This book was digitized by Microsoft Corporation in cooperation with Cornell University Libraries, 2007. You may use and print this copy in limited quantity for your personal purposes, but may not distribute or provide access to it (or modified or partial versions of it) for revenue-generating or other commercial purposes. Digitized by Microsoft® wt FREIGHT RATES J! CORRESPONDENCE B BETWEEN K CHARLES McKERNON IB Treasurer B. D. Rising Paper Company Bis Housatonic, Mass. AND ps WILLIAM C. BROWN IB Senior Vice-President ■ New York Central Lines if November, 1908 Digitized by Microsoft® Cornell University Library The original of this book is in the Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924087839076 Digitized by Microsoft® CORNELL UNIVERSITY LIBRARY 3 1924 087 839 076 CORRESPONDENCE. between CHARLES McKERNON Treasurer B. D. Rising Paper Company and WILLIAM C. BROWN Senior Vice-President New Yorh Central Lines ON SUBJECT OF FREIGHT RATES B. D. RISING PAPER COMPANY. Housatonic, Mass., August 24, 1908. Mr. William C. Brown, Senior Vice-President, New York Central Lines, New York City. Dear Sir — We have received the copy of your correspond- ence with the Manufacturers' Association relative to an in- crease of freight rates. 'The arguments you use to justify an increase are not very convincing to a manufacturer like ourselves, who will have to pay it. Your contention that it can all be passed on to the consumer is entirely wrong in the case of hundreds of manu- facturers. At the present time it is with the greatest difficulty that prices can be maintained, and any attempt at advancing them is absolutely out of the question. With a hundred men ready to take an order at present prices or lower, how can one add Digitized By Microsoft® to his price sufficient to cover an increased cost of freight and keep his business? But, if your contention was true in all cases, as it probably is in some, that the cost can be passed along to the consumer, does that alter the case any? It may be true that it amounts to but little on any particular article, but if ten per cent is added to the cost of all that a family buys, it will be a very serious burden. If the prices were to be raised they must necessarily con- sume less. The railroads have discharged thousands of men and mills of all kinds are running half to three-quarters time. Where are these idle men to get the means to buy goods at a ten per cent advance in cost? Thousands of them can not buy goods at any price. If the increased cost of goods that railroads use justifies advances, these advances should have been made in prosperous times when people -had the means to pay them. In our own case the advance you propose would cost us $3,000 to $4,000 per year, not a penny of which can be re- covered from the consumer. The railroads must bear their share in the general condition of affairs. They ought not to expect to escape it and they ought not to try to pass it along to the manufacturers, who have all they can carry now. There is such a thing as killing the goose that lays the golden egg. Let the railroads get along for a time on a lower rate of dividends the same as other people do, rather than expect their patrons to carry the railroad's burden as well as their own. y~ '*&Yours truly, B. D. Rising Paper Company, %L C. McKernon, Treas. '•^CA.^X 2 —"' Digitized by Microsoft® NEW YORK CENTRAL LINES New York Central & Hudson River R.R. Co. Lake Erie, Alliance & Wheeling R. R. Co. Lake Shore & Michigan Southern Ry. Co. Chicago, Indiana & Southern R. R. Co. Michigan Central R. R. Co. Rutland Railroad Co. Lake Erie & Western R. R. Co. New York & Ottawa R. R. Co. Cleveland, Cincinnati, Chicago & St. Louis Ry. Co. Grand Central Station, New York, September 11, 1908. Mr. C. McKernon, Treasurer, B. D. Rising Paper Company, Housatonic, Mass. My Dear Sir — I have read with great interest your letter of August 21th relative to freight rates, and am glad to have your views on this important question, as it is only through a free and frank discussion of all the points at issue that we will eventually arrive at the right and proper solution. It occurs to me, however, that your assumption that an increase of ten per cent in the freight rates will effect a ten per cent increase in the cost of living is hardly correct. You say in your letter : "It may be true that it amounts to but little on any particular article, but if ten per cent is added to the cost of all that a family buys it will be a very serious burden." It must be borne in mind that the proposed increase applies only to the cost of transporting the article, and not to the cost of the article itself. The cost of transportation is but a small fraction of the "selling price," which includes (or, at least, should include) not only the cost of transportation, but all other costs which enter into the production of the finished article, and in addition thereto the manufacturers' profit. To illustrate how small a per cent of the value or selling Digitized by Bicrosoft® price of various articles the freight charge represents, I beg to call your attention to the following tabulation, showing, in regard to many articles of common use, the selling price, freight rate from producing point to market, the percentage of the freight rate to- the selling price, and what a ten per cent increase in the freight rate would amount to: Commodity. Selling Price. Freight Rate. Pe J C |$* ate ^STate? PROVISIONS Dressed Beef Chicago to New York City and Boston 30$ lb. 45/100^ lb. 1.556 45/1,0000 lb. Ham and Bacon Chicago to New York City 2201b. 3/100 lb. 1.365* 3/ioo0 lb. Lard Chicago to New York City i50 1b. 3/io0 lb. 2% 3/1000 lb. Canned Pish Maine points to St. Louis, Mo i80 can i8/ioo0 can 1% i8/i,ooo0 can Eggs Iowa to New York City 400 doz, i-i/20 doz. 3-75/6 is/ioo0 doz. Milk Northern New York to New York 80 qt. 8/io0 qt. 1056 8/ioo0 qt . Cream Northern New York to New York 480 qt. *-i/40 qt. 2.656 125/1,0000 q' . Sugar New York to St. Louis, Mo 501b. 3/io0 lb. 6% 3/ioo0 lb. Coffee New York to St. Louis, Mo 300 1b. 3/io0 lb. 1% 3/1000 lb. Tea New York to St. Louis, Mo 5o0 lb. 88/ioo0 lb. 1.756 88/1, ooo0 lb. Breakfast Foods Battle Creek to New York 120 lb. i8/ioo0 lb. 1.556 i8/i,ooo0 lb. Flour Minneapolis to New York $1.80-50 lbs. 12.50-50 lbs. 6.7^56 1-1/40-50 lbs. or 25/i,ooo01b. Minneapolis to Boston.. . $1.80-50 lbs. *3-50-5 o lbs. 7-7°56 1-1/30-50 lbs. or 27/1,000^ lb. Digitized by iVffcrosoft® Commodity. Selling Price. Freight Rate. P % C p^ ce Rate F^dgh^Rate 1 ! WEARING APPAREL Men's Suits Boston to New York. . . $15 to $40 o/io0 suit 3/100 of 1% q/ioo0 suit. Boston to Chicago. $15 t<> $ 4 o 4. 20 suit 14/100 of \% 42/ioq0 suit. Boston to St. Louis $15 to $40 50 suit 16/100 of 1% i/20 suit. Women's Suits Boston to New York. . . $20 to $100 1.2$ suit 2/100 of 1% 12/1000 suit. Boston to Chicago $20 to $100 5.60 suit 11/100 of 1% 56/100^ suit. Boston to St. Louis. . . . $20 to $100 6.60 suit 13/100 of 1% 66/100^ suit. Gloves Gioversville to New . York 750 to S^ pr. 75/ioo0 pr. 5/100 of i# 75/1,0000 pr. Woolen Cloth Boston to New York. . . $1 to S3 yd. i2/ioo0 yd. .08$ 12/1,000^ yd. Boston to Chicago $1 to $3 yd. 56/1000 yd. .37^ 56/1,000^ yd. Boston to St. Louis. ... $1 to $3 yd. 66/ioo0 yd. .44^ 1/15^ yd. Underwear Boston to New York... $2 to $3 suit i5/ioo0 .o6# 15/1.000^ suit. Boston to Chicago $2 to $3 suit 7/10$ .03% 7/100^ suit. Boston to St. Louis $2 to $3 suit 8/tc0 .32^ 8/100^ suit. Shoes Boston points to New $3 to $5 pr. 5A°0 -12^ j/20^ pr. Y<,rk Boston 10 Chicago $3 to $5 pr. i.40 .35$ 14/100^ pr. Boston lo St. Louis.... $3 to $5 pr. i.660 .42% 166/1,000^ pr. Hats Boston points to New $j to $5 each 17/1000 .05$ 17/1,000^ each. Yurk Boston to Chicago $2 to $5 each 35/ioo0 .1% 35/1,000^ each. Boston to St. Louis. ... $2 to $5 each 4i/ioo0 .12^ 1/25^ each. MISCELLANEOUS Whiskey Peoria to New York. . . $4 gal. 3.20 gal. .8% 1/3^ gal. Tobacco New York to Chicago.. 40$ lb. 8/io0 lb. 1% 8/100^ lb. New York to St. Louis. 400 lb. 9/io0 lb. 2-1/4$ 9/100^ lb. In other words, if the increase when made should be ten per cent of the present rates, the increase in the freight charge would amount to but ONE CENT on a shipment of any of the following quantities of material : 22 1/5 lbs. dressed beef - Chicago to New York, or Boston. 33 1/3 lbs. ham or bacon - Chicago to New York. 33 1/3 lbs. lard - - - - Chicago to New York. 55 lbs. canned fish - - - New England to St. Louis. Digitized by Microsoft® 6 2/3 doz. eggs - - - 12 1/2 qts. milk - - 8 qts. cream - - - 33 1/3 lbs. sugar - 33 1/3 lbs. coffee - - - 11 1/3 lbs. tea - - - - 55 1/2 lbs. breakfast food - 3 gals, whiskey - - - 40 lbs. flour 37 lbs. flour 11 suits clothes - - - - 2 1/3 suits clothes - - - 2 suits clothes - - - - 8 1/2 suits ladies' clothes 2 suits ladies' clothes 13 1/3 pairs gloves - - - 83 1/3 yards woolen cloth 18 yards woolen cloth 15 yards woolen cloth 20 pairs shoes 7 pairs shoes 6 pairs shoes 59 hats - - 28 hats 25 hats - - Iowa to New York. Northern New York to New York. Northern New York to New York. New York to St. Louis. New York to St. Louis. New York to St. Louis. Battle Creek to New York. Peoria to New York. Minneapolis to New York, or Minneapolis to Boston. Boston to New York. Boston to Chicago, or Boston to St. Louis. Boston to New York, or nearly Boston to Chicago or St. Louis. Gloversville to New York. Boston to New York. Boston to Chicago. Boston to St. Louis. Boston to New York. Boston to Chicago, or Boston to St. Louis. Boston to New York. Boston to Chicago. Boston to St. Louis, However, in this connection I want to say that no general or horizontal increase in freight rates has been considered by the railroads, nor has any definite per cent of increase been decided upon. I have used ten per cent in what I have Digitized by Microsoft® written merely as an illustration to show the effect of such an increase if applied to the commodities referred to. Of course, you are more directly interested in the ship- ment of paper and the effect an increase in rates would have on same; and I have been looking up information as to the freight rates on paper for the last ten years, and the com- parison in prices paid by our lines for paper in 1898 and 1908. I find there has been no increase in freight rates on paper during the ten-year period. On the other hand, there has been a decrease of one cent per 100 lbs. to St. Louis, as the rate in 1898 was 75 cents to East St. Louis, to which was added the bridge toll of two cents, making the rate in 1898 77 cents per 100 lbs., compared with the 76-cent rate now in effect. Contrasted with this, I find that the prices paid by our lines for all kinds of paper have increased approximately 20 per cent since 1898. We are paying per annum approximately $242,000 for paper alone, or about $48,000 more than a similar quantity and quality of paper would have cost us at the prices prevailing in 1898. These figures present forcibly the situation confronting the railroads in connection with their purchases of almost every class of material ; i. e., we are paying very much higher prices for everything we buy, whereas freight rates in practically every instance have not been increased, and in many cases are lower than they were ten, twenty or thirty years ago. For the various kinds of paper used by the New York Central Lines the average prices we are now paying compare with the prices paid ten years ago for a similar quality of paper as follows : Digitized by Microsoft® ao o Per Cent l8 9 8 - i**- Increase. Bond 100 120 20 Linen 160 190 19 Ledger 180 220 24 or an average increase in price of 20 per cent. The rates on paper per 100 lbs., carload and less-than- carload, from Housatonic, Mass., to the points named are as follows : New York Cily. Chicago. St. Louis. C. L. L. C. L. C. L. L. C. L. C. L. L. C. L. 150 250 350 650 410 700 An increase of ten per cent in these rates would add to the price of 100 lbs. of paper selling for from $12 to $22, in New York, 1 1/2 to 2 1/2 cents; in Chicago, 3 1/2 to 6 1/2 cents ; in St. Louis, from 4 1/10 to 7 6/10 cents. Since the receipt of your letter I have had an investiga- tion made as to the amount of freight paid annually by the average family of five persons, using the United States statis- tics as to "Food Consumption" and "Distribution of Income" as a basis, with the result shown in the following statement : Total average yearly income $749.50 Expenditures. Food $312.92 41.75 per cent Clothing 94.99 13.58 Fuel and lighting. . . . 38.59 5.52 Rent 118.40 16.93 For all other purposes 134.34 19.22 Total $699.24 109.00 per cent Digitized by Microsoft® It will be noted that the total expenditure for food, cloth- ing and fuel consumed by this average family of five persons for one year is $446. The freight charges collected by the railroads for trans- portation of all this material from producing point to the consumer would amount to approximately $9.90 per year, or less than three cents per day. An increase of ten per cent in freight rates would add 99 cents per annum to the living expenses of this family of five persons, or less than one-third of one cent per day. You refer in your letter to the thousands of men dis- charged by the railroads. It will, I believe, readily occur to you that if the advance in freight rates is followed by the re-employment of these men, as is confidently expected, the slight increase in the cost of living that will fall on each family (less than one-third of one cent per day) will be but an insignificant consideration when compared with the benefits accruing from the assurance of steady, well-paid employment. If this is the result, the increased purchasing power of all wage-earners in locomotive works, car shops, steel mills, con- struction camps and allied occupations, to whom prosperity will come simultaneously with that of the railroads, will soon start the woolen mills, the paper mills and all other commer- cial undertakings on "full" time," instead of running, as you say they now are, on half and three-quarters time. You state the advance in freight rates will cost your com- pany $3,000 to $4,000 per annum, "not a penny of which can be recovered from the consumer.'' Assuming that you are basing this estimate on a ten per cent increase in rate, is it possible that the $30,000 to $40,000 of freight charges, which Digitized by Q/licrosoft® on this basis now enters into the cost of your product, is not charged to and collected from the consumer as an integral item in the cost of your output? And can not the increase, whatever it may be, be collected in the same manner? As to your suggestion that "the railroads get along for a time on a lower rate of dividends" ; permit me to say that the paramount question at the present time is not so much the return on money already invested in railroad properties as it is the securing of new money to provide for improvements, betterments and extensions, which are in a large sense of more importance to the commercial life of the country than they are to the corporate life of the railroad company. It is not our intention to compel "the patrons to carry the railroads' burdens," but we do hope to place the whole ques- tion before the people of this country in such a manner that every manufacturer will realize that the railroads are as much a part of his plant as the boiler that produces steam for his engine, and that their improvement and perfection are as essential to the success of the manufacturer as any other ma- chine which he uses in the production of his goods. One set of capitalists may provide money for the erection of a manufacturing plant and another set may provide money for the building of a railroad. Each plant is useless without the other, but each set of capitalists is entitled to a reasonably fair return on the money invested; and, as the experience of the last few months has proven, capital will withdraw from the one that fails to produce returns, and in doing so will equally and simultaneously cripple its partner in the joint work of producing and distributing articles of commerce. Digitized bywncrosoft® I appreciate very much the thoughtful consideration you have given this question and thank you for writing me in regard to it. Yours very truly, (Signed) W. C. Brown. B. D. RISING PAPER COMPANY. .Housatonic, Mass., September 25, 1908. Mr. W. C. Brown, Senior Vice-President, New York Central Lines. Dear Sir — I appreciate very highly your courteous reply to my letter on the matter of freight rates. I agree with you that the interests of the railroad and of the manufacturer are identical. It is for that reason that the railroad can not assess its patrons an amount equal to ten per cent of its present freight charges and really gain anything by it. By so doing you take away from one partner for the benefit of the other and there is nothing gained. Manufacturers are not in a position to stand such an assessment and the railroad can not afford to dry up the source of their revenue. You ask if ten per cent added to our freight charges can not be collected from the consumer. Certainly not under pres- ent conditions. We are under constant pressure to reduce our prices and any attempt to raise them would be suicidal. With five to eight mills of the American Writing Paper Company idle in Holyoke every week, what would become of our busi- ness if we undertook to raise prices? The trouble with the railroads is that of the man who 11 Digitized by Microsoft® failed to shingle his roof in dry weather and could not when it rained. When business was booming you did not need to raise rates. You made money enough and raised your divi- dends all around. Now that business is slack you must expect to suffer the same as we manufacturers are doing. 'No one makes money when doing 60 to 75 per cent of its normal business. The railroads should not try to shift the inevitable consequences of these conditions on to the manu- facturer, who in the nature of the case can not possibly pass them along to the consumer. It seems to me that you are entirely wrong in assuming that these increased charges can be passed along. It is not so in the paper business. The very smallness of the increased . cost per unit would make it impossible to collect from the consumer even in good times. If we sell paper in Chicago for 12 cents per pound de- livered we would only make ourselves ridiculous by offering to raise the price to 12.03% cents because of an increased freight rate. Customers would laugh at us, and the conse- quence would be the extra charge would have to be absorbed by- us whether times were good or bad. The same would be true of clothing or food. If freight charges were paid by the manufacturer of clothing the in- creased freight charge would fall on him and be a big item. If they are paid by the retailer he would have to stand the increase. It would be quite an item to him but he could not add 5 cents to a suit of clothes to reimburse himself. The same is true of all the items you name, and the in- creased revenue the railroad would acquire, amounting doubt- less to millions of dollars, would come out of the pocket of the 12 Digitized by Microsoft® business man who is now having all he can do to get along. The entire argument based on the smallness of the amount to be contributed by each family is fallacious. If the amount is large enough to do the railroad any good somebody has to pay it, and it seems it would be a queer kind of a plan to tax the public to provide the money wherewith they shall be employed and thus become prosperous ! Does this not savor of the old problem of pulling oneself over the fence by his boot-straps? I admit my error in figuring that the increased freight charges would add an equal percentage to the entire cost of living, even if they could be collected from the consumer. However, you also overlook the fact that freight charges apply not only to the finished product but also to every item of raw material that has been transported to the plant of the manu- facturer and used in the process. The increase proposed would not be much on cloth enough for a suit of clothes, but that does not represent the cost to the manufacturer. He has paid that percentage on possibly four or five times as much weight of wool, cotton, coal, chemi- cals, etc., used in producing the finished product. So that if one were to admit that on some kind of goods the 'increased cost could be added to the selling price, the amount would be a good many times larger than your figures would indicate. You must also remember that the manufactured goods have to pay several freight charges. The manufacturer sends them to the jobber, the jobber ships them to the retailer, and the retailer frequently ships them to the consumer. We are buying goods every day in Pittsfield that have to carry three freight charges on the finished article in addition to four or Digitized by Microsoft® five times their weight in charges for freight on the raw materials used in manufacturing. It is apparent, therefore, that your figures are very misleading. I note what you say about the increased cost of paper to your company and also your statement that "there has been no increase in freight rates on paper during the ten years passed" (from 1898-1908). While this is doubtless true as applied to Western points, we are paying about 20 per cent higher rates to many New England points. Moreover, the railroads have found ways of indirectly raising rates that are exceedingly effective, as, for instance, the increase in the mini- mum carload weight from 30,000 to 36,000 pounds. And, as I said before, when there was plenty of business the railroad made enough. So the public generally were de- manding a decrease in view of the increased dividends nearly all the roads, including your own, were paying. But surely if the railroads found it difficult to raise rates when business was good, they fly in the face of every known economic law and general business experience by trying to do so when business is bad. Yours truly, B. D. Rising Paper Company, (Signed) Chas. McKernon. 14 Digitized by Microsoft® NEW YORK CENTRAL LINES. New York, October 3, 1908. Mr. C. McKernon, Treasurer, B. D. Rising Paper Company. Housatonic, Mass. My Dear Sir — I am in receipt of your favor of the 25th instant, which I have read with great interest, and in reply beg to say that the movement for a moderate increase in freight rates is not predicated on present depressed condi- tions. If the railroads were suffering from no adverse conditions other than those affecting all lines of business activity, and if the present basis of rates is high enough to be compensatory under normal business conditions, the movement for an in- crease in rates would, and should, fail. The real question is not whether the present rates are suffi- ciently profitable in times of restricted business, but whether they are not too low to be reasonably compensatory under ordinary, normal business conditions. In other words, has the cost of operation so increased, despite all the various econ- omies the railroads have been able to effect, that it is no longer possible to carry freight at a reasonable profit at exist- ing rates, no matter how heavy the tonnage may be ? I desire to call your attention to the following facts, which, it seems to me, clearly demonstrate the necessity for a reason- able increase in freight rates, and show further that, under the existing rate basis, even with the largest volume of busi- ness in the history of the United States moving, as was the case during the last six months of the year 1907, the financial results indicated clearly that the cost of performing the service 15 Digitized by Microsoft® has increased out of all proportion to the compensation re- ceived for the same. During the last ten years the average wage paid to rail- road employes shows an increase of from 33 1/3 per cent to 50 per cent. The average cost of almost every class of material that railroads consume in tremendous quantity each year has increased from 50 to 100 per cent. To illustrate, I desire to call your attention to the follow- ing increases which have occurred during the last ten years; and a comparison of the prices in 1898 with those of 1878 would, with the exception of steel rails and possibly two or three other items, show a still further increase. During the ten years from 1898 to 1908 there have been the following increases in the cost of material: Angle bars 50 Gray-iron castings 37.5 Malleable-iron castings 21.3 Bar iron 42.8 Cut nails 95.4 Wire nails 45.6 Cast-iron pipe 87.8 Steel rails 47.3 Track spikes 25.9 Cast-iron car wheels 25 Barbed wire 32 Bridge timbers 80 Cross ties 76 Car siding 90 Locomotives 68.3 Box cars 72.8 Car axles 51 16 Digitized by Microsoft® per cent Locomotive steel forgings : Crank pins 105 per cent Piston rods 57 Main and side rods 28 This list could be increased to include almost every item of material used by the railroads. Taxes have increased from an average of $179 per mile to an average of $319 per mile, or approximately 95 per cent. Do you know of any other business in the country which could sustain such tremendous increase in cost without some increase in price of the commodity produced? Generally, these increases have been gradual and have been offset in some measure by increased tonnage and in- creased efficiency, resulting in decreasing the unit cost of transportation. During the last eighteen months, however, the following tremendous increases have come in leaps and bounds, and the converging lines of cost and compensation in railroad opera- tion, which for years have been steadily approaching each other, have been suddenly brought so close together as to alarm shareholders and investors; and it is certain that, in order to pay fixed charges, taxes and operating expenses, with even a very moderate return to shareholders, there must be either a moderate increase in freight rates or a very substan- tial reduction in wages of railroad employes : Becoming effective during the early months of 1907, in- creases in pay of railroad employes approximating one hundred million dollars per annum were made. This increase was not voluntary on the part of the rail- roads, but was the result of weeks of conference between rep- Digitized by microsoft® resentatives of the roads and those of the employes ; and finally of intermediation by Chairman Knapp, of the Interstate Com- merce Commission, and Commissioner Neill, of the Bureau of Commerce and Labor. The settlement was on a lower basis than the men thought they should have and higher than the roads felt they could afford to pay ; but it undoubtedly averted a strike which would have cost the commerce of the country many hundred times the amount involved. Following this tremendous increase in wages, legislation by Congress and by a number of the States, restricting the hours of labor of trainmen, enginemen, telegraph operators, block signalmen, employes of interlocking towers, and others, made a further annual increase of approximately $25,000,000 in the payrolls of the railroads of the country. By legislation passed by the last two sessions of Congress and by subsequent rulings of the Postmaster-General, reduc- ing compensation for handling United States mail, approxi- mately $10,500,000 per annum has been taken from the rev- enue of the railroads. In the closing hours of the last Congress the Employers' Liability Act, which applies only to railroad companies, was enacted. This law removes the last vestige of protection that was secured to the railroads by the Common Law against personal injury or death claims on the part of employes or their fam- ilies ; makes the railroads liable for injuries caused by fellow employes, even where every possible precaution had been taken by the company to secure safety, and also removes the bar to recovery of damages for accidents which result from the em- ploye's own carelessness. 18 Digitized by Microsoft® Under the operation of this law the loss hitherto placed by the Common Law upon the individual — the employe — is transferred to the employer — the railroad. That it was under- stood the employer could not, under present conditions, bear the additional burden and that it was not the intent of the framers of the measure that the railroads should assume this burden is not only clearly indicated but distinctly stated in the following quotation from the report on the measure submitted by Senator Dolliver, from the Committee on Education and Labor, when it was under consideration by the Senate : "It is no part of the purpose of this legislation to oppress or add burdens to the business enterprises of the country, but rather to promote the welfare of both em- ployer and employe by adjusting the losses and injuries inseparable from industry and commerce, to the strength of those who in the nature of the case ought to share the burden." Again, in speaking of the risk and danger involved, the report says: "Yet, somebody must assume these risks, and the tendency, where the industrial life of the community is thoroughly organized, has been to modify the doctrine of negligence so as to allow the burden of accident and misfortune to fall, not upon a single helpless family, but upon the business in which the workman is engaged: that is, upon the whole community." No person can approximately estimate what this legislation will cost the railroads of the country. As an indication of the effect of an Employer's Liability Act, and in a direction of peculiar significance and vital im- 19 Digitized by Microsoft® portance to the manufacturing industry, I note the following taken from a report made by a special correspondent of the London Commercial Intelligence. Speaking of the effect of the recently enacted law he says: "The metallurgic industry is being hard hit in this respect. I have before me a return showing the number of cases brought before the courts for compensation, and I see that in the metallurgic industry alone no less than 6,138 cases came before the courts of France during the three months ended December '31, 1907. The number of accidents causing death was 204, and in addition to the compensation awarded to those who recovered, life annuities were awarded to 192 widows, and annual allow- ances till of age to no less than 308 children." This is the record for three months in one private industry, probably exempt from the prejudice which public service cor- porations in this country invariably encounter. That the enactment of this law will result in a most sub- stantial benefit to the employes of the railroads is best evi- denced by the untiring effort of the railroad men, strongly supported by the President, in securing its passage, and every dollar of benefit to the employe must be paid by the employer — the railroad. The only possible manner in which this burden can be placed where the framers of the bill distinctly stated it should rest — "upon the whole community" — is by an increase in rates by the carriers commensurate with the new burden imposed. The effect on the railroads of the conditions I have at- tempted to describe is exactly the effect similar conditions would have on any other manufacturing or mercantile busi- 20 _ Digitized by Microsoft® ness. The railroads are .subject to the same conditions and must retrieve losses in the same manner as any other business. Increased expense of production' means increased prices for the article produced. The credit of the railroads has been injured largely by the growing and well-founded conviction on the part of the investing public that on the present basis of cost of operation and compensation for service rendered, the permanent pay- ment of interest on bonds, to say nothing of a fair return upon the money invested by shareholders, is extremely uncertain. How well founded this conviction was, and is, may be best illustrated by calling your attention to some illuminating but extremely startling figures. The tremendous increases in expenses which I have re-- ferred to in detail became effective at successive dates during the first half of the year 1907. I have looked up the state- ments of about 80 per cent of the principal railroads of the country and find that during the last half of the year (after all the increases had become effective), while gross earnings of the railroads increased $57,413,078 over the same period of the preceding year, their expenses increased $80,235,823 ; and, despite the tremendous increase in tonnage handled and gross earnings, net earnings decreased $22,822,745. This showing was not the result of any depression or fall- ing off in tonnage. Traffic was moving in unprecedented volume. Furthermore, the condition which these figures reflect is even more serious than is indicated on their face. There is hardly an operating official on any of our rail- roads who did not recognize the fact very early after the taking effect of these large increases that the most drastic 21 Digitized by Microsoft® methods of retrenchment and economy would be necessary to offset in part the sudden and tremendous increase in operat- ing expenses, and many of the economies adopted during the last six months of 1907 passed far beyond the line which divides true from false economy. Yet, in spite of these ex- treme measures of retrenchment, the startling loss in net rev- enue resulted. Statements of earnings and expenses issued by the prin- cipal roads in all sections of the country for the six months ended December 31, 1907, show that operating expenses in- creased 60 per cent more than gross earnings, indicating that no increase in volume of business will make good the tre- mendous increase in expenses, and demonstrating clearly that there must be secured an increase in net earnings, by a mod- erate increase in freight rates, or a decrease in expenses by a substantial reduction in pay. Referring once more to the paper-manufacturing business, in which, of course, you are more especially interested, I would say that the New York Central Lines purchase annually about 1,500,000 lbs. of paper of various kinds. During the decade from 1898 to 1908 the price of paper has been increased from time to time until it reached in the latter year an average 20 per cent higher than the price of 1898. For the paper which we purchased during the last year we paid $48,000 more than we would have been required to pay for a like quantity of paper of a similar quality had the price of 1898 prevailed. An increase of ten per cent in the freight rate from Boston to Buffalo, a distance of about 500 miles, on the 1,500,000 lbs. of paper used by our companies last year would amount to a total of $367.50. 22 Digitized by Microsoft® Now, Mr. McKernon, in all fairness, taking into considera- tion the fact that the manufacturers of paper have increased the cost of operation of the New York Central Lines $48,000 per annum by thus advancing the price of paper, is it unrea- sonable for the New York Central Lines to ask the paper manufacturers to assent to an increase in freight rates which would amount, as above stated, to only $367.50, upon the amount of paper for which the paper manufacturers charge this large advance in price ? I note your point that a general increase in freight rates would apply not only to the finished product but to the various articles of raw material which enter into the manufacture of the product. While I did not mention this feature, it was not overlooked. No matter what the character of the article or where, or by whom manufactured, the consumer pays the freight. When the New York Central Lines paid for approximately $250,000 worth of paper used last year, it paid every cent of the freight that had accrued on the paper, including every article entering into or used in connection with the manufac- ture thereof from the time the pulpwood was standing timber until the finished product was sold and delivered. In manufacturing, merchandising, mining, or any other line of business activity, the freight on raw material and fin- ished product is as legitimate and as indispensable a factor as that of fuel, insurance, payrolls, taxes, depreciation, or any other item that goes to make up cost. If the price of fuel goes up, or an increase in wages of employes becomes necessary; or if the price of raw material is increased, the price of the finished product must be, and almost without exception is, proportionately increased. 23 Digitized by Microsoft® Without any definite information on the subject I will ven- ture to say that every successive increase in price made in your business during the past ten years has been caused by an increase in the price of some one, or several, of the items which go to make up your cost. In the case of a moderate increase in freight rates, how- ever, you say that it can not thus be taken care of. To quote your own language: "The very smallness of the increased cost per unit would make it impossible to collect from the consumer even in good times. If we sell paper in Chicago for 12 cents per pound, delivered, we would only make ourselves ridiculous by offering to raise the price to twelve and three and one- half one-hundredths cents because of an increased freight rate." I find that, when pushed to candid admission, many, per- haps a majority, of the opponents of a moderate increase in freight rates are forced to the same position, viz. : "We object to the proposed increase because it is so exceedingly small that it will be difficult, if not impossible, to add it to the selling price." You say the railroads have increased their rates indirectly by increasing the minimum lading of cars. You are not entirely correct in this. The increase in minimum lading per car from 30,000 to 36,000 lbs. and any other increase in minimum lading is because the railroads are building larger and better cars. This increase in loading does not increase the earnings per unit, but, by increasing the average loading Digitized b)TMicrosoft® per car, does somewhat reduce the cost of the transaction, the rate per 109 lbs. remaining unchanged to the shipper. The increase in size and capacity of locomotives and cars has enabled railroads to effect economies during the last ten or fifteen years which have made it possible to offset in great measure the gradually increasing cost of everything which enters into the production of transportation. I believe, how- ever, that the limit in this direction has been reached, as I do not think any further economy is possible in the way of larger cars or more powerful locomotives. Just as certain as that darkness follows the setting of the sun, the net compensation of our railroads must be increased in some fair and reasonable proportion to the increased cost of labor and every other commodity manufactured or produced in this country. This can be secured in one of two ways : First: By a moderate increase in freight rates, not neces- sarily uniform or general, but wisely applied and subject to further revision if found to bear unequally or unjustly upon any particular locality or class of business; or Second: By a substantial reduction in the wages of the army of 1,500,000 railway employes, whose pay has no more than kept pace with the increasing cost of living. The increase asked by the railroads is exceedingly small, so small that you say it will be almost impossible to add it to the cost of the unit as sold to the consumer ; but is it not better to moderately increase freight rates, even though it makes it necessary for manufacturers and jobbers in quoting prices to resort to the smaller fractions — ridiculous though they may seem at first blush — than to take $100 per annum from the pay of each of the thousands of conductors and 25 Digitized by Microsoft® enginemen on the railroads of the country? Is it not infinitely better to make an increase in freight rates which will bear so lightly upon the individual consumer as to be almost inappre- ciable than to say to the wife of each brakeman, station agent, switchman and telegraph operator all over this broad land, "You must pinch a little harder and give up $70 per year from the moderate earnings of the husbands upon which the family must be fed, clothed and educated" ? The average American business man is a fair man, a just man; and I believe the cause of the railroads, their plea for fair, reasonable treatment, when clearly and candidly set before them, will meet with almost unanimously favorable considera- tion. Yours very truly, (Signed) W. C. -Brown. NEW YORK CENTRAL LINES. New York, October 27, 1908. Mr. C. McKernon, Treasurer, B. D. Rising Paper Company, Housatonic, Mass. My Dear Sir — I wrote you on October 3d, in reply to your favor of September 25th, relative to the proposed in- crease in freight rates ; and as I have not heard from you further in the matter, have wondered if the letter reached you. I shall appreciate it greatly if you will kindly advise me as to this. Thanking you in advance, I am, Yours very truly, (Signed) W. C. Brown. Digitized by wftcrosoft® B. D. RISING PAPER COMPANY. Housatonic, Mass., October 28, 1908. Mr. W. C. Brown, Senior Vice-President, New York Central Lines. Dear Sir — Answering your favor of the 27th. I received your letter of October 3d, but I had not thought it necessary to continue the argument further. I note you shift your ground a little, and I think put up a better argument. It will, of course, be hard to convince us that we ought to contribute $3,000 or $4,000 per year to the revenue of the railroad. I understand that the cheap wood papers did advance very materially but they have gone off again. In our own line there has been one advance in the eight years we have been here, equal to about ten per cent, which did not offset the increased cost of raw materials and labor. Whatever may be done about freight rates I do not anticipate that we could secure another advance for several years. Writing paper moves only slowly. A great weakness of the railroad's position in asking for more income from freight, is found in the fact that nearly all of them increased their dividend in the times of good business. The public in general will usually shy off from the propo- sition that they pay increased freight rates that railroads, pro- tected as they are from competition, may maintain dividends as high as seven, eight and ten per cent on capital generally believed to be greatly inflated. Yours truly, B. D. Rising Paper Company. Diet. Mr. McKernon. Digitized byMcrosoft® NEW YORK CENTRAL LINES. New York, November 2, 1908. Mr. C. McKernon, Treasurer, B. D. Rising Paper Company, Housatonic, Mass. My Dear Sir — I am in receipt of your favor of Octo- ber 28th, and in reply beg to say that in my letter of October 3d I did not intend to shift my ground, but rather to correct an evident misapprehension on your part as to the real reasons for a moderate increase in rates which I tried to make clear in my former letter. The figures given in my last letter showing that it cost tne New York Central Lines approximately $48,000 more for exactly the same quality and quantity of paper used during the last year than it would have cost on the basis of prices paid in 1898, were taken from actual bills and vouchers ; therefore, there can be no mistake in regard to them. You say that the large advance has been in the cheap wood papers, but that in your line there has been but one advance, equal to" about ten per cent, during the last eight years, and that this did not offset tlje increased cost of raw material and labor. The point I wish to make clear is that the railroads are seeking a very moderate advance in freight rates — and it is absolutely necessary that they get it — for the same reason that ■ the advance referred to in your letter, of ten per cent in the prices of your product, was necessary, viz., to offset the in- creased cost of raw material and labor. You say that : "A great weakness of the railroads' position in ask- ing for more income from freight is found in the fact Digitized by%Mcrosoft® that nearly all of them increased their dividends in the times of good business. The public in general will usually shy off from the proposition that they pay increased freight rates that railroads, protected as they are from competition, may maintain dividends as high as seven, eight and ten per cent on capital generally believed to be greatly inflated." Probably nothing but a comprehensive and accurate valua- tion of the railroads of the country will convince the people that the popular idea of the railroads being greatly over- capitalized is a fallacy. For about twenty-five years I was connected with rail- roads west of Chicago, and during the last ten years have been connected with the New York Central Lines, operating from Boston, New York, and Montreal to Cincinnati, Louisville, Cairo, St. Louis, Peoria, and Chicago; and, from experience and observation, regard myself as fairly well qualified to give an opinion on the relative cost and capitalization of our rail- roads. It is my opinion that, taking the railroads of the country as a whole, they have cost more, and can not be duplicated for, their total present capitalization. The roads embraced in what is known as the New York Central Lines, via.: the New York Central & Hudson River Railroad, the Boston & Albany Railroad, the Rutland Rail- road, the Lake Shore & Michigan Southern Railway, the Michigan Central Railroad, the Cleveland, Cincinnati, Chicago & St. Louis Railway ; the Chicago, Indiana & Southern Rail- road, the Lake Erie & Western Railroad, and their subsidiary lines, I know could not be duplicated for 150 per cent of their total capitalization. Digitized by Qtiprosoft® During the last twenty years, $145,000,000 have been taken out of the earnings of these lines and expended in permanent improvements, for which not a single dollar of securities of any kind has ever been issued ; and during this time average dividends of less than four per cent per annum were paid. President Roosevelt, after giving the question careful study and investigation, in his address at Indianapolis, Ind., May 30th, 1907, said: "There has been much wild talk as to the extent of the overcapitalization of our railroads. The census re- ports on the commercial value of the railroads of the country, together with the reports made to the Interstate Commerce Commission by the railroads on their cost of construction, tend -to show that, as a whole, the railroad property of the country is worth as much as the securities representing it, and that, in the consensus of opinion of investors, the total value of stock and bonds is greater than their total face value, notwithstanding the 'water' that has been injected in particular places. The huge value of terminals, the immense expenditures in recent years in double-tracking and improving grades, roadbeds and structures, have brought the total investments to a point where the opinion that the real value is greater than the face value is probably true.'' The business of transportation is in no way exempt from the effect of competition. Existing roads are being continu- ally paralleled. The United States Government and the vari- ous states are spending millions annually in constructing canals, deepening, straightening and improving our navigable Digitized byQtficrosoft® rivers, and thus increasing and strengthening competition in the business of transporting the commerce of the country. There is no business risk incident to the conduct of any other department of business activity from which the rail- road is exempt, and those who invest money in railroads are entitled to a return equal to that realized by those who invest in agriculture, manufacturing or merchandising. First-class transportation facilities are of the most vital importance to every business interest in the country, for without such facilities no business can prosper. As our rail- roads were built and must be improved and extended by private capital and enterprise, investments of this character must be made as attractive and dependable as investments in other lines of business, or capital will continue to avoid such investment, as it has during the past year ; with a continuance of the adverse effect on the general prosperity of the country such as we have suffered from during that period. Thanking you for your letter, I am, Yours very truly, (Signed) W. C. Brown. 31 Digitized by Microsoft® Digitized by Microsoft® Digitized by Microsoft® Digitized by Microsoft® Digitized by Microsoft®