L3S-ÍÍ. 3
O.»
What Radical Railroad
Legislation Will Do
By
SAMUEL O. DUNN,
Editor of the Railway Age
From an address delivered before the Chamber of
Commerce of Mason City, Iowa, on
February 13, 1923
WHAT RAp.IÇA;L RAILROAD LEGISLATION WILL DO
By SAMUEL O. DUNN,
Editor of the Railway Age.
Adoption of the drastic policy of railway regulation advocated
by the radical group of public men representing chiefly western
states would cause a financial disaster in this country from the
effects of which it would not recover for years.
Advocacy of this drastic program of regulation is based mainly
on the ground that the valuation of the railways made by the
Interstate Commerce Commission is excessive. Senator Brook-
hart of Iowa has announced that he will introduce a bill in
Congress to scale down the valuation by / billion dpllars. Among
the inevitable consequences of such legislation 'would be the
following :
First, it would not only destroy most of the value of the stock
of many railways, but it would also destroy the value of a large
part of railroad bonds. These bonds are largely owned by trust
companies, savings banks, life insurance companies and other
fiduciary institutions. The result, therefore, would be, not only
to throw many railroads into bankruptcy, but also to imperil the
solvency of many banks, trust companies, life insurance compa¬
nies and other similar institutions. Large parts of the loans that
life insurance companies have made on farms and other property
probably would have to be called and the country would be
very fortunate indeed if it escaped a great panic.
Second, the proposed legislation would absolutely stop in¬
vestment in the securities of most railways and therefore al¬
most completely stop all increase of the capacity of the rail¬
roads to handle commerce. The experience of the countr}^ for
ten years before we entered the great war showed that in order
to raise adequate capital for increasing their facilities the rail¬
roads had to earn an average return of at least per cent above
their property investment. Although they have, in the last two
years, earned an average of only about 3 per cent on their prop¬
erty investment, they have recently been planning extensive
improvements and buying new equipment. They have done
this, not bcause the return they have been earning has been
adequate to justify it, but because they have been confidently
expecting that when business became active, they would be
allowed to earn the return of 5f per cent upon their valuation,
which the Interstate Commerce Commission has held would be
fair, and which would be about equivalent to 5^ per cent on
their property investment. Even the serious threat of such
legislation as is proposed would result immediately in the can¬
cellation of a large part of the orders for new equipment which
have been placed and of the plans for improvements which
have been made.
The country is now, and has been for years, suffering from
shortage of railroad transportation. If the expenditures now
being made or planned for increasing transportation service
should be stopped, the shortage of transportation would rapidly
become more acute. The farmers have suffered more than any
other class from shortage of transportation. Julius H. Barnes,
president of the Chamber of Commerce of the United States,
who is a large exporter of grain, has estimated that the grain
growers of the country alone have lost approximately 400 mil¬
lion dollars during the last crop year because of shortage of
transportation. The losses caused by shortage of transportation
would rapidly become enormously greater if the proposed rail¬
way legislation should be passed and all development of rail¬
roads were stopped, as it certainly would be.
Third, the financial and transportation conditions which would
be created by such legislation would make it necessary for the
country speedily to face and decide the question, whether it
would immediately reverse its drastic policy of regulation or
adopt government ownership of railroads. But before the coun¬
try could either reverse its regulation or adopt government own¬
ership the losses that would be caused to farmers, manufacturers
and all other classes of people would be beyond all computation.
The attacks being made upon the valuation placed by the
Interstate Commerce Commission upon the railways on the
ground that it is excessive are wholly without reasonable justi¬
fication. The Commission based the valuation, as its members
repeatedly have said, upon information regarding the railways
which it had been engaged for years in gathering in accordance
with the La Follette valuation law which was passed in 1913.
In making its computations it used the wages of labor and the
prices of materials the railroads paid in 1914, when wages and
prices were only one-half as high as they are now. The valua¬
tion made by the Commission is the only estimate of the value
of the railroads ever made as the result of long and exhaustive
investigation. Anybody has a right to appeal to the courts
regarding it, but to attempt to reduce it arbitrarily by a mere
legislative fiat would be to attempt confiscation of property
upon the largest scale upon which it has ever been attempted
in any country at any time, except under the Bolshevik regime
in Russia.
It is most improbable that the courts would uphold a law in¬
tended to carry out such a gigantic scheme of confiscation.
Suppose, however, they did, and the law went into effect. What
would the public directly gain by it? The direct saving made
to the public by the confiscation of over one-third of the entire
value of the railroads, would be only about 7 per cent in pas¬
senger and freight rates ; but it would deprive the owners of
railway securities of 36 per cent of the return to which the
Interstate Commerce Commission has held they are entitled.
Is it worth while, from the standpoint of the public, to cause
a stoppage of railroad development which would result in im¬
mense losses for years owing to shortage of transportation, and
which would force the public squarely to face at once the ques-
tion of government ownership, in order to adopt a scheme which
at the utmost could not result in a saving of railway rates of
more than 7 per cent?
The principal purpose of most of those who are advocating
this policy of railroad confiscation is made perfectly plain by
other policies which they have openly advocated in the past or
openly advocate now. Most of them have, in the past advo¬
cated, or now advocate, government ownership of railroads;
and they are trying to bring about a condition which will force
the country to adopt government ownership, whether it wants
it or not. It is a notable fact that every man who favors the
Plumb plan of employees' management of railroads is also ad¬
vocating this scheme of confiscating a large part of the value of
the railroads.
The radicals who are advocating this policy of confiscation are
getting the support of many persons, because many producers,
especially farmers, are hostile to the railways, owing to the
fact that freight rates are still higher than they were before
the war. But what created the necessity for the advances in
rates? It was made necessary by increases in operating ex¬
penses and taxes ; and 70 per cent of all the increase in operating
expenses which made necessary the advances in rates occurred
between January 1, 1918, and March 1, 1920, when the railways
were being operated by the government. Another large part
of it was made necessary by advances in wages granted later by
the Railroad Labor Board, a government body, and the rest of
it was made necessary by increases in railway taxes made by
still other government bodies.
In other words, practically all the conditions which have
made necessary the present rates either developed under gov¬
ernment operation, or have been created by government agencies
since the railways were returned to private operation ; and yet,
in a pretended effort to remedy these conditions, it is proposed
to adopt a policy of regulation the real purpose of which would
be to restore the very system of operation which created these
conditions.
If we enter upon a wholesale policy of confiscation of property
by arbitrarily scaling down the valuation of the railroads by
legislative fiat, where shall we finally stop? The farmers of this
country own more property than any other single class of people.
Their farms and other property are valued at almost 80 billion
dollars, or four times as much as the railways ; and yet they are
the class who are being chiefly relied upon by the radicals to
enable them to carry through this program of railroad confisca¬
tion. It is hardly conceivable that the class of people who own
the largest amount of property in the country will be the first
to support a policy of wholesale confiscation of property. I have
the greatest confidence that when the farmers awaken to a reali¬
zation of the true significance of what the radical groups of
public men and labor leaders are trying to do with respect to
the railroads, the farmers will be found lined up solidly against it.