colleges, trust estates, 
 banks, investment bankers, trust companies, fire insur- 
 ance, casualty and bonding companies. 
 
 The tentative valuation by the Commission of the prop- 
 erties of the railroads now being made for immediate rate 
 making and the permanent valuation now in progress under 
 Director of Valuation, Judge Prouty, are both of concern 
 to the owners of railroad securities. These questions are 
 fundamental and far-reaching in their effect. Co-opera- 
 tion with the Commission and Judge Prouty in these mat- 
 ters is far better than the habit of criticism of the past. 
 
 There is important work ahead. Private ownership and 
 operation of the railroads is only on trial. The system of 
 railroad regulation has been revolutionized by the passage 
 of the Transportation Act. Under its provisions the pub- 
 lic, the shippers, the employees and the owners have been 
 brought into interdependent relations; such relations 
 should be better understood and extended. This can be 
 secured only by organization, educational work and co- 
 operation, in full recognition of the fact that the railroads 
 perform a distinct regulated public service, widely differ- 
 ing from the operation of any other privately owned busi- 
 ness which does not perform a public service. 
 
 14 
 
ADDRESS 
 
 S. DAVIES WARFIELD. President, 
 
 NATIONAL ASSOCIATION OF OWNERS OF 
 RAILROAD SECURITIES 
 
 NATIONAL ASSOCIATION OF MUTUAL 
 SAVINGS BANKS 
 
 FOURTH ANNUAL CONVENTION 
 BUFFALO, N. Y., JUNE 6th, 1923 
 
 "I have gone into detail because it is desirable that you should 
 have a brief summary of these necessary provisions in the 
 Act, and because they are interwoven with present necessi- 
 ties. And they will become the storm center in the discussion 
 of railroad legislation in the next Congress." 
 
 NATIONAL ASSOCIATION OF OWNERS OF RAILROAD 
 SECURITIES. BALTIMORE, MD. 
 
SAVINGS BANKS ASSOCIATION APPOINTS COMMIT- 
 TEE TO ACT IN THE MATTER OF RAILROAD 
 VALUATION. 
 
 The Convention of the National Assoc- 
 iation of Mutual Savings Banks, the day follow- 
 ing the session of the Association addressed "by 
 Mr* farfield, passed a resolution authorizing 
 the President of the Association to appoint a 
 Gonimittee to study the questions involved in 
 their relation to the valuation of the prop- 
 erties of the railroads of the country with 
 the view of protecting the railroad investment 
 of the savings hanks. 
 
 Those subsequently appointed by Presi- 
 dent Wadhams werei 
 
 Wra. E. Knox, Chairman, 
 
 H, P. Gifford, 
 
 John J. Pull eyn, 
 
 Samuel H. Beach, 
 
 P. LeRoy Harwood, 
 
 Austin McLanahan, 
 
 •John H, Dexter, 
 
 J. B. Throckmorton, 
 
 J6hn M. Wadhams, Ex-offioio. 
 
Address by S. Davies Warfield before National Association 
 of Mutual Savings Banks — 4th Annual Convention — 
 Buffalo, N. Y., June 6, 1923. 
 
 Mr. Toastmaster, Ladies and Gentlemen : 
 
 It is a real pleasure to be here tonight, although it 
 is with some hesitancy that I rise to address you be- 
 cause of the limited time Mr. Knox has allotted me — 
 you will observe he has his gavel ready. 
 
 The last time I had the pleasure of meeting the mem- 
 bership of your Association was at the time of its 
 organization at Boston in April, 1920. Since then many 
 things have happened, in both the savings bank and 
 transportation world. 
 
 Together with you all, I sincerely regret the illness 
 of Mr. Brock, your President. Mr. Brock has always 
 given us all such generous and splendid cooperation 
 in every direction. 
 
 Let me hope I may be entitled to some of the kind 
 words expressed by Mr. Knox respecting the work that, 
 not I, — all of us in the active management of the 
 Association of security owners have attempted to ac- 
 complish. To be frank, I regard the near future outlook 
 as not reassuring to the investor in railroad securities. 
 
 The savings banks are closer to the public than any 
 other class of investor. You represent millions of 
 depositors. They put their money in your banks and 
 expect you to take care of it in safe investments, and 
 this you do. At this particular time there is going on 
 in Washington a very important work — railroad valua- 
 tion — its far-reaching effect perhaps you do not fully 
 realize. Since the result may be to greatly depreciate 
 the value of yotir railroad investments I shall briefly 
 present conditions to you which warrant your thought- 
 ful and immediate consideration. 
 
 Now, before entering into this— and Mr. Knox, I will 
 take just a few minutes more than you intend to allow 
 me — I want to go back into part of the history of the 
 Association that I represent here tonight. 
 
COMPULSORY FEDERAL INCORPORATION 
 
 When representatives of the National Association of 
 Owners of Railroad Securities appeared in January, 
 1919, before Committees of Congress then eonsidering 
 railroad legislation, we were there with a very definite 
 policy. We had followed the appearance of representa- 
 tives of the railroads before legislative bodies and the 
 Interstate Commerce Commission; also before the 
 Newlands Committee — appointed by Congress to in- 
 vestigate transportation conditions — when the rail- 
 road executives insisted upon the compulsory Federal 
 incorporation of all the railroads. It was contended 
 this was the only method to prevent State Commissions 
 from making intrastate rates — that is to say, a rate 
 within a state — which would conflict w4th the interstate 
 rates necessary to the conduct of commerce between 
 the states by railroad. 
 
 In 1919 they again asked Congress for compulsory 
 Federal incorporation of all the railroads. We vigor- 
 otisly opposed this policy, and you may recall we filed 
 with Congress the opinions of able lawyers that the 
 policy proposed by the railroads would entail years of 
 litigation, would be a serious menace to railroad credit, 
 was unconstitutional, and could not be forced upon a 
 dissenting carrier. It is amazing, gentlemen — observing 
 the fear of Government operation now expressed by 
 railroad executives — that they should have urged laws, 
 to avoid state regulation, which would have subjected 
 their roads to more intensive Government regula- 
 tion by requiring all railroads organized under state 
 charters to turn their properties over to corporations 
 organized under Federal charters. Had this been in 
 effect when the railroads were taken over by the Gov- 
 ernment for purposes of war, do you suppose for one 
 moment that these properties would have ever been 
 relinquished to private operation? 
 
 THREE FUNDAMENTAL PROPOSALS 
 ACCEPTED 
 
 The Transportation Act of 1920 contains the sub- 
 stance of three of the four fundamental proposals made 
 
by the Association of security owners before Commit- 
 tees of Congress in 1919. I will briefly allude to them. 
 
 One is the now famous — ^much discussed and often 
 "cussed" — :Sec. 422 (15a), which the men of this audi- 
 ence, particularly, know of. That is the section enabling 
 the Interstate Commerce Commission to adjust railroad 
 rates to yield a reasonable return on the aggregate 
 value of railroad property. This section was vigor- 
 ously opposed, as you know, by the railroad executives 
 with one or two exceptions. Today they are asking 
 Congress to leave this Section in the Transportation 
 Act, in fact, not to disturb the Act in any respect. . 
 
 This section, in addition to prescribing the measure 
 that the Commission is to use in respect to a living 
 return on the aggregate value of railroad property — 
 properties that issued your securities — did more than 
 •that, much more. There was secured what the railroads 
 had been endeavoring to accomplish for twenty years, 
 —the prevention of a State Commission from making 
 an intrastate rate that would conflict with the interstate 
 rate structure made by the Interstate Commerce 
 Commission to enable the railroads to receive revenue 
 sufficient for the conduct of transportatio i. 
 
 These questions are somewhat technical and perhaps 
 you may not be able to quite follow. But for years the 
 railroads had been complaining of their "Forty-eight 
 Masters" — ^the forty-eight State Commissions; that 
 they could not run their properties because the forty- 
 eight masters were making different rates within their 
 states which prevented the carriers from earning a 
 living return. 
 
 The railroads attempted to prove that these rates 
 were discriminatory as between localities and indi- 
 viduals — very difficult of pr6of. 
 
 We contended that the questions involved in the 
 making of intrastate rates were those of revenue and 
 that no one state — a state here and a state there and so 
 on — should have the right to make an intrastate rate 
 that would curtail the revenue of carriers while passing 
 within its borders to the extent of preventing carriers 
 from receiving revenue sttfficient for the conduct of 
 interstate commerce in the public interest. 
 
We believed the United States Supreme Court wotild 
 uphold this doctrine and it has been upheld. So with 
 the years of fight that the railroads made against the 
 State Commissions, even to the extent of urging the 
 compulsory Federal incorporation of the railroads, the 
 question was finally decided on the doctrine we had 
 put forward. 
 
 SUPREME COURT SUSTAINS OUR POSITION 
 AS TO REVENUE 
 
 On that basis we went before the Supreme Court in 
 the Wisconsin Passenger Fare Case. Cotmsel of the 
 railroads and Counsel of the Interstate Commerce 
 Commission presented arguments on the basis of 
 discrimination; our Counsel took the position that the 
 questions involved were those of revenue. Chief Justice 
 Taft, in writing the decision of a unanimous Court, 
 sustained our position in every particular. 
 
 I am perhaps troubling you with detail, but this is 
 justified in my belief that the establishment of the basis 
 for intrastate rate adjustment as a question of revenue 
 and not of discrimination was one of the most import- 
 ant things, if not the most important, that has taken 
 place in transportation legislation. 
 
 Section 422 (15a)' covered two important points: first, 
 the establishment of means to prevent undue burdening 
 of the interstate rate structure through intrastate rates; 
 the other, after the ascertainment of the aggregate 
 property value of the railroads by the Commission, 
 rates must be adjusted so as to produce sufficient 
 revenue to enable carriers to finance the necessities of 
 adequate transportation. 
 
 The greatest railroad opposition was to the provision 
 that after any railroad received revenue from rates 
 yielding over 6% on its individual property value 
 one half of the excess it cotdd retain, the other half to 
 be expended in the interest of transportation as a 
 whole, not to help weak carriers as has so often been 
 asserted. 
 
CIRCUIT COURT SUSTAINS CONSTITUTIONALITY 
 OF PROPOSALS 
 
 You may be familiar with the Dayton-Goose Creek 
 Railroad Case before the Circuit Court of Texas, where 
 the railroad contended that it was unconstitutional to 
 take part of its revenue, over 6%, notwithstanding the 
 fact, as we have always contended, that a carrier would 
 not have received this additional revenue had it not been for 
 the necessities of transportation as a whole, which require 
 rates to be made to enable the great majority of car- 
 riers to live — hence the over-plus in individual cases 
 from such rates is as much a matter of regulation as the 
 regulation of the rate itself. Again our position was 
 sustained by the Court and along the lines of the brief 
 filed by otu Counsel in this case also. 
 
 So, Mr. Toastmaster, in this we accomplished quite 
 a good deal. 
 
 Our next suggestion was that the Commission should 
 have jurisdiction over the divisions of freight rates. I 
 do not think — and there are a great many Massachu- 
 setts members of your organization here tonight — ■ 
 you realize what this has meant to what are known as 
 the "New England carriers." Contending that the 
 division of a freight rate was as much the subject of 
 regulation as the rate itself, we suggested that the 
 divisions of freight rates should be left to the Com- 
 mission to regulate if the carriers did not allow the 
 proper divisions of rates. 
 
 Only recently — ^within the last eight or nine months 
 perhaps — $15,000,000 was secured to the New England 
 group of carriers from the Eastern carriers — $15,000,000 
 allowed as additional revenue by increasing the di- 
 visions of rates between the New England and the 
 Eastern carriers. The security owners were responsible 
 for suggesting this in the Act, I hope consideration 
 will be given this on the part of your brethren from New 
 England. Without this feature of the Act, railroads 
 operating within the so-called New England group, of 
 which you. doubtless hold securities, could hardly have 
 lived through the reconstruction era. 
 
 The railroads fought it. The Eastern carriers took 
 the case to the Circuit Court of New York. The Court 
 
declared the Commission's control over divisions con- 
 stitutional. This was our second proposition. 
 
 THIRD PROPOSAL USED IN EVERY 
 EMERGENCY 
 
 The third proposal to Congress was that in cases 
 of car shortage and freight congestion emergencies 
 the Interstate Commerce Commission should have the 
 right to relocate freight cars from one railroad to an- 
 other. This right to the Commission was also opposed 
 by the railway executives. Yet, notwithstanding this, 
 Mr. Toastmaster, there has not been a period of 
 freight congestion since the Transportation Act went 
 into effect — and they have been many and serious — 
 that carriers have not appealed to the Interstate Com- 
 merce Commission to make use of this emergency 
 power granted by the Act, to relocate cars from one 
 railroad to another — in plain words, "pool" cars during 
 the emergency — and in this way the Commission has 
 enabled transportation to be conducted. Yet the rail- 
 way executives who opposed this procedure, as I say, 
 go to the Interstate Commerce Commission to in reality 
 "pool" their cars to help them out in these emergencies, 
 because they are unable themselves to agree on a plan 
 under which certain classes of freight cars could be 
 pooled in the interest of transportation as a whole in 
 order that the public shall be properly and economi- 
 cally served. 
 
 The inconsistency of railroad procedure in this entire 
 matter is shown in the fact that while continuing to 
 oppose the pooling of certain classes of interchange 
 freight cars under an accredited central railroad agency, 
 the railroads are today in effect pooling (but without 
 an effective head) certain classes of interchange cars in 
 Western territory by permitting the non-observance of 
 their so-called "car service rules," in holding cars in 
 that territory for loading Eastbound and not imme- 
 diately returning such cars after unloading to the 
 owners which their rules arbitrarily require. They 
 
know that holding these cars is now essential to move 
 traffic and to prevent the cross-haul of empty cars. 
 
 You should not be disturbed by this clumsy method 
 of gaming the- effect of car pooling, instead of openly 
 doing it, except that the cost to the public in freight? 
 rates by continuing so uneconomical a procedure must 
 finally react on the railroads. 
 
 Now, our fourth proposal was not acted on, had it 
 been, you and the railroads would not be confronted 
 by the present difficulties. The fourth proposal was 
 considered essential to guarantee every saving through 
 coordinated inter-carrier relations and a service that 
 would adequately meet the demands of the country. 
 
 The revenue-ratemaking proposals which were made 
 before Committees of Congress were coupled with a 
 central railroad agency, to be established by Act of 
 Congress, to be managed by representatives of the 
 railroads and from those who own their securities, 
 empowered to aid in financing equipment and dp the 
 things the railroads now ask or expect the Commission 
 to do. Through this coordinating agency greater facility 
 uses wotild be obtained, and the joint use of interchange 
 freight cars which should be pooled by agreement 
 among the railroads, instead of asking the Commission 
 to pool them in emergencies. 
 
 THE STORM CENTER IN THE NEXT 
 CONGRESS 
 
 I have gone into detail because it is desirable 
 that you should have a brief summary of these necessary 
 provisions in the Act, and because they are interwoven 
 with present necessities. And they will become the 
 storm center in the discussion of railroad legislation in 
 the next Congress. 
 
 It is significant,, ladies and gentlemen, when you 
 consider the dilBficvilties incident to the technical nature 
 of the questions involved, that three of the four funda- 
 mentals we proposed found their way, with modifica- 
 tion, into the Transportation Act ; while no fundamental 
 proposal of the Association representing the executives 
 
of the railroads was adopted by Congress and in the 
 Transportation Act of 1920. This is not in criticism. 
 These conditions are the result of disinclination on the 
 part of the railroads to do other than attempt to func- 
 •tion through voluntary organizations without power to 
 compel the observance of known necessities on the 
 part of all the railroads, leading to the avoidance of the 
 provisions of the Transportation Act dealing with joint 
 facility uses. So acute is the feeling of competition 
 among railroads that they prefer to await the enforce- 
 ment by Government agencies of things essential to 
 transportation rather than act themselves. 
 
 RAILROAD VALUATION SERVES 
 TWO PURPOSES 
 
 I now come to the definite purpose of my talk before 
 you this evening. You who are concerned in the pro- 
 tection of the deposits of ten million people face a 
 serious situation in respect to the two subjects that I 
 will now discuss: first, the valuation of railroad prop- 
 erties; second, the proposed consolidation of all the 
 railroads of the country into a few large consolidated 
 systems. 
 
 Now, there are two purposes to be. served by this 
 valuation that is now being made by the Interstate 
 Commerce Commission. One; in these great consolida- 
 tions which the Commission has been ordered to make 
 under the Transportation Act — the merging of all the 
 railroads of the country into sonje fifteen to nineteen 
 large systems^ — it is required by the Act that all the 
 carriers that are to be merged into these large com- 
 panies will be taken in at the Commission's valuation. 
 No securities can be issued by the new companies that 
 will acquire your securities or the securities of the 
 railroads that will be merged, beyond the value that 
 the Commission now places on the property of each 
 railroad that goes to make up the respective large con- 
 solidated systems. So you see how far reaching this is. 
 
 Second; no railroad rate in the future, after these 
 valuations are made, will be adjusted to yidd a return 
 
 8 
 
on a valuation greater than the Commission now places 
 on all railroad properties. And yet today the railroads 
 have no plan, by concerted action, before the Commission 
 or agreed bases upon which the railroads all stand for the 
 valuation of the different portions of railroad property and 
 such as the Commission can act on. So the situation, 
 I say, is serious. 
 
 VALUATION THE TAP ROOT OF 
 CARRIER REVENUE 
 
 Perhaps you have observed that the papers recently 
 stated that Senator LaFoUette had called a meeting of 
 his associates in Chicago to take up the question of 
 valuation, pointing out that the public were not prop- 
 erly represented before the Commission, and that there- 
 fore railroad properties would be valued beyond what 
 they should be, in the public interest. 
 
 Senator LaFoUette fully realized what he was doing. 
 He knew that the most effective method of attack on 
 railroad rates was through valuation; upon fair valua- 
 tion rests the continuance of private operation and 
 private ownership. He fully recognized that the rail- 
 roads have shown no disposition to get together and 
 that they were not in position and were unwilling to 
 place themselves in position through coordinated re- 
 lations to present a united front before the Commission 
 on plans which the railroads as a whole could appeal 
 to the Commission to follow in the valuation of their 
 properties. Senator LaFoUette is an able man and 
 knows the subjects with which he deals, with tireless 
 energy, and has covered the transportation field from 
 his own view-point. He strikes the tap root of carrier 
 revenue when he attempts to bring together those who 
 agree with his policies with the view of appearing before 
 the Commission to keep down the valuation of these 
 properties. 
 
 Considerable criticism was made of Senator LaFol- 
 lette by railroad executives in interviews. Now, while 
 I differ fundamentally with Senator LaFoUette, he 
 might well have asked those who criticised him, "Have 
 you been able to get together; have you been able to 
 
 9 
 
submit to the Interstate Commerce Commission any- 
 well defined plan on valuation; have you been able to 
 present to the Commission a solid front on this all 
 important question to you and to the public?" What 
 is the answer? Not thus far. 
 
 NO CONSTRUCTIVE BASES REPRESENTATIVE OF 
 THE RAILROADS BEFORE COMMISSION 
 
 While representatives of the railroads have made 
 able arguments, they have thus far been unable to 
 present to the Commission, matured, well thought out 
 constructive plans representative of the thought of the 
 railroads of the countiy to guide the Commission in 
 making the valuation of these great properties. 
 
 Therefore I suggest that before adjournment, your 
 convention take up the question of valuation that so 
 intimately relates to the properties which issued the 
 securities you hold. I hope you will name a Committee 
 that may cooperate with the Association of security 
 owners in respect to this problem. Let us see if we 
 cannot present to the Commission a concrete plan 
 which should be helpful and a guide to them in valua- 
 tion procedure. I hope, Mr. Knox, that the members 
 of your organization will seriously consider this. The 
 Association of security owners is the one organization 
 in connection with transportation that represents no 
 particular railroad, no particular security, and there- 
 fore would be looked upon, both by the Commission 
 and by Congress as presenting the thought at least of 
 those who represent a great public holding of railroad 
 securities, which must necessarily be affected by any 
 procedure of the Commission in respect to both valua- 
 tion and consolidations. 
 
 CONSOLIDATIONS PERMISSIVE— 
 NOT ENFORCED 
 
 Let us now consider the questions involved in the 
 requirements of the Transportation Act for the con- 
 solidation of all the railroads into a few — from fifteen 
 to twenty — large so-called competing consolidated sys- 
 
 10 
 
terns. You gentlemen from Massachusetts and other 
 states that are served by the New England group of 
 carriers, are greatly concerned, especially concerned, 
 in these consolidations. We have not favored the 
 enforcement of consolidations. We do not believe the 
 Commission should be authorized to map out the 
 country and force all the railroads into, say, fifteen or 
 nineteen railroad systems, merging all carriers into 
 these systems. We do not believe this is good policy, 
 partictilarly in view of the fact that under the Act no 
 consolidation can be made after the Commission makes 
 its plan of consolidations, unless it conforms and comes 
 within the limits of the recommendations of the 
 Commission. 
 
 ASSOCIATION'S PROPOSAL IS TO COMPEL JOINT USE 
 OF RAILROAD FACILITIES IN THE HANDS OF THE 
 PRESENT CORPORATIONS (PERMISSIVE CONSOLI- 
 DATION ENCOURAGED)— NOT TO ENFORCE CON- 
 SOLIDATION OF THE RAILROAD CORPORA- 
 
 TIONS TO OBTAIN SIMILAR RESULTS- 
 DISTURBING ALIKE TO THE FINANCIAL 
 AND OPERATING STRUCTURE. 
 
 From the beginning we have been on record in favor 
 of permissive consolidations, subject to the approval of 
 the Commission in each case. We opposed at our 
 original hearing before Congress in 1919 the enforced 
 consolidation of the railroads into these few large 
 systems. We believed such procedure, dependent as it is 
 upon railroad valuation by the Commission — the bases 
 for which will likely have to go before the Supreme 
 Court — will unsettle railroad credit during the long 
 time essential to bring about consolidations. We 
 contended — and that was one of the purposes of our 
 fourth proposal of a central agency — that the railroads 
 should agree among themselves on a more general 
 and greater joint use of their respective facilities as 
 far as practicable, including pooling of the interchange 
 freight cars of the railroads under the central agency 
 to be managed by railroad men and representatives of 
 
 11 
 
public investing institutions, which would bring about 
 increased service with economical operation. 
 
 OTHER PLANS FOR RELIEF 
 
 Only the other day, Mr. Henry Ford, the automobile 
 genius and manufacturer, in an interview said that the 
 railroads could not be successfully and economically 
 operated except under a central head. Others are 
 proposing the large consolidations for the same pur- 
 poses Mr. Ford desires a single head, that is, to secure 
 coordinated relations by coupling the railroads together 
 to obtain joint facility uses through pooling them under 
 large consolidated managements. After all, that is the 
 effect of the two proposals, the difference only being in 
 degree; Mr. Ford says pool under one head, the others 
 under, say, fifteen heads. Personally, I should greatly 
 dislike to see either plan adopted, because both really 
 mean Government operation. 
 
 But if the railroads do not get together, if they can- 
 not reconcile their differences, if they cannot agree on 
 certain uses — joint facility uses — of the properties they 
 represent, then the adoption of one or the other of 
 these plans is inevitable, and in either case it will carry 
 you closer to Government operation, and then perhaps 
 Government ownership. 
 
 It is my opinion that had the railroads entered into 
 agreement among themselves for the pooling of their 
 interchange freight cars, the service and saving attained 
 would alone have avoided the extreme measures now 
 suggested to gain the same result, and they would have 
 prevented the disturbance of railroad credit and security 
 values to which the country is to be subjected for several 
 years. 
 
 We have contended that any plan the Commission 
 may develop in respect to these great consolidations 
 will take from five to ten years to complete; this is 
 admitted by their advocates. Your securities — are 
 they to be of uncertain value during five or ten years, 
 while the questions of valuation are being fought out? 
 
 12 
 
RAILROADS BY COOPERATION CAN 
 GIVE RESULTS 
 
 I will dwell, Mr. Knox, for a few minutes, on the 
 pooling of certain classes of freight cars. It is an ex- 
 travagant policy that forbids interchange freight cars 
 — cars used in interchange traffic which spend fifty 
 per cent of their time off the rails of the railroads that 
 purchased them and go from one end of the continent 
 to the other in the interchange of commerce — from 
 being operated under arrangements between the rail- 
 roads for their joint use, under plans that will give the 
 shipper the use of my car or your car, reloaded as near 
 the point of unloading as practicable and hurried off 
 to destination without respect to ownership. That is 
 what the big consolidations are expected to do, for 
 ■ when you mold all these carriers into, say, fifteen com- 
 panies you are making fifteen car pools and of other 
 facilities. So, instead of waiting for this to be done, 
 with all the attending difficulties, why cannot the car- 
 riers among themselves agree to pooling, and not wait 
 for the Government to force it on them? 
 
 When you see in the daily press that railroad car 
 loadings have increased to this or to that figure, and 
 car shortage has been reduced from this to that number 
 of cars, you should understand that the figures pre- 
 sented do not represent actual conditions. Let me 
 detain you for a moment in respect to what car shortage 
 means. It may not mean that there are not sufficient 
 cars in the country, but it may mean that there are 
 sufficient cars but not sufficient motive power to haul 
 them; that there are not sufficient yard and terminal 
 facilities to quickly load, unload and dispatch them; 
 that there are not sufficient passing tracks on this rail- 
 road or that to take trains; there are a multitude of 
 reasons that contribute to car shortage. 
 
 How can economical administration, with adequate 
 service, be secured with each carrier purchasing equip- 
 ment in quantities and of such character as will meet 
 its own views, purchasing locomotives, building yards 
 and terminals to take care of its so-called "own" 
 business; doing all the numerous things that operation 
 
 13 
 
and transportation call for, each working along in its 
 own way with little respect to the other, one competing 
 with the other? And yet, each railroad is part of a 
 system of National transportation, with each railroad 
 only one link in the chain, one dependent on the other. 
 I ask you, can these conditions continue under the 
 now constant turmoil arising from the dissatisfaction 
 of the farmer, the shipper, the manufacturer, the public, 
 all looking for adequate railroad facilities at reasonable 
 rates as essential to their business prosperity and 
 development, yet not able to put their finger on the 
 real difficulty? There is the suggestion of high freight 
 rates, then the suggestion for enforced consolidations,^ 
 with incidental contraction of railroad facilities into 
 these few large systems — ^for contraction is what it 
 really means. 
 
 COORDINATED RELATIONS BETWEEN 
 RAILROADS 
 
 And the reason for all this is that the railroads have 
 been unable, because of their highly competitive rela- 
 tions and because of the desire of each railroad head 
 to hold on to his prerogative, if you please — I am a 
 railroad executive and know what it means — ^to get 
 together on a coordinated and "joint use" basis. The 
 time has passed for continuing the old system. If the 
 present barriers are not relieved, and the railroads do 
 not get together and give the public the results sought 
 by these great consolidations, or the results of operation 
 under a single head — ^without its dangers and defects — 
 and go to Congress and ask for definite legislation to 
 enable them to put in effect a plan of their own selection 
 to bring about these things, it would seem that we are 
 nearing the point where it will be difficiilt to avoid the 
 contention of those who assert that transportation is a 
 Government function and cannot be continued through 
 private operation, though Government operation would 
 be uneconomical in results. 
 
 My friends, why will the railroads stand out against 
 the law — not of supply and demand — but the law of 
 demand and supply? We should know what the public 
 
 14 
 
and shippers' demands are in transportation. We know 
 that the supply exists, or can be found, but the heads 
 of the railroads of the country have failed thus far to 
 agree on the naost economical handling of the supply — 
 the facilities that each one of the carriers owns or can 
 acquire, so that the demand will be supplied by the rail- 
 roads themselves through their own agency, if they will 
 give and take in respect to their facilities, and not leave 
 themselves under the necessity of calling upon a Gov- 
 ernment body to help them meet these demands. 
 
 These questions are of such vital moment that I 
 desired to come here and endeavor to impress upon 
 you the necessity of action. The splendid support 
 given the Association of security owners by your Asso- 
 ciation and by the savings banks generally of the 
 country, together with the cooperation given in other 
 quarters, has been the great incentive to us in the 
 active management of the Association to obtain the 
 recognition and protection to which we have felt you 
 are entitled. We ask the continuance of your confidence 
 and cooperation. 
 
 It may be well to summarize — 
 
 CONCLUSIONS 
 
 Let us consider the position in which the railroad 
 executives find themselves. I greatly dislike to refer to 
 these matters and do so only because we are faced with 
 the most serious legislative outlook that ever con- 
 fronted the railroads. Not to be frank and "take 
 stock" at this time would be suicidal. 
 
 Speaking personally, I number among the railroad 
 presidents many friends ; they are able men. In appeal- 
 ing to Congress, however — and to their stockholders to 
 help — to let the Transportation Act alone, without 
 amendment, they lose sight of the fact that the ftinda- 
 mental provisions of that Act are based on the three 
 proposals offered by the Association of security owners 
 which the railroads asked to be defeated as vigorously as 
 they now ask their retention. But the inconsistency of 
 their position goes further. They also lose sight of the 
 fact that the underlying purposes of these proposals and 
 
 15 
 
the entire Transportation Act are in recognition that 
 the railroads collectively form a National system of trans- 
 portation, with their facilities subject to joint use where 
 practicable. The railroads were not in sympathy with 
 these purposes then and oppose them now. And while 
 asking that the Act which demands their fulfillment be let 
 alone, they fail to carry out the very policy and- purposes 
 which they ask continued. No better illustration of 
 this can be given than their declination to take advan- 
 tage of perhaps the most far reaching and — ^in efficiency 
 and economic result — self evident of all joint facility 
 uses — the pooling of certain classes of interchange freight 
 cars. 
 
 All three of the proposals that underlie the Trans- 
 portation Act are based on the inescapable fact that 
 all the railroads are inter-dependent — one railroad 
 dependent upon the other — constituting a National 
 railway system. I will explain: 
 
 Under proposal 1 — (now Section 422 (Sec. 15a, 
 C. A.) of the Act) — rates are adjusted so as to produce 
 sufficient revenue for the great majority of the railroads, 
 with a division of excess revenue over 6% on property 
 value of an individual railroad, and essential because 
 of the inequalities existing between traffic territories, 
 in which the respective carriers operate. The Supreme 
 Court based its Wisconsin Passenger Fare Case decision 
 on the fact that each railroad forms a part of a " National 
 railway system" ; that no State could interfere in interstate 
 commerce by making a state rate that would destroy 
 the interstate rate and interfere with carrier revenue 
 in conducting commerce between the states. 
 
 Is all this not in recognition of the necessity of joint 
 facility uses — that transportation must be considered as 
 a whole? 
 
 Under proposal 2 — (Section 418 (Sec. 15, C. A.) of the 
 Act) — Commission is empowered to adjust the divisions 
 of freight rates: in illustration, say, two-thirds of a rate 
 to the originating railroad and one-third to its connec- 
 tions, or 75% to the originating road and 25% to its 
 connections. 
 
 16 
 
Is this not in recognition of the necessity of joint 
 facility uses — ^that transportation must be considered as a 
 whole? 
 
 Under proposal 3 — (Section 402 (Sec. 1, C. A.) of the 
 Act) — Commission is empowered to relocate or "pool" 
 freight cars in emergencies. To take the cars of any 
 railroad to enable another railroad to perform a public 
 service in emergencies. 
 
 Is this hot an extreme recognition of the necessity of 
 joint facility uses — ^that transportation must be considered 
 as a whole? 
 
 Proposal 4— »o^ accepted — the one thing lacking to 
 follow up the purposes and intention of the three other 
 proposals. The establishment of a central railroad 
 agency empowered to do the things that the railroads 
 decline to do individually, which cannot be done 
 through any voluntary organization of the railroads 
 that has no responsibility to Congress and to the public, 
 which the fourth proposal of the Association of security 
 owners would have established. 
 
 The reason the railroads vigorously opposed these 
 four proposals was because of the very fact that each 
 proposal did recognize the necessity of joint facility 
 uses and that transportation must be considered as a 
 whole. The railroads have declined and still decline 
 to recognize the right of the reasonable use of their 
 facilities, in the public interest, by carriers other than 
 the owning- railroads. 
 
 But after all, when they have seen the results of these 
 proposals and have found that the old-fashioned 
 method of fighting for rates before the Commission 
 has passed; that power was given to the Commission 
 to do things that were essential to be done without the 
 old precedure incident to every request for a raise in 
 freight rates; when they realized that the proposals 
 underlying the Transportation Act have saved the rail- 
 roads, and without them the carriers would not have 
 been able to successfully emerge from Federal control 
 as they are now doing, the day began to dawn and they 
 now beg of Congress — and of their stockholders to help 
 — ^in letting the things alone which they endeavored to 
 
 17 
 
keep out of the Act because, perchance, some preroga- 
 tive of a railroad president might be disturbed. 
 
 But is it not the same old "stand pat" policy to now 
 ask to be let alone when it is known the railroads will 
 not be let alone in the next Congress? Are there not 
 now at work important legislative forces that represent 
 Government operation? Are we not on notice in every 
 direction — ^from the President of the United States, the 
 Chairman of the Senate Committee on Interstate Com- 
 merce, and other vital forces — that the Transporta- 
 tion Act is to be taken up in the next session of Congress 
 and that transportation legislation is to be enacted} 
 Shall we wait until placed on the defensive? Have the 
 railroads no constructive note to sound other than to be 
 let alone, knowing they will not be? Do they believe 
 that consolidation of all the railroads should be enforced 
 ^with the dangers to those who have bought their 
 securities, and the unsettlement of railroad credit 
 incident thereto — or shall consolidations be made per- 
 missive? Is there to be continuance of the avoidance of 
 car pooling by making car service rules .and regulations 
 in conflict with eflScient service and every economic 
 principle and to be broken and avoided in times of car 
 stress, as is being done today in Western territory, to 
 which I have alluded? I make the assertion that many 
 of the most prominent and well recognized best informed 
 car service men connected with the most important 
 railroads in the country, if left uninstructed to report on 
 the pooling of certain classes of interchange freight 
 cars, would report in its favor as the practical and 
 economical means to insure adequate service and pre- 
 vent cross haul of empty cars and so-called car shortage. 
 And to enable cars to be constantly followed and kept 
 up through repair and rebuilding. 
 
 I ask whether it is not advisable to frankly go to 
 Congress, admit these conditions, and ask that legisla- 
 tion be enacted which will ensure to Congress and to 
 the public, as well as to ■ those who have invested 
 hundreds of millions of dollars in the securities of the 
 railroads, a coordinating instrumentality along the lines 
 of what we have suggested, and not wait for this to be 
 done, as it will be done, in some drastic manner that 
 
 18 
 
will imperil private operation and the investment in 
 these properties. 
 
 The present railroad propaganda of "Committees" 
 and campaign of abuse of Senators, Members of Con- 
 gress and others having Government ownership views 
 will not prove effective; they are entitled to their views 
 and the present policy of the railroads gives ground for 
 their encouragement. The way to combat them is by 
 argument; by facts; by changing methods as outworn 
 as those now superseded by the discussed provisions of 
 the Transportation Act — and substitute therefor the 
 instrumentalities that will obtain any advantage 
 claimed for Government operation, but free from its 
 serious uneconomical consequences and blighting politi- 
 cal influences that would destroy incentive and initia- 
 tive — the principal factors in building up the commerce 
 and agrictiiture of the country. 
 
 The fourth proposal of the Association of security 
 owners in purpose and intent has not been changed since 
 offered before Committees of Congress in 1919. On 
 the contrary, the experience of the four years that have 
 elapsed has demonstrated the urgent necessity of this 
 central coordinating railroad agency. 
 
 We have continued to ask for its establishment by 
 Congress. It is again offered, believing the future 
 will demonstrate that the railroads will make as serious 
 a mistake by opposing it as has been demonstrated was 
 made in 1919 in opposing ovir three proposals that 
 underlie the Transportation Act of 1920, for the preser- 
 vation of which the railroads now appeal. 
 
 19 
 
Car Shortage -The Permanent Remedy 
 
 ADDRESS BY 
 
 S. DAVIES WARFIELD 
 
 President, National Association of Owners of Railroad Securities 
 
 President, Seaboard Air Line Railway Company 
 
 President, The Continental Trust Company, Baltimore 
 
 BEFORE 
 
 The National League of Commission Merchants 
 
 (Thirty-first Annual Convention) 
 AND 
 
 Members or 
 Chamber of Commerce of Cincinnati 
 
 Cincinnati, Ohio 
 
 January 12, 1923 
 
 national association of owners of railroad securities 
 headquarters: baltimore, md. 
 
^^i^f^^^p^ 
 
 S. DAVIES WARFIEUO 
 
 BALTIMORE AND CALVERT STREETS 
 BALTIMORE 
 
 ^P^!^^^F'^pj?w^!?''«^F'WrFT<«;jv"'';a?^^if>'«^„? ';n*- ' ■ ( '«■' 'S^^ga'pB^J^ 
 
 March 14, 1922, 
 
 1 1 f 1 L H ' 
 
 I 111 1 1 1 ^ *'^-- T . T n li f h n lie a 
 
 . , 111 ) I M c I HI I ^ , \ ' In " i i1 ion 
 
 f I t t ' 111'' 1 1 ll I) s "' 
 
 n , 1 111 till ' ^ ,1 11 ^ ^"S 
 
 c I 1 1- ^ , , t 1 Silt I , , ^ 
 
 ^t 0. • ^ ,^^' \ ' ;,,, , 1 rli 11 ) ''' 
 
 '^^^ ^ nil J 1 1 i t", \ n C 3- 
 
 ] ir I II J ' 1 I I I 1 1 1 o 3 
 
 1 pi 1 , , 1, 1 1l "-1 
 
 
 w 11 I ^ 
 
 n 1 1 'T + 1 n j;'- f r- m the d e o i. b i, u 1. 1 - 
 The Court saya - quo-i"^ 
 
 •"-[li - ( LU ] 1 1 -.1 I 
 
 cn ill 11 .^ turn u h i> 
 
 V c J 1 i ^T"> ^ ''^ '!' , I ,^ 
 
 1 I 11 n n y 1 c-l III 
 
 C , 111 1 . i ^ « 
 
 1 t IT * " 
 
 T I I 
 
 I I 
 
 1 111 1 ^ 
 
 iu thi U - 
 
 result" . 
 
 1 
 
 1 1 
 
 1 1 
 I I 
 
 fh 
 
 ThlB decision, 
 
 ciation of security owners 
 
 alone, justifies the exisxenc 
 
 of ths 
 
 in corinei 
 
 , ,-■ 1 +VO+ r<rir position 
 
 Tt is f'raxixy 
 tion 'With the railro8„ds ha.: 
 itv" the Supreme Oourt. 
 
 — ^J ^ 1 1 >■ 
 
 n -1 ,1 th "1 1 I ^^ ^ 1 '^ - . 
 
 U'hi h i m^-^ u 1^ ' 1 \\ r 11 . nl ^ 1 1 
 
 of 1^ = 111 
 imp-i t i/n ] f 
 
 which t:a u i u oi....i-.^ - ^ 
 
 1 1 iiii 
 
 t It L 
 
 C iiiU 
 
 J J t 
 
 Si on, w 
 
 Very trul^r yours, 
 
opportunities for exercise on the part of 
 hundreds of youngsters who, without 
 them, would have nothing definite to do 
 except to cuss the Weather Man. Skat- 
 ing, snowshoeing and skiing are more 
 appropriate to the season in the North, 
 but Baltimore has no hope of indulging 
 in two of these sports, and the third^ — 
 skating — is seldom possible. The de- 
 velopment of new winter games suited 
 to the Baltiinore climate is, therefore, 
 an important matter, for although boys 
 never really hibernated in the old days, 
 they were not satisfied with life. If 
 they had been, they would not have 
 turned to new sports with the enthusi- 
 asm that they now show. 
 
 A PESSIMISTIC BIRTHDAY 
 PARTY. 
 
 Sunday, observed as the third anni- 
 versary of Prohibition, was not a very 
 cheerful birthday occasion. It was full 
 of oratorical lightning and thunder, of 
 denunciations and threatenings, but the 
 speakers found it difficult to offer their 
 favorite daughter any very sincere con- 
 gratulations or any confident , hopes for 
 a long and happy life. One of the 
 orators, it is true, told Miss Prohibition 
 that she had a right to consider' herself 
 a 100 per cent, success because she had 
 driven the saloon from our slreet cof- 
 ners. But that dry damsel cannot take 
 the compliment seriously when she knows 
 that she has created numberless illegal 
 saloons and has replaced the licensed 
 drinking house by a far worse evil. 
 
 That her parents are thelnselvei any- 
 thing but pleased with her achievements 
 is clearly manifested by their ill-temper. 
 Brother Orabbe characteriaed Maryland 
 as the "garbage can" for the bootleggers 
 of the United States, which l* sot only 
 a very Impolite way to talk about the 
 State that is providing him a living, but 
 Is not in strict accordance with the facts. 
 jcf the bootleggers of the United States 
 Sock to Maryland, does not that rather 
 tefi^ect on Brother Grabbe,^a an easy- 
 ^ark? In point of fact, M^ter, the 
 bootlegger is a universal compld^fehkJIe 
 b the Illegitimate child of the suppS 
 iirtuous Mlsa Prohibition. 
 
 And h« abounds quite as much in dry 
 hnforcemwit States like New York as in 
 ttlaryland. Even la Upshaw's Georgia 
 hnd other Southern States, which were 
 
 ing wltnoui prone, auinorizea lo woris 
 out means for the quicker and better 
 distribution of interchange freight cars. 
 
 The design is that this agency should 
 be incorporated by Congress as the 
 Nat^)nal Railway, Service Corporation. 
 It would be an ex!,en8ion of the prelim- 
 inary organization of that name incor- 
 porated under Maryland gener^ law, 
 which has already proved its service- 
 ability on a limited scale. Pooling of 
 equipment and standardization in re- 
 spect to new and rebuilt cars would 
 be within the power of the proposed 
 body. 
 
 The reason for the failure of the Car 
 Service Division of the Interstate Com- 
 merce Commission and the American 
 Ballway Association — ^which is the car- 
 service agency of the carriers — to solve 
 car-shortage problems is at bottom 
 financial. Both of these agencies suggest 
 remedies. Neither they nor the indi- 
 vidual carriers are able to provide the 
 financial means necessary to carry reme- 
 dies into effect. Special attention to 
 the financing side is therefore paid in 
 the Warfleld plan. While it is held that 
 the Service Corporation could finance 
 its equipment trust obligations without 
 Government loans it is apparently con- 
 templated that loans might be advanced 
 on adequate security from the revolving 
 fund established under the Transporta- 
 tion act. 
 
 There are, of course, objections to be 
 raised to the Warfield plan. It is ques- 
 tionable, for instance, whether the pro- 
 posed board of trustees — twelve to be 
 nominated by the carriers and twelve to 
 represent those large investing institu- 
 tions which have big holdings of railroad 
 securities — is sufficiently representative 
 to be intrusted with the great power 
 this corporation would exert. But ex- 
 ecutive composition of the central Clear- 
 ing house agency is secondary to the 
 obvious need for some such development 
 in railroad organization ia this country. 
 In the main lines of his argument, Mr. 
 Warfield is standing on ground difficult 
 to assail. 
 
 against it will bl 
 to exclude the p; 
 in the remakinf 
 
 STJ] 
 
 —-■Normally, I 
 pla^d land. Th 
 Rouge. 
 
 — rind a nai 
 and you have i 
 contain an occas 
 
 — Wine, wov 
 been wicked ; b 
 feminine politicii 
 
 — There is ye( 
 ism out in the 
 sacks are used t 
 the kids. 
 
 — Pable: (X 
 man who had ti 
 money aud-proi 
 produced literal 
 
 Hoio To Wi 
 
 From th» 
 
 The 200 or so 
 tending the com 
 Language Assod 
 reported to hav» 
 the criticism ^ 
 made by edit« 
 ing houses. 1 
 calculated to 
 about their ca 
 ... A knoi ^ 
 English correct!} 
 pursuits of life 
 to the compositi( 
 
 SSXIOO AND THB PAPAL 
 GATB, 
 
 has the moral^^mmoral 
 right "BBl^age her h^^Kl affairs to 
 suit herse^ provided Brat in doing so 
 ^ dp$a Mt IfifiiJDse m the miiterj#l 
 
 Musi Be U 
 
 From th* ^ 
 Demand for t 
 said to exceed 
 jesses, which 
 
 Mollh 
 
 "I see," said ' 
 dent is going sv 
 together to see { 
 prohibition work 
 
 "They might ai 
 work I" refUediS 
 
CAR SHORTAGE— THE PERMANENT REMEDY 
 
 ADDRESS BY S. DAVIES WARFIELD BEFORE THE 
 
 NATIONAL LEAGUE OF COMMISSION MERCHANTS 
 
 AND MEMBERS OF 
 
 chamber of commerce of cincinnati 
 
 Mr. Chairman, 
 
 Members of the League 
 AND Chamber of Commerce: 
 
 There is perhaps no domestic business problem 
 that SO intimately affects the American people as 
 car shortage. It reaches into every mining, industrial, 
 business and agricultural enterprise, and into the 
 home of every citizen. It is still with us, perhaps not 
 so acute. The public is thoroughly aroused because 
 of its continuance, with no constructive means for its 
 permanent relief. It has raised prices on the con- 
 sumer, has caused great public concern, and brought 
 about a political upheaval at the last election when, 
 whether rightfully or wrongfully, many Members of 
 the Senate and House of Representatives of the Con- 
 gress were defeated in States and districts where car 
 shortage was most acute. There must be underlying, 
 . fundamental causes for these conditions to have con- 
 tinued, at periods, during many years until the 
 accumulation of evidence of failure to relieve them 
 threatens the continuance of private operation of the 
 railroads. 
 
 I shall confine my remarks to car shortage and the 
 permanent remedy, and will not go into the general 
 subject of transportation because of lack of time and 
 it would burden you. I should like to do so because 
 of the grave misunderstanding and sometimes mis- 
 representation of the purposes of fundamental fea- 
 tures of the Transportation Act of 1920, where the 
 farmers and shippers generally have been led to 
 believe that Section 15a of that Act is inimical to 
 their interests, whereas it is of far-reaching and per- 
 manent importance in stabilizing rail transportation 
 
as a National system. If the time permits I will dis- 
 cuss Section 15a of the Act later, it requires detailed 
 explanation for its main purposes and necessity to be 
 understood. 
 
 Gar shortage. Now what produces car shortage? 
 It is my purpose, gentlemen, in the discussion of this 
 subject to hew to the line and let the chips fall where 
 they may, for it is an amazing situation that car 
 shortage occurs and continues to exist — and in cer- 
 tain heavy producing territories with almost seasonal 
 regularity — at every rapid or substantial revival of 
 business, yet no means has been adopted for its 
 permanent avoidance or relief. As Mr. Julius H. 
 Barnes, President of the United States Chamber of 
 , Commerce, has well said : 
 
 "There is no real study being given to the 
 transportation problem, and results are follow- 
 ing which are a rebuke to A merican intelligence. ' ' 
 
 CAUSES OF CAR SHORTAGE 
 
 There are underlying causes that produce car 
 shortage, let us discuss them, several are of financial 
 origin. 
 
 First, declination or inability of a railroad to 
 finance its proportion of the equipment essential to 
 the conduct of transportation as a whole. Each rail- 
 road holds an obligation to the country to supply 
 itself with cars, not alone to meet its own loading re- 
 quirements, but also its pro rata amount of the cars 
 passing over its rails in through or joint service. 
 
 The second contributory cause is whether each 
 railroad is getting out of its cars all that it should 
 get out of them. In other words, is there not the 
 need of a co-ordinating or clearing house influence of 
 and by the railroads which will not alone place before 
 eivery railroad what other railroads are getting out 
 of their equipment but that can require of all car- 
 riers the observance of like equipment service. 
 
 The third cause is lack of standardization of equip- 
 ment, especially interchange equipment, not only 
 
as respects new cars but as respects a plan of action 
 under which cars shall be graded as to the class of 
 repair that they shall undergo, whether running 
 repairs or rebuilding under standardized plans for 
 rebuilding, at the lowest cost commensurate with the 
 results to be obtained; I mean under plans that will 
 put a car in condition so it will be kept out of the 
 repair shops, kept on the road, and that will prolong' 
 its life. It is well established that two properly re- 
 built cars perform more constant service than three 
 ordinarily repaired cars. 
 
 Should it not be required of the carriers that a 
 plan of standardization in respect to both new cars 
 and for rebuilding or the rehabilitation and recon- 
 struction of old or bad order cars be adopted and 
 made effective together with the most economical 
 means for its accomplishment? Should not interchange 
 freight cars be kept rolling, as far as practicable, 
 from one section to the other, not spending a large 
 part of their time in out-of-the-way and perhaps in- 
 adequate railroad repair shops or in running back, 
 empty, to their owners for repair or reloading? 
 
 The fourth cause is lack of method or means for 
 a more extended use and distribution of cars used in 
 interchange traffic through pooling certain kinds of 
 this class of car, not every interchange car, for there 
 is special equipment that should be confined to 
 trafific routes. 
 
 The fifth contributory cause is lack of facilities in 
 many instances to quickly load and unload cars 
 and clear them through freight yards and terminals. 
 
 These constitute the main obstructions to adequate 
 car service. 
 
 A VITAL NECESSITY NOT PROVIDED 
 
 But oi all the needs of transportation that continue 
 to be unprovided for and that cannot be provided 
 through the existing car service agency of the rail- 
 roads, the most vital is failure to supply a carrier, 
 unable to finance its equipment, both new and re- 
 built, with the means to finance it, coupled with the 
 
requirement that when a carrier's obHgation to the 
 public in equipment is determined, this obligation must 
 he fulfilled. This is fundamental to the stoppage of 
 car shortage. Let us see if this is not the fact. 
 
 The Interstate Commerce Commission for years 
 has had the power granted to it by Congress under 
 which it can require any railroad to perform its duty 
 to the public by equipping itself with loconiotives 
 and with freight cars in order that it shall not con- 
 tinue a debtor carrier in respect to cars, but that it 
 shall put itself in position to supply its qiiota of cars 
 necessary to haul the products of the country. Now, 
 let us see how this operates. 
 
 i The Interstate Commerce Commission possessing 
 this power, how can it use it. It can say to railroads 
 A and B, you are short of particular classes of equip- 
 nient. We order you, in the public interest, to provide 
 that equipment. Has the Commission done this? It 
 has not because it cannot force a railroad to provide 
 itself with something that it may be unable to finance, 
 so these powers are inoperative. 
 
 What has the National Association of Owners of 
 Railroad Securities done in respect to the permanent 
 relief of these conditions? 
 
 Now, before going into details, let me say that the 
 position of the management of the Association of 
 security owners has been difficult. Often misunder- 
 stood, told or asked "what have the security owners 
 to do with railroad operation," the way has been hard 
 to travel. But, as many of you know, we have accom- 
 plished quite a little thus far. 
 
 We have driven home to the American people that 
 the great bulk of railroad securities are not stored away 
 in the vaults of the "idle rich" but vast amounts are 
 owned and held to help meet the death claims of 
 millions of the population that constitute the major- 
 ity, a continuing majority for as the present genera- 
 tion passes away others take their place, leaving 
 behind them life insurance policies, often the sole 
 support of the beneficiaries thereof, and now pro- 
 tected in 25 per cent of their value by railroad securi- 
 ties. We have endeavored to impress upon the public 
 
 4 
 
understanding and upon those in official or legislative 
 position who represent them, that there are also ten 
 million depositors in the savings banks of the coun- 
 try, most of them mutual institutions with their 
 mutual ownership of the millions of railroad securi- 
 ties owned and held for the support and payment of 
 such deposits belonging mostly to toilers by hand and 
 who are unable themselves to watch over their invest- 
 ment in these securities. 
 
 SECURITY OWNERS' POSITION AND PROPOSALS 
 
 In January, 1919, we placed before Congress the 
 necessities of transportation, as we saw them, and 
 after investigation by Committees of Congress-r- 
 probably the most extensive ever made in the history 
 of transportation legislation — rnany of these sugges- 
 tions were included in the Transportation Act of 1920. 
 
 Whenever opposition comes^as it so often does 
 from reactionary forces found in both the railroad 
 and financial world^the popular argument, in de- 
 fault of an adequate answer to our proposals, as has 
 been stated, is what have the security owners to do 6r 
 know about railroad operation? Much mystery is 
 made respecting railroad operation. There is, no 
 mystery about it. It is producing and selling trans- 
 portation. We donot wish to interfere, but in default 
 of remedies to correct manifest transportation and 
 financial necessities, we employed men of interna- 
 tional reputation in such matters and have not moved 
 without knowledge of what we were doing. It is not 
 enough for the railroads to publish accounts of in- 
 creased car loadings and ton mileage. These are the 
 necessary results of natural year to year advances 
 made in any great enterprise. If these increases had 
 not taken place, then the railroads would have been 
 slipping backward. But what is being done to cut the 
 tap root of car shortage? ; 
 
 Our answer to what have we to. do with railroad 
 operation, has been that railroad operation produces 
 either surpluses or deficits i Arid any operating con- 
 dition which fails of purpose in giving the public 
 
what they have a right to demand means a public 
 attitude toward the railroads, and consequently those 
 who own their securities, that results In drastic action 
 by Congress or regulatory agencies, bringing deple- 
 tion in security values and finally receiverships. For 
 unless the railroads recognize their duty to their 
 patrons and to the public as a whole they will come 
 to grief. 
 
 Secondly, and this is entirely without criticism, 
 where the policy of the railroads has been that each 
 railroad continues to conduct its affairs with regard 
 to its own exclusive use of all of its facilities with the 
 sole purpose of getting ahead of some other railroad, 
 it becomes difficult to establish the inter-carrier rela- 
 tions essential to adequate service economically con- 
 ducted. It has been amply demonstrated that it is 
 not practicable to expect these great transportation 
 machines to get together and do those things that 
 are manifestly in the public interest, without a co- 
 ordinating agency of and by the railroads — a clearing 
 house — to establish and hold such relations between 
 the railroads as will bring this about. This is not 
 criticism. We have competent railroad presidents 
 and operators. But years of bitter competition have 
 built a great National system of transportation com- 
 posed of single individual railroad entities now be- 
 coming top heavy, but only because each railroad 
 continues to operate under its exclusive prerogative 
 with little reference to the demands of transportation 
 as a whole. So, when it comes to the use of a facility 
 jointly, like an ordinary interchange box car, each 
 railroad desires to hold on to its own. 
 
 Every carrier properly has its own ideas as to what 
 a car should be in construction, how many of each 
 class it should buy, how they should be repaired — 
 whether ordinary running repair or rebuilt — ^whether 
 the mileage made and the loading of its cars are 
 satisfactory to itself, whether it proposes to insist 
 that the ordinary interchange box car that it owns 
 shall be unloaded at a distant point on another road 
 and returned to it empty for reloading or for repair 
 and the numerous other questions that would be 
 
involved in a carrier standing on its own "dung hill" 
 and declining to meet another unless upon its own terms. 
 
 RAILROADS ARE INTERDEPENDENT 
 
 Is it fair to you^ the shippers, that these funda- 
 mental necessities of transportation shall be decided 
 upon and put in effect without consultation among 
 the carriers and every consideration given to the 
 policy of all the carriers respecting these questions 
 and in full recognition that each individual carrier 
 forms only one cog in the wheel that propels the 
 transportation machine and can only move when in 
 unison with the other cogs? Only can a determina- 
 tion be reached, in respect to the important questions 
 just mentioned, through a most careful survey of 
 the needs of transportation as a whole and of the 
 needs of each individual carrier that forms a part of 
 the transportation machine, under well-rounded 
 plans, so that each carrier would supply itself with 
 cars to meet its necessities, with due consideration, 
 however, to what may be considered necessary for 
 other carriers to fulfill their obligations likewise to 
 the public, so that there will neither be duplication 
 or deficiency in any class of freight car equipment. 
 
 Your business success is dependent upon the estab- 
 lishment by the railroads of such inter-carrier rela- 
 tions as will ensure to you an interchange car service 
 under which the cars you pay for in freight rates shall 
 be in construction adapted to your use, that they 
 shall be handled quickly and maintained economic- 
 ally, kept moving with a load as far as economically 
 possible. You have no interest in what railroad owns 
 these cars. You want service and if the movement 
 and maintenance of these cars can be best and most 
 economically accomplished in your interest through 
 disregarding ownership, with due regard paid to the 
 rights of the owner, you wish this done. 
 
 The Commission Merchants of the United States 
 have been holding your annual convention in this city 
 for several days — you are co-operating to an end. 
 Cincinnati has its Chamber of Commerce, so has 
 
every city. In turn, there is the United States Cham- 
 ber of Commerce— a nation-wide co-operative busi- 
 ness organization. Cincinnati banks have their 
 clearing house, so have all large cities. In turn comes 
 the Federal Reserve System with its Federal Reserve 
 Baiiks— the National financial clearing house of the 
 country. What are all your organizations, trade or 
 otherwise, but clearing houses for the co-operative 
 transaction of business? 
 
 A RAILROAD CLEARING HOUSE AGENCY 
 ESSENTIAL 
 
 What have the railroads? How do they function 
 as a whole? They have much more in common. Each 
 one of your enterprises in the daily conduct of its 
 business can function independently of the other. 
 A railroad cannot function independently of other 
 railroads. In interstate commerce one is entirely 
 dependent upon the other because the car it Ipads for 
 yoii must pass from it to be handled by other railroads 
 to its destination. It may require half a dozen rail- 
 roads to transport it to your customer. 
 
 For years the railroads attempted to function as a 
 whole through their Association of Railway Execu- 
 tives. You have had the result 'before you. Hardly 
 a member could say it was successful- 
 
 The car service agency of the railroads has not 
 stopped car shortage during many years' trial. Should 
 this continue without at least an effort on your part 
 to help secure a co-operative clearing house agency 
 of and by the railroads, that shall be authenticated 
 by Congress, with powers only operative through the 
 Interstate Commerce Commission, after its approval, 
 and through which action in the interest of trans- 
 portation as a whole can be required. Do yoii believe 
 that private operation of the railroads can continue 
 without some a.gency, such as is used in nearly every 
 business or community to produce results? 
 
 Because of the continuance of an exclusive policy, 
 with no co-operative or co-ordinating agency, you 
 gentlemen find yourselves laboring under car shortage 
 
 8 
 
difificulties and I may say laboring under railroad 
 rates that with different administrative conditions 
 could be lowered, for no railroad rate can find justi- 
 fication unless and until economies are ascertained 
 and put in effect under the recognition that trans- 
 portation must be considered as a whole and hot 
 administered in the interest of any individual rail- 
 roiad, which cannot be done if due regard for thfe 
 public interest is to be shown. 
 
 OBSTRUCTIONS TO CAR SERVICE 
 
 Let us briefly again enumerate the underlying 
 causes of car shortage, so that there may be no mis- 
 understanding. It is desirable to drive home, first, 
 the causes of car shortage, and, second, means to 
 permanently avoid them. With the causes stated and 
 agreed upon, this audience will be convinced that 
 what w:e propose, if accepted and put in operation, 
 would kill this blight upon American industry and 
 agriculture known as " car shortage. " 
 
 The five present obstructions to car service to 
 which attention has been called are, briefly: 
 
 1. That each carrier has not furnished, both " 
 as to class and amount, its quota of car equip- 
 ment in proportion to the total requirements 
 of transportation, as a whole; 
 
 2. That every carrier has not secured as high 
 efficiency out of the cars it operates as other 
 carriers operating under like conditions; 
 
 3. That there has never been put in effect 
 standardized plans under which freight cars 
 shall be purchased, rehabihtated or rebuilt; 
 
 4. That methods are not practiced that will 
 produce a better supply, niore extended use 
 and wider distribution of certain classes of ■ 
 interchange freight cars now in service or to 
 
 be put in service; 
 
 5. That freight yard and terminal facilities 
 
are not used or being constructed such as will 
 jointly operate to quickly load and unload 
 cars. 
 
 Now, as stated, these present the underlying ob- 
 structions to adequate car service. Failure to provide 
 against any one of them may create car shortage, 
 but failure in all produces and has continued, at times, 
 to produce through series of years demoralization 
 and loss among shippers because of failure on the 
 part of the railroads, as a whole, to at all times pro- 
 duce adequate means to carry their goods or products 
 to market or the raw material or commodities to 
 them. 
 
 The enumeration of most of the underlying causes 
 that produce car shortage is not in a spirit of criti- 
 cism of any railroad executive or any railroad. I am 
 a railroad executive myself, among my "other trou- 
 bles," and know the difficulties met with. Car shortage 
 results from the present "state of the art." It could 
 scarcely have been different up to recent years when 
 these great machines have grown into inter-relations 
 such as to justify the belief that the time has arrived 
 when recognition must be given to the fact that the 
 Federal Reserve System with Reserve Banks, to 
 which allusion has been made, was established to 
 supply the co-ordinating or clearing house influences 
 to avoid financial panics and that unless a railroad 
 clearing house agency is properly established car short- 
 age panics such as at present will continue to occur. 
 
 TRAFFIC INEQUALITIES BETWEEN TERRITORIES 
 
 Just four years ago — ^January 19, 1919 — repre- 
 sentatives of the Association of which I am president 
 appeared before the Senate Committee on Interstate 
 Commerce. It was the first appearance of this organiza- 
 tion before any legislative body ; appearances had been 
 made before the Interstate Commerce Commission. 
 
 There were four cardinal principles upon which 
 this Association pinned its faith. One, that the 
 problem^then termed by , Senator Cummins "the 
 
 ID 
 
insoluble problem" — of failure to provide for the 
 traffic inequalities between territories traversed by 
 the various railroads must be solved, and we pro- 
 ceeded to make suggestions for its solution. Those 
 suggestions are in the Transportation Act under that 
 much discussed and "cussed" Section, (15a). I 
 promised not to go into this subject for it requires 
 some little detail, but it is necessary. 
 
 Railroads do not all occupy heavy traffic territories. 
 Shippers, consumers and agriculturalists in sparsely 
 settled territories of light traffic have as much right 
 to have their problems of transportation adequately 
 solved as you in Cincinnati have to require that 
 your problems be solved. Railroads have been 
 built through sparsely settled territories of light 
 traffic. Other railroads have grown to immense 
 proportions and a great many of them through sub- 
 sidies by the Government that were proper to have 
 been given in those days of great railroad pioneers 
 who pierced the far west; they were entitled to every- 
 ■ thing that was necessary to enable them to construct 
 empires along their systems. But be that as it may, 
 the Government issued bonds and grants of millions 
 of acres of lands to certain railroads which have since 
 become very valuable. Vast traffic territories have 
 been built up in many cases through which those 
 railroads operate. 
 
 But the great majority of the railroads of the 
 country operate in what are known as lean traffic 
 territories. Now, we all know that a higher freight 
 rate is essential to take care of the actual operating 
 expenses of these majority railroads^ — those that 
 occupy light traffic territories— than are required to 
 maintain carriers that serve territories of dense 
 traffic of the character traversed by the minority 
 railroads. 
 
 PROVISIONS FOR RELIEVING TRAFFIC 
 INEQUALITIES . 
 
 For years did the Interstate Commerce Commis- 
 sion struggle with this problem^ — the insoluble prob- 
 lem of Senator Cummins. If the Commission ijiade 
 
 II 
 
rates that would suit the majority railroads operating 
 in light, traffic territories, they would yield earnings 
 to the minority railj-oads operating in heaVy traffic 
 territories which the people would not stand for. On 
 the other hand, if rates were rhade to yield what was 
 considered a reasonable and fair return to the minor- 
 ity railroads operating in dense traffic territories, to 
 which these railfoads were only entitled, then the 
 fflajority railroads in light traffic territories would 
 starve to death. The Transportation Act, which 
 contains our propdsal, requires that the Conamission 
 shall group the carriers in each of the four or more 
 rate-making districts, add together the actual prop- 
 erty value of each group — not bonds and stocks — and 
 on this aggregate value of property devoted to the 
 piublic use adjust rates to yield sufficient revenue to 
 enable each group of carriers to furnish transporta- 
 tion. The measure of return from rates thus adjusted 
 was 5}4% {yz% additional at the option of the Com- 
 mission).; on the aggregate value of railroad property 
 computed as stated. This measure of return was not 
 to be computed on the property value of any single 
 carrier of a group, but on the property value of all the 
 carriers of a group. Each railroad could therefore 
 earn from rates adjusted to the yield on the aggregate 
 value of all the railroad property of a group only 
 what its efficiency would entitle it to receive. 
 
 THE "TAKE OFF" ESSENTIAL 
 
 If ahy one railroad of a group earns revenue that 
 equals more than a 6% return on the value of its 
 individuarproperty, then one-half goes into a trans- 
 portation fund to be expended in the interest of 
 transportation as a whole. This fund is not to be 
 used to help so-called weak carriers, there is nothing 
 taken from a rich or strong railroad to be given to a 
 weak carrier, so often stated. The strong carrier has 
 as much right to any benefits from the use to which 
 the excess fund thus created can be put as the weak 
 carrier;' the Commission having control over the ex- 
 penditure of this excess fund. Its proper expenditure 
 
 12 
 
should be, to buy freight cars as an emergency sup- 
 ply. Consider what an insurance it would be to the 
 shippers if part, at least, of this excess fund were ap- 
 plied to the purchase of interchange freight cars, to be 
 owned by the Service Corporation and used for the 
 benefit of the, shippers in extreme cases of heavy 
 traffic requirements. , ,. 
 
 On March I, 1922, the fixed measure of return 
 (j5H%} plus }4% at the option of the Commission) 
 denoting carrier revenue expired by liniitation, 
 tljiereafter . the Conunission has full poAver to deter- 
 mine what this percentage should be, to be announced 
 by the Cohiniission from time to time. This, announce- 
 ment was considered necessary to enable investors 
 to know whether the credit of thesearteries of trade 
 was to bernaintained through a Government agency 
 — ^the Comriiission. . 
 
 ,-, ; , ~ ',-iJ ■ ,iT< 
 
 ! SECTION 15A INDISPENSAPLE ? ?r ; 
 
 PROPOSALS ACCEPTED AND THOSE 
 NOT ACCEPTED 
 
 There has been more misundersjtanding, misstatg-. 
 ments in respect to this section of this Act than 
 has occurred, perhaps, in any legislation ever .passed 
 by Congress. The provisions of Section 15a a.re in- 
 dispensable to the maintenance of transpo,rJ;ation as 
 a whole, for rates cannot be made unless provision is 
 also made to adjust the difference in result between 
 railroads operating in light traffic territories and 
 those operating in heavy traffic territories. Defeat 
 this provision of the Act and you make it very 
 difficult for the great majority , of the carriers to give 
 the facilities and service you should receiv.e, ,Let 
 Section 15a reniain, but require that there shall be 
 greater joint use of facilities to meet the needs of 
 transportation with the incidental econoniies.. 
 
 P>o not forget that railroads are public carriers .and 
 unlike private business enterprises are regulated, _ by 
 the Government in every sphere of , their activities, 
 ri^ying no control over their income and fifty percent 
 of their outgo (wages), their credit can.be maintained 
 
 13 
 
by giving an indication of the policy of the Govern- 
 ment in its regulation. Therefore the announcement 
 by the Commission as evidence of its policy from 
 time to time is helpful to railroad credit. 
 
 The next proposal made before, the Senate Com- 
 mittee that was accepted was that the divisions of 
 freight rates, just the same as the adjustment of rates, 
 should be left to the Commission. Carriers had not 
 always allowed connecting roads a fair division of a 
 freight rate. 
 
 The next suggestion to Congress, now provided in 
 the Act, was that the Commission should have the 
 right to relocate cars from one railroad to another in 
 emergencies such as the country has been passing 
 through. During the car shortage of 1920, imme- 
 diately after their return from Federal control, the 
 carriers invoked the aid of this emergency power by 
 the Commission, and are at present pursuing the 
 same policy. 
 
 The next proposition we made, but which was not 
 included in the Act, was that upon failure on the part 
 of the railroads to settle their wage and labor questions 
 with their- men they should be referred to a Division 
 of the Interstate Commerce Commission with the 
 right of appeal by either party to the full Commission. 
 
 The next — a very important fundamental — ^was 
 that there should be a corporation of and by the 
 railroads, subject to the Interstate Commerce Com- 
 mission — a railroad clearing house agency — under 
 Federal Act, for purposes which I will now discuss. 
 If this clearing house agency had been provided in the 
 Act and in full operation, the present car shortage 
 could not have occurred. 
 
 KEY LOG IN JAM LOCATED— FINANCIAL 
 
 In May, 1920, shortly after the return of the rail- 
 roads from Federal control. Senator Cummins called 
 a hearing before the Senate Committee on Interstate 
 Commerce, at the time of the threatened freight car 
 shortage which later became acute, you will recall. 
 There were present bankers of international repute 
 
 14 
 
and representatives of the Association of Railway 
 Executives. The Association of security owners was 
 asked to appear; it was represented by me. 
 
 In answer to questions put by members of the 
 Committee, the bankers stated that equipment of 
 only the rich, railroads of high credit could be financed 
 and that in the then condition of the money market 
 the carriers of weak credit — or the great majority 
 of carriers — could not be financed. 
 
 Your especial attention is called to this hearing, 
 because I regard its result as locating the key log in 
 the whole car service jam. The bankers, representing 
 great investing power, stated that the carriers gener- 
 ally could not finance their equipment, notwithstand- 
 ing the fact that the Transportation Act provided 
 $300,000,000 to be loaned to the railroads, part for 
 equipment margin and for other purposes. Repeti- 
 tions of like financial conditions will often occur. So, 
 as heretofore stated, the key log is largely financial, 
 not operating. 
 
 Appearing for the Association, I called the atten- 
 tion of Senator Cummins to our proposals, made in 
 19 1 9 before his Committee, for the Federal incorpor- 
 ation of an agency to operate without profit, to aid 
 in financing equipment and showed how this would 
 be accomplished to take care of carriers of moderate 
 credit. It is unnecessary to go into details at this 
 time. 
 
 AMENDMENT TO MEET EQUIPMENT NECESSITIES 
 
 Later, representing the Association, I appeared 
 before the Interstate Commerce Commission at a 
 public hearing called to receive suggestions as to the 
 division of the $300,000,000 Revolving Fund that 
 Congress had provided in the Act to be loaned car- 
 riers to assist them to meet the needs of transporta- 
 tion. 
 
 I again put forward the organization of the clear- 
 ing house corporation to enable this and other things 
 to be done by the railroads. 
 
 It was stated by certain opposition, that the 
 
 15 
 
Transportation Act made no provision for this money 
 to be loaned other than to the individual carriers 
 themselves, and that an amendment to the Act 
 was necessary which could not be secured in the four or 
 five remaining days of the pending session of Congress. 
 I told the Commission that we would not only under- 
 take to secure such an amendment, which We knew 
 to be necessary, but would undertake to finance 
 carriers unable to finance themselves in equipment. I 
 saw several Senators and Representatives in Con- 
 gress, with the result that an amendment was secufed 
 to the Transportation Act in the closing days of the 
 session permitting part of this money to be loaned to 
 a corporation for financing equipment, the amend- 
 ment being attached to one of the appropriation bills 
 then in conference between the two Houses, which 
 was signed by the President and is now part of the Act. 
 
 CLEARING HOUSE AGENCY ORGANIZED 
 COMMISSION'S APPROVAL 
 
 We orga.nized the National Railway Service Cor- 
 poration under Maryland general law and this is the 
 corporation we desire reincorporated by Act of 
 Congress with its usefulness thereby extended. 
 
 The Interstate Commerce Commission made loans 
 to the Service Corporation to the extent of 40% of 
 its issue of equipment trust obligations, 60% being; 
 taken by investing institutions. 
 
 In a memorandum giving its reasons therefor, the 
 Commission stated that: 
 
 "The National Association of Owners of 
 Railroad Securities has urged the organization 
 for this purpose (to finance equipment) of a 
 National equipment corporation. There are 
 strong considerations in favor of such a project.'' 
 
 The memorandum further gave as reason for 
 making loans from the $300,000,600 Revolving Fund 
 for equipment that— 
 
 "Freight cars are interchanged and enter! 
 into general use, subserving the general trans- 
 
 16 
 
portation needs of the public regardless of 
 ownership.-' 
 
 While the Commission based its equipment loans 
 to carriers and the. present Service Corporation on 
 the theory that freight cars are operated "regardless 
 of ownership," under the car service rules of the 
 car service agency of the railroads just the reverse 
 occurs, they are operated solely with regard to owner- 
 ship. 
 
 The Service Corporation operates without profit. 
 It financed $30,000,000 of , equipment only as a 
 demonstration of what could be done in bad times 
 in taking care of the equipment needs of carriers. 
 There are two classes of equipment trust obligations 
 issued, one under what is known as the Conditional 
 Sale Plan, the other under the Lease Plan. I will not 
 bother you with the details of these two methods. 
 Suffice it to say that the plan has proved eminently 
 successful. 
 
 The Service Corporation can finance its equipment 
 trust obligations without Government loans. We, 
 however, reserved the right before its expiration, 
 March i, 1922, to later apply to the Commission for 
 loans up to $100,000,000 from the Revolving Fund 
 to help in the rehabilitation of bad order equipment. 
 This would have been of great service if advantage 
 had been taken of the offer made to the carriers at 
 the time to put their bad order cars in order. 
 
 SERVICE CORPORATION UNDER 
 FEDERAL CHARTER THE REMEDY 
 
 Now, let us see wherein the National Railway 
 Service Corporation, if reincorporated under Federal 
 Act, can be of service in meeting the five contributory 
 obstructions to adequate car service which I have 
 enumerated. 
 
 It has, been shown that the Commission has the 
 power to require a carrier to supply its quota of 
 equipment, but neither the Commission nor the 
 American Railway Association -^ the car service 
 agency of the railroads— can finance it. As stated, 
 
 17 
 
you cannot require a carrier to do something it may 
 be financially unable to do unless you provide the 
 means to accomplish it. The Service Corporation 
 supplies the means. 
 
 The Service Corporation will also supply the means 
 for financing rebuilt equipment for railroads under 
 far-reaching, effective and economical methods. 
 
 Equipment, most of it, comes under the after 
 acquired clauses of mortgages, so most all railroad 
 cars are under mortgages. The. method pursued, 
 under such conditions, in rebuilt equipment is as 
 follows : . 
 
 A railroad sells cars for rebuilding to the Service 
 Corporation. Their value is assessed by outside ap- 
 praisers. These cars are purchased at the appraised , 
 value from the railroad, thus relieving the mortgage 
 liens. The Service Corporation issues its equipment 
 trust certificates to the extent necessary to supply the 
 money for rebuilding, taking a lien on the purchased 
 cars. These cars are rebuilt or rehabilitated under 
 standardized plans for rebuilding ; one class of car may 
 require one treatment, another class another. After 
 rebuilding, the cars are sold back to the railroad and 
 pass under the mortgage that had formerly released 
 them. Longer life has been added to them and often 
 a better car is obtained than when originally pur- 
 chased, so the mortgage lien has an added va,lue. 
 The value of the car itself when purchased from the 
 railroad by the Service Corporation supplies the 
 margin, so with this car value the carriers are not 
 required to pay out cash margin from their treasur- 
 ies. 
 
 BAD ORDER GARS REPAIRED OR REBUILT 
 WOULD LARGELY HAVE SOLVED CAR SHORTAGE 
 
 There were about 350,000 bad order cars during the 
 summer of 1922, three times more than what should 
 be a normal number. If carriers had repaired or re- 
 built a fair proportion of these cars (without having to 
 
 18 
 
call upon their treasuries or use their securities for 
 their financing, the offer made by the present Service 
 Corporation) what a saving the country could have 
 realized. The ability of the railroads, acting through 
 the clearing house agency to finance at least a part of 
 these bad order cars, would in itself have largely 
 solved car shortage. 
 
 Taking up the fourth proposition of a greater 
 supply, more extended use and distribution of freight 
 cars, the Service Corporation through its Board of 
 Trustees again affords the central agency, the clear- 
 ing house, that would cause a suryey to be made of the 
 equipment conditions of each railroad, the character 
 and amount of its equipment. Each railroad would 
 show the equipment essential for its on line business, 
 character of special equipment that should be con- 
 fined to traffic routes, and the ordinary interchange 
 cars to meet its normal requirements. When a 
 railroad knows that each railroad is required to 
 bring up its ownership of equipment to a point equal 
 in proportion to that of every other railroad, there 
 cannot be urged the same objection to the joint use of 
 those freight cars that may be provided for pooling 
 as at .present where the railroads have not been re- 
 quired to take care of their pro rata amount of 
 equipment essential to transportation as a whole. 
 
 A fair per diem or rental amount would be paid per 
 car to the railroads supplying cars to a pool, making 
 a per diem service charge for the use of pooled cars by 
 the respective carriers cleared through the Service 
 Corporation. 
 
 You have been passing through conditions where 
 railroads have demanded through the Commission 
 the "relocation" of cars, or the return to them of their 
 own cars, loaded or unloaded, without respect to other 
 interchange car service conditions. It may well be 
 asked why have the railroads not provided for such 
 conditions and the means to effectively relieve or pre- 
 vent them without having to call upon the Com- 
 mission. Over-regulation is constantly charged, yet 
 it is continually courted. , 
 
 19 
 
A WELL BALANCED MANAGEMENT 
 
 , The trustees of the Service Corporation would 
 number twenty -four men, twelve named by the rail- 
 roads of the United States — three from each of the 
 four groups of carriers which the Commission has 
 already formed in the four rate-making districts of the 
 country. The remaining twelve trustee? to be of a 
 class similar to those who now compose the board of 
 the present Service Corporation. This board is made 
 up of presidents of large public investing institutions 
 —life insurance companies and savings banks — they 
 are not bankers, they speak for millions of people who 
 have either their money deposited in the savings banks 
 holding large investment in railroad securities or for 
 the owners of life insurance policies protected by rail- 
 road securities. They represent a vital public interest 
 and are able to look at the problems of transportation 
 as a whole without respect to any individual railroad. 
 They are men of wide experience in public affairs; 
 they are familiar with questions of great moment be- 
 fore the public. So their experience has not been con- 
 fined, if you please, to restricted or technical subjects. 
 Together with the railroad representatives this pro- 
 duces a well-balanced and competent board. 
 
 The Service Corporation would be a railroad clear- 
 ing house agency, operated without profit. It would 
 lead the carriefs away from the Interstate Commerce 
 Commission because things that are now done by the 
 Commission on the application of carriers should 
 properly be done through this agency. 
 
 When railroad officials are named to go on this 
 Board of Trustees by the groups of carriers in the 
 four rate-making districts, they are naturally allied 
 with the group of railroads that names them, pref^ 
 erably through a Group Railroad Board elected by 
 each of the four railroad groups. So the Board of 
 Trustees of the Service Corporation would act in con- 
 junction with the four Group Boards, in conjunction 
 with the officials that would be named to manage the 
 Service Corporation and in co-operation with com-^ 
 mittees which the Service Corporation and the Group 
 
 20 
 
Railroad Boards would select from among; the many 
 able men who deal directly with. car service and 
 transportation and who are officials or employees of 
 the railroads constituting each of these groups. 
 
 Could any such competent organization be other- 
 wise produced? 
 
 In October last, one of the principal railroads of the 
 country appealed to the Commission to issue an int- 
 mediate emergency order to provide it with an ade- 
 quate supply of cars, declaring that the existing 
 shortage on its line would result in disaster to grain, 
 livestock, fruit and vegetable shipments, also to coal 
 and lumber producers. In November, another large 
 systerh made informal application for the use of the 
 emergency power to supply freight cars to its lines. 
 The Commission, doubtless realizing that this was 
 primarily a matter of the railroads themselves, hesi- 
 tated making use of the emergency power. 
 
 AN IMPORTANT COMMUNICATION 
 THE SURVEY BEGINS 
 
 Having since 1919 endeavored to bring about a 
 general survey of the car service and equipment con- 
 ditions of the Country, on November 20th, 1922, I 
 wrote to Commissioner Aitchison, Chairman, Divi- 
 sion Five (Car Service Division) of the Interstate 
 Commerce Commission. Attention was called in this 
 communication to the serious car shortage conditions 
 and to the powers granted to the Commission to 
 ascertain the causes, reminding the Commission of 
 our continual suggestion of a survey such as would 
 reveal the equipment and car service situation. 
 
 On Decernber 27th last, the Commission directed 
 a questionnaire to all the railroads requesting data 
 in respect to equipment, to an extent never before 
 done in my recollection and as the first step in a gen- 
 eral survey of car service. 
 
 The natural question for the public or the shipper 
 tp ask is why the railroads themselves have not made 
 provision long ago for the ascertainment of this data 
 with corfstructive effort to relieve conditions w:hich 
 
 21 
 
so frequently obtained. The answer is that there was 
 no clearing house agency, such as has been suggested, 
 for their ascertainment and that could relieve con- 
 ditions before the emergency occurred. 
 
 RECOMMENDATIONS OF THE PRESIDENT AND 
 JOINT COMMISSION OF CONGRESS 
 
 President Harding, in his annual message to the 
 Congress, and it must be assumed this was the result 
 of a thorough investigation, called attention to the 
 unfortunate lack of transportation facilities and. car 
 service which confronted the shippers of the country 
 and urged upon Congress the desirability of pooling 
 certain, classes of freight cars to relieve these condi- 
 tions.. The President called attention to the report of 
 the Joint Commission of Agricultural Inquiry, com- 
 posed of Members of both Houses of Congress, 
 unanimously recommending to Congress the pooling 
 of certain classes of freight cars under a central 
 agency. The President further recommended to the 
 Congress that ultimate decision of questions of wages 
 and working conditions should be placed in the 
 hands of a Division of the Interstate Commerce 
 Commission. Your attention may be called to the 
 recommendations of the Association of security 
 owners in all these respects made as early as 1919. 
 
 Recently, the Chamber of Commerce of the State 
 of New York passed resolutions urging upon Con- 
 gress due recognition of the President's suggestions. 
 There has been a general and widespread request 
 upon Congress from various trade bodies throughout 
 the country, as well as individual shippers, to enact 
 legislation to require the carriers to perform a service 
 that is now being asked to be performed by a Govern- 
 ment agency after the emergency has occurred and 
 which it is fair to say should have been avoided or 
 performed on the railroads' own initiative. 
 
 The sole answer to our insistence that these matters 
 be subjected, through a central clearing house railroad 
 agency such as suggested, to a definite study along 
 lines of our general recommendations to be conducted 
 by those who would be considered the most com- 
 
 22 
 
petent car service and transportation men in the 
 employ of the American railroads and who would be 
 available under the proposals made, is merely that of 
 opposition and what appears to be a fixed determina- 
 tion to misunderstand the proposals we have made. 
 
 HOPELESS LACK OF UNDERSTANDING 
 
 I am just in receipt of a paper by a committee 
 of the existing railroad car service agency which per- 
 mits these conditions to continue — for one reason be- 
 cause it has not financial means or co-ordinating 
 power to avoid them. The paper referred to evidences 
 a hopeless lack of understanding of the suggestions 
 we have made. For instance, it is asserted that the 
 plan of pooling freight cars has not received the en- 
 dorsement or approval of those best qualified to pass 
 upon so important and far-reaching a subject (it must 
 be assumed those are meant who have failed to stop 
 car shortage) , that the sayings are theoretical and it is 
 doubtful whether any savings could be realized. It 
 may be said in answer, neither did the three funda- 
 mental requisites to adequate and successful trans- 
 portation that were presented by us to Congress in 
 19 19 and now in the Act have the endorsement or ap- 
 proval of those whom the author of the paper in ques- 
 tion considers best qualified to pass upon so important 
 and far-reaching a subject as car pooling. Yet those 
 whom the paper considers competent to pass upon 
 these matters are now much excited for fear that the 
 measures we suggested in 1919, to which I have called 
 attention, may now be stricken from the Transporta- 
 tion Act which they opposed when Congress included 
 them in the Act ! 
 
 It is also asserted, in the paper referred to, that our 
 plans would place under a central agency the absolute 
 control of all equipment, shops and repair facilities and 
 that the individual railroad would lose control over a 
 part of its property, etc. 
 
 Apparently entirely oblivious of the existing un- 
 satisfactory car service conditions under present super- 
 vision, it is stated that what we prbpose assumes no 
 responsibility for any disastrous effect of what might 
 
 23 
 
follow a mistaken or improper policy in car distribu- 
 tion. You shippers may well ask — who assumes re- 
 sponsibility for the disastrous effect of car shortage 
 under the present improper system of car distribu- 
 tion, to which they can hardly "point with pride"? 
 
 MISLEADING STATEMENTS 
 
 The paper referred to goes on to say our plans 
 disregard the rights of shippers ; that a grain road has 
 provided cars that will carry grain and so on, as 
 though we have proposed to in some way take away 
 from the grain road its special equipment. But when 
 it is said that our suggestions might destroy inventive 
 competition because we urge standardization, and 
 that the individual railroad would lose control of the 
 maintenance of its equipment and other absurd, or, 
 I might say , grotesque ' ' misunderstandings , " it becomes 
 necessary to call attention to the fact that not one of 
 the objectives we are said to seek has a single founda- 
 tion in fact. It is an extraordinary state of affairs 
 that, notwithstanding the proven failure of the exist- 
 ing car service system insofar as avoiding car shortage 
 is concerned, there seems an inclination to misrepre- 
 sent or decline to sanction such investigations as may 
 correct present deficiencies. 
 
 It goes without saying that there is no purpose to 
 take over railroad shops, repair or other shops; that 
 there is no purpose to direct the movement of all 
 equipment; that there is no purpose to disregard the 
 rights of shippers, on the contrary to have some 
 regard paid to those rights which apparently receive 
 scant consideration now; that there is no purpose to 
 pool specialized equipment, which should, however, 
 be confined to traffic routes; that there is no pur- 
 pose to standardize or pool equipment excepting 
 uijder plans that will be thought out and produced by 
 competent men now with the railroads, with some of 
 whom I have discussed our proposals and are in favor 
 of them. Many car manufacturers — and I have had 
 discussion with a number— believe that large amounts 
 will be saved by standardization, both in first cost and 
 
 24 
 
alsO: in carrying repair parts required, under the 
 present system. 
 
 SPECIALIZED EQUIPMENT POOLED 
 
 The gentleman who wrote the paper in opposition 
 to our proposals may forget that even a specialized 
 class of freight cars are already pooled to a great 
 extent; I refer' to refrigerator cars. He forgets that 
 eighteen railroads of the country have pooled re- 
 frigerator cars under the Fruit Growers Express now 
 operating in Southern arid Southeastern territory. 
 There is also the Pacific Fruit Express, another pool 
 of refrigerator cars operating in Western territory. 
 You are familiar with these pools, as far as they go, 
 and doubtless desire that they shall go 'further. The 
 Pullman Company manufactures and leases to the 
 railroads all tJheir chaif and sleeping cars ; this is a 
 pool and their repair is taken care of through cen- 
 tralized methods. 
 
 We have a. definite purpose, however, to obtain a 
 survey of equipment and car service conditions con- 
 ducted largely, if possible, by men who are now con- 
 nected with the railroads and who are more com- 
 petent than any other to make such survey. But this 
 survey should be under conditions which will enable 
 those who make it to speak their mind free from in- 
 fluences other than their purpose to report and make 
 recommendations in accordance with their own un- 
 trammelled and unrestricted views. Should railroad 
 officials object to men who are the actual operators 
 of interchange freight cars getting together under a 
 properly organized central clearing house agency of 
 and by the railroads, authenticated by Congress, to 
 devise ways and means for the greater and better 
 distribution of interchange freight cars if it can be 
 accomplished, whether by pooling or otherwise, for 
 .this is the plan, nothing more, nothing less? But if 
 .arid when these men report that it will be highly 
 beneficial, to the shippers and to the railroads that 
 certain classes of interchange equipriient be pooled, 
 which I a.m quite confident would be the result, this 
 rnust be taken heed of. Any such report as should be 
 
 25 
 
made in respect to methods to obtain a wider dis- 
 tribution of freight cars and a general plan for the 
 observance of sane methods of repair and rebuilding, 
 would be taken before the Commission which would 
 say the final word. It is true that if the Commission 
 would find the suggestions made to be in the public 
 interest they would have the power to enforce them. 
 But what railroad could stand against a manifest 
 transportation and economic necessity, proven? 
 
 MIGRATORY CHARACTER OF INTERCHANGE CARS 
 
 Is not the whole question one of arithmetic and 
 common sense? What is an ordinary interchange 
 freight car, what are its purposes, to whom does 
 it belong? 
 
 An ordinary interchange freight car is like a 
 migratory bird, it should be fed and maintained where 
 it lights. It is a hybrid. It finds its first purchase 
 through a railroad, after which it leaves its rails and 
 is used by many other railroads, probably one-half 
 of its time. If a plan could be devised whereby this 
 car, after it leaves the owner's rails, would be kept 
 moving with a load, and that would care for its repair 
 during transit, would not greater service be obteined 
 from this car than were it loaded, sent away, hurried 
 back to the point where it started without regard to 
 the fact that as long as a freight car remains empty 
 it is a charge against the shipper through the freight 
 rate he pays, part of which maintains it? 
 
 Bear in mind every moment a car needlessly re- 
 mains idle — unloaded at destination, or runs empty — 
 it becomes a tax upon the shippers, for it is main- 
 tained out of the freight rate you pay. Yet there is no 
 accredited, effective clearing house agency of the 
 railroads with the powers essential to see that this car 
 is kept in motion, economically maintained where it 
 is, regardless of where it is owned, provided the rights 
 of the owner are protected, the owner having the 
 same right of use of cars of other owners under 
 similar conditions. There are over 2,500,000 freight 
 cars in the country, consider the cost of one day's 
 needless idleness. 
 
 It seems to have been lost sight of among those 
 
 26 
 
who on general principles do not wish any disturbance 
 of existing conditions, that two-thirds of the pur- 
 poses of the National Railway Service Corporation 
 are financial, that is to say, that it would produce 
 essentials for the prevention of car shortage that have 
 been alluded to and which no existing agency pre- 
 tends to supply. The tap root of car shortage cannot 
 be cut without supplying the financial means such as 
 is suggested to cut it. 
 
 A CLEARING HOUSE AGENCY UNDER RAILROAD OR 
 GOVERNMENT AUSPICES? 
 
 If the carriers do not propose, through a central- 
 izing clearing house agency of their own, formed 
 under their auspices, operated under their manage- 
 ment and direction, to perform service such as must 
 be performed in due recognition of the needs of trans- 
 portation as a whole,. through which the public can 
 only be adequately served, then the time will come 
 when through Government auspices such a clearing ■ 
 house will be organized under Federal authority, 
 under Federal management. This unfortunately 
 would bring upon us Federal operation with all its ills. 
 But the public will insist upon car service, that means 
 be found to prevent transportation crises such as the 
 country experienced before Federal control and has 
 beeri going through almost since the carriers were 
 returned to their owners. There has been sufficient 
 warning of this during the past two years. If heed is 
 not taken, if a railroad will not recognize that it is 
 only one part of a great National transportation ma- 
 chine, then these conditions will be forced upon us. 
 This can be avoided by the adoption of the proposals 
 that have been presented. 
 
 An important further consideration is that through 
 the proposals made, the organization in connection 
 with the operation of the Service Corporation, in- 
 cluding the four Group Railway Boards, would greatly 
 facilitate logical and advisable consolidations. 
 
 The grouping of the railroads of the country into 
 four rate-making districts, functioning through their 
 respective group organizations, with the Service Cor- 
 poration — the clearing house agency — in co-operation, 
 
 27 
 
would bring about many of the economies and pur- 
 poses sought to be secured through the large con- 
 solidations that are proposed. This method of 
 approach should be a condition precedent to such con- 
 solidations as would be found to be in the public 
 interest. 
 
 MOST IMPORTANT DOMESTIC PROBLEM 
 
 BEFORE CONGRESS 
 
 SHALL IT REMAIN UNSOLVED ? 
 
 We are told that nothing can be done in the present 
 session of Congress to correct the conditions to which 
 I have drawn attention. Should we not ask is it pro- 
 posed to permit these conditions to continue into and 
 through another crop movement without the means 
 to permanently correct them? It takes time to put 
 in effect the permanent remedy. It may well be also 
 asked is there a domestic problem before Congress 
 quite so important as that of car shortage through 
 which the business interests generally of the country 
 have been seriously hurt? 
 
 Nothing we have asked amends the Transportation 
 Act. We do not wish that Act disturbed; later the 
 Labor Board requirements may be amended. All you 
 and we would ask is to charter this central agency 
 without amendment, so that another seasonal freight 
 movement would not be faced with another car 
 shortage. 
 
 It is a genuine pleasure to be able to talk before so 
 important a body of men as are gathered here. Per- 
 haps I have imposed upon your patience but the 
 subjects discussed are of supreme importance to you 
 and to the country. 
 
 Let me hope that the Association of security 
 owners may count upon your co-operation and great 
 influence in assisting in bringing about conditions 
 which will forever end car shortage, which has caused 
 great loss not alone to you but to the country at large. 
 
 We are passing this problem along to you today. 
 The shippers have the greatest concern in its solution. 
 It should be handled through a movement by you. 
 National in scope. This done, and you will have suc- 
 cessful accomplishment. 
 
 28' 
 
•'V^^-'g 
 
 h