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TOO MUCH MEDICINE
An Address before the Chamber of Commerce
of Kansas City, Missouri, February 1, 1923.
By W. B. STOREY
President, The Atchison, Topeka and
Santa Fe Railway System
(1)
TOO MUCH MEDICINE
Somewhat over a year and a half ago I had the honor and privilege of ad¬
dressing a Kansas City audience on the transportation question as it appeared
then, and it is probable that some here tonight heard me at that time. But
since then many things have happened, and it may be profitable to look at the
situation as it exists today, especially in view of the fact that this question is
probably the most important that faces the country and that on the correct solu¬
tion of the problem depends the continued growth and prosperity of the entire
country.
I sometimes wonder if you and the people of the country realize what a vital
part of the economic structure of the nation the railroads are. Look at the
manner in which the country has been developed and built up. Originally you
had waterways, and there were trading posts along these from which teaming was
done, but the settlement of the country was limited by the distance that teams
could haul the produce—the great central fertile plains were vacant and useless.
With the advent of the railroads, all this was suddenly changed. They opened up
the back country and made it possible to reach all sections and to take out
products. The country began to develop; railroads were built in all directions;
and the back country became habitable. Kansas City, strong, energetic, and pro¬
gressive, owes its very existence as a metropolis to this fact. All the country be¬
tween here and the Rocky Mountains had no navigable rivers or streams, and
until the railroad came only the mule and ox team existed as transportation
agents.
Today the trade of Kansas City reaches from the Missouri River to the
Pacific Ocean and to the Gulf of Mexico—and the railroads have made this pos¬
sible. So it has been everywhere: with railroad transportation the country can
develop and prosper, and, without it, no progress, no people, no development.
Even today there are vast stretches of country in western Kansas, in Oklahoma,
and in the Panhandle of Texas (all country tributary to Kansas City) which
are clamoring for railroads ; and if they had them they could raise crops, support
communities, and tend to enrich the nation—but these stretches today are de¬
voted to cattle raising.
Then again, by means of the railroad the West is able to raise the neces¬
saries of life and sell them to the less productive eastern states; and the latter
have been thus forced into the manufacturing business, and, as quantity produc¬
tion is cheap production, the East is able to supply itself and you cheaper than
you can supply yourself with manufactured goods.
CROSS HAUL NOT A WASTE.
I recently heard one agricultural speaker deprecate the woeful waste due to
this "cross haul", as he expressed it, but the real facts are that you, with your
fertile soil and your vast plains and your farm machinery adapted thereto, can
produoe cheaper than the East, with its rooky hillsides and 6mall narrow valleys ;
and it, with its excessive population, its command of capital, and its more ex¬
tended market, can manufacture cheaper than you can. The railroads make pos¬
sible the interchange of the products of the two sections, and the apparent waste
(2)
of the "cross haul" is really not a waste at all, but a great saving for both.
In France this past summer I was struck with the age of everything in the
country. I took lunch one day in a small village about a hundred miles south of
Paris. The house was built in seventeen something, and every house in the vil¬
lage seemed just as old—and all the villages seemed as old as this one. In that
house I met a French lady, eighty-one years of age, and it occurred to me that
this old lady was older than our entire country west of Chicago. Do you realize
that gold was discovered in California less than seventy-five years ago, and that
the wonderful development stretching from the Great Lakes to the Pacific Coast
has come in that time, with its cities, its wealth, and its population? And then
do you realize that it is due to the railroads that all of this has been possible?
What I wish to make plain is that the railroads are a vital part of this coun¬
try. They are the circulatory system, if you please; and, as the circulatory sys¬
tem in a man's body must be kept healthy, so must the railroads of the country
be kept healthy. They are not healthy today, and the question that confronts the
country is: what is the matter with them? I shall answer the query by saying:
too many doctors and too much medicine. They began doctoring them a good
many years ago, and since then more and more people have taken a hand in it.
VARIOUS STEPS IN REGULATION.
First came the United States Government with the establishment of the
Interstate Commerce Commission, but with limited powers. Then came the state
commissions, and gradually the medicine applied became stronger and stronger.
The powers of the Interstate Commerce Commission were broadened and, as this
progressed, more and more state commissions were authorized, each body trying
to outdo what had already been attempted and administering new prescriptions.
It is a strange fact that the longer this process was tried the weaker and weaker
the patient became, until finally when the war came on us the railroads were
unable to function properly.
Instead of changing the medicine, the idea that government control was the
only way out gained ground, resulting in the seizure of the roads by the govern¬
ment. You know the history of the case from that time on. Government con¬
trol raised costs, decreased the efficiency, and nearly ruined the roads. But it
had one good effect—it convinced the people that they wanted no government
ownership and led to the enactment of the Esch-Cummins bill, or, as it is of¬
ficially called, the Transportation Act, 1920.
This law was the first really constructive measure attempted. Congress took
counsel with the Interstate Commerce Commission ; it consulted the railroads ; it
advised with business men; and eventually evolved an act which it was hoped
would put the transportation business on a solid foundation, or, pursuing my
simile further, would effect a permanent cure.
It recognized, first, that credit is absolutely necessary to the roads. This
credit had been gradually undermined during the long period of doctoring until
the roads found it difficult to raise the necessary capital to keep up with the
growth of the country, so that less and less facilities were provided each year
until, when the enormous business and need for good transportation manifested
itself, the railroads had not enough equipment. They were short of cars, locomo¬
tives, shops, side tracks, terminal facilities, and everything that goes to make up
a complete railroad.
(3)
SHORTAGE OF EQUIPMENT.
As illustrative of what has happened : * For the five year period ending June
30, 1907, the number of locomotives in service on the railways of the United
States increased 18,150; in the five year period ending June 30, 1912, the increase
was 8,447; in the 4% year period ending December 31, 1916, the increase was
4,550; and in the five years ending December 31, 1921, the number of locomo¬
tives in service actually decreased by 664. And with freight cars the history is
much the same—in the first period named above the number in service increased
480,000; in the second period 230,000; in the third only 114,000; and in the last
the number actually declined 13,521. The figures further show that while the
tractive power of locomotives and the capacity of cars have increased, the total
tractive power and the total car capacity show the same decreasing tendency as
the equipment itself.
It is a pertinent fact that with the end of the five year period ending in 1907,
the period of restrictive control began. The numbers of locomotives and cars are
representative of the other facilities such as I have named above, and we are
short today everything that goes to make up a railroad. You will understand, of
course, that this shortage has not come from any concerted action on the part
of the railroads, but from the workings of economic laws.
The roads found it more and more difficult to raise funds and consequently
spent less and less each year, with the result that today the entire country is up
against this fact that the railroads are not able to handle the business. The steel
mills have had to pile their product; the wheat farmer has been unable to ship
his crop; grapes have rotted on the vines; and the situation is altogether de¬
plorable.
The only cure is credit. Establish the ability of the roads to pay interest on
the money invested in the roads, and the money necessary will flow toward the
roads. The Transportation Act attempted to meet this situation by providing
that the Interstate Commerce Commission should so fix rates as to give a 5% or
6% return on the valuation. This was attempted by the Commission when it
made the rate increase in 1920, but their figures were based on a certain volume
of business. Unfortunately, the slump of 1921 came on, the volume was not there,
and the roads earned that year a net of 3.7% on their valuation. There was no
cure for the real trouble in this, but the roads hoped for better things in 1922.
HORIZONTAL REDUCTION A HEAVY BLOW
As a matter of fact, many adjustments and many reductions had been made,
and the business of the country had actually started on the upgrade when the
Interstate Commerce Commission, acting under political pressure, made a hori¬
zontal reduction of 10%. This was a heavy blow, and the result has been that in
1922 the railroads, handling during certain months the heaviest business ever
handled, have been unable to earn over 4.2%. This reduction checked railroad
buying; it retarded railroad spending; and it did not accomplish much for the
shipper, as in most cases he said it was not enough to help him.
So there you have the credit situation. It has not been restored. We feel,
however, that if the present business keeps up and the prospects for 1923 are ful¬
filled, we stand a chance of earning a fair return. We hope to get the morale of our
* This illustration is taken from a recent address by President Markham of the Illinois Central
Railroad.
(4)
men more nearly what it was before the war; we hope to avoid any strike
troubles—so that if the volume keeps up we think we can do much better than
this past year. But we are certain that if the many nostrums that are now pro¬
posed are administered we shall be in a worse condition at the end of the year.
To show you what these "cure alls" consist of, I might cite the bill by Mr.
Gooding of Idaho to reduce all freight rates on agricultural products 33%; the
bill of Senator Johnson to prevent dividends until the necessary cars are pro¬
vided; the opinion of Senator Brookhart that seven or eight billion dollars should
be squeezed from the valuation of the railroads; the demand of the American
Farm Bureau that all guarantees be taken out of the Act. (There are in reality
no guarantees). The farmer is demanding lower freight rates and Senator Capper
is backing him up in this demand, and Judge Reed of the Kansas Utilities Com¬
mission is doing everything he can to bring this about.
REGARDING THE LABOR BOARD.
The Transportation Act of 1920 provided for other things—for instance, the
labor question. It recognized that labor troubles should be avoided on the rail¬
roads of the country, and it established a board to hear cases and adjudicate,
but without power to enforce its decisions. There are all sorts of opinions about
this feature. We know it has not worked in the shopmen's strike of this last
year, which has costs the roads many millions of dollars and has been one of the
causes of poor service to you. Some want to change this part of the law. The
President of the United States advocates making the question of wages a func¬
tion of the Interstate Commerce Commission. Gentlemen, the Interstate Com¬
merce Commission has more than it can attend to now. Don't give it any more.
Further, the Act aims to place on the Interstate Commerce Commission the
responsibility for making private management of the railroads a success. Under
former laws its function was to protect the people from the railroads ; now it has
also to protect the railroads from the people. The power of the state commis¬
sions has been made subordinate to the Interstate Commerce Commission. There
are demands all over the west that this feature be eliminated and that the states
be given back the power to make intrastate rates. Rates so made in the past have
seriously interfered with the interstate rates and have cut into the revenues of
the roads. There are numerous other provisions in the Transportation Act of
1920, but the ones I have mentioned are the important things. Of first impor¬
tance, however, is the necessity for credit. If we can get money, we can supply
you with the right kind of transportation, and without it we cannot.
NEED BETTER TRANSPORTATION.
In view of this condition, will the changes proposed in the law help the situa¬
tion? What the country needs is better transportation. Will any of the things
that have been proposed give this? This question should be the test applied to all
the proposals which are brought forward. What then is to be done? Rates cannot
be raised or business will be checked. I know you gentlemen are anxious to find
the answer since your continued prosperity depends on the problem being cor¬
rectly solved. Certainly reducing the rates will not help.
(5)
The farmer is having a hard time ; he should have help ; but bankrupting the
railroads will not help him, and reduced rates means just now bankruptcy for the
roads. If we want to go to the root of the matter, we must find what is the mat¬
ter with the farmer. It is high prices for everything he buys and low prices for
everything he sells. But exactly the same causes are back of the railroads' trou¬
bles, and back of the high prices you will find high labor costs. If you can get
lower labor costs, you can reduce the price of steel, of lumber, of cement, of cars,
of locomotives, of coal, and of everything that enters into the operation of either
the farm or the railroad. And, gentlemen, as long as we have the restrictive im¬
migration law in effect and as long as we have a high tariff wall about us, just so
long must labor costs stay up. If the country wants these things, it must be con¬
tent to do business on the high price plane on which we are now doing it. But
the farmer should be taught this and he should decide what he wants. The main
fact, however, that I wish to bring out is that it is high labor costs that are re¬
sponsible for the present condition of the farmer, and not the railroads.
What is to be done? You are anxious to help and you want to know how you
can assist in this matter. I think that most business men throughout the coun¬
try recognize the real cause of our troubles, but most of them do not see how
they can help. They think it is a problem for the railroads and the railroads must
work their way out. Gentlemen, it is your problem also. What the country needs
just now is better transportation, and it needs it more than it needs cheaper
transportation, and we cannot get it unless you help.
GIVE THE 1920 LAW A CHANCE.
What we want seems simple enough—you will smile when I tell you what it
is. We want to be let alone. We want to have the Transportation Act of 1920
given a chance; we think it will work out, but we must have time to get it to
functioning properly. As I have stated, there are all sorts of schemes for patching
it, and I am afraid that if we begin to patch it we shall have a "crazy quilt" such
as our grandmothers used to make. But let it alone until we can really see what
is wrong with it.
We need your help in this. You, gentlemen, have business connections all
over the West. Use your influence to show people there what is really the matter.
I recently had some correspondence with a banker in a western Kansas town.
After describing the bad condition of the farmer, he said: "In my judgment the
railroad is more responsible for the country's condition than any other one fac¬
tor," and then he said many more hard things about us. Gentlemen, we want
your help and influence in controverting such opinions. We want you to show
your customers that Senator Arthur Capper's propaganda is not the right kind of
medicine, and that Judge Clyde Reed is headed in the wrong direction. We are
all part of the business life of this country, and your continued prosperity depends
on our prosperity, and our prosperity depends on yours. So help us to show the
country the right way.
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