hE- THE GIFT OF Pftfl^ch...iA....U«^^ pitotg 1 .!\.^k'\^s 1.7... r/l.T 2041 Cornell University Library HE2705 1916 .E5 Hearings before Joint Committee of the S 3 1924 030 124 170 Clin Cornell University Library The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924030124170 Hearings Before Joint Committee of the Senate and House of Repre- sentatives on Interstate and Foreign Commerce. Under Senate Joint Resolution, No. 60, to Investigate Government Control, Regu- lation and Ownership of Interstate V Public Utilities. Oral Argument of ALFRED P. THOM Counsel, Railway Executives' Advisory Committee ALSO Examination of Mr. Thom by Members of the Committee. WASfflNGTON, D. C. NOVEMBER 23, 24, 25, 27, 28, 29, DECEMBER 1, 2, 1916 4 LIBRARY OF CONGRESS CARD At«-^te6«- iC5^ cv\ -U^TensTcslc ovAci V'orei<=i'o x-^w-w-.c^cc. M SYNOPSIS OF SUBJECTS CONSIDERED IN THE AKGUMENT OF ALFRED P. THOM. Page Difference in the regulation of transportation and of banliing. . 5 Railroad building welcomed by public 6 Public and investors regarded railroading as a private business. 6 Conception fundamentally wrong 7 Public view changed and was right 8 Public view won and system of correction imposed 9 Time for constructive regulation 9 Public interest the test 10 Public interest is primarily in facilities 10 Facilities are inadequate 11 Criticism of past errors will not relieve condition 12 Adequate facilities are essential 13 Need of facilities. Is the paramount issue 14 Congestion of 1907 and 1916 14 Suspension of railroad construction 15 Suspension of construction may be cause of high cost of living. 16 Unequal distribution of railroads. 17 Transportation system is not a completed instrumentality 18 Great supplies of new money are needed 19 Railroad credit is of paramount public interest 20 If credit is not established, then Government ownership must follow 20 Bonds vs. Stock 21 Line of safety between capital borrowed and capital owned 22 Great increase in Indebtedness 22 Conditions necessary for financing through stock 23 Investment conditions in various sections of the country 24 Prices of gilt-edged bonds are no criterion of credit 26 Superior attraction of other securities 27 Power of labor to dictate 28 Business, not political, principles should be applied 28 Investor must be attracted — he cannot be coerced 29 Income and outgo are subject to 49 public authorlticiS 30 Investor sees a system of repression , 31 System of regulation must offer attractions to investor 33 Such system must be free from political considerations 33 11 SYNOPSIS OF SUBJECTS. Page No capital now available from those who risk much that they • may make large gains 36 Amount of new capital required to meet financial needs during next ten years 37 Time to make a ne^y appraisement of conditions 39 Views of a prominent business man 41 Effect of dual system of regulation 45 A narrow State policy which escapes confiscation cannot be controlled 45 Commerce is not a neighborhood afCair- — It is nation- and world-wide 47 Laws must be adjusted to economic needs 48 Instances of the effect of State regulation upon other States ... 49 Effect of State laws imposing penalty for failure to furnish cars 49_ Effect of State regulation of issuance of securities 50 Case of the New York Central Railroad 51 Case of the New York, New Haven & Hartford Railroad 52 The "Full-crew Laws" of New Jersey and Pennsylvania 53 Case of the Southern Pacific Railway 55 Different views on Federal regulation of issuance of securities held by different congresses of State Railroad Commissioners. 57 Approval of security issues must be promptly given 57 Control of issuance of securities must be in hands of Federal ■Government alone 59 Power of States to discriminate against commerce of other States 60 Case of Caysville,' Georgia, and Copperhill, Tenn 62 No practical power now to correct this abuse 63 Conflict between Interstate Commerce Commission and Geor- gia — long-and-short-haul clause 64 A system of regulation must recognize the entity of transporta- tion systems 65 Historical sketch of the constitutional conception of commerce . . 67 By the Constitution the States reserved certain powers and ac- quired certain rights 72 What rights did the States acquire? 72 One great right acquired is to have commerce uncontrolled ex- cept by national authority 73 Correction of mileage of New York Central Railroad within State of Illinois 77 Preparedness for national defense is essential 79 Efficient transportation the basis of preparedness — ^the Govern- ment charged with defense must fix the standard of transpor- tation 80 SYNOPSIS OP SUBJECTS. Ill Page Commerce demands a national standard 81 A vast field left for State authorities 82 Regulation must now deal with the instrumentalities of com- merce — and must be protective as well as corrective 82 National Government must regulate all rates 84 CJompulsory Federal incorporation is essential 86 National Government must have sole power over the issuance of securities 87 The only sure way of giving the National Government power over the issuance of securities is through Federal incorpora- tion ' 88 The power to regulate commerce Is the basis upon which to sus- tain compulsory Federal incorporation 90 Reasons why Federal incorporation must be compulsory 91 The report of the committee of the National Association of Railroad Commissioners favors Federal incorporation 93. No claim that Federal incorporation is a panacea 96 Railroads not asking for increase of rates — only perfection of system of regulation 96 •Organization of the Interstate Commerce Commission should be changed, and a Federal Commerce Commission should be established 97 Regional commissions should be established 98 Foundation of our national liberties violated in the present organization of the Interstate Commerce Commission 98 Regional commissions will bring regulation close to local needs . 100 Commission should have power to prescribe minimum rates. . . . 101 Principles which should govern the Interstate Commerce Com- mission in fixing rates 103 Power of Commission to suspend rates should be limited to sixty days 104 ■Cormnisslon should] regulate rates for carrying the malls 106 Federal Government should have exclusive power to regulate securities 106 Anti-trust laws should be modified to meet transportation condi- tions 107 Agreements in respect to rate practices should be permitted, subject to approval of Interstate Commerce Commission 109 Why no suggestion made about the labor situation. 110 Railroads' case has now been stated fully and frankly Ill Views of Richard Olney ^11 CJoncIusion 118 Hearings Before the Joint Committee of the Senate and the House of Representatives on Interstate and Foreign Com- merce. Undee Senate Joint Eesolution 60. To investigate Government control and regulation of inter- state and foreign transportation ; efficiency of the existing system in protecting the rights of shippers and carriers and promoting the public interest; incorporation or con- trol of the incorporation of carriers; changes in the or- ganization of the Interstate Commerce Commission; Gov- ernment ownership of. all public utilities. Thursday, November 23, 1916. The committee met pursuant to adjournment, at Eoom 326, Senate Office Building, 10 o'clock a. m., for the pur- pose of resuming the consideration of Senate Joint Resolu- tion No. 60, Senator Francis G. Newlands (chairman) pre- siding, Hon. William C. Adamson, vice-chairman. There were also present. Senators Robinson, Underwood, Cummins and Brandegee; and Representatives Cullop, Esch and Hamilton. Iw STATEMENT OF MR ALFRED P. THOM, Counsel, Railroad Executives' Advisory Committee. Mr. Thom: Before proceeding to discuss the questions which, you have under consideration, I would like to state that I have tendered to the clerk copies of two printed pamphlets which we have prepared, and which contain cer- tain questions that we would like to have the various wit- nesses consider as they appear. One of them is intended for the consideration especially of bankers, and the other is intended especially for the consideration of economists and publicists. When we learned that certain economists and publicists had been invited by the committee, I wrote to each one of them a letter which I shall now read to this .committee, sending each one a copy of these pamphlets, intended for the consideration of the publicists : "October 26, 1916. "My Dear Sir: I understand that you. have been, or will be, invited to appear before the Joint Com- mittee of Congress appointed by the President under the joint resolution approved July 20, 1916, to study the entire subject of transportation. "In my capacity as counsel for the railroad at this hearing, I shall ask that your attention be directed to certain aspects of the inquiry and that you be in- vited to give your views in respect to them. "It has occurred to us that, in an inquiry of such importance, you may desire an opportunity in ad- vance for mature reflection in respect to the subjects about which you will be expected to testify, and I am accordingly taking the liberty of handing you herewith a list of the subjects which I will ask the committee to specifically bring to your attention. It is not our purpose to over-burden you in the matter of your preparation, and there may be some subjects in the enclosed list which you would prefer not to take the time to consider. If you will call any such matters to my attention I will, so far as you are con- cerned, withdraw my application to the committee in respect to them. May I suggest that, in so far as you feel disposed to give your views on these subjects in your main statement to the committee, the time in- volved in putting them before you by specific ques- tions will be saved. 'Trusting that the enclosed list of subjects may facilitate you in the csnsideration of some of the vital aspects or this inquiry, I remain, "Sincerely yours, "(Sighed) ALFRED P. THOM." Senator Bkanuegee : Is the list of inquiries that you sent them to be made part of the record at this immediate point ? Mr. Thom : No ; I just submit it for the use of your com- mittee. I would like to have the members of the Committee read over these questions. ' Mr. Adamsok : Why not let them be printed in the record as part of your statement here? Mr. Thom : I have no objection. Senator Cummins : Where is the list of questions? Mr. Thom : They are right there (indicating) . Mr. Adamson : I think that ought to go in thp record as . part of your statement. Mr. Thom: They are there for the consideration of each one of you gentlemen. Senator Brandegee: Inasmuch as the letter transmitting those questions has been made part of the record, I rather think the questions themselves should be. Mr. Thom : I did not care to have any of those made part of the record. I have no objection to its being done, however. Mr. Adamson : That ought to go in. The Chairman : If there is no objection that will be made part of the record. Mr. Thom: What I would like for the committee to do is to read over those questions and when the witnesses go upon the stand to bring out from them testimony in respect to those particular features of the inquiry, if the committee shall deem that it is wise and pertinent to do so. Mr. Adamson : Mr. Thorn, I think that when that time comes the committee will suggest, if you do not offer to do it yourself, that you have the right to ask them any ques- tions that you choose. Mr. Thom: I would be vei'y glad to do so. I did not know that I would have that privilege. Senator Underwood: Mr. Chairman, I do not like to interrupt, but I hope that remark that has just been made by the gentleman from the House will not go uncontroverted^ because I would seriously protest, myself, having either side here represented by counsel. Mr. Adamson : I did not mean that. Senator Underwood: I hope there will be no decision made upon that question unless it is considered in executive session. The Chairman; That matter will be considered in ex- ecutive session. Mr. Adamson: 1 did not mean that there should be any counsel, but I do mean that any American citizen who wants to ask a question can, by permission of this committee, be allowed to ask it. The Chairman: Will you proceed, Mr. Thom? Senator Cummins : May I ask you a question, Mr. Thom, with regard to the title of this pamphlet. "Subjects which economists and publicists will be asked to consider." Mr. Thom : Yes. Senator Cummins : Asked by whom ? Mr. Thom : Me. I wrote them this letter. I accompanied that with this letter. I was in position, if I may pursue that matter a little further — of course I was in the position of not being able to reach and to confer with the vast number of economists all over the country, and there were certain subjects which I wanted them to consider. Therefore, I had them written out and printed in that way, and accompanied them with the letter which I have just read. Senator Cummins: It means, then, that these are sub- jects whicli you asked them to consider? Mr. Thom : Yes, I stated that in this letter, that as counsel for the railroads, there were certain subjects I desired to call to their attention, and ask them to consider, and I sent them in that way. Mr. Chairman and Gentlemen. The Chairman: Mr. Thom. Mr. Thom : By the joint resolution which has been read into the record this committee is required to make a compre- hensive study of the whole subject of transportation. Twenty-nine years have now passed since the policy of governmental regulation was adopted by the United States. The President, in his message to Congress on the seventh of last December, suggested the wisdom now of taking a new assessment, as he expressed it, of the facts and conditions relating to transportation, which should be made in the light and with the help of these twenty-nine years of ex- perience. Difference in the Regulation of Transportation and of Banking. At the outset of your deliberations it may be helpful to you — it certainly will be helpful to me — to review some of the historic facts relating to the adoption of governmental regulation. We must note at once the vast and fundamental difference between the genesis of the system of regulation of transportation, and the genesis of the system of regulation of any other commercial agency by the United States. For example, let us take the establishment of the national bank- ing system: the system of governmental regulation which was adopted in respect to that came into being with the 6 establishment of the banking system, and as a part of a constructive programme to build up efficient banking agencies by the National Government. The system of regulation of railroads has an entirely different history. Railroad Building Welcomed by Public. Railroads did not come into existence by the fiat of govern- ment, as a matter of national policy, but the railroads were originated as a matter of private enterprise and initiative in obedience to the appearance of economic wants, and came in a desultory way. They were more than welcomed by the public. On every hand there appeared a public policy, which was unmistakable, to set no limit to the matter of encouragement, if only the railroad facility could be pro- vided. The most liberal charters were granted, subsidies were voted by legislative bodies, lands were granted in mil- lions of acres, all to encourage the establishment of railroad facilities. There was no limitation in most cases put upon the powers of these chartered agencies in respect to what they might do in regard to their charges, but if a limitation was put, it was put so high that it did not amount to a limita- tion in practical affairs. Public and Investors Regarded Railroading as a Private Business. Now, the result of that was to create the impression — I may say, to create the conviction on the part of the man who invested his means in a railroad, that he wap investing it as he would in any other private enterprise. No other con- ception was in the public mind, because the need for it had not then appeared ; no other conception was in the mind of the investor ; he had had no reason to have any other concep- tion, as he was not only welcomed but urged by the public to enter upon this field of human industry. Now, what was the effect of that? Examining human motives, watch- ing the operation of human interests and human forces, what was necessarily the effect of that, in the first instance, upon the conception of the investors in these properties as to their rights? Inevitably, it produced the impression that they had engaged in a private business, and that they owned it and could use it for their private ends. Conception Fundamentally Wrong. Now, time went on. "We all appreciate that that concep- tion was based upon a fundamental and a far-reaching error; we understand that now, but at the time nobody understood it; nobody advanced it; nobody insisted upon it; and then these people who had made these railroads, comrionced to use them for tlieir private purposes; they commenced to sell at wholesale cheaper than they sold at retail, as any other man controllius; his business does now; they com- menced to make different terms to different parties and to different communities ; they commenced to exploit them in a financial way as private enterprises, and, gradually, the great public mind awoke to the fact that abuses were creeping in, and there came to be here and there demands that that sort of favoritism which made the prosperity of one community and destroyed the prosperity of another, ought to stop. As the abuses multiplied and as the hurtful condition of the un- regulated use of this tremendous agency began more and more to appear, the public feeling on the subject arose in like proportion, and there soon liecame a demand on the part of the public that these abuses must cease ; that the thing of inequality of the terms on which men and communities could do business, must be abandoned, and the conception took hold of the public mind that there was, necessarily, a public duty imposed upon tliis tremeiidous agency of de- velopment and of commerce. I have heard it contended, as you have, that the public right in respect to these properties grew out of the bestowal of the right of eminent domain. I have never been able to accept that view, for a moment s reflection will show you that if you buy every foot of your right of way and buUd upon it a railroad, that there must be limitations of ownership and use upon that, just as much as if you had used the right of eminent domain. The foundation of the public right, to my mind, is not the bestowal of the right of eminent domain, but it is the pos- session of a tremendous agency, powerful enough to make and unmake prosperity, and powerful enough to affect ■national destines. No matter what its form, no matter what the privileges that were bestowed — whether they were given •or bought — the result of the existence of an agency so power- ful as this would be to impose upon it, from the very neces- sities of the case, a public right in respect to its use and in Tespect to its ownership. Public Vievr Changed and Was Right. Now, we can well imagine the effect of the clash of those principles, the- conflicting conceptions of the use of these properties — the investors on the one side naturally clinging to their view of private ownership, and naturally resenting a denial of the full use of private property. On the other hand, the public, having once seen the operation of these forces, would necessarily continue to insist on that point of view, and the judgment and the conscience of the world has come to appreciate that the public view of that question was the sound one. But there was a controversy ; there was a conflict of conceptions ; there was a conflict of interests, and it came to be a great political question — ^the owners of these railroads on the one hand fighting for what they conceived to be their private rights of property and unwill- ing to accept in any degree, even a qualified degree, the right of public regulation ; on the other hand, the public insisting that these agencies must be regulated and controlled, or they would become larger than the Government itself — and so the fight went on. Public View Won and System of Correction Imposed. It went on relentlessly and without yielding on either side ; and when the victory came, it came on the side of the public conception of the public character of these instru- mentalities of commerce, but it was a victory won in anger; it was a victory which was the outcome of fierce conflict, and the terms that were imposed were the terms of the victor upon the vanquished and reflected merely the purpose to apply in the principles of the system of regulation the forces of correction and punishment. So this system, which was established by the National Government twenty-nine years ago, was the outcome of this bitter conflict of policies and views and conceptions, and looked only to what the public had in its mind, and that was the eradication of abuses. I call your attention again to the fundamental difference between that situation and the situation in regard to the regulation of banks. In the matter of the regulation of the banks the system of regulation was a part of a constructive program. In the matter of the regulation of the railroads, regulation became a part of a destructive program. In the matter of the regulation of the railroads, regulation became part of a destructive program, destructive of abuses, and intended merely to protect the public interests as they then Time for Constructive Regulation. ■Now, gentlemen, we are confronted today with the ques- tion whether it is possible to have that policy of correction the permanent policy of this Government. You, with your tremendous responsibilities upon you, have to consider the question whether now the system of coijrection has gone far enough for you to take stock and to inquire whether there must be introduced some other principles beside the principle 10 of correction in your system of national regulation. You must inquire, whatever may be your determination upon that question, whether you may think that the processes of correction have gone far enough or not, you must further consider whether, if they have not gone fat enough, there is corrective power enough in this system of regulation to deal with all that is left of abuses, and whether under that condition the time has come for you to introduce principles of encouragement, of helpfulness, and of constructiveness in this system of regulation. Public Interest the Test. Gentlemen, I shall discuss this question not from any altruistic standpoint, but with the acceptance of the stand- ards that whatever I say and whatever I may propose must come up to the standard of the public interests, must be measured by that standard and satisfied or it will be dis- carded. I will not make any plea to you for private inter- ests. I appreciate that I stand here with no more right to ask the exercise of your governmental powers in the pro- tection of my private interests, if they are in a railroad, than I would have if they were in a farm or in a factory or in a mercantile enterprise. ^ly private interests have no place here. The things that I say and the things that are pro- posed must be measured by the standard of the public inter- ests, and must be determined by the standard of the public interests, and I shall make no other argument. Public Interest is Primarily in Facilities. Now, what is the public interest in respect to transporta- tion ? Let us pause for a moment and get that in our minds. As I read the needs of the public, they are to be assured of a sufficiency of railroad and transportation facilities now and in all the future, and of course to be assured of them on reasonable terms, but if it becomes a question between n high charges and the existence of these facilities I suppose there will he no dissent from the fact that the public interest is, after all, in having the facilities. I can not forget that I was present in this room just before the first of last September when the Senate Committee on Interstate Commerce was confronted with the menace of an immediate suspension of all the transportation facil- ities of the United States by a threatened strike, and in the presence of the possibility of that suspension there was no thought in any man's mind except of continuing the use of those facilities by the public. I heard no suggestion of the rates or the charges. I only saw that the attention of the Congress of the United States was directed to the fact that there was impending a great national catastrophe which would involve the suspension of communication between persons and communities throughout the Union, and that the whole attention and the whole power of government was directed toward finding a method by which those facilities could be continued. I read in that incident the value that the public put upon transportation facilities. Facilities are Inadequate. Nor can we close our eyes to the fact that at this moment commerce is being impeded and in some cases halted by a lack of cars to carry the freight that is waiting upon the sidings throughout the land, and how the attention of every- body is now directed to the fact that that again is a catas- trophe which must be averted; so that as I see the public interest, it is that there shall be preserved in some way a transportation capacity equal to the public needs, and in that connection I call your attention to the fact that whether or not you think that the great transportation structures of this country are still too high, or right, or else too low, that you must, it seems to me, conclude that the existing powers of regulation are adequate to deal with that question of exorbitant rates. 12 We have no controversy any longer about a lack of power to deal with rates that are too high. Some think that they are none too high, others disagree with that view, but all appreciate that the existing governmental systems are ade- quate to deal with the question of the level of rates, to the extent of preventing them from being exorbitant. So that we must come back to this question of whether or not I am right in insisting that the fundamental and essential interest of the public is now in the great question of whether or not existing systems guarantee to the public an adequate supply of transportation facilities, not only for the present, but for the future. Criticism of Past Errors Will Not Relieve Condition. Some gentlemen might say that there have been great railroad abuses ; that there have been great errors of railroad judgment; that there have been great crimes in financial matters of some of the railroads, and attempt to present that view to this committee, and to say that the difficulties under which the railroads now labor are caused, at least to some extent, by the faulty management of the railroads them- selves. Gentlemen, I ask you to confront that proposition with this question: What remedy does that theory propose for the needs of the people in respect to the continuance of rail- road facilities? The advocate of that view has turned his face to the past. He is insisting on your shutting your eyes to the needs of the future, by trying to arouse your indig- nation in respect to what he conceives to be the errors and misdemeanors of bygone days, or, if he pleases, of present days ; but what did he do? What did he propose as a means of providing for the future? At last, the question will be, and I will try to define the issue in such a way that it may be accepted by all of us, no matter what our views— the question will be this: those who propose a change in existing 13 methods, must make their appeal to the judgment of the people, upon the proposition that existing methods do not assure to the public the supply of transportation facilities that the public needs, and those who oppose any change, must . make their appeal to the public judgment on the proposition that existing conditions, if honestly administered, do assure to the public an adequate supply of transportation facilities. Now, is not that a fair statement of the issue which we should debate? Is not that an issue which must control the decision of this question ? Adequate Facilities are Essential. The continuance of the certainty of adequate transporta- tion facilities, is paramount, and must control the ultimate decision of this question. Gentlemen can not be heard who appear here, jealous of local rights and jurisdictions, unless they can show that under those local rights and jurisdictions the public needs, present and future, are protected. No theoretical view of the proper distribution of governmental powers can have any weight with you or with the judgment of the people of this country, unless' under the proposed distribution of governmental powers adequacy of the trans- portation facilities of the country is assured. No private interests, no cherished theories of government, can be per- mitted to enter here, unless they come with a guarantee in their hands that what they propose will protect the public in the matter of transportation facilities. Therefore, gentlemen, I shall debate this question on the theory that I must sustain the propositions which I shall advance, by showing not only that the public interests axe promoted by them, but that they tend to give greater as- surance to the public of the continuing sufficiency of trans- portation facilities in this country. 14 Need of Facilities is the Paramount Issue. May 1 not fairly ask of anyone who shall oppose my views, or who shall have any counter propositions to make, that they accept the same conditions of debate? May I not fairly assume that I have the approval of the public judg- ment in trying to make this discussion turn upon that one question? I do not believe that if you gentlemen conclude that there is now a sufficiency of transportation facilities, that existing policies adequately assure them for the future, that you would be inclined to any change, and I do not believe that if you are convinced that present systems menace the continuance of adequate transportation facilities, and that something must be done to assure them to the public, that any other idea will hold you back. I believe that is going to be the dominant thing in y,our minds when you come to perform the great duty which has been entrusted to you. Congestion of 1907 and 1916. Now, let us inquire into that question. Have there been no signs which an intelligent mind cannot mistake of a menace to your transportation facilitiees? Has nothing oc- curred to arrest your attention? Have we learned no lesson from what happened in 1907, when there was a substantial increase in the business ofifered to the railroads, and lack of yards, lack of tracks, and lack of cars brought on the "panic of plenty" in that year? Have we forgotten that the panic of 1907 was not a panic of scalrcity, not a panic of failures in business, but was a panic brought on by the inability of communities to deal with one another because the railroad facilities were inadequate? Congestion every- where ; not yards of sufficient capacity for trains ; not tracks sufficient to carry them ; not cars sufficient to transport the business of the people. There, in that year, in the midst 15 of that plenty came panic, due to those factors. Have we forgotten the fact that in this last spring it became neces- sary to put embargoes upon the receipts of business in many parts of this country, including your own country of New England, Senator Brandegee; due to the fact that you did not have yards enough and terminals enough to handle your business? And that embargo was of sufficient importance to cause a member of the Interstate Commerce Commis- sion, Commissioner Clark, to go and take personal charge, with a committee of railroad men, of that situation and try to work it out, and it remains unremedied to this day, be- cause the fundamental want of yards and terminals and facilities has made it impossible. Do you forget the fact that at this present moment .there is such a scarcity of rail- road equipment, that the commercial interests of the country have risen in arms and the Interstate Commerce Commis- sion is conducting an investigation in the City of Louisville, through one of its members, in order to find a w^y of supply^ ing with cars, the commercial needs of this country? Suspension of Railroad Construction. Are we justified in taking no note of the fact that in the last year there has been a smaller railroad construction than in any year leaving out the Civil War, since 1848, and that in the last year there have been less than 1,000 miles of new railroad constructed in the United States? In a field which has heretofore been an inviting field of private enterprise; in a field that has found heretofore at every hand investors who are seeking to invest their surplus means, we found in the last year that railroad construction into new territory has been, in effect, arrested, and that nothing is going on in the way of carrying this pioneer of progress into the un- touched wealth of the American continent. 16 Suspension of Construction May Be the Cause of High Cost of Living. Do we appreciate the fact that this suspension of railroad construction may be the cause, for which we are all seeking, of the world-wide disaster which has come in the high cost of living? Political parties have entertained different views with respect to the cause of the high cost of living. One of the great parties and perhaps both at one time, felt that it was to be found in the hurtful combinations of productive interests, and anti-trust laws were adopted as a means of meeting that unfortunate condition. Another one of the great parties found the explanation in the tariff, and came into power with the proclamation that if they could be al- lowed to lower the tariff that living cost would likewise dis- appear. Both have been tried, and the cost of living is going up all the time. Why not come back to consider the fundamentals of a matter of this kind? Why not come back and inquire what the quantity of supply has to do with the high cost of living? Why not come and inquire whether it is time for the policy of these United States to develop the rich agri- cultural and mining and forest reaches which it has, and bring them in and lay them at the feet of human need? Why do we conclude that if we have the high cost of living with the wheat crop at a certain figure, that We would have it no lower if we could double the wheat crop? Why do we conclude that if manufactured implements are too high at the present time, that we could not reduce them if we in- creased the supply of the raw material? Why do we con- clude that it is proper national policy to abandon the hope of touching the great areas of productiveness and supply in this country, and bringing them and putting them within the reach of human wants, as a means of meeting the great- est problem with which the poor man of this country has ever yet been confronted? Are there no wheat fields yet 17 untouched? Are there no mines yet unopened? Are there no forests yet uncut, to which we can go to increase our sup- ply and by increasing the supply in proportion to the de- mand do something to reduce the cost of living? And yet, with that great and pressing problem upon us, seeking for some solution, we have by some force, by the operation of some conditions, put a stop to the construction of railroads in new and unprovided territory. With that fact before us, can we conclude that the present railroad facilities are adequate to the needs of the public? Unequal Distribution of Bailroads. Another thing that we see — ^we note the fact that railroad construction has been suspended in- this country not at the point of equal distribution of railroad facilities to the various States or the various commercial communities, but it has stopped at a point where many of the communities, of this country are far in advance of many others, where there is an imequal distribution of railroad facilities to the people having a common citizenship and a common right in the United States. For example, we find that in the State of New Jersey there are 30.8 miles of railroad for every 100 square miles of territory — ^practically 30 miles. We find in Wyoming that they have 1.94 miles. We find in Virginia, * where I come from, that we have 11% miles. We find in the State of the honorable House chairman of our commit- tee, Georgia, that they have 12.65 miles; that they have in Idaho 3.35 miles; that the average in the United States is 8.53 miles. Are the people of this country to be satisfied? Will they long be content with the statesmanship which halts the pro- vision of transportation facilities at that point of inequality? I have had made a map of the State of Idaho as an example. I have had drawn from the railroad lines in that State par- allel lines from seven to ten miles away, what is supposed to 2w 18 be a convenient hauling distance, to show the vast area of productiveness still left untouched, and I have had circles put upon the map to show the mineral areas. There appear upon it immense forest areas; there appear upon it the im- mense areas of arable land yet unsupplied with transporta- tion facilities, all waiting for the enterprise of man to pro- vide the carrier facilities essential to lay what that State can produce at the feet of the American people. I am having prepared similar maps which will be presented by witnesses in this investigation covering other States, and possibly the whole United States, to show the regions to which American needs may yet apply for an increase of their supplies, and as a means of decreasing their cost of living. Now, gentlemen, with those facts before you as to what has happened now to the people supplied at least nominally with transportation facilities, as to the failure whenever you put upon it the pressure of increased business, and as to the vast territories in this country which something is prevent- ing from being supplied with transportation facilities, are we not safe in reaching the conclusion that the transporta- tion facilities of the country are not now provided up to the point that the public needs require, and that there is no pro- vision for the future which will assure them, under existing conditions, adequate transportation facilities? Transportation System is Not a Completed Instrumentality. It must not be forgotten that transportation is never a completed instrumentality. No railroad is ever finished ex- cept among a people that are dead, and as long as commerce grows so must transportation facilities grow, for the facilities of transportation set a maximum limit upon the productive capacity of the people. They can produce no more, and they will produce no more than they can get to market, and when you limit your trans- portation capacity, you limit the capacity of your people for productiveness and for usefulness in human endeavor. They 19 cannot stand still. Even the Pennsylvania Railroaa, wltli its magnificent facilities, is not a completed property, and much more so, in all the territory from which I come and from which most of you gentlemen come, the transportation facilities on which your people rely are not completed, and, unless the communities perish, they can never be completed. They must go on, growing as the days go, and as human genius grows, and human interest grows. They must go on growing and keeping pace with the rest of the world, or you put the hand of paralysis upon the people who must have those accommodations or die. They will have to be pro- vided. Great Supplies of New Money are Needed. How is this increased transportation facility, this constant growth in transportation facility, to be provided? Is there any one who dreams that it can be supplied out of earnings? Is there any man of affairs anywhere who believes that you can continue to build the needed transportation facilities out of earnings? If so, he needs to open his eyes, because that is not even a remote possibility. It is impossible to build, to renew, to extend, to amplify and to increase the trans- portation facilities of this country, without the constant input of new money. It is necessary, therefore, for the American people, in answer to their supreme needs for efficient, adequate, and constantly growing facilities, that there shall be a guaranteed means by which the provision of the facilities may be in- sured. There must be an assurance, not in the interest of the railroads, but in the interest of the public, there naust be the assurance of a constant supply of new money in order to increase, as the public needs require, the trans- portation facilities of the country. 20 Railroad Credit is of Paramount Public Interest. Now, how is that new money to be provided? Manifestly if these systems of railroads are to remain in private hands and if they are to look to private individuals to supply these means, there must be established such a credit on the part of the transportation facilities of the country as will attract the private investor. I pause for a moment to ask you gentlemen to consider whether such k credit is simply the private affair of the railroads? Is it a matter in which alone the present owners of the railroads are interested? Is it a matter in which the present owners of the railroads are interested to anything like the extent that the public are interested? Of course, it is to the interest of the private owner that his property should flourish, but at last, when confined within its present limits, he can do something with this proposition, or in the final event the Government can take it over and pay him for it. But the public requires that there shall be an adequate credit, because the public requires that there shall be ade- quate growing transportation facilities. If the credit of the railroads breaks down or is insufficient, then the public is denied the opportunity of growth and expansion and of an avenue for the current of its commercial business. So the question of railroad credits is not a private interest. It is a public interest. It is a necessity of the public. If Credit is Not Established, then Government Ownership Must Follow. If it fails to exist, there are but two things to happen. One is that the country will be blighted by an insufficient supply of railroad facilities, and the other is that the Gov- ernment must take them over and supply the credit itself, and if the Government ever does take them over, and if the Government ever does become an operator of these 21 railroads, it will be because this question of railroad credit is so absolutely controlling in the public interest that the public must take them over in order to supply the credit. No more convincing argument can be made to an intelli- gent mind that railroad credit is a matter of great controlling public interest than the fact that if ever there comes a system of Government ownership, it must come for the purpose of supplying the credit which private owners can- not supply to it. Bonds vs. Stock. Now, let us look at this question of railroad credit and its present condition. Is it on a safe basis, so far as the public is concerned? Leave out, I pray you again, any considerar tion of private interest. Is the railroad credit of the coun- try on a sufficiently sound basis to satisfy the public needs? Let us look at the facts. I suppose that there is not one of you who has not come to realize, in the conduct of your personal affairs and in your observation of commercial con- ditions, that business cannot safely be conducted if depend- ent entirely upon borrowed money. The man who goes into business and borrows all his capital is not considered a pre- ferred risk in the commercial world. The man who gets all he has by mortgaging his property and putting on fixed charges is going to have less and less credit as his mortgages increase and as his fixed charges grow, and as he comes closer and closer to the time when some reversal in business may prevent the payment of his interest. That rule is as applicable to a railroad as it is to an individual. A rail- road can no more go on exhausting all its assets by mortgages and loading up all its operations with the application of ifixed charges than can an individual. There comesi a point in railroad credit, as in individual credit, where the line of safety is found between the input of capital which can be borrowed and the input of capital which should be made by the owner of the property, and be evidenced by stock with- 22 out fixed charges. The accumulation of fixed charges, the necessity to pay them, whether the earnings are sufficient or not, constitutes a charge, if this line is exceeded, which may mean, in the end, default and bankruptcy and failure. Line of Safety Between Capital Borrowed and Capital Owned. It is important, then, for us to inquire where that line of safety is, and whether it has been exceeded in American railways. We shall attempt to develop that by expert evi- dence before you in the course of these hearings, to show where the line of safety is considered to be by the expert financiers of the world. But there is that Hne of safety, and the question which you gentlemen will be interested in con- sidering^ is whether that line of safety has been exceeded or is in danger of being exceeded, and whether thereby the fimancial structm-e of the American railroads is now menaced. I believe you will find that a great many of these econ- omists and financiers will say that that line of safety is 50 and 50. Some of them, doubtless, will put the percentage of borrowed money at a higher figure, but none has come to my attention, no contention has come to me that the borrowed money ought to be higher than 60 per cent, and that at least 40 per cent should be contributed by the owner. That will be a matter of investigation, of expert investiga- tion before this committee, as to where that line of safety is. But taking it for the purpose of my illustration at 60 and 40, we have the history of railroad financing in this country within the last 16 years on this point as follows: Great Increase in Indebtedness. In the year 1900 the bonded indebtedness, the indebted- ness that was accompanied by fixed charges, constituted only 49.78 per cent of the entire capitalization, and on that capitalization, in that stock, were the bonus stocks, which 23 were at one time resorted to as a method of American financ- ing. In the year 1914 the percentage had grown to 61.80 per cent, and the iijformation I have, but I state this sub- ject to verification, is that in 1916 it is 65 per cent. Gentlemen, is there nothing in that statement to make us pause and inquire where we are tending? Is there nothing there to make us pause and study the question of whether or not existing systems of regulation sufficiently encourage investment to induce the investors to buy the stock of rail- roads and thus establish the proper equilibrium? If we do not, where are we tending? Where will that growing per- centage lead us? Is there any man brave enough to ad- vocate the proposition that the railroads must hereafter be financed entirely by fixed charges? Or must not the in- telligent statesmen and economists of the day say that there is this line of safety ; that under the evidence you have you will find that it has already been exceeded? But whether it is exceeded or not the tendency is so rapid, the increase of fixed charges in its relationship to the amount of stock is going to be so great that you must stop and look at this tremendous danger that is appearing upon the horizon. Conditions Necessary for Financing Through Stock. We shall attempt to show to you again that in order for a railroad to finance itself by stock that there must be re- liable earnings of the railroad sufficient to make the in- vestors certain of a return of 6 per cent, with 3 per cent surplus. That is a very small estimate, as will appear from the evidence of these experts, which will be presented to you. That in order to put stock out at par, the earnings of the company which wants to issue the stock must be at least 6 per cent in the way of dividends and 3 per cent in the way of surplus to protect the investors. What is the condition of American railroads under that test today? By this test 39 railroads,, having a mileage of 24 47,363 miles could probably be financed by the issue of stock at par. Under this test 137 railroads, having a mileage of 185,219 miles could not be financed by the issue oi st:ick at par. All the people of this country do not come from the terri- tory served by rich railroads. Some of us come from a territory where the railroads are not in this fine financial condition. We need our railroads as much as the rich sec- tions of the country need theirs, and when we see that 185,000 miles of railroad in this country cannot respond to that test of financing themselves against the 47,000 that can^ I ask you whether or not a condition is not presented to the American people which would make them pause and ask where we are going? Let us consider some of the other conditions which are it present affecting American railroad credit, and that we nust now confront in respect to this matter of railroad iredit. nvestment Conditions in Various Sections of the Country, What is the territory that is furnishing money to rail- oads? Is it the whole world? Is it all of the United States? Cake my own territory of the South, through the income ax returns we have .been recently able to trace the owner- hip of a block of $100,000,000 of bonds of a railroad com- pany running through the vital points of the South, and f that block of $100,000,000, 31/2 per cent are held in the outh. I have recently asked an intelhgent associate of mine to o through the South and talk with our people with respect ) the investment in railroad securities, and he comes back ) me with the report, which we shall verify by the presence f bankers from that section upon this 'witness stand, that lere is comparatively httle demand for investments in rail- 25 xoads in the South ; that there are other investments which are more attractive to those people. The same is true in a very large extent of the western part of the country. There is a great insurance company in one of the western States, the investments of which in loans on farms amounted to $183,000,000 as against $75,- ■000,000 in railroad securities, and they have stopped in- vesting in railroad securities. They have never made a loss on the farm loans, while the depreciation in railroad securi- ties has amounted to such a substantial figure that they have gone out of the business. We shall have on the stand here to tell you of the question of railroad credit in the West, witnesses who can verify this statement. So we have two great sections of this country that prac- tically withhold their credit from the railroad investors. Of course not all of it, but to a most substantial extent. Now to what sections have we been able to apply? We have been able to apply to the eastern section of the country and to Europe. But the war in Europe has made of those people borrowers instead of lenders. They no longer are taking securities of American railroads, but they are send- ing them back and disposing of them on the markets of America. Not only is that the case today, but when this war is over, Europe will still be a borrower in order to build up its waste places and will not be a substantial source of supply of funds to American railways. So that we are re- duced to the small financial section of this country, which is perhaps best described by the "East," and when we inquire into the condition of railroad credit in the East, we find that representative bankers in such cities as Boston are advising their clients, when they come and ask them about invest- ments, not to go into railroads; and more than that, we are finding that the clients, when they come and want an in- vestment, and a railroad security is suggested, they decline to take it. Now, that is a tendency which we cannot ignore. 26 Prices of Gilt-edged Bonds are No Criterion of Credit. Gentlemen, I wish you to bear in mind that I am not contending here that gilt-edge railroad securities., constitut- ing first or prior liens, have no market, because they have, and they have a pretty good one. Outstanding mortgages of high order have a very good standing in some restricted markets of the country, and can be sold under advantageous terms; but are you interested in that? Are you interested in how outstandihg first mortgages sell, except in an in- direct way? Your problem is not that; your problem is whether or not the railroads of "the country have unencum- bered assets, have sufficient margins of equity to enable them to use them as a basis of getting new money into these enterprises. That is your problem; that is the rail- roads' problem : what is there left, you will ask, to bring new money into these railroad enterprises, in order that they may perform acceptably their public function, and may adequately provide for the growing commerce of this coun- try? That is your problem; that is the national problem; that is the public problem. What can we do? What have we left that will enable these railroad companies to meet the thing that is essential in the interests of the public, to raise the amount of money that will supply the facilities which the public needs absolutely demand? Every security that is now out upon the markets might be more desirable than any other class of securities — every one of them might be in the highest demand, but they bring no money. What they have brought has already come. The practical prob- lem is to get the new money that these facilities require, and we have got to look at the assets of these companies, and their earning capacity, in order to see whether what is left furnishes a guarantee of the future of these American rail- roads. So let us not delude ourselves with the idea that we can find railroad credit reflected upon the quotations of the stock exchanges in respect to bonds already in the hands of the public. That gives no picture of the kind of credit 27 that you are inquiring into, and that your public is inter- ested in. That may have an indirect bearing as indicating that if those securities are worth so much, perhaps there are others to* come behind that will still be saleable ; but, at last, your inquiry is as to the condition of what is now available to offer the public when you ask his investment, and whether it is sufficiently attractive to get it. And you must realize that you are offering now junior liens on all thpse railroads, or you are offering stock which is without a lien. You see the condition of the stock; you see the condition of dispro- portionate issue of bonds, as compared with stock, and you see — I hope you see — ^that there is a real problem for the statesmanship of this country to consider in the question of whether or not existing conditions, whatever may be their cause, are such as to give a guarantee to the American people that new money will be forthcoming, as they need new fa- cilities, and that there is a practical assurance that these new facilities will be provided. Superior Attraction of Other Securities. You will, likewise, have your attention called to what are considered the superior attractions of other classes of se- curities, ^ou will be told of why it is that investments are going in other directions. You will be told about the more attractive earning capacity of industrials. You will be told about the growing favor in municipal securities, your attention will be directed to a vast area or avenue of invest- ment newly created by an act of Congress, where the farm loan securities, practically endorsed by the Government — ^not in the way of financial obligation, but endorsed by Govern- ment approval — will come into the field as a great competi- tor of other investments; that those securities are tax free, and, as told to us by one of the bankers of Memphis, Tenn., that they will hereafter furnish a tremendous source of competition to any other class of investment, especially in- vestment in railroads. 28 Your attention is invited, and will continually be invited during this hearing, to this, as a cause for the decline in railroad credit, and that is that under our governmental policy the amount of the revenues of the carriets is not within the control of the owner. I am careful here to say that I realize that the amount of those revenues cannot be, and should not be, in the hands or the control of the owner, free from governmental regulation, but when I come to discuss that part of the subject, I shall discuss what the regu- lation ought to be; not that there should be freedom from regulation, or absence of regulation, but the character of the regulation, so as to increase public confidence. Power of Labor to Dictate. We cannot in this connection lose sight of the fact that the credit of the railroads is also affected by the power of labor to dictate its own wages, and by the consequent with- drawal from the control of the owner of the power to fix the levels of his expenses, and we are subject, as all are sub- ject, to the increased cost of living — the difference between us and most enterprises being that we cannot increase, as we think proper, the amount of our revenues. We are like the Government clerk up here, with whom you gentlemen have to deal, whose income is limited, but whose market bUls increase. Business, Not Political, Principles Should be Applied. And then there is another consideration, gentlemen, which affects railroad credit, which in the calm and dispassionate atmosphere of this inquiry, I hope, will be recognized and will be given due consideration: Railroads are, at least, a business enterprise; they must not be subjected, if they are to survive, to political management. We are just as de- pendent on the application of business principles to the busi- ness which we are entrusted with the obligation to make 29 successful as any other line of business, and we cannot be subjected safely to political management any more than any other business can be safely subjected to political man- agement. , Now, I have adverted briefly, gentlemen, to some of the causes which are affecting adversely railroad credit. Is there nothing in that catalogue to arrest your attention? Is there nothing in the conditions which I have described to mate you pause and say, "Are the interests of the public sufficiently safeguarded under conditions such as these? Is there an adequate assurance in the conditions which now exist that, through private means, the railroad facilities of the country will be at all times kept adequate to the coun- try's needs?" Investor Must be Attracted — He Cannot be Coerced. Let me ask you, for one moment, to put yourselves in the position of the investor. You, as an investor, cannot be coerced; you must be attracted. There is a fundamental part of the problem of railroad management and of rail- road regulation. As long as these instrumentalities are in private hands you cannot coerce, but you must attract, in- vestors. Now, an investor who means to invest comes and looks upon the field. What does he see? He sees, in the first place, that the subject in which he is asked to make his investment is absolutely beyond his own control in respect to the revenues which it shall produce; that they are controlled by governmental authority, and they are not only controlled by governmental authority, but they^ are controlled by a governmental authority which is irresponsible for the results, and which is so diversified that it cannot be co-ordinated into one consistent policy of regu- lation. He finds not only that the revenues are limited by the power of government, but limited not by the power of a single government. He finds . that the level of his revenues is not fixed by a standard which is consistent and 30 which looks to, appreciates, and is responsible to the whole people, but by a diversified, unco-ordinated, and uncontrolled diversity of governmental authority — that while the stand- ard of one State and the standard of another State — I mean of the National Government— may be high enough to guar- antee the continued efficiency and sufficiency of transporta- tion facilities, and from time to time to attract new capital to make his own input useful and valuable, that he can have no such standard as that applied, but that he must go not only to one source of regulation, to one standard , of what the public requires, to one standard of what can be permitted in the way of the prosperity of the enterprise, but to forty-nine. Is there anything inviting in that to the investor? Is there anything to make him feel that "that is the place for my money?" Income and Outgo are Subject to 49 Public Authorities. Again, we find not only can one government add to the expense account, but the 49 governments can add to the expense account. Can they add to it with a limitation of the same principles or the limitation of the same standards, or can they add to it according to the individual and uncon- trolled conception within the lines of confiscation of each individual governmental authority? Here this investor has the question of the amount of his revenues controlled so that he cannot say what they shall be, and no enterprise of his can control them, but they are controlled by a governmental authority, and added to that are the differing policies of 49 authorities, all of which have the power of affecting his reve- nues, and when he comes to the expense account he finds that that is not in the hands of a single responsible author- ity, responsible to the whole people, and to a comprehensive and complete view of the needs of commerce and of the in- strumentalities of commerce, but that that, too, is subject to the unco-ordinated, diversified, and unrestricted — except 31 as constitutional limitations restrict it — exercise of the power of 49 different agencies. Now, Mr. Investor, how do you like that situation? Is there anything in that to make you particularly keen to part with your hard-earned money and put it into that enter- prise? Is there or is there not something there for the gov- ernment to consider and for the government to correct, if you are going to continue to rely upon the voluntary action of investors free to come in or free to go out? Investor Sees a System of Repression. What else does this investor see when he comes to con- sider now whether it is to his interest to put his money into this enterprise- He sees a system of regulation born of the passionate resentment in the public mind against abuses and containing only the principles of correction and punish- ment under the principles of repression, no principle of lift- ing up and building. He finds, therefore, that not only is he invited to come into an enterprise where he can control neither his revenues nor his expenses, but he comes to make his investment subject to a system which contains only the principles of repression and correction, and which has in it no recognition of the necessity for him to be encouraged and protected. Is there anything in that that you, as representing the public, can rely upon to secure from private individuals the new money that is needed to build up and to make stable these great fundamental instrumentalities of the public wel- fare? Suppose he looks a little further, this investor, exam- ining into the merits of the thing in which he is asked to make an investment, and finds that there has been a gross advance in 16 years of 16 per cent in the proportion of fixed charges put upon that property to which he must come in subject, and where the margin for his security, be it lien or be it stock — the margin on which he must rely for his reim- bursement and for the safety of his investment — has been 32 reduced from over 50 per cent in 1900 to about 35 per cent now. Do you think that that constitutes an element of real attraction to an investor? This man that you must attract, this man that you cannot coerce, you are inviting into a ban- quet room where the fare will be, in his mind, only the fare- of starvation instead of the fare of plenty, and you are asking him permanently to identify himself with an enterprise that is made subject to these conditions in respect to the exhaus- tion of equities and to the gradual progress toward the entire exhaustion of asset value. Such a man — this investor — ^will not be contented to look only in the direction to which you invite his attention. He is not going to see only your rail- road investment. He is at liberty to look at other classes of investment. He is at liberty to measure their attractions, and he is at liberty to choose between them. How will h& choose between the investment which is subject to severe and restrictive governmental regulation on the one hand, and which he is free to enjoy, and the operation of the forces of economic development on the other? How will he select your railroad investment when he sees the standard of your earnings vastly inferior to the standard of the earnings in other industrial pursuits from agriculture, or from agri- culture down? I say that in deference to my friend from Georgia. Mr. Adamson : That is correct. Mr. Thom: How will he select, when he has the whole field of clear and unencumbered assets on the one hand as a security, and he sees the margin of equity in the railroad world reduced to 35 per cent, against over 50 per cent 16 years ago? And when you invite this gentleman, with his money to invest, to consider a railroad investment, what wUl be the impression on him when he is free, on the one hand, to invest in a line of business which is governed only by business considerations, which is subject only to the limita- tions of honesty, which puts no restriction upon genius or enterprise? That, on the one hand, and a svstem of trans- 3H portation which is not controlled by simple business consid- erations but is subject to the fluctuating views of political parties. How will he select? System of Regulation Must Offer Attractions to Investor. Some of these things that I have alluded to are inseparable from the railroad industry. The principle or governmental regulation is inseparable from it. We must reckon with that. We must take that as our starting point ; but, after we have taken it, that does not end the question. It comes back, then, to the system and permanency and provisions of regulation, that they may be as wise as they can be made, in order to safeguard the public against abuse and at the same time offer adequate attractions to the investor, to continue the supply of facilities. We are not here to discuss the free- dom of this industry from regulation. That is universally accepted as a permanent and enduring part of American policy, and I, for one, concur in it, not only as a fixed policy, but I am. a disciple of its wisdom. I believe it ought to be, so that when I raise my voice here it is not for the purpose of attacking the principle or the policy of regulation, but it is for the purpose of trying, as far as my efforts can contribute to it, to see that the system of regulation is made as wise and as helpful as it can be made for the preservation of this great and essential industry. Such System Must be Free from Political Considerations. I do believe that a means must be found of creating an authority of regulation that shall be as free as possible from political consideration. I realize that it is, perhaps, a Utopian dream to think that that can be done entirely, but I do think that that is the point to which the efforts of statesmanship should be directed, to find a method of apply- ing governmental regulation to an industry, which shall be safeguarded as far as possible from political consideration 3w and political influence. We know that at the present time — I say this in passing, merely as an illustration of what I ana meaning in this part of my remarks — -we know that a rail- road today, under the instructions of the Interstate Com- merce Commission, may refuse to pay a claim to some impor- tant man at some cross-roads, that it may make by that obedi- ence to the instructions of the Interstate Commerce Commis- sion, a political enemy of a man to whom we do not pay the claim, and that he may have strength enough to influence the election of some man that will feature his political life by an attack upon the railroad interests. We can not sur- vive that, any more than any other business can survive. The decree of the American people has gone forth that railroads shall stay out of politics, and the railroads with which I am acquainted do stay out of politics. That same policy which issues that righteous decree to the railroads, should see to it that the other side, that side that wants to attack the railroads, stays out of politics, too. We plead before you gentlemen for a non-political body, business sys- tem of regulation, which shall give every guarantee that it is possible for your wisdom to invent, that the business ques- tions on which your welfare hinges and by your, I mean the pubhc welfare — are dependent, shall be decided on principles of business righteousness and not of political ex- pediency. Your railroad business can not long survive, if it is made a football of politics, and the more it is made so, the more dangerous it is; the less it is made so, the more you attract the man that expects business conditions to sur- round his investment. I have tried with such suggestiveness and force as I could command to bring to your" minds an appreciation of the fact that there is a condition of serious depreciation in rail- road credits. I have tried to show to you that that is a matter that does not primarily concern the railroad owners, to the extent it concerns the general public. I think we 35 should now go further and inquire into the causes of this decline in railroad credits. I have hinted at that in the course of what I have said, but perhaps it will be useftil to catalogue them again, in order that we may see whether there is anything in them that is impossible for national politics to remedy, Mr. Chairman, I have spoken two hours and a half now. It is a considerable effort to speak two hours and a half. I will not be able to finish today. I would like very much, if I could, before going into this subject, which is a very large one, if I can come tomorrow morning and continue. . Mr. Adamson: Mr. Chairman, I would suggest that we utilize the time to go into executive session for a few minutes. The motion was agreed to. 36 Friday, November 24, 1916. The Joint Committee met at 10:30 o'clock a. m., pur- suant to adjournment. Senator Francis G. Newlands (chair- man) presiding, Hon. William C. Adamson, vice-chairman. Present: Senators Robinson, Underwood, Cummins, and Brandegee; and Representatives Cullop, Esch, and Hamil- ton. The Chairman : The committee will come to order. Mr. Thom, you may proceed. No Capital Now Available from Those Who Risk Much that They May Make Large Gains. Mr. Thom : Mr. Chairman and gentlenien of the com- mittee, in speaking yesterday of the disappearing sources for the supply of needed funds for railroad improvement, I omitted one of the sources which seems to me to be of great significance and consequence to the public. The railroads of this country have been created by the spirit of adventure of the American people. They have been willing to go into enterprises involving an unknown future and great risk in the hope of large returns. There is no man acquainted with public affaii-s, or with the history of the creation of the transportation facilities of this coun- try, who does not appreciate that without the spirit to which I have alluded there would have been no such transporta- tion system as exists in America today. The spirit of the man who was willing to adventure his means in the hope of great financial return is what has accomplished the crea- tion of the American system of railroads. Now, that source has, of course, been eliminated. There can be no system of strict governmental regulation which would leave any room for the man who is the adventurer or speculator, if you please, in the subject-matter that is thus recognized. While we all recognize that that situation is 37 one that has necessarily come, In disaling with the future and in laying our plans for the preservation and the growth of this system, we must not shut our eyes to the fact that that great body of adventurers, of capitalists, which was con- trolled by the spirit of adventure, has disappeared as a source of supply to the increase of railroad facilities. So that we are reduced now to the conservative investor when we want to get money. In order to attract him there must be offered to him, in the place of risk and large returns, stability and certainty for his investment. Therefore in your outlook, in your constructive scheme for the future, in your purpose to preserve an adequacy of railroad facilities for the growing commerce of this country, you cannot shut your eyes to the fact of the disappearing and exhausted sources of supply of this capital, but you must address yourselves as practical men to the accommodation of what you do to the actual possibilities of the situation with which you are dealing. Amount of New Capital Required to Meet Financial Needs During Next Ten Years. Gentlemen, may I for a moment try to interest you in the question of what the financial needs of the railroads are likely to be during the next ten or twelve years? Of course we have no lamp, to light our feet as we tread along this pathway, except the lamp of experience. We can only study what has been done, what the tendencies are, what the growth of commerce is expected to be, and from that attempt to adduce what will be necessary in the way of transporta- tion facilities to accommodate the commerce which may reasonably be expected. We have had that subject studied, and in due time the exact methods of that study, the way it was carried on, the figures which have been deduced from it will be presented for your consideration. I will now simply give you the method and state conclusions. In our effort to ascertain what are the reasonable needs 38 of the future, we have studied the growth of population, industries, and commerce during the past twenty or more years, and the growth and development of railway traffic and of facilities and equipment during the same period. We have tried to show what the percentage of increase year by year has been during that period; how the property has grown; how the traffic has grown, and how the railroad facilities have grown to take care of it. The result is this, from the growth of population, industries, and commerce during this period this has been found : Krst, that the wealth of this country has increased at the rate of eight to nine per cent per year, and that the same ■ ratio of increase has held good in the demand for transporta- tion. Second, that the forces that have operated in this growth and development in the past apparently continue still in full operation, and may reasonably be expected so to continue for the next ten or fifteen years. Third, that the investment in railway facilities, in order to meet the enlarged requirements of the future, because of this continued growth, and in order to fulfill the duties and obligations imposed upon the railways by the public, must, therefore, also proceed at a corresponding annual rate of increase. We take, then, eight per cent as the result of these figures, to indicate the annual growth that must be provided for in railroad facilities of all sorts, in order to keep up with the ieight per cent of increase in the business of the country, and the result of that is that during the next ten years there will be needed approximately twelve hundred _and fifty millions of dollars a year, in order not to constrict the business and productive energies of the country and in order to supply thein reasonably with the facilities which this growing busi- hess will require. Now, those figures, of course, are not accu- ' rate ; those figures indicate a mere attempt to forecast within some sort of reasonable limit the needs of the railroads and 39 the public interest annually during the next ten .years. Those figures apply only to the amount that will be required to increase your facilities; they do not contemplate the amount that will be required to refund your maturing debt. From the best information that we can obtain, there will be required to refund maturing debts during that time a sum approximating two hundred and fifty millions of dollars a year ; so that the requirements of the railroads for new money during the period to which I allude are estimated by us to be fifteen hundred millions of dollars a year. Now, as I say, those figures are an attempt at approxima- tion ; it is thei best estimate that we have been able to give. They are larger than the amounts which have been expended during the last few years, which have amounted to six or seven hundred millions of dollars a year ; but they are based upon the creation of facilities such as will accommodate ?ommerce, and not on the policy of skimping and restrain- ing commerce, and not having facilities adequate to its ac- commodation. These figures, therefore, will illustrate to you the problem with which you will be confronted in cre- ating a constructive system of railroad regulation in pro- viding for the future needs of the public which you repre- sent. Whether somewhat greater or somewhat less, they are figures of a magnitude sufiiciently great to arrest the attention of men charged with your responsibility. Time to Make a New Appraisement of Conditions. Is it not fair to ask of a system which limits revenue, but does not limit expenses, where this money is to come from? Is it not fair to ask that in any constructive measure which is favored by the Congress of the United States this essential need of the people shall not be overlooked, and that some method shall be provided which will reasonably assure the necessary input of capital to bring these and to keep these instrumentalities of commerce up to the requirements of the public needs? "Can it for a moment be contended that exist- 40 ing systems have that effect? I have but to ask you to recall the situation that coufronts the American investor, as 1 at- tempted to describe it to you yesterday, to see that there are no such inducements of safety and certainty and of a friendly attitude of government towards this great essential of public welfare, as to make it certain that that investor will put his means in this restricted field of financial return. In view of that, has not the lime come, in the language of the President, to take a new appraisement of the conditions that surround those properties, in order to see whether or not your present system of regulation contains those principles of encourage- ment and helpfulness and assurance which will be their sup- port in the minds that must, at last, determine the question — that is, in the minds of the great investing public? Of course, we all must recognize that there is an inherent diffi- culty in the way — a difficulty which we must all reckon with: — and that is the difficulty that the revenues of the car- riers must be regulated by some governmental authority; that there must be some limit put by governmental authority upon them. That, in itself, is a -limitation of a serious char- acter, and to be considered from an economic standpoint when we come to deal with this subject. That, however, is a difficulty which cannot be removed. We must deal with that as a fact. It is the outcome of the important relation- ship which these carriers bear to the public welfare; it is the outcome of the consequent system of regulation, which must now be regarded as a permanent part of American governmental policy. But we are entitled to examine the question; whether or not the system of regulation which has the effect of limiting these revenues is of a character that presents as few difficulties as possible? We have a right to consider, in examining this accepted system of regulation, whether there is anything in it which unnecessarily deters public confidence from this investment, which unnecessarily eomplittates the situation, and which unnecessarily builds up difficultifes in its way? If you gentlemen can, for one 41 moment, put yourselves in the position of the man who wants to choose his investment, and who is willing to accept a simple and an orderly, but at the same time an efficient system of regulation, I think you will appreciate that the thing that you will demand is that the system of regula- tion shall he as comprehensive and as wise, and as little sub- ject to local and fluctuation influences as it is possible to make it. I do not think that you would go about seeking an investment which may be limited not only by one authority, but by many authorities. You would want a system of regu- lation as little influenced by politics as you could get it; you would want a system of regulation as little controlled by selfish and narrow interests as you could get it; you would want a system of regulation which could take a large and comprehensive view of national needs, and take the broad outlook of American commerce, which appreciate.^ that it is continent-wide, within its own limits, and that means must be created to allow it to reach the farthest mar- kets of the earth. If you accepted, as you must do, that there must be regulation, you would demand that that should be as simple and as wise and as broad and as far- seeing as it could be made. Would you consider it as bear- able to have so many different governmental agencies, with varying policies, with varying conceptions of the needs of commerce, all able to put their own special limitation upon what your investment might be allowed to earn, all able to create special conditions of expense, to which your invest- ment must be made subject? Views of a Prominent Business Man. Now, gentlemen, I hold in my hand a letter which was not written to me, but was written by an important business man whose consent to read it I have not got and therefore I shall not mention his name, but which I have been per- mitted to see, and the important part of this letter I shall ask your indulgence while 1 read it to you, because it ex- 42 presses the standpoint of the disinterested business man as he looks upon this transportation problem. It was written during the current month. It was written in connection with a convention of business men held in the last week or two in the city of Baltimore. It was written to express his view of what that business association should do in regard to this matter of transportation. "I wish to thank you for this invitation" — he re- fers to the invitation to attend the meeting — "and to express my regTct at not being able to attend the conference, as I have no doubt a discussion will prove of interest, as the matters to be considered are very important. "While I recognize that there are still many evils to be corrected, I am beginning to Avonder whether we are not approaching the time when we are in danger of going too far in our endeavor to exercise control over our railroads. Is it not time to take cognizance of the fact that the Interstate Commerce Commission is not the only power exercising control? Most of the gentlemen gather at Baltimore will be business men. How many of them would want to start in business if the rates of wages and the condi- tions of employment were so controlled that the cost of their output was largely a matter outside of their control, and if at the same time the prices at which they could sell their commodities was a matter in which they had little or no voice? How many of them do you think would feel very much interested and in case they could not get out, how many of them do you think Tiould feel very much interested in improving or extending its facilities? Certainly under such conditions no one not already in business would care to start any new enterprise. "To what extent is the present lamentable break- down in our transportation facilities due to the un- derlying causes above referred to? I don't suppose anybody knows very definitely to what extent that may be the case, but isn't there probability enough of there being an intimate relation between the present madequate condition of the equipment of our rail- 43 roads, and the fact that the officers of our railroads are no longer in control of our transportation facili- ties, to any very marked extent, to give us pause and perhaps look at this problem from a somewhat differ- ent standpoint. That the railroads themselves are largely to blame for the necessity of exercising some measure of control cannot be denied, but as all move- ments in public sentiment and in reform swing too far and have to recede, are we not rapidly approach- ing the time when the swing of the pendulum in this movement should be checked? "It may throw some light on the present status of these problems if we very briefly review the early history of our railroad building. Very few of our railroads were profitable investments when they were first constructed. The resources of the country through which they passed were undeveloped, the revenues in most cases were insufficient to pay for the upkeep of the roads, and equipment, and provide in- terest for the bonds, and most of them went through bankruptcy and had long periods of lean years be- fore they ultimately reached the point where they could pay even five per cent or six per cent on what would have been a fair valuation of their assets. Of course the investors had hopes of very handsome re- turns, or they never would have built the roads. To be sure, the public had just grounds for grievance against some of them because of the stock jobbing schemes that were employed, and because of the many -of the methods of discrimination that were followed, but just the same had it been known in ad- vance that no larger returns would ever be made, and that ultimately, even if they could be made, would not be permitted because of government regu- lation, most of our railroads would never have been built by private enterprise. Could any group of men today be induced to build a trunk-line railroad for the purpose of competing with those already in ex- istence, with all the risks of losing their money, knowing that from the beginning, at best they would have a long period of unprofitable operation, until the natural resources along their line should be de- veloped, and knowing from the beginning that in 44 no event would they be permitted to earn more than a mere five or six per cent on their investment? "With a knowledge of these facts before us, does anyone suppose that if the conditions now imposed, had already existed our railroads would ever have been built by private enterprise? Is it not therefore matter of great good fortune to the country tha,t our railroads were built before these restrictive conditions were imposed? "If the conclusions above reached are measurably correct do they not also apply, although somewhat in a lesser degree, to the problems involved in in- creasing the facilities and equipment to meet the ever increasing necessities of the public? How. far is the present shortage of cars and equipment due to this condition? If our railroads are deprived of the opportunities to make money enough to enable them to provide additional trackage and equipment suffi- cient to meet the growing demands of our country, how are these necessities to be provided for and how is our country to continue its development? We all decry government ownership, but are we not in dan- ger of creating conditions that will force it upon our- selves? We know something of how the red-tape, politics, inelHciency, and increased cost. of operation resulting from government ownership would ulti- mately affect rates, and the service rendered, but even more serious would be the fact that government owned railroads would always lag behind necessity. Needs for additional trackage, terminals, and equip- ment, would never be anticipated. We all know that it is hard enough, and many times impossible, to get Congress to do a thing even after the necessity for it had long been apparent, hence our railroads would never be ready for a great business movement when it came. The ills we now have are as nothing com- pared with those we would have under government ownership. It is time to be careful." 45 Effect of Dual System of Begulation. Now, gentlemen, this brings me to consider, in the effort which I am advocating before you, the simplification of the system of regulation — this brings me to consider on its merits the dual system of regulation, bothi by the State and by the National Governments. This question should be considered, from two standpoints, one from the standpoint Qf the discouragement to the investor which this dual system of regulation creates, and the other from the standpoint of the effect of this dual system of regulation by one State upon the interests of another State, and upon interstate com- merce. A Narrow State Policy Which Escapes Con^scation Cannot be Controlled. I have spoken to you. at length in regard to the effect upon the credit of the carriers. I have called your atten- tion to the fact that the investor himself is repelled when he comes to consider that his investment is made subject aot only to one regulating authority, but to many regulat- ing authorities. I have called your attention to the fact that one State may have a narrow policy, that it may con- sider that its system of rates should just escape the line of confiscation, and that it should make no contribution what- ever to a high efficiency standard of transportation facilities. We all know that there are such States ; we all know that the courts have been full of cases where State-made systems )f rates have been attacked because the railroads regarded ;hat they did not escape the line of confiscation, but that ihey were actually confiscatory in their character, and vhether those cases have succeeded or not it is only neces- ;ary in order thai) the State might win them that the line )f confiscation was escaped, or that there was no available )roof that the line of confiscation had been kept below. 46 We all recognize the fact that the cases which have charged confiscation in this country have been almost entirely cases in regard to State-made systems of rates and seldom in re- gard to nation-made systems of rates. We all know, there- fore, that it is within the power of the States, unrestricted by any constitutional limitation to cut the level of its rates down just so that it will escape the conden^nation of the Fourteenth Amendment. Suppose there are States that do that? Suppose that those States can control an average of 15 per cent of the traffic of the railroads, for interstate traffic, generally speak- ing, in this country, is about 85 per cent of the whole, and State traffic is about 15 per cent of the whole. Now, sup- pose it is within the power of aJ State simply to cut down the earnings of the railroads, that fifteen per cent, to the line of confiscation, and just to escape it? What view will the investor in these railroads take of the existence and sometimes of the exercise of such a power as that? Is that power an inducement to the input of this new capital which I have attempted to show you is essential in the interest of American commerce? Suppose a State might go further and adopt a policy, as some States have adopted it, that States' markets are for State people, and the theory of inter- state commerce across the border is impeded and sometimes prevented by a scale of rates which makes dealings across the border impossible? Would that impediment to the free flow of commerce, created by the local views and the local conditions of men who can control measurably those questions, be an induce- ment to the investor to put his money in a business subject to such conditions? But I have discussed that feature of the situation sufficiently. Commerce is Not a Neighborhood Affair— It is Nation- and World-wide. I beg you to let your minds revert back to what I had . ;he honor of saying to you- on yesterday, in reg&rd to the ittitude of the investor, and let me come at once to the con- sideration of how the policy of one State can adversely iff ect the policy of anothet State ; of how inherently there is in this situation a power inconsistent with any compre- lensive and sound view of what commerce is. Commerce las ceased to be a neighborhood affair. Men no longer deal iimply with their neighbors, but steam- and electricity, have ione their work, and the markets of the world have been wrought to the doors of the business men of the country. Their field of enterprise is no longer a restricted and neigh- jorhood field, but the productive and commercial energies )f the people know no limits, except the limits of the civi- ized globe. In order to deal with .that question, therefore, 7fe have got to get a horizontal view of what commerce is md what commerce demands. "We have got to get away 'rom any narrow conception of it, but appreciate in a com- jrehensive way all its needs and all its interests. The man vho now deals simply with his neighbor has fettered him- self with a condition of slavery — of commercial slavery — vhich is out of keeping with the spirit of freedom which )ervades the earth in regard to what commerce is. In our ittle communities we see our neighbors producing the food- ituffs which are to feed the armies of Europe. In our ittle communities we see our neighbors producing the food- ituffs which are to supply the great markets of America, ^en will not be content with their own market towns as a imitation upon their commercial possibilities. In obedi- ince to that tendency, great lines of railroads have come nto existence, not as a matter of. financial scheming, but n obedience to the operation of a commercial law which is ill-controlling, and that is, that the instrumentality of 48 commerce must accommodate itself to the needs of com- merce, and so we see the great lines of railroads in this country which are serving the people, and are serving them according to their needs, take no note of State lines, but they pass on from the vast fields of production to the great markets of America and to the great ports of America. They are carrying commerce where commerce wants to go. They are not hauling within the confines of States where commerce does not want to go. They are responding to an economic condition which they could not create, and to whose behests they must yield an unquestioning obedience. Should our system of regulation recognize that fact or refuse to recognize it? Laws Must be Adjusted to Economic Needs. Any system of regulation of an economic question which throws itself athwart the path of economic progress is des- tined ultimately to failure. There may be checks, there may be obstacles, there may be artificial and unnatural conditions sought to be imposed, but at last, gentlemen, the logical operation of economic laws will prevail over human- made laws and human intelligence, sooner ^or later, will begin to recognize it, and when it is recognized, the adjust- ment that is made will be by the laws to the economic con- ditions, for it is impossible to adjust economic conditions to the laws. Now these economic conditions, in which your constituents want to deal with all the people of the earth, are :n operar tion. That economic need may be checked, but it cannot be destroyed. The thing for statesmanship to inquire of is whether the time has come for a better adjustment of statu- tory laws, to recognize economic conditions. What value have the lines of the States from the standpoint of inter- state and foreign commerce? They may be adhered to from political preference. There may be an indisposition to disregard them, from inherited or political consideration, 49 )ut there is no justification for that from a commercial tandpoint, and the question before you is whether you will lind the commerce of America by political considerations, ir whether you will study it in its commercial needs and in ts economic aspects, and will adjust your laws to the actual onditions which do apply to and control it. Instances of the Effect of State Regulation upon Other States. I ask your attention to the effect of State regulation upon ither States. • We shall attempt to develop that in the evi- lence which shall be adduced before you, but I will take he liberty of referring to a few conditions in respect to it, ?hich are known of all men, and which may well illustrate he purpose I have in mind. In the first place, I call your ittention to the fact that between the Potomac and the ilississippi rivers there is not a State that does not make the State rates, and the State commerce in no two of the States Qoves on the same terms, although the Government makes hem all.' Now, is not that a startling proposition? Is not hat an illustration of the inconsistent and uncoordinated lews of State management of commerce, that when each i'tate is exercising its power to determine the terms on which ts commerce can move within its own borders, there is sueh difference of conception of the problem that the commerce f none of those States moves on the same terms? Effect of State Laws Imposing Penalty for Failure to Furnish Cars. As indicating the diversity of. State policy in respect to hese matters, and of the effect that one State law may have ipon the commerce of another, I bring to your attention he different laws of the States in respect to the fine that lay bo imposed for failure to furnish cars. One State I 4w 50 have in mind imposes a fine of five doUaxs a day for not furnishing a car on demand. Another State imposes a fine of one dollar a day for not furnishing a car on demand. The Interstate Commerce Act imposes no fine. Now, take the present condition of car shortage, in which, in obedience to the great currents of commerce, the available equipment of the railroads has passed on to some other section of the country, and imagine the case where there is only one car to supply these three demands — the demand of the State which imposes a fine of five dollars, the demand of the State which imposes a fine of one dollar, and the demand of the Interstate Commerce Commission which has no fine in re- gard to the failure to furnish a car — one car to be selected for the three, two to "go without," one "to have." Which is going to get it? And when the State with the severest penalty gets a car, it has taken it away from its sister Sta,te, it has taken it away from interstate commerce. Is that a proper balance of power in respect to the matter in which all the States and all the people are interested? Ought the question of a fair and equitable distribution of car supply to be in the hands of the selfish interests of one of the States, or ought it to be in the hands of the Government of all the States, which can act impartially between them? Effect of State Regulation of Issuance of Securities. I will illustrate another situation. I attempted to show you yesterday the great interest which the whole public has in a proper supply of new capital. There are 19 States in this Union now asserting the power to regulate the issue of new securities, each demanding the power to approve or disapprove. Now what is* the subject-matter in respect to which they are exercising that power? The mortages or the stock issues of these continuous lines of railroad relate to the whole line, not to the part within a single State, unless under most unusual conditions. The 51 general situation is of a mortgage which covers the propertj from end to end and through many States, or the stoci which is based upon an ownership in the whole line througt many States? Now 19 States say that such a railroad as that, in which ten or a dozen States are interested, can no1 raise any new money, cannot provide any new facilities without the consent of that one State. What is to becom< of interstate commerce under such a restriction as thatl Here are facilities needed, vast quantities of new equipmeni to go from one end to the other of this Continent, and yel 19 States say you cannot issue any securities to buy thai equipment without the consent of each one of us. Let us see how it has operated in practice. Let us se'f some of the instances in which the power has been exerted, and inquire what' has been the effect upon other States oi the exercise of that power. Case of the New York Central Railroad. There was the great New York Central system, r^inning from the City of New York through the whole extent oi that State, across the State of Ohio, across the State oi Indiana, and, for a few miles, into the State of Illinois — less than 20 miles,* I am told, in the State of Illinois, Recently they desired to issue a large amount of securities for the purpose of reorganizing and coordinating that whole system. The State of Illinois was called upon to give its consent to that issue. They gave it, but they said the laws of the State of Illinois imposed as a condition of our con- sent a tax of $1 per $1,000 on this issue, and thereupon they insisted on a payment of $600,000 by the New York Central as a condition of the issue of those securities. Less than 20 miles of the railroad in the State of Illinois. That rail- road, running entirely across the State of Indiana, entirely *See corrected statement, p. 77. 52 across the State of Ohio, entirely across the State of New York. What greater right had the State of Illinois to exact that $600,000 than the State of Indiana had or the State of Ohio had or the State of New York had? Alid if all had done it, if all had exercised that power, what would become of the possibility of making that financial transaction, which was approved by the Commission of the State of Illinois? Are the people of the different States of this country going to remain long in silence and accept this power of exaction which one of the States ma>' make, the effect of which is to place a burden upon their commerce- and a limit- ation upon the facilities upon which their people are de- pendent? Somebody must pay that $600,000. It must have some effect upon the public, either in the payments they must make to sustain it or in the withdrawal of that amount from the facilities which the public ought to have to carry on its business. Somebody must pay it; some public in- terest must be burdened, and can you for a moment tolerate the conception that an instrumentality on which the States of New York, of Ohio, of Indiana, and of Illinois are de- pendent, shall be burdened, shall be crippled, by the im- position of a tax which is approved by the policies of the • State of Illinois, but which is rejected by Indiana, by Ohio, and by New York? Case of the New York, New Haven & Hartford Railroad. Are you familiar with the recent instance of what has happened in the New England States in regard to the New York, New Haven & Hartford Road? Recently that road was confronted with the early maturity of a number of short-term notes. It wished to provide the means to take up those notes, and in addition a fund of $25,000,000 to give enlarged terminals, more equipment and better facilities to the commerce served by that property. It was necessary to go to Rhode Island, to Connecticut and to Massachusetts in 53 order to obtain the approval of those States to the issue o: that $67,000,000. The State of Rhode Island gave its ap proval ; the State of Connecticut gave its approval, hut wher Massachusetts was reached, although its commission approvec of what ought to be done, it was found that the laws o: Massachusetts forbade, as construed by the highest court o: that State, the laws of Massachusetts forbade that issue. S( that the $67,000,000 of securities could not be issued, al though approved by the commissions of all three States, al though necessary in the public interest according to thei] conclusion, because in the laws of one of the States an impediment existed which prevented the policy of the othei two States from being carried out. And we see now in the embargoes which have been pu1 upon the New England roads, in their congested condition in, their incapacity to serve the public, the loss of this $25,- 000,000, part of the $67,000,000' which was intended tc supply the very facilities which is making the commerce oi New England break down. What right, what governmental right, have the laws of the State of Massachusetts to stand in the way of the commercial facilities of Connecticut and Rhode Island? What are the inherent difficulties and troubles in this system which per- mit the policies of one of the States to stand across the path marked out by the others and to prevent any expansion of the commercial facilities upon which all are equally de- pendent? The "Full-crew Laws" of New Jersey and Pennsylvania. I will give you another striking instance of the burden placed by some of the States upon other States. I shall not attempt to discuss the wisdom or the unwisdom of any State T am attempting to discuss merely the. conflicts between the States. Here are the State? of New Jersey and of Pennsylvania 54 that have beheved it right to pass a law, called by some people the "full-crew law," and by other people the "extrar crew law," which means that the laws of those States require that the complement of the train crew shall be increased up to the standard fixed by the acts of those States. Now those laws operate on railroads which are not confined to those two States. They operate on railroads which go through New Jersey and Pennsylvania, but also through Ohio, In- diana and Illinois, through Delaware, Maryland and AA'est Virginia and beyond. Not one of the other States which I have mentioned has given its approval to those laws. Eight or wrong there is a conflict in view between the States of New Jersey and of Pennsylvania who make this requirement, and the States of Ohio, Indiana and Illinois, Delaware, Maryland and '\\'est Virginia, which, do not make it. The result of the action of New Jersey and Pennsylvania is to impose an annual charge upon those railroads, amount- ing to $1,700,000 a year, which is interest at 5 per cent on $34,000,000. The commerce of those States does not pay that charge. It pays only their proportion of that charge. The commerce of Ohio, Indiana and Illinois, and of Dela- ware, Maryland and West Virginia, is called upon to con- tribute. What justice is there in the commissions of these other States being burdened with that charge which they do not approve, to carry out a policy which they have not adopted, simply because some other State has adopted it? What soundness is there in the view that one State should thus possess the power of encumbering with charge the business of other States, in order to carry out a policy in which those other States do not participate"? But that means that the action of the State of New Jersey and of Pennsylvania" — right or wrong, I shall not discuss- but it means that the actions of those States have laid their hands upon the capital fund of $34,000,000. five per cent 55 of which is the $1,700,000 annual charge to which I hav( alluded, and have produced that much incapacity on th( part of those carriers to apply that capital fund to increasec transportation facilities in these other States as well as ir those States. The policies of those States have required tha an interest which would support a capital investment of these $34,000,000 should be withdrawn from the establishment o: facilities which these other States might have preferred, ir order to carry out the State policy in respect to this ful or extra crew provision. This provision may be right or ii may be wrong. That is not the question. The question is which authority — what governmental authority^^ — ought i' be able to say whether or not the charge shall be imposed upon the commerce of America. Is it right that one of the States should be able to say it or ought that question to be passed upon by the authority which represents all of the States, which can look into the comparative needs of all American commerce and shall parcel out the burdens with an equal hand, applicable everywhere alike. Case of the Southern Pacific Railway. I find that I have omitted to mention one of the features of the operation of this law, where a State is exercising the power of approval or disapproval of the securities, which ought not to be forgotten, and I will revert to liiat paii oi my argument for the purpose of mentioning that now. J refer to the i^ue by the Southern Pacific of a large amount of capital shares, which was approved by the State of Cali- fornia, but where application had also to be made to the State of Arizona. When application was made to the State of Arizona the approval was given, but a condition was attached that a part of the proceeds of those securities must be expended in the State of Arizona. No impartial authority established to determine where that amount of money could best be expended in the interest of the commerce of the 56 whole people, but each State able to affix its own selfish con- ditions, and say, "I- will give my approval, but some of it must be spent right here," and, designating the amount. Now, let us suppose a case where the whole of that capital fund, coming from that issue of securities, was needed in some other State, or was needed in facilities for interstate commerce. Suppose, to make the supposition simple, that the whole of that fund was in reality needed to buy equip- ment which would go everywhere, and the State of Arizona affixed a condition that it should not be all spent in equip- ment, but some of it must be spent right there in the State of Arizona, in some subject of investment, not needed in the opinion of the railroad, and not needed in the opinion of the great commercial public, but required merely as the •exercise of a power, and that power exercised, perhaps, in obedience to some considerations of political expediency. I^ow, ought these business enterprises be subjected to that? If they ought, the conclusion that they ought must be based upon the idea that they have an inexhaustible treasury which may be controlled without regard to the ultimate needs of commerce, but from considerations of merely local and political expediency. All of us know that the capital fund of these railroads is limited; all of us know there must be as much wisdom in the expenditure of those capital funds as there should be in the expenditure of the capital funds of the nation or of a city, and we all know that they cannot long survive a system which empties their treasury not out of regard to the interests of commerce, but out of some local or. neighborhood conception of what is politically expedient. 57 Different Views on Federal Regulation of Issuance of Securi ties Held by Different Congresses of State Railroat Oommissioners. This matter that I am now alluding to was considerec so important that it was made a matter of debate in th( Congress of Railroad Commissioners held in this City las week, the minutes of which I hold in my hand, where tha matter that I have just alluded to is condemned. The con ception of what is fair and just in this matter has had ; stormy history in the consideration of these State commis sioners themselves. There has been a struggle on the par of some of them to recognize the national aspects of thi problem of the approval of capital issues of these railroads and the pendulum has swung back and forth from differen meetings of these commissioners, they having adopted ii 1913, a resolution which is here, saying that the matte of controlling the issues of these interstate carriers shouk be in the hands of the National Government, whereas, whei 1914 came, they met in convention and took the opposit view, that it should not be only in the hands of the Nationa Government, but should also be in the hands of the States and now, in 1916, they come together again. In a deliberate report of this committee they report favor ably certain conclusions, the first of which is this, that thi Interstate Commerce Commission be given power to regulat the stocks and bonds of interstate carriers. That is one o the issues that you gentlemen will have to determine. Approval of Security Issues Must be Promptly Given. You will have to determine it not only by the considera tions which I have mentioned, but by the consideration o creating a workable system, because no railroad can b financed unless the men charged with the responsibility ar in a postion to act promptly, and to take advantage o 58 favorable market conditions. Promptness is an essential element in any system of finances, and if a propostion to make a capital issue and to obtain money for the needs of the commerce of the country must go not only to the national government, but to the authorities of many States, time will be consumed, which may defeat the whole purpose The usual method of doing these things is to find out from some group of bankers or from some banking institution, whether or not they will take an issue of securities and agree upon the price. They will make their acceptance or refusal of that offer of those securities on existing market conditions. They will not consent to leave an open offer to be availed of at any indefinite time, but a time limit, and a short time limit, is necessary in order to insure their cooperation. To create a system of approval of these securities, which means that not only the National Government but that each of the forty-nine States or each of the nineteen States, or each of several States must all be appealed to to give their se- curities, disappoints the ^ery opportunity in many cases that would otherwise be able to handle the transaction. I am acquainted with a situation which well illustrates the point to which I have alluded, which I have stated under a supposition in the following language : "Conceive the not impossible case suggested by a recent dramatic event in the history of the world. "A railroad company has V>een maturing for some time past a large financial plan with the i^urpose of taking advantage of a general market such as we all know recurs at periods some times widely separated. A great steamer, say the Lusitania, sails at a moment of international tension. Those in charge of the financial policy of the railroad are justified in believ- ing that something may happen to that steamer which will affect international relations and destroy for many months, and perhaps for years, a market for se- curities. So far as their own business preparation is concerned, they are ready to bring out the carefully matured plan and place their securities. It becomes 59 then a question of days before the possibility oi disaster to that steamer may be realized. Meanwhil( some State commission, for some such reason as has been suggested', is delaying the approval of the issue It dpes delay until the disaster happens and so de feats the financial plan, with the result that there is at least an indefinite postponement of additional rail road facilities essential to the best interest of th< commerce of the country." Control of Issuance of Securities Must be in Hands of Federal Government Alone. It seems to me it requires no longer consideration on th( part of men of affairs charged with large and far-reachinj responsibilities in respect to this matter, to show that the system of controlling issues of interstate carriers must be ir the hands of the National Government and in the hands o: that Government alone. Why should it not be? Is the na tion a foreign power? Is the Congress of the United Statei inimical to the States? Is it not a part of the Americar system of Government? Are you not placed in nationa control because there are certain national affairs in whicl all States are interested, and there must be, in the nature o the case, an impartial tribunal between them which shal decide the cases with which this universal interest is affected Are you not a part of the system of constitutional Govern ment, and are you not required, out of the necessity of th( case, to act in these matters where an impartial authority be tween the various States is needed in order that justice ma] be equal, and in order that there may be no race of greec and no narrow policy on the part of this union that wil oppress the people of the other States ? ' 60 Power of States to Discriminate Against Commerce of Other States. There is another feature of State regulation to which I would like to invite your attention. It is already so com- pletely in the public eye that a reference to it is hardly necessary — and that is the question of the power of a State to discriminate against the commerce of other States. I allude to the Shreveport case where Texas declared a policy of controlling a foreign market in favor of its own traffic and sought to exclude the trade of Louisiana from Texas markets by reducing the level of rates within the State below the level of interstate rates. That was the assertion of a power to create at State lines a barrier against interstate commerce. After that case was fought out and it was determined that even under existing laws there was- a power in the interstate Commerce Commis- sion to prevent such discrimination, a bill was introduced in the Senate of the United States by a distinguished Senator to abolish that doctrine, and a hearing was had before the Interstate Commerce Committee of the Senate on that bill. On the one side were the authorities of the State of Texas, supplemented by the active support and encouragement of a commitee from the National .Vssociation .of Railway Com- missioners; on the other side was the Assistant Attorney Gen- eral of the State of Louisiana, a representative of the Rail- road Commission of Louisiana, and a representative of the trades bodies of the city of Shreveport, and there a debate was had before that committee. It transpired in the course of that debate that while Louisiana was attempting to get into the markets of the State of Texas and was being hampered and impeded by the policies of that State, that the city of Natchez, Mississippi, was trying to get into Louisiana and was impeded by the policies of that State, and at a lull in the proceedings a gentleman came into this rooni whom I had never seen before, but of course well known to me by reputa- 61 tion, and at a convenient time he arose and said that he wished to introduce into that record some telegrams that he had received from his State, and that gentleman was the distinguished Senator from the State of Missouri, Mr. Reed, and these are the telegrams he read : "St. Louis, Missouri, June 29, 1916. "Senator James A. Reed, "Washington, D. C: "We understand there is a hearing before the Senate Committee in Washington tomorrow on bill fifty- two forty-two introduced by Senator Sheppard, of Texas, seeking to nullify Supreme Court Shreveport decision. St. Louis as a city on the borders of the State sufifers extremely from the very condition which that bill seeks to perpetrate. We already have pend- ing before the Interstate Commerce Commission a proceeding seeking to prevent discrimination against this city arising out of the action of the Illinois legis- lature and Public Utilities Commission as illustrating how we are affected. While it only costs twenty-five cents to come across the bridge from East St. Louis the fare from Chicago to East St. Louis is one dollar eighty-eight cents less than it is to St. Louis. This * of course is merely a sample of what happens with respect to passenger traffic. A similar situation exists with respect to freight traffie. We most earnestly pro- test and ask your aid in preventing the passage of the bill. "The Business Men's League OF St. Louis. "Claeence H. How^ard, President; "Geo. W. Simmons, "Chairman Traffic Bureau; "Geo. J. Tansey, "Chairman Comimittee Noiional Legislation." And then when that was read he asked that another tele- gram should be read and said: 62 "I have a similar telegram which reads as follows: "St. Joseph, Missouei, June 29, 1916. •'Hon. Jas. a. Reed, "United States Senate, Washington, D. C: "We understand that there is a hearing before the Senate Committee tomorrow on bill fifty-nine forty- two introduced by Senator Sheppard, of Texas, and respectfully urge upon your consideration that our people are very much opposed to limiting the powers of the Interstate Commerce Commission and broaden- ing the scope of State regulating bodies in matters of railroad regulation. It is unnecessary for me to call your attention that if this amendment is adopted it will enable State regulating bodies to reduce freight rates on shipments moving entirely within State re- gardless of interstate rates and will very seriously injure the jobbing interests of Missouri which perhaps has more jobbers in proportion to her population than any State in the Union. You are no doubt aware that we now have before the Interstate .Commerce Commis- sion for decision rates promulgated by the Nebraska State Railway Commission decision in which case was expected last January but owing to the gravity thereof the Commission apparently has been weighing the situation. "W J. C. Kenyox, "Manager Traffic Bureau CorriTnerce Cbtb." The echoes of that had hardly died away when the ner Senator from the State of Tennessee appeared. Senator Mc- Kellar, and said that he appeared in behalf of commercial/ bodies of the city of Memphis to complain that the State of Arkansas would not permit Memphis to get into it? market, but was excluded. ' Case of Caysville, Ga., and Copperhill, Tenn. I desire to narrate an incident that I will have to give you from memory, as I do not seem to have the paper which I thought was among the papers before me. 63 Some years ago an application was made to tlie Railroad Commission of Georgia to establish a station at the State line of Tennessee, where there was a station just across the line in Tennessee, and the Georgia Commission heard that application, and declared that, upon looking into the situa^ tlon, they found that the Georgia rates were lower than the interstate fates, and that the influence behind that applica- tion was to have a station established just inside of the Georgia line so that the interstate commerce intended to be carried across* the line should go on the Georgia rate; and they declined it because they said that was the situation, and they illustrated by saying that the interstate commerce from a Georgia point to Tennessee, that could he accommodated from this proposed station, would go at State rates, or at in- terstate rates, if consigned across the border a few hundred yards further, in accordance with the desire of the shipper. The Tennessee business could come into Georgia either at Tennessee rates or at interstate rates, in accordance with the determination of the shipper in Tennessee, and the con- signment that he made of his business, and that was a mere device for the purpose of destroying the effect and the au- thority of interstate regulation, and that they would not be a party to any such exercise of power. No Practical Povsrer Now to Correct This Abuse. Now, you say to me: But in this matter of discrimination against interstate commerce there is now ample power in the Interstate Commerce Law. Let us look at recent events and find whether that is so. Within the last few months the Interstate Commerce Com- mission has found that the passenger fares in Kansas dis- criminate against interstate commerce passenger fares, being two cents for one, and two and one-half cents for another, and they have undertaken to fix, under this authority, the State rates in Kansas. They say that 2% cents, is as little as the public interest will permit, in respect to passenger 64 fares ; and, therefore, they have undertaken to fix these pas- senger fares so that the State rate shall be brought up to what they have determined is a reasonable limit. Did the matter end there? At once, Avhen an attempt Avas made to obey this order of the Interstate Commerce Commission the authorities of the State arrayed themselves against it, and the railroads that were subject to this order went into a court in the State of Kansas and secured an injunction against interference by public authorities with them. There- upon, the public authorities in thai) State went- into another court and got an injunction against the railroads, forbidding them to obey the order of the Interstate Commerce Com- mission; and those two cases are pending there now. So that, although the power was thought, possibly, to be included already in the powers of the Interstate Commerce Commission of preventing that discrimination, we find that, practically, it is not there, because it is not accepted as a con- struction of the law under which all people will live, and obe- dience to it is obstructed by every legal process that can be de- vised; and, meanwhile, commerce, interstate commerce, com- merce of all the people, is not moving on terms which the Supreme Court of the United States and the Interstate Com- merce Commission say are the lawful terms on which it should move. Now, we say that matter ought to be made clear in the law. Conflict Between Interstate Commerce Commission and Georgia — Long-and-short-haiil Clause. There is another striking illustration which is attracting public attention at this very moment. Some time ago the Congress amended the fourth section of the Act to Eegu- late Interstate Commerce, known as the "long-and-sho^l haul-clause," and, under its provisions, has required the southern carriers to readjust their whole systerns of rates in the South, .which has been done, after two years of most ex- tensive and arduous work, and with the result that it is ap- 65 proved by the Interstate Commerce Commission and ordered to be put into efifect. Now, when we come to the State limits of the State oJ Georgia we find that it is necessary to obtain the conseni of the Commission of that State to any readjustment ol the rates there in order to make this adjustment orderec by the Interstate Commerce Commission efifective, and w( have been obliged to prop up, in every conceivable and ir every temporary way possible, the system of long-and-short haul rates, that await the decision of the State of Georgia Now, fortunately, in the State of Georgia, we have men oi great capacity and great fairness on that Commission. "Wt are anticipating that ultimately we will get that consent but the power to give the consent involves the power to re^ fuse the consent, and in measuring and estimating systems of public law, we must not be controlled simply by whethei or not a law is wisely and fairly administered, but by th( possibilities of unfair and improper administration of it. A System of Regulation Must Recognize the Entity of Transportation Systems. We are here studying systems; we are here seeking foi the philisophical principle of law; we are attempting tc devise a well-balanced system of regulation, in which the people shall not be dependent merely upon the wise and the fair, or the unwise and the unfair exercise of some given power. We are trying to show that there must be no inter- position of any power which, if improperly administered, may be destructive of the public welfare, and we are con- fronted, in that view of the case, with a situation which 1 have described, existing in the State of Georgia, where w€ have had our men before that Commission for the last foui or five months, attempting to demonstrate to the Commission the propriety of their application, and with concession al- ways, by the very fact of our appearance, that it is de- pendent upon their judgment, and not upon the operation 5w 66 of the Interstate Commerce Laws, as to whether or not it is possible to put the Interstate Commerce Laws into effect. Is that a secure basis of law? Is that a condition which can be tolerated by the statesmanship of America? Is that a fair balance of the powers between these two sovereignties? Or must we seek for a remedy which will recognize what commerce is; that it is one inseparable, indivisible entity, which must be consistently regulated through all its parts, or somewhere an unhealthful strain will be put, or some- where a.n unjust burden will be imposed? Turning, for a moment, to another aspect of this case, let us conceive of a railroad running through eleven States; 85 per cent of its business is interstate commerce; 15 per cent of its business is state commerce. Let us conceive of a case where the interstate policies of the National Govern- ment, and where the views of ten of the States concur in the wisdom of maintaining that instrumentality of interstate commerce at a high and efficient standard ; suppose that one of those States refuses any substantial contribution on the part of its commerce to the maintenance of that standard deemed essential in the public interest by the interstate com- merce authorities and by the ten other States: what is to be done? Are the interstate commerce authorities and the ten States to surrender to the one, and to accept its standard? If so, that one State regulates interstate commerce, and regu- lates the commerce of the ten other States ; it imposes upon them all inadequate transportation facilities. Or shall the other ien States and the interstate commerce say, "We will not accept the views of that one State ; we will insist on this instrumenality, upon which we are all dependent, being maintained at this high standard of efhciency." How is that to be done? It is to be done by taking the burden which the one State refuses to bear and placing it on interstate com- merce and on the commerce of the other ten States. There is a shift of burden, unjust and inequitable in its character, from the State that declines its contribution, that 67 refuses to recognize the accepted standard of efficiency of the carrier, upon which all are dependent, and a shifting of its burden upon the commerce of the ten other States and upon interstate commerce. Now, is any system of jurisprudence sound which permits that result? Is there any system of governmental regulation sound which puts at the mercy o& one of the States the com- mercial policies and interests of every one of the other States, dependent upon the same carrier for facilities? We must recognize, gentlemen, that the progress of in- vention, that the application of new forces, that the triumphs of human genius have confronted this country with a new conception of what commerce is and what the needs of the people are in respect to it. We must recognize that these instrumentalities of commerce have in effect become and are to be considered as great national improvements and that systems of jurisprudence must be adjusted so as to take ade- quate note of this great transformation, which lies so near to the essential welfare of the American people. Historical Sketch of the Constitutional Conception of Commerce. This leads me to ask your attention to something of a fundamental study of the constitutional conception of com- merce, of the reasons which have brought our constitutional system into effect, and to try to deduce from that something of what the governmental duty of this country is in dealing with this important subject. When the time came, after the successful termination of the War of Independence, for us to begin to try to form a permanent system of government which should be adequate to the requirements of our people, we found a situation to exist in which each State possessed the power of imposing export taxes on traffic going to its sister States, and thus enabling it to keep its products at home, excluding them 68 from the use and enjoyment of the people of the other States ; that each State possessed the power of imposing im- port duties as against the other States, and thus could ex- clude people of the other States from its markets, and that each State retained complete control over its own ports, and thus, by, its commercial policy, could, through the competi- tion of ports, regulate or break down the commercial policy of another State in regard to its own ports and in regard to ts own commerce. We find, too, that those were not merely theoretical powers, but that they were exercised by the various States. For example, we find that Virginia, by her export duties, and inspection laws, with the incidental tax, sought to keep her tobacco at home; that Maryland, by her inspection laws and taxes, sought to do the same with regard to certain of her products; that Massachusetts prohibited the exportation of grain or manufactured calf- skins and imposed and required an inspection tax on ex- ports of other States on tobacco, butter and other products, while North Carolina, for a limited time, placed an embargo on the exportation to other States of corn, wheat, flour, beef, bacon, and other necessaries of life. Turning to imports again, we find that New York, by imposing an import duty, iought to exclude from its markets the butter, milk, and other dairy products of New Jersey, and the firewood of Connecticut. That Rhode Island imposed an ad valorem tax of 5 per cent on all articles imported into that State from the other States, as well as from foreign countries, with a proviso for reciprocal relief, — and so with the other States. We find that the ports of Boston and New York were, at one time, far behind Newport in the value of their im- ports, and that Rhode Island, according to the Supreme Court of the United States, paid all the expenses of her gov- ernment by duties on goods landed in her principal ports, and furnished to the people of the other States. The condition at that time of commercial selfiBhness and greed between the States is thus described by Fiske, in his 69 work on The Critical Period in Americaxi History, 1773 to 1789, and I quote from Fiske, as follows: "Meanwhile the different States, with their dif- ferent tariff and tonnage acts, began to make com- mercial war upon one another. No sooner had the other three New England States virtually closed their ports to British shipping, than Connecticut threw hers wide open, an act which she followed by laying duties upon imports from Massachusetts. "Pennsylvania discriminated against Delaware; and New Jersey, pillaged at once by both her greater neighbors, was compared to a cask tapped at both ends. The conduct of New York became especially selfish and blameworthy. That rapid growth which was soon to carry the city and Stat« to a position of primacy in the Union had already begun. After the departure of the British the revival of business went on with leaps and bounds. The feeling of local patriotism waxed strong, and in no one was it more completely manifested than in George Clinton, the Revolutionary general, whom the people elected Gov- ernor for nine successive terms. * * * It was his first article of faith that New York must be the greatest State in the Union. But his conceptions of statesmanship were extremely narrow. In his mind, the welfare of New York meant the pulling down and thrusting aside of all her neighbors and rivals. * * * Under his guidance, the history of New York, during the five years following the peace of 1783, was a shameful story of greedy monopoly and sectional hate. Of all the thirteen States none be- haved worse except Rhode Island. "A single instance, which occurred early in 1787^ may serve as an illustration. The city of New York, with its population of thirty thousand souls, had long been supplied with firewood from Connecticut, and with butter and cheese, chickens and garden vege- tables, from the thrifty farms of New Jersey. This trade, it was observed, carried thousands of dollars out of the city and into the pockets of detested Yankees and despised Jerseymen. It was ruinous to domestic industry, said the men of New York. It 70 must be . stopped by those effective remedies of tt Sangardo school of economic doctors, a navigatio act and a protective tariff. "Acts were accordingly passed obliging ever Yankee sloop which came down through Hell Gat and every Jersey market boat which was rowed acroi from Paulus Hook to Cortlandt street, to pay ei trance fees and obtain clearances at the custom-housi just as was done by ships from London or Hamburg and not a cart-load of Connecticut firewood could I delivered at the back door of a country house i Beckman street until it should have paid a heav duty. Great and just was the wrath of the farme: and lumbermen. The New Jersey legislature mac up its mind to retaliate. * * * Connecticut we equally prompt. At a great meeting of business mei held at New London, it was unanimously agreed 1 suspend all commercial intercourse with New Yori Every merchant signed an agreement under penalt of two hundred and fifty dollars for the first offensi not to send any goods whatever into the hated Stai for a period of twelve months. By such retaliatoi measures it was hoped that New York might be con pelled to rescind her odious enactment. But sue meetings and such resolves bore an ominous likenei to the meetings and resolves which in the years h fore 1775 had heralded a state of war; and but f( the good work done by the Federal convention ai other five years would scarcely have elapsed befoi shots would have been fired and seeds of perennii hatred shown on the shores that looked toward Mai hattan Island." That is the condition which confronted this country i the time that the question of adopting a commercial polic was under consideration. Not only that, but the questio of the relation of the thirteen colonies of the great und veloped section of the West was involved. There was Grei Britain on the northern boundary; there was Spain on tl southern boundary, attempting by conciliatory commerci and political policies to secure the political allegiance of 1i 71 people of that great developing country, and it was perceived by George Washington and by the others who had control of the policies of that day that if, super-added to those ad- vantages and those proximities of neighborhood there should an ideal grow up, that each of these commercial States — I mean the States along the American coast line — could shut their ports so that the people of the West would be obliged to pay tribute to the people 0/ the East; so that the supplies which were brought, in here for consumption in the great northwestern territory would have to pay tribute to the eastern ports before they could go to supply the needs of those pioneer communities, that then a condition of aliena- tion so tremendous would grow up as that the great West would throw its political fortunes, some with Spain on the South and the others with Great Britain on the North. And in order to prevent that, the statesmen of that day, led by Alexander Hamilton, James Madison, and James Monroe, and a great number of public assemblages in all parts of the country, determined that there should be estab- lished for the American people, the doctrine of free trade among the States. It was to meet the selfish policy of some of the States, as illustrated against Connecticut by the State of New York, and against New Jersey by the same State; as illustrated by Rhode Island against all her sister States; as illustrated by Virginia and Maryland and North Carolina in the restrictive legislation in regard to their own products, It was to stimulate the necessity of binding the great de- veloping northwestern territory into the Union, by showing its people that the things they had to consume and which must be imported would not be subject to a levy in favor of the other States, but should go unburdened to them, that the commercial policy of this country was conceived and was adopted. So that the very thing I ask you to remember, the very thing that created the constitutional system of free trade among the States, was the historic fact that some of the States were selfish, that some of the States attempted to 72 live off sister States, and that there was an effort made to em- barrass commercial intercourse in favor of the selfish and narrow interests of some of these State bodies. To meet that, the Constitution of the United States was adopted, and to express it, the power of regulating interstate and foreign commerce was surrendered by the States into the impartial hands of a national body, which should represent and act for all the States. That was the genesis of your system. That was the cause of its adoption. That was the reason for its existence. It purposed to prevent the oppression of one State by the differing and narrow policies of another State. By the Constitution the States Reserved Certain Powers and Acquired Certain Rights. Now, what then do we see happened? We see that these States met in convention; they determined to divide their rights into two sets, one the governmental powers which they re^served; the other, the governmental powers and protection and rights which they acquired by going into the Union. There were thus State rights which were reserved ; there be- came State rights which were acquired, and it must be noted that each one of those States prized higher the rights which they acquired than the rights which they surrendered. The rights which they acquired were no less State rights than the rights which they reserved. It is just as much a State right of Virginia to have the United States Government do for it the things which it promised to do, when the State entered the Union, as it is to exercise its own reserved police power within its borders. What Rights Did the States Acquire? What are those rights which were acquired? One of them is the right of national defense. It is a right of Alabama and Iowa and Georgia, if any of them are attacked, to have 73 the nation come to their defense. That right would not have existed, except for the compact of the onstitution. That right was a right acquired by entering the Union. That right is an acquired right of the States and is as substantial as any right which was reserved. They acquired a right to a national system of post offices and post roads. That right would not have existed, except for their going into the "Union, but it is a State's right now, none the less sacred and none the less important because acquired in- stead of reserved, that the nation should furnish the States with their post office facilities. The States acquired the right by entering the Union to a uniform, system of tariff and of port policies. Unless the Union had been entered, the people of Wisoonan would have had no right to the equal entry with the other States in the port of New York. They would have no right, except that they entered the Union, to a uniform tariff policy throughout the Union. They acquired the right to uniform tariff policies and to uniform port duties and laws, by entering the Union. We find no dissent and no jealousies in respect to any of those matters. We find no hankering anywhere for a State to assume the right to defend itself against attack. We find no demand anywhere for a State system of post offices. We find no demand anywhere for a separate tariff or port policies. No State right is considered as infringed by the enjoyment of those fruits of national helpfulness to which they acquired a right by entering the Union, but none the less, gentlemen, no less sacred, no less complete, no less important, is the right which each State acquired when it entered the Union to a uniform commercial policy and to free trade among States. One Oreat Right Acquired is to Have Commerce Uncon- trolled Except by National Authorities. There, the power was given as an acquired right of each State that its commercial policy shall not be 74 made by its neighbor, but should be controlled by the national authority, which should act impartially between the States, and which alone could speak for all. So, when I come to hear a question of State's rights involved in this matter, I hasten to accept the comforting realization that the right which each State acquired by entering the Union, as high, as complete and as important as any other, is that the commerce of my State shall not be controlled by the different policy of a State across the border, but that I can come here where I am, in my father's house and where each one of you represent me as much as you represent any other section of the Union, and can plead for an impartial, a fair, a helpful and a comprehensive regulation of my commerce, and expect to be answered with some just and equitable and comprehensive and equal system of regulation throughout the Union; where I am not dependent on what the people across the border may do in throwing burdens upon me, but where the burdens that come shall come from the representa- tives of us all, and be distributed with an equal hand among all the people of this continent. Am I intruding upon any sacred rights of anybody by asking that? Am I disregarding any just power of anybody else when I ask for that? Am I violating any constitutional right of anybody else when I ask for that? I feel that merely I am coming to the constitutional fountain of all our rights, and asking that a policy which shall apply to all, that shall affect all, that shall protect all, shall be the outcome of the universal judgment, and not of the judgment of a small fractional part. And when I make that request, I am not asking the disregard of a State's right ; I am asking for the enforcement of a State right, and it seems to me that that issue should be decided, not by jealousy of the distribu- tion of governmental power, but by the determination of the issue whether, in the interest of all the people and all com- merce, there should be a regulation by one central and all- comprehending and all-comprehensive authority. It is 75 manifest that the only way to exercise a complete and i protecting and helpful regulation is to take hold of the in strument of interstate commerce. You cannot divide its business; you cannot leave one part of its business to some body else's regulation and you regulate the other, because the influence of a regulation of any part may have sucl destructive consequences upon the instrument of interstate commerce, that the different States dependent upon the same interest may be most unfortunately and most hurtfuUj affected. The only method of dealing with that question is, anc I repeat it, for you to regard commerce ftom the standpoin of its instrumentality, to take possession of that instrument aJity, to determine the standard of usefulness, and to deter mine the standard of its correction, and to determine th( standard of the constructive principles of government whicl should be made to apply to it. Mr. Chairman, do I understand that one o'clock is th( hour for adjournment? Mr. Adamson : If you are tired, Mr. Thom, I will mak( a motion to that effect. Mr. Thom: I have spoken today as long as I think J can comfortably do so. The Chairman : Mr. Thom, Mr. Thelen, of the Calif ornis Commission, desires to return to California as soon as possible and would like to be heard next Tuesday. How would tha suit your engagements? Mr. Thom: I do not desire to stand in the way of any body, Mr. Chairman. The Chairman : How much longer will your presentatior take? Mr. Thom: I will probably finish my presentation ir chief, tomorrow. ^I am told, in a very suggestive way, that ] may be subjected to cross-examination for about a week (Laughter.) , Mr. Bristow: Mr. Chairman, speaking for Mr. Thelen 76 I desire to say that he does not wish at all to appear be- fore Mr. Thorn has completed his entire statement, and has had ample time to do so. Of course, he would like to go home, but we are here and we do not want to return until there is a full presentation of the case which the carriers desire to present. If that can be done by Tuesday, all right; if not, we will delay our appearance. Mr. Adamson : I move that we go into executive session. , Senator Cummins : I want to ask a question of Mr. Thorn. Mr. Thom, you intend to discuss the legal aspects of this matter before you finish your argument, do you not? Mr. Thom: I did expect to discuss that, probably at a later date. I wiU state my conclusion as to the legal mat- ters, but as to the legal argument, I supposed that would be desired at a later period. I had not intended to enter into anything but the fundamentals of the legal argument here. (Further colloquy about appearances of witnesses.) 77 Saturday, November 25, 1916. The Joint Committee met at 10:30 o'clock "a. m., pursuan to adjournment, Senator IVancis G. Newlands presiding also Vice Chairman William C. Adamson. Present: Senators Robinson, Underwood, Cummins, anc Brandegee, and Representatives Sims, Uullop, Esch, anc Hamilton. The Chaiemak' : Mr. Thorn, you may resume your state ment. Correction of Mileage of New York Central Railroad withii State of Illiuois. Mr. Thom : Mr. Chairman and gentlemen, Mr. OuUof was kind enough yesterday to call my attention to an erroi in a statement that I made to the Committee as to the mile age of the New York Central in the State of Illinois. Th< information on which I was acting evidently had relatioB to the mileage of the New York Central main line, the one which begins at New York and ends at Chicago. I have undertaken, in consequence of having the suggestion made that the mileage was in error, to find out the exact figures and I have this information which I would like to have pul into the Record: ' The New York Central has 6,034 miles of first track, owned, leased, or otherwise operated. Of this 149.8 miles are in Illinois. Of all tracks, 14,942 miles, 329.4 miles arc in Illinois. That is supplemented by this letter, the letter from which I take this information: "The distance from the Indiana-Illinois State line to Chicago is 23.8 miles, and the length of the right of way of the former Chicago, Indiana & Southern (now New York Central), within the State of Illinois is 118.53 miles, so that 78 the total length of right-of-way of the New York Central in that State is 142.33 miles." Of course the principle which I was seeking to emphasize is not affected by these figures. It is a mere question of the accuracy of the figures. The point that I was making was that one, State has no right to encumber the commerce of a number of other States by exacting for itself a large tax as a condition of its approval of the issue of securities which is imposed on the commerce of all the other States, an^ to which it has no greater right than any of the other States. I emphasized that by showing the very small mileage in Illinois as compared with other mileage elsewhere, but that was a mere matter of emphasis. It was not a matter of principle. It turns out that there is a somewhat larger mileage in the State of Illinois than I supposed. But to visualize what the proportions are, here is a map of the system and here are the lines of the system before you get to Illinois (illustrating). Then you run up into Chicago a short distance, and there are two or three lines in the State of Illinois, but nothing like an equal proportion to those in the States of Indiana, Ohio, or New York. The Committee will recall that I have been attempting to develop the view that the credit of the railroads, which must be kept adequate to the public needs, and which is sub- stantially affected by having both revenues and expenses of carriers, is controlled by so many different governmental agencies, and that there is a consequent necessity of simplify- ing the existing systems so that investors will be subject to only one comprehensive governmental authority, and I further attempted to develop the view that' each State by entering the Union has acquired a right tO' be protected by one impartial regulating power, namely, that of the National Government, against the different views and policies of other States. 79 Preparedness for National Defense is Essential. I wish to follow that contention hy asking you for a mo- ment to consider the relation of transportation to national defense. We shall, in the coxirse of this hearing, attempt to ■develop that matter intelligently and comprehensively. The American thought at the moment is concerned with the question of preparedness. Congress, in response to a great sentiment, has voted millions of the public revenues for the purpose of putting this country in a condition of national defense. The mind of the people has been attracted to the great struggle now in progress on the continent of Europe. We have seen small States overrun and destroyed. We have seen large portions of .the conquered people deported to alien territory. We have seen one great nation, supplemented, it is true, by the co-operation of one or two others — but one great nation standing out above all its allies, standing out against all its opponents, and sustaining a struggle for more than two years now which has amazed the whole civilized world, and it has been done because that nation was pre- pared, because that nation was efUcient, because that nation was organized in all its parts to throw its whole force into any effort it might make. Its history, the result of this titanic struggle, whichever way it may go, has taught its lesson to the world. It has made men see that the day of the small and defenseless State has passed, and that the day of the great nation, with all its resources available and organized, with all its forces capable of being thrown into active operation, is a necessity of modem development, so much so that here in this Capitol note has been taken of that condition and larger navies are ordered, and a greater army is provided for, and the policy is not only advocated by the President but is accepted by both parties in this country, that this government and its people must be organ- ized and efficient in order to meet any possibilities of the future. 80 Efficient Transportation the Basis of Preparedness — ^The Government Charged with Defense Must Fix the Stand- ard of Transportation. What is the fundamental condition of that organization? Can you organize the American nation, except on the basis of efficient transportation? What would your scattered re- sources amount to unless there is some way of concentrating them at the point where they may be needed? So that it must be admitted that the fundamental thing to do! in con- nection with national preparedness, in connection with nar tional organization, in connection with national efficiency, is to make certain that the fundamental of them all is pro- vided, and that is adequate transportation. If that be true, and it needs no argument of mine to enforce it — if that be true, what government must, in the nature of affairs, fix the standard of transportation efficiency in this country? The national government is charged with the duty of national defense. Transportation is at the very basis of its capacity to perform that duty. There must be a standard in time of peace of transportation facilities which would bear a proper proportion as to the needs in time of war. There must be a quick opportunity to change peace conditions into war conditions, as respects that transportation ; and yet, the crear tion of a system of national railroad transportation is not the work of a day. It is a matter of slow growth. It is a matter to be dealt \vith by forward looking men, trying to comprehend the needs of the future and trying gradually toi provide fo;- what the interests of the people will demand, and that standard cannot, with any philosophic soundness, be committed to a governmental authority which is not charged Anth the duty of national preparation and national defense. 81 Commerce Demands a National Standard. This is but another angle from which to view this questioBt. The interest of the public as absolute and demonstrable as it is in respect to this matter of defense, in having a national standard of efficiency in the railroads, is no greater than the interest of the public from a commercial standpoint. The facts of the railroads today, the requirements of trade, the way the distance and time have been annihilated by . the agencies of steam and electricity, the combination of the whole human family into commercial relationship with one another, the fact that transportation lines are the basis of national efficiency and national defense, in times of war as well as in times of peace, all go to define what the subject- matter is with which you are called upon to deal. It all goes to show that your system of regulation, the attitude of our government towards this question of transportation must, if it is to be successful, recognize the facts. It is impossible any longer to confine commerce within State lines. It ig' impossible to hold your commerce at the boundaries oi States. It is a matter in which, as States, there is no pub- lic interest. We are one great commercial family. My interest as a Virginian and your interests in your various States, do not differ in respect to this matter. We have been, up to this time, closing our eyes to the facts, of com-, merce. We have been closing our eyes to the conditions, which control intercourse between the various communities of this country and of this world. We have been adhering to the archaic view that States lines and transportation have some reference to one another. Now, can you get a sensible, can you get a sound, can you get an enduring system, of regulation, which shuts its eyes to the facts of the case? We must first know the facts. We must first appreciate the facts, or we can never adjust Government regulation to this subject-matter, in a way that will permit it to hei etijoykid': 6w 82 The statesmanship of this land must be able to see the com- merce of a world. It must appreciate all of its needs. It must understand that it is accommodated in the largest proportion by these railroads, and it must adjust the rail- roads to the commerce of the world. A Vast Field Left for State Authorities. There is no contention here that State commissions ought to be abrogated. There is no contention here that the powers of the States, where they properly apply to the subject, ought to he invaded or weakened. A vast field of usefulness on any method of dealing with this subject would be left to the States and the State authoriues. The questions of taxation, the questions of th;j exercise of police powers in respect to mat- ters not vital, and which do not affect the other States, the control of public utilities that are local, all of those matters enter into any suggestion which will be made and would be still exercised by the States. But where a matter becomes of such a character, which, if viewed in one way by one State, will affect the destinies and the interests of another State, the influence of which will not be confined to its own borders, but will extend beyond, and affect other people, which, of ne- cessity, will have an influence of a substantial character upon interstate and foreign commerce, and which will affect and perhaps control the standard of efficiency of American trans- portation, such a matter ought to be taken over by the one authority which can speak for all of the States. Regulation Must Now Deal with the Instrument of Commerce — and Must be Protective as Well as Cor- rective. 1 Heretofore, our system of regulation has dealt with the method of conducting commerce. Now, it is essential that we should provide a means of conducting commerce. With- out surrendering any of your corrective power, holding that 83 in full force so as to deal with any abuse that may hereafter occur, the time has come for the regulating power of Govern- ment to take hold of the instrument of commerce and regu- late that. No longer content with touching this subject at its circumference, we must rise to the realization of the fact that the time has come now, if regulation is to be regulation, to take hold of the instrument of commerce and regulate that. That must be regulated, not only by corrective processes, but it must be regulated by protective processes. Something must be introduced into our system of regulation that will guard the great public requirements. These instrumentalities of interstate commerce and of foreign commerce, and of all commerce — ^because you cannot divide their functions — must be put and must be kept in a condition of adequate efficiency, measured by the public requirements. Now, when you' come to study this question, after these 29 years, when you take up the commission given you by Congress, and recommended to Congress by the President, that you shall make a new assessment of the conditions that surround this question of transportation, can you make that new assessinent with intelligence or thoroughness, unless you come to see that the problem now is for the nation to guar- antee to the public an instrument of commerce? You see where we are going to. I have tried to point out the tendencies of the times. I have not spoken of it as a matter of immediate disaster, but I have shown you the menace involved in the present condition. And it seems to me that you cannot disregard what these conditions meant and refuse to see that there has arisen a problem which must now be dealt with, and that is the problem of the Nation guaranteeing that there shall be commerce, by guaranteeing in its method of regulation that there shall be adequate in- strumentalities of commerce. My legal proposition is that the Constitution, as now- framed, with the powers which it now has, is full of authority to Congress to regulate the instruments of interstate and 84 foreign commerce in all its parts. At a later day in this hearing I shall ask the privilege of making the legal argu- ment to support that view. I state it merely now. If ypur power of regulation is to meet the public require- ments your power of regulation must be co-extensive with the instrument of interstate commerce. You must have the right to fix the standards of efficiency; you must have the right to protect it against destruction; you must have the right to follow it with your correcting and with your protect- ing care, conduct, and policies throughout its whole extent. With that view of the Constitution, with that view of the needs of commerce, I come to make to you these suggestions as to what should be doiie in this matter of regulation, and in which suggestions, with the light now before us, the rail- roads of this country are practically agreed. You can understand from what I have said that the first suggestion we shall make is that the entire power and duty of regulation should be in the hands of the National Govern- ment, except as to matters so essentially local and incidental that they cannot be used to interfere with the efficiency of the service or the just rights of the carrier. National Government Must Regulate All Bates. Now mainly that means that the National Government should take over the regulation of all the rates of the, inter- state carriers. Of course the exact line of demarkation is a matter of consideration and debate. The exact line of de- markation I mean between what powers should be exer- cised by the State and what should be assumed by the Nar tional Government. We contend that it is impossible for you to regulate this instrument of interstate commerce un-> less you regulate its rates within the States as well as the interstate and foreign commerce rates. I have attempted to demonstrate as I have proceeded that the power to fix State rates by the State is a power to fix them in such a way as to throw the burden of maintaining 85 the instrumentalities of commerce on the commerce of other States and on interstate commerce. Can such a power as that be tolerated by the governmental authority which rep- resents all the States? Can Congress permit Massachusetts to fix its rates so low on State business that the burden of sustaining the instrument of interstate commerce on which both Massachusetts and Connecticut are dependent, shall fall upon the business of Connecticut, or on the interstats business of the two? Is it a sound division of power thaCt attempts the impossible task of dividing up the one single instrumentality of Congress which does both interstate and intrastate business and let a substantial part of the sustain- ing revenues of that instrumentality be fixed without refer- ence to the whole, be fixed in such a way thai; at the in- stance and under the power of one of the States an unfair burden will be thrown upon the other States? Can you philosophically divide this instrumentality which does all the commerce of all the people over the same tracks and in the same cars and by the same men and say it is necessary to have men of a certain type, it is necessary to have tracks of a certain standard, it is necessary to have equipment of a certain quantity, and then to let some other governmental power come in and withhold its contribution from a part of the business of that same instrumentality, so that the burden will be thrown on some other State or on some other class of commerce? This is no new view. The underlying principle of it was expressed very many years ago by one of the wisest of Ameri- can justices, Mr. Chief Justice Marshall. He says: "The National Government is a Government of all, its powers are delegated by all, it represents all and acts for all. Though any one State may be willing to control its operations, no State is willing to allow others to control them." What a splendid and accurate application that has to this matter of commerce. Here is an instrumentality in which 86 all the States in a given group are equally dependent for their means of commercial prosperity. Any one State may be very willing to control its operations, but is any one of those States willing for some other State to control them? If not, then those instrumentalities must be controlled by the Government, which is the Government of all, the powers of which were delegated by all, which represents all and acts , for all. Compulsory Federal Incorporation is Essential. The next proposition which we will ask this Committee to consider favorably is this : As one of the means of accomplishing this system of na- tional regulation a system of Federal incorporation should be adopted, into which should be brought all railroad cor- porations engaged in interstate or foreign commerce. Such a system of Federal incorporation should be compulsory and not elective. It should also preserve to corporations reincor- porating under it not only all their contract rights and other assets of all sorts, but also their existing charter powers, except as to any feature contrary to an act of Congress, and should also confer upon them the general powers conferred upon all corporations by the Federal act. The system- of in- corporation should provide a means for the consolidation or merging of existing corporations engaged in interstate or foreign commerce with the necessary power of condemnation as to assets which cannot be otherwise acquired, such as unassignable leases, etc. Of course it will be appreciated that this is a proposition of far-reaching consequence. We have been led to it after long debate among ourselves. We found certain of the strong railroad corporations of the country wedded to the conditions under which they grew, possessing favorable charters, sustaining happy relations with their States — ^we found at first considerable divergence of opinion as to whether they would be willing to give up that enviable position. 87 But, as the matter was debated from all its sides, as the rea- sons were given for it and a more comprehensive view was presented, the opposition which at first appeared has in almost every case entirely disappeared. And we are able to present this view as practically — not altogether, but 'prac- tically — ^the unanimous view of those charged with the re- sponsibility of these railroads. National Government Must Have Sole Power Over the Issuance of Securities. Now, what are the arguments that have brought them to this conclusion? The first of these arguments is this: We are all convinced that in order to satisfy the public view and in order to provide against any possible abuse in financing in the future, there must be a system of govern- mental regulation of the issue of securities. We are fur- ther convinced that the only practicable and working method of securing that govermental supervision and regulation of securities, is to have it through the one body appointed and empowered by the National Congress. We know that no system will continue to work where we have so many masters and so many divergent views as to the financial needs and regulations of these carriers. Now, how is that national regulation to be secured in such a way as it will be universally accepted as legally and constitutionally sound? We are confronted with a number of State charters which contain limitations upon what the railroads may do in financing. Those limitations are, in many cases, narrow limitations. The financial needs of the public for new facilities have outgrown them, but they are there, as charter limitations upon the State entity. 88 The Only Sure Way of Giving the National Government Power Over the Issuance of Securities is Through Federal Incorporation. Now, the question arises, Can Congress remove that char- ter limitation of the State corporation, thereby in effect amending the State charter so as to authorize a system of financing approved by the national standard? Now, I have no difficulty in my own mind upon that question. I believe that the constitutional power does exist in Congress to do that very thing. I believe that it is an essential part of the regulation of commerce, and comes within the commerce power as contained within the Constitu- tion, but I do not find any unanimous concurrence in my view of the Constitution in respect to that. Other lawyers of greater eminence, and greater authority than myself be- lieve to the contrary, or at least they say, "Whether we be- lieve to the contrary or not, we contend that there is such a question of doubt in respect to that matter, that it will be impossible to determine which way the truth lies until it is decided by the Supreme Court of the United States." They point to the fact that when an issue of securities is offered, the question of the legal validity of that issue is referred by the investors to their counsel for opinion as to the validity of those securities, and those counsel do not give their opinion of probabilities; they do not base their advice to their client on what they think ought to be ; they are cautious gentlemen, and they simply try to find out and say what they know will be. And these lawyers who take a slightly different view from my own as to the constitutional power, ask me, "Suppose a question of that sort, of the right of the National Government to authorize a charter power, granted by a State, to be exceeded, was referred by some banking concern, which proposes to take the securities, to their lawyers. Do you not admit (they say) that that banking concern will be advised that there is sufficient question about this matter to have it first carried through the Supreme Court of the United States?" And they have asked further, "Can the railroads — can the public — have the whole system of financing halted with no opportunity to raise the funds needed to supply cars and tracks and ter- minals and yards during the time that it will be necessary to carry that question to the Supreme Court of the United States?" Well, that raises the practical question, which I think must arrest the attention of every man. I am obliged to say that I think a question will be raised about that; I am obliged to admit that I think, if referred to counsel, coun- sel will take the opposite side, and will advise that the mat- ter be tested in the courts ; and I am obliged . to say that that will introduce a period of uncertainty, during which the financing of these railroads will be arrested. Therefore, I have come to the conclusion that some other method of dealing with the question must be adopted, which will obviate these unfortunate practical results to which I have alluded — ^unfortunate not so much from the standpoint of the carriers as from the standpoint of the public service. None of us can doubt the power of Congress to regulate its own creature, and if these roads are made to incorporate under a national charter, then there can be no doubt that Congress can regulate the amount and character of their financial dealings, and when Congress does regulate them, there will be no necessity for carrying the question to the Supreme Court of the United States, and there will be no period during which the financial operations of these car- riers will be arrested. So, that practical argument has had perhaps more weight with these gentlemen, who have come to recommend this thing to you, than any other single argu- ment. Then, there is another reason which addresses itself to us in respect to this matter. Here is a plea made for complete national regulation of the instrumentality of commerce, the 90 regulation of the instrumentality in all its parts, to a point of protection, to such standard of protection, as the public in- terest shall demand. The hands of the National Government will be strengthened to make that regulation complete and efficient, if the whole instrumentality is a creature of its own laws. The harmony essential to the equality of com- mercial opportunity among all the States and all the people will be insured if all of these properties in respect to all their finances ,are matters of national authority. Then we ask that this system shall be made compulsory and not be allowed to be elective: that every railroad com- pany engaged in interstate and foreign commerce shall be re- quired, after a certain date, to take out a national charter, just as they might be required, after a certain date, to take out a national license. There are several reasons which in- duce us to make that proposal; one is that if you adopt a system of Federal incorporation, you must seek to rest your constitutional authority on one or all of several powers, the power to establish post-oflfices and post-roads, the power to provide for the national defense, and on the commerce power. The Power to Regulate Commerce is the Basis upon Which to Sustain Compulsory Federal Incorporation. We know that wherever the question has been presented to the United States Supreme Court of a national incorpora- tion, an effort has been made to rest it on all three of those powers, but the court has always singled out the com- merce power to sustain the incorporation. Where it would go under these other powers is as yet an unknown problem. We do know that the Supreme Court recognizes the com- merce power as a sufficient basis for a national incorporation. Now, let us take that power. That power is to regulate interstate and foreign commerce. There must be a funda- mental idea underlying the term "regulate." There can be no regulation which may or may not be accepted by the per- son regulated or the interest regulated. It is fundamental 91 to the idea of regulation that it shall be binding. No man can regulate me if he leaves me free to accept or reject the regulation. I am still unregulated, whatever he may call it, and, therefore, for a system of incorporation to be a regulation it must be compulsory. It cannot be left to elec- tion of the railroads to be regulated, whether or not they will accept that rule of regulation. We think that is a most important conception of this matter, not only important because of its constitutional relation — ^its relation to the Constitution — ^but important from a practical standpoint. Reasons Why Federal Incorporation Must be Compulsory. Let us suppose a case of an elective system of incorporation and of some railroad coming in under an elective system, electing to come in under it, and this point was made in some fundamental matter which might affect that railroad, that it is not regulation at all if it is not compulsory, and it should be determined by the Supreme Court that a regulation to be a regulation must be binding, what would be the condition of that railroad, having gone out from under its State char- ter and having accepted an election to go under a United States charter, and that whole system upturned by the Su- preme Court of the United States because it was not a regula- tion of commerce at all? Nor do we think that this situation is met by the fact that in all charters which Congress has granted there has been an election on the part of the persons to whom it was granted to accept or reject it. "We think that that situation differs fundamentally from the situation with which we are dealing. 1 will take the charter of the North River Bridge across the Hudson Eiver, which was granted some years ago by Congress, and which went up to the Su- preme Court of the United States and is reported in 153 U. S. There Congress passed upon the desirabiUty of that individual enterprise, the crossing of the North River at the points indicated in the charter, and said that that special 92 thing, that special construction, that special facility, would promote commerce. And so in every other charter which has been granted, and which was subject to acceptance or rejection, Congress has there undertaken to pass upon in- dividual enterprises which were helpful or not helpful to commerce. But suppose we are dealing with everything in the country ; suppose we are not dealing with facilities which Congress passes on as helpful or not helpful, but have come to deal with a system — merely come to deal with a system of regulation which will apply not only in approved cases, in existing cases, but in all cases, we come then to base our proposition upon a system of national incorporation, where- ever it may apply, and to apply everywhere. In that case the thing that Congress passes on is the desirability of the system and not the desirability of the individual enterprise which it approves. It does not undertake to endorse this bridge across the North River. It does not undertake to endorse the charter of the Union Pacific Railroad, but it undertakes to abandon the individual enterprise and apply its adoption of a rule of regulation to the system of incorpora- tion or non-incorporation. So we say that the cases radically differ, and that the prin- ciples which would sustain the elective charter with respect to a special thing cannot be relied upon to sustain an elect- ive system of incorporation universally applicable, not only to existing railroads, but to any that may be built in the future. And so we believe that speaking from the constitu- tional standpoint, it is necessary to the soundness of the system of incorporation that it sha,ll be compulsory and not elective. But we are also influenced in our recommendation for a system of compulsory incorporation by the practical con- sideration that Congress will not likely be willing to say to all the railroads discontented with their State charters, "Here is a national refuge for you," but to all those who have specially favorable relations under the existing State charters, "You can stay where it is better for you." We 93 think, too, that Congress will not say to the railroads, "Those who prefer the national incorporation can have it while those who have special refuge under the powers of any of the States can retain that." We believe that if C!ongress adopts a system of incorporation at all it will make it uniform and will not permit this power of election between the various railroads of the country. The Report of the Committee of the National Association of Railroad Commissioners Favors Federal Incorpora- tion. Now, gentlemen, this idea of incorporation has grown in this country. I, have in my hand a report of the Committee of the National Association of Railroad Commissioners, composed, I believe, of all the Commissioners of all the States, as well as of the Commissioners of the United States. They referred this matter to one of their commit- tees. I assume it was done a year ago ; I do not know. But within the last week a report has been made by that com- mittee. It is true that the Association has not passed upon the report. It has put it over for another year, but the report has been made. It has been made by the State Com- missioners. It is unequivocal in its terms and is an expres- sion by them of the necessity for a 'system of national in- corporation. I will read a summary of their conclusions : "In conclusion we herewith summarize our views and present the following recommendations : "Mrst. That the Interstate Commerce Commission be given the power to regulate the stocks and bonds of the interstate carriers; "Second. That the Interstate Commerce Commis- sion or some other Federal agency, be empowered to regulate the rates, practices, stocks, and bonds of the interstate public utilities; "Third. That Congress enact the necessary legis- lation to provide for a national incorporation act for interstate railroads, and interstate public utilities; "Fourth. That the Interstate Commerce Commission be empowered to exercise jurisdiction over mergers, 94 consolidations and encumbrances of interstate rail- roads ; "Fifth. That the Interstate Commerce Commission be given authority to exercise jurisdiction in receiver- ship proceedings preferably to the fullest extent, but at least over all matters relating to capitalization. "Sixth. That Federal and state statutes be amended, where necessary, to permit of issues by railroads and public utilities of a common stock with- out par value ; "Seventh. That the Interstate Commerce Commis- sion and the public utility commissions be permitted to invoke the aid of the Federal Trade Commission to determine the reasonableness of cost of essential materials of railroad and public utility construction; "Eighth. That adequate legislation be enacted, boh national and state, to provide for voluntary wage agreements, methods of arbitration, and for Federal and state intervention in emergencies, to ad- just wage conditions in the railroad and public utility service; nothing contained in such legislation to le- quire men to work against their will; "Ninth. That such legislation as is consistent with public interests be enacted for the enhancement of railroad credit and for the protection of American railroads against competition in the American market for funds for private exploitation in foreij.:;n coun- tries ; "Tenth. That a new committtse be appointed by this Association to study the question of the relation- ship between the Government aral the railroads, to consider tLe possibilities of 30-operati()n between the governnient and the railroads, and report to this Association at its next annual meeling., "(Signed) Edw^n 0. Edgerton, Chairman. (of Cal.) "John F. Shaughenessy, (of Nevada). "William 'C. Bliss. (of R. I.) "Paul B. Trammel, (of Georgia). "Clyde B. Aitchison," 95 "Mr. Aitchison concurred in part. "Joins for the purpose of bringing the report be- fore the Convention. "I concur in the recommendation for Federal control of the issuance of railway securities. "(Signed) Judson C. Clements." Now, gentlemen, we cannot ignore such testimony as that. Whatever may be done by that Commission at a future meeting — I mean, by those Commissioners at a future meet- ing, here is a report of their committee, made after a year's study, as I suppose, in which they endorse as a national necessity the idea of national incorporation. The Chairman: Was there any dissent to that report? Mr. Thom: Only such as I have read. One of the Com- missioners said that he concurred in part, but he did not say in which part. Mr. Adamson: Is there any explanation as to why it was not adopted by the convention? Mr. Thom: I have not any, sir. Mr. Adamson: I thought perhaps the context would af- ford some. Mr. Thom: No.; I think not. We think that a mighty truth was dawning on those gentlemen. Mr. Adamson: But it seems it did not spread over the convention. That is what I am inquiring about. Mr. Thom: No. Truth does not always spread at once, but it started out and is on the way. Mr. Adamson: Some of them may have attained your constitutional view about the Federal incorporation. Mr. Thom : I hope they did, because there could not be a sounder one, in my judgment. Mr. Adamson : I have more confidence in that thing than in anything you have read. Mr. Thom : I will have something else to read to you on that subject before I have concluded my argument. Now, that, in brief, is the suggestion we stall make to this committee on the subject of incorporation. 96 No Claim that Federal Incorporation is a Panacea. Our third suggestion would be — but before arriving at that third suggestion, I wish to state that I do not, for a moment,' contendthat this railroad problem will have its panacea by the mere concentration of authority in the hands of the National Government. It will be helped; it will be simpli-: fied; it will be robbed of a great many of its dangers, but there still remains an unsolved problem. It will be neces- sary, in addition to that, to perfect, to strengthen, and to reorganize the principles of Federal regulation. The object of getting it into the hands of one body is to have it where its processes can be readily controlled and readily perfected, so as to work up to a real solution of this problem. Eailroads Not Asking for Increase of Rates — Only Perfec- tion of System of Regulation. And I want, just here, to digress to say that if all we propose is done, there will not be, by virtue of that act alone, a single cent of additional revenue brought to us. We are not asking this committee or asking Congress to pass upon the sufficiency of our revenues; we are not asking them by act or by any act that you shall recommend, or that Congress shall pass, to increase our revenues. We are simply asking that you shall perfect machinery that can readily and ade- quately respond to a condition which, in the public interest, will require an addition to .our revenues. We are asking for the perfection of a system that will take into considera- tion what at any time we need in the public interest, and which will be wise enough and independent enough to pass on that question in the way the public interest requires. So that any effort to make this a rate hearing ought not to be entertained, because we are asking nothing here in respect to rates ; we are asking only a perfection of the system which shall pass upon that and every other matter which concerns 97 the efficiency of these instrumentalities up to the standard of the public requirement. Organization of the Interstate Commerce Commission Should be Changed and a Federal Railroad Commission Should be Established. Now, passing to the Interstate Commerce Commission, we shall ask you to favorably consider this as the third proposal : The Interstate Commerce Commission has, under existing law, too much to do, and is, consequently, forced to confide to subordinates important functions which the regulating body ought to be in a position to perform itself. The Inter- state Commerce Commission is likewise clothed with different functions which are inconsistent, and which violate the principle that the legislative, executive, and judicial depart- ments shall be kept separate and distinct. To reduce the pressure upon the Interstate Commerce Commission and to separate these inconsistent functions, there should be with- drawn from the Interstate Commerce Commission all duties except those which are judicial and constructive, such as the power over rates and routes, the powers affecting the revenues of carriers, and the remaining duties, being mainly those of supervision, detection, prosecution, and correction, should be conferred upon a new commission, which may be named, for convenience, "The Federal Railroad Commission." In order to coordinate and harmonize the system of regulation, the Interstate Commerce Commission should be made the supreme regulating body, and should have the right of review of any order made by the Federal Railroad Commis- sion. The salaries of the members of the Interstate Com- merce Commission should be increased, and their terms of office extended. The salaries of the members of the Federal Railroad Commission, who should be appointed by the President and confirmed by the Senate, should also be made adequate, and they should be given a long term. 7vv 98 Regional Commissions Should be Established. Regional commissions should be established, which should assist the Interstate Commerce Commission in exercising its jurisdiction, and, to that end, should make all such investiga- tions and hear and determine all such complaints, and per- form such other duties as the Interstate Commerce Commis- sion may, from time to time, by general or special order direct. The members of these regional conimissions should be Presidential appointees, at adequate salaries, and for long terms. The orders of the regional commissions should not become effective until approved by the Interstate Commerce ;l Commission, but should stand approved, as of course, unless excepted to within a time to be limited. The regions should be created with reference to lines and systems of transporta- tion, and need not be defined geographically. Each regional commission should be located at such place in its district as the Interstate Commerce Commission directs; but it should be authorized to hold its sessions and perform its duties in any other district, when so directed by the Interstate Com- merce Commission. Foundation of Our National Liberties Violated in the Present Organization of the Interstate Commerce Commission. This proposal has to do with the reorganization of the Federal system of commission. The foundation of our national liberties is the separation of what are termed the in- consistent functions of government. You have one judicial department; you have one executive department, which is not judicial and not legislative ; you have one legislative departrnent, which is not judicial and which is not executive, The ideal of free government is that those functions shall be kept distinct from one another. It was thought that if a legislator should be a judge, there would be no use for a judge, because he would sustain his acts as a legislator, and 99 so with these other functions; in order to be useful, each department must be protected from the invasion of the other. And yet we find that wholesome governmental principle is violated in the present organization of the Inter- state Commerce Commission. They are judges; they are, in a measure, legislators, and they are administrators of the system of regulation. We feel, as long as men are human that they will go to the exercise of one of these functions influenced by the functions that they are performing in another one of their duties. We think that, if there is a question, constructive in its character, relating to all the railroads, it is unfortunate for that question to be determined in an atmosphere which has been created by having that commission walk out of the next room, where-it has been in- vestigating what is said about the Alton and the Rock Island and the Frisco railroads; we feel that human nature cannot leave in the adjoining room the impressions which they have, got in the exercise of their detective, corrective and punitive functions, and come helpfully to the consideration of matters which go to the very vitals of the whole system of transporta- tion. We feel that men ought to exercise one of those func- tions who do not exercise the other, and, as the matter of building up the system of transportation in this country is of the first and most fundamental importance to the country and to the public, the men having it in charge ought not to be embarrassed, ought not to be limited, ought not to be influenced by any abuse which they have found in some single road ; and yet, in the nature of things, all these things that are wrong are spread over all of the railroads of the country, — ^guilty or innocent. Now, bear in mind that I am not asking you in any way to surrender any part of your corrective jurisdiction; I am not advocating your taking away from the regulating bodies any part of the power they have to correct abuses ; but I am advocating a system which will prevent the great good that will come to the people from a successful system of trans- 100 portation, being in any way affected or obscured by the io- consistent functions of the body that does the regulating. , Regional Commissions Will Bring Regulation Close to Local Needs. Now, as to regional commissions: We think that there is a sound underlying support for the popular desire that government shall be brought close to their home. We believe that if you take the power to make State rates, and put it in the hands of your national authority, there will be in- creased reason for bringing your system of regulation to the doors of the people, so that their needs, their aspirations and their commercial conditions shall be considered and shall be passed on by men resident among them. We think, however, that that deference to local wants, that consideration for local conditions, ought not to de- stroy a co-ordinated regulation, but, while there is just in- terest of localities to have their needs appreciated, there is also a just demand on the part of localities that they shall do their commerce on terms equal to the terms which are granted to any other people anywhere in this country. And that in consequence these regional commissions ought to be established in these transportation regions, ought to live there, ought to hold their sessions there, ought to take their evidence there, ought to reflect everything that is sound in local atmosphere, and yet that a local view, a local treatment of one part of commerce should be prevented by requiring them to report to the Interstate Commerce Commission, which could co-ordinate the regulation of commerce in all parts of this country and see that it is impartial. The functions under our suggestion of these regional commissions would be like the functions of masters in chan- cery, who take the evidence and make the report, and the re- port lies subject to exception. The exceptions only are argued before the court. The exceptions under our sugges- tions would be the only thing argued before the Interstate 101 Commerce Commission, unless in a special case they should direct* otherwise. This would take from the Interstate Com- merce Commission an immense burden of work aind would concentrate the controverted matters on those that the two parties agreed were to be controverted by having an exception filed. In that way the commerce of this coun- try could depend for its original consideration on men of the dignity and ability that would be appointed by the President and confirmed by the Senate. And the commercial interests of this country would then not be dependent upon examiners, who are low-salaried officers, but in all matters of con- troversies they could, by operation of law and by right of the statute, go to the Commission on these exceptions and argue the matter before it. Commission Should Have Povsrer to Prescribe Minimum Rates. Our next proposal will be that the power of the Interstate Commerce Commission over rates should be extended, so as to authorize it to prescribe minimum rates, in addi- tion to its present power to prescribe maximum rates. And it should also be given the additional power to determine the relations of rates or differentials whenever necessary or ap- propriate to establish or maintain a rate structure or a re- lation or a differential found to be just and proper by the Interstate Commerce Commission. I hope it is apparent from the argument I have so far presented that the public have as deep an interest in having the revenues of these carriers adequate to the furnishing of an efficient and sufficient public service as the cairriers have. The public depending on any special railroad can- not with equanimity view a situation where the revenues of that road are so inadequate as to affect the standards of the public service that the people are getting there. There ii as distinct a public interest, I repeat, in the community to have the revenues of the carriers sufficient to guarantee a proper 102 service as any interest the carriers may have, and greater,' because pubUc interests are always greater than private interests. Moreover, here is a community served by a railroad, which does its business with a great market; here is another com- munity served by a different railroad doing its busmess in the same market. It is of vital importance to justice in com- merce that the terms on which those two communities can reach that market should be equal. If it is in the power of one of the roads to give to its communities terms which will be temporarily advantageous, lower than the other ro^d will give to the communities it serves, then there is an in- equality of commercial opportunity which is indefensible. As long as the minimum rate is not regulated by govern- ment the two conditions will follow; one is that the strug- gling railroad, which is anxious to keep its head above water, will be at times willing to depress its rates, so as to attract a temporary business, and thereby deplete its op- portunity for a continuous and permanent and a reliable service to the communities which it serves. That is one of the consequences. The other consequence is that unless the minimum rate is regulated it is in the power of these two railroads to give different commercial opportunities to the communities they serve. Now we believe that any righteous situation ought to take hold of that minimum rate and control it in the public interest just as much as the maximum rate; that it ought to be able to say whether or not one community on one railroad is to receive commercial opportunities which are denied to a community on another railroad, and that it ought to be able to say, "If you are going to take charge of the instrumentality of interstate commerce and make it efficient for the needs of all the peo- ple, you ought to be able to say that its revenues shall not be depleted unjustifiably and unreasonably by making the rates too low, so that the result is simply a depletion of rev- enues at the same time that it produces inequality of com- mercial opportunity." 103 Principles Which Should Govern the Interstate Commerce Commission in Fixing Rates. In our fifth proposition we attempt to have introduced the principles of protection to these carriers, the principle of th'e protection and maintenance of their credit by pre- scribing some of the things that the Interstate Commerce Commission must take into consideration when it fixes the rates of the carriers. Number 5 is as follows : It should be made the duty of the Interstate Commerce Commission in the exercise of its powers to fix reasonable rates, to so adjust these rates that they shall be just at once to the public and to the carriers. To that end, and as a means of properly safeguarding the credit of the carriers, of protecting the just rights of the owners and of providing a basis for additional facilities from time to time as the needs of commerce may require, the Interstate Commerce Commission should be required, in ascertaining and de- terming what is a reasonable rate for any service, to take into account and duly consider the value of the service, the rights of the passengers, shippers, and owners of the prop- erty transported, the expenses incidental to the maintenance and operation of the carrier's property, the rights and the interests of the stockholders and creditors of the corporation, the necessity for the maintenance in the public service of efficient means of transportation, and for the establishment from time to time of additional facilities and increased service, and in addition thereto any other considerations pertinent to be considered in arriving at a just conclusion. That is part of No. 5. I will read the balance in a moment. The purpose that we have in view in presenting that as a recommendation is to secure a legislative mandate to the regulating body that there are certain things essential in the public interest, among them a principle, among them is the establishment of adequate railroad facilities and the 104 assurance that those facihties will grow as commerce grows and the public needs increase. That they shall take that as one of their guiding principles in exercising their func- tion of rate-making. That they shall realize that they are deputized by Congress as an instrumentality of government, charged with the responsibility of seeing that the inetru- mentalities of Congress are made and kept as efficient as the public interest requires. We say that cannot be done ■without having reference to the credit of the car- riers, and therefore in fixing their principles of rate-making they must have due reference to the kind of credit, that the public interests require that the carrier should have a prop- erly fixed revenue with reference to that as one of the stand- ards. We say further that, as the public is interested in the matter of the net return, in the encouragement to capital, in the provision of a surplus in prosperous years to meet the eflBux in lean years, that there should be a legislative man- date that the expenses to which the carrier must submit in the way of providing this public service must be taken into consideration when you fix the amount of their revenues, and thus protect the net in which the public is interested as much, or to a greater extent even than the carriers them- selves. , I saw as much or more, because the carriers at last, when they are unable to do these things that the public in- terests require, have at least the refuge of having the Gov- ernment buy the properties and take over the burden itself, whereas the public must meet the problem of sufficient transportation facilities, either under a system of private ownership or under a system of Government ownership. Power of Commission to Suspend Rates Should be Limited to Sixty Days. The remaining part of No. 5 is this : "The power of the Commission to suspend rates, should be confined to 60 days from the date the tariff i? filed. If the Commission is not 105 able within this time limit to reach a conclusion, the rate should, at the expiration of that time, be allowed to go into effect with appropriate provision for reparation, for the period not exceeding one year, in case the rate should sub- sequently be declared to be unreasonably high." I have no doubt that that clause will give rise to consid- erable difference of opinion, but we believe that that can be sustained by the measure of the public interest, like the other matters that we have suggested. Always remember that the greatest public interest is in facilities. Always re- member that the greatest public interest is in the assurance of the continuance of the carrying on of commerce. Now, suppose that the present provision in regard to suspension of these rates for ten months should continue, and let us take the case, first, where at the expiration of ten months it is found that the proposed rate is a just one and should have been put in effect from the beginning. The first con- sequence of that is that for the period of ten months the carrier has been deprived of a legitimate earning of a legiti- mate income. There is no power on earth to give that to it again. It is gone — it is irretrievably gone. Now, under the supposition that it was entitled to it from the start, the loss to it inust be felt in some direction. It must be felt either in some other part of the traffic bearing the burden which ought to be shifted to this, which violated the prin- ciple of equality among the patrons of the railrdad, or if it cannot be shifted to some other class of that traffic, it means an impaired capacity on the part of the carriers to meet the public needs in regard to facilities. It puts the public short somewhere, either by transfer onto some other part of the public of a burden which ought to be borne by this traffic, or by depriving the public of a proper basis for additional facilities, or for adequate s'ervice, which is their prime need and to which they are, as a fundamental- matter, entitled. Now, this is the case of where the suspended rate is found to have been a reasonable rate, from the beginning. Now, 106 let us take the other case, the case where it is found that the rate proposed is an unreasonable rate and ought not to be allowed. In that event, our proposal is that we shall keep our books in such a way that where we have charged during that period from the very beginning, more than we are en- titled to charge, that we should be in a position to make the refund to the shipper that has been overcharged. It is im- possible, if you suspend for ten months and the rate is a reasonable rate, to repay us. It is not impossible, if you suspend for 60 days and the rate is declared to be unreason- able, for us to repay the shippers. We take the' view that that is the most equitable method of dealing with that ques- tion of suspension, and we take the view that 'that is the method of dealing with it which is best in the public in- terest. Commission Should Regulate Rates for Carrying the Mails. The sixth proposal that we shall make is : "That the In- terstate Commerce Commission should be vested with the power and it should be made its duty to provide, upon the application of the Postmaster General or any interstate car- rier, reasonable rates for all services and facilities connected with the carrying of the United States mail." That proposal is so clear and the whole subject is so much in the minds of Congress at this time, that it is unnecessary for me to enlarge upon it now. Federal Government Should Have Exclusive Power to Regulate Securities. Our seventh proposal is: "There should be in the Federal Government the exclusive governmental power to supervise the issue of stocks and bonds, by railroad carriers engaged in interstate and foreign commerce." 107 I have argued that proposal at length during the remarks which I have had the honor to submit, and, therefore, it is unnecessary now for me to detain you at this period of the discussion with any elaboration of it. Anti-trust Laws Should be Modified to Meet Transportation Conditions. Eighth: "The law should recognize the essential difference between the things which restrain trade, in the case of ordinary mercantile concerns, and those which re- strain trade in the case of common carriers. While the question of competition may be a fair criterion in the case of ordinary mercantile concerns, it is not a fair criterion in the case of common carriers. In the case of carriers the test should be whether com- mon ownership or control promotes trade ,and com- merce, by affording facilities for the interchange of traffic, or by supplementing facilities for transporta- tion, to a substantial or greater extent than such com- mon ownership or control restrains trade by sup- pression of competition." You gentlemen will appreciate that no railroads can cross each other, can closely approximate each other, without crossing, or can form one continuous, straight line, without there being competition between them. When they cross, there is an area around the point of intersection, which can get to the markets of the world over either one of them. When they closely approximate each other, coming close enough for traffic to be delivered to one or the other, then, within that region where a common service or common pub- lic service exists, there is competition, because the commerce in that zone can reach the markets of the world over either. Where railroads meet in a city, and one goes out due north and the other goes out due south, their connections are such that a market anywhere can be reached by commerce taking either one of those railroads. So that there is a necessity 108 of competition in respect to the railroad business at these points to which I allude, which does not exist in mercantile concerns. Moreover, those two railroads that meet, end on, or that are so situated towards each other as to furnish an available means of carrying forward on the one railroad the traffic originating on the other, they so supplement ea«h other in the facilities of transportation that the service they render as connections is vastly greater than the competition which exists at the point at which they meet. The facility of having commerce pass uninterrupted from one of these connecting railroads to the other, is a valuable facility where it is a natural condition, and when we come to ask what the public interest is, we must necessarily balance what these two railroads do in the way of suppressing competition, against the advantage they offer in the way of supplement- ing transportation. Now, we say, therefore, that that is a matter plainly demonstrable in the public interest, and that that is a test plainly applicable to the laws which should be made to ap- ply to them. What is the greater public interest? Is the greater public interest to keep its rates separate because there is some com- petition suppressed, or is it in the public interest to have those railroads unite because they are naturally supple- mentary to each other and they furnish additional and needed public facilities? - Now, we believe that the determination of that question ought to be put into the hands of the Interstate Commerce Commission and that they ought to be required to deter- mine it on the principles which I have stated, of public in- terest as shown by supplemented and improved facilities on the one side, or by the suppressing of competition on the ■ other. We say more than that, that this matter of suppress- ing competition, of restraining trade, of enforcing hard and burdensome terms of transportation, is taken out of the hands of these carriers because you regulate them by your public bodies. The reason for your anti-trust laws in ro- 109 spect to other mercantile matters is because of the hardship- that great combinations may put upon the people. At leasts as to the terms of transportation it is impossible to put hard- ships upon the public, because those terms are prescribed by public authority. Of course there is still the question of service. That matter would have to be determined by the- Interstate Commerce Commission as one of the elements of determining what the public interest is. But when you have applied to the affairs of the railroads the strong regulating power of one of the departments of governinent, the same- conditions do not apply to that; the public is not menaced by the same dangers in respect to that as it is by an entirely unregulated private business, and these essential differences,, we think, ought to be recognized in the system of regulation which you will adopt. Agreements in Bespect to Rate Practices Should be Per- mitted Subject to Approval of Interstate Commerce Com- mission. "9. The law should expressly provide for the meet- ing and agreement of traffic or other officers of rail- roads in respect to rate pracices. This should, how- ever, be safeguarded by reqiiiring the agreement to- be filed with the Interstate Commerce Commission and to be subject to be disapproved by it." Now, gentlemen, no man acquainted with railroads, with- the necessity for them to make joint rates and th;rough routes,. can for a moment doubt the absolute necessity for the au- thorities of the two roads to meet and agree upon the joint- rate and the through route. There can be no such thing as a joint rate and a through route without agreement, un- less made by law, by the authority of the Interstate Com- merce Commission. The law requires that to be done by the- voluntary action of the carriers. It is impossible to have that voluntarv action unless thev can meet and agree. But the- 110 interest of the public does not end there. The interest of the public is equality of terms of doing business. When two railroads serve the same market, when two railroads tap the same producing territory, there is a valuable interest on the part of the public that those whom the railroads serve shall have equality of terms. The philosophy of that principle of transportation is universally recognized even by the regu- lating authorities, and in order to have the equality of terms the traffic officers are obliged to meet and to make known to each other what the terms are. Of course you appreciate that an unrestricted power of agreement, may open the doors to abuses, but our proposition is that all these abuses and opportunities for abuses, can be obviated by re- quiring these agreements to be filed with the Interstate Com- merce Commission before they shall become valid, and be subject to be disapproved by that body. I make a difference between subjects to be disapproved and subjects to be ap- proved because the time for approval means delay; whereas the power of disapproval is a power sufficient to meet the chance of abuse. I believe you will find, if you ask the In- terstate Commerce Commissioners, that such an arrange- ment with regard to the meeting of the traffic officers is in their opinion essential to the carrying on of business in a fair and eqtiitable way between various communities. Why No Suggestion Made About the Labor Situation. Now, gentlemen, I have not included in the proposals which we shall make to you any suggestions on the labor question. All these things that I have read were agreed upon by us before this labor situation became such a menace to the commerce of the country. When we prepared for these hear- ings we did not expect to introduce that subject, notwith- standing its importance, because of its hotly contested char- acter. It may be that recent events have put the labor con- troversy in such a situation that Congress will have to con- front it and to deal with it. Whether that will be done by Ill this committee or by some other committee of Congress, we are not advised. Therefore, for the present, 1 shall make ho suggestions in respect to the labor situation because it seems to me that that situation ought to be met when it arises, and after proper opportunity for exchange of views in regard to various proposals. Kailroad's Case Has Now Been Stated Fully and Frankly. I have now, then, gentlemen, laid before you with the frankness which this great situation demands, and with the frankness with which I attempt to treat every public subject with which I come in contact, so that you may know en- tirely the views that we entertain and the proposals that we , shall make, and so that witnesses who shall appear here will have the full benefit of the things which we think are wise to be done by this Congress. It may be that in the light of what shall be developed before you we shall take a different view on some of these questions. I do not anticipate that, ' but we can at least assure this committee that we will ap- proach any suggestion which is made from any source with an open mind and always with a purpose to have it deter- mined by the standards of the public interest which we have asked to be applied to all the proposals that we ourselves have made. Views of Richard OIney. I now come to a part of my presentation which is a mat- ter of profoundest interest to me. I come to present to you the views of a man occupying a position of supreme authority with the American people. He has lived a long life. He has ornamented and led, and still ornaments and leads, the American bar. He has held high office from which he re- tired with an untarnished name and with a reputation estab- lished and safe in American history. He entertains the democratic view of the rights of the State. He occupies no . 11-2 position of a professional or other character to this investiga- tion except the position and the character of an eminent American citizen. It has been impossible to induce him to leave the honorable retirement into which he went by even the offer of the ambassadorship to the Court of St. .James, which I understand was recently made to him. He stands out before the American people as a great lawyer, a great democrat, and a man who occupied with distinguished credit to himself and benefit to the people, the offices of Attorney General and Secretary of State in j\Ir. Cleveland's Cabinet. - I refer to Mr. Richard Olney. Unfortunately, his condition of health does not permit him to appear before this com- mittee, but I have from him this letter : "BosTOx, 23 November, 1916. "Alfred P. Thorn, Esq., Counsel, Railway Executives' Advisory Committee, 1360 Pennsvlvania Avenue N. W., Washington, D. C. "My Dear Me. Thom : For reasons you are familiar with, it is quite impracticable for me to appear be- fore the Congressional Committee at Washington for the purpose of expressing my opinion as to the de- sirability, perhaps I should say necessity, of the National Government proceeding without delay to in- sist upon national railroads being owned and operated by national corporations. "But if my opinion is of any value, I believe it will not lose but gain if stated in writing rather than by word of mouth. The enclosed 'Memorandum' is an attempt to put the matter in a little more orderly shape than I have put it heretofore. You are of course at liberty to make whatever use of it will serve the object you have in view in which personally I thoroughly believe. "Very truly vours, (Signed) " RICHARD OLNEY." The memorandum reads as follows: 113 "Memorandum. "1. For all the purposes and functions of commerce between the States of the United States, between such States and the Territories of the United States, and between such States and Territories on the one hand and foreign nations on the other, the United States is one country, with complete and exclusive jurisdic- tion over the whole subject — and State lines and jurisdictions are without significance. "2. Commerce, in the constitutional sense, covers transportation and intercourse in all forms and whether existing when the constitution was adopted or since introduced and practiced. "3. The national commerce power, being of such extent and exclusiveness, necessarily subjects to na- tional regulation and control all the agencies and in- strumentalities by which national commerce is car- ried on. "4. It cannot be doubted that a railroad corpora- tion created by a national charter is an apt instru- ment for the carrying on of national transportation and that the organization of such a corporation with all appropriate powers and duties is a fit subject for treatment under the commerce power. "5. Nor is it to be doubted — because am{>le experi- ence has shown — that, in this matter of national trans- portation by railroads, public policy and the public welfare are at one with the law of the country. They imperatively require that the subject should be dealt with in all its phases by a single authority which can be no other than the nation itself. The mixed juris- ditcion over the subject now prevailing — the States exercising a part mostly through State charters and the United States a part mostly through the com- merce power — is thoroughly archaic, originated be- fore the true scope of the commerce power was gen- erally understood, and has resulted in a serious waste and inefficiency in railroad operation which is at once matter of public notoriety and public scandal. "6. In view of the settled law of the land as re- spects the national commerce power — as by virtue of it the United States practically undertakes to exer- 15w 114 cise the power for the benefit of the several States and of all the people — and as transportation by railroad is within that power and is today in a condition most unsatisfactory to the private owners of railroads as well as seriously prejudicial to the national interests — the question is of the remedy for that condition. "It may be claimed that government ownership of all national railroads is the only true and adequate solution, a claim which time and sufficient experi- ment may show to be well founded. Yet government ownership would have political bearings of such pith and moment as ought to prevent its consideration until and unless it is established that there is no other way out. It is best to assume in the first instance, therefore, that there is some other way out ; that the question is essentially administrative rather than political; that it concerns our national housekeeping rather than the structure and stability of the house itself. "7. If the correctness of the foregoing premises be assured, and if it be also conceded, as apparently it must be, that national control of national transporta- tion by railroad can be secured in the most simple, direct, and effective manner by requiring all parties whp undertake it to take out national corporate char- ters, the real and practical question is one of pro- cedure. "How shall the United States rid itself of the pres- ent order of things and substitute the desired new one — how eliminate any present State control of na- tional transportation by railroad and substitute for it exclusive national control, through national incor- poration of the parties undertaking to carry on such transportation. Congress, of course, must enact neces- sary and appropriate^ legislation. What must be ite essential features? "8. The practical situation is complicated and diiB- cult because as a whole the interstate commerce rail- roads of the country are today owned and operated by State corporations under State charters. Thus (apart from the general public) the parties interested in the displacement of State railroad corporations now doing a national commerce business bv national 115 corporations are first the States granting the existing charters, and second, the stockholders and creditors of such State corporations. If the assent of these several parties could be counted upon, the change from the present status to absolute national control of national transportation by railroads through the medium of railroad corporations with national char- ters would be easy. But such assent for obvious rea- sons is not to be taken for granted and the question is how shall the United States proceed to accomplish the desired result without such assent. "(a) To consider first the right of the States and the Staite corporations — each has granted franchises enabling a railroad corporation of the State by the use of them independently or in connection with franchises granted by another State or States to oper- ate a national railroad. The franchises have been accepted so that there is an apparent duty on the part of the grantee to execute them and an apparent right of the grantor to insist upon their exectuion. If the right and duty were real, only the power of eminent domain could take away the grantor's right to claim full performance or impair the grantee's duty to make such performance. But on the legal grounds already developed a State grant to a State corporation of the franchise to operate a nationar railroad must be re- garded either as void ab initio or as provisional merely and as becoming void whenevier the National Govern- ment acts upon the subject. Consequently, neither that State nor the State corporation would be legally aggrieved if a grant to a State corporation of the fran- chise to operate a national railroad were annulled by a grant by the National Government of an identical franchise to a national corporation. "(b) Such being the settled law of the land as re- spects the national commerce power and its applicar tion to national transportation by railroad, it is not only the right, but the duty of the United States to exercise the power if the national welfare demands it. In various instances the National Government has by inaction acquiesced in the exercise of State au- thority over matters exclusively within the national jurisdiction. In such cases the theory of the courts 116 has been that State action should not be invalidated so long as the National Government continued to im- pliedly approve of it, while the policy of the National Government has been thought to be justified by the view that S,tate action on the subjects concerned would be likely to be more intelligent and effective than action by the nation. So far as national transporta- tion by railroad is concerned, however, no questions of that sort need be discussed. Its unsatisfactory con- dition is admitted on all hands — is bitterly " com- plained of by the private owners of railroads and is notoriously prejudicial to the nationa;l interests — so that the clearest possible case exists for the affirmative use by the National' Government of its acknowledged power over the whole national railroad situation. "(c) Feasible and adequate legislation for putting a national railroad now operated by a Stat« corpora- tion into the possession and control of a national cor- poration must not only authorize the latter to operate such road, but should also provide the ways and means by which the new corporation shall succeed to and acquire the tangible railroad property essential to and actually in use in the operation of such road. "Such property— the entire railroad plant, includ- mg road-bed, rails, stations, shops, telegraph, and telephone equipment, and all other railroad property and appliances employed in the operation of the nar tional railroad concerned — should pass from the old State corporation to the new national corporation as a unit— as a going concern. It cannot be thus con- veyed to the new corporation by the United States because the United States does not own it. It belongs to the old corporation and its stockholders, whose ownership is absolute except so far as their creditors may have claims on it, and neither owners nor credits orscan be deprived of their interests in it except by their assent or through an appropriate exercise of the power of eminent domain. "(c^) Congressional legislation aiming to substitute national corporations for State corporations in the control and operation of national railroads would obviously be ineffective if conditioned upon the con- sent of all parties in interest. 117 "It follows — unless the suggestions above made are unsound — that a national statute for the displace- ment of a State corporation by a national corpora- tion as the owner of a national railroad should cover the following points: "First. Incorporation of certain designated persons with powers to acquire, hold, and manage all the franchises and property of the old corporation and with power to dispose of the capital stock of the new corporation as hereinafter indicated; "Second. Amount of capital stock to be same as that of old corporation except that the organizers in their discretion may make the amount larger or smaller ; "Third. Debts and obligations of old corporation to be assumed by the new with recognition of any Hens and priorities of creditors already acquired as against assets of the old; "Fourth. Stockholders of the old corporation, com- mon or preferred, to be offered common or preferred shares or such other interests in the new corporation as, in the judgment of the organizers, will make their interests in the new equivalent to their interests in the old; * "Fifth. Shares in the old corporation to be pur- chasable for the new corporation by the organizers on terms which they may deem fair and not injurious to other parties to the proposed organization — in the event of any such purchase shares of the new corpora- tion to be sold by the organizers to an amount suffi- cient to enable them to pay the agreed price; "Sixth. Shares of the old corporation not obtain- able by exchange or purchase as above provided to be taken by the new corporation at its option under the power of eminent domain at a price fixed by a court of competent jurisdiction or by such court and a jury at the election of the stockholder; "Seventh. The organizera to operate the national railroad concerned with all the powers of receivers of an insolvent railroad until a majority of the capital stock of the new corporation shall have been issued as hereinbefore authorized. Upon that taking place, the organizers shall call a meeting of stockholders for 118 the election of directors, who, in addition to the powers of railroad directors generally, shall have the special powers of the organizers so far as the exercise of the same is necessary to fully accomplish the purposes of the charter. "The foregoing list is not claimed to be exclusive. But it is confidently believed that each one of them is a necessary part of any effective plan by which a national railroad corporation is to be substituted for a State corporation in the ownership and operation of a national railroad." With a deference almost too great for expression, I must say that I am in complete agreement with all of that memo- randum except as to the method necessary for the transfer of the State corporation to the national one. I am convinced, as to the latter, that a method much simpler is entirely avail- able to accomplish this transfer, and, at the proper time, 1 shall ask an opportunity to develop that view before this com- mittee. I feel that Mr. Olney has performed a great public service in contributing that thought to the solution of the immense problem wfiich is before you. Conclusion. I have tried, Mr. Chairman and gentlemen, to state with complete frankness the views which actuate us when we come to a consideration of this immense problem of trans- portation. I am profoundly grateful to you for the courtesy you have extended me and for the consideration you have shown during the tedious hours during which I have been obliged to ask your attention, and I now 'respectfully an- nounce that the opening statement which I was delegated to make has been concluded. Senator Underwood: Mr. Chairman, I suppose the com- mittee desires to cross-examine Mr. Thorn, but it is one o'clock and Saturday, and I move we adjourn now. 119 Mr. Adamson : Let us have an executive session. Senator Undekwood: Do we want an executive session? Mr. Adamson: I think we -do. Senator Undeewood: Then I move an executive session. Mr. Cullop: Before we go into executive session is it understood Mr. Thorn is to appear Monday for cross-examina- tion at the opening of the session? The Chaikman: It is so understood. (The motion was agreed to, and at 1 :00 o'clock p. m. the committee went into the consideration of executive business, at the conclusion of which an adjournment was taken until Monday, November 27, 1916, at 10 :30 o'clock a. m.) 120 Monday, November 27, 1916. The Joint Committee met at 10:30 o'cloclc a. m., pursuant to adjournment. Senator Francis G. Newlands presiding; also Vice-Chairman William C. Adamson. Present: Senators Robinson, Underwood, Cummins and Brandegee, and Representatives Sims, CuUop, Esch and Hamilton. Examination of Mr. Alfred P. Thorn, Counsel, Railroad Ex- ecutives' Committee. The Chairman : The committee will now enter upon the examination of Mr. Thom on the matters concerning which he has addressed us, and the members of the committee, commencing with the vice-chairman, will examine Mr. Thom in turn, according to their order, alternating between the Senate and' the House, and later on, with the consent of the committee, I shall take occasion to reverse this order so as to give all the members of the committee a fair chance before exhaustion of witnesses by taking up interrogation. It is my purpose, as chairman, to question Mr. Thom re- garding the national incorporation of railroads, and with reference to certain bills which I introduced upon that sub- ject from 1905 down to the present time, the bills being substantially the same but varying in certairl features ac- cording to the progress of the discussion. With the consent of the committee I will put in the record extracts from these bills, the views expressed by me in cer- tain reports of the Interstate Commerce Commission, notably on the Hepburn Bill and the Commerce Court Bill, in which I took up the discussion of the question of the national in- corporation of railroads, and also certain extracts from the hearings upon this subject, and I will invite the attention of Mr. Thom to this matter and will interrogate him regard- ing it later on after he has read the matter which is inserted in the record. 121 I also wish to insert in the record a magazine article of the North Aimerican Review of April, 1905, entitled "Com- mon Sense of th« Railroad Question," which dwells upon the subject of the national incorporation, and I invite Mr. Thom's attention to that. Mr. Adamson : Mr. Chairman, is that article by the chair- man? The Chairman : Yes. The Chairman: Mr. Thorn, we all understand that the numerous railways of the country, aggregating at one time many thousands, have been organized in great systems, each one of these systems" embracing numerous States. Will you please state under what method of organization these con- solidations of State railways have been organized, and the advantages or defects which those methods of organization have? Mr. Thom : The methods have very greatly differed. At times there have been conditions of universal bankruptcy in certain sections which resulted in sales under foreclosure of a great many roads. In cases of that kind it not in- frequently happens that the physical properties have been bought by the same interest and are in the hands of one company. It also happens that in obtaining ownership of the properties there has been a purchase of the capital stock by what became then the parent company with control and •operation of the stock ownership. It also happens that a great many of the physical properties have been leased to one company and the operation has been continued under long-term leases — the / operation of the physical property. So that the three methods have been the actual acquisition and ownership of physical properties, the acquisition of stock, and thereby control .of the acquired property, and a lease of the physical property and the operation under the lease. The Chairman : The main corporation in these systems is organized under the laws of a single State, is it not? Mr. Thom: Yes; it may be at times that they also have Vl-1 corporations or franchises from other States and sometimes there is statutory power conferred upon a company of one State by another State, by express terms, as, for example, the Baltimore & Ohio Railroad operates in the State of Vir- ginia and Virginia conferred upon the Maryland corpora- tion certain powers. There are also, at times, corporations of various States, the line being built under the corporate charter gran ted, by several adjoining States, and then the lines united. Illustrations of that may be given. There has been a great variety of methods in the creation of these con- tinuous lines. ' The Chairma>- : Now, where a corporation organized under the law of one Sta*te, for the purpose of constructing or oper- ating a road in that State, seeks to acquire the property 6f railroads engaged in operating in other States, has it been customary to obtain the consent of the States? Mr. Thom : Very frequently there has been sufficient power under the charter of the acquired road to dispose of its prop- erty, or the stock, to the corporation of another State. "Wher- ever that is not done, of course, you have to have special au- thority from the State. The Chairman: From the State in which the property Hes? Mr. Thom : From the State in which the property lies. The Chairman : As a rule, are there general statutes cov- ering those subjects, so as to make acquisition easy, or do the corporations have to get special legislation upon the subject? Mr. Thom: It has been mostly done under the original charters, my impression is. Of course I am speaking now from general impression. I have not gone into this thing in any great deal of detail, but my general impression is that there has been a tendency on the part of the States, in giving the charters, to grant powers adequate to this transfer from one to another. There have been a great many make- shifts necessary. I suppose the ideal way of creating a prop- erty is that there shall be one title to the whole property ; the 123 company shall own all the physical property that it operates. That is the ideal way. Instead of that, there are a very great many makeshifts that have to he adopted, and that is so of perhaps nearly all the railroads of the country. The Penn- sylvania Eailroad at this' time, I think, has over 100 differ- ent corporations within its system — how many I do not know. The figure that is in my mind is 149, but I cannot be accurate about that. I have never looked into it, but it is a great many, and they are feeling the difficulty of this tremendous number of. corporate entities in a single system. The Chairman: Where a railroad system, organized in one State, has sought to acquire property in other States with a view to meeting the national requirements for interstate commerce, has there been thus far very much complexity in the arrangements? Mr. Thom : There has been very considerable complexity. In some places it is absolutely impossible — you take, for ex- ample, in the State of Texas — the State of Texas does not permit a foreign corporation to own a railroad in that State. The only way, therefore, you can have a through line — continuous line — made up of any part of a railroad in Texas, is that a Texas corporation shall own that property, and the outside corporation has to own the stock. A very serious situation arises about that in Texas, for this reason: The laws of that State, as I understand it, have required valuation of properties in Texas — ^railroad properties — and they will not issue any — will not permit the issue of any securities in excess of that valuation. The valuation is away down below the capitalization at the time the valution was made. As a result there have not been any Texas roads that have been able to get any money at all on their property, and tbe only way they could be kept up to anything like the requirements of the public, was that the parent company outside of Texas should lend its credit to raise the required funds, and in that way to furnish the tracks and the yards and the equipment necessary for the Texas roads. 124 The Chairman : That parent company is popularly known as the holding company, is it not? Mr. Thom : No, it is not the holding company. That is not what my understanding is of a holding company. I do not understand that a company that is itself an operating' company, engaged in that business, and simply increases its system by operating and holding the stock of another com- pany, is what is ordinarily known as a holding company. A holding company, as I understand it, is a company that does not operate at all, but holds the stock of a good many roads, merely as a corporate entity, created for the purpose of holding them. Now, it is all a matter of definition. Of course, you can call it either way you please. The operating company does hold the, stock, but it is not what I have under- stood to be popularly known as a holding company. The Chairman : There are companies that are exclusively holding companies, that do not operate the roads? Mr. Thom : Yes. The Chairman : There are other companies that own roads, and also are holding companies, in the sense that instead of owning the physical properties they own the stock of operat- ing companies? Mr. Thom : That is true. The Chairman : You referred to three classes of roads, one holding roads under ownership, another holding roads or controlling them through the ownership of their stock, with- out operation, and others controlling roads by lease. I imagine you would add to that a fourth class, the ones to which you have referred, that hold the physical property and also hold the control, operating companies through the owner- ship of stock? Mr. Thom : I understand the latter one that you mention to be covered by my first division into three, and this other one that has been added about holding companies has come up since, but you can divide them into those four classes- four methods. 125 The CHAiRAtAN : Now, about how many large systems are there in the United States, and what proportion of the mile- age of the country do they own? Mr. Thom : Now, I cannot answer that, Senator. I do not know how many there are, and I have not made any estimate of the amount of mileage that they hold. I think I have seen it stated in some of your writings that there are about ten. The Chairman : Yes. Mr. Thom : But I have not gone over that myself, and do not know. The Chairman : Would the system which you propose of national incorporation of railways, have the advantage of simplicity in organization? Mr. Thom: Undoubtedly. The Chairman: And operation, as compared with the present system? Mr. Thom: Both. It would also have advantages in methods of financing — simplicity of financing. The Chairman: Take the system with which you are familiar, the Southern Railway System, which I presume is a fair illustration of the method of organization of the great systems of railways in the country. Will you kindly state what is the State of the parent organization? Mr. Thom: The State of the parent organization is Vir- ginia, and it has large and liberal powers, both in respect to acquiring properties of other roads and being acquired by other companies. It also has large powers in respect to the question of stock in other roads, and there could probably be no better illustration of the different methods of ownership than are presented by that problem. For example, you take what is known as the general mortgage. You will find there a great many pages — ^perhaps fifty — describing the various properties that are mortgaged; describing every conceivable method of ownership; the stock of such and such a road is mortgaged ; the trackage right on another road is mortgaged ; 126 the leasehold right on another road is mortgaged ; the physics property actually owned is mortgaged, and so it goes on fc pages, describing the methods of ownership, or the intere the Southern Railway has in these various properties. The Chairman: In how many States does that syster operate? Mr. Thom: Eleven. The Chaieman: All of them Southern States? Mr. Thom: No; in addition to the tier of States betweei the Potomac and the Mississippi rivers, and south of tb Ohio, they operate also in the States of Indiana and Illinois The Chairman : How many different railways have beei gradually incorporated in the Southern Railway System? Mr. Thom : I could not tell you that, but a great many. The Chairman: A hundred? Mr. Thom: I would have to verify that. I have nevei enumerated them. The Chairman : How do the various States .within whos( boundaries the Southern system operates, outside of Virginia regard the control of the operations of the roads within theii boundaries, by a foreign corporation, organized under the laws of Virginia? Mr. Thom : I must say, that I have never seen any very marked degree of jealousy about that. The Chairman: You have not seen any marked opposi- tion to the inclusion of these various State railways, in the system organized under the laws of Virginia? Mr. Thom : No ; it is true that I came into the life of that road after that had all been accomplished. The Chairman: When did you become associated with the Southern Railway Company? Mr. Thom : I came in — I was leased into the Southern with the Atlantic & Danville road. The Chairman : And when was that? Mr. Thom : They acquired me by lease in 1899. ' The Chairman: There were a large number of absorbed in that system, were there not? 127 Mr. Thom : A very large number ; yes. sir. The Chairman: Has that union of roads under a Vir- ginia corporation resulted to the advantage of the efficiency of transpotation ? Mr. Thom: Oh, immensely. That has been done as a distinct answer of the transportation people to the eco- nomic necessities of the communities they serve. The Southern Railroad is in a small market, that is, practically small markets. Of course there are large and valuable ■ markets in that section, but the gTeat demand of the people there is for access to the larger markets, both of this country and of the world, and in order to accommodate that move- ment of commerce, these roads were thrown together. 1 do not mean by that to say that there were not reasons of financial nature which appealed to the people having that in charge, too, but that union would have been impossible if only the financial views of the managers had been in- volved. The financial views of the managers were sustained by the universal recognition that the movement of commerce required these long, continuous lines. The Chairman: You speak of the universal recognition. Do you understand by that that the public opinion of the region in which your roads are operated sustained this union of railways? Mr. Thom: Undoubtedly. The Chairman: Have you observed any signs of dis- satisfaction with it and a disposition to return to the old system of separated railways? Mr. Thom: None whatever. It is in answer to the ab- solute necessity of commerce. The Chairman : Then your contention is that this method has been the result of economic necessities? Mr. Thom: Yes, and commercial evolution. The Chairman: Now would it have been much easier and simpler to have accomplished that union of railroads 12S necessary to the economic development of the South under a national incorporation act than under the present system? Mr. Thom: Undoubtedly. The Chairman : Would it have been attended with less expense, in your judgment? Mr. Thom : Yes, undoubtedly. The Chairman: And less friction? Mr. Thom : Undoubtedly ; and would have made a more absolutely workable instrument. You would have had a unit then. The systems are now held together in an artificial way. They are contrivances to meet legal difficulties. They are not made one complete and homogeneous unit. The Chairman: Are we to understand that the railway executives and managers throughout the country are now agreed upon the importance of national incorporation of railways? Mr. Thom : Of course in a large body of men, in rail- road life as well as in any other, you will find men of different views. You find also, of course, every now and then a company peculiarly situated, having advantages under the present conditions which they do not feel that they could surrender for an untried condition. But I think I can say — I refer to that class of people merely to empha- (i size the unity of view which the railway managers of the country have come to in respect to this matter. We have debated this question a good deal among ourselves, and in the committee of counsel, of which I am chairman, which has associated with it the committee of executives, known as the Railway Executives' Advisory Committee. When we first commenced to debate it there were two who were very much opposed to it. I imagined, of course, that they were representing the policies of their management, and we had an opportunity subsequent to that time to debate the ques- tion before the presidents. I found that I had been correct in supposing these gentlemen were representing the policies of their companies, and they were two of the very important 129 companies of the country. After debating it the executives came into the plan of a compulsory incorporation bill, not an elective one, because they believed it would be best for the country, while they might have to give up some of the special features of their charters, their privileges, which they valuedj they believed they would get more in the way of helpfulness by coming to a system of this sort than other- wise, and so those who do not agree are in number very small. I do not know but one. There may be two or three. The Chaieman : I will state, Mr. Thom, that in 1904 and 1905 an investigation was made by the Interstate Commerce Committee of the Senate, of which I was a member, regard- ing the requirements of interstate commerce, and particu- larly the advisability of giving the Interstate Commerce Commission the power to fix rates, and during that in- vestigation I presented a scheme for national incorporation, and questioned a great many of the railroad executives and managers regarding it, and I found that apparently none of them viewed it hospitably, so I was compelled to present my views in a separate document in connection with the report of the committee upon this 'subject. I also took up the question again in the Commerce Court investigation, and there found that the views were not hospitably enter- tained by the railways, and by few of the members of the court itself, as was the case with the previous committee con- sidering the Hepburn bill. I believe the only witness dur- ing all that time who encouraged me at all in the views which I entertained was Senator Cummins, who was then governor of the State of Iowa, and who appeared before the com^jaittee. That was on the Hepburn bill. Now has this change of view upon the part of the railway executives been a recent change and what has occasioned it? Mr. Thom : It has been a gradual change to a realization of what is now believed to be a necessity. The difficulties of railroad management have been becoming more and more apparent; the view that no industry could flourish where 9w both its income and its expenses were beyond the control of the owner, and especially that that could not be done if the income was subject not only to one comprehensive gov- ernmental control, but could be cut down by innumerable governmental bodies with different policies, different out- looks, who were, in the nature of things, unable to take more than a partial view of the property, this has led those re- sponsible for the success, primarily responsible for the suc- cess of these instrumentalities of commerce, to look to a method of strengthening them in the public confidence, and they have come to believe that that is impracticable unless the United States Government will take charge of the in- strument of interstate commerce and will regulate it in ac- cordance with what probably actually is. It is a national problem, and the standard of the sufficiency ought to be fixed by one authority which can take a comprehensive enough view to determine how good it ought to be and what is necessary to its successful service. Now that led to the conclusion that when you once concede that there must be governmental regulation it led to the conclusion that there should be a system of single governmental regulation, |p The differing views of the States in regard to what a rail- road ought to be allowed to do in the way of improvement, what it ought to be allowed to do in the way of equality of terms as between the different States, and similar problems, ' have borne in upon the railroad management until they are convinced that they can no longer cope with their problems unless they have a single regulating power. From that it was easy enough to see that they had been mistaken here- tofore in their view that there should not be a systepi of national incorporation, because national incorporation is an essential facility in the way of having complete national regulation. Now, of course, we are all obliged to admit that on the part of the owners of railroads, and on the part of the man- agers of railroads, there has been an unAvillingness to accept 131 any governmental regulation to a greater extent than was necessary. That has been a slow process. It started in the beginning by a denial of the propriety and justice of any regulation; but, step by step, the soundness of the public view that there should be governmenta,! regulation has been more and more accepted. Railroad managers have changed ; a generation has come and gone since this thing was started twenty-nine years ago. Men have come into railroad man- agement who were separated from the first and early con- ceptions of these matters, and they appreciate that there must be — and I think I may say for them, generally, that there ought to be a system of governmental regulation ; but they believe that it ought to' be a philosophical system ; that it ought not to present complexities which will repel in- vestors; that it ought to be helpful; that it ought to pro- vide the necessary protection to the instrumentality of .com- merce, which will make it always eificient for the service which is required of it, and they cannot see now, after de- bating the logic of those concessions, and after the adoption of those views — they cannot see where the stopping point is, or, if all those views are sound, where they can stop ; and insist on the wisdom and advantage of national regulation alone, and still leave the actual corporate control of these instrumentalities in the hands of an authority other than the Nation. It seems that the power to control the national entity itself must necessarily follow the power of regulation by the] Nation itself. The logic of that view has been now accepted by the railroad managers of the country, with the rare exceptions to which I have alluded. The Chairman : Mr. Thom, there are two forms of meet- ing this requirement for national organization to which you refer: One is the creation, under national law, of national corporations that will own the physical property of the railroads in the various States, and the other is the creation of holding companies, under national law, which will own the stocks of corporations organized under the laws of and 132 operating in the various States. The latter, you will observe, has what might be regarded as an advantage : that the entity of the State corporations is maintained, whilst the union of these corporations is effected under the national law through a holding company. Will you please state your views as to the comparative advantages of these two systems? Mr. Thom: We think that there should be a nationally created corporation which shall own the physical property. We do not see any disadvantage in that whatever. Of course, the parties in interest in respect to it are three: One is the State in its corporate capacity, the second is the se- curity holders of the State corporations, and the third is the general public. The State in reality, in its corporate capacity, has no interest ; its interest as a State is fully pro- tected by having the Nation, which represents that State, as well as all the others, create a system which shall be fair as between/the two. The logic and soundness of the view that no State can, with propriety, adhere to the view that it must hold on to some advantage for itself, over its sister State, in these matters of commerce which affect both, is making tremendous progress in this country. For ex- ample, every railroad that runs into the South — every large system that runs into the South, and goes from this section of the country, is an incorporation of the State of Virginia: The Atlantic Coast Line, the Seaboard Air Line, the South- em, the Norfolk & Western, and the Chesapeake & Ohio are all Virginia corporations. The only three roads in the South that I know of, of any importance, which are not Virginia corporations are the Louisville & Nashville, the Central of Georgia, and the Illinois Central. There are five of the great railroad systems of the South that are in- corporated by the State of Virginia. Now, everybody sees that no individual views of the State of Virginia ought to be imposed on North Carolina or Tennessee or on any of the other Southern States. The State policy which might put a limitation on one of those five systems in Virginia, 133 of course, would naturally be resented by the other States, if they did not agree with that policy ; and the question ought not to be left — the public is beginning to see that the power ought not to be left — ^in the State of Virginia to put a limita- tion on the charter of those five companies which will be felt throughout the system, but that there ought to be a power that represents every one of those States — Georgia and Alabama and Tennessee, as well as Virginia — that would pass on those questions of charter limitation; so that the view of the power of the Statei to put limitations or to give privileges is being rejected by the public thought of this country, for the reason that there you come across what Chief Justice Marshall so many years ago said, that while Virginia might be willing to do that the other States are not willing for it to do it. They want those questions of vital commercial interest to themselves passed on by a body that is not simply one of the States, but that represents all of the States; so that we can eliminate the interest of the State, as a State, in that matter. Now, as to the interest of the stockholders and the cred- itors, it is our belief that there is a simple constitutional proposition underlying their rights. When they made their contract rights with a corporation chartered to do inter- state and foreign business, they acquired their contract rights subject to the full exercise in the future by the Fed- eral Government of the power to regulate commerce. In the nature of things, there could not be a contract right ac- quired by one of the investors in these railroads chartered to do an interstate business, which would limit the power of the Federal Government to fully regulate that instrumentality. The State itself had created it to do this interstate business; the people that had gone in as stockholders or creditors had gone into a concern organized, in the first instance,, to do an interstate business. They found in the Constitution of the United States a provision giving to the Federal Gov- ernment the full power to regulate interstate business — in- 134 terstate commerce. They then took their rights subject to the future exercise by Congress of that power to regulate commerce to the fullest extent that Congress might feel that the public interest might demand. You gentlemen will remember that that question has been passed on already by the Supreme Court of the United States. Years ago there was a rnan who was injured in a railroad wreck on the Louisville & Nashville road, giving him a legitimate claim against that company for damages. He settled that claim by assuming a contract relationship with the Louis- ville &i Nashville. He got a pass for life from the Louis- ville & Nashville, in consideration of this claim that he liad against the road. That was legitimate; that was lawful at the time it was done. There was nothing in the laws of Congress to prevent it when that contract was made; but, as years came along. Congress undertook to regulate how peo- ple could pass on a railroad — the terms on which they must deal with the railroad ; that there must be absolute equality, and that nothing should be taken except money for passage on a railroad, and that case was carried up to the Supreme Court, and the Supreme Court there said that this man took his contract right with the road, subject to the future exer- cise by Congress, to the fullest extent, of the right to regu- late commerce, and that his rights under that contract must fall, because Oongxess had seen fit to regulate commerce to an extent greater than it had undertaken to do at the time that contract right was created. Now we believe that these stockholders' rights and these bondholders' rights do not stand on any higher basis. We believe that when the bondholder lent his money to a rail- road engaged in interstate commerce, and when the stock- holder made his contribution to the capital of railroads en- gaged in interstate commerce, that ex necessitati they bolih did that subject to any legitimate regulation of commerce in the future which Congress might undertake. ' Therefore, we ask ourselves the question whether a system of national 135 incorporation is the legitimate exercise by Congress of the power to regulate commerce. We think it is. We think that everywhere it appears in the authorities that it is. If we are right in thinking that Congress, under the power to regulate commerce, may adopt a national incorporation law, then these stockholders and bondholders took their rights in the corporation subject to that possible exercise in the future, and they have no complaint; they have no case for com- pensation in the event that Congress does exercise that power of regulating commerce to the extent of adopting a national system of incorporation. So that our view is that Congress can pass a law forbidding any railroad company, after a date to be fixed by Congress, to engage in interstate and foreign commerce unless it has taken out a license under the National Government, or unless it has taken out a charter under the National Govern- ment, and when that is done the stockholders of that cor- poration may meet and by a majority, not by a unanimous, but by a majority vote, bind everybody in it, bind the minority to a system of national incorporation, because that is one of the purposes which they went into business for, to do an interstate commerce business. That is the other method of doing it, and we think, there- fore, that there will be no difficulty about the matter, and that there will be no right on the part of anybody to object. But we do think this, we think that every right that has at- tached in that property, whether it be the right of creditor or right of a stockholder, must be preserved against the as- sets that pass into the national incorporation ; that they must stand when they get there just as they stood in the corpora- tion of the State. It is not a legitimate method of regulation to affect their rights inter sese, or their rights as to the corpus of the property, but as to the management of the property, as to the form in which it stands, that is a matter which is fully within the regulating power of Congfess, and that when Congress preserves their contract rights in regard to 136 the assets of the company, they have guarded, that is Con- gress has g-uarded, every constitutional right of the creditor or the security holder, and still retains unimpaired its power to regulate and direct the instrument of interstate commerce in its business in commercial operation. Now, the other class of people, to whom I referred as hav- ing an interest, is the public, and the problem is merely be- fore you gentlemen to determine whether the public interest requires this action. You may say it does, or you may say that it does not. That is for you to say. But if you say it does, we are absolutely convinced that there is no constitu- tional obstacle in your way, that neither the State nor any of the security holders occupy any position that can in any way impede you in the full exercise of your power of regu- lating commerce. The Chairman : Do you think that the consent of the State is required as to the acquisition and absorption of the prop- erty and powers and functions of a State corporation by a national incorporation organized under the national law? Mr. Thom : No, sir. You do not transfer to the national incorporation any franchise granted by the State. You might confer upon the State corporation — I mean upon the na- tional corporation — every franchise that the State has con- ferred upon it, but it will be your gift then and not the State's. The source of its franchise then is Congress, not the State. You would only acquire the physical property. You acauire none of the ris;hts granted by the States, you would only acquire the physical property. It is inconceivable that Congress can be charged with the duty of regulating and assuring that there shall be such a thing as interstate commerce unless it can enter upon the territory of the State and acquire the means of doing it, and it has been held that Congress can do that through the exer- cise of the right of eminent domain. The Supreme Court has decided that, even if the property did not belong to the railroads ; even if it belonged to a citizen of the State, Con- 137 gress can go into one of the courts of that State and can have the property of an individual citizen condemned in order to create a system of interstate commerce. Now, when the whole property has gone into an indi- vidual company, and ceases to be the property of a State corporation, and that company has acquired it for the purpose of devoting it to interstate commerce, and subject to regulation of Congress, then, of course, there can be no doubt of the power to transfer it to a better system of regula- tion and to a more extensive system of regulation than that which existed at the time that property was acquired. The Chairman: I take it, then, that you think a system of holding companies, organized under national law, would not meet the requirements of the situation? Mr. Thom : I do not think it would at all. I feel that that would lead to some diversified situation of conflicting, or accu- mulated necessity for corporate action which will retain all the complexities of the present situation, and that the whole thing can be simplified and unified by making one national corporation of the railroad system and letting that corpora- tion own the physical property and be charged with the direct obligation to the country for its proper operation. The Chairman: Assuming that the national system of incorporation of railroads is adopted, what, in your judg- ment, would be the application of the police law of the various States to railroads owned by such national corporations? For instance, with reference to the gradings and crossings of railroads, with reference to the use of separate cars in the Southern States by the blacks- — would the local police laws apply to such national instrumentalities? Mr. Thom : My view — or perhaps our view, I may say — is that the police powers of the State ought to be affected to the least possible extent consistent with an efficient regula- tion of commerce. The people of this country value local government. It is a natural and it is a proper view. Men have always wanted their government near enough to their 138 homes to let the government understand the spirit of their civilization. Those police powers ought not to be affected in any way except under the compulsion of finding that any one police power is inconsistent with the national object which Congress has in view. Now, talce this matter of taxation. Of course, if there were government ownership there should be nothing but national government ownership. There has been no suggestion any- where that the States should own these roads ; if the govern- ment ownership should come there is a general concurrence in the xiew that the only governmental agency at all is the United States. Of course, that is a recognition of the funda- mental of interstate commerce; that it has national aspects and necessities which cannot be dealt with locally. No State's rights man, no matter how deeply imbued he may be with that governmental philosophy, would for an instant think that any State should own these agencies of national commerce. All must concede that the United States Gov- ernment must own them, if any government owns them, and that that conclusion comes out of the very nature of the business itself. It is national in its aspects. I say that all the contention for government ownership, therefore, recog- nizes the fundamentals of the plea that we are making for national regulation. Now, if there was that system of national ownership of course that would take away from the States the right of taxation. It seems to us that in any system of national in- corporation there should be a provision leaving to the States the right to tax all railroad property within their respective borders to the full extent that it would tax any other prop- erty there. I suppose the right of taxation is in the nature of a police power. Then we go to the other police powers. We think that Congress ought to start a system of regulation by putting on the State side of the line of the division be- tween the national authority and State authority all those matters where there is a possibility, or I should say a prob- 139 ibility of the power being exercised in a way not to inter- fere with the national purpose of regulating commerce. The philosophy of this all would be, of course, to take his matter of grade crossings, and matters of that kind, as aossibly affecting in a large way the instrumentality of commerce, and have them controlled by the National Gov- ernment. But we do not think that it ought to be taken for granted that this is yet necessary. We think that ought to be left to the State until such time as it is demonstrated that the State policy interferes with the general policies Congress has in view. We think that ought to be left to the State. We think, also, in the matter to which you specially alluded, the matter of separate cars to separate the races, where, in any one section of the country, there are suscepti- bilities on that subject which do not exist in others, we think those matters ought to be respected ; and where there is any ralid law of the State controlling that matter, we think bhat law ought to be left undisturbed by an act of Congress. There ought to be, in our judgment, the powers taken over t>y Congress which Congress can now see are essential to the successful operation of interstate commerce, and of a complete guarantee to the public of the efficiency of their commercial facilities. But nothing else, no other matter — [ will not say right — ^but no other matter ought to be dis- turbed until it shall come to appear that the power, which is left where it is now, is being exercised in a way to affect idversely the pubUc interests. The matter of State rates, I have attempted to show you, is a matter which now is undoubtedly burdening the various States. The action of one State is undoubtedly burdening he commerce of another State, and is undoubtedly burden- :ng interstate commerce. We think that undoubtedly ought X) be taken hold of, because you cannot divide these in- itrumentalities and let some essential fiinction of them be •egulated by one system of government, and other essentia] 140 functions of them be regulated by other systems of govern- ment, and, at the same time, preserve the equahty that ought to exist betveeen them, and ought to exist between the commercial affairs of the country. We think, also, there ought to be taken such matters as the 'equipment of trains which run unbroken across the continent, or half across the continent. We think there ought to be no necessity for stopping at State lines and changing the equipment, but, broadly speaking, our con- tention is that wherever there is a matter, whether even ad- mittedly within the power of Congress, which can be, and probably will be, exercised by the States, without a disad- vantage to the instrument of interstate commerce, and its efficiency in the public service, it ought to be left to the States. The Chaiematst: Upon the subject of taxation, you re- ferred to the fact that if the roads were owned by the Govern- ment there would be no taxation, of course, and that if they are to be nationally incorporated, we will all agree they must, of course, contribute to the expenses of the State, and municipal government, and to the National Govern- ment. Do you .find' that there is much variance in the laws of the various States with reference to the taxation of rail- roads? Mr. Thom : Yes ; we find a great difference, and a great difference in the tax burden of the States. The Chairman : Do you find that variance as to law and variance as to the amount of burden imposes any difficulty as to the negotiation of securities at low rates of interest? Mr. Thom: I am not able to say that I do. I think there are great inequalities between the various States with respect to the imposition of the tax burdens; that thereby the State that imposes the greatest burden is taking an undue part of the revenues of the company for its own pur- poses, and is putting — theoretically at least, and it would all depend on the amount of the tax — a burden on the other 141 States. That money has got to be made up somewhere. That IS one of the things that must be taken into consider- ation when rates are fixed, and the State that imposes the largest tax, in proportion to some other State, to that extent increases that burden and adds to the aggregate expense. Notwithstanding that, in striking a balance between the public interest on the one hand, and having a consistent and efficient system of transportation, necessary at all times for its purposes, and the interest of the public not to see sources of State revenue impaired unnecessarily, I believe that for the present at least — and I think it will prove to be so for all the future — that this power of taxation should be left with the States, to be imposed on this class of property in the same way it imposes, and to the same extent it imposes, taxation on other property belonging to the people in that State. Great debts have grown up in municipalities and in States, based upon all the assets in the State, and, among them, railroad assets. I do not believei that it would be accepted as a fair consideration for those conditions if Congress were just to take -away from the States this power of taxation on any very considerable part of the assejts. No matter if it had the power, I do not believe that it would be accepted as a fair consideration for those local conditions for Congress to do that. The Chairmak: You are aware, as to national bank cor- porations, the national law fixed a rule for their taxation, are you not? Mr. Thom : Yes, sir. The Chairman: In the incorporation bill which I framed, I inserted a provision regarding taxation, providing that the stocks and bonds of corporations should be exempt from taxation, as being merely interests in the property of the corporation, but that the physical property of the cor- poration itself, within the boundaries of a State, should be assessed axid taxed under the laws of that State. What do you think of such a rule of taxation ? 141i Mr. Thom : My own belief in the system of taxation is that you ought to tax the property. Now, the stock in a corporation is nothing more than the certificate of the owner- ship of the holder in the corporation. Here is a corpora- tion with 100 shares of stock. A person owns one share of that stock. That means that he owns a one-hundredth in- terest in that corporation. Now, I do not see how that differs from the man who .holdsi a deed to his farm. The title of the owner of the farm is his deed. To tax both the , farm and the deed would be double taxation. To tax both the property of the railroad and the stock is double taxar tion, for the reason that. I have just narrated. The certifi- cate of stock stands in the place of the deed of the owner of the farm, as a muniment of his title. When we get to taxation of bonds, we get into a very difficult situation, not difficult in itself, having no inherent qualities of difficulty, but difficult because there has grown up in this country such an immense accumulation of public debt that you have got to look everywhere for sources of taxation, and to mthdraw, all of a sudden, the entire bonded indebtedness of the coun- try, as a source of taxation, would greatly disturb an in- tensely practical situation. I think that ought to be done, myself, on any legitimate basis, but I do not. think that is a practical thing to do. I do not think it^ is possible to do it. The Chairman : Does not the bond also represent an in- terest in the property, just as the stock does? Mr. Thom : In reality it is a debt that the property owes. It is not a part of the title of the property, (secured by a mortgage, it is true), but it is a lien, and is not an interest in it. It is secured by the property, but not an interest in it. The Chairman : If you tax the full value of the property, or assess, rather, the full value of the property, and then as- sess the full value of the bonds and the stocks, is not that double taxation ? Mr. Thom: Yes, sir; but that, of course, assumes, as it 143 is generally true, that the proceeds of the bond had gone into the property and the stock. The Chairman: You dwelt upon the importance, in the public interest, of so regulating our railway systems as to «nable them always to obtain sufficient capital for develop- ment and extensions at. reasonable rates of interest. Now, from that point of view, does not the taxing system of a particular State affect the negotiability of bonds and stocks? Mr. Thom: Undoubtedly. The Chairman: — at reasonable rates of interest? Mr. Thom : Undoubtedly. Before I came to Washing- ton, in the community where I lived in Virginia, the rate •of taxation on what is known as intangible property was so high that there was not anybody in the city that could afiford to own a bond. You could get a bond then, when I came here, at a low rate — it was a period of low interest — and it was generally the case that bonds could be issued at four per cent, but the rate of taxation on that bond was over two. So, of course, there could not be anything like the ownership of a bond there, and you have got there a real difficulty. The Chairman: The investing public was limited? Mr. Thom : The whole credit of that community was ex- cluded from the purchase of bonds. There is not any way of getting any credit in that community for the support of the bond issue of a railroad, but that same State did this in its recent constitution; there is a provision in the con- stitution of Virginia that where the property of a company is in that State and chartered by that State and is taxed, that the stock shall not be taxed, and that resulted in a great deal of the funds of the dependent people, children, cestui que trusts of various sorts, being put in the stocks of the Virginia railroads, and the event showed that a good many of them stopped paying dividends pretty soon and all that class were stranded so far as any income of that, investment went. The Chairman: What was the case with reference to bonds in Virginia? Mr. Thom: There is no such provision in the constitu- tion of Virginia in respect to bonds. The Chairman: Then take a 4 per cent bond, subject to a tax, you say in Virginia of 2 pey cent? Mr. Thom : They have changed that now somewhat. That was the fact then? The Chairman: Would such bonds, subject to such a tax, find a market in the State of A^'irginia? Mr. Thom: No, not unless the purchasers were good dodgers. The Chairman : How would you view them with a view to securing in the public interest money for the stocks and bonds of corporations at the lowest rate of interest, or dividends, an exemption of stock and bond issues of rail- ways from taxation? Mr. Thom: I believe it would be greatly to the public interest, but whether the public is ready for that or not I do not know, but I would think it was immensely in the public interest. The Chairman: Would you question the power of the National Government to do that? Mr. Thom : Not at all. The Chairman : Assuming that in the gradual develop- ment of the railway systems of the country we will arrive ultimately at Government ownership, would you regard the national incorporation of railways under great systems as a step facilitating that result? Mr. Thom: Recent events have very largely increased among railroad managers the advocacy of Government ' ownership. I suppose I am an altruist in a great many ways and my view as to the effect upon our national institutions is so pronounced that I would deplore the idea of Govern- ment owne,rship if we are to have free institutions in this country. Mr. Adamson: I do not believe Mr. Thom exactly under- 145 stood the question of the Chairman. I understood the ques- tion to be whether Federal incorporation would lead to Government ownership. Mr. Thom : I am coming to that. Mr. Adamson : Whether it would facilitate it. Mr. Thom: I heard the question. Federal incorporation would not in any sense be an impediment in carrying out any plan of national ownership. The method of acquiring these properties, however, by the Government is so easy in case it has got the money to pay for them, that I do not think it is necessary to facilitate it by a system of Federal incorporation. My views in regard to Federal incorporation are in no way influenced by the idea that it would facihtate public ownership, or that it is desirable to facilitate public ownership, and on that I am speaking my view, not the views of the railroads, because some of the railroads are getting very anxious for Government ownership. The Chairman : Regarding the dividends of corporations, I understood you to say that the general concensus of rail- way men was that shares could be negotiated at par and held at par if provision were made for 6 per cent dividend and 3 per cent for a surplus, applicable to lean years, to extensions and development of the roads, and so forth. Would you deem it wise to put in the incorporation act a limitation of dividends, or a provision for dividends of not exceeding 6 per cent, with a provision for this surplus? Mr. Thom: Before answering that question may I add something to my previous answer in order to avoid mis- understanding? The Chairman : Certainly. Mr. Thom: I do not want to be understood in anything I have said as indicating that the railroad view is in favor of Government ownership. It is not. I merely meant to say that there were some people who had come to that view, therefore I preferred merely to express my own views in- stead of undertaking to express a great many people's views. I think the view of the railroads is adverse to that. lOw 140 Now as to the question which you present, Mr. Chairman, in regard to the limit on dividends. I do not think you can hmit the maximum of dividends unless you limit the minimum of dividends. If the Government is prepared to guarantee dividends on stocks of a certain amount then 1 think you can limit the maximum, but if you are going to leave open the possibility of losses of all dividends, I think you are going to withdraw a very great attraction from this class of investment if you limit the dividends that may be legitimately earned. I cannot conceive of an inducement to anybody to put in money in an enterprise which leaves him free to lose everything and says that he cannot gain any more than a certain percentage in that, when that per- centage is the thing that he can get much more readily from some other source of investment, and where he may get a great deal more. I would rather loan money on a farm mortgage at 6 per cent than to put money in a railroad where I might lose everything and could never get more than 6 per cent. I referred a day of two ago to one class of investors, which modern conditions have repelled from railroad investment, and that is the class that is willing to risk its investment for the sake of a chance of handsome returns. You must realize that that is the class of people that built the railroads of this country. Whatever may be the criticism on what is called watered stock and high finance, and all that sort of thing, the methods of the man that was willing to adventure his means has given to the American people 250,000 miles of railroad. The way the railroads of this country were built was this: A certain number of bonds were issued to the people who built a railroad, and with them was given a bonus of stock. Now it was supposed that those bonds, which representedi^ the input of money, would represent the ordinary com- ' mercial return. The bonus of stock represented the hope of the projectors ; it represented what they mi^t anticipate 147 that if their enterprise was successful would come to them in unusual returns. That is what is known as watered stock. That was the bait, that was the attraction which aroused the individuals in this country and abroad to build American railways, ' and notwithstanding all of the criticism that we hear made of that we must realize that out of it has come our commercial opportunities. You can never take awa^ your railroads. They are here, they are the servants of the people, and you got them in that way and got them under laws permitting that. Now if you are not only going into that question of feel- ing bitterly denunciatory of that system, but are also going to say that no man who puts his money in a railroad here- after can expect to earn more than 6 per cent, and he may lose it all, you are going to separate from the production of the facilities of commerce all the class of men who want to make an investment in th« spirit of adventure knd take the chance of getting their handsome return. You will cut down very largely your investing public. And if I am right in thinking that the chief interest of the American public is in facilities, I think a limitation of dividends would have a very disastrous effect upon the as- surance of such facilities. Now, we all know that there are very few railroads that pay more than the figure you have mentioned, Mr. Chairman, six per cent, but there is no legal inhibition to its being, more, and the adoption of a govern- mental policy of limiting the amount of dividend to what can be gotten, almost on any investment, without guarantee- ing a return of at least a certain amount would, in my judgr ment, make the railroad investment field a very unattractive one. The Chairman : Mr. Thom, in your opening statement you referred to the growing indisposition of the public to invest in railway securities, either bonds or shares. Was that mani- fested before the commencement of the European war? Mr. Thom: I believe, Mr. Chairman — I am not able to verify this statement I am about to make — 1 believe when you look at the course of investments of savings banks that you will find a decline in their investments in railroad bonds to begin with the realization that the people were made to have — I mean the investment public was made to have by the first decision against an advance in rates, that there was no longer any control on the part of the investors of the revenues of the company. I think that the realization, which has now become general on the part of the public, that there is no control in the investor of how much his revenues are 'going to be, or how much the expenses are going to be, has been the thing that has alienated the public from railroad investment. T would say that decision I refer to was before the European war. Certainly, we find it the case that there is a pronounced indisposition to i nvest in railroad securities, and when we study the situation, we find the conditions all the time approaching the exhajustion of the margin between the existing liens and the sum of the assets of the company; so that the American people are confronted with the consid- eration of that margin. You are not interested in whether anybody wants to buy a bond on the market, the bond of a railroad, or whether they want to buy a bond of a steel com- pany, unless it means something else, but you are interested, and profoundly interested, in watching that margin between the amount of the liens on a property, evidenced by fixed charges, and the value of the assets, and that is seen grad- ually but surely decreasing, and what is left all the time measures the ability of the carriers to keep on producing facilities that are required by Congress. You must be pro- foundly interested in knowing that progress. That is what is going on today. The Chairman : But do you not think that the throwing of foreign-held shares and bonds of Ajnerican railway com- panies upon our markets, caused by the European war, has absorbed the surplus money of the country, available for in- vestment, to the exclusion of the capacity to absorb new securi- ties? In other words, have not the old securities of these 149 companies, held abroad, taken the place in the markets of the United States for investment that might have been taken by new securities if it had not been for that war? Mr. Thom: Undoubtedly, that has had a very marked tendency and a very large influence in producing the condi- tions, because just in so far as prior liens and the most de- sirable classes of stock are offered the American public they, of course, are disinclined to take inferior liens, which would mean the new offerings, and they have preferred the best classes of securities, but that has not absorbed the funds in America that are available for investment. We do not see any confinement of present investments to railroad securi- ties. On the contrary, there is abundant capital in this coun- try — overflowing capital in this country to seek another avenue to invest. Take the steel companies ; the copper com- panies ; municipalities of various classes ; securities that might be mentioned, and there are untold millions pouring into them today. Cotton, 25 cents a pound; copper, 35 cents a pound; steel, many dollars a ton advance, and that is where the American investment is going. You see it every day. The Chairman : You are aware that this country has been compelled to absorb nearly three billion dollars' worth of American railroad securities, since the European war. Mr. Thom: And to that extent the forces that you have alluded to have been operating, but I mean to say that there are tremendous classes of investment, outside of railroads, that are now being preferred by the American public. Take these copper stocks ; they pay you about 12 per cent, and steel stock, way up — the returns way up above anything you can get from any railroads, and they can advance the prices of their prod- ucts when they see flt. The railroads cannot advance their prices. The Chairman: Mr. Thom, I want to question you re- garding the traffic divisions of the United States. How many ■ are there? There is what is known as Official Classification territory , which takes in Trunk Line Association territory and the Central Freight Association territory. By that I know you 150 gentlemen understand that freight-^subject to freight com- modities and the classes — is differently classified in different sections of the country; one in the Southern Classification territory, another in the Official Classification territory and the third is the Western Classification territory. The Chairman : Would it be your idea to have a regional commission in each one of these traffic areas? Mr. Thom : More than that. I think Congress should study the transportation systems of the country, and should make more than one for each of these sections, but that the di- vision should be on lines of transportation, rather than geo- graphically. For example, I should suppose — just for ex- ample I suppose that a region could probably be made out of the northern transcontinental lines running from the Mis- sissippi Eiver to the Pacific Coast, such as the Northern Pacific and the Great Northern, the Burlington and some of those roads, and that it would be appropriate to have another classification territory between that — I mean another region between the southern boundaries of that and the Gulf of Mexico, and perhaps more still. I think whatever is neces- sary in order to bring the administration of this system into local territory, ought to be afforded in the division of the country into regions. The CHAiRjrAN : Have the railroad executives or managers any definite suggestion to make regarding the boundaries of these traffic areas or regions involved? Mr. Thom : They have not any definite suggestion to make at this time. Of course, their opinion on the subject would be open to use by your committee at any time you may desire it. They have not formulated any plan. The Chairman: Mr. Adamson, do you desire to ask any questions? Mr. Adamson; I would like to have the hour after one o'clock. You are doing so well that I think you could oc- cupy the balance of that time. The Ch.'\irj[an: I am through, so far as I am concerned. 151 I would like, when questions are handed around the com- mittee again, to question Mr. Thorn after he has examined the material that I submitted this morning. Mr. Adamson : Is it your purpose to adjourn at one o'cloct or half past one? The Chairman : That is for the pleasure of the committee. Would you prefer to wait? Mr. Adamson: If I can think of anything appropriate to ask Mr. Thom I would like perhaps to complete my inter- rogatories at one sitting. However, I will go on now, if it is desired. The Chairman: Shall we pass you, for the present? Mr. Adamson : If you choose. The Chairman: You may proceed now, if you wish, or if you prefer, I wiU pass to the next member of the com- mittee. The next would be Senator Robinson. Senator Robinson: I do not care to ask any questions now. Mr. Adamson: I will not let you waste time. T will go on if no other gentleman wants to proceed, or if you are not ready to adjourn. The Chairman: You may consult your own pleasure, Mr. Adamson. Mr. Adamson: I never have any pleasure. I am for the people. If I get no pleasure out of that I waive it.' Mr. Thom, you have several times alluded to the constitution in your discourse, which is a kind of novelty of late days, for that to be alluded to. Mr. Thom : Oh, yes. Mr. Adamson: I presume the paragraph to which you allude is in the enumeration of the powers of Congress, in which I find, "To regulate commerce with foreign nations and among the several States and the Indian tribes." Mr. Thom : Yes sir. • Mr. Adamson: Can you tell me what particular business and things and movements that refers to? 152 Mr. Thom : I did not hear you, judge. Mr. Adamson : What particular persons and things and in- strumentalities does that refer to? Mr. Thom : I think it refers to all instrumentalities of in- terstate commerce. Mr. AiDAMSON: Does it not refer to anybody who trades across a line, or converses across a line or transfers people and property across a line, or does any business, or has any con- versation across a State line? Mr. Thom: In so far as relates to these cross-State line transactions, yes, sir. Mr. Adamson : That is what we are talking about? Mr. Thom : Yes, sir. Mr. Adamson : There are two kinds of people who do busi- ness, natural and artificial. Mr. Thom : Yes, sir. Mr. Adamson: You understand that this section of the Constitution is limited in its operation by any particular in- cident to the birth of a man or the organization of a local corporation? Mr. Thom : Not at all. Mr. Adamson : Do you not understand that regardless of whom a man's father and mother were, or what State char- ters the corporation, or what its terms and conditions are, that under this authority of the Constitution, when Congress acts it superadds or displaces anything in conflict with it and absolutely controls the persons, natural or artificial? Mr. Thom: It displaces whatever is in confiict with it and absolutely controls the subject with which it deals. Mr. Adamson: Then that section of the Constitution, if Congress should do its duty, seems plainly to control every person, natural or artificial, engaged in interstate commerce? Mr. Thom: In so far as they are engaged in interstate commerce. Mr. Adamson : Well, that is what we are talking about? . Mr. Thom : Yes, sir. 153 Mr. Adamson : Well, you have alluded to the police powers of the States. The police powers are those which it would be unconstitutional for Congress to interfere with, are they not? Mr. Thom : No sir ; the police powers can be police powers and Congress might interfere with them if it chose to exer- cise full power under that clause that you have just read. Mr. Adamson: If Congress does not see proper to do so, it may leave to the States any operation which the States de- sire to take, but when Congress does act as to the matters affecting inteMate commerce, the action of Congress sup- plants the other regulations entirely? Mr. Thom : "Well, there are some aspects of interstate com- merce that the State cannot do anyihing about at all even if Congress is silent. There are others where until Congress speaks the State may occupy the field, but when Congress speaks as to that class, any provision of the State law with respect to it disappears. Mr. Aj)AMSON : Are there any things done by a State within its own borders not affecting outsiders, or outside transactions, that it would be unconstitutional for Congress to prohibit or interfere witTi? ' Mr. Thom: Is there anything which a State has power to do? Mr. Adamson : Can do within its own borders, not affec1>- ing outsiders or outside territory, that Congress could not constitutionally prohibit or forbid? Mr. Thom : If I understand your question, I think there are a great many subjects, or things that a State may do which Congress cannot at all interfere with. Mr. Adamson : Well, if that be true, is a charter for a Fed- eral corporation any higher or more binding than an act of Congress direct? Mr. Thom : Not at all. Mr. Adamson : If a thing be unconstitutional, if enacted by an act of Congress, would it not be alike unconstitutional if attempted through the indirect method of a federal cor- poration which is the creature of that act of Congress? 154 Mr. Thom: Undoubtedly. Mr. Adamson : Well, I will pass to another proposition, I am satisfied with that. Now, you have described eloquently and ably and justly the rights which the States acquire which they do not al- ready have, in return for those which were surrendered in the formation of the Constitution. Those rights, as I understand you — and I agree with you as I understand it myself — are the rights of any person in a State to trade, travel, and traffic in any other State in the United States. Mr. Thom : You mean that is one of them? Mr. Adamson : I say that is one of them. You beautifully and eloquently describe that. Mr. Thom : That is one of them. Mr. Adamson : My point is, as I understood you it is a State right acquired at that time — they may have had some of them before — ^but it is a State right to trade, converse, or travel anywhere in the area of the United States? Mr. Thom: Absolutely, freely. Mr. Adamson : Well, that being true the right of the local CQmmunities, which are commonly called States, to charter corporations which may do business anywhere in the States, is a State matter and not a national right, is it not? Mr. Thom : No sir, I do not think so. Mr. Adamson: You do not think it is a State right? Mr. Thom : It is a right to do that until Congress shall act on the subject, if that is what you mean. Mr. Adamson: But you say that one of the rights which they acquired was the right to converse and travel anywhere in the United States? Mr. Thom : Yes sir. Mr. Adamson: Now you say that right which they ac- quire is limited by the pleasure of Congress in the) future? Mr. Thom: No, sir; I think you misunderstood me. I said that they have a right to travel and to trade under such regulations as Congress may prescribe under the clause T have mentioned. 155 Mr. Adamson: Then your beautiful argument about the State rights acquired under the Constitution, loses some o'f its value and force, does it not? Mr. Thom: Not to my mind. My argument was that each State acquired the right, by entering the Union, to have its trade free from any embarrassment and from any regulation except as prescribed by the impartial authority of Congress, which represents all the States. Mr. Adamson : I understand that, but it is free so far as the action of any other State is concerned? Mr. Thom : It ought to be, but is not now. Mr. Adamson: It has the right to trade and traffic in any State, but it is subject to regulation by Congress? Mr. Thom: Undoubtedly. Mr. Adamson: That is, reasonable regulation? Mr. Thom : Undoubtedly. Mr. Adamson : What is that right? Is that a State right or a national right? Mr. Thom : I think it is the right of a State to invoke at any time it pleases Mr. Adamson : Then it is not a right Mr. Thom : Willi you please let me finish my answer to your question — at any time it pleases the benefit of its con- stitutional protection. Now, suppose that the State of Georgia were invaded. I think it is the right of the State of Georgia to ask of the United States to send its armies there and repel that invasion. I think if the National Gov- ernment should undertake to say that every other State in the Union should have a post-office system, but that it should not extend to Georgia, that Georgia would have the right to have that poslroffice system extended. I think if the State of Alabama were to attempt to do something pr&- judicial to Georgia's commerce — the right to trade in Ala- bama — that Georgia would have a right to invoke the clause of the Constitution which gives the entire power of regulat- ing commerce to Congress, and not to the State of Alabama. 156 Mr. Adamson : Well, whether any State ever enjoys the right to efficiently acquire it or not, it did acquire State rights. Mr. Thom: I think it acquired an immense State right. I do not think they would have gone into the Union un- less they thought they would acquire State rights. Mr. Adamson: If that be true, and I think it is, then the conversation that you and Secretary Olney indulged in the other day, when you read his letter, is a little inac- curate to denominate these present lines of traffic national railroads, is it not? Mr. TiioM : That was his nomenclature, which he ex- plained was a short way of expressing an interstate and . foreign railroad, but he did not want to repeat that every time. He said he would call them national. Mr. Adamson: Transition seems to be easy sometimef": the use of one term or the other, according to your doctrine and mine ; it always leads the other way. Mr. Thom : Judge, I do not feel any hostility to the National Government. I believe a nation occupies a ground of usefulness to the State which could not be occupied in any other way. I believe there should be no jealousy to- ward-those powers. I believe they are just as important to Virginia, my State, and Georgia, your State, in the field which the nation occupies as are the rights reserved by those States. Mr. Adamson: It has become fashionable, Mr. Thom, when the Constitution is talked about, for that term to be given to it. If a man talks about local authority and local rights, some men sneer and the States talk about State rights. If he gets to talking about the Constitution as being dual and wants the Government in all its grandness and greatness and national power to do what the Constitution says for it to do, and tte States in their inherent right ac- quire rights to do the part the Constitution says for them to do, people come and talk about hostility, the one to the 157 other. All lawyers know that this Government is dual, that part of its functions are to be discharged by Congress — the general public — and the other is by the States; and there is 'no use of anybody — and we had just as well let that go out of fashion — to talk about one being hostile to the other. What we want to do, either here or elsewhere, is to do something that is constitutional. Mr. Thom : Undoubtedly, and I do not think there ought to be any jealousy on the part of the National Congress toward what are commonly known as the rights of States. They are just as sacred, they ai-e just as important and they are absolutely essential to the due balance of powers in our system of democratic government. But T do not think there is any danger of the National Government trying to invade any rights of States wherever there has been an ex- tension of national power within the last thirty years. My belief is that the demand for it has come up from the States, from localities. Mr. Adamson: Mr. Thom, the question is now mooted. For a long time it was regarded as certain that within the confines of a State the State authority could absolutely fix rates and practices between points within that State, having no relation, or not traveling or being shipped into any other State. I understand it is now contended that if the rights and practices are favorable, or less favorable than similar rates and practices in a neighboring State, that they may be held to be a violation of interstate commerce, and imay be regulated. Mr. Thom : I think the line of demarkation is this Mr. Adamson: I am not going to require you to state what your or my opinion is about it. What I was getting at is this, regardless of what the truth of it is, regardless of which is right, it is mooted, and I want to see if I can de- velop in your legal opinion, for 'which I have great admira- tion, the principal change by national incorporation, if two lines of road within your State parallel each other, as be- tween Richmond and Danville, or between Norfolk and Danville, and one is charged by Federal authority and one by State authority as to -the things which they should do between those points, both in the sarrie State, as to the rates and practices and the treatment of the public — I want to know if they both would not be required to act just alike, regardless of where the charter ca.me from. Mr. Thom : Undoubtedly. Now, I want, if you will per- mit me, to say that the line of demarcation between what the nation — or the United States, if the word nation is not liked — what the United States ought to do in the matter of regulating commerce, and what it ought not to do, is determined by whether or not what the State undertakes to do. has an extra-territorial effect. If what the State attempts to do is to influence a situation in another State, or influence interstate commerce, then the State ought not to want to do it, because her sister State may come along and do the same thing. Mr. Adamson: Well, my question to you is, would not an order from the Interstate Commerce Commission or from the courts of the country, have exactly the same force and effect upon the corporation doing that, regardless of where its charter was? Mr. Thom: Undoubtedly that is so, but the order the Interstate Commerce Commission may issue is limited by the statutes of the United States. They cannot go beyond the statutes. Mr. Adamson : But we can change that statute without changing the incorporation laws? Mr. Thom: Undoubtedly, and I have never contended you could not. I have never* contended that it was neces- sary, as a measure of putting into effect the law, that you had to change the incorporation law. You can extend' the power of interstate commerce control over the local rates in the States without incorporation Mr. jVdamson : Well, then, ip not this a possibility— I do 159 not mean to say that exactly, either — but is it not a pos- sibility that while it is admittedly possible that the Inter- state Commerce Commission, under authority of Congress, or the power of Congress to regulate all State corporations,- that it might be possible, under a Federal corporation, to prevent the State from doing some of those things which they have a right to do now? Mr. Thom : I do not think it is possible to do that under a well-balanced law of Congress, because I think the law will expressly reserve to the State all those things that Con- gress feels it ought to have, and, Congress represents the States, you know. Mr. Adamson: It has been generally accepted that the power of Congress to regulate these matters rests upon the clause of the Constitution giving the Federal Government power to regulate commerce, and it has been said that the power of the Federal Government in that respect has gradu- ally grown, but I have never understood exactly what was meant until I came to Congre^ and went to consider the commerce clause of the Constitution, and my own judgment is if this republic is ever sent to the bad, it is more likely to occur through the commerce clause of the Constitution than any other. If Congress may control everything in connec- tion with the police powers of the States, and then itself prescribe practically what those police limitations are. Con- gress being always in session with power to change the law, it may grow and grow and grow until the idea will become prevalent — and it seems to have become quite prevalent among the railroad executives now — that consolidation of power is what we should have. Mr. Thom: Judge, I do not think there is a student of public afiFairs who can fail to know, that the very dif- ficulty now that is becoming a large difficulty is coming just in the opposite direction. We had, at one time, cer- tain influences that were operating to nationalize this coun- try. In the first place we had slavery. There was one sec- 160 tion of the country that approved of it; there was another section of the country that disapproved of it. Mr. Adamson: There was a good tim_e to mention Georgia again. She was opposed to slavery and liquor at the time the Constitution was adopted. Mr. Thom: There was another section of the country opposed to it, and that issue was so great as to make one party opposed to the extension of the national rights and the other party in favor of it. In other words, there was then the States' rights party and the national party. Then we came along, at that same time, to the tariff question. There were certain agricultural States that believed in free trade. There were certain manufacturing States that wanted a tariff. The one party wanted to preserve free trade through the power of the States, and the other party wanted to ex- tend a protective system to the power of the nation, and there was an influence in favor of nationalization. Then we came along to the period of reconstruction. There were, at that time, certain States that wanted to limit the power of the nation in respect to reconstruction. There was another party that wanted to insist on a large delegar tion and application of the national power, and that made a national issue. Now, all those things have disappeared.* The South, which generally was on the other side, has got- ten manufacturing interests, and its real view is divided on the question of the tarifif, like any other section of the coun- try, and with the disappearance of those issues, which have divided the country on the lines I have mentioned, it is now a fact that local conditions elect a man in Massachusetts, just like local conditions elect a man in Georgia, and every man in public life has reference now to his local conditions rather than to national conditions, in considering the forces which must keep him in public life or put him out of pub- lic life, and therefore, today, the influences in Massachusetts for local power are just as operative as they are in Virginia or in Georgia, and the result has been, instead of having a 161 division between the people that are nationalists, and peo- ple that are not, in this country, we have now the common judgment of the country, divided on whether or not they can best use the national power to do what they want to do, or the State power to do what they want to do. If they think they can use the national power to get a child-labor law, they will use that instead of the State law. If they think they can use the national power to get universal pro- hibition, they will use that. In other words, there is no philosophical division of the States in this country any longer between those who believe in national power and those who do not believe in national power. It is a mere question now which they can use to better advantage, and our country down yonder will as soon lay hold of the na- tional power to carry out an object which they think they can acquire better in that way, and extend the national construction of the constitution in order to do that, as any other section of the country, and so the danger now is not from a division of the parties in respect to national issues, but there is an entire disregard of that school of interpreta- tion of the Constitution which divides parties on the one hand into federalists and the other side into States' rights people, and the question comes back, in every locality, "which can we use best, the National Government or the State Government, in order to attain our purpose," and no interpretation of an academic nature of the Constitution is allowed to stand in its way, and I believe that the tendencies of this day, instead of towards federalization and the vesting of power in the Federal Government, is just the other way. Mr. Adamson: It seems to have had a different eflfect, judging from the experience of the railroad executives. You remember, along when you say the Southern Railway leased you, we were trying to amend the old Act to Regu- late Commerce, and the representatives of the railway com- panies who appeared before us claimed that we were violat- ing the States' rights doctrine in reference to local control llw 162 and States' rights. We went ahead and legislated, but be- fore it was over, litigation had started in the various States, and the last contention made was that it was a Federal mat- ter and not a State matter. Now, you have said that they have all come to the belief that this is a matter of getting all the control of the trans- portation companies — the entire control of them — into the hands of the Federal Government. Mr. Thom : I did not quite say that. I said that in all features that would substantially affect their service to the public Mr. Adamson: My recollection is also that at that time they were opposed to arbitration. More recently they have come to the idea that the federal provision for arbitration should be extended Mr. Thom: You cannot at all criticise anybody Mr. Adamson : I am not criticising you. I am just gef^ ting the trend of historical and chronological events. Mr. Thom : I understand some members of Congress were in favor of arbitration a few years ago that do not believe in it now (laughter) . Mr. Adamson: I remember very well that in full accord with the railroad view at that time I helped defeat the Town- send Bill for compulsory arbitration. Mr. Thom : Did you vote for the Newlands Bill two years ago? Mr. Adamson: I do not remember. I was not a feroci- ous advocate of it. Mr. Thom, you are familiar with the efforts we have made to regulate stocks and bonds? Mr. Thom : Yes sir. Mr. Adamson : The House passed the Eayburn Bill once and sent it to the Senate, and we have reported it from our committee again and have it on the calendar. Don't you think, with some amendments which you have thought about, if that bill became a law, that we could have an in- telligent control of the financing of corporations? 163 Mr. Thom : Judge, I attempted tO' develop in the remarks which I made, the difficulties -vyhich seem to me to be in- herent in that situation. I believe, in a very ample way, in the constitutional power of Congress to control that sub- ject. I argued that before your committee. Mr. Adamson: Yes; I know you did. 'Mr. Thom: And I argued it before every committee of Congress, and I have attempted to facilitate, in every way that my powers would permit, the adoption of a single sys- tem of Federal regulation of the issue of securities. I be- lieve that that law would have been absolutely constitutional. I cannot close my eyes, however, to the importance of hav- ing a law on that subject, not in the interests of the rail- roads alone, but in the far greater interest of the public, which will be universally accepted as constitutional, and in spite of men of the highest legal eminence who believe that such a system would not be accepted by the investing public until it is finally endorsed by the Supreme Court of the United States. Now, are we going to ignore that legal view? Can we safely do that? I know your constitutional views and mine agree on that subject. We both believe that the Federal power is ample to do this thing' we are talking about, but we are both under responsibilities which rest upon us, respectively, you to represent the great public in- terest in your official position, and I as responsible for the successful provision of means for the performance of the public duties which rest on the instrumentality with which I am connected and a part. We are both supremely in- terested in having a system of financing the railroads that will be universally accepted. I know this will not.be uni- versally accepted, and therefore, as a means of getting the thing which will be universally accepted, I believe that incorporation is a wise step on the part of the Federal Government.' Mr. Adamson: But not necessarily one? Mr. Thom : I do not think it is necessary. I have your 164 constitutional view on chat question, Judge Adamsou. Mr. Ad AM son: Mr. Thorn, your idea is that investors, looking at a bond signed by a Federal corporation, would at first blush, naturally regard it as more important, or more reliable, than a bond issued by a corporation under local authorities? Mr. Thom : That view has not specially impressed me. Mr. Adamson: He could understand it better? Mr. Thom : I have never seen any hesitation on the part of investors to unduly honor anything a State did about that. That is not my difficulty. My difficulty is, first, that we cannot possibly be subjected to the necessity of going to four or five authorities without losing time that is most val- uable and which is absolutely essential to our securities, first. Mr. Adamson: Is that the only difficulty? Mr. Thom: No, sir; I say, first. Now, second, I think moreover that if it comes to pass that the authority of the National Government, which is so created as to be exclusive of the necessity for any other approval, if that assumes to contravene some charter power of a State court; if it ex- ceeds the authority granted by the statute of the State in creating the corporation, that is a question raised as to the validity of the order of the Federal corporation, or of the Federal body, and therefore a question raised as to the valid- ity of the security issued, which will not be determined by the interested parties. Mr. Adamson: Is that true, although an act of Congress has said that that corporation shall be required to do it? Mr. Thom: It is true that there will be that difference of opinion about it? In my judgment, which is in accord with yours, I have no hesitation whatever in forming my opinion as to the way the Supreme Court will decide. Mr. Adamson : I know, but the investors you say Mr. Thom : The investors will wait until they have that question decided. Mr. Adamson : Although an act of Congress has author- ized it? 165 Mr. Thom: I think so. You will have a period! of un- certainty, a confusion of this most important matter where traffic is waiting for a supply of cars, and you can not get the money to furnish them until you go to the Supreme Court of the United States, and I do not think it is wise, when we have got a way of avoiding that for us to incur that difficulty. Mr. Adamson: The same argument of Federal control in order to prevent diversity and make uniformity it would seem to me would apply to all other transactions with equal force, would it not? For instance, I own a little land in some towns in my State and some in Senator Robinson's State — a very little — some in Senator Underwood's State, and the city, town, and county, in each State imposes a different rate of taxation, and all the three States differ in all these respects, and yet I have got to keep up with them. Mr. Thom : Yes, and that is your entirely private mat: ter, the public is not interested in it. Mr. Adamson: I know, in different States entirely, and the argument is that it ought to be made easier to attend to my business, and it looks to me like it ought to have some consideration. Mr. Thom: I do not think so, I am too much of a States right man to think that. I feel we have no standing here if we come to present our own private interests in this matter of financing. But if it is true, as I believe it to be true, that there is a tremendous public interest in our ca- pacity to adequately finance and to promptly finance in order that' we may get the means of furnishing the cars and tracks, and the yards and other facilities which you want for your three farms Mr. Adamson: Yes, and ought to have them. Mr. Thom : — -then it becomes a public interest and must . be considered from the standpoint of that public interest, and the thing that the public interest requires is a guarded system of supervising the issue of these securities so that 166 there may not be any improper exploiting of the credit of the companies, and that the method shall be a prompt and workable one so that the public needs will not have to wait because of unnecessary red tape. Mr. Adamson: I enjoyed your description of the growth of the Southern Railroad, with which I was familiar before you were ; I was with it when it started — not associated with it, but I am acquainted with it, and I have admired it all along, and I admire its liberality and its public spirit and all that perhaps above all other railroads. There are great systems in this country. And you described it so beauti- fully as growing up in harmony and happiness and pros- perity under the laws of eleven different States, the present system. Mr. Thom : I do not recognize my picture, Judge Adam- , son. Mr. Adamson : I want to ask you the advantages of the consolidation of that large number of roads, I want to ask you if the consolidation of all of them into one management reduces greatly the expenses of administration? Mr. Thom: Immensely. Mr. Adamson: Does it do that by dispensing with the services of men, officials, presidents and general managers and lawyers and train operators? Mr. Thom: Well, that is a very small part of it, -Judge. Mr. Adamson: Does it dispense with them? Mr. Thom: It extends executive authority over tremend- ous areas of lines, and in addition to that, however, it en- ables you to divide the operation of those properties into ap- propriate divisions where rolling stock will be safe, where locomotive power will be safe, where matters may be co- ordinated, where connections may be made, where yards can be simplified, and in the thousand and one other dif- ferent ways making the thing operate as one co-ordinated system? Mr. Adamson: Is it not true that sometimes in making 167 a division that a fat town or section may be coupled with a lean town or section and mate the whole division more profitable? ' Mr. Thom : Well, I have no such illustration in my mind. I do not know exactly to what you allude. Mr. Adamson: Is not that true that sometimes a di- vision is so constructed that one part of it, one part of the- railroad would not pay and one part of the railroad did pay, and that together they can be made to operate profit- ably? Mr. Thom : The history of almost every railroad in this country is that when started it did not pay, and that then when you got feeders they did not pay. Now if you take one of those feeders and consider merely its revenues, what it earns on its own line, it is a failure. But when you take that trafiic and send it under one ownership 5,000 miles over some other parts of the line owned by those people, the earning on all of them will justify the parent company in keeping up that feeder because of the revenues it gets on the balance of its line for the great haul it makes of that small contributor. Mr. Adamson : Then a hodge-podge of different lines and parts of lines will enable the contribution of those that do pay to help you run successfully those which would not by themselves pay? Mr. Thom: Yes, it does, for the feeder's contribution is not merely what it earns itself, but the contribution that its traSio makes over the whole long haul that is carried over the entire haul. Mr. Adamson : Of course it delivers business to you and you make a profit on the long haul? Mr. Thom : Yes, sir. Mr. Adamson : You have that advantage, and the advant- age that you economize by dispensing with men and officials, and what other advantages? Mr. Thom : And also you economize by consolidating the i«8 terminals, points of connection, and the more economical use of your rolling stock, they all go to make it a much cheaper method of operation? Mr. Adamson: You consolidate the railroads in eleven States, the process which you have described by which that was done was sometimes an insolvent railroad would go through the mill, and would be acquired, either through the mill or voluntarily. I suppose if lean times should come you would be able! to acquire other roads in the same way? Mr. Thom: The policy of a great inany roads in this country now has turned away from the policy of extension into the policy of intensive improvement of their facilities within the territory they already occupy. Some railroads have come to the conclusion that the extension of lines has gone as far in respect to that particular system as it ought to go, unless they have the means to fully develop the prop- erties that they have already acquired and make them thoroughly serviceable within the territorial limits that they already occupy. Now I know when Mr. Finley came into the presidency of the Southern Eailroad, that he deliber- ately adopted the policy of acquiring no new lines, but of improving the lines that he had already acquired, all the money he could raise he put into improving the lines within what was then known as the system. Mr. Adamson: If it is advantageous and profitable for everybody to consolidate railroads in eleven States, why would it not be advantageous and profitable to make still larger consolidations? Mr. Thom: Because it is always a question of wisdom and human endeavor involved, and a man has got to look at all the conditions that surround him and determine whether or not wisdom leads him in this direction or that. IVe- quently there is a mistake in the judgment, but at last it must be decided as a question of choice between two courses. One man will think that it is to the interest of the system to get into a certain market ; another man will think that it 169 is to the interest of the system to improve its methods and get to the market which it already reaches. That is a mat- ter of judgment. Mr. Adamson : If you were to consolidate with the Coast Line, the Air Line, the Chesapeake & Ohio, and the Nor- folk &1 Western, you still would not be much larger than the Pennsylvania system, would you? Mr. Thom : I have never compared those lines. Mr. Adamson : There are systems in the country a great deal larger than yours, are there not? Mr. Tbom : Yes, sir. Mr. Adamson: If you are going to take out a Federal charter under an act of Congress, would you take out one for each one of the" corporations you acquired, or would you take it out for your entire system? Mr. Thom: The system which I would adopt would re- quire each corporation that now exists to take out a Federal Charter, but I would also provide the machinery by which under the direction and with the permission of the Inter- state Commerce Commission they could consolidate. Mr. Adamson: Ultimately go into one? Mr. Thom: Ultimately go into one, just so far as the Interstate Commerce Commission approved. Mr. Adamson: If consolidation is desirable and capital is more easily enticed by a great Mr. Thom : Do not talk about enticing. Judge, we do not want to Mr. Adamson: Well, less repelled. Mr. Thom : Let us say attracted. Mr. Adamson: By one. strong Federal corporation, why have so many, why not have just one great big one? Mr. Thom: Because that is the only method you can pursue with convenience. What Congress would be obliged to say would be — you have got to take the situation as it is today and to say that no railroad corporation shall, after a day which Congress fixed to engage in interstate commerce 170 unless it takes out a charter under this act. Now you could not say, as a preliminary to taking out a charter under this act, you must find some way of consolidating before you take it out. You must say you must come in here and then when you come in here I will give you the facilities of con- solidation. Mr. Adamson : Do you propose to go into the policy by which the Federal Government would indulge in prohibi- tion, by which carriers would engage in interstate com- merce Mr. Thom : To that extent, yes. Mr. Adamson : Has., not our policy heretofore been to force them, primarily, all to make through routes, to have joint rates, before they go into business at all? Mr. Thom : This would be a very cogent invitation for them to continue. They are not going out of business. Some people have suggested as a method of doing this, the taxing power, taxing the corporation that stays outside, like they do the bank. We believe that the best method is to say, you shall not engage in interstate and foreign com- merce — that is, 85 per cent of your business — you shall not engage in that business unless you come in under Federal charter, and we have no fear whatever there would be any of them left out. Mr. Adamson : Then, if you did not do it, what would you do witii that gap? Mr. Thom: With that gap? Mr. Adamson: Yes. Mr. Thom : There will be no such gap, judge, but if there is, there will be found some other way of filling it out. In other words, let us find out how the gap would be made. Mr. Adamson : Would it not be a good, old, honest, plain way to start this thing, if you want Federal incorporation, | just for somebodywho wants to build a new railroad to apply • and get a Federal corporation and go ahead and build one, and show how it works ? 171 Mr. Thom : They did that many years ago. Mr. Adamson : I know, but you want to do it again. Mr. Thom : Why, that did not Solve the problem. Mr. Adamson: It obviates all of these troublesome ques- ons that you are talking about, how to take somebody ise's property and turn it over to a new corporation. Mr. Thom: It does not touch the problem. Here are- 50,000 miles of railroad in this country, in round numbers, 'hat is the problem you are dealing with primarily. Now, ou cannot deal with that problem — you cannot touch that iroblem — ^by saying hereafter, when there is a railroad, you. lust take a Federal charter. Mr. Adamson: Oh, yes, you can. You can forbid any iresent one to go in that wants to; but I will give you a^ ;ood suggestion. Mr. Thom : I will be glad to have it. Mr. Adamson : Suppose you started in north Georgia and' an down through western Georgia and eastern Alabama, to he Gulf, down about St. Andrew's Bay, where they need a aikoad — everybody along through the country — and take a Tederal charter an9 build that railroad. You can get money much easier on a Federal charter, and people have been' rymg for generations to g6t that country opened up, and sur- ■ounding railroads tell them there are railroads enough and' hey cannot get capital in it at all, and it is the best place [ know of in the world to try the attracting effect of a Federal' charter. Mr. Thom: Judge, my proposition Mr. Adamson: You will not have any of these questions- )f taking over the property of adjacent corporations. Mr. Thom : No, and you will not deal with your problem- jither. Mr. Adamson: Oh, yes. Mr. Thom: Now, my proposition is to deal with your aroblem by requiring that that company that you allude to- shall be a Federal corporation, because under our recom- 172 mendation there will be a necessity for its being a, Federal corporation and the machinery would be there for the pur- pose of enabling it to be a newly incorporated agency of commerce. Mr. Adamson : Is there anything in the way of your build- ing it now, under Federal charter? Mr. Thom : Yes, sir. Mr. Adamson: What is it? Mr. Thom : We have not got a statute. We can, of course, get one from Congress, maybe, but that is not the point with us. We have a problem already existing. Here are 250,000 miles of railroad with which you are primarily interested, That is your problem. You have got to strengthen and per- fect that for continued usefulness. You cannot say, "We will put that aside and wait until we see how the railroad from north Georgia to Alabama turns out." If it is a problem, why, you have got to deal with that. If it is not a problem^ there is no justification for your doing it. If I am mistaken in thinking that the country has a problem on its hands now, all of the contentions that I have made are ill founded. I think you have got a problem. I have attempted to show that you have got a problem as to the present 250,000 milej of road. Now, to suggest to me that that problem should be entirely ignored and we should attempt to deal with the situa- tion by operating under a Federal charter from north Georgia to Alabama, does not at all reach the question. ■ We have already tried that in a charter to the Union Pacific. We have tried-; Mr. Adamson : That was Government aid, was it not? Mr. Thom: Government charter. Mr. Adamson : The Government got behind it? Mr. Thom : No, sir ; they chartered it. Mr. Adamson : I know they did it. Mr. Thom : And they chartered the Texas & Pacific. We know what the history of this country has been in respect to individual roads under Federal charters, but that is not our 173 roblem. That is not the problem that we think exists, and, lerefore, we do not have to go back to a charter on new roads I know how Federal charters act. We have already dohe lat. Mr..AD4MSON: In talking to Senator Newlands — Mr. hairman Newlands — a few minutes ago you agreed with im on the proposition about the relation respectively be- reen bonds and stocks and physical property. I wanted to sk you if I understood you right, that bonds and stock stood )r the same thing, and, therefore, if one was taxed the other Light not to be? Mr. Thom : I was very careful to draw a distinction in hat I said to the chairman on that subject. Mr. Adamson : I misunderstood you, then. Now, if bonds lid fetock amount to the same thing, the stock is of no account ' the bonds are good. As I understand this, a railroad, like man, makes a debt, but he expects to earn profits enough Q the property to pay off the debt and still have the property. 0, is it not true that the man who holds the debt has good roperty if the debt is good, and the man who owns the stock as good property if the property is solvent, and it earns iiough to pay? Mr. Thom : Undoubtedly ; and nothing I have said to the hairman was contrary to that. Mr. Adamson : I must have misunderstood you. I thought ou agreed with him that they both ought not to be taxed ecause they represent the same thing. Mr. Thom: No, I made a distinction between the two lasses of property in what I said to the chairman. Mr. Adamson : Now, in relation to your method of acquir- ag these railroads from the present owners — it is about time J adjourn, though, and I will not go into that. TxTESDAY, November 28, 1916. The Joint Committee met at 10 :30 o'clock a. m., pursuant adjournment, Senator Francis G. Newlands presiding, ilso Vice Chairman William C. Adamson. 174 Present: Senators Robinson, Underwood, Cummins, and Brandegree; and Representatives Sims, Cullop, Esch, and Hamilton. Mr. Alfred P. Thom resumed the stand. The Chairman : The committee will come to order. Mr. Adamson: You may proceed with your interroga- ■tories. Mr. Adamson : Mr. Thom, before proceeding to the other subjects as to which I was about to interrogate you when we adjourned yesterday, I would like to ask you a little about -one phase of your testimony that I suppose was covered by the Shreveport case. I read a good many pages, and in fact several volumes about that. The courts and Commission seem to be playing hide and seek and bull frog and tumble about it. I want to ask you if there is any authority in the Constitution, apart from your conception of the commerce ■clause, that would authorize the Federal Government to go inside a State and raise a rate between two intrastate points? Mr. Thom : There is the clause of the Constitution forbid- ding any discrimination between ports, which might do it in some cases — it might have that effect in some cases. Mr. Adamson: Of course there are some ports in Texas and some in Louisiana. As I understand it, the point touched by the Shreveport case did not affect ports; they were internal points. Mr. Thom: I did not understand you to confine your ■question entirely to the Shreveport case, but generally. Mr. Adamson : Of course your answer about ports would be an answer in some cases, but where points inside the State are not ports, what authority would you find? Mr. Thom : Then the commerce clause is the only one that I know of. Mr. Adamson : Then the contention of these two insist on that construction would be, in effect, that if the internal busi- ness of a state is prosperous and local business could be car- ried at a profit at a lower rate than it could between similar r 175 points in sister States, that that business and that State ought to be required to contribute the equality under the commerce clause of the Constitution? Mr. Thom : I do not understand that to be the contention, Judge. Mr. Adamson : Well, on what theory can they insist that the internal business of the State of Texas itself is so prosper- ous without affecting or touching anybody else that it would be a reasonable and just rate and profitable between those points — on what theory can you say that you are compelled to go outside and compare that with somebody else's condi- tion and raise the rate that is profitable there? Mr. Thom : I understand the situation to be this : Let us take the condition that you refer to, within the State of Texas, of a prosperous business, and let us compare that with the prosperous condition of business between the cities of New York and Philadelphia, where there is great density of traffic. Now, one of those businesses you refer to is intra- state; the business between New York and Philadelphia is interstate. I understand that the view of the Constitution is ■that there shall be no reference to the line of the State in deter- mining the conditions on which commerce should move, and if the conditions within a State relating to a larger traffic are such as to justify a lower rate, that rate will be made lower, although it is within the State, just as the rate between New York and Philadelphia perhaps ought to be made lower than the rate between Petersburg and Norfolk. One is in a State and the other is outside of it. The point of the Shreveport case is that there was a deliberate policy on -the part of the State of Texas to exclude Louisiana points of production or ■distribution from the markets of the State of Texas, and that the power over rates was used for the purpose of controlling Texas markets for Texas points of distribution. Mr. Adamson : Well, what was the motive for them to do it if there was something in the letter of the law and Constitu- tion as to the rates established? 176 Mr. Thom : There was nothing in the letter of the law to justify it. Mr. Adamsok : The Constitution says that Congress shall regulate traffic between the States or among the States and not within the State of Texas. Mr. Thom : Undoubtedly it says that, but it cannot be permitted — no State can be permitted to so regulate com- merce within its borders as to have an effect on commerce beyond its borders, because if it does Congress cannot regu- late the commerce between the States. That is most forcibly presented. by the Supreme Court of the United States in the Shreveport case, and if you will let me I will give you further record with respect to that argument. Now, here they are ; here is the commerce within the State of Texas, that moves at such a low rate that either Congress must bow to that rate in fixing its own interstate rates, or cease to regulate the commerce over which it has jurisdic- tion. Now, if it bows to the wUl of the State in respect to the rate, then it has accepted the standard of the State as to interstate commerce, and has given up its obligation to the people to regulate interstate commerce. If it does not bow to that will of the State in respect to that matter, then it must create the standards on which both shall move. Mr. A damson: Now I fully understand- Mr. Thom : Because the two classes of business are insepa- rable one from the other. Mr. Adamson : I fully understand your line of reasoning- applicable to a continuous line over the same tracks. If there were a through line through the State of Texas, or one State on this side and one State on the other side, and the State of Texas had a lower rate inside of the State locally, then a Federal commission would not regard that lower rate in making up the through rate, but would allow the Federal regulations to govern the shipments entirely through the State. For instance, I at one time started to New Orleans in a hurry, and got down to the depot to go to "West Point. I wanted 177 to get an excursion ticket. It had been selling at $15. The rate in Georgia to West Point was 2 cents, and at that rate they make a good living out of it. -From West Point through Alabama to the Mississippi line it was two and a half, and to Mississippi it was either two twenty-five or two and a half. They charged me three cents a mile solid from Newnan to New Orleans in interstate business. We can understand that the Federal commission upholds that, be- cause they say, in making through transportation over that through line, they do ,not have to regard those local Stalte rates. But they do not order those States to raise their local rate as to intrastate traffic. They just state in making the through rate it would be disregarded. Mr. Thom : I suppose it could be realized that the whole purpose of the Constitution would be disappointed if any one State had a right to exclude people across the borders from dealing with its people. Mr. Adamson: Was there any evidence, internal or ex- ternal, connected with the statute regulating that rate in Texas to show that their purpose was an embargo on outside business? Mr. Thom : I understand that to be a conceded part of the argument; that they claim that right to absolutely hold Texas markets for Texas distributing points. At any rate, that was the basis on which the matter was treated in the SHipreme Court of the United States and by the Interstate Commerce Commission. Mr. Adamson: When I was examining you yesterday, I had misplaced my book in which I had scribbled some allu- sions to your testimony, but I can hardly read them, and I do not know exactly what reference they had to your testi- mony, when I can read them ; but I notice that you talked about the diversity of State statutes. I will ask you if the railroad companies have not been as active as any other citi- zens always in looking after the legislation in the various States? l'2w 178 Mr. Thom : Judge, the railroad companies, of course, must try to put their cases before the legislators Mr. Adamson (interposing) : They have a right to do that. I just asked you if that is not the fact? Mr. Thom : I assume that the legislators want every point of view before they come to pass upon any matter of public importance ; but I cannot too strongly emphasize here, if you will permit me, the utter lack of justification, in the interest of the people who need a perfected system of transportation, to try and make every question turn upon whether or not heretofore the people have been mistaken or the railroads have been mistaken. Mr. Adamson: I do not think that is involved in the question I asked you. I have quite a different purpose in asking you that question. Mr. Thom : If there has been a system most objectionable in the management of these railroads, that in no way answers the need of the public for facilities in the future. Mr. Adamson: I have not come to that, either. I just asked you the fact, if you have not exercised your constitu- tional rights, as other citizens, to look after legislation in the various State legislatures — any legislation that affected the railroad company. You have a right to do that. Mr. Thom : I. have no doubt that whenever a case has come up, the matter has been presented to the legislators by the railroads, as best they could. I have no more knowledge of that than you have. Mr. Adamson : Do you not think that the light that these very able railroad men were able to shed on the deliberations of the State legislators had some influence on legislation? Mr. Thom : I have no doubt on earth that it has had a beneficial influence, to bring out a more comprehensive view of the situation. Mr. Adamson : For instance, you alluded to the full-crew law. How many States have that? Mr. Thom : I do not know, but a good many have it, and a good many have not. 179 Mr. Adamson: Do you not suppose that the enhghtened efforts of the railroad advocates before the legislatures pre- vented its enactment in many States? Mr. Thom: They may have in one State and not in another. Enlightenment does not mean to be the test, be- cause the enlightenment was the same in all the States, but the results were different. Mr. Adamson : They used their light everywhere alike, but all substances and surfaces do not receive light as susceptibly. Mr. Thom : Therefore, in dealing with a problem that is universal, we ought to get to a place where light has the same effect everywhere. Mr. Adamson : I will get to that argument later, but I will stick now to this one question, if you will answer me. There is no doubt, then, that the efforts of the railroad companies themselves in the various States, using their influence in some places where it would take, and some where it would not, has had some effect in producing this diversity of legislation? Mr. Thom : Yes, but the difference between » Mr. Adamson (interposing) : Is that true? Mr. Thom : The difference in effect would be either to accept universal disaster or try to obviate it in some places. Mr. Adamson: I am not talking about the result; I am talking about the fact. Mr. Thom : You know as much about that as I do. Mr. Adamson : I know, but I am not the witness. Mr. Thom: But you must not interpret Mr. Adamson (interposing) : I know all the subjects that you are posted on, and when I have a good witness I want to prove something. Mr. Thom : Undoubtedly, if you want to know that, when there is a case involving a railroad, and it is presented to two different legislatures, the result in one case will be different from the result in the other case, and diversity will be created which is hurtful to the whole public. Mr. Adamson: And yet, if your influence had not been 180 exerted in all those places, there might have been different action in some places? Mr. Thom: And there might have been universal disaster' instead of our having diverted it in some cases. Mr. Adamson : On the other hand there might have been universal blessing? Mr. Thom: That depends on whether it is an universal blessing to put a charge upon the commerce of this country everywhere equal to the charge that is put upon it by Penn- sylvania and New Jersey for this extra-crew law. Mr. Adamson : As you have mentioned the extra-crew law, is your chief objection to that — I mean, the objection of the companies, because you claim you do not object, personally, to anything — but is the main objection to that the expense that it puts on the roads? Mr. Thom: Oh, yes; certainly. Mr. Adamson: Are you familiar with the operation of these long trains on these roads? MP. Thom : I have never operated any, but I have looked at them as they went by. Mr. Adamson : Did you ever see one with 75 or 100 cars in it? Mr. Thom : I have, indeed. Mr. Adamson : And two engines at the head of it? Mr. Thom : Yes. Mr. Adamson: How many crews run on one of those double-headers of a hundred cars? Mr. Thom : I do not know ; but they are all automatically controlled by a system of brakes. Mr. Adamson : That is not the question ; I will come to that later. The question is : How many crews are on them? Mr. Thom : I do not know. Mr. Adamson : There are not as many as there would be if each engine just had as many cars as it could carry and run along, are there? Mr. Thom : There are not as many as there would be? Mr. Adamson : Yes. 181 Mr. Thom : There aye just as many as there would be. Mr. Adamson: Then you do not save any crews? Mr. Thom: What? Mr. Adamson : T say then you do not save anything in the number of crews? Mr. Thom : By what? Mr. Adamson : By the double-headers and a hundred cars in a train? Mr. Thom: No; we do not make the crews less than we would on a train with a single engine. Mr. Adamson: Where is the expense, then, of what you call the "full-crew law"? Mr. Thom : Because it requires more people than are neces- sary. They say they want — ^that it is a good thing to have an extra man to vdake up a hand at bridge in the caboose ; that he can stay there and play cards during the trip. Mr. Adamson : You are not prepared to say just how many men constitute a crew? Mr. Thom: No; I am not an operating man. You will have people here on that subject. Mr. Adamson : I know that. I do not want you to answer anything that you do not know, of course. I just asked you if you are prepared to say. < Mr. Thom : No, I do not know how many men. I might guess pretty accurately, but I am not an operating man, and I am not discussing operating questions. Mr. Adamson: Then I will go back into the field where you are skilled. Yesterday you made a distinction in your process of transmogrification Mr. Thom : Between the what? Mr. Adamson (continuing:) — your transmogrification from State corporations to Federal corporations ; you made a distinction between condemning the property and the stock, on the one hand, and local taxation on the other. You argued that because these people invested with knowledge that Congress had the constitutional power to regulate them ad libitum 182 Mr. Thom (interposing) : No; not ad libitum; within con- stitutional limitations. Mr. Adamson : Well, does not Congress sort of take its own view about the Constitution, when it is making law? Mr. Thom: Sometimes it is checked up a bit in the Su- preme Court. Mr. Adamson : I know, but not until after Congress acts? Mr. Thom: No; they could not do it before they act. Mr. Adamson: You say they made their investments with the knowledege that Congress had the constitutional right to regulate commerce, and that, therefore, it is all right to condemn them, dislodge them, and put their effects into a Federal corporation ; then you say that you do not advocate taking the taxing power away from the States at all. I just want to ask you if the States did not go into the Union and make their delegation of authority and reservation of au- thority with the same notice, that Congress had the power to regulate commerce in every respect? Mr. Thom : Yes, and the Congress would have the power to control the question of taxation, too. My remarks on that went to the wisdom of the exercise of that power, Mr. Adamson : As a matter of policy? Mr. Thom : To the wisdom of the exercise of the power. Mr. Adamson : You are like St. Paul : All things are right unto you, but all things are not expedient? Mr. Thom : I would like to be like St. Paul, but I have not fully found the parallel. Mr. Adamson : Now, the obstacle to taxation of the physi- cal property or the stock would be the inhibition against direct taxation, would it not? Mr. Thom : What is that? I did not catch that. Mr. Adamson: The obstacle to the Federal Government taking over the taxing power would be the inhibition against direct taxation? Mr. Thom : No. That could be very easily accomplished, without running counter to that. Mr. Adamson: By an income tax? 183 Mr. Thom: By a tax on the gross earnings as an excise tax. ; Mr. Adamson : I am glad you do not advocate that. Mr. Thom : I try to keep within the Constitution, Judge. Mr. Adamson : You say that would be constitutional. Mr. Thom: What? Mr. Adamson : To interfere with the taxing power. Mr. Thom : That is a different thing from interfering with anybody else taxing and imposing upon yourselves. Mr. Adamson: I want to ask you now about the disposi- tion of the property of those State corporations. You con- demn a road like the one the newspapers are talking about now, down in the Southwest — the New Orleans, Texas & Mex- ican Eailroad. That is, when it is found to be a little over seven million dollars in debt, with capital stock of twelve million dollars, and bonded indebtedness of forty million dollars. I would like to know what disposition would be made of a case like that, in your condemnation proceedings? Mr. Thom : I do not think any condemnation proceeding is necessary. Judge. ' Mr. Adamson: What would you do there? Bankrupt it? Mr. Thom : No. I believe that you are obliged to recog^ nize the things that have happened in this country. You axe i)bliged to proceed from henceforth with respect to the rights — whatever those rights are — ^th^t have already been created under the laws of the various States. Mr. Adamson : Leave them undisturbed, as they are? Mr. Thom : Yes. You would not get rid, by the idea that I am suggesting, of any of your difficulties in respect to the present statutes relating to capitalization, unless you did this : unless you, in your Federal system of capitalization, issued stock without par value, and gave share for share to. the owners of the stock in the State corporations. Of course, the par value of stock means nothing. Mr. Adamson: You would not do that by compulsion? You would have to base that on agreement? 184 Mr. Thom : I do not know how that would be. I think the stockholder gets the exact equivalent of what he has now. That merely gets rid of the nominal capitalization. Mr. Adamson: You thought yesterday or day before, in your direct testimony, that the holders of the stock and bonds would not generally object? Mr. Thom : That is what I thought. Mr. Adamson (continuing) : — ^to reorganization under Federal charters. Mr. Thom: Yes; that is my belief; and whether they ob- ject or not, they have nothing to do with it; they cannot help it. Mr. Adamson : You would have a right to do it,, anyhow? Mr. Thom: Undoubtedly. Mr. Adamson : Suppose one of those corporations that you were about to condemn, were under the weather, financially; not prosperous — ^would not bring much under the hammer, either the physical property or the securities; and yet, the holders are hopeful — hope springs eternal in the human breast, you know — and when you drafted a lease into the Southern Railway, it was not a great, big, rollicking thing like it is now; they grow; they have a right to grow. Have not those stockholders and security holders a right to say, "We are looking for better times. Let us alone. "We-will prosper if you will let us alone, instead of selling us under the hammer"? Mr. Thom : I have made no suggestion about selling any- body under the hammer. Mr. Adamson : Condemnation means that, does it not? Mr.^ Thom : I did not say anything about condemnation. That is an idea that your question produced. I did not say that condemnation is necessary. I do not think it is. Mr. Adamson : I may have confused you, in my mind, with Secretary Olney. Great men all look alike to me. Mr. Thom: If you will get me confused with him, I will feel perfectly delighted; I will get so much more than I give, that I will be the gainer. 185 Mr. Adamson: What was your proposition, then? One of agreement? Mr. Thom : My proposition is this : that when the people who obtained a financial interest in one of these railroads authorized to engage in interstate commerce, did so either by the purchase of bonds or stock, they accepted their con- tract relations, limited by the possibility that Congress might at any time exercise its full power, und^r the commerce clause of the Constitution, to regulate it. Mr. Adamsok : I understand that. Mr. Thom: That a system of Federal incorporation is a proper system of regulating commerce, and, therefore, they hold their securities subject to the adoption by Congress, * under its power of regulation, of a compulsory incorporation system. Mr. Adamson : I understapd that. Mr. Thom : And when Congress does that they must per- mit their property to come in under that Federal incorpora- tion without the claim of damages, against us. Mr. Adamson : I understand all that, but how do you get to the critical point where the transition is to be made? We have suggested an agreement, but if you do not agree then what do you suggest? Mr. Thom : Here is where we make the transition, and it seems simple to me. First Congress passes a law and then fixes a date when no corporation shall engage in interstate commerce unless it takes out a charter under the national law. Congress having done that, having provided a sys- tem of national incorporation, that system should provide for a meeting of the stockholders of the company upon due notice and a vote to be taken as to whether or not they would confine their corporation in the future to business in intra- state commerce or would continue to do interstate commerce and would come in under the Federal regulation. If the ma- jority of the stockholders voted for that, then the machinery for the application of that company for Federal charter ought 186 to be provided by the Federal act and the minority stockhold- ers would be bound by that action of the majority, because they took their stock subject 1;o the exercise in the future by Congress of its constitutional function of regulating com- merce, which regulation is embraced in this compulsory sys- tem of incorporation. There is no condemnation in that. Mr. Adamson: But I think there is one fundamental .trouble in it. Your plan is all pretty enough if it did not in- volve prohibiting them from going into interstate commerce. Our policy is to compel them to go in and stay in while your proposition would require a change of that policy and a change of the commerce law. At this time we can make joint routes and rates and force them to do it, and it is our policy to compel every one of them to do it. Mr. Thom : Yes, and that would be the means and would make your power in that respect much more effective than it is now. You would bring- the whole business into inter- state commerce under Federal charters at once, subject to the unquestioned regulation of commerce in all the respects you have mentioned. It would enlarge the opportunity for Con- gress to manage the thing in a homogeneous and comprehen- sive way, and not in any sense diminish it. Mr. Adamson: Well, I reckon we can not agree on ex- cluding them from interstate commerce as a condition for them to change the form Mr. Thom: I think we can agree on the power, and it will be a great source of distress to me, because you are the man to decide it and I am not. Mr. Adamson: Of course I do not decide it. There are twenty good lawyers on my committee that manage me en- tirely. Mr. Thom : I am putting yoii in as a representative, not speaking of you as an individual. Mr. Adamson: I am the humblest servant on the list. Now, Mr. Thom, we exactly agree on the power of Congress, and the power of Congress can make thesa State corporations 187 do anything it pleases now without all this trouble and ex- pense of transforming into Federal charters, but I will not continue that discussion with you. I want to ask you. now about your plan of administering and regulating, how you will get your corporations, changed. I believe you stated that the commerce law and the commission operating under it could not control the Federal corporation any more than it can the State corporation at present? Mr. Thom : I think the commerce power of the Constitu- tion is sufficient to enable the Interstate Commerce Commis- sion, or any other commission Congress may appoint, to regu- late the whole instrument of interstate commerce, even if not incorporated under national law. Mr. Adamson : Then the only other subject I wish to ask you about is your plan of organizing and operating the com- mission itself. I fully understand, as you do, that the people over the country do not welcome the visits of young lawyers and agents and examiners to hear and pass upon grave ques- tions which they have a right to have a commissioner to hear, and I fully agree with you that there ought to be enough commissioners of ability and experience to attend to all this business. To that end you know our committee reported and passed through the House ten years ago a bill increasing the commission to nine members, with the idea they would divide themselves into sections ; that the commissioners would go over different parts of the country and hold hearings, and sections of three could each dispose of cases, unless there was dissatisfaction, when a demand might be made for a consid- eration in bank of the entire commission. That was never passed in the Senate, and we kept hammering at it until last spring our committee reported it to the House and passed it ■ again and sent it to the Senate. It is still hanging there, although I believe all the railroad companies and the Presi- dent also said it should not be stayed by this resolution. It has not been passed. What I want to ask you is, would it not be easy to conform practically to your idea, substantially 188 to your idea, by so enlarging and subdividing this commission and doing the work? Mr. Thom : Do you mean that alone without supplement- ing by what I have suggested? Mr. Adamson: Can you not make it practically answer your suggestions? Mr. Thom : No, sir ; the Interstate Commerce Commission assures me that even if the views which I am advocating should be carried out they would still need those two extra members. Mr. Adamson : I say enlarge the commission. Mr. Thom : Wait a second, please. Judge. Nine members of the commission, nine men can not do the work. Mr. Adamson : Then why do you not make it twelve or fifteen?, Mr. Thom: Because I think the people of this country greatly prefer to have some commissioners resident in their own localities. Mr. Adamson: Can you not select them from different parts of the country? Mr. Thom : Then they would all be residents in Washing-, ton. So far as I am concerned, I am- speaking now of the sel- fish interests of the railroad, not my view of what is good for the country — so far as the selfish interests of the railroads go of course those selfish interests would just as well be protected by a commission resident in Washington, but that does not meet the public demand. The public demand is for the Government to understand local conditions. And this com- mission here, if it consisted of thirty members, sending out agencies from time to time to different parts of the country, would all the time be felt by the people at large as having men visit them that are not acquainted with their local con- ditions. Now my idea is that you gentlemen have got to take — ^it does not make any difference what view I take — ^but you gen- tlemen have got to take a comprehensive view of the needs, 189 the sensibilities and the views of the people of this country. I believe one of the dearest things which they have is that this Government shall not be a stranger to them ; then it must be brought into an intimate and adequate knowledge of their real conditions. This idea of regional commissions, of high-grade men, ap- pointed by the President and confirmed by the Senate, of men paid in a way to attract the best service to the Govern- ment, is to bring to the doors of the people of this country in the various sections the Government that shall pass upon their needs. Mr. Adamson : I should like to be permitted to uncouple the last strong and beautiful sentence of yours and attach the part so beautifully descriptive of home government as against your proposition to transfer the corporations from the States to the 'Federal Government, and the regulation of rates from the States to the Federal Government. Mr. Thom : Well, Judge, I am very conEdent that if you attach them they will look like brothers. They are part of a whole and comprehensive and consistent scheme, as it ap- pears to me. Here we have got this thing of a commission that is not a State afifair. In the interests of the whole peo- ple it is necessary to be without territorial limitations; it is a way they have learned to do and that they want to do busi- ness. The people ip my State want to get to the markets of another State ; they do not want to get to the markets of my own State, it may be. It may be that we have not got any markets that are sufficiently attractive, so that commerce has found it necessary to pass over State lines without any refer- ence to their being there. The commerce is a thing of na- tion-wide or world-wide extent and importance. Now that is one of the things. The way to regulate that, recognizing that it does not halt at State lines, but goes over great transportation movements that are not confined by State lines, and yet understanding at the same time the needs of the people, are the two things to be recognized, One we 190 do by recognizing the fact that the movement of commerce is not confined by State lines, and the other is to put the regulating body close to the people. Mr. Adamson : I think your optimism and admiration for your proposed system is largely justified in your own case, so far as I know, by the practice of your own road. I must say that above any other railroad that I know, so far as I have observed, the Southern Road has accommodated the local necessities, stopped their good trains, let the people ride, and treated them fairly, but your road does not run all over the United States, and I just want to ask you if, under your changed system, excluding Federal regulations and Federal incorporations, what do those local people feel that they can do if you whiz your transcontinental trains through the towns without stopping, and give them a local passenger train that leaves before day in the morning and after dark at night — that does not look much better. They believe they will get a complete redress as opposed to local au- thority. Mr. Thom : I thought you were against local authority? Mr. Adamson : No, sir ; not for local affairs. I want Con- gress to do what the Constitution says Congress is to do, and the States to do what the Constitution says the States shall do, not because I am crazy about State rights or daft on State rights, but because the Constitution fixes it that way. Mr. Thom : Why not have some of the representatives of the regulating power resident in each community? Mr. Adamson : The State commission lives there. Mr. Thom : I understand that, but that is based upon the theory that the commissioners ought to be regulated by State lines. Mr. Adamson : Not at all ; not local commissioners. Mr. Thom : If we differ on that, we differ on the funda- mentals. Mr. Adamson : Not local commissioners. It is more im- portant for the people in remote counties to get to their near- est town than it is for them to see a load of drummers go 191 through from Boston to San Francisco, and they are the fel- lows you have to deal with ; they are the fellows you get your verdicts from, if you get any at all ; they are the people who first consented for you to build your railroads ; they are the people who thought there was some obligation to accommo- date and respect them, and they are the people that will be dissatisfied unless you inspire them with confidence about how their grievances are going to be redressed. If one of them is put off a train, or has a pet cow or pig killed, where is he going to be redressed? Now he gets it at home. Mr. Thom : He will get.it at hoine under any suggestions I have made to you. Mr. Adamsok: You are going to propose, then, that you can sue all these Federal corporations through the State courts at home? Mr. Thom: Yes, sir. Mr. Adakson: And not be removed to distant Federal courts? Mr. Thom: Undoubtedly; just have those jurisdictions where they are now. I think, instead of there being a funda- mental difference between what you are saying and I am saying, it relates only to the line of how much police author- ity is, under the wisdom of Congress, preserved. Mr. Adamson : No, there is a fundamental difference. Mr. Thom: My proposition is where a State exercises a power which has no substantial effect beyond its own limits, it ought to continue it, but where it exercises a power, the substantial effect of which is to put its own laws on its neigh- boring States, it ought not to. Mr. Adamson : There is a fundamental difference in this : representative government means that the local officers are chosen by local people. My proposition is that the local peo- ple choose the local administrators, and the local authorities govern the local communities. You are proposing that a central authority, through a central body, shall govern local as well as general affairs, and from, a central authority those local people shall be selected. 192 Mr. Thom: Only those matters in which the authorities in one State extend themselves across their border and under- take to regulate the affairs of another State ^ Mr. Adamson: Now, how many traffic divisions did you say there are — four or five? Mr. Thom : There are three classification territories. Mr. AdAmson: Only three? Mr. Thom : Three classification territories. Mr. Adamson : You say there ought to be more commis- sioners than territories? Mr. Thom : More regions. Mr. Adamson: How many in all? Mr. Thom : I have not gone into that, but I think Con- gress should have quite a number. Mr. Adamson : Just give me an arbitrary figure, for specu- lative purposes. Mr. Thom : An arbitrary figure would , have no value, Judge. My own idea is Mr. Adamson : I am talking about a supposititious case — say how many — six or seven or ten? Mr. Thom : Suppose we say 15. Mr. Adamson : Say 15, then. If there are 15 places where local men ought to work, or a foreign man ought to be sent to the local place to work, or a local man sent to a central authority to work, and you then add enough to stay in town and hold the fort and attend to general business, it does seem to me you ought to select all 15 from all over the country and let them tend to the business in that central section. Mr. Thom: I do not believe that would be satisfactory to the people. My own judgment is that the fundamental reason for having these regional commissioners reside in their communities Mr. Adamson : But the big trouble you have there- Mr. Thom : A great many railroad people take your view. They take your view and say "Divide up this commission here and do not have the local men," because some of them 193 think in that way you will get a much more independent judgment. My own judgment is we will have to take the risk of that; that we have got to recognize the demand not only because it exists, but because it has a fundamental justifi- cation, for having men that are brought in contact with vital affairs and know them by residing among them. Mr. Adamson : The greatest difficulty you will have, Mr. Thorn, in getting your program through, is the idea that has been disseminated among the people by those who have been making your arguments, in the papers and elsewhere, about your escaping the appeal, the jurisdiction of 48 different au- thorities. The idea is prevalent among the people that you are trying to get away from them and run your operations independent of them, and in spite of them, and with no re- sponsibility to them, and they do not like that. Mr. Thom : I hope after my explanation you will help me get that erroneous doctrine out of their minds. Mr. Adamson : I am glad to get that to your mind, because you will confront it everywhere. Mr. Thom: I am protesting against the suggestion that this is an attempt to concentrate everything in Washington, and I am telling you the counterview I take on that subject, that it is desirable from every standpoint; from the stand- point o"f meeting the views of the American public and from the standpoint of meeting a condition which probably de- mands knowledge on the part of those who govern, of the con- ditions of those who are governed, to put these regional com- missions close to the people, by making them reside in the various regions where they have jurisdiction. Mr. Adamson: I believe the people are not only willing, but desire and demand that the railroads have revenue enough to put themselves in a condition of equipment and safety to do the business of the people promptly and safely, but they are suspicious and they are afraid that they will not be locally respected and protected in their local rights. That is what you have to combat. ]3w 194 Mr. Thom: The President, in making his nominations, and the Senate, in confirming them, ought to safeguard that point. Mr. Adamson: "Well, all the President is talking about is about helping you get money, and you are not in such straits now as then. Is not your business more prosperous now? Mr. Thom: Undoubtedly it is more prosperous now, but the mistake of fixing your standard of regulation by prosper- ous years, instead of taking into consideration the average • conditions that affect these railroads, will be a mistake which will lead to ruin. Mr. Adamson : Would it not be advisable to continue your case, and not argue it during days of prosperity, and wait for lean years to press it on the people? Mr. Thom: Not at all. Bear in mind not one cent is coming to us from this investigation, if we get all we think we ought to have. This is not a rate case. This is not a case where you are passing on whether we need more or less money. It is a question whether or not you will protect your systems of regulation so that they will reflect the needs at all times, prosperous as well as unprosperous. If there are fun- damental conditions that obtain in this matter that are objec- tionable in this matter, there is no more reason for removing them in prosperous years than there is for removing them in lean years. The question for you gentlemen to consider is whether there is anything in the tendencies of these condi- tions, as they are now, to really affect the future of transporta- tion in America. Are the margins being absorbed unduly; are there too many fixed charge's going on the property ; is the margin that is left sufficient to guarantee the American public adequate facilities? You must judge that in prosperous times as well as in lean times, and if that is a fact, the man who really foresees and provides for the needs of the future is the statesman. The man who does that must take note of that now as well as in future times. 195 Mr. Adamson : In prosperous times the atmosphere is not as favorable for considering appropriations for financial re- lief as in times of pressure. Mr. Thom : No financial relief is asked for. We are ask- ing simply for perfected conditions of governmental regula- tion, which will deal with times when financial needs must be provided for, and will not deal with them when financial needs are not to be provided for. Mr. Adamson : But a very able part of your speech was addressed to the difficulty of securing ample capital. I understand you want to be placed by law where you can secure capital. Mr. Thom : Undoubtedly, but ought we to wait until we are in a position of disaster to provide against this possibility, or should we provide in time to avert disaster? Mr. Adamson: I suppose you do not care to be cross-ex- amined about Government ownership? Mr. Thom: No, sir; I do not personally — well, I should just as soon be examined on that as anything else, but I do not think my views are of any special value to the committee. Mr. Adamson: I thought I might disprove a thing- by ex- amining you on that. Mr. Thom : I do not believe in Government ownership. Mr. Adamson : That was the idea I had in considering ex- amining you. I wanted to get your testimony" on that and your objections to it. Mr. Thom : My objection is pretty much from the public standpoint. Mr. Adamson: I thank you for your courteous responses to my numerous questions, and I will relieve you from further questions. Mr. Thom : That is what I am here for. I will give you all the information I have got. The Chairman: Mr. Robinson, will you proceed? Senator Robinson: I think it will take me only a few minutes to submit to Judge Thom such questions as I think 196 are necessary to clarify my mind concerning the very force- ful and able statement which he has made to the Joint Sub- committee. Judge Thom, in your address you discussed the decline of railway credits. About when did that condition first mani- fest itself? Mr. Thom : I do not know that I can speak with any accu- racy about that, or in any way that will not need some verifi- cation, but my understanding is that railway credit com- menced distinctly to decline in 1910. Senator Robinson: Did I understand you correctly to charge this decline of credit principally against govermental action in over-regulating through State or national authori- ties or both? Mr. Thom : I am told that the activities of all these com- missions did not appear much prior to that time. Now, we in the South, have been so long familiar with State regulating bodies that my inclination would have been to put the time much behind the point I mentioned, but there seems to have been, in other sections of the country, a delayed application of these varying systems of regulation, ''and they perhaps seem to have come to a climax somewhere about the year 1910. In that year, too, there was an increase of $50,000,000 in wages. There was a determination that railway revenues could not be increased, in the way then proposed, and in a way that a great. many investors in railway securities thought they ought to be increased, and the lesson was taught some- how, in some way, that both revenues and expenses of the carriers were beyond the control of the owners. Senator Robinson: Was there also a falling off in the railway earnings in 1910? Mr. Thom : I cannot recall. Senator Robinson : Do you think, in accounting for this decline in railway credit, in your statements, you have given due prominence to the mistakes and mismanagements on the part of the railway managers and financiers? 197 Mr. Thom : I do not know how much attention should be given to that. I have no doubt it had a marked cumulative effect. Senator Robinson: I believe you stated, if I understood you correctly, that these mistakes Mr. Thgm : One minute, if you will permit me to say this in respect to that, at the same time even the charges about that did not affect ten per cent of the mileage of this country. It was a very small proportion, but it was made a great deal of in the public press. Senator Eobinson : It would not be necessary that charges should affect the entire mileage or even a large part of the mileage in order to impair the credit if the system was be- lieved to be more or less general, would it? Mr. Thom : Not if it was believed, no ; but I do not under- stand even that it was charged that it was more or less gen- eral. I do not understand it extended to more than ten per cent, and one of the great difficulties in railroad manage- ment is that the restrictive provisions of regulation intended to deal with this evil to which you allude affects the people who never were supposed in the most remote degree to be sub- ject to the charge. Senator Robinson: These alleged mistakes and misman- agement, or the public conception of them, was largely re- sponsible for bringing about the era of governmental regu- lation, was it not? Mr. Thom : I think very likely — very likely. Senator Robinson: Prior to the basic act of Congress to regulate commerce, known as the act of 1887, Congress had never attempted in any comprehensive way to exercise its power to regulate commerce, had it? Mr. Thom : It had not. Senator Robinson: Are you familiar, or have you made any ?tudy of railroad credit generally, and the conditions concerning railroad credit generally, during the period of non-regulation, that is, prior to the act of 1887? 198 Mr. Tpiom : Well, when you ask me if I have made any tudy, I assume you mean some special study outside of my general knowledge of conditions? Senator Robinson : That is what I mean. Mr. Thom : No, sir; I have made none outside of my gen- sral knowledge of conditions. I knew at that time, and for ome years afterwards, it was easy enough to get money to go nto new railroad enterprises. Senator Robinson: Increased Federal regulation is now egarded by you as necessary in some respects for the restorar ion, or the establishment on a securer basis, of railroad redit, if I understand you? Mr. Thom : That is correct. Senator Robinson: In your opinion, if there had never )een any attempt at Government regulation, either upon the )art of the Federal Government or the States, that is, if all londitions with regard to regulation which prevailed prior to .887 had continued to the present, would railroad credit now )e on a better and securer basis than it is? Mr. Thom : Well, of course that is a mere matter of opin- on. Senator Robinson: I understand that. Mr. Thom : But at the same time 1 am a great believer in ■egulation. I think that great benefits have come from ■egulation, and that a great many more benefits can come rom perfected regulation. I believe that the railroads, within he limits that they have been constructed, and the public ire better off for having adopted a system of regulation, '^ow the reason I say within limits is this : We must reahze hat the railroads of this country were built by people who ex- )ected in some way to get very handsome returns from their nvestments. Their hope in that respect was natural — bene- ited by bonuses of stock — and they expected to be able to pork their enterprises up until the stock became worth some- hing. They would not have built them if they had not had hat hope. We would not have had railroads if it had not 199 been for that hope. Now, if here comes along Government regulation and puts an end to that hope and has to deal with the situation that is created by that change of condition, and having done that, it makes a tremendous problem as to how venturou^ capital is still to be brought into this field of devel- opment. Senator Robinson': Now let me ask you a question in that connection. You made that quite clear in your statement, to my mind, that the initiative of railroad construction in the United States was upon the part of more or less speculative investors. Do you think it was desirable that that condition should have continued indefinitely? Mr. Thom : I do not think it was possible to continue it in- definitely. Senator. Senator Robinson: And that the era of regulation was inevitable? Mr. Thom : I think so. Senator Robinson: Now you have said that the existing system of regulation has had for its main purpose the correc- tion of abuses and the elimination of evils of railroad man- agement. Mr. Thom : Yes, sir. Senator Robinson : That is the inevitabte result of the con- ditions Mr. Thom : Of all these abuses which have arisen, yes, sir. Senator Robinson : The system of regulation that now pre- vails is the product of a slow growth which has occurred in spite of the opposition of railroads, I believe you stated? Mr. Thom : That is my, judgment. Senator Robinson : I think that is correct. Do you regard the Act to Regulate Commerce — that is, the act of 1887 that we have already mentioned — as largely a punitive, correc- tive measure, and not as a constructive measure? Mr. Thom : Yes, sir. I think. Senator, that is not only so, but in obedience to the spirit of resentment throughout of the abuses which did exist, that has been demonstrated with 200 the idea of giving the very lowest possible rate and of sur- rounding the management of the railroads with the greatest possible restrictions. And that there has been a tremendous distrust on that part of a large portion of the public in the management of railroads. It has been considered necessary to surround them with bayonets, and in order to make them keep step, just prick them in the back and around. Of course, there can be no enduring system of that kind. The time must come when the character of the men in charge of these properties must be recognized as high as any other business, or the system of private ownership and private management must go. We say that time has come. We ask you gentle- men to examine whether or not the time has not now come when you can deal with this business as you do with any other business, on the assumption — on the recognition, I should say, rather than assumption — of the fact that rail- road management in this country is, as a rule, honest and upright and patriotic. Now when that time does come — and I say it has come now — you gentlemen are considering whether it has come or not — when that time does come then we think that the time has come for you while retaining all of your corrective^powers and processes, to add the construc- tive and helpful features to this system of regulation which will insure for the future the sufficiency of these facilities. And I want to say right there, if you will permit me one more remark — ^that granting all that can have been said ahout abuses existing in the past, the mere existence of these abuses, of looking at them and feeling resentment against them, de- tcting them and punishing them, will not provide for what the public needs in the future as to its facilities. If they were great enough upon their mere removal to put the railroads in a condition of furnishing all these facilities that are needed in the future, that would be one thing, but if you remove them all and still have an incapacitated system, why you have not done what the public needs require. Now our proposition is, first, that the great mass of these 201 abuses have been removed; that if they exist at all it is only in sporadic cases, but certainly as to those that are not re- moved the retention of your corrective powers will be suffi- cient to deal with them, and when they are all removed there still are conditions of incapacity created which will prevent the railroads from being able to do their real function for the public. Now we are asking you to see to it that when you, by the retention of your corrective machinery and processes, get rid of them all, you do not leave an anaemic and an incapacitated system of traxisportation, but that you will deal in a compre- hensive and helpful way with the needs of the future. Senator Robinson: You have referred frequently dur- ing your statement to the distrust in the public mind occa- sioned by the alleged mismanagement on the part of railway managers and financiers. Does that condition, in your opin- ion, still exist? Mr. Thom : I do not think so. Do you mean the public mind? Senator Robinson : In the public mind. Mr. Thom: To nothing like the same extent that it did. I think the public mind has been greatly modified, that is the public judgment of this nji^tter has been greatly modified, and they are looking today on the situation with different eyes. Senator Robinson : You regard it as true, do you not, that that condition has been perpetuated by the policy of railroads themselves, first, in opposing all regulation, and second, in failing to acquiesce in the attempts of Congress to regulate property. For instance, after the passage of the act of 1887, the general policy of the railroads was to test every inch of ground of regulation contained in that act, was it not? Mr. Thom: Yes, sir. . Senator Robinson: And that course has been pursued largely with regard to other subsequent acts of Congress en- acted in the exercise of its power to regulate commerce? 202 Mr. Thom : That tended to keep the country divided into two views ; one was the pubhc insisting that those regulations should be made effective and the other side fighting it, and ;he result of that was necessarily to put the passionate views )f the victorious party on the other side. Senator Robinson: That condition, I believe you have ;orrectly stated, has been modified, to say the least of it? Mr. Thom: Yes, sir. Senator Robinson : The railroads have changed their at- itude entirely on the subject of regulation? Mr. Thom : They have. Senator Robinson: And in part as a result of that, as well is the other conditions, the public attitude toward the rail- roads has changed? Mr. Thom : Yes, sir. We are getting into a better condi- ion of affairs. Senator Robinson : And if that diagnosis of the situation s an accurate one, and I think it is approximately so, it neans a very gratifying condition. Now, the second, gen- eral exercise by Congress of its power to regulate commerce, vas, I believe, embraced in the so-called Sherman Anti-trust \ct, was it not, of 1890? Mr. Thom : Well, at the time that was passed. Senator, it vas not supposed to apply to failroads. Senator Robinson : I was going to ask you about that. As I matter of fact, that was the second comprehensive attempt )n the part of Congress to exercise its regulatory power over ommerce. Was that act generally regarded as applicable o railroads when it was passed? Mr. Thom : No, sir, it was not. Senator Robinson : What, in your opinion, are the public )enefits resulting from the application of the Sherman anti- rust law to the railroads under the system of governmental egulation* such as exists now ? Mr. Thom : T do not think that it has any benefit, Senator, or the reason that there are two points at which competitiotf 203 oaay benefit the public. One is in respect of charges; the ather is in respect of facilities. Now, of course, it cannot have any effect in respect of charges, because those charges ire Government made for both lines. Now as to competi- tion of facilities, I believe that the natural conditions of every DQanagement insure that just as much as if there was abso- lute competition all around. You cannot imagine the effort& that the management of a single system has to make to keep down the rivalry between the managers of various divisions of that property in order to make a good showing for them- selves. That has been at times a serious difficulty of railroad management. Here is a man who wants to make k splendid record for his own division, and to get his trains over quickly and get them over cheaply, and rise up above the general mass as a successful railroad operatpr. Now at times he has ione that to such an extent that he has not regarded the next division at all. He has sacrificed the through movement to the success of the management of his own division, and that comes from a very human impulse, for him to demonstrate his own efficiency and get the advantage of it. Now, therefore, I think that that applies also to the man- igement of two railroads commonly owned but doing a com- petitive business as to facilities and all that. Each one wants to make a record for himself, and therefore I do not believe that the public has been in much danger in respect to facili- ties; secondly, I feel that I can answer your question quite comprehensively, that when you regulate railroads you put them in a class where the anti-trust acts become of little value to the public, and that is certainly true when you recognize that your power of regulation would extend to the only pos- sibly uncovered feature, and that is facilities. Senator Robinson: Then, if T understand you correctly, in your opinion, the public interest would not suffer if the mti-trust acts were made inapplicable to railroads? Mr. Thom : I don't think it would. •Senator Robinson: And railroad operations might be 'acilitated, is that vour idea? 204 Mr. Thom: I think so. There are certainly some feat- ures of it where this happens, as I understand it. I, myself,; went before the Judiciary Committee, or the subcommittee of the Judiciary of the House of Representatives when they had the Clayton Bill under consideration, and presented the question of the desirability of the law permitting the traffic managers of these various railroads to get together;^ and to discuss the terms on which commerce should move, That committee referred that question to the Interstate Com- merce Commission in writing, and the Interstate Commerce Commission wrote a letter endorsing that view, and drew a provision, which was put in the Clayton Bill as it left the House of Representatives. When it got to the Senate, the Senate Committee on the Judiciary, of which I believe there is at least one gentleman here present, did not hold any hearings, and we could not make our presentment, and that went out so quick there that it made us dizzy, but we feel it went out without having the merits of it presented. The committee had a short time — they had to act very quickly— and they did not have any public hearings on that bill at all. But at any rate the point I am making is that the praC' tical necessity of having these traffic managers meet and agree upon their joint rates and their through routes, and agree upon the terms upon which they will carry traffic on their roads, so as to make it harmonious with and not dis- criminatory against the rates on some other roads, is an essential of the railroad business, if equality is to be created, and the public interest can be safeguarded, if you permit the Interstate Commerce Commission — make a report to the Interstate Commerce Commission of whatever is done and enable them to set it aside. Senator Robinson: I presume it is your thought that if the suggestions which you have made with regard to increasing the authority of the Interstate Commerce Com- mission over the control of rates is enacted into law, that there would still be less necessity for the application of the anti-trust law as to railroad operations ? , 205 Mr. Thom: Yes, sir. Now, Senator, just let me get this idea in there. When we recognize that rates, wherever they exist, may discriminate against other rates, no matter whether they are interstate or outside of the State, and that rates interstate may discriminate against the rates outside of the State, we have gotten to a point where there must be an independent authority to determine that question of dis- crimination. We cannot let one of the parties who is ad- versely afifecting the interest of another party across the border determine the question of discrimination, because that is the power of discrimination instead of the judicial determination of the question. We cannot havie a question of discrimination determined except by some impartial au- thority. Senator Robinson : I want toi ask you some questions a little later about the question of increasing — the proposition of increasing the authority of the Interstate Commerce Com- mission, touching the matter of rate-making, but now I want to go back just a moment to the subject of the impair- ment of credit and the restoration of it. You have said that the objectionable conditions which" have existed in the management of some railroads in the past, have, in your opinion, practically been eliminated, I believe. Mr. Thom : I think they have been almost entirely elim- inated. The condition of public sentiment in the railroad world has been in the direction of such elimination. Senator Robinson : In your judgment, did such disclosures as were connected with the New Haven Railroad, along about the time you say this impairment of credit began,, have any emphatic influence in the impairment of credit? Mr. Thom: I think it did have a most adverse effect, Senator, and I will tell you another thing it had. It had the effect of helping to create the public sentiment among the railroads themselves that such things as that must cease. Senator Robinson: I agree with you. Now, I want to ask you further along that line, whether or not the practice has existed among many, or at least some railroads, of the '206 officers of the railroads organizing corporations, independ- ent of the railroads themselves, of which they, the officers of the railroad corporation, became the principal stock- holders, and of buying and selling through those subsidiary corporations the supplies which were purchased by the rail- roads. Has that condition existed? Mr. Thom : Has it existed? Senator Robinson : Yes. Mr. Thom : I have heard of it' and I believe it has. Senator Robinson : Do you not think that tended to in- crease the distrust occasioned in the minds of railway in- vestors, by other mismanagements in railroad affairs? Mr. Thom : I do, but I think this, Senator— — Senator Robinson : Do you think it would be possible to put railroad credits upon a secure basis, without in some way eliminating this practice, whereby, or through which railroad officers who, under every principle of law are trus- tees, are in the habit of buying and selling to themselves, through corporations that they have organized, and thus making enormous profits out of their trusts? Mr. Thom: Senator, the difficulty about our situation there is this : that did exist, but that has likewise been prac- tically eliminated, and we are attempting — it takes a long time, you know, for law to catch up with an abuse. Senator Robinson : That is true. Mr. Thom : I think that the law is about ten years be- hind that abuse. Senator Robinson: You think that condition has been abolished for ten years? Mr. Thom : I think it has been abolished for a long time. I said ten years at random. I did not mean anything es- pecially, except that it has been for some time abolished. Senator Robinson: Take the case we had awhile ago of the New Haven Railroad. Mr. Thom : Those things — I do not know when they ex- isted, and as I say I put the period at ten years simply as an illustration, but mv belief is it is abolished. I talked 207 vitli the President in regard to section 10' of the Clayton ^ct. That was drawn in such a way as practically to break up the railroad systems of the country, and I told him. in isking his assistance in having that act suspended until Congress could think of it again — I told him that I was horoughly in harmony with the soundness of the principle 'or which he stood, that a railroad officer in and dealing For the railroad, whether he be a director or other officer, ihould not be allowed to sit on both sides of the table, and lome way should be found, if the public thotight at all that ihat situation now continues, of preventing it, and that I, IS far as my powers lie, would assist in suggesting a means )f preventing it, and I hold myself open to that today. I )elieve that that is a thoroughly unjustifi'able position for he trustee of a railroad — and an officer is a trustee, and a lirector is a trustee — to be dealing for his own benefit with he contracts of the railroads. And we, speaking of it now js a railroad fraternity question — we are all agreed on that lubject. Senator EoBiisrsoN : And such practice could unquestion- ibly startle cautious railway investors? Mr. Thom: Undoubtedly. Senator yRoBiNSON : For all investors are cautious? Mr. Thom : Undoubtedly. Senator Robinson : I agree with you. Now, you have in the course of your statement referred the Pennsylvania Eailroad as a model system? Mr. Thom: I did not know I had, but I will. I think tis. Senator Egbinson: You did, as I understood you, and I lo not wish to be understood as implying any attack upon he Pennsylvania Eailroad system, but as touching your tatement made just a moment ago, that these objectionable >ractices on the part of railroad officers of profiting through he organization of associate corporations to sell supplies the railroads of which they are officers, has been abol- 3hed,*I want to a.«k you if you know anything about the 208 alleged printing company which does the printing for the Pennsylvania Railroad? Mr. Thom : Not a thing. I never heard of it. Senator Robinson : You do not know about that com- pany, or whether it is still in existence and the salaries of Mr. Thom : No, I have not. I know this. Of course, I am conversant with the investigation that was made some years ago of profits that various officers of the Pennsylvania Railroad were alleged to have made out of contracts with the company, or out of commodities along its way, that were hauled by the company, but that is the full extent. I have never heard of the printing part of it to which you refer. Senator Robinson : It is still in existence, and I will not ask you any further questions concerning that, as you say you know nothing about it. Now, you also referred, and I think very aptly, to the pernicious influence of politics in the matter of the regulation of railroads, and you made the state- ment that the railroads themselves were not in politics, and no railroad you knew of had been in politics. Mr. Thom : No, I did not say that. Senator Robinson : Did you not? Mr. Thom : No ; I said no railroad with which I am ac- quainted is in politics. I did not say I did not know of any one having been in politics. Senator Robinson : Well, I misunderstood you then. Mr. Thom: Oh, no. Senator Robinson : I accept as an abbreviation of this ex- amination in that particular your statement now. Mr. Thom : Senator, let me tell you one thing before you get me away from that. I know railroads which are in poli- tics, some more than others, but I have, since I had any responsibility as a general officer — have stood for, with the entire sympathy of the managers — the chief managers of the companies with which I am particularly connected— have stood for the elimination of that, and their face has been set against it. You cannot imagine, when a railroad 209 company has been in politics, the difficulty of getting out. Men in the highest position will come and insist on co- operation in political matters, and you have the greatest diffi- culty. Sometimes you have to aecept a great disaster as the penalty for getting out, but railroads have accepted that, speaking generally, in this country. Now, I do not know — there may be still some in politics to a limited degree. Senator Robinson : I referred in my examination of you to this subject, solely because of your mentioning it in your argument. I agree with you that in so far as it is possible to eliminate politics from any human affairs, that politics ought to be eliminated from the regulation of ^ railroads, and I think you agree with me that the railroads, if that is done, ought to go out of politics, or perhaps they may have been partially responsible for some of the political influences that have been exerted concerning them by reason of their activi- ties in politics. Take, for instance, the case of the Louis- ville & Nashville. I suppose you are familiar with the in- vestigation that has recently proceeded before the Interstate Commerce Commission? Mr. Thom : In a general way, yes. Senator EIobinson: I do not care to go into the subject in detail, further than to say it illustrates the embarrass- ments that accrue to a railroad management, after it once enters politics, by reason of the importunities of politicians, and that investigation indicated that the Louisville & Nash- ville, and other railroads operating in that section of the Union were, up until quite recently, as late as 1913, and per- haps 1914, very actively engaged in politics. I suppose you are familiar with the case of two southern railway presi- dents — I do not mean presidents of the Southern Railway, but two presidents of railroads in the South, who held a con- ference, and who, in numerous correspondence subsequently styled each other as Pizarro and Cortez, and discussed how they should divide the new world? Mr. Thom: That was very humorous. I have seen it, 14w 210 but that was i^any years ago, almost as long ago as the time when Cortez and Pizarro did exist. Senator Robinson: It is long since you were connected with the Southern Railroad. It was in the year 1906. Mr. Thom : That was some years ago ; well, that is a long time ago. Senator Robinson : Yes, but I do not think you can refer to that as ancient history in view of the fact that the rail- road which was represented by one of those presidents is shown in the investigation of the L. & N. by the Interstate Commerce Commission to have contributed enormous sums to political campaigns in 1913. I do not think you can say this is purely a matter of ancient history. I make no point of that except to emphasize the fact that the fault is, - so far as the political activities touching — so»far as political activity is concerned, is not all upon the part of the poli- ticians; that the railroads may have invited or promoted the condition by their activities in politics. Mr. Thom : You must have misunderstood me if you thought I contended to the contrary. It is a system which is indefensible. It acted in this way: Here is a railroad in politics that all the time was behind one set of- men and all the time opposed to another set of men, and after a while the other set of men won and then they came in there with their tomahawks out, you know, and with all their paint and feathers and determined to destroy the thing that had been after them all these years, and there is the illustration of the spirit with which the railroads have been dealt with, because many of the men who have dealt with them have dealt with them with their wounds fresh from the attacks the railroads made on them. Now I do not mean to say, let me make this clear, I do not mean to say that the rail- road movement out of politics will appeal to every com- pany at the present day and to the same extent. You know very well that you might find some radicals even in the Senate. We meet some radicals even in the railroad life. 211 i''e meet people in the railroad world that we cannot ap- rove, because they take an entirely different view of the clitics which ought to be adopted from those that we take, nd therefore you find that when a tendency starts it will ppeal to men of different temperaments and different views f public policy at different times, but what has happened 5 that the men who were most persistent in holding on to iiat have become early exceptions or belated adherents of bis view of getting out of politics. But some of them* are elated. At the same time the public sentiment of the rail- oad world is against being in politics, and the practice of he railroad world, dealing comprehensively, possibly with ome exceptions of belated gentlemen, is to be out of politics. Senator Robinson: I think we agree that in any event )olitics ought to be taken out of the railroads and the rail- oads out of politics as far as can be done? Mr. Thom : We agree on that, but we will say this, that or the railroads to be incapacitated to take any position in )olitics — ^it is a most lamentable thing for the public if hey are to be hacked to pieces by the other side which is all he time in politics, and trying to get into public office by ibusing them. Senator Egbinson: You have contrasted the regulation of lational banks with the regulation of railroads and pointed mt very accurately that railroads did not begin with regu- ation, whereas the national banks did. Here is another iontrast that I think we may agree upon between the regula- ion of national banks and railroads : The Government con- Tol of national banks is very much more rigid than it is of ■ailroads, is it not? Mr. Thom: I really have not those features in mind. Senator Robinson : If you have not I do not care to heckle iTQu about it. Mr. Thom : I say my impression was there was a liability m the national banks that, as I understood it, railroads do 212 not possess. What I mean is of their having the perf power of initiative, or a much larger power of initiative. Senator Robinson: In so far as regulation is concern though now, the Government power, as exercised, is nn more rigid as to the banks than it is as touching the n roads, is it not? Mr. Thom : I do not so understand it. You may be rig Senator Robinson : Is there not another distinction in i organization and operation of these classes of corporations in the na,tional banks the officers and managing age: usually are the principal stockholders of the banks the selves, are they not, whereas is that true under the pres( system of railroad management? Mr. Thom : I do not think it is true of either. Senator Eobinson: Do you not? Mr. Thom : No, the rates of the national banks are r subject to such regulation as. the rates of railroads. Senator Robinson: I do not think you understood r last question. Mr. Thom : I was answering your former one. Senator Robinson: But there is an absolute maximu limit fixed by law nearly everywhere touching the inter( that shall be charged, but I was not speaking of that no In the national banks the officers of the banks and tl managing agents, the men who control the policy of i bank are the men who own the bank largely, are they no Mr. Thom : I think that very frequently is the case. Senator Robinson : That is not true as to railroads, is i Mr. Thom: No, sir. Senator Robinson: By way of illustration, how inu( stock, do you know — I do not mean to pry into priva business and if you have any objection to answering ir question, you need not do so — but just by way of illustr tion, how much stock has Mr. Fairfax Harrison in tl Southern Railroad? Mr. Thom : I have no idea. The necessitv, however, f( 213 selecting railroad managers without reference to their stock ownership comes from the necessity of putting the very best man in charge of these properties, and I do not believe, since the difficulties which you alluded to a moment ago of these private arrangements of profit have disappeared, I do not believe the railroads suffer from that. Ordinarily now it is one of the most magnificent instances of our American system to observe the way men in railroad life have come up from the lowest beginnings. I have in my mind one man who is now comptroller of one of the large railroad sys- tems and is considered perhaps the most eminent accountant in this country, who never went to school after he was twelve years of age, and commencea as a messenger boy in a Virginia station. I know of a vice-president and general manager who has come up all the way from the lowest grades of railroad service, and these men have come into these high positions because of special personal ability they exhibited through long years of service. Senator Robinson: While all that is true, and I agree with you and rejoice in it, as a fact, it is also true that this management loses something that is usually associated with ownership and actual monetary interest in the control of large business concerns, does it not? Mr. Thom: The public does not lose. Let me give you an illustration of what I mean. Senator Robinson: I just asked you this question, do you think — — Mr. Thom : I know, but this is a valuable illustration I wish to present. I was present at a stockholders' meeting a short time ago of a southern railroad company whose president was "the man of whom you asked how much stock he owned. It has been since the fall of 19l4 since there has been any divi- dend on preferred stock of the Southern Road. The Southern Road has adopted the policy of having mass meetings of stockholders so as to have criticisms of the management, and when we went into this meeting the other day, last October, 214 there got to be a very considerable pressure for dividends, and a gentleman, who was a preacher, got up and demanded dividends, and he said: "This management does not con- sider the stockholders enough. The first duty of a manage- ment is to its stockholders." The president of the company said : "It must be recognized that the first duty of the manage- ment is to the public, and that the duty to the stockholders comes after that." Now in that matter of consideration for the public as the first duty, the management of the railroad loses nothing by not being very heavily interested in the stock. Senator Robinson: Do you know anything about the Railway Investors' League, Mr. Thom? Mr. Thom : No, sir ; I do not. Senator Robinson: I observed an advertisement in the New York American, the date does not appear in the ad- vertisement, of some gentlemen who style themselves the "Railway Investors' League." It is signed by Mr. John Muir, of New York City, as Chairman, and a number of other gentlemen, complaining, it seems, that the interest of investors in railway securities is not being safeguarded in this hearing. Mr. Thom : In this hearing? Senator Robinson : Yes, sir. Some reference is made to a letter sent out by the Chairman, indicating some of the mat- ters which the commission would consider and some of the classes of persons from whom the commission would like to hear, and complaint is made that railway investors were not specifically mentioned in that letter. I will hand this to you and then I think it would be fair to let it go into the record, and I will ask you to just glance over it. Before you examine that, your discussion here has largely been based upon the safeguarding, the fair safeguarding of the interests of investors in railway securities as a means of strengthening railway credit and thus obtain adequate and necessary railway facilities. 215 Mr. Thom : Yes, sir. Senator Robinson : Do you know of any conflict between, the rights and interests which you have presented here and the rights and interests of railway investors? Mr. Thom: None at all. I have attempted to show, just as you have stated, that the public needs, in its own interest, an adequate railroad credit, and that the only way to protect the public is to do the things that legitimately attract in-. vestors. Now, as to this newspaper advertisement, to which you have called my attention, I know nothing of it or any of the people. I have heard Mr. Muir's name mentioned ; I do not know him. I never heard of this advertisement, and I never heard of this move. Senator Robinson: I know Mr. Muir. He is a very prominent citizen. Mr. Thom : Any man has a right to complain of anything in this country, and I suppose Mr. Muir is simply exercising that prerogative. Senator Robinson: I will state that I have read the ad- vertisement, and my construction of it is that it is simply an invitation or a request to railway investors to effect an organization for the purpose of presenting their views and interests to this joint sub-committee, and of escaping what they may regard as unwise and unfair legislation affecting their interests, resulting from the investigation. Mr. Thom : If that is the purpose of it, I suppose that is legitimate, for anybody to come here and present his views. Senator Robinson: I do not mean to question the legiti- macy of it. " I Mr. Thom : What is that? Senator Robinson : I do not think you can infer from any- thing I said that I was questioning the legitimacy of it. Mr. Thom : No. I have not read the advertisement, and I do not know what it is. Senator Robinson : My interest in the matter is to see that all parties in interest are fairly treated, and I called it to •216 your attention, thinking perhaps that you would be able to throw some light upon it. Mr. Thom : No, I am not. Senator Robinson : You know nothing about it? Mr. Thom : No, I know nothing about it. The Chairman : Mr. Robinson, would you permit me, in connection with that advertisement, to insert right here in the record the invitation which was sent out? Senator Robinson: Yes. The Chairman: I will just read one sentence from that invitation. Senator Robinson : I will state that I think the invitation embraces -the class whose interests are alleged to be involved in that advertisement, and I will be glad to have you do so, Mr. Chairman. The Chairman: I will state, in the first place, that the committee will, of course, welcome the representatives of any organization of investors who wish to appear before it; and the purpose of the invitation was to cover such orginiza- tions, if they existed. I did not know that any existed. Now, the purpose of the committee is stated in this sentence : "The purpose of the committee is to hear regarding Government regulation and Government ownership the opinions of economists and publicists of eminence, representatives of the Interstate Commerce Commis- sion, the National Association of State Railroad Com- missioners, State railroad and public utility commis- sions, representatives of the railroad executives and labor organizations, representatives of farming organi- zations, and farmers, shippers, and bankers, repre- sentatives of chambers of commerce, and other im- portant business and industrial organizations." I put in the term "bankers" there, supposing that, as a rule, the investment bankers might be regarded as repre- sentatives of the investors. We all know that there are numerous investment bankers in the country, upon whose advice customers make investments. I saw that advertise- 217 ment, and if I had seen it before the invitation was sent out, I should have included that organization in the invitation. Mr. Adamson: And they are now invited. The Chairman: Yes, they are now invited. Insert this invitation in the record, with the advertisement referred to. (Invitation of Committee omitted from this print.) (The newspaper advertisement, above referred to, appears in full below, as follows:) Newlands Joint Congressional Committee. An Open Letter to All Investors in American Rail/may Secv/rities. » Do you, the real owners of America's railroads, wish to be ignored by the Newlands Joint Congressional Committee's investigation, which began yesterday, and will continue prob- ably for many months? Or do you want to have your interests properly presented by spokesmen chosen by you and authorized to speak for you with a view to securing fair play for your invested savings? Every conceivable interest will be represented at the com- mittee's hearing — except the real owners of our railroads, you and us and the rest of the 600,000 investors who, by means of our savings, have provided the capital for the creation and development of our $20,000,000,000 transportation system. There is no one authorized to go before the Congressional Committee and present your united views. The truth is that the small and moderate investors who have supplied the bulk of our railroad capital are the only body or class identified with the railroads who will not be very much to the fore throughout this investigation, so vital to the future of every railroad stockholder and bondholder in the land. Read carefully the following list of interests Senator New- 218 lands, the chairman, declares the comnlittee desires to hear from: "The purpose of the committee is to hear, regard- ing Government regulation and Government owner- ship the opinions of economists and publicists of eminence, representative of the Interstate Commerce Commission, the National Association of State Eail- road Commissioners, State railroad and public utility commissions, representative of the railro.ad executives and labor organizations, representatives of farming organizations, and farmers, shippers, and bankers, representatives of chambers of commerce, and other important business and industrial organizations." • Not one word, you will note, about the great army of frugal citizens whose hard-won savings have brought the railroads into being and keep them running. Railroad regu- lators galore are cordially invited. So, top, are the labor unions, the shippers, farmers. "Important business and in- dustrial organizations" are likewise bidden to the delibera- tions. But railway investors are wholly without any "important organization" to champion their rights. This ought not to be. Are you content to stand idly and impotently by and let everybody and anybody else say what should be done with your properties? Don't you feel that your wishes, your views, your interests should cut some figure in the momentous proceedings — pro- ceedings which are to determine whether the time has come to have the Government become owners of our 250,000 miles of railway or whether some other method be adopted hereafter in handling the whole railroad situation? Surely to ask the question is to answer it. If you agree with this, if you wish to have a voice in shap- ing the future and the fate of your properties, you can in- sure the proper presentation of your wishes by joining the movement to organize a Railway Investors' League and, 219 later on, by nominating and authorizing the strongest dele- gates possible to go before the committee to defend your legitimate rights. Railway Investors' League. The Eailway Investors' League has already tentatively en- rolled several thousand members from all the States of the Union, and a start has been made in inducing the leading railroad companies to bring the movement directly before each one of their recorded stockholders. If the response to this announcement — and to the other measures being taken by those who are striving to bring to- gether railway investors in a united, influential, nation-wide body — shows unmistakably that you wish to have, some voice in the fate of your properties, steps will be promptly taken to 'proceed with the formal and permanent organization of the Railway Investors' League. Such an association must, of course, be self-supporting, and it is proposed to fix the annual dues at one dollar. Do not forward any money at this stage, but simply fill in the appended blank form and mail it at once — without committing yourself to any obligation or to any responsi- bility whatsoever. If you do not consider your own rights worth protecting, it is scarcely to be expected that any one else will. J. A. Fagan, Minneapolis, Minn. Carl W. Peirce, Massillon, 0. F. Edward Sommers, St. Louis, Mo. William K. Ewing, San Antonio, Texas. H. T. Winston, Washington, D. C. C. McConnell, M. D., Hogansburg, N. Y. Organization Goynmittee. John Muir, New York City, Chairman. Lionel Sutro, New York City, Vice-Ohairman. B. C. Forbes, New York City, Vice-Chairman. Paul Mack Whelan, New York City, Secretary. 220 (The foregoing advertisement appeared in the "New Yt American" of date Tuesday, November 21, 1916.) Senator Robinson : It may be that some of the questif I am asking you are more or less academic, but they are : asked for the purpose of haggUng in any wise, but solely the purpose of clarifying my own mind with respect to i matters which you have suggested. You suggested certi reforms as fairly calculated to accomplish the ends which y think are desirable in railway regulation. Mr. Thom : And which are making much progress in tl direction. Senator Robinson : The first relates to the national regu tion of all rates for roads engaged in interstate commeri I understand that you expect hereafter to discuss the \i applicable to these suggestions, and I will not go into th now, or anticipate your discussion by questions in detail co cerning the power of Congress to occupy the entire field rate-making as to railroads engaged in interstate commerc but in order that I may understand now your viewpoint as this proposal, I ask do you contend that if a railroad engagt in interstate commerce, the rates which it charges on pure] intrastate traffic are within the regulative power of Congress Mr. Thom : Yes, sir. Senator Robinson: Is it not true that Federal contn over interstate rates is limited to two conditions, so far as ou courts have yet decided : first, the nullification of rates wMc are confiscatory, and second, the nullification of rates whic constitute a discrimination against or a burden upon intei state commerce? Mr. Thom : I think the courts have gone further, and hav said that it is the constitutional power of Congress to regulat the entire instrument of interstate commerce. Senator Robinson : Has the Federal Government power in your opinion, to fix or regulate rates on purely intrastati traffic, merely because the commodities are transported ovei 221 a railroad which, while doing intrastate business, is also en- gaged in interstate business? Mr. Thom: I think that the foundation of the power of Congress to act in the matter is to regulate the instrumen- tality of interstate commerce in all its bearings. Senator Robinson: Do you not think that is limited to its connection with interstate commerce ; that it regulates it as an agent of interstate commerce, and not as an agent of intra- state commerce? > Mr. Thom : You cannot regulate it ; you cannot protect it ; you cannot sustain it unless you regulate it in all its activities. Senator Robinson: Then, I understood you correctly in your original statement. I wanted to make sure of it. Mr. Thom : Yes. I will present an argument on that sub- ject at a later stage, of these proceedings. Senator Robinson: With reference to the suggestion which you make as to compulsory Federal incorporation of railways before permitting them to engage in interstate Commerce, this, in your opinion, would relieve the unequal conditions under which the railroads are organized and oper- ated, by reason of the limitations and provisions of their State charters, but it would not add anything; of course, to the regulative power of Congress ? I Mr. Thom: No. Senator Robinson: Congress can do everything without Federal incorporation that it could do with it? Mr. Thom: I think it can, but, as I told you, there is some difference of opinion about that, in respect to any pro- vision of a congressional act which might be construed as an amendment to a State charter. Senator Robinson: It would, in your opinion, constitute a tendency toward uniformity, which would strengthen rail- road credit? Mr. Thom: Undoubtedly, and it would have a most im- portant bearing upon universally accepted control as valid by Congress, of the issue of securities. 222 Senator Ex)binson : Your third suggestion relates to reor- ganization of the Interstate Commerce Commission and changes in its jurisdiction and powers, so that it shall be- come a judicial tribunal? Mr. Thom : Yes, sir, largely. Senator Robinsok: And that regional subordinate com- missions be established, with right of appeal to the central commission provided in certain cases? Mr. Thom : Yes, on exceptions. Senator Robinson : How many of those regional commis- sions do you think would be required, Mr. Thom? Mr. Thom : I have not gone over the country about that. I do not know. Senator Robinson : Very well ; if you have not determined upon the number Mr. Thom: No. I thought that was a matter that the Interstate Commerce Commission would study and recom- mend to Congress. Senator Robinson: Now, if these regional commissions are created, as you suggest, would it still be necessary for them to have examiners, in order to make a proper investiga- tion of cases coming before them ? Mr. Thom : I should hope not ; but I cannot tell. Senator Robinson : The primary purpose of creating re- gional commissions, as I understand you, is to bring the work — the investigation itself — closer to the Commission, so that the litigants may have the advantage of the actual service of the Commissioners themselves, rather than, of subordinates in the person of examiners and clerks? Mr. Thom : Yes. The double object of bringing the Gov- ernment close to the communities, whose interests are af- fected, and the other object is that of assuring the character of the men — the type of the men, I would say, rather than the character — the type of the men who are to have charge of these important matters. Senator Robinson : You would not advocate the creation 228 of these regional commissions unless they were so constituted and equipped as to accomplish these two things? Mr. Thom : That is right, yes. Senator Robinson : To bring the public closer to the Com- mission and the Commission closer to their work? Mr. Thom: Yes, and that the type of men be assured. There is great complaint — somebody made it here this morn- ing — I think, Judge Adamson — a great complaint, not only on the part of the shipping public, but on the part of the railroads, that in many important matters they do not get beyond the Examiner; and while these Examiners are fine young men and capable people in a great many ways, they are bound to have their grade somewhat fixed by the com- pensation they get. Senator Robinson: With the constantly increasing work that is being imposed by Congress on the Commission, and the natural growth of their duties, Avith the expansion of the commerce of the country, this condition will grow worse? Mr. Thom : Yes, undoubtedly so. . Senator Robinson : Now, just an inquiry or two about the inprease of the power of the Interstate Commerce Commisr sion over rates, which constitutes another one of your sug- gestions. Do you suggest that this power be extended in any particular, so as to give the Commission the power to fix mini- mum rates? Mr. Thom : That, in my representative capacity, is the full extent to which I would make the recommendation. I mean that I am expressing the views of the railroad executives, in making that recommendation. Senator Robinson : Yes. You do not wish to express any personal views concerning it? Mr. Thom : I do not think it would be very becoming for me to express a personal view. Senator Robinson : I will not ask you to do it. Mr. Thom: I want to say that my personal view goes to the full extent that I have recommended there, however. 224 Senator Kobinson : Would the power to fix both minimum and maximum rates, if vested in the Commission, prevent dis- criminations ? Mr. Thom : I think it would. Senator Robinson: That is the principal object of giving that power to the Commission? Mr. Thom : That is one object, but the other object — and a very important one — is to prevent the improper depletion of the revenues of the companies through some local concep- tion of what is best to be done for the company. Senator Robinson: And to* prevent the railroads them- selves, under stress of competition, from making unfairly low rates? Mr. Thom : Yes. Senator Robinson: Would not the difficulty of deter- mining the relative reasonableness of rates still exist after the power to fix a minimum rate is given to the Commission and the rate actually fixed? Would not there still exist a latitude between the minimum and the maximum that would enable the railroads to practice discrimination? Mr. Thom : I think you will find in the suggestion that they be given entire power over the question of discrimina- tion. Senator Robinson : Very well. Mr. Thom : And the protection of the rate structure. Senator Robinson: Referring to your fifth suggestion, which would prescribe some of the things that the Interstate Commerce Commission must take into consideration in fix- ing rates, you say that they should be required to consider the value of the service. Do they not do that now? Mr. Thom : I do not know. Senator, whether they do it or not. I have a good deal to say when the proper time ar- rives on that question of value of service, and if you have time now for about half an hour I would like to do it at this time. Senator Robinson: You need not do it now. I prefer 225 that you should do it in your own time, although I should be very glad to hear your discussion of that subject. What do you mean by the suggestion that the Commission should be required to consider the rights of the passengers, shippers and owners of the property transported as an element in rate- making? Mr. Thom : What do I mean by that? Senator Robinson: Yes. Mr. Thom : I mean you would have to have reference to the public's side of the question as well as to the side of the corporation that furnishes the service. Senator Robinson: The Commission now has regard to the expenses of the railroad in maintaining and operating its property, does it not? Mr. Thom : Not always. Senator Robinson: Well, should it always do it? Mr. Thom : I think it ought always to do it. Senator Robinson : Do you think the law should require them to do that without regard to the economic extravagant maintenance of its properties? Mr. Thom: No, sir; I do not. But now I will take the illustration that is in my mind that caused that provision. Everybody knows that the railroads, when they have paid wages and increased prices, have not done it as a means of extravagance; they have done it under the compulsion or force that they felt they must recognize. The Interstate Commerce Commission has said in a case that they cannot consider an increase in wages if not justified as an element in the expense. Now, what does it mean by that? You gentlemen know something of the way wages are demanded. We think the Interstate Commerce Commission ought to know that, and when we find that situation we feel that it ought to be taken into consideration in determining rates. Senator Robinson: That seems fair, but I did not infer from your statement of that matter that it would embrace 1 own 226 this item. I thought if you had anything embraced there other than road improvements and things of that sort you would have specifically mentioned it. There ought to be some limitation on that provision, however. The Commis- sion ought not to be required to make rates always remuner- ative to railroads without regard to the manner in which the railroads had expended their funds. Mr. Thom : Oh, no, certainly not. In other words, there must be some supervision over the matter of expenses. Senator Robinson : Yes. Mr. Thom: I assume that when Congress says expenses it means legitimate expenses. It does not mean wasteful- ness or throwing away? Senator Robinson: Yes; reasonable and necessary ex- penses. Mr. Thom : Certainly. There must be that margin to the managers as to what they consider necessary, and the Government must not prescribe an arbitrary rule, for it cannot be done. But there might come up a case theoretic- ally. However, I do not think you will find it. Senator Robinson: From your statement I infer that you are merely expressing the suggestion in general terms, that you were not trying to write it as it should be written into law. Mr. Thom : Yes, sir. Senator Robinson: I did not understand exactly what you meant by it. Your suggestions with reference to giving the Interstate Commerce Commission power to revise rail- way-mail pay would undoubtedly relieve Congress. Mr. Underwood suggests that that is already the law. Mr. Thom : Well, it is measurably the law. Maybe it will be able to do it a little more effectively. Senator Robinson : You would like a modification of the law in that particular, would you? Mr. Thom: Yes, sir. The truth of the matter is that I am not acquainted with what the law has done. Somebody appointed me on a committee of counsel the other day to appear before the Interstate Commerce Commission on the subject, and I noticed my name at the head of a brief which I never saw, and I found that I was in rather deep water. Senator Underwood: As I understand it, the last Post- Office Appropriation Bill took the control of the fixing of the railway pay out of the hands of Congress and authorized the Interstate Commerce Commission to determine what it should be. Senator Robinson : I think that is what you want in that suggestion, and I think it is a fair suggestion. I was just goihg to remark that. Your suggestion as to Government control of the issuance of stocks and bonds of' the railroads engaged in interstate commerce is undoubtedly in conform- ity with the opinion of growing public thought on the sub- ject, and more than any other one thing would tend to strengthen railroad credit and protect it for the future. Mr. Thom : I want to call your attention right there, Senator, to the fact that that proposition on our part is proof that we desire to get a provision of the law which would prevent the recurrence of the things that the public complain of. In other words, to talk about the doing of these other things does not involve the suggestion on our part that the Government should not keep its eye on the pos- sibility of abuses for the future. We want the machinery to provide for that as well as for the other things. We are ■trying to take a broad. and comprehensive and patriotic view of what the Government ought to do in this matter of regu- lation. Senator Robinson: That concludes my examination of Mr. Thom. In your statement you submit concrete proposi- tiofls for reforms which you think are necessary in the pub- lic interest and to protect the rights of the railroads and rail- road investors, and you have performed the service, which I appreciate. Mr. Thom : I thank vou. Senator. 228 The Chairman: Mr. Sims, will you proceed? Mr. Sims: Mr. Thoni, I do not want you to assume or conclude that I am unduly inquisitive, or in an unfriendly attitude because of the questions I am going to ask. When we get through with this hearing, I want to, as far as I can, know who is bound by it or who is estopped by it, and that sort of thing.. Now, you appear as attorney here for a com- mittee, as I understand it. Mr. Thom: Yes, sir. Mr. Sims: The Advisory Committee of Railway Execu- tives? Mr. Thom: Yes, sir. Mr. Sims : Now, you may have stated it, and if you have I do not remember, what railroad executives is this commit tee advising, what systems do they represent, what per cent of the railroad property of the country do they represent? Mr. Thom : I should suppose it is between 85 and 90 per cent now. Mr. Sims: In other words, you have the companies by name so that they can be put in the hearings, that you, in this way, represent? Mr. Thom : Oh, yes. Mr. Sims : And this 85 per cent of the railway inter- ests Mr. Thom : I think it is over 85 per cent now. Mr. Sims: Well, whatever it may be, that you are repre- senting them, and what you represent as their wishes will be acquiesced in by them? Mr. Thom : That is my understanding. Mr. Sims : Now, then, there is about 15 per cent then of the railway interests of the country that hdve not indicated their willingness to be bound by your recommendation'? Mr. Thom : There are some small ones, mostly, of course not altogether. There are some, mostly small lines. Mr. Faulknee : Short lines. Mr. Thom : And I have no doubt in the world that a 229 great many of them do not dissent in,any way. We happen to have the specific authority of a great many. Mr. Sims : Well, are they, in general, lines that are in the nature of subsidiary lines, owned by other roads? Mr. Thom : No, sir ; I do not know what they are. As a rule, of course some of them are, but not all. j\lr. Sims : You are representing the public here, as I my- self am, and you are asking us to take that view, that is the view that thife whole proceeding shall be in the public in- terest? Mr. Thom: Yes, sir. Mr. Sims: Pressing nothing that the public interest does not demand or require or will not be benefited by receiving. Of course this fifteen per cent is part of the public — the small — roads, and 1 suppose there are a greater number of small corporations than large ones. In your testimony here you referred to the fact that your recollection was that in what we call the Pennsylvania Railroad System it embraces 149 separate corporations. Mr. Thom: That is my recollection; I do not remember exactly. Mr. Sims: Well, that is about accurate. And that 149 corporations that constitute the present Pennsylvania Rail- road System, as a matter of course, are parties to this in- vestigation. Mr. Thom : I should say so. Mr. Sims : And you are representing their views the same as you do the Southern and all others — I mean they are represented by yourself, and you being counsel Mr. Thom : Well, I do not want to be in the position of saying that I recommend anything specific. If it is neces- sary at any time I willput in the record the names of the roads I represent. Mr. SiMS: I think that would be a good idea from the fact that some roads may afterwards say they did not know 230 they were being represented, or something of that kind — that is, the stockholders in some roads. Mr. Thom : I can put a list of those into the record. Mr. Sims: You are acting in the capacity of attorney to an advisory committee? Mr. Thom : Yes, sir. Mr. Sims: I suppose that means only in reference to this examination. Mr. Thom: Well, it does not mean only in reference to that, so far as my present appearance is concerned. It is confined to what might pass here. But my authority is a larger one than this mere hearing. Mr. Sims: Well, this committee of execiitives, are they chiefly railroad presidents? Mr. Thom: They are either railroad presidents or they are chairmen of the boards of railroads. Judge I^vett is Chairman of the Board of the Union Pacific, and Mr. Walters is Chairman of the Board of the Atlantic Coast Line and the Louisville & Nashville. They are both members of this Committee of Executives. Mr. Sims : Now, this committee that you do represent, are they the owners of the railroad properties with which they are officially connected? Mr. Thom : I assume that the stockholders own the roads, and of course they do not own individually a majority of the stock, I imagine, although I am not acquainted with their ownership. , Mr. Sims: Do you know whether they are representing the owners of railroads — that is, the stockholders and bond holders? Mr. Thom: They represent the railroads. They are act- ing in their official capacity as the heads of those systems, Mr. Sims : I do not understand that an operative officer of a railroad has a right to bind stockholders as to financial matters or policies or anything of that kind? Mr. Thom : T think it would be safe to a«sume for these 231 railroad presidents and others that they feel they have the luthority or the capacity to represent all the interests. At Least, whether they have or not, that is the extent of my luthorization that comes from them. Mr. Sims: It is a fact, or has been, I supposed, to some extent, that the office of president of a railroad company was more in the nature of being a general manager than other- wise? Mr. TiTOM : I do not so understand it. Mr. Sims: AVhen orie railroad company is financially owned by another railroad company the president of the first railroad company may not be the representative of th& financial interest in the second company. Mr. Thom: Oh, that is quite true, but when you look over the names of these gentlemen I think you will find that they are responsible representatives of the railroads. Mr. Sims: Not having the means of knowing, or not. knowing, that is what I am trying to do. Mr. Thom : I will give them for the record. Mr. Sims: I mean the Advisory Committee, that is what you have reference to? Mr, Thom: Yes, sir. Mr. SiMS: I am speaking of the others. Now, take the Louisville & Nashville Railroad Company. It owns a large controlling interest in the Nashville & Chattanooga Rail- road Company. Therefore, the president of the Nashville & Chattanooga Railroad Company is representative, to a great extent, of the Louisville & Nashville Railroad Com- pany's interest in that company, rather than the general stockholders. , Mr. Thom : Yes, but the man who is on this Committee is Mr. Walters, who is the Chairman of the Board of the Louisville & Nashville. Mr. Sims : And does he not get that position by reason of the Louisville & Nashville, the majority of its stock being owned by the Atlantic Coast Line? 232 Mr. Thom: Yes, sir. Mr. Sims: The Atlantic Coast Line is the holder direc of the stock of the Louisville & Nashville Railroad Compar Mr. Thom : It holds a majority of the stock, as I unc stand it; I do not know how much, but I understand a ] jority of the stock of the Louisville & Nashville. Then Louisville & Nashville has stock control of the Louisvi Nashville & St. Louis, and in that way Mr. Walters has come representative of both interests. Mr. Sims: In other words, the railway company that represents, being the controlling company, he theref represents the company which can, and does in fact, cent the policy of these other railroads? Mr. Thom : That is my understanding. Mr. Sims: I wanted to get that, because I think it something that it is well to have known. The propositic you present are from 85 per cent of the railroad interests the country? Mr. Thom: I think, when you get to talking about or 90 per cent, it is nearer 90. Mr. Sims : Let it be one hundred, then. Mr. Thom : I merely want to state what that means. Tl means a railroad, or railroads, in the class into which t railroads are divided by the Interstate Commerce Comm sion, having as much as a million dollars gross income year. Of course, there are a great many shorter roads oi side of that. Mr. Sims: Who do not earn that much? Mr. Thom :• Yes, sir ; and one gentleman representing large number of short roads, on the Pacific coast, came in my office yesterday, and stated he wanted to appear, and have no doubt you will have representatives of these she roads. I am representing the roads in the class I have me tioned. Mr. Sims: Which is practically the railroad interests > the entire nation? 233 Mr. Thom : I think so. Mr. Sims : That is the way I understood you. Mr. Thom: There are some interests — there is a very large percentage — ^that have conferred about this matter, and have argued with each other about it, and have come to the conchisions which have been placed before you. Mr. Sims : By yourself? Mr. Thom: Yes, sir. Mr. SiMS: And those conclusions are propositions for legislation and changes in the existing conditions, which are so general and so radical, as compared with the existing conditions, as to practically be an entire new situation or new legislative consideration of the entire subject-matter of the railroad interests of the country, its credit, its capacity to serve the public and all those things considered; in other words, the legislation you have asked for is so different from existing conditions as to amount to what you might say is a new codification and revision of all existing railroad laws and of the powers of the States, as they are now exercised, together with existing national legislation? So, if I see it correctly, it becomes practically fundamental regarding all transportation questions. Is that not substantially so ? Mr. Thom: It does not involve — it is easily engrafted as an amendment upon the present interstate commerce Act, but the changes that are made in it have many fundamental qualities. There is much in it that is a real change from present conditions. Mr. Sims : That, if carried out, would be practically a new interstate commerce law? Mr. Thom : Well,^— Mr. Sims (continuing) : Rather than an amendment of the existing law? Mr. Thom : Well, the difference between us on that would be simply a difference of terms. We both know it can be carried out by an amendment to the present law, and we both know that the changes that would be made in it are 234 far-reaching, and anything further than that would be just, a difference in terms. Mr. Sims: Now, Mr. Thom, in hearing your entire dis- cussion, which I did, except one day — and I have read that since — it is your belief, or the belief of those you represent, that unless there are changes in the existing law, along th& subject dealing with the subjects which you have outlined, that the present conditions do not meet the demands of the commerce of the country, and without these changes, re- latively speaking, our transportation system is a failuref Mr. Thom: Yes, sir; and Government ownership in- evitable. Mr. Sims : If we do not pass legislation substantially along the lines you have marked out, there is only one logical con- clusion to reach, and that is Government ownership must come, in order to have transportation at all? Mr. Thom : You say substantially along the lines I have marked out. Mr. Sims: I mean so as to accomplish the purposes you have marked out. Mr. Thom : Do not lose sight of the fact that I have been put, by the action of this Committee, in front of these pro- posals, and my desire was to hear some of the independent thinkers of the country to see what effect that might have on the suggestions I might make. I am still in that open- minded condition, and there may be members of this Com- mittee, and other people, who may appear, who may sug- gest a wiser program than I have done, but unless things are accomplished, as you have put it — unless these things are accomplished to strengthen the railroad credit, and en- able the situation to be so brought about as to cause people to regard railroads as a stable thing in which to invest safely, in my opinion, the time is short between now and Govern- ment ownership. Mr. Sims: And governmental ownership is made inevi- 235 ale on the failure to legislate so as to accomplish the pur- ses you mention? Mr. Thom : Yes, sir ; then I say also that all the talk we are iving about the States has no real place in this investiga- )n, because, if something is not done to stabilize the present stem, and to bring the necessary amount of money into it, en Government ownership will come, and then State control ' all sorts will go. So, I am trying to retain as much as I in, with safety to the general system, all State participation, jcause that is the only way, in my judgment, that will ob- ate ownership, and when Government ownership comes, len there will be but a single interest and single power, and rery divided power must disappear. Mr. Sims : I think you state the matter so any of us cah nderstand it. Then, the basic grounds of the investigation ere, if I understand them, should be conducted along the nes of ascertaining whether or not it is best to avoid Govem- lent ownership by legislation that will result in enabling the ailroads to perform the services as they should be performed, ither through the suggestions you have made or some other jgislation that will accomplish the same resul^? Mr. Thom : That is my judgment. I think you have tated it accurately. Mr. Sims : Then the issue between private ownership and (ublic ownership, by making private ownership possible in his present condition, is not possible or feasible or practicable, fithout some remedial legislation? Mr. Thom : The present conditions cannot continue. Mr. Sims: And so, then, without any question of the re- noteness of the matter or the immediateness of it, if the con- litions must be changed in order for private ownership to be (uccessful, we cannot too soon change the necessary con- litions to that end? Mr. Thom : That is my judgment. Mr. Sims : Now, what is possible in physics or mathematics s one thing ; what is possible in legislation is another thing ; 236 what is impracticable in legislation is therefore impossit that is, it may as well be physically impossible. We are o fronted with the old settled idea, that each State has rig which it ought to exercise, and which should never be ex cised by a central power, and can never be exercised by £ central power, with the same benefit locally. We have peo all over the country with different views, and we are just r resentatives of those people, in those different States, w those different views, and therefore I think this investigati ought to be as broad and as unlimited as is necessary to m all these suggestions and views of the public generally, a of those who do the voting, as well as gentlemen upon wb responsibility the future operation of the railroads depen Now, there is no proposition before this Committee — i body advocating it — for a legislative proposition about G( ernment ownership at this time. Consequently, it seems ine an examination of these propositions, as fairly as we c£ the possibility of getting them enacted into law, is the pri tical work for this Committee. That is my own view of If I am in error about it, I want to be corrected. I want to say, as far as I am personally concerned, IV Chairman, I have absolutely no prejudice. I never was ei ployed by any railroad company in my life to render ai form of service for them ; I was never employed by anybo( to represent them against the railroads. I live in a coun that is uncontaminated by a single mile of railroad, an consequently, cannot have any personal feeling for or agair the railroads. Mr. Thom : I have often said that those who know mc about the railroads are those who never saw a railroad. Mr. Sims: But I have seen them. Mr. Thom: We have one district where a railroad ruj right along the edge on one side, and right along the edge c the other side, and the most radical things, so far as the rai roads are concerned in that State, come right from that di trict. 237 Mr. Sims: But I am not proposing anything radical. What I am referring to are practical things. Mr. Thom: But I mean the people who see the country going to ruin from the railroads are there. Mr. Sims : I will tell you why we have no railroads in my county. It is a good county. It has phosphate, iron ore, timber, building stone ; farm land — good agricultural land — and the county has, on several dififereiit times, voted a bond issue of $50,000 to any railroad that would cross that county, that is, either north, east, south or west, and a railroad was being built from Memphis to Nashville, called the Tennessee & Midland, and after it got built to the Tennessee River, which was practically a half-way point, why the man who was in charge of it then died. He was a Mr. Morse, from St. Louis. The Louisville & Nashville Railroad Company, in the administration of his estate, bought up the stock of that rail- road and then, owning the Nashville & Chattanooga Rail- road, by a majority stock, leased it to the Nashville & Chat- tanooga and prevented its being built. Now, that is the helpfulness that we have had towards get- ting a railroad built through our good county. They are not to blame for it, because the railroads will not even build one when the money is offered to them. There stands an author- ized bond issue to build one now through my county, but for some helpful purpose or another, they are never able to get there. So, there is a portion of the country unserved by railway facilities, that they have done everything they know how to do, in an effort to get a railroad there, even to the ex- tent of voting a bond issue. So, if I have any prejudice in this matter at all, it exists on account of that local condition there. I think the railway systems of this country should be built up so as to develop each undeveloped section of the country, and that if the rate — if the amount of business through that county will not pay for building a railroad across the county, that is no reason why it should not have a railroad. 238 Mr. Thom: One of the great difficulties which men charged with comprehensive duties have to meet, is some lo- cal condition, such as you have described, where somebody has not got just what they think they ought to have. Now, it is manifestly injurious to the public interest that the great question of transportation should be affected at all by some local condition. Mr. Sims: I think you are right about that. Mr. Thom: I sympathize with your criticism. I never heard the facts in that case before, but that condition of af- fairs you say, if you have any prejudice, creates it. Now, you come on this Commission. You have great national re- sponsibilities on your shoulders. You have got the fate of this Nation in your hands. You have got to help determine the standard of commercial possibilities for the future, and you come to it, as you say, from that situation. Now, cannot we get away from those conditions, when we are dealing with so gxeat a subject as this, and that would illustrate may plea for trying to have a national regulation of a matter so na- tional in its character. Mr. Sims: Well, I stated this fact or story I have toljijoU; for two reasons: I think the committee and yourself ought to know whether or not there is any local condition that af- fects my judgment — if it does affect it, — ^but the point I was trying to reach was another matter entirely, and that is this: The strife between railroad companies under the existing con- ditions — the struggle to shut out railroad competition in their region'al field — has forced communities like my own to suf- fer. That action in preventing the building of this railroad was not to keep a railroad from being built in my county and the contiguous counties, but it was done to prevent competi- tion at Nashville, Tennessee. Mr. Thom.: Yes, sir. Mr. Sims : Between some other railroads. Mr. Thom : Yes, sir. Mr. Sims: Now, the destructive work of jcompetition be- 239 'tween railroads has actually over-developed some sections and -actually prevented the development of others. Mr. Thom : Undoubtedly, and now right there I want to -say I think that is a very mistaken railroad policy. I believe that railroads are bound to succeed by virtue of the pros- perity of the communities they serve, and that if Nashville ■could be built up by a number of railroads going there, it is vastly to the advantage of every railroad in it to have Nash- ville so built up instead of keeping some railroad out. We "have got a point on our road, I have not talked with this •president of the railroad, but I have talked with his predeces- sor, and I know it was his policy to do nothing to prevent the construction of a railroad other than his own into that rpoint, because he felt by so doing if that point was built up "he would get more trade frbm the prosperous community ihan he would get from the community that has limitations, ^rhaps, put upon it by being served by a single line. I en- tirely agree with the philosophy which suggests your remarks there. I do not believe in that policy, and I believe that as i;he wisdom of governmental regulation grows so we may hope for the policies and views of railroad managers to become ex- •panded and to grow likewise and to take a more comprehen- sive view of this problem than some of them have thought wise heretofore. Mr. Sims: In the interest of the whole public I believe 'that, comparatively speaking, relatively speaking, the present •system is an absolute failure. Now I read from a speech de- livered by yourself at Atlantic City, October 1916, in which you say: "The, average movement of freight in the United States is 24 miles a day." Mr. Thom : I have received a letter from one of the prin- "cipal railroad presidents of the country about that statement in that speech and he has called my attention to the fact that 24 miles a day includes the movement of all cars while they ;are waiting for loads at points of loading, and on sidings, «nd in yards, in transit, and all that, and since his letter I 240 » have tried to get the exact figures which I have not yet donCj and I have not again used that illustration because I don't know whether it is so. Mr. Sims : It is substantially correct, I take it, is it not? Mr. Thom : I do not know. Mr. Sims: Twenty-six or twenty-three mil«s, or something of that sort? Mr. Thom : I do not know the figures. Mr. SiiNis: What is the relative gross receipts of railroad companies from freight and passenger traffic? Mr. Thom: The freight traffic is very much greater. ij Mr. Sims : Is it not about three to one? Mr. Thom : I do not know. I suppose it is different with different companies. The New Haven Railroad has about. one-half. Mr. Sims : I am talking about all railroads. Mr. Thom : I do not- know, but it is very much greater for freight. Mr. Sims: You say further: "There 1^ an average move- ment of the freight car of one mile an hour throughout, the country." Mr. Thom : Well, that is the ^•ery point 1 say Mr. Willard, in writing to me, says I am mistaken about, those figures; that the movement of cars while in motion was, of course,' vastly greater than that, and he gave the figures, told me in that letter Mr. Sims : I mean that each car during the year, upon the average, moves only one mile in one hour of time, including all the movements it makes, including the time it is lying at a siding or at a terminal, that the car itself operated in the freight service only moves one mile in one hour, or 24 mileS a day? Mr. Adamson : They are not counted until they are loaded, are they? Mr. Thom : That is what I say, I have not been able to get at the bottom of it. I am trying to verify that statement 241 because it was called to my attention by a letter from Mr. Daniel Willard, of the Baltimore & Ohio. Senator Under-vvood : If you will allow me to interrupt, I think you will find the question embraced in the report of the Interstate Commerce Commission a year or two ago in reference to loaded cars, and my recollection is the report shows they moved 24 miles a day, that is the time on the average, that included the time on side-tracks and on spurs. Mr. Sims: That does not include the time actually in trai^sit, I should say? Senator Underwood : No. Mr. Sims: Then it does include substantially the move- ment. Now I want to say there is three-fourths, if I am correct about it being three-fourths, , of the gross receipts of the railroad companies of this country earned upon car& moving at a snail's crawl, and they are carrying the freight traffic of the country upon which the people must live, and upon which business must prosper or fail. I do not see how it is possible at this day and time for such movement of freight, upon the average, to serve the public interests of the country. Mr. Thom : There ought to be double-tracks. Mr. Sims: There ought to be what? Mr. Thom: There ought to be double-tracks so that we would not have to wait for the car moving in one direction to let another one going in the other direction have the right of way for hours. There ought to be more extensive -yards; there ought to be perhaps greater traction power; there ought to be greater transportation capacity, and, as I say, that is a question which is confronting the American people today. You may rest assured that whatever move- ment there is of those freight cars is spurred on by the very influence that you are now referring to. Those railroads want to make that money. They are deliberately leaving that car at that rate of speed when they could make more money if they could move it faster. There are physical 16w 242 limitations upon it. You have got men who have grown up with the business, the wisest an^ best and the most skillful that the country can aflford to try to get that car along, yet their physical obstacles are so great that even the immensely increased revenues they would get from a quicker movement are not open to them, and we are coming here to plead for the credit to enable us to double-track our road, to enable us to increase our sidings and yards, that will enable us to increase our capacity in every respect. ' Mr. Sims: But the fact remains and seems to be proven, and what you have just said, that under present circum- stances, with the railroad operatives doing all they can to serve the people by way of moving the products of the coun- try, that its movement, is relatively a failure? Mr. Thom : It is too slow. Mr. Sims: It is too slow and does not meet the require- ments of business, the requirements of commerce, and that that itself accounts for what is now called the shortage of cars. If these cars were moving on an average of 50 or 52 miles a day, twice as fast as they are, they would naturally carry twice the products they are now carrying, consequently you would have, with the more rapid movement, a surplus of cars with the present supply? Mr. Thom : Possibly, with a greater track capacity and other conditions making such a faster movement possible. Mr. Sims: In order that this faster movement may come about, the double-tracking, the increasing of facilities for the loading and unloading, and all that kind of thing, must necessarily come before this freight can be moved as it should be moved, is that not correct? "We must have the instru- ments you have just detailed in order to enable the country to receive the service it is entitled to receive, and which is necessary? Mr. Thom : I do not think we can get the best service until its facilities are improved. Mr. Sims : Without the best service they cannot afford the , 243 best national development? It would be utterly impossible? Mr. Thom : Yes, sir. Mr. Sims : Now then, the improvements that would neces- sarily be required in order to give the best service, — not a service that is just simply tolerated, but the 'best service to the whole entire country — would call for an expenditure of money, under present conditions, perhaps approaching the present investment, would it not? Mr. Thom : I think, from investigations I have made — I have not conducted them myself, but I stated here the other day figures about what would be needed. We must remem- ber that the American people up to this point are pretty prosperous; that while their methods of doing business are not in the most perfect condition, yet they prosper; the nation has grown ; the nation has been developed ; their trans- portation business up to now has been carried on fairly well ; there is a great deal which has been done, notwithstanding the situation which you refer to, and we are not preaching, but unless growth is stopped we have got to perfect our facili- ties for the future. Mr. Sims : When growth stops death sets in, does it not? Mr. Thom: It does indeed, and that is what I am trying to avoid. Mr. Sims: What I am trying to find out is whether you have any estimate at all of the amount of capital that the railroads will require, what you gentlemen call new money, additional capital to include the railway facilities of the country that now exist and add to them such as may be necessary to properly develop undeveloped regions of the country, about what per cent, if you know or have an idea relative to the present investment, will be required in the way of new investment? Mr. Thom: About eight per cent annually for the next ten or fifteen years, which would mean about $1,250,000,000 a year. Mr. Sims: In other words, in twelve years it would be double what the present investments are? 244 Mr. Thom: Yes, sir. Mr. Sims : Now I want to bring to your mind a quest in regard to that. I am not, of course, a railroad man, i I take it you ^e correct, or substantially correct, in say that much money will be required provided that is di which ought to be done for the public interest for the velopment of the United States, and not any particular j tion of it. I think I heard Mr. J. J. Hill a few years i make a statement substantially along the lines you h; made before a Congressional Committee of the Senate. 15 then in order to secure that much money as a certaintj certainly a very serious consideration as to how to get and without acquiring the money the improvements cani be made, and without the improvements the country can: progress? Mr. Thom : Yes, sir. Mr. Sims: And would have to continue in its present i satisfactory condition? Mr. Thom: And therefore the time has come for y gentlemen, for you responsible statesmen, to consider whetl something must not be done of the far-reaching nature tl you have referred to here to provide for those public ne( which all of us see are coming. Mr. Sims: Should any country as great as the Unil States is and with the necessity for provision for future ( velopment have to depend upon that development aloi upon market conditions for private securities during t long series of years which may be affected by wars a; famines and such things as may interrupt the steady flow private income? Mr. Thom: I think it can be safely done for a numl of years to come. As Mr. Olney stated it in that wondi ful memorandum I read here the other day, it may found on sufficient experience and experiment that Govei ment ownership is the only solution, but in his judgmei and he is a very wise man, the time has not yet come f 245 despair and to conclude there is no other way out of it, and that we ought at the present time assume there is some other way out and try to find and perfect that way. Mr. Sims: It is possible for the railroad companies to judge for a period of twelve years in advance what their operating expenses are going to be and what they are going to have to pay in the way of interest in order to secure capi- tal for a new development? Mr. Thom : Not with certainty. Mr. Sims: Not with certainty? Mr. Thom: There can be a comparatively safe forecast of what is going to happen. We cannot tell. Mr. Sims: Judging of the future by the past? Mr. Thom: Judging of the future by the past. That is the only thing we have got to go by. Mr. Sims: Now, should the development of a great coun- try like this be a mere speculative matter, that we have got to guess at what things will be in the future? Mr. Thom: We have done so up to now, and we have gotten along pretty well. Mr. Sims : We have struck a snag so to speak. Mr. Thom: We have gotten to a time when it is now proper for us to take our bearings and see where we are, and see if something cannot be done to improve our situa- tion. Mr. Sims : You made a statement yesterday, in substance, that the spirit of adventure had built our railroads; that what was called stock watering had been one of the leading inducements to cause one to make an investment that they would not otherwise have made, but it is perfectly evident that that period has passed, and that the investment in a railway security, especially in- stock, must be so attractive to a new purchaser as to enable him to discoiint the possibili- ties of what has happened to former investors in railroad stock. Mr. Thom : You have got to substitute safety. 246 Mr. Sims: For uncertainly. Mr. Thom : For possibilities. Mr. Sims: Speculative possibilities? Mr. Thom : Speculative possibilities. Your system of law has got to find some way of attracting by safety, instead of depending on speculative possibilities. Mr. Sims: Then, we have reached that period in our country's system in which we cannot possibly rely on fur- ther railroad development, on the method that has heretofore been used, for the present development? Mr. Thom : Yes, we have reached that point. Mr. Sims: So there is no use in considering the old methods of offering stock bonuses and speculative methods, or such a high rate of interest as of itself to suggest the in- security of Mr. Thom : Not except as methods of enlightening your future actions. Mr. Sims: Yes. But I do not think, speaking as an in- dividual member of this committee, when it is made so plain by expert evidence — 1 am regarding you in this matter as a super-expert, as you represent all of the experts combined, and have had the opportunity to confer with them all — that the future development of this country ought to be condi- tioned upon the sweet will of men who have got money, as private individuals, as to whether or not they will invest it in an industry like the steel corporation or in a farm or in railroad stock. If it does, why then we may make changes that are temporary. "We may benefit present conditions, but why not make things as near a certainty while we are at it as possible?- Mr. Thom: You mean by Government ownership? Mr. Sims : There are more ways, but I do not see how you are going to convince the people of Europe, or the people of this country for that matter, that future railroad stocks and bonds are going to be a better investment than they have been in the past, to such an extent as that they will yield 247 )ar for a four per cent dividend, or five per cent, or six per ;ent, unless there is something in the nature of a Govem- nent guarantee, something along the line that they can rely m, regardless of mismanagement, regardless of the acci- lents, stock failures, possible wars, the revolutions and things )f that kind affecting our commerce, both domestic and 'oreign. So now it seems that- just simply wiping out some )f the abuses, and to that extent new methods of regulation hat will avoid some of the difficulties that now exist, will be I guarantee that the public will take more than a million dol- ars of new railroad money for the next ten years — more than I billion dollars, I mean — now, then, it comes down to the Joint where the Government must guarantee a dividend, iufficient to pay this four per cent, or five per cent, or what- 3ver it is, or it must go secm-ity to the railroads, by guar- mteeing their bond issues, or in some way getting behind the railway — the future railway development of this country, 30 as to remove that uncertainty which now deters private individuals putting their money into the railroads. Now, it seems to me we have got to consider something on a very broad scale. Mr. Thom: Judge, my own view was that the country vras not ready to guarantee these railroad funds. I may be mistaken about that. You may be right in thinking that it is, and that is the solution. Being of the judgment that the country was not ready, and it would not do that, that it is not a practical matter. Mr. Adamson : Mr. Chairman, I do not think it is prob- able that Mr. Thom: Let me finish this sentence, please, Judge. Being of that conclusion, our minds naturally went towards the point of trying to improve the conditions under which we might deal successfully with that problem for awhile. Now, of course, evolution of railroad questions, as of any other great governmental question, does not take place in a moment. If Government is ready to guarantee the return 248 on these securities, that is one thing. Assuming that the Government is not ready for that, we have pleaded for a situ- ation in which we feel that we will be able to perform our public duties by an improved condition of regulation. Mr. Adamson : Mr. Chairman, I suggest that Judge Sims suspend here and conclude his examination tomorrow. The motion was agreed to and at 1 :22 o'clock p. m. the Joint Committee adjourned until Wednesday, November 29, 1916, at 10:30 o'clock a. m. 249 Wednesday, November 29^ 1916. The Joint Committee met at 10:30 o'clock a. m., pur- suant to adjournment, Senator IVancis G. Newlan,ds presid- ing, also Vice Chairman, William C. Adamson. Present: Senators Robinson and Brandegee; and Repre- sentatives Sims, CuUop, Esch, and Hamilton. Mr. Alfked p. Thom resumed the stand. The Chairman : The committee will come to order. Mr. Sims, will you proceed with the witness? Mr. Sims : Yes, sir. , Mr. Tho-m : Before Mr. Sims begins, I made ,a reference yesterday to a letter I received from Mr. Daniel Willard, on the subject referred to in Judge Sims' examination, and with his permission and with the permission of the commit- tee I should like to read into the record an extract from that letter. It relates to the average movement of freight cars, referring to the statement which I made at Atlantic City and which was quoted by Judge Sims yesterday. Mr. Wil- lard proceeds as follows : "You say, 'One of the States has a law requiring its freis;ht to be moved forward at a rate of not less than 50 miles a day. The average movement of freight in the United States is 24 miles a day.' What you meant to say, I take it, was that the average miles made per day by all freight cars in the United States is 24, which I am, sure you will agree is quite dif- ferent from saying that the average movement of freight in the United States is 24 miles per day. As a matter of fact, when freight is actually moving I doubt very much if the average speed is less than 10 miles per hour, and usually when moving, freight cars will go over at least one division of 100 miles per day. In the case of the freight car, however, it must be kept in mind that the total time of the car must be accounted for — that is to say, not only the time while it is' actually moving, but also during the 48 hours which the shipper is given to load the 250 car and the 48 hours allowed for unloading, and any other delays which may happen to the ear during the entire year, due to accident, slack business, etc. "I have taken the liberty of writing you about this matter because I have no doubt you will have occasion frequently to refer to the same subject in your public addresses, and otherwise, and on that ac- count I thought best to point out the distinction which I think should be drawn between the average movement of freight and the average movement of the freight car." Mr. Sims: He is correct; your statement is the average movement of freight in the United States, 24 miles per hour. He is correct in that? Mr. Thom : Yes, sir. Mr. Sims : Which you accept ? Mr. Thom : I accept what? Mr. Sims : The statement of Mr. Willard. Mr. Thom : I am trying to have that whole subject de- veloped by having the statistics checked and I have not got them in such shape yet as to present it. Mr. Sims : When we took a recess yesterday we were on the subject, at least indirectly, of railroad credit, or what would be necessary to be done in order that the railways of the country might receive the necessary new capital at such rates of interest as would enable them to make the required new developments that ought to be made in order to meet what seems to be admitted, both by yourself and everyone else, as absolutely necessary, or, failing to do so, we shall arrest the commercial growth of the ocuntry. In substance, what your conclusions have been, as announced in your former statements, as I understood them, was that something must be done to attract the private investors sufficient in itself to enable railroad companies to market their securities in competition with all other kinds and characters of in- vestments that would be open to the private investor. Your conclusion, as I understand it, was, that if legislation, along 251 he lines you have suggested, was carried out, that then the itocks and bonds of railroads — in other words, railroad lecurities — would prove sufficiently attractive to cause the )rivate investor in competition with all other forms of in- vestment offered, to take fliese securities in such volume as vould enable the railroads to do that which they admit, or fou represent they should do, or is necessary to be done, so ihat we shall not have a continuous State of arrested com- mercial development. Now, we were on that point and I nade the suggestion with reference to the Government guar- mteeing minimum returns upon these new issues of stock )r bonds, or both, a sufficient length of time so as to remove ;he element of uncertainty that now exists, and in that way, while reducing the rate of interest charged to the public carriers, really making a form of credit investment that would be desirable over all other securities offered, not guaranteed by tbe Government of the United States or some )ther guarantee of equal solvency and ability. I, of course, am not a railroad man, and cannot go into those things except in a very crude way, but I wanted to ask S^our opinion as to what you think would be practical, pro- dded that in legislation that might be passed giving the Interstate Commerce Commission, or some other Government iuthority, the power and placing upon it the duty to approve ill future issues of either stocks or bonds of railroad com- panies. Would it be practical, and would it serve the pur- pose, if, after the Government had approved these issues that it should guarantee that the interest return or dividend re- turn upon this specially authorized stock issue should not be less than a fixed amount, say 4 per cent, giving to the investor the opportunity to receive, if he is a purchaser of itock, any additional dividend that might be earned from a Governmenl^regulated railroad company, as in the nature jf a speculative inducement or in the nature of a bonus, so to speak? That is, if the company makes it under Govern- ment regulation 6 per cent which it can devote to dividend 252 on the stock, that it should not be prevented from doing so, provided this Government authority, regulating these things, did not intercede and prevent it from the idea that it was not authorized by the conditions of the carrier; the Goverament not guaranteeing the ultimate value of the stock, but simply the regular payment of a dividend for a certain period of years, twenty, thirty, or forty, or fifty, or whatever might seem to be practical. I want to ask you whether or not you think such a system as that might re- lieve the situation, and, at the same time, not involve the Government in any probable or possible ultimate loss, not remove the properties of railroads from State control, I mean to the extent of taxation, police regulation, and so on, giving the Government the right to be represented in any meeting of the stockholders of such a company and making it neces- sary that the Government director, if we should call him such, the Secretary of the Treasury, the Secretary of Com- merce, or whoever inight be authorized by legislation to act, should approve all arrangements and regulations of that rail- way company just as though it was a private owner of the same stock, to the end that the Government might be pro- tected against a possible loss of this guaranteed dividend. •' These are only suggestions, crude thoughts, and I have thrown them out for just what they are worth, to the end that what seems to be undesirable by some people — I mean the inevitable, undesirable effects — at the same time to have behind a railroad security both a moral and a financial guar- antee that would appeal to the investors both at home and abroad over an investment, even of like character, but with- out governmental, moral, and financial responsibility. I will just ask you, have you given this thought, or have you thought along that line? Have you given it consideration? Mr. Thom : You present an exceedingly interesting point of view, Judge. In the first place, I would like to call at- tention to perhaps a little modification that should be made in your statement of my view, so that the record shall not be 253 Mr. Sims: I do not want to misstate it, of course. Mr. Thom : Of course I appreciate that. I do not think you will find that I have ever said that, even if everything that we have suggested is done, there will be no need for something further to be done in respect to a constructive system of relationship between the government and the rail- roads. I regard what we have proposed as an immense step in the direction of stability. Wonderful progress will be made, if we can get those elements of sympathetic co-opera- tion between the Government and the railroads which we have suggested. Now, I have never assumed that we could get everything that was necessary, at one effort. I have no doubt it will be a developing situation, in which Con- gress will have to study it from time to time, as the condi- tions are presented, and will have to deal with it in a progres- sive way, but that what has been now proposed will be a tremendous step in that direction. Undoubtedly a Government guarantee of income will be a most tremendous element in the value of these securities, and would very greatly attract investors, but you ask me whether I have given any consideration to that. I have not given consideration to it as a practical matter, for the rea- son that I never supposed that the Government would make such a guarantee. Now, if that is in the range of possibility, that is a very important thing to be considered. A Govern- ment guarantee of income would be a tremendous attraction. For example, take the securities that are going to be issued under this new rural credits system, which come with the apparent backing of the Government, even free from taxa- tion. Now, it is the general opinion among financial men that when those things are issued they are going to be very attractive, because the Government is behind them in a way. Now, if the Government chooses to get behind the securities of the railroads, of course, that is going to be a tremendous factor, but I call attention tq the fact, if you will permit me one moment, that the tendency of the ques- 254 tions which you are asking is to base them upon a recogni- tion of a condition in respect to railroads which is in accord with what I think it is, that there is a present condition call- ing for decided helpfulness on the part of the Government so as to continue these facilities up J;o the point that the commerce of the country requires. Ydur questions are based upon that as a fundamental. I do not mean that you neces- sarily think that, but you are asking these questions based on that assumption. That is my belief. The only dif- ference between the tendency of your questions and my own judgment is that you are suggesting remedies far beyond anything that I believe to be practicable, from a public standpoint. I do not believe, the Goverriment is going to do that. I would think that if the Government is ready to dg that, the whole subject ought to be reviewed in the light of that willingness on the part of the Government, but I have assumed that we have a condition here which your ques- tions indicate must be met by some real, earnest, serious governmental effort, in order to meet the public needs of the future, and even the present, in respect to the facilities which commerce needs. We feel that as long as these prop- erties are privately owned, that the Government will ex- pect us to see [that they are kept up to the needs of com- merce, provided the Government affords us such encourage- ment in its regulations, such helpfulness and constructive- ness in its system of regulations as will enable us to do it, leaving the responsibility on us to do that, and testing finaljy the system of private ownership by our success. You cannot test the success of the system of private ownership under a system of regulation, where only the correction and repression are the main features. You can test a system of private ownership, when you have given to the investors in these facilities all the reasonable aid which Government can give, and when you have done that, when you have perfected your system of regulation by introducing, in addition to your present powers of correction and punishment, the power that :oo the Government may gi\e in the way of helpfulness and 6ncouragemen1>-^I mean reasonable and proper helpfulness and encouragement — when that is done and tested, of course we appreciate that there will be the supreme test of private ownership. We cannot have it now, because the system of Government ownership denies it to us anyhow. We will have it then, because the system of private owner- ship will have been helped by the Government in every reasonable way., Then the question will come up, and on that question will depend the future of this government. If we break down, after having been, helped to the extent that Government can reasonably help us in the system of regu- lation — if we break down — then the commerce of this coun- try is not going to contend with inadequate facilities. When private ownership fails, there will be a demand from every- body that the Government shall take its place, and there- upon we will have whatever tliat means to our system of Government. One man may think that means one thing, and another another, but we all know that it is an un- known world which we will be entering, to engraft upon a democracy the immense strain of Government ownership of transportation facilities, with its army of employes. We know that that will be a great strain. I do not believe that that ought to be accepted as a solution, until we find there is no other way out, and, therefore, I have addressed myself, in your presence, earnestly to establish the purpose of creat- ing the conditions that will, I hope and I think, save the system of private ownership of these railroads. I believe that to be in the interest of the public, and of our system of democratic government, infinitely more than it is in the interest of the security holders; and if I may be permitted a personal word, if anything that I can do will tend or help to bring about that result, I will feel that I have not labored in vain. Now, in connection with another aspect of your question, I wish to introduce at this point an idea that has been sug- 256 gested to me since these hearings began. As bearing u] the conditions which we will have to confront in respeci getting new money for these railroads, the various mat which I have mentioned in that connection are in record, and probably are remembered by you gentlemen, here is a letter from a most distinguished man, a financ who is at the head of the new governmental banking sys of New York. I think he is the governor of the Rest Bank of New York. I do not know exactly what his titU but it is Mr. Benjamin Strong, who was formerly presid of the Bankers' Trust Company, and is now the head of ■ new banking system in New York, and he calls attentioi an additional matter which the statemanship of this coue has got to confront in dealing with the matter of railr credit, and that is this : The effect of the European War interest rates. Now, his view is this : He says in Engli they are now paying six per cent for money that they u to get for less than two per cent. France is paying six cent for money it used to get for^ less than one per c( That, of course, has a tremendous effect upon the level interest during the war. The problem that men of affi have got to deal with, and that tlie statesmanship of country has to deal with is, what is going to be the effect interest rates after the war? Is this four per cent you talking about going to be a legitimate return on money al the war, or will the effect of the immense demand for cap abroad, in reconstructing Europe when peace comes be make such a demand for money as to greatly increase rates of interest, and if it will there will be a tremend competition established with railroad securities, and amount of interest they will have to pay for new money i be affected greatly by it. May I read a portion of this letter : Mr. Sims : I have no objection, of course. The Chairman: Certainly. Mr. Thom: It is a question we would like to 257 Mr. Sims: I would like the information. Mr. Thom : It seems to me it would be of some importance, will read the whole letter. It is written by Mr. Benjamin trong from Denver. He is out in Denver and has evi- ently been out there for some time — to Mr. Trumbull, who 1 the chairman of this Railroad Executives' Advisory Com- littee, written on November 8th : (Reading:) Dear Me. Trumbull : , "Since replying to yours of the 31st, I have been over the various documents you were good enough to send me bearing on the subject of railroad regula- tion. "Every time I read literature on this subject, the difficulties stand out stronger and my own un- familiaxity becomes more apparent. The three sug- gestions outlining the scope of information desired struck me as being very ably and thoroughly prepared but I am constrained to make one modest suggestion where I believe the subject has not been as exten- sively developed as it should be. "We all recognize that the war is bound to have an unsettling influence upon rates of interest all over the world for many years to come. The British Government is paying 6% interest for short loans which a few years ago it had no difficulty in placing at less than 2%. The French Government is pay- ing between 5% and 6% for short loans which in . times of peace it had no difficulty in placing with bankers at times at less than 1%. These develop- ments have had as yet but slight effect upon the level of interest rates in this country because the in- fluences of war conditions here have been quite the reverse of those which are found abroad. When peace lets down the bars and the financial currents 'begin again to flow normally, what will be the general effect upon interest rates and how will it be felt in this country? I am inclined to agree with Professor Fisher who believes apparently that the whole world is more likely to face considerably higher rates, rather 17w 258 than with those who believe that relaxation of busii activity will bring about lower rates. "As applying to the railroad situation, whicl peculiar to itself in that railroads cannot read; their rates to meet economic changes, I would sug a line of inquiry somewhat as follows : "1st. What will be the general effect of the wai interest rates? "2nd. Will considerable differences in rate le abroad and in this country influence further salei American securities now held in Europe? "3rd. Will such difference of rates likewise ] elude the possibility of sales of railroad securities foreign markets in future years? "4th. Will the course of interest rates follow the war have any effect upon certain special dome markets for railroad securities such as trust fui savings banks, insurance companies, etc.? "5th. Is the margin of railroad earnings now sv cient to enable railroads to finance by issues of stc when upon the conclusion of the war, busir slackens, earnings decline and interest rates advan "6th. The same inquiry should be made as financing by bond issues. "7th. If rates do advance sharply, what will be situation of those roads which in past years provi( for their requirements by large issues of short-te obligations? "Some of these points are already covered in questions addressed to bankers, etc., and I realize t the above suggestions are no more than the surface a subject of tremendous importance and uncertain "I think the safest guess as to economic cor tions after the war ends can be described by stati that the United States will be in competition w 259 all belligerent nations in all markets of the world and in all departments of financial and commercial activity. The conditions of production here will be based at first upon the highest wages ever paid in this country, nominal taxes as compared with Europe and much lower interest rates at first than will pre- vail abroad ; whereas, the belligerent nations will have very cheap labor, a tremendous burden of taxation and at first considerably higher rates of interest than ours. "If there is one thing which experience demon- strates in this country, it is that wages readjust more slowly than any other item in the cost of production. Taxes are fixed and cannot be readjusted. The first readjustment and always the promptest to take effect is the value of credit, that is, interest rates. "In presenting the case of the railroads, it will be impossible to avoid dealing with a good many controversial features of the railroad situation. Here is one subject of vital importance to the railroads which can be developed to great advantage without inviting the antagonism of stockholders, wage-earners or shippers. It has nothing to do with the character of the regulation which should be applied to rail- roads, but it has a great deal to do with the reasonable- ness of methods applied in regulating their affairs. "You asked me for suggestions and these are the only things which occur to me that do not seem to be very fully developed by the documents sent me. I hope your hearings at Washington meet with the great success which they deserve. "With warmest regards, Very sincerely yours," The Chaieman : Have you given the signature? Mr. Thom: Benjamin Strong. Mr. Sims : I failed to state, but, necessarily, it should bfe a part of my statement, that in case the Government should guarantee a minimum dividend on stocks and a minimum interest on bond issues, any railroad company making ap- plcation for such a guaranty would have to provide that in 260 case there was a loss to the Government, the loss should be a first lien on the properties of the company, so that the Government would not ultimately lose anything. I intended to state that as one of the conditions upon which government guaranty should be obtained. Mr. Thom: You can readily see that if every amount— every cent — that is paid to a stockholder in current revenue becomes a fixed charge ahead of his rights thereafter, it will be a very serious question with him as to how far he is under- mining his ultimate security. Mr. Sims : I am not presupposing at all that the applicar tion should be compulsory, but that when such railroad com- panies as might think it would be of economic advantage to them should make this application for a guaranty. Mr. Thom: Yes. Mr. Sims: They could also make application to a govern- ment agency authbrized to approve the issues of stocks, with- out any guaranty condition going with it. You will remem- ber, perhaps, that when we had this question up before the Committee on Interstate and Foreign Commerce of the House — I mean, the question of regulating railroad securities by approval of the Interstate Commerce Commission — making it conditional upon their approval — that some very learned gentlemen, among others, one of the members of the Inter- state Commerce Commission, Mr. Meyer, who was a member of the Hadley Commission, presented the view that public sentiment would regard the endorsement or approval of a bond issue or an issue of stock by a common carrier as a pledge upon the part of the Government of the United States that it would not deny such a rate to that railroad in the • future as would enable it to provide for the payment of these securities which it was authorized to issue; and also to be based upon the condition that it would not deprive the rail- road of opportunity to carry out any existing obligation by way of paying interest on securities — reasonable dividends upon its outstanding issues ; in other words, it would be in the 261 nature of a moral obligation that the Government wduld not afterwards reduce the rates so that the railroad company getting the approval of the Government for its issue, which it would have to have under the proposed law, would not be able to pay this authorized rate of interest; which made the Government practically a guarantor. I have stated it just from memory, and I am not trying to state accurately the view of Mr. Meyer, and others who expressed the same view, but that is a thought which they suggested with regard to what would take place in the public sentiment. Now, if the Government of the United States is going to be hampered in the regulation of freight rates by the approval of outstand- ing securities which it has approved, it would hamper itself in the future, so far as that is concerned, to give anything like substantial rate regulation, at least on the railroads the securities of which it had approved, and not only to the extent of those approved, but as to all outstanding prior securities, which, of course, is a condition that ought not to be invited and ought not to be encouraged; at least, it did not strike me that way. I did not believe it was a legal obUgation myself, but these, gentlemen regarded it in the nature of a moral guarantee of profitable returns, and that is one of the reasons that led me to think about a specific absolute guarantee of a sufficient income on the railroads' properties, by making it a preferred liability upon other out- standing obligations of the railroad company. You have mentioned a difiiculty that we have got to meet; that is, that present conditions are impossible of continuance in the suc- cessful development of the country. Now, it seems to me, Mr. Thom, that the question is not whether we want or do not want government ownership ; the question is what shall we do, consistent with the demands of the country, that will prevent, the necessity of Government ownership? Now, be- tween absolute government ownership and present conditions, the thought occurred to me of a co-operative affair, by reason of having the Government to approve additional issues and 262 to guarantee a minimum income upon those issues, leaving the property or the owners of the property the right to pay more than that guaranteed dividend, if the Government, through its proper authorities, approved, and giving the Gov- ernment the power, by way of governmental directors, to decide whether or not this railroad property, after getting this guaranty, should do this, that or the other thing. In other words, as a co-operation of a valid and material kind. Now, I do not know myself whether the public would take hold of this at all, or not ; I do not know what the public is going to approve, but I think we are all agreed that present conditions will not develop the country. Mr. Thom : Yes, I think we are. Mr. Sims : And none of us knows whether the plans that the railroad men have proposed will do it, or not, and we do not know whether government ownership would fully meet all the requirements of the situation or not; but we are up . against a situation where we must do something. Mr. Thom: Undoubtedly. Mr. Sims: Now, you made a very interesting argument along the theory that the proper development of our railways was a necessary step in the national defense. Is this country to depend for the proper development of its national defense upon the markets for private securities, fighting the demands of all the world for a number of years to come? The letter which you have just read points out what will probably be the cose ; that attractive investments that have not heretofore flooded our markets will flood them. Now, is the national defense of this country to depend upon the ability of pri- vately-owned properties to float their securities in competition with the fierce demands made by these abnormal conditions throughout the countrj'^, perhaps for an unknown number of years? Mr. Thom: Now, Judge, we will both admit, I imagine, that it is better, from the standpoint of national defense, to have the National Government establish the standard of 263 ^ciency of the railroads, rather than tliat should be in a position to be pulled down by forty-eight States, not ehso^ied witb the duty of national defense — at least, that one ihiiig we must agree on — ^that if there is lids duty of national defense (and we all agDee that that do® exist, and that it does ejdst in the interest of the States) , ihsa that the standard of eflideiDcy and capaidty SiMS: An assurance of increased earnings. Mr. Thom: Now, of course the reason I am guarded in that way is because at the present time we are in what we think an abnormal condition. We have got a standard of earnings created by a war condition, but in a little while that will be all gone. Now, what are we to do to meet that changed situation? My judgment is we have got to have a system of regulation that will be sensitive to those changed conditions and will respond as to those changed conditions. Mr. Sims : You admit that rate-making is at present under the law, as decided by the Supreme Court, a very complex £md unsatisfactory condition? Mr. Thom: I do. Mr. Sims: And it being that way, how is it possible for you or this committee to know what the rates made in the future will bring in the way of net returns to the railroads? Mr. Thom: I do not think it necessary — the committee cannot know it, and I do not think this committee is called to pass on it. The committee's entire duty is performed when it perfects a system of administration which it creates, that will deal in the most sensible and fair way with that problem. Now, my whole plea is for perfection of a method. I do not ask you to determine the question here of how much revenue these roads are entitled to, or increase it, or to do anything of that sort. My plea to you is for perfecting a method of dealing with that situation as it arises. Mr. Sims: You say there, Mr. Thom — it may be that I have overlooked it or am not capable of discerning it — ^the propositions you have made do not seem to me to eliminate the wastefulness of competition at competitive points, the present syittem of the railroads. Now, you speak in high terms, no doubt correctly, about the condition of the country served by the consolidation of the 149 railroads now com- posing the Pennsylvania system; also the consolidation of numerous roads now composing the Southern system^ and 280 these systems are built up in that way, all over the country, but as systems they have competitive points and a competi- tive service to render, in which it seems to ihe that the com- petitive methods adopted are absolutely wasteful. NoW, your proposition which you put forth, if I have understood you correctly, does not provide for the elimination of waste- ful competition practiced between the several systems, and when you get your regions established, which this extra mem- ber of the Commission is to look over, if 149 railroads com- bined in one better serve the country they cover than a lesser combination, and if your national incorporation is intended to force all of these railroads to take out national charters ^nd then make your working arrangements or combinations afterwards, for the life of me I cannot see, if a railroad com- pany owning and operating 149 railroads with great benefit to the country and to the stockholders — I cannot see why that same identical railroad should not own every railroad in the United States and should not operate them all with reference to the public interest, and not simply to a section served by it. Mr. Thom : Now, Judge, the difficulty about that is that you are up against the fact that you do not. How are they to acquire all these other railroads? You have to deal with the situation as it is. Y^u are trying to improve that situa- tion as it is by making improvements. Now, you complain of certain private practices that are wasteful. Don't you imagine that these responsible railroad men who find their limitations of initiative narrowed by having no control, to speak of, over their revenues and expenses, are giving thia matter great thought? These men are studying every, day how they can eliminate competition and other wastes. If you do not believe that they are doing so, I should like .for you to come and sit in one of their offices and see how earnestly they are giving attention to that very matter. Mr. Sims : I have no doubt of it, but that does not remove tthe fact that now stares us in the face, that here you have 281 two railroads in sight of each other, all the way, paralleling each other, from here to the City of Philadelphia, and from there to the City of New York, doing an immense business with double terminals, double bridges, double rights of way and double expenses all along. Is not that an economic folly, to continue that kind of thing through all time to come? Mr. Thom: Let us see. In the first place, let me call attention to the fact that that is a situation that now exists, and we have to deal with it, whether it is good or bad. Now, as to the future, our proposal is that there shall not be any more railroad construction of a mere competitive nature, unless approved by the Interstate Commerce Commission. There has to be a certificate of public necessity for the con- struction of railroads under the view we hope to present ; that before a railroad can be built, that must be done. Now, in Germany, they have adopted an entirely different theory from America. Here, in America, we have had the idea, up to now, that the wise policy is to get just as many competitive railroads as we can, and there are prohibitions in some constitutions to prevent the refusal of charters to com- petitive railroads, or something of that sort. Now, in Ger- many, they have a governmental principle that will not let a railroad be paralleled within a certain distance, because they think it better to have one good railroad than two poor ones dividing the business. A Voice : But they own the railroads. Mr. Thom : Yes, they own the railroads. That may be a wise policy, but we have grown up in a haphazard manner in this country with respect to our railroads. We cannot undo what has been done. You and I may think, we have an un- necessary railroad, but it is there. What are we to do with that? We have to deal with that as an existing fact. We can safeguard the future, but we cannot change the past with- out most hurtful consequences. Now, you speak of these two railroads. I am not acquainted with those situations any more than you are, but I will 282 say this — this occurs to me — that there is the Baltiraore & Ohio that serves a vastly different public from the Pennsyl- vania Eailroad. Mr. Sims: Between here and Philadelphia and New York? Mr. Thom : No, at other points. Mr. Sims : That is what I am talking about. Mr. Thom : Is it to the interest of the vast public that the Baltimore & Ohio serves, and the Pennsylvania does not serve, to get directly into the markets of Philadelphia and New York — are we justified in considering merely the dis- tance between Washington and New York in considering this problem, or must we go out to the whole section of Pennsyl- vania that the Baltimore & Ohio serves, to determine whether that vast public has an interest in getting directly over the same railroad into those markets. Now, there may be a difference of opinion about that, but those are the things that the men who built the road determined in favor of when they built the roads, and my proposition is that you and I cannot go and tear up those roads. They have got to continue. We have got to deal with a situation, good or bad, such as has been created. Mr. Sims : Is it not economically sound to double-track a road rather than build two separate railroads, having separate terminals and separate bridges, etc. ? Mr. Thom: If a double-track will serve the same com- munity. Mr. Sims : I mean the same community. Mr. Thom: Undoubtedly. Mr. Sims : We want to guard against such things in the future. Mr. Thom: Yes, sir; and the proposition we have pre- sented to you is one we would present as a means of carrying out that very idea. In other words, when there is a possi- bility, under the Federal law of incorporation, to incorporate a new railroad, there must be, in our judgment, an applica- tion made to the Interstate Commerce Commission, for a ■283 certificate of necessity — public necessity — and the Interstate Commerce Commission must pass upon that question favor- ably before a charter can be issued. Mr. Sims: Now, then, Mr. Thom, seriously, do you think the American public will ever agree to vest in the hands of a single board the question of whether they shall have or shall not have a single railroad or two railroads? Mr. Thom: But that must be determined by somebody. Mr. Sims : Yes, sir ; that is a practical question. Mr. Thom: Who will determine it? We supposed the creature of Congress would determine it.* Mr. Sims: Would the great, imperial State of Texas ever agree to a situation where her domain, which is larger than Gemany, should depend on a board sitting in Washington as to whether a railroad should or should not be built there? Mr. Thom : Why should it not? Does not that board rep- resent Texas? Is there any doubt that if there is any sem- blance of necessity that the Commission will be more respon- sive to the sentiment in Texas than to the railroads? Mr. Sims : I am supposing this to be a competitive railroad, to be privately owned. Mr. Thom : I am, too. But ought not anybody, no matter where he is, feel perfectly safe, in filing application with the Interstate Commerce Commission, the independent body that represents every interest in this Union, that it will not pre- vent the building of a railroad except it is a mere frivolous pretext to break down some other? Mr. Sims: I assume that it would be very safe to rely on. Mr. Thom: And that the Empire State of Texas would have just as many railroads as they could get anybody to build, where there was a reasonable excuse for the building of them. Mr. Sims : The State of Texas has the right, as a State, to build railroads there itself, in Texas. Mr. Thom : Undoubtedly. They could build their own railroads if they wanted to. •284 Mr. Sims: But you do admit, under private ownership, there has been an unnecessary and wasteful expenditure of capital, by building excessive railroad facilities, unnecessarily and more than was needed in some sections of the country, to the deprivation of other sections of the country, "not having what they actually do need, because the investors have to make an earning on the investments as they are? Mr. Thom : You say I admit that. I do not know that I have admitted that. I do not think my study of the situar tion — this particular situation — would .justify me in admit- ting that. I have admitted the possibility of that. I do not know myself, where there is an unnecessary railroad built in this country. Mr. Sims : You do not think we need two from here to Baltimore? Mr. Thom : I think so. Mr. Sims : What is the reason the same railroad could not have six or eight tracks, or a dozen, and still be cheaper than two separately operated entities? Mr. Thom : We have considered that question. Here is a situation of this sort. There is the Baltimore & Ohio Rail- road, running from the city of Baltimore to the West. It ran long before the Pennsylvania Eailroad came through Baltimore. -Now, was it not to the public interest that the Pennsylvania system should also come to Washington? Mr. Sims : Oh, as a matter of course, I am not questioning the advisability of doing what was then done. Mr. Thom : It looks like the public was benefited. Mr. Si>rs : But the public is compelled to stand a rate for all time, to cover services which would not cost so high if this railroad-building had been done economically. Mr. Thom : Do you know, Judge, that it costs less to come from Baltimore to here than it does to take a taxicab from here up town ? I do not think Mr. Sims : That is so, but I do not think that makes any difference. Mr. Thom : I do not think the cost is excessive. ■285 Mr. Sims : The public has a right to have that service per- formed at the lowest cost of performing the service. Now, the only reason why private companies are tolerated at all, as I understand it, to perform a governmental function, is that they will perform it and yet make a profit, and upon the whole give the service cheaper than the Government would give it if it was performing the service itself — as cheap and as efficient. Some contend much more efficient. But is not that an implied necessary condition or assumption, that when a private individual or a corporation does for the public that which it can do for itself, that it must be done bene- ficially to the public, and at the same time, if they can make an earning or profit, well and good? Mr. Thom: They must do it on terms beneficial to the public, undoubtedly, but you must take the whole field, as to what is beneficial to the public, and that is not determined by simply the scale of rates. Mr.- Sims: Now, Mr. Thom, is it not sound to say that unless private ownership, as a principle and as a policy, can serve the whole country as efficiently and as cheaply as the country can serve itself through its own facilities, that it is not entitled to perform that service? Mr. Thom : No, sir ; I think there may be other considera- tions that may control the matter of whether it should be private or governmental ownership. Mr. Sims: Then you do not think that the Government has the right to supply its own facilities for its own purposes ; for the public interest to serve the public interest in any such way as will give the public the greatest amount of service at the lowest amount of expenditure? Mr. Thom : I do believe in its right, but the question is as to the wisdom of exercising it. I admit it has a perfect right to do it. Mr. Sims : Are we going to assume that the Government of the United States is not as able and as willing to do for its people what the government of any other country has done or is doing for its people? 286 Mr. Tiiom: 1 do not knc)«', Judge, what you are going to assume on that subject. T think there is a vast difference, speaking personally, as to what we ought to assume in regard to one form of government, and what we ought to assume in regard to another form of government. I think that there are certain forms of government where the principle of liberty is made dominant over the theory of efficiency. I think there are other forms of government where the principle of efficiency is made dominant over the principle of individual liberty. What one of those governments may do in a great matter affecting an efficient form of government, and what the other form of government may do may rest upon very different principles, and the success of it must be measured by the different governmental systems which authorize it. Mr. Sims: You think that the individual liberty of the citizen has ever been affected by the government function of performing the entire transportation service carried on by the Post Office Department? ♦ Mr. Thom : I think, Judge, that of course there has not been, but when you extend that principle to the ownership of every railroad in the country, and increase your army of governmental employes to the extent you will, and put upon the officers of the Government the responsibility for this transportation system, that you will be dealing with a very different problem than any which any democracy ever dealt with before. Now, as I have said to you, time and sufficient experiments may prove that that is the only way we have got, speaking for myself alone — I do not think the time has come for us to accept that as a final proposition. I believe that some other way of dealing with this immense problem exists than the way suggested by your question. Mr. Sims : But the some other way would naturally include that which is to the best interests of the country, taken as a whole. Mr. Thom : Undoubtedly. Mr. Sims : And should develop every part of the country, instead of sections only? 287 Mr. Thom: Undoubtedly. Mr. Sims: Now, if private enterprise, through the earn- ings of the railroads, and under the complex control that now exists, cannot secure the necessary funds with which to perform this service, and to give to the people of this country that which their own Government, you admit, can give, are we going to be hampered forever, and never have a complete and perfect transportation system in this country, if it is left subject to the control of private interests, private employes or private employers Mr. Thom: You ought not. The' minute that private ownership breaks down, the Government ought to step in. Mr. Sims: Has it not broken down? Mr. Thom : I do not think it has finally broken down. Mr. Sims : You think it is breaking? Mr. Thom : I think unless you improve conditions it will break down. Mr. Sims: Now, then, you cannot promise us, though, anything more than the mere further experiment with pri- vate ownership? Mr. Thom : I think, so far as I am concerned, my judg- ment would be we could succeed with proper help from the Government. Mr. Sims: As I understand you, a^ representing prac- tically all the railroad properties in the country, they are not ready to sell theii* holdings for a fair valuation? Mr. Thom : We have never discussed that. I did not come to speak for them on that subject. Mr. Sims : I understood you to say that some of the rail- road people were in favor of Government ownership. Mr. Thom : Some railroad people take this view Mr. Sims: And that a majority was opposed. Mr. Thom: Some take this view, that with an inability to control their revenues and with the demonstrated inability of controlling their expenses, there is nothing left but for them to take some money and have the governmental agen- 288 cies manage them. Some of them are pessimistic and some are hopeful. The majority are hopeful and expect proper re- sults from improved regulations. Mr. Sims : And so they are not willing to sell their prop- erty for a fair valuation? Mr. Thom : I do not know that I can say that. If you come around and offer a fair value T expect you will find more willing to give it to you than you think. But I do not know, you are asking me to discuss a question now which I have not discussed with them. You, of course, realize that if I have not discussed the particular phase of the matter that you are now alluding to that I can not speak as to their views, but I say generally that I have discussed it enough to know that some of them feel differently about public- ownership than others. Some feel very pessimistic; others feel less so. Mr. Sims: But in view of the fact that your argument, and I am not contending that your argument is not a correct one, but the position taken by these railroad companies whom you represent is that without legislation, or something that will do equally as good, that Government ownership is inevitable. Now then it is strange to me that these com- panies do not contemplate that which they think may arise at a reasonably early day, because they do not know, I do not know and you do not know what will be the result of passing every law that you are asking for, if every one was passed just as you have suggested them, you do not know and I do not know and nobody else knows what the effect on the railroads will be for the future, as to whether or not in- vestments in those roads will be so attractive as to compete with all other markets for capital. Therefore not knowing, and you can not possibly know that it will be a success, there- fore your next step must come, — Government ownership. Why should not these lines, these owners of these properties, contemplate that contingency? Mr. Thom: I have not said they did not contemplate it- 289 I say on that subject that I am not entitled to express a view. Mr. Sims : You mean you are not authorized to express a view? Mr. Thom: Not only am I not authorized to express a view, but I am not acquainted with the views of these man- agers, but they are in this attitude of mind. Here they have become committed to vast expenditures in the way of fur- nishing facilities to the public. They have assumed vast responsibilities in respect to the public service. They believe that the time has come for their hands to be upheld by sym- pathetic and helpful public regulations in order that they may adequately perform their duties, and they expect, under perfect regulations, to be able to do that. Now, when the time comes that all these apprehensions that you are talking about are realized, then your power remains as it is now in respect to any further change. Mr. Sims: But if the Government is going to undertake the experiment of Government ownership why defer the evil day, if it should be so denominated? Mr. Thom: If you so determine. We do not think the time has come. That is one thing you are to determine. Mr. Sims : Speaking for myself individually and not pre- tending to bind anybody but yourself, I think that with the potential control to the extent that it is lawful and has been and can be exercised by the several States, with the potential control that has been immediately exercised by the Congress of the United States, that you can come just to the question of the successful operation of the transportation business of this country as a private company could run the post office business of this county under similar conditions. Mr. Thom: You do not think it is possible? Mr. Sims : Not possible in the sense of being the best that can be done. Mr. Thom : I will agree, with you that it is not. Now, we bring before you our best thought as to how to meet that situ- ation. Of course we will be immensely benefited and the 19w 290 public will be immensely benefited by any suggestion of a better course. Mr. Sims: You speak of practical things in a practical way and a practical view, and I think you are right about it. Now, stating just in a practical way, I will give you my own personal judgment. The people settle these things through their power to vote, through the elective franchise, through the exercise of it, and at this time I think it would be as utterly impossible to take from the State railway com- missions the powers that they now exercise, waiving all ques- tion as to whether they are beneficially exercised or not, and lodge them in a single Federal body of control. I think it is practically, politically impossibly. And with forty-eight potential regulators of commerce, rate-fixers, and then with the forty-ninth asserting its power over all, and all the issues of credit instruments in the future to depend upon that, 1 cannot see how you expect rnuch better results in the future than we have had in the past. Believing that it is practically impossible to centralize Federal control, I think that the sec- ond proposition, national incorporation, will be fought to the bitter end by those who do the voting. You perhaps have never been a candidate before the people for office and do not know just how a man feels. It is always very easy to talk about a man having moral courage, but until a man has been tested he does not know what he will do, in my observation. We passed a rural credit law here in which we adopted 50 per cent of the land value of a piece of land ; in other words, if a man wanted to borrow he must not borrow exceeding 50 per cent of the value, and not to ex- ceed 20 per cent of the insured improvements. I went out in my district thinking I had a splendid thing to present to the people, and my opponent, who ran against me, said that any- thing less than 80 per cent of the entire value was an absolute failure and a denial of justice to the poor tenant farmers of the country, and enough of them took his view of it to come very nearly defeating your humble servant. Mr. Thom : But they did not? 291 Mr. Sims : They did not do it, but I do not know what the other experiment will do. Mr. Thom : What did you think of that argument, Judge? Mr. Sims: I thought it was not economically sound and would lead to a speculative increase in the values of land, and all that sort of thing. I made that argument, but the man who had $200 in money and wanted to borrow $800 to buy a piece of land costing $1,000, paid no attention to my argument. He was after practical results. Mr. Thom: Is it desirable that the matter of these great facilities, on which the public is dependent, should be made the football of arguments like that? Mr. Sims: It is not desirable, but the question, like the one you spoke of, is, is it practical to do it? Mr. Thom : Let me see if I understand you. You say it is not possible for the United States Government to act on behalf of all the States? Mr. Sims : No, I do not say that ; I say it is practically im- possible to get the States to consent to this kind of a law. Mr. Thom: To consent that the United States shall act on behalf of all of them, but to say, moreover, unless they do that, we have come to an impossible situation in respect to transportation, and your proposal is Mr. Sims : The inevitable Mr. Thom: Your proposal is for Government ownership? Mr. Sims: I do not propose it. Mr. Thom : But in your question that is your other sug- gestion. Now, what will become of these State governments that you allude to when you get Government ownership? Mr. Sims: They will not exist. Mr. Thom : Therefore there is no difference between your suggestion and mine, so far as they are concerned. Mr. Sims: There is a very great deal of difference. Mr. Thom: No, sir; in either event the authority of the State over these transportation facilities will disappear and be merged in the National Government that acts on behalf of all the States. 292 Mr. Sims: They will be publicly owned and publicly operated, and then they will believe that this operation is performed with reference to equality among the people who receive the service, with privately owned agencies, that do not believe it. Mr. Thom : Why should there be any greater confidence in that when the Government owns it or when the Govern- ment regulates it? Mr. Sims: Simply because the Government has greater power of control and regulation than such agencies. Mr. Thom : There is only this difference between you and me, the tendency of your questions and the' purport of my answers, and that is I am asking that there should be a regulation on the part of the National Government in behalf of all the States, and you are asking that there shall be an ownership of all these properties by the United States in be- half of all the States, and in both events the authority of the local body to deal with these questions will be taken away, only it will be taken away much more under what you advocate than under what I advocate. Is not that a fair statement of it? Mr. Sims: Ajiswering you off-hand, it seems to me to be a fact that absolute ownership is more inclusive than regula- tion by that authority. Mr. Thom : S,o the difference between you and me is not one of whether or not the States have continued to determine the standards of these agencies of commerce, but you think it ought to be to a greater extent in the hands of the Na- tional Government than I think? Mr. Sims : You are admitting, if I understand it, and I do not mean in terms, but that is the tendency of your entire argument, that present conditions cannot continue in justice to the public? Mr. Thom : You and I both agree on that. Mr. Sims : We agree on that. Now, then, you present a suggestion which T think is practically impossible. 293 Mr. Thom: Exactly. You present another one which is a greater denial to the States than I do. Mr. Sims : No, I do not present a suggestion at all. You, yourself, have suggested that in the absence of the success of the solution you propose Government ownership is in- evitable. Mr. Thom : And you say not only that, but you judge that what I propose is not worth anything to start with and that we should go to Government ownership now. Mr. Sims: No, I do not say it is not worth anything; I just say I am afraid, and very much afraid; in fact I do not believe for a moment we can pass the laws you say are necessary against Government ownership. l\Ir. Thom : You interpret, then, what I say into a failure ; you do not go back to a condition which you say is im- possible, but you go forward to Government ownership, where every right of the State disappears. Mr. Sims : Remember I am not making this argument in favor of State commissions ; I am simply presenting to you a situation. It is not what we want to do, but what we can do. If it is practically impossible it may just as well be physically impossible. Mr. Thom : Judge Sims, I have profound faith that when the people of the United States understand that this thing is done in the interest of assuring them the commercial fa- cilities which are essential that they are going to approve it, and if I were a candidate for oflfice I would not object at all to going before the people on that issue. I have been a candi- date for office. You are mistaken in assuming that I have not. Mr. Sims: I did not know it. You know then how to sympathize with us? Mr. Thom: I was not only a candidate for office, but I was elected. I was made a member of the constitutional con- vention of Virginia and the man who attacked me was an eminent lawyer of my city, and he attacked me just along 294 the lines you are talking about, and I did not run, I came out and I met the issue and I beat him in every precinct in my city. Mr. Sim: Why did you not keep on running? Mr. Thom : I did not have to. I got there. Mr. Sims: But for other offices? Why are you not in office now? You would be a valuable man in CongTess. Mr. Thom : I never was in Congress. Mr. Sims: We agree, Mr. Thom, that a situation exists that calls for relief, and that without relief progress is paralyzed. Mr. Thom : You and I agree on that ; the only thing is you want to take away more from the States than I do. Mr. Sims : I am not talking about taking away from the States, I am talking about whether the States will let us or not. They control, not we. When you admit that not over 1,000 miles of railroads were built in this Nation last year, you admit one of the saddest facts that it appears to me can possibly confront us. If that is not absolute arrest of de- velopment I do not know what it takes to constitute it, be- cause nobody can claim for one moment that there was not a real, pressing necessity for a larger construction than 1,000 miles, and last year was a profitable year to the industries of this country. Mr. Thom: The saddest fact, and one that is so laige, which should not be brushed aside and that we should do that which will not further continue this state of national, industrial commercial paralysis. But whether you are timng to get it done by increasing the cost of the service to those already receiving it, and make it less beneficial to those who may hereafter receive it, I cannot see that that can be done. I cannot see that it is going to be possible to pass a national corporation act — that it is possible to pass an act that is going to deprive the State commissions substantially of the au- thority they are now exercising, and I cannot see how we are going to get concrete results in sufficient amount and suffi- 295 ciently comprehensive, that the propositions of the railway executives present, to enact the legislation that they propose, or anything that would be substantially the same, and, there- fore, not believing that that is possible — and I may be mis^ taken — then next year we are to have less than 1,000 miles of railroad built in the country, a country of this vast do- main which needs so much, and which needs perhaps every trunk line in the United States doubled — I mean its trackage doubled, its facilities doubled. If you can present a gloomier picture than that, I do not know, what it is going to be. Mr. Sims : The whole theory as to what effect it will have politically, as to. whether a member of Congress will ap- point an engineer — and I am surprised that the great presi- ■ dent of a great railroad system of this country thinks that we are so limited in our discharge of executive duties, that the appointment of an engineer or a conductor on a railroad, if Government owned, would be left to the political interests of a Senator or Representative in Congress — if that is a fact, and it would come down to that, then we need a new form of government faster than we need a new system of rail- road regulation. Now, believing, as I do, that we have reached this state of arrested development, and believing as I do that we cannot live under it and continue to prosper, it is not a question about what we want or I want. What can we get that relieves the situation, either the legislation which you are proposing, substantially complete, or such govern- ment guarantee as to the future issues of securities so that you will find they can withstand competition of other govern- ments, which, according to the letter you have just read, may become very acute after this war is over, which will enable along the lines of private ownership, with Federal control, to furnish the country what it has, or whether or not we shall have (to go to Government ownership, either di- rectly or indirectly, through stock ownership of present cor- porations sufficient to control them, or through an absolute ownership of the properties? Now, we are up against a great 296 big question, as I see it, and one that I cannot treat frivo- lously, and I am afraid that I am absolutely incompetent to treat it from the best interests of the country. I mean in speaking individually for myself, and, therefore, I want in- formation of every kind, and 1 hope that the railway execu- tives and the owners of stocks and bonds will be heard before this committee with reference to the inevitable, provided the present scheme of legislation should fail. Mr. Thom : That is very earnestly to be hoped, and it will be gratified by their coming. Now, what you said interests me greatly. As I understand, your proposition is this, that the idea of increased regulation by the National Government, up to the point we suggest, is impracticable, because people won't have it, but you propose to go before the people and to say to them that the present condition is an impossible one. Here in a, country, not yet developed, not yet approach- ing the point of entire, complete satisfactory development, the present system has brought about what is practically an arrested railroad extension. Not more than a thousand miles of railroad has been built in this whole country during the last year. Now, that is the situation that shows that the present conditions are unbearable — that the present condi- tion must necessarily fail. Now, I know that you people are not ready to let the Federal Government regulate to a greater extent than they do now, because it will interfere with some of your own powers of regulation. I know that, but my remedy is for the Federal Government to own these properties entirely, and to deprive you of any voice in your local capacity in respect to it, and I ask you to adopt that. Now, where would you get with such an argument? Don't it destroy itself? Mr. Sims : "Well, I would have to cite a rural route in a community where the Government is performing transporta- tion service, most satisfactory to the people who receive it, without any local control whatever. Mr. Thom : When you do that, are you not arguing in 297 favor of increased Government regulation, as much as in favor of Government ownership? Mr. Sims: I say that there is a concrete fact. The Gov- ernment is today delivering package freight, all over the country, through Government agencies, to the absolute satis- faction of people who are receiving the service. Mr. Thom : I do not believe that the people of this country will ever accept an argument which is based upon the fear of disturbing their control of these agencies of commerce, and present as a substitute for that, excluding them from the entire field of any possibility of exercising any local control, and I think you have got to go with your proposition, and that is where I think you will succeed. What this country needs is improved and increased commercial facilities and the assurance of every adequacy in all the .future. That is what the country needs. Now, it is time for us to take counsel together as to how that is to be obtained. You realize that you would not yourself go into these matters if you were subjected to the varying policies of forty-eight different governmental bodies. Now, that cannot stand. Which shall we have as a substitute for it. Government regu- lation or Government ownership ? In either of them, this di- vided responsibility and this divided power ceases. Now, which shall we take? Do we want to go to Government ownership, or do we want to go to improved and increased Government regulation? Now, it is a fair argument. I do not think there ia a doubt as to what the people would say now. It may be that something will happen in the future to show that the experiment of improved regulation will break down and that the other is inevitable, but I do not believe the American people are going to be content to take the step of Government ownership now. Mr. Sims : We all assume to be afraid to allude to a cer- tain matter — not afraid, but rather not discreet to do so, and I won't ask you to do it at all, but the exercise of fran- chise controls this country? No question about that? Mr. Thom: Undoubtedly. 298 Mr. Sims : Now, as between private, individual ownership and public Government facility and direct Government own- ership, which is most liable to be involved in these intermin- able labor troubles and disputes? So far as I know, wherever the Government has done anything — I mean wherever the Government has pursued any line of industry, the Govern- ment has had absolutely no trouble with this interminable contest between labor and capital, and how can you operate the railroads of this country and not know what the demands of labor are going to be? Mr. Thom: I think that that is a matter that the Gov- ernment can control, Judge. Mr. Sims: It controls through Congress? Mr. Thom: Yes. Mr. Sims: And Congress is controlled by the exercise of the elective franchise, so do you know what sort of a Congress you will have four years from now? Mr. Thom : We can only hope. Mr. Sims: But the Government itself, wherever it does own anything, operates it just the saine way, regardless of a change in Government control. Now, 1 know this bugaboo about making politicians of all the employees of a railroad company is just about as substantial as making politicians of employees who carry the mails on your streets^ust about as substantial and about as reasonable. Mr. Thom : Judge, we cannot accept the proposition that notwithstanding the fact that the franchise controls the views of our public men, that it is going — either the views of the public or the views of our public men are going to be inadequate to deal with any situation that arises. If so, our system of government breaks down. Now, I am basing everything that I say upon the supposition that our system of government is possible; that while Congress may go wrong for a time, or while any public body may go wrong for a time, that ultimately it is coming to a sound and an honest view of every question. I think that that must be the re- 299 liance on the part of the American public, if it is going to believe in and be content with its own Government, and that their leaders must, in the end, arrive at a sound concep- tion of what the public needs are and malce the proper legis- lation to get them. Mr. Sims : We have been generalizing. I want to ask you a few questions along your propositions which you have already fully explained; but under your system of compul- sory incorporation — I believe perhaps someone did ask that question — I am not sure now — could you compel a railroad, owned by a corporation within the State, in which the rail- road is being operated, say, Texas, for instance — say you have a Texas corporation that owns a thousand miles of railroad, all within the State of Texas. Could you force that rail- road company to take out a national charter, simply because it, in connection with other roads, delivers to patrons on its route, freight coming from some other State of going to some other State? Mr. Thom: Yes, sir. Mr. Sims : In other words, you think that if they do that business, they must do it in the way the Government says it must be done? Mr. Thom : The test is not the location of a physical prop- erty. The test is the character of business in which the road engages. Now, if the road that you. speak of, being entirely within one' State, wants to do business within that State and not carry any traffic in interstate commerce, it would have a perfect right to do so, and the United States Government would have no right to disturb it, but if it wants to engage in interstate business, wants to carry traffic which- is interstate traffic, then this Government can say that un- less you take out a Federal license or a Federal charter of incorporation you cannot continue to do it. Mr. Sims : Now, then, take a great State like the State of Texas, being 67,000 square miles larger than the German Empire 300 Mr. Thom: Why use Texas all the time? Take some little State. Mr. Sims : It illustrates what I am speaking about. Could not a Texas railroad corporation build a system of roads, one termini at El Paso, one at some eastern town in the State of Texas, one at a northern town, another one at the Gulf somewhere — could they not do all of the business they wanted to, to the end of their terminals, and not take a bill of lading or anything else to go beyond the State, and yet some other road, an interstate road, pick it up at the end of that line and carry it on wherever it wants to? Mr. Thom: Not without its being still interstate com- merce. The Supreme Court of the United States has held — which I am sure your judgment as a lawyer will endorse — that through no form of handling business can the intrinsic character of the traffic be changed, and if the traffic was really an interstate shipment it is not prevented in being an interstate shipment by where your billing starts and your billing ends, but it is the real nature of the transaction itself. Mr. Sims: Well, now, I admit that. I understand it; I mean I understand the decision. Mr. Thom: And, therefore, to answer categorically your question about the device of billing to the end of a road, interstate traffic, the road could not violate the laws of the country. Mr. Sims: Well, now, let us see whether it could not. Here is a firm doing business in El Paso. Here is a firm doing business, not in Shrevenport, but in the nearest Texas town, Texarkana. That illustrates very well. Now, this firm here is doing business. It is buying and selling, and the El Paso firm is buying large amounts of Texas property, for which California has a demand and furnishes the field. NoWj that firm can buy all of the Texas property it wants to, have it shipped to El Paso and stopped; then it can re- 301 sell to a California purchaser, can it not? A man comes there and buys it and wants to ship it to Califoriiia. Mr. Thom: The question is, what was the transaction from the beginning? If it is a device to change interstate traffic into intrastate traffic, it cannot succeed. If it is a fact that it was honestly intrastate traffic up to the time of being delivered at the ultimate destination in the State, then that could be done; that could be done, because then that would be simply intrastate traffic, honestly intrastate traffic, but if that is a course of business, intended as a de- vice, it can never succeed at law, nor can it succeed as a practical matter, because there will b© some other road that will come along and take that property, without breaking bulk, and carry it very much quicker to destination in an- other State, and there will be no chance of this broken ship- ment and reshipment transaction succeeding in competition with the other. Mr. Sims : Now, then, another question : I am leading up to one, the reason I am asking these preliminary questions. Now, then, you have a great cotton warehouse purchaser and dealer in cotton at Texarkana, in Texas. He buys thousands and hundreds of thousands of bales of cotton in the State of Texas, shipped on a Texas railway, intrastate railway, which terminates at Texarkana. He has got that cotton to sell, say to Philadelphia purchasers, and Boston purchasers, and other purchasers buy that cotton of him, and he ships it straight on. That is all in perfect good faith. Why can he not do that? Mr. Thom : Because there is a vast bulk of that railroad traffic that could not be handled in that way, and for that purpose of evading, the effect of the laws of the land, and that railroad would not for a minute stay out of the national system of incorporation, because it would be sacrificing its facilities and its opportunities of doing business. Mr. Sims : Now, we are coming to the question Senator Uxdkeavood : Mr. Chairman, will Mr. Sims allow 302 me to ask a question a moment — not ask it of him. 1 want to ask the committee — I have got an appointment and must leave in a few minutes — I want to ask if it is the purpose of the committee to meet tomorrow. The Chairman: I have canvassed the committee and find that the impression is against meeting tomorrow. There will be a recess until Friday at half-past ten. Mr. Sims: Now, the State of Texas makes four million bales of cotton, upon the average, every year. Perhaps it will make ten millions some day. Now, the average cost of railway construction, maintenance, and operation in the State of Texas is so much less than the average cost of rail- way construction, maintenance, and operation in Boston and New York, as to enable a Texas railroad to perform the big- gest part of that haul economically and profitably, at much less than the through rate would have to be, if the through rate was based upon the reasonableness of a rate that these other States would have to charge. Therefore, there would be a burden placed upon the State of Texas, or its industry, by national incorporation, provided a rate could then be put upon the producer of the cotton in Texas for thei pro- portion of the haul in Texas, that exceeded what the pro rata part of such a service would be, if confined to Texas. So that a system of rate-making that would put a rate from Boston to Galveston, or to El Paso, or to San Antonio, that would be a reasonable and fair rate for the entire service, but for the Texas part of it would exceed what it would be if done by a Texas corporation — why is not the interest of the State of Texas to encourage a system of State railways, built wholly within the State, to carry away those products, not destined within the State, to a border market, so as to escape the additional cost of transportation over several hun- dred miles, that would be added provided they had to pay the average through rate? Mr. TiiOM : Judge, how many railroads in Texas are in bankruptcy today? 303 Mr. Sims : I do not know. Mr. ' Thom : Are they all, pretty nearly Mr. Sims: I do not know. I do not see that that has anything to do with the question I have asked. Mr. Thom : I think so. Mr. Sims: I assume that the railroads in Texas can do it cheaper than the average haul to the average destination of the cotton. Mr. Thom: Yes, sir. Mr. Sims: I assume they can do a profitable business for a less rate than the average through rate. Mr. Thom: You have assumed that in reference to in- terstate shipments, have you not? Mr. Sims : I have assumed that with reference to a product which will ultimately be used or consumed in another State. Mr. Thom : The real purpose is to accommodate an inter- state movement, or what is practically an interstate move- ment? Mr. Sims: Oh, no; it is the purpose to enable people to grow cotton in Texas, to have a freight rate through Texas that is reasonable, just and fair, and profitable, for the Texas haul. Mr : Thom : No, now, the real destination of that com^ modify is in another State, or in a foreign country. Mr. Sims: Well, that is, a greater portion of it would be, naturally. Mr. Thom: That is what I say. Now, if Texas, and if each State can, on such a haul as that, divide up, according to its local condition, you have State regulation instead of United States' Government regulation of a commerce that is distinctly interstate. Is that right? What is the meaning of a State line for interstate commerce? Didn't every State, when it came into the Union, agree that there should not be any such thing as State lines, so far as commerce passing beyond is concerned, and what possible justification is there for dividing those territories now, by State lines, and trying 304 to fix rates by State lines? You destroy the very constitu- tional system on which equality among all the people is dependent. Then, on your suggestion, this Texas commodity would have to pay perhaps a lesser rate in Texas, on your assumption, but then they would make that up in a subse- quent part of this movement, where it had to pay a greater rate than it does now. Mr. Sims: You mean for incoming commerce? Mr. Thom : No, sir ; for that matter, when you take your Texas shipment and later go out of Texas, up to Chicago, then, you say, in Texas it has a very cheaply built road and ought to have a low rate, but that commodity, when it gets out of Texas, goes on a road more expensively built, and ac- cording to your theory, it ought to have a higher rate. Now, taking the shipment through to the final destination, it would be part of the way on a very cheap rate, and the bal- ance of the way on a much higher rate, but the result to the commodity would be the same. Now, why divide that by State lines and not in accordance with the way the shipment actually moves from a State point to a point in another State? Mr. Sims : Judge, the policy, as given forth by the Texas Commission, I believe, is that they were trying to develop Texas business. Mr. Thom : Is that a constitutional purpose? Mr. Sims; Now, let me ask this question: Suppose, in- stead of shipping this cotton and selling it to a purchaser in Texarkana, he can sell it and ship it to a manufacturer in New England, in Boston, Phildelphia, New York or else- where, but in order to get a lower price on the raw material, lower than he will have to pay if he ships it to any of these New England points, he buys it up and manufactures it in Texarkana or points where he gets the benefit of this low rate, and then ships out the manufactured products to tliese States, would it not result exactly Mr. Thom : I do not think so. Mr. Sims: He is getting the advantage of lower-priced 305 €Otton and manufacturing it in the State where the trans- portation cost is naturally lower than the average transporta- tion elsewhere. Mr. Thom : Here, you say Texas has got a policy of build- ing up Texas. That means Texas people dealing with Texas distributing points. Suppose you take New York, with its immense markets, and its immense ports, and let it have a similar policy, of excluding other States. Now, New York has a great deal to give to other States. Would you have a well-balanced system of commerce among the American States when you would give to New York and Pennsylvania and Massachusetts, with the three great markets of those States, the right to exclude the other States? Mr. Sims : I am not talking about the merits of your prop- osition. I am talking about the possibility of enacting legis- lation. What will the State of Texas do, with her eighteen or twenty members of Congress, counting those in' the' Sen- ate — what will they do about enacting a national charter provision, of this kind, that will increase freight rates on the large cotton, crop of that State? Will they vote for any such thing? I am talking about the practicability of getting this legislation. Mr. Thom : I do not know what the Texas delegation will do. My hope is that they will take a comprehensive and na-, tional view of the whole situation. Mr. Sims : But your observation has been, I judge, — and I am afraid it is the observation of everybody — that there is always a circumscribed local conception Mr. Thom : But if a man Mr. Sims : It does not matter about a man, because if they do not have men that represent them, they turn him down and get one that does. This is a practical matter. Mr. Thom : If we are going to have men in Congress who can never get outside of their local situation, we are in a bad way. 20\v 306 Mr. Sims : Do you know of any way of getting them here in opposition to a local situation? Mr. Thom : I hope they are here now, Judge. Mr. Sims : Do you know of any way of getting them to act in spite of a local or district interest? Mr. Thom : The only way, as I see it, is to get the district to realize and appreciate what its real interests are. Mr. Sims : They always Mr. Thom (continuing) : And not be governed by a nar- row view. Mr. Sims ; They always think the particular thing which they are doing in that locality is the dominant patriotic con- sideration. Let me tell you of something in your own State. I had to go up against it myself. A portion of the State of Virginia raises peanuts, and the delegation of members of Congress elected from Virginia in that section, came before the Ways and Means Committee and demanded a high pro- tective duty on peanuts. Were they patriots, or what were they? It was contrary to the democratic policy and the democratic proposition, and yet those members from Vir- ginia, as good members as we have got, pleaded before that committee to comply with requests of the peanut growers who sent them to Congress, to give them a high protective duty, right in spite of the democratic position taken on that subject. Mr. Thom: The only answer I can make to you is that this proposition is a great deal bigger than a peanut. (Laughter.) Mr. Sims: In the district from which these gentlemen came, it was the largest issue which they had. I am talking now about practical things. Mr. Thom : I do not know, but I hope that those gentle- men from the peanut district of Virginia will rise to the na- tional and universal aspects of this great problem. I do not know whether thev will or not. 307 Mr. Sims: What is a representative of Congress? Is he not an agent of those who sent him here? Mr. Thom: Yes; he is; but he is an agent to do this: He is elected to represent the highest and most enduring interr ests. He is not an agent to simply reflect the whims and lack of judgment in his district. Mr. Sims: How many representatives could be elected from the district in Virginia in which the Newport News Ship Buildingiir ^. Dry Dock Company is located, who are opposed to the building of ships there? Mr. Thom : I do not know. Mr. Sims: You must deal "with these matters in a prac- tical way. Your Viginia man could not come to Congress if he would not present this peanut matter to Congress, be- cause if they did not do so, some others would. The peanut would still have been in Congress. That is a fact. You can- not get away from it. Mr. Thom : You are drawing a mighty gloomy picture of this country, if no man can see beyond his own district. Mr. Sims: I am talking about the past and present. Mr. Thom : Let us talk about the future. Mr. Sims : Well, didn't I see, on the formation of the tar- iflf bill, a southern Senator, a good man and able man, and a patriotic man, as patriotic as any, ask for a protective duty on sea island cotton that grew in his district? Mr. Thom: I can only defend my proposition, and not Congress. Mr. SiMS: But Congress has to take care of these condi- tions, and Congress is the country, and when you are talk- ing about theoretical things, we ought to see what can be done. Mr. Thom : Judge, I think I think better of Congress than you do. Maybe I do not know what you think about it. Mr. SiMS: I have been here twenty years, and it is still a problem to me — or, I will have been here twenty years, soon. Here is a proposition that is an actual fact. It is a 308 condition that confronts us, and not a theory, and you have got to do something. I believe that you will have to go in and reform local views, and if you think you can do so, I suspect that you will have a pretty difficult long, distance matter to undertake. Mr. Thom : The problem is for the country to assure itself that the very fundamentals of its commercial prosperity are provided for. Mr. Sims : To help the country through the railroads, you mean? Mr. Thom : If I should come to you with a private inter- est, in respect to this matter, 1 should not complain that you should discard my whole argument. Mr. Sims : The great cotton crop of Texas, to them, is not a private interest. Mr. Thom : It is not? Mr. Sims : Not in the attitude they take of it. Mr. Thom : If you go to take any of it you will find it is. Mr. Sims : It is not, though. It is just as dominant an in- terest with them as the peanut industry is to the people in your State. They think the people who eat them should aid them by paying a protective duty— a higher protective duty.. I have found, in my experience, whenever a protective tariff will relieve or assist an industry, in a democratic district, it is difficult to find a man who will not urge a protective tar- iff for that industry. Mr. Adamson: A parliamentary inquiry, Mr. Chairman. Was not a law passed to put a protective tariff on peanuts? Mr. Sims : It is on there now and has been on there. They wanted it increased. It was not sufficiently large. Now, I want to help the situation if I can. Mr. Thom: I am encouraged by that. Judge, anyhow. Mr. Sims: The situation now, is one that confronts the whole country, and as to the future, inasmuch as unbridled private ownership, for many years, had its reign, and wrought wreck and ruin upon the railroad industry, and in- 309 asmuch as we can no longer finance the railroads, as they were once financed, as you, yourself, admit — ^inasmuch as the complex regulation of forty-eight States and the general Government, which does affect, perhaps injuriously, the rail- road facilities — inasmuch as we feel morally certain that your propositions as a whole, are not going to be adopted, right or wrong, whether they approve or do not approve of them, it does seem to me that you, and those who represent the owners of these properties, which they now do not want to sell, should feegin to consider the inevitable, and be ready to make some sacrifices themselves, and to quit drawing dividends, when, in order to do so, they deprive their own railroads of sufficient facilities to do the business of the pub- Uc- Mr. Thom : I know of no case where that is done. Mr. Sims : How many millions of dividends were paid last year? Mr. Thom : I do not know. There is a vast percentage of the stock of the railroads of the country that did not pay a cent. Mr. Sims: There was still about a billion dollars of net earnings paid, as I recall. Mr. Thom : I do not think any judicial mind will com- plain of the railroads' dividends in the last series of years. Mr. Sims : Has any railroad a right, imbued with the in- terests of the public, to pay dividends at the cost of necessary equipment on that line? Mr. Thom: It has no such right, nor can you get new money in a railroad unless there is a return on the money already there. Your problem, however, as a statesman, is not to deal with anything except suggestions to provide for the future. That is what statesmen are for. Mr. Sims : I have never heard yet any propositions brought up with reference to dealing with railroads that did not put in, as a condition precedent, that the stockholders should have a fair return on their money in the way of ^dividends 310 paid out. A dividend is earned and properly earned, if it is put in the equipment of the railroad. Mr. Thom: How can you deal practically with the ques- tion of railroad credit, unless there is some return actually paid out. Mr. Sims : I do not regard a stock sale as a credit interest. Mr. Thom : I think, if you will Mr. Sims : If I owned a hundred acres of land, and I sell a one-fourth undivided interest in that to somebody else, I do not regard that as a credit interest at all. I just part with a part, and somebody bought it for what they thought it worth. Every time a railroad, without extending its lines, increases its stock sales, the individual interest of the remain- ing stockholders is lessened, unless they buy additional stock in proportion to that which they owned. I do not regard it as a credit interest at all. Mr. Thom: When that amount of money that the stock brings in is expended in increasing the plant, is it not? Mr. Sims : If the plant is in being, no. Mr. Thom: When you sold your farm, you put your money in your pocket. Mr. Sims: Yes, sir. Mr. Thom : If the stock of the railroad is sold, the money which it brings in is put into the plant, and not into the railroad's pockets. There is an increased asset. Mr. Sims : He has his value, which is represented by the increased value of the property into which it went, just the same as in receiving dividends on the stock, but instead of declaring a dividend of 5 per cent or 4 per cent or 6 per cent, that money is expended in the plant, and that is an investment. He has his dividends, but in the form of more valuable property. Mr. Thom: At the same time, judge — I do not know whether we are getting anywhere — ^but it seems to me where you and I stand is this : You say that the present condition is an unbearable one from the standpoint of the public, and 311 there must be a greater assurance of the facilities than there is now, under existing conditions, and this must be provided for the future. That is what I say. Then your conclusion from that is that there ought to be Government ownership, and my conclusion is there ought to be improved regulations. You are the men to determine it. Mr. Sims : No, I do not state my conclusions just as you have stated them. In the first place, my conclusions are that something has to be done. My next conclusion is that that which you propose cannot be done. Something has to be done, and that which you propose cannot be done, and you say, in the absence of that being done which you saj' ought to be done, that Government ownership is inevitable. I am only asking you to consider the inevitable, not as de- sirable, not as a first thought, but as a reasonable probability. Mr. Thom : But that is your conclusion, that it is inevi- table. I say you are the man to determine that, among others. Mr. SiMS: You have just announced that doctrine your- self, that you agree it is inevitable. Mr. Thom : Undoubtedly. Mr. Sims : Then we both agree? Mr. Thom : No, we do not agree, because you say that what I suggest cannot be done. Mr. Sims : I say I am afraid it cannot be done. Mr. Thom : I think it can be done. Mr. Sims : I think so. Mr. Thom : But I know so. And I think it can be do;ne. Now, you say that in view of your idea it cannot be done, that something else more drastic must be done, and that is Govern- ment ownership. I say that I have presented my views on that subject. You are the men to determine that, I am not. Mr. Sims : I asked you if you discussed this matter with your executive committee and the owners of the railroads? Mr. Thom : It is not a matter to be discussed with them. The Government can resort to government ownership without 312 their consent. It is not a matter for them to consent to. You can adopt the policy of Government ownership without our consent. Mr. Sims: But you are not willing to sell? Mr. Thom : We do not have to be willing to sell for Gov- ernment ownership. Mr. Sims : I think you will have to come to that conclusion before there will be any Government ownership. Mr. Thom : I do not know about that. Of course I cannot tell. Mr. Sims : As long as your property is so valuable, so de- sirable to the present owners, the present owners are going in some way or other to continue in the railroad business. Mr. Thom: Let me make one prophecy. If the present system is persisted in it may not be long before the principal advocates of Government ownership are the railroad owners themselves. Mr. Sims : It think it is inevitable, it is bound to be that way. I think you are exactly right about it. Mr. Thom : You cannot complain if they are trying to do the thing which they believe will meet the public conditions under that Government ownership, and we have brought that question directly to you ; you are one of the ten men who are primarily to pass on it. We brought it frankly to you and stated our views. Is there anything else we can do than that? Mr. Sims : So you have not studied the matter so that you can give your views as to whether or not it is practicable or possible to introduce some guarantee of government earnings,, ' secured by a lien on the properties? Mr. Thom: I told you about that, that I beheved that Congress would never consent to a governmental guarantee. As I stated before, you know Congress better than I do. Mr. Sims : I did not suggest it as a proposition coming from you, but as a possible suggestion. 313 Mr. Thom : I know, but whatever authority it comes from it never occurred to me that the Government should guar- antee the securities of these railroads. It may be that you are right about it. If the Government is ready to guarantee the returns on these securities, it is a new situation to be taken up and dealt with. Hobody on the part of the railroads ever believed that possible. Mr. Sims : The railroads first had to consider it as a fact that the Government would have to be secured by first liens on all existing properties as to any defaults in earnings the Government might have to make good, and that is a matter of contract. Mr. Thom :' You appreciate that is simply rapid progress to absolute destruction. Mr. Sims : I do not think I would advise the Government to guarantee an uncertain business. Mr. Thom : Suppose a railroad company were to make an arrangement to pay out a certain amount to its security- holders, and if it did not earn those dividends to put them as a hen upon their property. How long would it be before that firoperty would become absolutely worthless to the owners. Mr. Sims : If it is a good property it would not be, because the Government is only guaranteeing the payment of a mini- mum dividend and giving them the benefit of all over and above that, and if the Government loses on the minimum dividend, if the Government has to pay something the rail- road did not make, the sooner it goes into liquidation, the better. With a minimum dividend, one by which they can supply, and one which will make a market for their securties, without depending on the uncertainty of labor and the un- certainty of the cost of material and .the uncertainty of con- ditions over which the railroads themselves have no power of control — if they are not willing to risk, if the prior owners are not willing to risk this, then the Government certainly should not risk it. 314 Mr. Thom : Do I understand that you are agreeing with the conclusion that the Government will not be wiUing to guarantee the return on these securities? Mr. Sims : I doubt it exceedingly, because, as you say, it is a new question, and has not been discussed. I am only speaking of it as a possible solution, lying between the field of absolute private ownership and absolute Government own- ership — a government corporation. Mr. Thom : If the Government is not ready to do it it is not a possible solution, is it? Mr. Sims: I mean as a possibility. The Government, of course, as I say, having a control in the railroads over the stock, I mean to the extent of the stock upon which the Government has guaranteed a dividend so as to see what the Government officials approve is done by the railroad. In other words, they would have to submit to that which is partially Government ownership ; that is, if the result is equal to it, that anybody that can absolutely regulate your earnings on any piece of property poteutially owns the property to all intents and purposes. Mr. Thom: You think you have got us now? Mr. Sims : I think we have. The Chairman: Are you through, Mr. Sims? Mr. Sims : I am going to suspend for the present. Mr. Adamson : I know it is not according to our ruling to ask a question out of turn of the witness, but it is not a violation of that rule to ask Judge Sims a question, is it? Mr. Sims : I will not object. Mr. Adamson : If we are actually in a condition of wreck and ruin and destruction, and the only avenue of escape is the alternative proposition of Government ownership or regula- tion of the carriers, which they themselves prepare and dic- tate, would it not be safer for us to reject both alternatives and repeal the commerce clause of the Constitution? Mr. Sims : The judge has started a new proposition, which I have not considered as possible or probable. 315 Mr. Thom: I want to enter my protest here against the suggestion that the carriers are dictating any terms. I was asked by none more earnestly than by Judge Adamson to come here and ftiake our suggestions, and I do not think it is fair now to put us in the position of trying to dictate terms. Mr. Adamson: I will change the word from "dictate" to "suggest." Mr. Thom : I am very glad to have the change, judge. Mr. Adamson : Yes, I will say "suggest." The Chaibman: Have you concluded your examination, Mr. Sims? Mr. Sims: There are some matters I may wish to bring before Mr. Thom, on which I am not prepared, later in the hearing. They may be brought out by some other gentle- man or some other witness, and I may not inquire further in the subject. Mr. Adamson: I move that the committee do now ad- journ. Mr. Cullop: Until Friday morning, at 10:30 o'clock. The motion was agreed to, and at 1 :20 o'clock p. m. the committee adjourned until Friday, December 1, 1916, at 10:30 o'clock a. m. 316 The Joint Committee met at 10:30 o'clock a. m., pursuant to adjournment, Senator Francis G. Newlands presiding, also Vice-Chairman William C. A damson. Present : Senators Robinson and Brandegee, and Representatives Sims, CuUopj Esch, and Harnilton. The Chairman: The committee will come to order. We will now go into executive session for a short time in the adjoining room. (The committee proceeded to the consideration of execu- tive business, and after such consideration the doors were re- opened. ) (Mr. Adamson made an explanation as to a newspaper re- port of his views on the 8-hour law.) The Chairman: Mr. Uiiderwood, will you proceed i with the witness? Senator Unperwood: Mr. Chairman, the questions that have already been asked Mr. Thom by other members of the committee cover the field of interrogation that I had in mind, and I do not care to occupy any time in making inquiries. The Chairman: Mr. Cullop, will you proceed with the witness. Mr. Cullop : I understand that Mr. Thom desires to make a statement, Mr. Chairman. Mr. Thom: Before proceeding I would like to do what I can to clear up a misapprehension which I understand exists in some minds with respect to one of the proposals which we have submitted to the Committee. The idea seems to have obtained somewhere that under these proposal? our intention is to do away with the State authority and State commissionp. I wish it to be distinctly understood that we are making no such proposal. We have not undertaken to outline the exact place where the separation between State authority and Fed- 317 eral authority should be, but we have announced the prin- ciple which we advocate and which I now wish to emphasize, and that is that in the matters where the exercise of authority by a State operates beyond the State border and affects the affairs of another State, or affects in a substantial way interstate commerce, that then the authority should be entirely national. In those matters, however, where the authority of the State does not operate beyond its own borders, but deals with affairs within its borders entirely, we do not advocate the substitution of the national for State authority. Of course when we come to consider where a line ought to be exactly drawn we find some matters falling on one side of the line and some matters on the other side of the line. I am not now attempting to discuss the specific matters, but to announce the principle which we advocate, and that is — and I repeat it^ — ^that no State should want to exercise an authority in a matter which extends beyond its own borders and affects the affairs of another State and the people of another State, or which affects interstate commerce, but in those matters which are entirely within its own borders, of course, it ought to continue to exercise the proper authority in respect to them. Senator Robinson: May I ask you a question? Mr. Thom : Yes, sir. Senator Robinson : Does your statement now apply to the making of rates for purely intrastate traffic? Mr. Thom : It does. We think that the making of rates of an interstate carrier on intrastate traffic does affect the peo- ple of other States and does affect interstate commerce. ' Senator Robinson: I do not think I made my question quite clear to you ; at least your answer does not seem to me to be quite responsive to my question. On purely intrastate traffic, carried upon a railroad which is also engaged in in- terstate commerce, do you think that the Federal Govern- ment should fix the intrastate rate? Mr. Thom : Yes. I have said that the fixing of that intra- 318 state rate constitutes what would be the measure of contribu- tion by the traffic of that State to the upkeep of the interstate carrier, and would also have the effect of controlling the carriers of commerce. Senator Robinson : I merely wanted to know whether your statement this morning was a modification of your former statement. I understood your former statement very clearly. Mr. Thom: Not at all; I am trying to make clear my former statement with the statement now, as I said then, that I think that the fixing of intrastate rates on interstate carriers is a national matter. Senator Robinson: Now, you say as to purely intrastate matters the States ought to control. What would that em- brace? Mr. Thom : I think the grade crossings — I am illustrat- ing — the grade crossings, the establishment of stations Mr.EscH: The speed of trains? Senator Robinson : Why the speed of trains, if it is a through train? Mr. EscH : It is police authority. Mr. Thom: I am not certain about that, Mr. Esch, with respect to the speed of trains. I think that is a debatable matter and I form no special judgment upon it. For ex- ample, we find this situation, that the carrier will not stop a through train at a certain locality because the judgment ^ of the carrier is that it would best accommodate the travel by not doing that. Very frequently there have been local ordinances requiring the train speed to be reduced to two or three miles an hour through that locality. Now, that affects the whole through movement. But those are matters for this committee to take up and pass upon. The principle. Senator, which I have announced, and which appeals to me, is the one which I have tried to express. Senator Robinson: The statement you have made this morning does not differ, as I understand you, from the state- ment you made before? 319 Mr. Thom: Not at all. I was trying to correct a mis- /■understanding I believed to exist of the statement I had made. I was not attempting to modify it. I was attempting to impress it and emphasize it. Senator Robinson: I think I understood you correctly in the beginning. Mr. Thom : I think yoi^ did, but I heard that some gentle- men who are not attending these meetings had a different view, and I merely wished to emphasize that. The Chairman: Mr. CuUop, will you take the witness? Mr. Cullop: Mr. Thom, I want to ask you a few ques- tions that I do not think have been brought out, at least to my mind, clearly. Other members have covered the ground pretty fully, and I only have a few matters that I want to interrogate you about. Mr. Thom : Yes sir. Mr. Cullop : Would not national incorporation remove the trial of causes between the citizen and the railroad com- pany from the State courts to the Federal courts? Mr. Thom: No; the act of Congress would take care of that. Mr. Cullop: In the event of national incorporation, do you think it would be advisable to have a provision main- taining litigation in the State courts? Mr. Thom : I do. Mr. Cullop: As between the citizen and the railroad? Mr. Thom: I do. You will find a parallel to that, Mr. Cullop, in the litigation under the liability law. There, by express terms of the act of Congress, the Utigation must take place in the State court unless there is some ground for removing it elsewhere. Mr. Cullop: Other than the fact that it is a Federal law? Mr. Thom: Yes sir, or a Federal question. In order to be entirely accurate I will say that there should be a pro- vision in the law forbidding the removal to the Federal courts of litigation instituted in a State court simply on the 320 ground that there is a Federal quention involved arising under a Federal statute. Mr. Clllop : I have long since had the idea that such a provision ought to be generally adopted, as it would relieve the citizen of many burdens which are now imposed on him in the way of litigation by removal of cases. Mr. Thom: I am entirely in sympathy with preserving the terms of the act of Congress as to the jurisdiction of the States — in the State courts, I mean. Mr. CuLLOP : In many instances it is practically a denial of justice because of the added litigation. Now, you spoke of double taxation. Do you not think that the matter could be remedied by a provision of law providing exemption on the part of the mortgagor to the amount of the indebtedness of the mortgagee by some provision of law ? Mr. Thom : That may be entirely controlled. At one time I heard you call attention to the law of Indiana. Mr. Cullop: On real estate mortgages? Mr. Thom : On real estate mortgages, and that is a per- fectly practicable and feasible method. It is a question merely of the policy that Congress desires to adopt in respect to it. Mr. Cullop: What would be the result of such legisla- tion, in the event that the mortgagee and mortgagor lived in different taxing jurisdictions? Mr. Thom : Then it would be to transfer the benefit of the taxing power from one jurisdiction to the other, as to some value of the asset. Mr. Cullop: Could that be done under the power of the State? ' Mr. Thom : That part could be done. The whole thing could be obviated, though, by a different method of applying the taxing power. Mr. Cullop: It is. certainly unfair to have the double taxation as it is, or at least ought to be, enforced now so 321 that either the mortgagor or mortgagee should have some relief so as to avoid double taxation. Mr. Thom : The justice of that proposition is undeniable, it seems to me. How far it is practicable as a system of taxation, is another question. Mr. CuLLOP : In the State of Indiana we have a law re- lating to mortgages on real estate that upon application to* the proper authority the mortgagor can be relieved in the taxation of his property in an amount equal to the mort- gagee's interest, whatever the loan may be. Do you think that such legislation as that would obviate the matter of which we spoke then in reference to double taxation? Mr. Thom : Of course that removes the objection of double taxation. Mr. Cullop: Now, as to the reorganization of the Inter- state Commerce Commission, what would you think of a plan to reorganize it on the plan of the Federal judiciary? Take, for instance, the Interstate Commerce Commission, composed of seven or nine members as the supreme authority,, and then divide the United States into different districts with commissioners to hear the complaints in their respect- ive districts, with the right of appeal or removal to anyone who might complain of a ruling, to the Interstate Com- merce Commission, where it could be reviewed just as you do now in cases in- the Federal courts? Mr. Thom : If I understand your question it is practically the suggestion which I have been advocating here. Mr. Cullop : I am glad to know that you have. Mr. Thom : That seems to me to be in principle the same. Now, I suggested here, in the course of my remarks, a sys- tem by which the Interstate Commerce Commission should consist of seven to nine members, as they or Congress may feel is the necessary number, to sit in Washington, and with what we call "Regional Commissions," to correspond, as I understand it, with your suggestion of a distribution of 21w 322 subordinate bodies into districts, to be determined by Con- gress. Mr. Cullop: Inferior tribunals? Mr. Thom: Yes; and they would be close to the place where the complainants were, and would live there and be acquainted with the local atmosphere and local conditions, local views ; and they could take all the testimony, hear all the case right there ; formulate their conclusions on it, and send them up to the Interstate Commerce Commission, where it would be subject to exception, as you have suggested, and those exceptions to be argued before the Interstate Com- merce Commission, either by the complainant or by the car- rier, or by anybody who might be in interest — any com- munity; and with power, likewise, to the Interstate Com- merce Commission of so controlling the matter that, even without exception, they, may say "We will not let that de- cision pass through here, notwithstanding no one objects to it, because it puts the administration of the law in that sec- tion entirely different from what we have determined on for the balance of the country." So, as I understand it, Mr. Cullop, the suggestion you have made, and the view I have, are entirely in harmony. Mr. Cullop: I am glad to know that. Supposing you were to divide the United States into twelve or sixteen differ- ent jurisdictions or circuits, with a commission of three, who would occupy the relations with the Interstate Com- merce Commission that a district court — Federal Court now occupies to the Supreme Court — giving such a court or commission the right to hold hearings over their respective districts, so that the litigation would be brought close to the people, and with the right of appeal to the Interstate Com- merce Commission by filing exceptions, or otherwise as might be provided by law, and with the right in the Inter- state Commerce Commission to review the question, if either party sought to have it reviewed: Could you not, in that way, bring the settlement of all these disputes near the 323 aeople, and give them better opportunity — in fact, both sides — to be heard where their witnesses reside, and where he questions in dispute arise? Mr. Thom : I thinlc so. May I illustrate that just a little? Mr. Cullop: Now, in the event of doing away with the State commissions, about which you have spoken, would not this take the place and afford each State or community the right of regulation, and be no conflict between the two au- thorities? Mr. Thom: Yes; except that I have not advocated, as I liave just explained, doing away with the State commissions, 3ut in the respects that the jurisdiction of the State commis- jion was transferred to the National Government, it would be just as you say. Now, may I illustrate what I know to DC the difficulty — one of the difficulties? Mr. Cullop: I will be very glad to have you do so. Mr. Thom: This is what I know to be one of the diffi- 3ulties, which a very intelligent State Commissioner finds in respect to that matter. He says he is constantly against ;he determination of questions which are arbitrarily, limited ay the State line, whereas the transportation problem does Qot limit itself by those lines. At the same time, he says It is very important to have a local conception of all these matters; but if you could have some such body as you and [ are referring to — some regional or district sub-commission, whose jurisdiction would run according to the lines of iransportation, instead of according to the arbitraiy lines )f the State, he believes that his usefulness would be very greatly increased ; and that is the view which has appealed » me. Mr. Cullop: If I have understood you correctly — and [ think I have — it is your contention that the Federal Gov- Jrnment has a right to regulate the intrastate as well as the nterstate transportation, under the power of the Commerce Clause of the Constitution? 324 Mr. Thom : If it is done by an instrumentality engaged in interstate commerce. Mr. Cullop: Certainly. Now, if that power exists— and I think it is clear from the decision in the 234 U. S., that the court has settled that proposition — what is the office now of the State commissions, in the event the interstate com- mission or the Federal Government should take jurisdiction over that matter? Mr. Thom : If the Federal Government takes the juris- diction over the matter, of course the State authority would cease. Mr. Cullop: It would no longer have any functions to perform ? Mr. Thom : In respect to the particular matter over which the Federal jurisdiction was constitutionally extended. Mr. Cullop : Now, do you construe that to go far enough to regulate the police powers which the States have reserved in regard to the operation of roads, such as the buildingibf depots, relating also to crossings and grades, and other things that are connected with the operation of railroads? Mr. Thom: My conception of the constitutional limita- tion is one thing; my belief as to the proper policy is an- other thing, in respect to the question you have just asked. My belief is that, constitutionally, the Federal Government would have authority to take entire charge of the instru- mentality of interstate commerce in all its relationships. ;j[ think that is constitutionally possible. I do not think it is wise that that full authority should be exercised at the present time. Mr. Cullop : Now, in regard to the bonding of roads or raising finances for them, have the States, through their commissions, attempted to exercise authority over interstate roads in relation to the bonding of them, so that the jurisdic- tions have been conflicting? Mr. Thom : Yes. 325 Mr. Oullop: There are already instances of that kind? Mr. Thom : Yes, a good many. Mr. Cullop: You spoke the other day Mr. Thom: Yoxi will find, if you are interested in the abject particularly, a very interesting case of the general lower, in the /Supreme Court of Maryland, where Maryland indertook to exercise that power in regard to the Baltimore ; Ohio Road. Mr. Cullop : You spoke the other day of a certain amount f mileage that was able to refund or bond itself, and a cer- ain number of mileage that was unable to bond or refund. would like to hear you go over that a little more fully, ,nd develop the idea more' fully than you did the other day. think you mentioned 185,000 that were unable to refund r bond themselves, and 49,000 that were. In other words, ?hat is the cause of the inability of this great number of aileage? I might ask, further: Is it because it is bonded its full value_now, or is it the reckless financing or manage- nent of the road that prevents them from raising the neces- Eiry capital? Mr. Thom : What I said in the respect that you are now lluding to was this: I was referring to the power of. the oad to obtain new money ; not for the purpose of refunding, specially, but new money for the purpose of creating addi- ional facilities. Mr. Cullop: An additional amount to that which they Iready have ; is that it? Mr. Thom : Yes. Mr. Cullop : That is what I wanted to bring out. Mr. Thom: Yes; and I was trying to explain the view liat I entertain of the great desirability, if these railroads re to remain stable, of being able to finance themselves by le issue of stocks, instead of bonds; and I stated that in rder to finance by the issue of stock, the general view, as understand it, is that the revenues of the roads must be irge enough to pay at least a six per cent dividend on the 326 stock, with a surplus of at least three per cent in addition, and that applying that test, there were thirty-nine railroads which have a mileage of 47,363 miles, which could prob- ably be financed by the issue of stock at par ; whereas, under the same test, there are 137 railroads, having a mileage of 185,219 miles, that could not be financed by the issue of stock at par. Mr. Cullop: Now, is that because of the over-bonding or the territory that is penetrated by these roads, or because of the manner of financing them heretofore? Mr. Thom: I think you will find the causes which have led up to that to be mixed causes. 1 do not undertake to deny — I do not in any way take the position that some of the objectionable things which have been done in respect to financing railroads, have not had an effect on the public estimate of railroad management. Whereas these objection- able things, as I am informed, relate to only about ten per cent of the mileage, I think that they have had an effect upon the public mind, but I do not think that that alone explains. I think that after allowing for all of that there are other causes and other difficulties which have created insuperable difficulties. One of those is — and these things that I am now referring to have a vastly greater influence on the general view of the investor than the other matters to which I have just referred — that there is no power on the part of the investor, when he gets his money in, to control the amount of the earnings that will come from that prop- erty; that there is, likewise, no power, speaking in general terms, for him to control his expense. When those two things are brought together, the very fundamentals of the desirability of an investment are involved. If you cannot control either your income or your expenses, you find that your chance of success is very much limited, and when you find also that those matters are controlled — ^both of them— by considerations which spring from a willing-ness to pub- licly agitate the question, to determine it by political ex- 327 igencies in any paiticular case, you find such a very serious situation created that the investor shrinks from entering that field of investment, when he considers the attractions that may be open to him in other fields. Mr. Oullop: Has not a great deal of this distrust been created in the public mind through the manipulation of the stocks and securities of the railroads on the boards of trade and stock exchanges of the country? The bulling and bearing of the market? Mr. Thom: I have no doubt that those things apply to railroad securities as they do to every other security. But let me say that I am entirely convinced that if there had never been any of them, if there had never been anything in railroad financial management that has been criticized, that the record was absolutely clear and respectable, but there were left the conditions where the system of govern- mental regulation was repressing, where there was no control over revenues and no control over expenses, you would find the same condition you find now in respect to the difficulty of financing. Mr. CuLLOP : Is there any good reason in your mind why the railroad stock or bond should not be as stable in the markets as that of any other staple product? Mr. Thom : Yes, there is a very good reason. Mr. CuLLOP : I should be glad to hear you state what it is. Mr. Thom : I have just stated that where the amount of your revenues is beyond your control no amount of in- dustry, no amount of genius, can affect the level fixed by governmental authority on your revenues, and no amount of good management can control the amount of your ex- penses, and therefore where the net earnings is so absolutely beyond the control of the man who puts his money into it, there arises at once a reason of overwhelming consequence why the bonds and< stocks of railroads should not be as de- sirable as the other character of investments to which you allude. If, however. Government concludes that the neces- 328 sity for measures of correction and repression simply without anything else have passed and that there be the same co- operative spirit in the regulation of these enterprises of rail- roads as is in the banking system of the country, I believe that an immensely greater credit will be attracted to them. Mr. Cullop: Do you think these are the reasons which have occasioned the wide fluctuations in the values or sales of the stock of the same road which frequently occur in a very short period of time and without any reference to the earning capacity of the roads? Mr. Thom: I think if you will watch the stock markets you will see that the fluctuations in railroad securities is nothing like as great as in others, and I think if you watch the stock markets in respect to the stock you will see that the sales are very much better. In other words, the spirit of the speculative public is one which makes wild specula- tion, and the spirit of the public in these matters is very much different. Mr. Cullop: Such wide changes and fluctuations do not occur in the stock of banks, trust companies, real estate mortgages and kindred securities, then why is it that they do occur so rapidly in railroad securities? Mr. Thom : I say I think your facts are wrong there. I do not think that the fluctuations in railroad securities are anything like as great as in many other classes of invest- ment. You probably refer to some historic incidents when there were these great fluctuations ; they occurred for special reasons. They have occurred not only with respect to rail- road securities, but in respect to others. For every railroad stock that has had a history of great advance or great de- cline, I think I can name some security of another class of industry that has had the same, and that now the wide fluctuations are in other classes of securities instead of in railroad securities, because they are practically neglected. Mr. Cullop: Have they not been neglected because of 329 the distrust or the fear that the public has of them from former manipulations of them on the stock markets? Mr. Thom : I do not think so. I have explained my view about that. I think if all that was withdrawn that the great fact which I have attempted to express here would control the matter anyhow, and in saying that I am not at all losing sight of the fact that in railroad finances, as well as in any other kind of finances, as well as in any other kind of busi- ness, there have been objectionable practices. Mr. Cullop: There have been very great abuses, have there not? Mr. Thom : There have been abuses. They have been confined to a small area, however. Mr. Cullop: Do you not believe that confidence could be restored in the public mind so as to invite capital into this line of investment if there were provided a method for the issuing of stocks and bonds for railroads, for instance that they could only be issued upon the filing of a peti- tion with the Interstate Commerce Commission, providing for what purpose, what amount, and regulating, fixing the minimum price at which they should be sold, so that the purchaser would know the piiirpose for which the additional finance was to be raised and thus his investment would be applied to that particular purpose? Mr. Thom: I think, Mr. Cullop, that is but one of the things to do. Of course you know that that is a thing that I think ought to be done. You have heard me say so before your committee often ; you have heard me say so here. But that is only one of the things to be done. We have got to convince that investor not only that Government approves of the issue of the special security and approves of all the other matters to which you have alluded, but you have got to convince him further that there is going to be a proper return on them, and unless you convince him of the latter he does not care how much you supervise the issue of secur- ities, he will not take them because what he is after is his 330 return, and unless he is assured of that he will not invest. Mr. Cullop: The increase of rates reduces the amount of business or patronage of the railroad, does it not? Mr. Thom : No, sir, the increase of rates up to a reason- able point would not reduce the volume of traffic. The trafhc is not created simply by low rates. If there is a profit in the transaction of the shipment in question after paying the rate the traffic will move, and you have got to get a prohibitory rate before you reduce business. You do not get to the prohibitory rate by making a reasonable rate. Mr. Cullop: Take certain lines of products that bring a low price on the market, farm products, if the rates are low will it not invite traiRc in that line of products? Mr. Thom : It will not invite traffic in that line of product unless — I will say it will not retard the movement of that class of traffic until you make the shipment an unprofitable one. As long as it is within the range of a profitable and attractive business to the farmer his product will move. Mr. Cullop : But, if the rates were lower, would it not inspire him to activities along lines of production that he would not now engage in at all? Many products on the farm can be raised without practically any additional labor. In the cities there is a demand for them, but the rates are such that he cannot afford to ship them for the price they will bring, although they are desired in many congested centers of population. Now if that rate was down to a lower figure where he could afford to produce and put on the market his product, would it not multiply business as well as revenues for the railroad companies? Mr. Thom : I think the difference between the idea that is in your mind and mine is that you are using the words "low rates," just simply low rates without the relativity in them at all. You say, would not a low rate bring about traffic? I say Mr. Cullop : I should like to modify that a little. 331 Mr. Thom : Will you let me finish what 1 was trying to say? Mr. Cullop: Yes, sir. Mr. Thom: I say that if the rate is low enough in re- lation to what the product will bring on the market it will do all that is necessary to stimulate traffic. The mere mak- ing a rate low enough to move the traffic anyhow and then lowering that rate which already moves the traffic, would not move more traffic. It is a question at last of the com- mercial merits of the proposition. Here is a farm product which, on existing rates, is profitable for the farmer to send to market. Now he will send that if it is profitable to him, and by cutting that rate in half he will not send any more of it, because he is already induced by the profitableness of the transaction to engage in the business. And I will say further that the farmer's interest is not in the low rate alone, or principally. What is his interest is to be able to get to market on reasonable, terms, and he wants facilities, and he is interested in that rate being high enough to guarantee the facilities, and he is interested in that vastly more than he is in just having rates indiscriminately slaughtered. Mr. Cullop: Now, there are certain products which can be raised on farms without additional labor practically. They are a cheap line of products, much desired in con- gested centers of population for food, but because of the rate charged for transporting them to markets, say a hun- dred miles, they are unable to produce and put them on the market. It seems to me that if a rate was fixed, without additional cost in transportation to the railroad company which is operating its trains, not to the capacity, in many instances, of the motive power, it would add revenues to the roads, as well as relieve an embarrassing situation existing throughout-the country, especially, at this time, in the short- ness of food products, and add very materially to the reve- nues of the railroads. I never could understand why rail- roads do not meet that situation. 332 Mr. Thom : I think you will find, Mr. Cullop, that they do meet it, and not only that, that if they do not meet it that Government has assumed the power of making them meet it. These rates are Government fixed. Now, I will give you an illustration of what you are talking about, I think. Suppose there is a manufacturer of tobacco that has ten boxes that he wants sent down to the station and shipped, and he gets a wagon to take them and that wagon comes along, but has space for twelve boxes instead of ten, and that the man who has the ten boxes is willing to pay 20 cents a box to get them down there — $2. Now, his next-door neigh-, bor is a manufacturer of tobacco, too, and there is space in that wagon for two additional boxes, and he comes out and says, "You have got vacant space there, and I will give you ten cents a box to take two boxes down." Now, you think that he ought to have the authority to carry those extra two boxes at ten cents, because he has got the transportation capacity there. He is going to the station anyhow, but the result of that is generally this: That load now, under the supposition that I have made, will pay $2.20. The result of that is this, that when this wagoner agTees to take those two boxes for ten cents, the man who is willing to pay 20 cents a box says, "You must take all of my ten boxes for ten cents. So that when he does that, instead of that load pay- ing $2.20, the load pays $1.20. There are thousands of those situations that have to be taken into consideration by rate-making bodies; but we are discussing here the perfec- tion of those rate-making bodies so that they will adequately ; respond to whatever the commerce conditions require. Mr. Cullop : Is it not the experience that the enactment of two-cent fare bills in a number of the States has a tendency to very materially increase the revenues of the railroads, because of the reduction of passenger fares? Mr. Thom : That is a very much disputed question. Mr. Cullop: It did increase the travel, did it not? Mr. Thom: Some people think it did and some people think it did not. The general consensus of opinion is that 333 * while it induced some additional travel, that it reduced passenger rates so low that the passenger business was not contributing its part to the upkeep of the facility, and that the burden of keeping that up was on the shippers of freight, and the burden to an unjust extent was on the shippers of freight; so much so that the Interstate Commerce Commission has examined that question and has so de- clared, and has directed the passenger fares to be increased. Mr. CuLLOP : But was it not a fact, at least in some juris- dictions, that, instead of decreasing the revenues of the rail- roads or making it an ad., Mr. Thom : I think that is so ; but in speaking . of the whole country, all of the railroads of the country are sub- ject to 49 masters, and in this sense each railroad is; ol course, a railroad is interested in the carrying of traffic which does not originate in the States through which it runs and also in the terms which are imposed by law. Now, the payment for its participation in that traffic is determined by what the regulating power fixes, and that regulating power, in fixing the rate across the continent, therefore, has to assume a burden for interstate commerce, which is created by reason of the non-participation of any one of 48vStates, to a proper extent, in the maintenance of transportation facilities, up to the standard of the national judgment. The Interstate Commerce Commission, when called upon to fix •26w 402 a rate on citrus fruits, from California to New York, ought to take into — if it is going to properly safeguard the public's real interest in fixing those rates — ought to take into con- sideration the proper development of the transportation sys- tem, up to the point of the public's needs, and provide that that standard shall be maintained ; but here we come across perhaps some other State — some State anywhere in the United States that has the policy of non-contribution to Such a standard. Now, manifestly, that puts a burden on the interstate carrier, and in that sense each one of the rail- roads is subject to the varying policies of all the 48 States. Mr. Esch: I do not want to repeat a qu^tion that has been put, and hence there is not much sequence to my in- terrogatories, but on the question of taxation, in your judg- ment, under your plan of Federal incorporation, would it be wise and practicable for the Interstate Commerce Com- mission or a like body to fix the unit or standard of taxa- tion, leaving the application of that to the individual States? Mr. Thom : I know we are dealing, Mr. Esch, when we come to taxation, with an extremely sensitive unit, and, therefore, what I would advocate, and what I think wise may be two different things. I think that every man in dealing, with a practical situation, has got to consider, in what he advocates, what is reasonably practicable under the conditions which confront him. In dealing with a ques- tion of philosophic consistency and propriety in a distribu- tion of governmental power, the mind may arrive at entirely different conclusions. Now, philosophically considered, from the standpoint of a perfected system, there is no doubt in my mind that the wisest course in dealing with the public interest in respect to these transportation companies, is for one authority to have control over everything that goes to their vitals, and, therefore, in the question of taxation, the power of taxation constitutes one of those things. In an ideal State, where it is possible for a man to exercise his judgment, undisturbed by forces which the statesmen see 403 exist in society — the ideal way would be to declare the prin- ciples, as Marshall did, that the power to tax is the power to destroy, and, therefore, must be controlled by the re- sponsible governmental agency; but I do not think that situation is a possible one. I believe that the United States must, in considering the sensibilities and the needs which the States now have, based upon their possession of this asset for taxation of the system of government they have establishes — I believe they have got to leave that taxing power with them, because of these > practical conditions to which I have alluded. ■ Mr. EscH : Of course, if that be true, that would permit one State, by raising an excessive rate of taxation, prac- tically burdening interstate commerce and hence burden- ing the people of another State. Mr. Thom : Undoubtedly. Mr. Esch: Then that would be simply a repetition of the same difficulty with reference to the rates? Mr. Thom: Except it should be a different — ^very differ- ent in its bearing and importance. Now, the United States 'Government, while showing its deference to State conditions, would not deprive itself of the ultimate assertion of the taxing power as an entirety, if it fqund that it was necessary. My hope would be that it would not bp so exercised by the State as to make that step necessary for the National Gov- ernment to take; but the National Gipvemment would be in a position to take it any time, when one of the States would be so oppressive in its policy to another State as to make it necessary in fairness. Mr. Esch: If the Government could, fix the standard or unit of taxation, and leave to the State the application of it Mr. Thom : I would think that that would be a consunj- mation greatly to be desired. Mr. Esch: As it is now, different States have different statutes for taxation. 404 Mr. Thom: Undoubtedly; and if it is a practical thing to do, nothing could be of greater value. I do not mean nothing, but I mean there are few things that could be of greater value. Mr. Esch: You have stated repeatedly that 15 per cent of the traffic of carriers is intrastate. How is it possible for the rates on so small a percentage of total traffic, im- posed by a State, to seriously affect interstate commerce? Mr. Thom: Because the margins are so small that every burden anywhere has to be absolutely watched. The system of regulation has gone to the extent of cutting down every margin so close that the least cut anywhere else is felt, and when you affect the revenues on 15 per cent of your busi- ness, you are affecting a very substantial part of it. Mr. Esch : Well, the complaint is that the intrastate rates are too low ; is not that the truth ? Mr. Thom: That is, in many cases, true. They differ materially. I know two States — if you will allow me to say so — ^that join; they touch each other, and the rates in one of those States is incomparably higher than in the other. Mr. Esch: On the same commodity? Mr. Thom : On the same commodity, for the same service, and that State with the high rate is bearing the burden of the State across the border and is helping to bear the main- tenance of a system of interstate commerce. There is one member of this committee whose State is in that condition. Mr. Esch: "Well, is it not also true that there are some intrastate rates that are higher than interstate rates on the same commodity? Mr. Thom : Yes, and there you have to take this into con- sideration. Of course a State haul, as a rule, is the short haul. A large part of the expense of rendering that servicfe is in the terminal service at one end and in the terminal service at the other. If those expensive terminal services are spread ovier a very long movement they will become less seri- ous, but where you spread them over, in the certain case of a 405 mile or two, or of a few miles, they become very serious, aiid therefore the contention has always been that the cost of the short haul business is so much greater than the cost of the long haul business that the rates ought to be very consider- ably higher for the short haul business, and you frequently find the rates in the State "where they are actually higher than in an interstate movement, and yet that level is not high enough to sustain the increased cost of doing that business, and the cosl of doing the short haul business is thrown on the long haul by the injustice. Mr. EscH : Can you quote any statistics as to the amount in tonnage and receipts of intrastate business and the amount of the reduction of the rates, intrastate compared with inter- state on the same commodities? Mr. Thom : We are trying to have developed for your in- formation the percentage of the traffic of the country that is interstate and that is intrastate. I had not yet undertaken the other phasfe of the matter suggested in yoilr question, and I have not any data on that subject. Mr. EscH : Can it be secured without considerable trouble? Mr. Thom : I do not know. We will see. We will refer it to our accountants and see whether that can be obtained, and if so it shall be done. Now, I should like right there in respect to that percentage to show how different are the interests of different States in that question of interstate and intrastate business. You take the State of Indiana, I am told the intrastate business of Indiana is 7 per cent only; that the interstate business of Indiana is 93 per cent. Now the explanation of that is that the producing public of Indiana is dealing with markets of other States or with foreign countries. But take a State like Pennsylvania, there they have got tremendous markets in Pennsylvania. There is Pittsburgh and there is Philadelphia, merely to mention two of them. There is a tremendous movement intrastate in Pennsylvania. You go and get your coal and your minerals and your farm products in Pennsyl- 406 vania and they have right within that State, and other States, the markets to consume a very large proportion of them, and therefore there is a tremendous intrastate movement there. But take the little place where I was bom, which is so small a place that some people Wonder in looking on the map whether it is inhabited. It is two counties of Virginia lying between Chesapeake Bay and the Atlantic Ocean, and our markets are Philadelphia and New York. Mr. Adamson: What is the name of your town? Mr. Thom : I was not bom in a town ; I was born just as far in the country as anybody. I was bom in Northhampton County, Virginia. Mr. Adamson ; I thought you said a little town that no- body would know. Mr. Thom : No, I said a little strip of land there that some people thought was not inhabited at all when they looked on the map. That is a great market country. We raise there tremendous quantities, of vegetables, potatoes, cabbages, and all sorts of things that are necessary for the food supply of the country, and the Pennsylvania Railroad runs right down to those two counties, and it is not more than two and a half miles from water on either side, possibly, in some parts of it, and they just take the products of that county and carry them right up to Philadelphia and New York. There is our whole live- lihood there, practically, an interstate matter. Mr. Esch: Your suggestion is in favor of two Federal commissions and regional commissions, the Interstate Com- merce Commission with its administrative functions and then another commission to administer the law, and so on for cor- rection. Then, in addition to that, you wish regional com- missions. This whole machinery would involve a very large expenditure, would it not? Mr. Thom: It would involve an increased expenditure. It would not involve a very large expenditure at all for the United States. It would be an infinitesimal expenditure if it 407 should be considered as perfecting the system of regulation. It would pay for itself a thousand times over, a million times over, but in its first outgo it would involve comparatively little to this Nation. Mr. EsCH : Of course with the present system of one Inter- state Commerce Co(Bftmission, and then the State commis- sions, the Federal Government is not involved in the expendi- ture of the State commissioiis. . If you have the regioiial commissions of course that expenditure would fall upon the Federal Government. You have probably heard of the Oklahoma plan and the Philadelphia plan of regional com- missions? Mr. Thom: No, sir; I do not think I have. I think I have heard of the Philadelphia plan. It was read here the other day. Mr. Esch: They have adopted part of your pla,n. Mr. Thom : If it was the one read here the other day be- fore the United States Chamber of Commerce, I was in the hall, but I have not heard of the Oklahoma plan. Mr. Esch : We have been submitted copies of the proposed plan, and there no doubt will be representatives from Okla- homa here to submit it. I need not go into it, but they have adopted the regional' plan, as you have done, grouping the country by railroad systems as much as possible, and not by geographic State lines. Do you think that would be a pref- erable method of dividing the country? Mr. Thom: That is the very view we had suggested. I did not know Oklahoma had done that, but I think that is the way to do it. . Mr. Esch : In your plan, and in both plans, you permit appeals from the commissions to the Interstate Commerce Commission? Mr. Thom: Yes, sir. Mr. Esch : Do you not think that would multiply instead of diminish the work of the Interstate Commerce Commis- sion? 408 Mr. Thom : Oh, no ; I think it would greatly diminish it. Let us look at that one moment. Mr. Esch: I think it is a very material feature of your plan. Mr. Thom: I think it would very much diminish the work. The Interstate Commerce Commission would not be bothered at all, as they, in theory now are, in the prepa- ration of records. They would not have to provide through any agency of their own for hearings.' The hearings would all be conducted by an agency established by a statute of the United States, which is as independent a source as the au- thority of the Interstate Commerce Commission itself. The members of these regional commissions would be selected by the "President and confirmed by the . Senate. Now, they would conduct all hearings on the subject of these rate ques- tions and so forth. They would make, up their record; and when the record came to the Interstate Commerce Commis- sion it would not be necessary for it to read that record. It would onlj' be necessary for the members of the Interstate Commerce Commission to consider the parts of it to which exceptions were made, and they would pass, unless they chose to do otherwise, on the points that were distinctly de- fined by these exceptionions, one following the other, and therefore, what they would have to do in respect to each case would merely be to pass on the controverted points in the case, and not to lose themselves, in the mazes of the whole thing as they now have to do in their original jurisdiction. Mr. FjSch : What do you say with reference to expediting hearings under this regional plan? Mr. Thom : I think it would vastly expedite them. Mr. EscH: Over the existing system? Mr. Thom : Yes, sir ; over the existing system, because the regional commissions would be there on the ground, in ses- sion all the time, having short distances to travel, being con- venient to every shipping center in the whole place where they would hold anywhere within their regions hearings. 409 and they would be able to manage in that separated way the controversies growing up in their sections very much quicker than the Interstate Commerce Commission can do over the whole country at present. I think one of the features of it is the expediting of their hearings, and commerce questions ojight always to he expedited. Mr. EscH : One of the main reasons you allege for having the Federal incorporation and having possibh- these regional 'eojnmissions is to avoid Shreveport cases, is it not? Mr. Thom: Well, I do not know that I can say just yes to that question, Mr. Esch. I do not think that the question of regional commissions would obviate the arising of such cases as that, except as a result of the whole rate structure everywhere being harmonized, proportioned and made sym- metrical by the one authority. Mr. Esch: I can not conceive of the two regional com- missions having to deal with a question which involves two regions, two little groups, two little systems. Mr. Thom : The ultimate power of dealing with any such controversy as that, any such difference as that, is right here in the Interstate Commerce Commission, and if one of those regional commissions took one view of what was the sound adjustment of that question, different from what another one did, why that matter would be brought by exceptions right up here to the Interstate Commerce Commission and would be settled by the central authority, and that is one of the arguments that we think shows that there must he a central commission here to harmonize the rate systems and traffic movements throughout the United States, so that they may all be on a fair basis of equality. Mr. Esch: Are you familiar with the recommendations which have just been made by Chairman Meyer of the Interstate Commerce Commission, in an address he made before the State Eailway Commissioners in this town? Mr. Thom : Yes, sir ; I saw it in the newspaper. 410 Mr. EscH : He recommends the enactment of a law which will permit the State commissions in the States involved in say the Shreveport cases sitting with the Commission and hearing the various matters, then coming to some agreement. In your opinion would that be a practical matter? Mr. Thom : No, not only would it not be practical, but it seems to me open to tremendous objections. Mr. Esch: What are they? Mr. Thom: One is the attempt to deal with a National power by delegating a part of its exercise to an authority it cannot control. Never before in the history of this country have I seen it defended that a National Government should be dependent upon agencies other than its own for the carry- ing out of its functions, therefore, I think there is tremend- ous constitutional objection, I will say, certainly objection from the standpoint of sound governmental policy, to the theory that the National Government must now delegate to some agency that it does not create and that it does not con- trol, a part of its function of preventing discrimination be- tween the classes of traffic and between the various States. That is a fundamental reason. Now, in addition to that, if that body, so created, being a State Commissioner from one State, the State Commis- sioner from another State, and a member of the Interstate Commerce Commission, should have the ultimate power of dealing with the question, then there is complete surrender of the National Government of its function of determining that question. If the power is not to be surrendered into the hands of that committee, and they are to merely make the record on it, and the Interstate Commerce Commission is, at last, to pass on it, then you have gotten nowhere. The power rests where it is, and it is a mere making a promise to the lips, which is denied to the heart. The last objection which I will suggest is this: It does not begin to deal with the trouble. The trouble with the States is not merely the trouble of discrimination — I mean the 411 trouble with the State power of making rates is not merely, the trouble of discrimination — it always involves the ques- tion of a reasonable and proper, and fair proportion of the contribution of that portion of the traffic to the general up- keep of the facilities of transportation on which all the people are depending, and the suggestion there ignores entirely the latter condition which is inherent in the situation. It does not at all undertake to deal with the question of whether or not a State may deny its contribution to the proper upkeep of the facilities in which two States are interested, and throws the burden of the proper upkeep on the other, or on inter- state commerce. So, it seems to me, the remedy is partial, and is objectionable from every standpoint. Mr. EscH : As T understand you, you endorse the proposi- tion to give the Commission the power to fix a minimum rate. Mr. Thom : Yes, sir. Mr. EscH : In my State — and if I am in error about this I trust I shall be set straight — the Commission fixes the exact rate. Do you think that would be feasible or a practi- cal suggestion with reference to rate-making, if the^ Mr. Thom: Someone the other day started to ask that question, and withdraw it, on an explanation from me. I have certain represenfetive responsibilities here. I hesitate to deal with any question except from that standpoint, if I can avoid it. The representative view which I have is that the maximum and minimum rate is the extent of the power which it would be beneficial for the Commission to exercise. Of course, I know, when being on the stand, I am subject to questions as to what my individual views are, and if I am asked that question I will, of course, give an answer. Mr. EscH : If you, do not care to give it, I will withdraw the question. Mr. Thom: There is nothing except that — except that I may be running counter to the view I expressed in a repre- sentative capacity. I have very strong convictions on the 412 point to which you have alluded, but I should not care to express them unless pressed. Mr. EscH : If we give the Commission power to fix mini- mum rates, would it not then be possible for the Commission to enable proper transportation on the inland waters of the Ignited States or rivers whose banks are paralleled by rail- road lines? Have you thought of that aspect, by fixing a minimum rate? Mr. Thom : Yes, sir ; I think a minimum rate would pro- tect water tranisportation. Mr. Esch: Then, we would give to the Interstate Com- merce Commission the power of reviving water transporta- tion on the rivers of the United States? Mr. Thom : Undoubtedly. Mr. Esch : The present Interstate Commerce Act has a provision with reference to water competition that if a rail- road lowers its rates to meet water competition, it shall not be thereafter permitted to raise them except on a hear- ing before the Commission, and then only to meet water com- petition. Mr. Thom : Yes, sir. Mr. Esch: Then, if you grant the right of the Commis- sion to fix a minimum rate, you, by that method, can re- store water transportation on the inland waters of the United States? Mr. Thom : Yes, sir; and it is to be greatly desired. Mr. Esch: And it would solve the expenditures of our rivers and harbors bill. Mr. Thom : Yes, sir ; I am a disciple of the philosophy that whatever goes to make up the prosperitj'- of the country, the improvement of water transportation facilities, building additional railroads, and any other facility — commercial facility — that is created, it is not contrary to the broad and proper interests of existing railroad companies, because they must grow as communities grow, and if these things build up communities, their prosperity will be assured to a vastly 413 greater and to a more wholesome extent than if the com- munity is attempted to be kept down rather than developed. Mr. • EscH : I am glad to hear you say that. I think it possible to utilize our inland waterways as Germany utilizes hers, for the carriage of the bulk of freight, manu- factured products going by mail and paying a higher rate, of course. Mr. Thom: I think it would be utterly indefensible for the policies of this Government to disregard the natural facilities of its rivers, and of its fields, in dealing with this question of commerce. Mr. Esch: You made mention of the fact that you thought the law should provide for the suspension of rates for a period of sixty days, then allowing, of course, the hearing, and if the Commission decided that the increase was just, the railroads, of course, would be benefited by the in- crease; but if the Commission decided that the rate was ex- cessive, there should be reparation to the shipper to .thej ex- tent of the excess, instead of the present law, which allows a suspension for ten months. Well, supposing your proposi- tion obtained, and the Commission, at the hearing, decided that the rates were excessive for the period beyond the two m.onths. Mr. Thom : That is, of course, for all time. Mr. Esch: Yes, for all time — that excess would be paid back to the shipper? Mr. Thom : Yes, sir. Mr. Esch: But the shipper has exacted the increased rate from the party with whom he was dealing, and if repara- tion is made to him, why, he would put that into his own pocket as velvet. Mr. Thom: Now, the only thing for the law to do is to find out who paid the rate. Mr. Esch : That would be a hard thing to do. Mr. Thom : There is no question about that. Now, if the purchaser should be reimbursed, it should be reimbursed 414 to him. What I am getting at is that the proper person should be reimbursed, and the law shall point out who that proper person is. Mr. Esch: You mentioned the shipper. Mr. Thom : I said that because that is the easiest way to deal with it, and the shipper can make an arrangement that if there is reparation there shall be a readjustment between them. Mr. Esch: I suppose that the Commission taking this length of time in deciding these cases on the suspension calendar is an indication of the great number of such in- creases. Is that true? Mr. Thom: Well, no. I think it is because of the great pressure of business of all sorts that they cannot get at it any quicker. Now, my own judgment is that to take, for ten months, a legitimate revenue from the carriers is not in the public interest. It has to be put somewhere. Every- thing now is reduced to mathematical exactness, with re- spect to the revenue of the railways, and when you take away anything the loss or pressure of it is felt somewhere, either in decreased maintenance or lack of increased facilities, or in additional burdens somewhere else. Now, I believe, in a matter where most people decide a question of their cliange in price over the counter — you go in one minute and the price is one thing, and the next minute, you find it an- other — where in any other business there is an immediate change in the price, to suspend a change in the price of transportation for sixty days is as much as the transporta- tion will bear. That will make them hurry things up. You may have to create a special bureau for that particular pur- pose, but when you have safeguarded the public from dis- bursements it seems to me that is as far as you can go. Mr. Esch: I think I have arrived at my terminus, Mr. Chairman. The Chairman: Senator Brandegee, will you take the witness? 415 . Senator Brandegee-: 'Mr. Thorn, I will be very brief. The resolution under which we are acting states on page 9 of the printed hearings ' one of the subjects which we are directed to investigate is all proposed changes in the organi- zation of the Interstate Commerce Commission, and the Act to Regulate Commerce. Mr. Adamson : Before Senator Brandegee proceeds, it may be that his intimation of brevity is on account of a feeling of constraint due to the hour and day of the week. If there is anything of that sort, I suggest that we might take a re- cess at this time? Senator Brandegee: No; nothing like that. I shall not take more than five minutes. Mr. Adamson : I want to be as good to you as I can. Senator Brandegee: I thank you. Senator Brandegee: On that theory the committee has asked you to proceed as the first person before us, because it was understood you had some changes to propose, both in the Constitution of the Commission and the Act to 'Regulate Com- merce. You have proceeded here for ten days before us and have been the only witness so far, and have outlined in a general tentative way the changes that you had to suggest to the committee. You have stated, however, earlier in the hearing, that your views and recommendations were not final and were subject to modification iDy anything that might appear in the hearings hereafter that caused you to change your opinion. I do not care to enter upon any cross-exami- nation in detail of the great number of subjects which you have priesented^^at least, I do not at this time. I prefer to hear from some of the publicists and economists and others who are coming afterwards, and from some of the witnesses which you havci stated you are going to produce in consider- able number to expatiate and elaborate upon the different branches of the suggestions you have made. You say they are better informed upon those subjects than you are. I simply want, for my own satisfaction and for the purposes 416 of the record, inaiiinuch as you put -in the record, on page 28, the names of the railway executives who represent, I think you said, about 90 per cent of all the railways in the country^ and stated that you appear as the chairman of the advisory committee to those executives Mr. Thom : Of the law committee. Senator Brandegee : Of the law committee. I wanted to ask you who the law committee consisted of? Mr. Thom : I will try to give their names. Senator Beaxdegee : It will be just as well if you will put it into the record later. Mr. Thom : I will do it now. Senator Beandegee: About how many are there? Mr. Thoji .■ There are eleven of them. They are as fol- lows: Mr. E. G. Buckland, Vice President and General Coun- sel of the New York, New Haven & Hartford Railroad ; Mr. Albert H. Harris, General Counsel of the New York Central Lines ; Judge Walter C. Noyes, General Counsel of the Dela- ware & Hudson ; Mr. Francis I. Gowen, General Counsel of the Pennsylvania Railroad; Mr. Gardner Lathrop, General Solicitor of the Atchison, Topeka & Santa Fe; Mr. Burton Hanson, General Counsel of the Chicago, Milwaukee & St. Paul; ]\rr. ^'. H. Loomis, General Solicitor of the Union Pacific ; Mr. .Joseph F. Bryson, General Counsel of the Mis- souri, Kansas & Texas; Mr. C. W. Bunn, General Counsel of the Northern Pacific ; Mr. Chester M. Dawes, General Coun- sel Chicago, Burlington & Quincy, and myself, Alfred P. Thom, General Counsel of the Southern, chairman. The Chaieman : Are they all general counsel of different railway systems? Mr. Thom : They are either general counsel or general solicitors. Mr. Lathrop is general solicitor of the Atchison, and Mr. Loomis is general solicitor of the Union Pacific. Senator Beandegee: By the way, is this 90 per cent of railways that they represent, is that mileage, or in business? Mr. Thom : It means 90 per cent — I have not calculated the exact percentage — 90 per cent, or whatever the proper 417 percentage is, of the gross earnings of the railroads in the classes made by the Interstate Commerce Commission that earn as much as one million dollars a year. Senator Bkandegee: You spoke about these suggestions that you present here in their behalf, as having been the conclusions reached after much consideration and argunient among them. How extensive has that consideration been? Mr. Thom : It has been very extensive. Senator Brandegee: Well, over what period of time has it extended? Mr. Thom: It has extended over eighteen months, and has been brought about in this way, that as many of the executives as possible would be gotten together at a time. It was not possible to get all of them together at one time, and the matter would be discussed among those who could be gotten together, and then another opportunity was seized to bring in others until every railroad executive has had the opportunity to come in and to participate in the discussions, and almost all of them have done so. Senator Brandegee: With the law committee, do you mean? Mr. Thom: No, I do not. I mean the law committ while meeting sometimes with the executives, has not met always, but I have met as representative of the law com- mittee ; I have been at all the meetings of the executives. Senator Brandegee: And you are quite sure that the views you present represent generally the views of all the gentlemen whose names you have given? Mr. Thom: Yes, sir; you mean of the executives? Senator Brandegee: Yes, and of the law committee too. Mr. Thom: And the law committee, with slight excep- tions. For instance, I have told you of the difference in opin- ion on the question of Federal powers entertained by some lawyers. Well, some of those lawyers differ with my com- mittee and to a slight extent with me, in respect to some of the constitutional powers of the Federal Government, but they have acquiesced in the views that are presented, caus- 27w 418 ing me, however, to acquiesce in the practical desirability of having a certain method of dealing with the issue of stock securities, through incorporation rather than through an in- tent to control the matter under State charters — not that I have not felt, and not that I do not feel, a very earnest con- viction of the desirability of Federal incorporation from every standpoint, but they have convinced me, that we will cer- tainly avoid litigation if we apply a system of governmental regulation of stocks and bonds to the incorporation of the Federal Government, whereas we are likely to invite litiga- tion if we try it otherwise. So that I have agreed with their views, that that is a certain way to prevent litigation, while I have not modified in any sense my view' of the constitu- tional powers of the Federal Government. But as all lawyers differ, and as all men differ, you will find slight differences of opinion, but this is a consensus of our whole consideration of the subject. Senator Bkandegee : I understand you. Now, as I stated, I consider your statement to be the broad outline of the sug- gestions that you have to make, subjept to modification as the hearings progress? Mr. Thom : Yes. Senator Bkandegee: And that you will have men appear before the committee who are more expert in the various de- tails of what you have suggested than you are yourself ? Mr. Thom : Yes, sir. Senator Bkandegee: And you have detailed information to lay before us in relation to these matters? Mr. Thom : Yes, sir. Senator Bkandegee : If that is so, I shall not attempt any sort of cross-examination of you at this time. I have fin- ished, Mr. Chairman. Mr. Sims : I want to ask one question, and it will not take but a minute or two, with regard to something I overlooked the other day, and that is this, Mr. Thom: Will national incorporation of the existing railroads have the effect to 419 nullify such State laws as the Pennsylvania and New Jersey full-crew law that you described the other day? Mr. Thom : That would depend entirely upon your act of incorporation. You could provide either way in respect to matters of that sort. I think you ought to provide for hav- ing charge of each situation. Mr. Sims: I understood you to make the contention that wherever State laws were of such a character as to harm- fully affect or encumber the carrier in its service to another State, by imposing burdens that would affect the service in other States, that that ought to be a subject of national con- ti-ol? Mr. Thom : I say so now. I understood your question to relate to whether the necessary effect of incorporation would be that. I think that ought to be accomplished by your sys- tem of incorporation. I think you can qualify your occu- pation of the field as you see proper. Mr. Sims : Then you do think that Congress does have the power to virtually repeal such laws as would be proper? Mr. Thom : Undoubtedly ; that has been decided, I think, if you will recall, many times in such decisions as this, that where Congress has not occupied the field of regulations the States may in a certain class of cases act until Congress does, but immediately upon Congress occupying that field the State statute gives way to it, and undoubtedly the Federal Government has the right to occupy the field in respect to the manning of trains, just as it has occupied the field of determining the rules of liability from a carrier to employees in interstate commerce, and that the State statutes on that subject, and State laws on that subject, have already given way. Mr. Sims: I did not ask you about that. That is all I have to ask. Mr. Adamson: Mr. Chairman, it is very likely that we cannot finish with Mr. Thom today, and it is Saturday after- noon, and we have worked arduously for two weeks, and it is 420 an invariable custom in the South for white folks and negroes to take Saturday afternoon. I think we had better rest. (After colloquy among the members of the committee, it was decided that Mr. Hamilton should proceed.) Mr. Hamilton : Mr. Thom, I have one question as bear- ing upon the line of the investigation by Mr. CuUop. Inas- much as our exports, during the last fiscal year, amounted to about four and one-half billion dollars, and inasmuch as about two billion dollars of those exports were munitions and potential munitions, it is reasonable to suppose, is it not, that when they stack arms in Europe there will be a very decided falling off in export business and in the carrying business of the railroads of this country? Mr. Thom : That is my expectation. Mr. Hamilton : "What is the railroad mileage of Canada, Mr. Thom? Mr. Thom : I cannot tell you. Mr. Hamilton : Could you tell me approximately? Mr. Thom : No, I cannot. I will get it for you. Mr. Hamilton: Do you know anything about the earn- ings of the railroads of Canada? Mr. Thom: I do not; T can get that and put it in the record for you. Mr. Hamilton: Well, another question. How do the Canadian railroad stocks and bonds — that is, so far as those railroads are constructed by private corporations — compare as investments with the stocks and bonds of the railroads of the United States? Mr. Thom : Well, I am not well enough versed in that to give you that information, but I will tell you what I know about the Canadian Pacifio. That is very high, up in the neighborhood of 175 or 180. Mr. Hamilton: And they are doing well over there? Mr. Thom: Yes. Mr. Hamilton : How many transcontinental railroads are there — Canadian transcontinental railroads? 421 t Mr. Thom : There are three, the Grand Trunk, Canadian Pacific and the Canadian Northern, but you have got me in a field now, I am afraid, where I cannot help you, because I have not studied the situation in Canada. Mr. Hamilton : The point that I had in mind was, inas- much as this field has been very fully covered by the inquiries heretofore, to try to institute a comparison as to prosperity be- tween the railroads of Canada and the United States, not knowing much about it myself, but assuming I might get information from you. Mr. Thom : I will have the information obtained for you and put it in the record. Mr. Hamilton: Very well. Now; this Canadian trans- continental railroad, the Grand Trunk Pacific, do you know if that has been finished? Mr. Thom : I do not. Mr. Hamilton : You are not prepared at this time Mr. Thom : They tell me it is not quite finished. Mr. Hamilton : I understand it is not quite finished. You are not prepared at this time to state, I suppose, the method of the construction of that railroad? Mr. Thom : No, I would not like to go into the Canadian business, because my information about it would not be of value to you. Mr. Hamilton : All right. Can you state — and I assume you can — what the mileage of the strictly intrastate rail- roads of the United States is? Mr. Thom : I think — confining it to steam roads? Mr. Hamilton: Yes. Mr. Thom : I think there is none at all. Mr. Hamilton : Can you give the mileage of the electric railroads of the United States? Mr. Thom : No, sir, I cannot. Mr. Hamilton: Can you state about when these electric lines began to be competitors of the steam lines? Mr. Thom: I think it has been in the comparatively re- cent past. 422 Mr. Hamilton : It has been, I should imagine, within the last five years— perhaps a little more ; I do not know, though. Mr. Thom : I should say in the last ten years anyhow. Mr. PIamilton: Has there been a considerable extension of electric roads within recent times? Mr. Thom : I see that there has been in the West. Take the country which I am interested in, there has been very little, except at one point. There has been a very consider- able development of electric railways in competition with the steam railways, in the southern part of North Carolina and in the northern part of South Carolina, by the Dukes. Mr. Hamilton: I notice in my own State (Michigan), Mr. Thom — I have in mind just at this moment a case of a recently constructed electric line. I think they call it a third-rail line. That is a method, is it not? Mr. Thom: Yes. Mr. Hamilton : Which was built between two large towns in the State, in competition with two steam railroads which have been doing business for many years, and the electric line is a very prosperous line, apparently taking a good deal of business away from the steam roads. Does it cost more or less to construct one of these electric roads than it does a steam road, at the outset? Mr. Thom: Well, that would be a mere impression. My impression is it costs less, but that is a mere impression. I have never had information on the comparative cost. Mr. Hamilton: I should imagine that it costs as much, but that the maintenance might be less, but I have no figures in relation to that. The mileage of electric roads is being considerably increased, and as a rule they are in di- rect competition with the steam roads, and they are being constructed and doing business successfully, apparently, during a period when, as you say, the steam roads have been having difficulties. How do you account for that? Mr. Thom : It seems to me that there are several ways of accounting for it. In the first place, you do not find the 423 electric roads handling the same character of business, or the same volume of business. They do not need the same facilities. You go into one of those States you allude to, and I expect you will find tremendous railroad yards of the steam roads. You will find very small railroad yards of the electric roads. Mr. Hamilton : Yes ; the steam roads have a larger yard. Mr. Thom: Yes; that is a very large element in the ex- pense of railroads, the establishment of proper yards and terminals, and in addition to that, the steam railroads handle the lowest class of commodities, such as coal, ores of various sorts — raw materials — while the electric roads probably do the city business between the cities, of a higher grade, easier to be handled and at better rates. Mr. Hamilton : My observation is these electric roads do a considerable freight business. Mr. Thom : Do they not do it in a higher class of freight? Mr. Hamilton: I should imagine so; yes, sir. Mr. Thom : That creates a very much larger percentage. Mr. Hamilton : But their stations throughout their lines are good. All of their facilities are excellent, and they are doing an increasing business, I should say, without knowing the actual statistics, and these roads have been constructed directly in competition with the steam roads. Mr. Thom : My idea is that they are engaging in the cream of the business, on which the country cannot sustain itself. The country must sustain itself by the supplies it gets from steam railroads — raw materials, etc. — and you can very well imagine that in a country of cotton, practically, such as the one I have just alluded to down below here, that an electric railway might go to these cotton factories and take away the manufactured goods and carry them to some port or other, and thereby get the very highest priced traffic. Mr. Hamilton: Exactly. Mr. Thom : Whereas they are not doing anything in the way of sustaining the general growth and supplying the 424 general needs of the country, and those things must be done — in raw materials — must be done at a very much lower rate than the manufactured goods. Mr. Hamilton: But, Mr. Thom, is there any reason, so far as power is concerned, or for any other reason, why these electric lines niight not increase their freighl^carrying power so as to meet the requirements of the various terri- tories which they enter? Mr. Thom: They can, but when they do it and tap the point of supply which the steam railroads have to tap, in •order to supply the human needs, they would then get in a region of the same class of expenses that the steam railroads are under. Mr. Hamilton: Steam roads in some instances supple- ment their own steam power by the use of electricity. Mr. Thom: At some points; for instance, Manhattan Junction and New York, they have a few. Mr. Hamilton: I think that is all for the present, Mr. Thom. Out of deference to the Chairman I have hastened my inquiries. The Chairman: I did not wish to limit your inquiries at all. The committee will now take a recess until Wednes- day, at 10 o'clock. Mr. Thom : I am still on the stand? The Chairman: You are still on the stand. Mr. Thom, let ine ask you to look over the material which I have put in the record, speeches and magazine articles, and reports, and particularly resolutions, -bills and amendments upon national incorporation. Mr. Thom: I have pretty well done that already, but I will do it again between now and next Wednesday. The Chairman: Because I would like to question you regarding the national incorporation act. (The Joint Committee thereupon at 1:00 o'clock p. m., adjourned until Wednesday, December 6, 1916, at 10 o'clock a. m.) . INDEX. Subjects Covkeed in Akgumei^t of Airbed P. Thom and Developed IN Questions by Membees of the Committee. Page Adamson, Vice-Chairman, Examination of Mr. Thom 150-195 Anti-Trust Act, Effect of, on railroads 202 Should be modified 107 Arbitration, Railroads at one time opposed to 162 Banking, Power of Clongress over 388 Regulation of, as contrasted with regulation of transpor- tation i 5 Bonds, Bonus of stock given with 362 Great increase in indebtedness 22. 31 Prices of gilt-edge bonds no criterion of credit 26 Proper proportion between, and stock 21, 346 Brandegee, Senator, Examination of Mr. Thom 415-418 Business man, Views of prominent 41 Business principles should apply to regulation 28 Canadian railroads 420 Capital, Amount of, invested in railroads last five years 351 Great supplies of, needed 19 Speculative, built our railroads 36 Should stockholders forego dividends and put money into. 309 Capitalization of railroads, Examples of extravagant 366 Railroads have grown up to 368 Caysville, Ga.. and Copperhill, Tenn , 62 Commerce, Constitutional conception of 67 Demands a national standard 81 Nation-wide 47 Right of State to have commerce uncontrolled except by national authority 73 Competition, Destructive effects of 238 11 INDEX. Page Large part of business subject to 384 Results in duplication of facilities 280 Condemnation of railroads, Measure of value under 390 Not necessary under Federal incorporation 183 C!onflscation, A narrow State policy which escapes, cannot be controlled . 45 Confiscatory rate. Definition of 344 Congestion of freight 14 Consolidations of railroads. Effect of, on cost of operating 167 Effect of State laws on 123 Methods of 121 Policy of, has declined 168 Limitation to 168 Constitution of the United States, Commerce clause 151, 154 Does it give power over intrastate rates? 174 Is becoming menace to local rights 159 Constitutional conception of commerce 67 CuUop, Representative, Examination of Mr. Thorn 316-348 Cummins, Senator, Examination of Mr. Thorn , 343-395 Suggestion that capitalization be reduced to actual value. . 390 Credit, Railroad, When did it begin to decline ? 196 Cause of decline in 196 Mismanagement as a cause of decline in. (See misman- agement, etc.) So bad that radical measures may be necessary 250 Manipulation of prices on stock exchange as a cause of de- cline of 327 Paramount issue 20 Prices of gilt-edge bonds no criterion of 26 Decisions of the courts referred to in argument and examina- tion, Cotting vs. Kansas City Stock Yards, 183 U. S.. 79, 95 272 Covington & Lexington Turnpike Co. vs. Sandford, 164 U. S., 578 396 Houston & Texas Ry. vs. United States, 234 U. S., 342 324 Knoxville vs. Water Co., 212 U. S., 1 397 Louisville & Nashville vs. Mottley, 219 U. S., 467 134 Luxton vs. North River Bridge Co., 153 U. S., 525 91 INDEX. Ill Page McCuUough vs. Maryland, 4 Wheat., 316 .388 Minnesota Rate Cases, 230 U. S., 352 276 Monongahela Navigation Co. vs. United States, 148 U. S.. 312 274, 377 Munn vs. Illinois, 94 U. S., 113 396 Norfolk & Western Ry. vs. West Virginia, 236 U. S., 605. . . 275 iSTorthern Pacific Ry. vs. North Dakota, 236 U. S., 585 275 Smythe vs. Ames, 169 U. S., 466 390 Willcox vs. Consolidated Gas Co., 212 U. S., 19 397 Discrimination, Power of States to discriminate against each other 60 Dissenting stockholders, Rights of. under Federal incorporation 133, 185 Dividends, Amount paid out in 309, 352 Percentage of dividends on total capital stock 352 Should they be limited? 145 Should stockholders forego dividends and put money into improvements? 309 Dual regulation. Effects of 45 See also: State commissions. State rights. Earnings, Controversy over accounts in reference to improvements out of earnings ' 353 Invested in permanent improvements 352 On entire capitalization 364, 371 What is to be done with earnings over 6 per cent? 382 Economists, Memorandum sent to 3 Efficiency of management 333 Electric railroads 421 Esch, Representative. Examination of Mr. Thom 395-414 Extra-crew law, Eflfect of. 180 Effect of Federal incorporation on 418 Pennsylvania and New Jersey laws 53 Facilities, Chief interest of public is in 10, 13, 147 Inadequacy of H Failure to carry traffic expeditiously this year no test of inadequacy of • 351 , 365 IV INDEX. Page Federal incorporation, Senator Newlands' views of 129 Senator Newlands' speeches and writings on 120, 141 Agreement of railroads on necessity of 128 Compulsory Incorporation necessary 86, 90, 91, 163 Method of efleecting 114, 118, 135, 169, 181, 185 Consent of the State not necessary ; 115, 136 Rights of the public 136 Rights of dissenting stocl^holders 117, 133, 185 Rights of bondholders 134 Condemnation not necessary 183 Police laws of the States under 137, 159 Grading crossings ' 138 Separate cars for separate races 139 Stopping trains 190 State rates 189, 174 Taxation 138, 140, 143, 182 Equipment of trains 140 Railroads to be suable in State courts .■ 191, 319 Charter for each company 169 Holding companies in connection with 131, 137 Limitation of dividends under 145 Proposal to start, with new railroads 170 States will lose license fees 342 Right of railroad under, to enter State 386 Does Federal incorporation involve recognition of outstand- ing securities? 391 Effect of, on Government ownership 144 Not a panacea 96 Can Federal incorporation effect more than can be accom- plished by laws of Congress? 153, 158, 187, 221, 841 Report of Committee of National Association of Railway Commissioners favored 93 Views of Richard Olney Ill Federal Railroad Commission suggested 97 Franchise, As an element of value 877 As taxable property 398 Freight movements. Slowness of 239,249 Full-crew law. (See extra-crew law.) Future earnings. Difficulty In predicting 266, 208, 279 Georgia, Case of Caysville before Georgia Commission 62 Conflict between Interstate Commerce Commission and Georgia Commission 64 INDEX. V Government ownership, Not discussed with railroad executives 311 Mr. Thorn does not care to be examined on 195 Are owners ready to sell? • 287 Inevitable unless railroads get some relief.. 20,234,262,267,314 Inability to operate effectively may make, necessary 236,255 States will lose all rights under 235. 292 Efficiency of-. ; . . 285 Effect of politics under, is exaggerated 295 Effectiveness of Post-Office Department 286, 296 Labor disputes better settled under 298 Effect of Federal incoiporation on 144 Guarantee of interest and minimum dividends by the Govern- ment 1 247, 251 Representative Sims' suggestion 251, 260 Government to have lien on property 252, 259, 312, 313 Government to have director on board 252, 262 Government to have power to veto expenditures 262 Congress would never consent to 312 Hadley Commission cited 264 Hamilton, Representative, Examination of Mr. Thorn 420-424 High cost of living, Suspension of railroad construction may be cause of 16 Holding companies. In connection with Federal incorporation 131, 137 Indebtedness, Great increase in 22 Interstate Commerce Commission, Changes proposed by railroads, Should have power to fix minimum rates 101, 223 Should have power to fix mail pay 106, 226 Should pass on necessity of new' railroads 282 Congress should prescribe rules to govern, in fixing rates 103, 224 Power to suspend rates should be limited to 60 days. 104, 413 Organization should be changed 97 Present organization violates foundation of national liberty 98 Increase in membership without regional commission sug,- gested by questions 187 Conflict between, and Georgia Commission 64 Mr. Thom disclaims intention to criticize, unjustly 354 Intrastate rates. Congress has power to control 139, 174, 220, 323 Congress should control 205, 317 VI INDEX. Page Intrastate traffic, Amount of 404 Investment conditions in various parts of the country 24 Investments in railroads, • Time wlien they began to decline 147 Unattractive 246 Investors in railroads, Should be represented at hearing 214 Railway Investors' League 214 Conservative, must be appealed to 266 Must be attracted 29 See a system of repression 31 System of regulation must offer attractions to 33 Disposition of investors toward securities of other utilities and municipal bonds 360 Labor, Why no suggestion about labor problem 110 Power of labor to dictate 28 Disputes better settled under Government ownership 298 Laws must be adjusted to economic needs 48 Legislation, Activity of railroads in reference to 177. 208 Limitation of dividends. Under Federal incorporation 145 Disastrous effects of 147 Mail pay. (See Railway Mail Pay.) Maintenance accounts. Are they correctly kept ? 853 Margin of safety, Decline of 148. 346 Meyer, Chairman, Plan for joint sittings of commissions 409 Views on effect of Governmental approval of security issues 260 Minimum rates. Interstate Commerce Commission should have power to fix 101, 223 Effect of power to fix, on transportation by water ' 412 Mismanagement, as a cause of decline in railroad credit 196, 205 Evils of. have been largely removed 201 Interests of railroad officers in supply companies 205, 336 Manipulation of stocks on stock exchanges 327 Interest of railroad officers in coal mines 336 Remove abuses and credit will follow 339 Excessive salaries of high officials 335 Criticism of past error will not relieve situation 12 INDEX. VU Page National Associatiou of State Railway Commissioners, Diverse views of, on Federal regulation 57 Report of Committee of, in favor of Federal incorporation. 93 National banks, Regulation of, as contrasted with regulation of railroads 5, 211 National defense. National Government should determine the standard of efficiency 70, 2G2, 265 New construction, Practically suspended 15, 294 Have railroads faUed to- get capital for 346, 34ff Must be undertaken by existing companies 348 Suspension of, as an indication of loss of favor of rail- road securities 346 Suspension of, may be cause of high cost of living 16 Newlands, Chairman, Examination of Mr. Thomi 120-150 Speeches and writings on Federal incorporation .... 120, 129, 141 Olney, Richard, views on Federal incorporation Ill Ownership of railroads, Managers not owners 212 Paramount issue — the need of faciiities 14 People settle Government policies 290 Police powers of the State, Under Federal incorporation, Generally '. 137 Taxation 138, 140, 143 Grade crossings 138, 318. 324 Separate cars for separate races 139 Equipment of trains 140 State rates 139 Stopping trains 190 Speed of trains 318 Depots 324 To what extent can Congress Interfere with 153 Political considerations. Must not govern regulation 33 State commissions affected by 373 Politics, Railroads In 208 Politics must influence representatives 305 Present prosperous condition of railroads, May obviate necessity of relief 194 Is abnormal 279 Preparedness. (See National defense.) Yin INDEX. Page Public business, As contrasted with private business 6, 2G5 Public interest the test to be applied to railroad legislation 10 Railroad systems referred to, Atlantic Coast Line 132, 169, 231 Baltimore & Ohio 122, 280, 282, 325 Canadian Northern 421 Canadian Pacific 420 Central of Georgia ' 132 Chesapeake and Ohio 132, 169 Chicago and Alton 99, 366 Chicago, Burlington and Quincy 150 Erie 366 Grand Trunk Pacific 421 Great Northern 150, 399 Illinois Central 132 Kansas City Southern 368 Louisville and Nashville 132, 134, 209, 231, 237 Missouri Pacific 369 Nashville and Chattanooga '. 231,237 New Orleans, Texas and Mexico 183 New York Central 51, 77 New York, New Haven & Hartford 52, 205, 206, 400 Norfolk and Western 132, 169 Northern Pacific 150, 399 Pennsylvania 207, 229, 279, 280, 282, 406 Rock Island 99, 366. 369 St. Louis and San Francisco 99, 366 Seaboard Air Line 132, 169 Southern Pacific 55 Southern Railway ' 125, 132, 166, 168, 370, 392, 399 Tennessee and Midland 237 Railway Executives' Advisory Committee 128, 416 Whom it represents 228, 232 Suggestions of, are far reaching 233 Law Committee of 416 Railway Investors' League 214 Railway mall pay, Should be fixed by commission 106, 226- Rates, Increase in rates not asked 96, 194 National Government must regulate all rates S4 Congress can fix rates 358 Congress can prescribe rules to govern commission in fixing 358, 376, 378 IHTDEX. ix Page Does reduction in rates increase traffic and travel 330, 332 Mr. Thorn's theory of what are reasonable rates 271, 344 His theory not fully sustained by courts 276 Eayburn Bill, Sufficient to control financing of railroads 162 Regional commissions. Division of territory 149, 322 Are they necessary? 188 Meet local needs 98, 100, 188, 193, 222, 321 Number of. 192 Expense of 406 Oklahoma and Philadelphia plans referred to 407 Regulation, Railroads ask a perfected system of 96, 194 Necessary 198 Present regulation is corrective and repressive. 9, 82, 199, 354, 357 Opposition of railroads to 201 Constructive, .time for. & Public interest the test of lO Business principles should apply to 2S Removal of suits under Federal incorporation should not be permitted 191, 319 Rights of States reserved and rights acquired 72 Robinson, Senator, Examination of Mr. Thom 195-227, 317-319 Salaries of high officials 335 Securities, Railroad, Time when public began to show disinclination to invest in . 147 Superior attraction of other kinds of securities 27 Sale of, held abroad 148 Railroads which can finance through stock issues 21, 325 Over issuance of bonds 22, 326 CJonflict in State authority over issuance of 52, 55, 324 Approval of security issues must be promptly given 57 Effect of State taxation on negotiability of 143 State license tax on issuance of 51 Power of Ciongress over issuance of .162, 227, 329 Power must be exercised by Congress 59, 87, 106 Sheppard Bill 60 Shreveport case 60, 174, 300 Sims, Representative, Examination of Mr. Thom.. 228-314 Suggestion of, that Government guarantee interest and minimum dividend 24T 28w X INDEX. Page Speculative capital built our railroads 36, 245 Will demand more than minimum return 345 State commissions, Prevalent idea that railroads seek to abolish, is not true, 82, 193, 316 EaUroads subject to 48 30 Vievrs of, on Federal regulation 57, 93 Affected by political considerations 373 State regulation, Instances of effect of 49 State laws regulating furnishing of cars 49 Over issuances of securities 50, 52 New York Central case 51 N. X., N. H. & H. E. E. case 52 Southern Pacific 55 State rights. Eights reserved and rights acquired 72, 155 Vast field for exercise of, even under Federal incorporation. 82 Rates and practices within the State generally supposed to be under State authority 157 Ts commerce clause a menace to 159 Eailroads claimed, violated when Congress attempted to control them 161 State will lose all rights under Government ownership .... 292 Can States charter railroads and handle business without Federal interference? 299 Stock, Without par value 183, 393 Relative proportion of stock and bonds 21, 346 Line of safety between stock and bonds 22, 346, 399 'Conditions necessary for financing through 23 "Bonus of, given with bonds 362 Promoters absorbed the stock bonus, not those who put money in 362 Does Federal incorporation involve the recognition of all outstanding stock? 391 (See Watered Stock.) Strong, Benjamin, Letter relating to effect of war on prices 257 Surplus, Whether to pay dividends or to go into the property 379, 382 Should railroad be entitled to pay dividends on surplus which goes into property? 3.S2 Suspension power of Interstate Commerce Commission should .be limited to 60 days 104, 413 INDEX, XI Page Taxation, Under Federal incorporation 138, 140, 143, 182 Standard of, might be fixed under Federal incorporation . . 403 Payment of railroad charges not a form of. 270 Double taxation should not be permitted 320 Texas, Policy of, to confine trade to State 177 Policy in reference to Issuance of securities 123 Policy In reference to ownership of railroads 123 Texas situation discussed 283 Traffic divisions of the United States 149, 192 Transportation system. Not a completed instrumentality 18 Entity of, must be recognized 65 Undeveloped territory 16 Unearned increment in value of land, Can Congress forbid Interstate Commerce Commission to take, into account in fixing value? 377 Unequal distribution of railroads 17 Value, Elements of 273 Should securities be reduced to value of railroad 393 Franchise as an element of value 377 Unearned increment as element of value of land 377 Water transportation. Effect on, of power of Commission to fix minimum rates . . . 412 Watered stock 146, 198 Can no longer consider stock bonuses 246 Cause of reluctance of investors to put in new money 367 Should not aU water be removed from stock under Federal incorporation? 392 War, European, Effect of, on investments 147 Effect of sale of European securities on account of 148 Effect of, on prices 256 Business after the , 339 ■ C )i:^nA'4. ^