1 "i 1 ^ -Zi. Dn*^- BEFOEE THE Interstate Commerce Commission. in" the matter of consolidation of the railway properties of the united states into a lim¬ ited number of systems. 0. M. Spencek, Bbuce Scott, Counsel. niKTHER TESTIMONY GIVEN AT HEARING JUNE 18, 1923. by Hale Holden, President, Chicago, Burlington <& Quincg Railroad Company, Colorado and Southern Rail¬ way Company, Fort Worth and Denver City Railway Company. •UHTHONP-WARRCN miNTiHa COMPANY, CHIOAgO» Ji , f BEFOEE THE Interstate Commerce Commission. IN THE MCATTEB, OE CONSOLIDATION OF THE KAILWAY PEOPERTIES OE THE DNITED STATES INTO A LIM¬ ITED NUMBER OE SYSTEMS. No. 12964. STATEMENT BY HALE HOLDEN, Hearing at Chicago, III., June 18, 1923. In view of the direction which some of the testimony relating to the grouping of western roads, and which was introduced at the western hearings, has taken, I have some further testimony to submit which I hope will be of aid to the Commission in performing the duty imposed upon it under these provisions of the Transportation Act, 1920. In the first place, it seems to me that tiiere has been some confusion in thinking and that the issues in this proceeding have been somewhat obscured. Congress has determined the policy and the Commission is under mandate to prepare and adopt a plan in furtherance of that policy. This is a plan for the consolidation of the railway properties of the continental United States into a limited number of systems. Congress has provided that competition shall be preserved as fully as possible and wherever practicable the existing routes and channels of trade and commerce shall be maintained. As already pointed out, these requirements are fundamental; subject to them, however, the several systems shall be so arranged "that the cost of transportation as between competitive systems and as related to the values of the /"iV b i-— 2 properties througli which the service is rendered shall ho the same, so far as practicable, so that these systems can employ uniform rates in the movement of competitive traille and under ciBcicnt management earn substantially the same rate of return upon the value of their respective railway properties." Wo have not undertaken in this forum to debate the wisdom of this national policy, nor to predict disappointment or gratification of the public over the'results whidi will follow when this policy is carried into effect. It is to be presumed that all considerations entering into the enactment of this law were duly considered by Congress in the pro¬ ceedings which led to the passage of the law, and that the duty of the Commission is to follow the command of the statute and prepare the jfian whicli the statute calls for. Furthonnore, these hearings are being held in order to induce discussion that will be helpful in aiding the Commission to reach just and proper results in assigning in this plan the various railroads of the country to proper groups which will desig¬ nate the limited number of systems provided for by the law. This is not a consolidation proceeding, because under the law con¬ solidations are voluntary and by the express provisions of the law con¬ solidations desired under the plan must each be presented in due form to the Commission hereafter, under the appropriate procedure desig¬ nated for that purpose. The testimony which I have already given in this proceeding was offered primarily in an effort to convince the Commission lhat the long standing association of the Burlington, Northern Pacific^ Great North¬ ern and Colorado and Southern Companies should not only be pre¬ served, but also to demonstrate that under the policy of the law those properties should now be grouped together for the purpose of jier- mitting them to be consolidated into a single system. We believe that the command of the statute that the existing routes and channels of trade and commerce should be maintained wherever practicable can only be observed by grouping these four properties together because, for the obvious reason, channels of trade and coxnmerce as between them have long been in existence in a large and substantial way and 3 because it is obviously practicable to maintain those long-standing channels of trade and commerce by grouping these properties; in "other words, there is nothing impracticable in such a group and the exhibits of the movement of freight and passenger traffic show the long-standing existence of these routes and channels of trade and commerce. We have also shown that because of the substantial change in con¬ ditions since the decision in the Northern Securities case, growing out of the building of the Chicago, Milwaukee & St. Paul to the Coast and the extension of the Union Pacific System from Portland north through the State of Washington to Taooma and Seattle, so much additional competition has been provided that now all but 2 per cent of the ton¬ nage handled by both Northern Pacific and Great Northern is subject to effective competition of other lines. It is obvious, therefore, that the competition which the statute seeks to preserve A'V'ill in no substan¬ tial degree be lessened nor curtailed by including Northern Pacific and Great Northern in this one group. I do not understand that the proposal to divorce Great Northern from Burlington grows out of this requirement of the statute, nor that upon a frank analysis of the traffic situation, that proposal can be justified. Considering the testimony introduced at the western hear¬ ings, I interpret the public attitude to be in general in accord with the proposal to group these two northern lines with the Burlington, and in approaching the conclusion of this inquiry I earnestly invite the at¬ tention of the Commission to the evidence and exhibits in the record justifying the claim that the group which we urge will preserve com¬ petition in all practical features and is manifestly essential in order to preserve the long-standing routes and channels of trade and com¬ merce which have been developed between these three major com¬ panies in the group proposed. I am confident that viewing this situ¬ ation from these two aspects the conclusion will necessarily follow that it will be only because of other reasons of a controlling and inescapable character that tliose long-standing relations will not be recognized as final in this proceeding. We have been led into a consideration of other features of the law 4 M'liich aro said to be responsible for the development, in the main, of Systems 14 and 15 in the tentative plan, and the principal considera¬ tion involved here has been a proper grouping for the Chicago, Mil¬ waukee & St. Paul. Paragraph (4) of Section 5 of the Interstate Com¬ merce Ael^ however, provides that subject to the requirements for the preservation of routes and channels of trade and commerce and of competition, "the several systems shall bo* so arranged that the cost of transportation as between competitive systems and as related to the values of the properties through whidi the service is rendered shall be the same, so far as practicable, so that these systems can employ uni- fonn rates in the movement of competitive traffic and under efficient management earn substantially the same rate of retuni upon the value of their respective railway properties." No analysis nor application of this important feature of the law, considering the physical and competitive traffic conditions of the west¬ ern roads, can fairly be made that does not, step by step as the study proceeds, involve roads other than the roads exclusively serving the northwest. As pointed out in previous testimony, it is evident that the policy of this new legislation is based upon a survey of average conditions. The rule laid doivn in the language of paragraph (4), just quoted, con¬ templates substantially similar cost of transportation between com¬ petitive systems so that those systems can employ uniform rates and earn substantially the same rate of return, lîccognizing that exact equality camiot be secured, the recapture provisions of the law, as well as other features of it, were enacted to take care of inequalities, but it is clear that both in the administration of the rate structure, as well as in thesQ.provisions for grouping the roads into a limited num¬ ber of systems, as near like conditions in competitive opportunity, cost of service and rate of return are to be provided as possible. The logic of these considerations can only be administered by an intelligent understanding and acceptance of the practical conditions as they are in the. west. The wide spread in territory of existing railroad systems H Till the wide distribution of (Mmmoditiea throughout all sections of western territory necessarily bring xmder review substantially all 5 western mileage .in undertaking to construct a limited number of sys¬ tems in the west that will meet the tests in the statute just quoted. For these fundamental reasons the grouping of western mileage into four principal systems has seemed to me inevitably to follow if the policy of this law is to he fairly carried out in western territory, and I have seen nothing in testimony that has been submitted to re¬ quire a change in that opinion. Reviewing briefly the existing situation with Avhieh the Commission has to deal, we have, first, the Union Pacific System as proposed in System 13, Avith the significant addition in vital effect of the decision of the Commission in Finance Docket 2613, "Control of Central Pacific by Southern Pacific." The Union Pacific System is one of the main western transportation stems, originating at Council Bluffs and Kan¬ sas City on the Missouri River and extending through, via Denver and Ogden, into the northAvest, Avhero it is on substantial equality with all other competing lines serAung that territory, and also Ada the noAV entire ownership of the L. A. & S. L. to southern California. By the terms of System 13, the Union Pacific is to be grouped AAdth the Chicago and North Western and AAdth the AVabash Avest of the Mississippi River, Avhich means that the Union Pacific group Avill enter Cliicago and St. Louis, upper Lake ports, St. Paul, Minneapolis, Duluth and Superior. By the terms of the Central Pacific decision, a definite settlement seems to have been made of long-standing questions relating to the routing of traffic Ada the Ogden as compared Avith the El Paso gate ¬ way; competition betAveen these gatcAvays has been by this decision substantially regulated and controlled. Effective solicitation has been agreed Axpon for the routing of all traffic in California north of the mountain crossings of the Tehachapi and Coast Ranges, via the Ogden gateway. This practical and exclusive grasp of the Union Pacific System upon all territory served by the Southern Pacific and Central Pacific in California as specified, can have but one effect, Avhich is to increase the volume of traffic via Ogden and in consequence, the earn¬ ing power of the Union Pacific System. 6 Tims we liavc a view of System 13, enlarged and vastly strength¬ ened as it is hy the Central Pacific decision. This system appears to havq the tentative approval of the Commission, the somewhat guarded approval or acquiescence, in the event consolidations must come, of the Union Pacific so far as consolidation with the Chicago and North "Westcim and Wahash lines west of the Mississippi Kiver are con¬ cerned, and actual ownership and contract control, so far as the west¬ ern end of the system is concerned. Finally, this system, as indicated, appears to have general public acceptance and the program of the Commission to establish western groups in this proceeding appears to indicate ultimate approval of comprehensive groups serving substan¬ tially entire western territory. Judge E. S. Lovett, Chairman of the Executive Committee of the Union Pacific System at the San Francisco hearing on April 2nd, last, undertook to discuss certain features of the plan which I have advo¬ cated. Exactly as he stated, I appear as an officer of no company except the Burlington and Colorado and Southern, having definitely dis¬ claimed not only any other representation hut also any desire to as¬ sume the position of making a map of western territory, or even to argue the future of other western systems beyond the necessity to de¬ fend the integrity of the Burlington property, which the harmful re¬ sults of the tentative plan has forced me to do. I pass hy the somewhat acrimonious comment upon the four-group plan, recalling that I have definitely stated that that plan was devel¬ oped only upon broad lines, subject to changes in detail if the major principles should receive approval., The Union Pacific is discontented with grouping with the St. Louis- San Francisco. In 1922 Union Pacific brought 11,460 carloads of grain into Kansas City out of total receipts of 81,730. As Kansas City is a primary grain market, first in rank in wheat and third in all grains and, with Omaha, St. Joseph and other IMissouri Eiver primary mar¬ kets, deals heavily in grain for export via Gulf points, in which the St. Louis-San Francisco is an active factor, this grouping is logical 7 in maintaining the principle of through lines to the southwest and the Gulf. Average interchange for the five years ended 1921 between Union Pacific and St. Louis-San Francisco at Kansas City was 8,645 cars, hut this takes no account of outbound grain referred to. The addition to St. Louis-San Francisco of International and Great Northern and Texas & Pacific completes an efficient route from Missouri Eiver to the southwest, as well as to Gulf ports, hut if these particular suggestions are inappropriate, perhaps better progress will he made if the Union Pacific were to designate the lino or lines that would better please it. The four-group plan is quite flexible enough to permit rearrangements, as I have frequently stated. I believe the President of the Union Pacific has been quoted as expressing a pref¬ erence for the Kansas City Southern in the event the imaginary calam¬ ity of through systems to the southwest should prevail. If I am cor¬ rect in this understanding, then the groups can be easily corrected to meet that view. St. Louis-San Francisco will fit quite as well in Group 1. Again, it hardly meets the plan fairly nor indeed seriously to em¬ phasize fractional features of it, because the plan, whether of merit or otherwise, cannot be disposed of in piecemeal, nor by meticulous objections of this character. I have been unable to detect any indica¬ tions in the tentative plan of prospective loss of interchange by the Union Pacific because even though consolidated at Omaha with the North Western, it will remain in its own hands to continue to invite interchange with the other important lines that now support the Union Pacific at that point and contribute so greatly to its financial strength. Com. Hall: Mr. Holden, you have referred to Group 1. For the purposes of the record, indicate what you mean by Group 1. Mr. Holden: That is the Burlington group, so called. Com. Hall: All right; proceed. Judge Lovett has indicated some indifference to interchange at Kansas 8 City, rather deprecating the importance of that point as a feature of Union Pacific tonnage. In developing the plan for four groups, how¬ ever, it was suggested that not only should St. Ix)uis-San Fran¬ cisco become a part of the Union Pacific group, hut also Wabash west of the Mississippi River, Chicago and Alton, and Chicago, Milwaukee & St. Paul. All three of thoso lines enjoy a large interchange at Kansas City and the true Avay to view the situation at that point is not to take the separate interchanges, but to combine the total of the lines named %ñth the Union Pacific in order to reach a true basis for an esti¬ mate of the volume of interchange traflBc at that point. Judge Lovett says, referring to the plan to give each western sys¬ tem an outlet to the Gulf in exchange for the loss of interchange at St. Louis and Kansas City : "If such consolidations are accomplished, where will the trunk lines and Atlantic ports get their grain for export? I am not their advocate, but only wish to point out this as another revolutionary and disastrous effect to some interests of the action the Commis¬ sion is asked to take." Again he says; "I might mention in that connection again, that the suggestion involved in the Holden plan of tying up all of the grain carrying railroads west of Chicago with Gulf lines might easily be per¬ mitted to become something that would revolutionize practically the grain-cariying business in this country if it were put through." I regret to feel that in these statements Judge Lovett has been poorly informed. There is no ground for his anxiety now, because the records already show the existing distribution of grain from territory on the west of the klissouri River as between Atlantic and Gulf ports. Stated in pounds, during period July 1, 1921, to December 31, 1921, .^27,793,955 pounds of Avheat originated in Kansas were received for export'at Gulf ports, as compared to 12,613,454 pounds at Atlantic porta, including Montreal. From Kansas City and lower Missouri River points 603,827,015 pounds were shipped via Gulf ports, as com¬ pared to 31,834,080 pounds via Atlantic ports. From Omaha and upper Missouri River points 117,673,720 pounds of wheat went , via Gulf for export as compared with 32,062,920 via Atlantic, ports. 9 During the same period 7,577,630 pounds of corn were exported via Gulf ports, as compared to 64,660 pounds via Atlantic ports, from Kansas, From Nebraska, 87,673,385 pounds of corn went out through the Gulf as compared to 4,853,926 pounds via Atlantic ports. Kansas City and lower Missouri River points exported via the Gulf 87,992,770 pounds of corn, with none via Atlantic ports ; and Omaha and upper Missouri River points exported 83,970,910 pounds of com via the Gulf, as compared with 1,825,140 pounds via Atlantic, all of which was ex¬ ported via Montreal. Other grain during the same period shows similar proportions, as for instance from Kansas City and lower Missouri River points 5,957,- 840 pounds were exported via Gulf compared with 120,960 pounds via Atlantic ports, and from Omaha and upper Missouri River points 15,605,670 pounds via Gulf as compared with 139,020 via Montreal. As contrasted with these figures, grain originating in Illinois, Iowa, Wisconsin and Minnesota indicates strong balance in favor of the vol¬ ume exported via Atlantic ports and Montreal. These conditions have prevailed for some years and I have been unable to discern any rela¬ tion between them and railroad through rails; they are the result of other factors such as the sensitive balance of freight rate adjustments and the controlling direction given to the movement of grain by those that deal in it. At primary markets on the Alissouri River most of the grain traded in comes from west of the Alissouri River and when it reaches the primary markets it is free grain for trading transactions and shipment according to trade conditions. East of the Alissouri River grain largely moves to primary markets eastward and the same conditions apply to those markets. It seems to me idle to contemplate, in view of present-day market and rate conditions, that, whether the western roads have through rails or not as suggested in the plans under discussion, these fundamental market and rate conditions will be in any way affected. The plan which I advocate was developed as the inevitable result, as I believe, of the principle announced in the tentative plan of the Commission that western groups should be based upon Chicago and 10 St. Louis, because the evident consequences of that principle, by bring¬ ing the southwestern lines througli to Chicago and St. Louis and turn¬ ing Burlington's connections into competitors, was to seriously threaten the important tonnage and revenue involved in Burlington in¬ terchange with those southwestern lines. This plan involves ruinous consequences to the Burlington, leading to the obvious argument that the plan either goes too far or does not go far enough. I adopted the latter alternative because I believe it would be more in keeping with the policy of the law and with actual and existing conditions in western territory; furthermore, I have advocated the extension of Burlington mileage into the southwest in order to save Burlingdon from these harsh consequences. In addition the equally destructive result to Bur¬ lington of a divorce of Great Northern and a combination of it "with St. Paul, thereby making the Great Northem-St. Paul combination a competitor of Burlington and depriving Burlington of a large share of its present heavy interchange Avith Great Northern at Minnesota Transfer, Sioux City, and Billings, compels an alternate suggestion Avhich I believe I have made. / Judge Lovett says : "Let me say now that I interpose no opposition to the con¬ solidation of the so-called Hill ^oup of railroads—^the Great Northern, Northern Pacific, Burlington and their subsidiaries. But if that powerful combination is to be solidified and re-estab¬ lished in stronger form than ever by consolidation, then its ancient rival, the 'Harriman lines'—^Union Pacific and Southern Pacific— should be also re-established and consolidated not merely because of the trafile support that the Union Pacific and Southern Pacific could give each other in the competition that exists, but the finan¬ cial strengih and credit of competitors of the Hill lines in such a situation would be a matter of prime importance." One Avould assume that this statement was prepared before the treaty of peace Avas signed betAveen Union Pacific and Southern Pacific 11 wMch was carried into tlie dedsion of the Commission in the Central Pacifie ease, because by that dedsion the "andent rival, the 'Harriman hnes—^Union Padfic and Sonthem Padfio' " has already bemi re¬ established in every practical feature except that of common o^er- ahip ; iadeed by the carefully prepared plan for division of traffic and parity of rates via the Ogden as compared with the El Paso gateway, to the uninformed outsider a larger volume of traffic seems to be as¬ sured to the Ogden gateway and the Union Pacific beyond, than it was able to satisfactorily secure even in the days of common owner¬ ship. This was a very interesting proceeding. It was filed by the South¬ ern Pacific to acquire control by lease and by stock ownership of the Central Pacific Eailway Company following the decision of the Su¬ preme Court of the United States reqidring it to divest itself of that property because in violation of the Sherman law. Union Pacific ob¬ jected to this application and demanded, first, that the Central Padfio should be freed from Southern Padfio dormnation and control, and second, that if sold to anyone, it should be sold to the Union Pacific. This controversy was admirably settled with the interesting result that the so-called policy of the Pacific Bailroad Acts, that the Union Padfio and Central Pacific should be operated and used for all purposes of communication, travel and transportation so far as the public and gov¬ ernment axe concerned, as one connected and continuous fine and must afford to each other equal advantages and facilities as to rates and transportation without discrimination of any kind in favor of or against the ro^ or businesa of either, was broadened to indude South¬ ern Padfio lines in California, in practical effect, and to bring all three of these roads not only into continuous operating association, but into a most definite and exclusive traffic combination. It is true that the Western Pacific, so long as it is not a part of any of the larger lines, is given equal rights and train service, but in contmnplation of tlie grouping of Western Pacific with Santa Fe, the lease of life of this arrangement is perhaps not long, so with this practieal ro-establish- ment of the old and admirable association between Union Pacific and Southern Pacific, the generous approval of the plan to now consolidate 12 the Burlington, Great Northern and Northern Pacific is accepted in the fine spirit with which it Avas given. I hope it Avill be influential with the Commission. With this effective extension of Union Pacific to the length and breadth of California, Avith the Avise purchase by the Union Pacific of the outstanding one-half of the L. A. & S. L. line and a\dth the ulti¬ mate consolidation of the Chicago and North Western and Wabash lines Avest of the l^Iississippi Eiver, as proposed in Group 13 and Avhich Judge Lovett says the Union Pacific aaûII do its best to carry out if that be the final plan and policy of the Government, Ave seem to have here a group of geographical extent and taxing energy and ability of man¬ agement quite comparable Avith any that has thus far been proposed and so Avell entrenched in traffic producing ability as to set a standard difficult to duplicate. It Avould seem that in this important portion of western mileage the Commission has achieved a great step towards the successful development of a ifian in Avesterii territory to group the railroads into a limited number of systems and this has been done by folloAA'ing natural lines in keeping together roads long since asso¬ ciated in OAvnership or close traffic and operating relations, thereby preserving established routes and channels of trade and commerce and offering the most controlling motives for voluntary action. As to competition, the mandate of the Supreme Court has been revieAved in the Central Pacific decision and by the imposition of proper condi¬ tions the public interest has been adequately protected and the OAvner- ship authorized Avhich the Supreme Court found under former condi¬ tions of laAV and policy to be unlaAvful. In other words, under the enlightened policy of this new poAver noAV residing in the Interstate Conamerce Commission, the objections found under the Sherman Law to both the original combination of Union Pacific and Southern Pacific, as Avell as of the Southern Pacific and Central Pacific, have been met and the situation stabilized in the public interest so as to permit move¬ ment of the traffic in the most natural and economical routes. This group may therefore be said, so far as the scope of this pro¬ ceeding is concerned, to be an accomplished fact, aAvaiting only the process of negotiation to be carried into actual result; the results west 13 of the Missouri Eiver are now actual, the parties while apparently re¬ luctant east of the Missouri Hiver, do approve the grouping and no public objection to my knowledge has been heard. I anticipate tliat upon further reflection no ground for alarm nor anxiety over the future of this splendidly constructed and balanced system which has both public and offidal approval wiU exist, especially as no so-called weak lines are to be observed in the combination. Judge Lovett uses this language in speaking of the four-group plan: "It provides for the permanent reunion and consolidation of the Hill lines which were dissolved as an illegal combination by the notable Northern Securities decision of the Supreme Court and it adds to that combination the Colorado and Southern, Fort Worth and Denver City and the Kansas City Southern, all strong prosperous linos, together with five other less prosperous but use- M lines." I shall not stop to weight the facts nor judicial conclusions in the so-called Harriman un-mergcr suits—divorcing Union Pacific from Southern Pacific and again Central Pacific from Southern Pacific nor compare those cases with the Northern SecuritieB case, nor indeed seek to apply an add test to determine the relative fineness of metal in the motives and actions of either of the great minds that made the strennous endeavors in building these great systems now nearly a generation ago. I am not able to discern the motive that leads, in this new atmosphere, to a revival of these old memories, nor the object to bo gained. In my own opinion public iutercjst would have been vastly advanced in the accomplishment of far greater railroad development, and better and more comprehensive service in western territory, if those plana had been furthered and matured under the helpful scrutiny of legislation of the kind wo are now working under, rather than dis¬ rupted under the rigid restraints of tlic Sherman Act. What we now propose is, under a different policy, safeguarded by a more business¬ like method of public somtiny and authority and under, as well, a greatly changed set of facts. The so-called "Hill" group of railroads and their subsidiarios should enjoy like intdligont consideration and be permitted actually to consolidate. 14 As I llave already stated in testimony and shall again comment npon, not only this fortified and enlarged Union Pacific System seems to have general approval, hut the same is also true of Santa Fe and Southern Pacific-ïîock Island groups. Each of these groups is ob¬ vious and natural and following the processes of reasoning and pro¬ cedure "which have hronght thorn through these proceedings to that sitaution, I assort that the Burlington group, as proposed, is equally obvious and natural and is cfpially necessary to preserve property rights, channels of trade and commerce and to do even-handed justice in the problem of reasonably equal competitive opportunity and finan¬ cial strength in defining these groups. System IG has been based upon tho Santa Fc with the addition, as proposed, of tho D. & B. G. "W., "Western Pacific and Colorado and Southern lines, and certain others of less extent. System 17 is com¬ posed of tho Southern Pacific, Rock Island, El Paso & Southwestern, and also some additional smaller properties. These two systems are quite comparable in scope of territory and grasp of western traflSe, with System 13, the Union Pacific System. With open gateways and established interchange connections, each of these three groups "will be in a position to compote for substantially all traffic moving to and from western territory. The.se systems are broadly distributed as to diversity of traffic and climatic and crop conditions. Tlio Santa Fo enjoys an extraordinarily strong position, which has been well described in the report of Professor Ripley at pages 579 and 605. On tho west the Santa Fe has access to the great traffic produdng and consuming territory of the San Joaquin Yall^ and the citrus fruit districts of California, as well as adequate access to the great cities of San Frandsco and Los Angeles and, throu^ the Northwestern Pacific, to the Redwood timber and other traffic norüi of San Francisco. On the east it is entrenched to a remarkable de¬ gree in the largo territories of Kansas, Oklahoma and Texas, "with access to the Gulf, as well as to Chicago, and proposes the early con¬ struction of its own line to St. Louis. The program to add to the existing Santa Fe system the D. & R. G. W. and Western Padfio is Í5 stated in Üie report of Professor Elpley to be in keeping with the pro¬ gram of the Santa Fe management for future devdopment. If ac¬ complished, the result will plainly be a greater grasp of traffic oppor¬ tunity and competitive strength. We oppose the grouping of Colorado and Southern Lines with Santa Fe and emphatic public disapproval in the territory served has been registered against this feature of System 16. Such a group if accomplished, however, would further emphasize the outstanding scope and strength of the Santa Fe, The Southern Padfic has an even more extraordinary traffic pro¬ ducing and consuming territory on tiie Pacific Coast. It reaches practically all of the productive territory of California in the Sacra¬ mento and San Joaquin Valleys and also west of the Coast Eange, both north and south of San Francisco, and the citrus fruit territory and the heavy and increasing traffic from the Imperial Valley, It is strongly established in San Francisco and vicinity, as well as in Los imgeles. In addition, it is the principal railroad in Oregon, reach¬ ing most of the productive territory in that state and in an admirable situation to readi the rest of it. On the east the Southern Pacific has extensive mileage in Arizona, Kew Mexico, Texas and Louisiana, reaches the Gulf at Galveston and New Orleans and has highly de¬ veloped steamship lines to the north Atlantic Coast, giving it an ex¬ ceptional control of coast to coast traffic, in addition to unequalled command over all rail traffic for long hauls between points on its own system, as well as for interchange with its counections. System 17 proposes to group Eodc Island with Southern Pacific, which, consider¬ ing the long-standing connections at El Paso and elsewhere and close interchange relations, is in the line of normal action and development. With Eock Island, Southern Pacific System would secure an extensive mileage in the most fertile portions of Oldidioma, Kansas and Iowa, with additional mileage of value in Nebraska, Missouri, Arkansas and Louisiana, providing connections at Memphis, St, Louis, Chicago and the Twin Cities. The remarkable traffic strength and power of the Southern Pacific-Eoek Island combination cannot be doubted. As already stated, the Union Pacific System, as proposed and forti¬ fied, reaches substantially all traffic producing territory west of the IG Rocky Mountains and from one International boundary to the other. On the east it traverses the most fertile parts- of Kansas and Ne¬ braska and whether its associate east of the Missouri River shall be the Chicago and North Western or the Chicago, Milwaukee & St. Paul, it will reach a traíTic originating and consuming territory second to none in the states of Iowa, Illinois, Wisconsin, Minnesota and South Dakota. I have reviewed the outstanding features of these three large western systems for the purpose of throwing into contrast the re¬ markable and, as we feel, destructive treatment which the tentative plan proposes in Systems 13 and 14 for Burlington, Northern Pacific, Great Northern and Colorado and Southern Lines, and, as I have be¬ fore indicated and firmly believe, Chicago, Milwaukee & St. Paul. Even preserving Burlington, Northern Pacific, Great Northern and Colorado and Southern in one group as we advocate, it is apparent that these lines have no direct access to the enormous traffic of Cali¬ fornia, thus fundamentally differing from Santa Fe, Southern Pacific and Union Pacific; they have no direct access to any important traffic in Oregon, south of Portland, thus differing fundamentally from Southern Pacific, and have no greater access to traffic at Portland than is enjoyed by either Union Pacific or Southern Pacific. While- in the State of Washington Great Northern and Northern Pacific would have a somewhat greater access to traffic than the Union Pacific, the difference is not of controlling significance when considered in com¬ parison with the outstanding strength of that system in other great traffic producing portions of the west. In other words, taking the west as a whole, the Burlington, Great Northern, Northern Pacific and Colorado and Southern group cannot bo said to have any ad¬ vantage over any of the other three systems referred to, and becomes indeed at a distinct disadvantage as compared with the Southern Pacific and Union Pacific, especially Avhen consideration is given to the community of interest which has been created by the Central Pacific decision, between the Southern Pacific and Union Pacific, for a large part of western territory. On the east Burlington with North- em Pacific and Great Northern have no important advantage, mileage 17 considered, over the-traffic producing strengtli of any of these other three systems. The retention in the Burlington group of Colorado and Southern Lines as a part of a growing north and south route through Denver offers slender comparison in traffic opportunity with either Santa Fe or Southern Pacific-Rock Island groups, so far as Texas mileage is concerned and access to traffic in that vast territory, including traffic moving through Gulf ports. In a word, the Burlington, Great Northern, Northern Pacific and Colorado and Southern group, without dismemberment or impairment of opportunity for traffic interchange at St. Louis, Kansas City, and Denver gateways, offers no such widespread distribution of territory or traffic support as is found in the three major systems under con¬ sideration. As stated, each of these three groups is constructed along lines of normal development and established relations, thereby main¬ taining under the mandate of the statute, established routes and chan¬ nels of trade and commerce. Objections arising out of the applica¬ tion of the Sherman Act are now capable of proper solution in the public interest under the policy of the Transportation Act and the scrutiny of the Commission. Invoking the wise precedent already established in the decision in the Central Pacific case, and insisting upon the necessity as well as the right for equal consideration in our own situation to that accorded to others, as indicated by the three main groups before referred to, I assert that the Burlington, Great Northern, Northern Pacific and Colorado and Southern Lines have an equal right under these precedents to be grouped in a single sys¬ tem. In substantial effect the same reasons imderlie the decisions of the Supreme Court in the un-merger suits of the Union Pacific and Southern Pacific and Southern Pacific and Central Pacific, as existed in the Northern Securities case and if, in those cases under this new law and new public policy, official approval to the substantial restora¬ tion not only of ownership of Central Pacific to Southern Pacific, but also of close traffic and operating relations between Union Pacific and Southern Pacific, is appropriate, then on like considerations and espe¬ cially in view of the changed competitive situation in the northwest already shown, relief from the injunction issued in the Northern Se- 18 eurities caso should bo affordod and in keeping with the policy of those provisions of the Transportation Act, these four linos now for so many years in close relationship should be permitted to actually con¬ solidate. In the Central Pacific inquiry the facts were again revieAved in light of present day conditions and policies and a basis in the public in¬ terest for the practical preservation of established relations was found. Like opportunity for examination of facts and conditions is afforded in the testimony and exhibits in the record in this proceeding as to Burlington, Northern Pacific, Great Northern and Colorado and Southern and I respectfully insist that guided by the facts in the record and the principles stated in paragraph (4) of Section 5 of the Act. neither Systems 14 nor 15 are permissible, nor can either of them earn "substantially the same rate of return upon the value of their respective railway properties" as compared with these three other and greater competitive systems which the Commission apparently proposes to establish. Neither System 14 nor System 15 is neces¬ sary in order that competition in the territory served shall be pre¬ served, nor will Systems 14 or 15 preserve existing routes and chan¬ nels of trade and commerce. Assuming, as I assert we may, that these conclusions are sound, the natural counterpart to the Union Pacific, Southern Pacific and Santa Fe Systems as proposed would be the Burlington System as proposed, thus creating four major Avestern groups based upon exist¬ ing and long standing relations and conditions, and those which promise the only possibility of voluntary action under this statute. Three collateral questions have been raised, which are: (1) The proper grouping of the Chicago, Milwaukee & St. Paul; (2) The D. & B. G. W. and Western Pacific; and (3) The southAvestern lines which noAv base on St. Louis and Kansas City. 19 Chicago, Milwaukee & St. Paul. I have heen unable to discover any substantial reason against the Burlington group as proposed, excepting the difficulty, as alleged, of a proper allocation of the Chicago, Milwauliee & St. Paul. System 15 proposes grouping Chicago, Llilwaukee & St. Paul with the Great Northern, the Iron Hange roads and certain smaller properties. There is no substantial evidence in the record from any important source supporting this group; on the contrary, and accepting the statement that these groups have been merely proposed to invite dis¬ cussion, this group has provoked substantially unanimous disapproval. To do this, as has been clearly shown, would not only seriously weaken Great Northern, but would seriously weaken Burlington; it would deprive both companies of the support of large investments that have been made to efficiently handle the growing volume of traffic which has been encouraged and secured during the long-standing association of the last twenty-one years; it would disrupt long-standing and es¬ tablished routes and channels of trade and commerce. The Presi¬ dent of the Chicago, Milwaukee & St, Paul has condemned the plan, stating that it would contribute little to the support of either prop¬ erty nor to the strengthening of the Chicago, Milwaukee & St. Paul, which as he stated has not been yielding results fairly on the terms with other roads because of the lack of volume of business. Cost of transportation as between competitive systems is inti¬ mately related to and controlled by volume of business, therefore comparing any such system as St. Paul-Great Northern with such out¬ standing groups as Union Pacific, Santa Fe and Southern Pacific, with the grasp of traffic opportunity which those groups have, it is obvious that the St. Paul-Great Northern System as proposed could not possibly produce equivalent cost of transportation nor earn sub¬ stantially the same rate of return upon the value of the properties employed. Such a system does not present anything approaching average conditions in western territory; it would serve only a limited part of the west, subject to identical crop and climatic conditions and be without the broad basis afforded other groups by the wider dis- 20 ^tributíon of mileage and territory served. In a word, I assert that this group of Great Northern and St. Paul in no way meets the re¬ quirements of the statute and respectfully insist that it proposes an unjust and unfair treatment of those properties, as well as of Bur¬ lington, and cannot be justified; obviously it affords no possible mo¬ tive for voluntary action. The same considerations are equally true of an association in a group of Northern Pacific and St. Paul, therefore fair treatment of the St. Paul in the construction of western groups does not require dismemberment of the Burlington group, but must be sought else¬ where, and a grouping of St. Paul that will fit the requirements of paragraph (4) of Section 5 of the Act will not be found by grouping it with either of the northern lines. Northern Pacific or Great Northern. Without undertaking to review the evidence, I respectfully insist that the record is conclusive on this subject and excepting for the earnest desire which we have shoAvn to afford as much aid to the Commission in solving this problem as possible, we might appropriately have re¬ stricted our discussion of this brandi of the case to the showing that neither ^oups 14 nor 15 meet the requirements of the law. We have gone further, however, and have indicated several logical and appro¬ priate solutions of the so-called St. Paul problem which in our judg¬ ment do fairly meet the command of the statute and adequately pro¬ vide groupings for the St. Paul, either of which would seem to pro¬ vide fairly average conditions with other groups, broader traffic op¬ portunities and comparable financé strength. The most persuasive and logical of these several proposals is the grouping of the St. Paul with the Union Pacific. I have indicated in previous testimony the advantages of sudi an arrangement which is based primarily upon an existing and substantial interchange rela¬ tion at the Missouri Eiver between these two lines and which would preserve an important existing route and channel of trade and com¬ merce. With Wabash lines west of the Mississippi Eiver associated with the Union Pacific, it is obvious that the St. Paul line serving Kansas . City presents a logical connection at that point. Union Pa¬ cific lines in Kansas bring a large amount of grain and live stock into 21 the Kansas Gity market, the importance of which is not truly re¬ flected in the interdiange statistics because Kansas City is a primary grain market ánd grain arriving there is handled through elevators where it is traded in and shipped to points beyond. Live stock is nowadays substantially all handled through , the packing houses at Kansas City and outbound shipments of packing-house products move in large volume and represent the importance of that market in the in as well as outbound movement of the live animal and the product. "While it is true that as to certain traffic moving to and from the northwest St. Paul is also a competitor of the Union Pacific, it is evident that no important competition will be eliminated or adversely affected by this grouping, as other systems serving same territory will continue a full measure of competition there. The same con¬ siderations which permitted an adjustment of the competitive situa¬ tion between Southern Pacific, Central Pacific and Union Pacific would control the determination of this situation, and therefore rather than it being an objection, the additional mileage which would be afforded to the west end of the St. Paul System in the way of traffic support, as well as the large shortening of distance to a number of important destinations already pointed out, would semn in my judgment to out¬ weigh all possible minor objections and present tlie best solution for the Si Paul, and one which is advocated by the President of that line. If St. Paul, under present conditions, is considered to be a line needing additional support, the Union Pacific as enlarged and fortified by the Central Pacific decision and having tonnage available in the northwest to aid the St. Paul, would seem to be the system with out¬ standing strength and capacity to absorb the St. Paul. If one of the purposes of this statute is to find appropriate grouping for so-called weak lines, none are especially noted in System 13 as now arranged and it would seem no more than fair that Union Padfio should par¬ ticipate in carrying some share of this general obligation, especially as with this added traffic in the northwest the only weakness of the St. Paul that has been pointed out would be in this manner adequately provided for and for many destinations the distance would bo sub¬ stantially shortened. 22 This disposition of St. Paul, however, is not exclusive, as has heen already pointed out, but other logical arrangements have heen indi¬ cated, such as the association of St. Paul in a group with Illinois Cen¬ tral or with both Illinois Central and Missouri Pacific. An analysis of the maps and exhibits supporting these various suggestions will con¬ vince any open minded person who is willing to join in a sincere effort to solve these problems of grouping the railroads of the west into a limited number of systems, that before the Burlington System is dis¬ rupted with the harmful consequences that will follow, a more cogent reply as to the suggestions for St. Paul must be made than those that have thus far appeared on the record. Finally, therefore, so far as the St. Paul situation is concerned, I invite frank consideration of these alternatives as a conclusive answer both under the provisions of the statute, as well as upon practical and existing conditions, to the de¬ structive plan to disrupt the Burlington group. Com. Hall : I have forgotten, Mr. Holden. Do you express a pref¬ erence as to whether this St. Paul-Illinois Central combination should include the Iilissouri Pacific, as well? A. No, I have not, Mr. Commissioner. The Missouri Pacific situa¬ tion, I take it, would first have to be detennined in connection with the southwestern lines. If yon conclude to maintain several inde¬ pendent southATCstcm groups, it would seem as though the Mssouri Pacific was a part of one of those. That being true, it would seem that the Missouri Pacific's association with the Milwaukee would not prevail. But I have developed that suggestion, based upon the major idea which I believe in, and that is, these western systems should have access to the Soutliwcst, in which event I believe that the Missouri Pacific, with the Illinois Central, would be a logeai arrangmnent or group with the Chicago, Milwaukee & St. Paul. Q. (By Com. Hall) With the Illinois Central you include the Yazoo & Mississippi Valley, I"suppose? A. Yes, I do. 23 Q. Tou have in mind a sort of triangular arrangement, a split triangle, you might say, that would result from the Milwaukee & St. Paul stretching from the Pacific Coast over into the Twin Cities and down, then having a connection with the Gidf on both sides of the Mississippi River. Of course, the Illinois Central is in Western ter¬ ritory as well as in Southern territory and Eastern territory,—^just using those three general terms at the present time. But that would he carrying the western roads quite emphatically into the eastern dis¬ trict, if the Illinois Central and the Yazoo & Mississippi Valley went into a western combination. A. That is true, Mr. Commissioner, in the sense I have indi¬ cated;' and as was pointed out in the discussion at the last hearing "vvhich I attended, the Illinois Central is on the line; it is not likened' to any other sjstem, other than the Wabash; hut it presents a more emphatic difficulty in determining whether it is an eastern or à west¬ ern line than the Wabash, I think. So it is an anomaly, and I think you can just as legitimately associate it with a western line as you can with a southeastern line. Q. The Illinois Central has as immediate neighbors and competi¬ tors to some extent the Louisville & Nashville and the Southern. "Where would your lines stop? Why stop with the Gulf? Why not keep on to the South Atlantic ports, or even to the Atlantic ports? I^^en yon are planning about this—it is a very interesting one—you will get across east of the river. A. You only could cross to a limited degree, it is not necessary to press the matter to a logical extreme, when you have an anomalous situation to deal with, because we must remember that the Illinois Central has a very substantial mileage in the West. Q. Yes. A. Now, the Illinois Central lines on the east side of the Mis¬ sissippi River Avill of course continue their competitive relations with the southeastern lines, however they may be grouped with reference to the western properties. Q. Yes. 24- " A. ■■ Again, tliat ia sometMng that ii a paradosieal situation, and not one that yon can avoid. But grouping the Illinois Central with a road like the ??t. Paul does not in my mind make it necessary, as I said a moment ago, to press tho situation to tho logical extreme, merely for the purpose of hcing logical. And particularly as there arc so many objections in my mind to so-called transcontinental lines, running from the Atlantic to the Pacific. iQ. Well, there is competition between the east and the west «ido roads, up and down the Mississippi Valley, is there not? A. Yes. Q. If you should throw the Illinois Central, as oiie southbound trunk lino, and the Missouri Pacific, as another southbound trunk line, together, in connection with the Chicago, Milwaukee & St. Paul, to the extent of each paralleling down on each side of the Missis¬ sippi Valley, you would bo eliminating existing competition, would you not? A. There is so much other competition there, Mr. Commissioner— Q. Well, to that extent, T say. A. Oh, well, yes, to that extent. But we have so many precedents in the development of this plan thus far, which seemed to justify that. Again, if you are able to reach the conclusion to regulate the competi¬ tion between the Ogden and the El Paso gateways—and your ovm plan proposes that tho Santa Ee shall have tho Denver & Rio Grande Western—J see no practical difficulty in there being a Missouri Pacifie- Dlinois Central from Cliicago, if you like, to the Gulf, one on eatfii side of the river, because there are other easting lines that will maintain all of the competition that is needed to keep the service what it should he. Q. Would it satisfy your conception as well if the hiissouri Pa¬ cific should go into this Systran with the Milwaukee, but the Illinois Central should not—assuming, of course, tiiat the Missouri Pacific wanted to do it and that the Milwaukee wanted to do it? A. I tMnk we considered üiat, Mr. Commissioner, and found that it would not present, as the lines presently exist, a satisfactory situa¬ tion. I do not recall all of the considerations at this time, hnt I think 25 it is obvious that there would he no mileage between Chicago and St. Louis, and no mileage in Illinois of consequence, that would bring the system together; and there are.other additional reasons which, as I say, I do not recall at the moment, which led us to feel that that was not a suggestion that at least we felt we could endorse; and that the combination needed the Illinois Central— Q, The Illinois Central, with or without the Missouri Pacific; that is your idea? A. With or without; but that the Missouri Pacific and the St. Paul did not seem to present sufficient strength nor physical rela¬ tions. Q. You may have presented it fully before, Mr. Holden; I was not there the day of your presentation. A. I may have. Q. I do not have it clearly in mind. Mr. Hines : Mr. Holden, in clearing up that question, I would like to ask if this is not the situation that is involved in your suggestion : I understand your suggestion is that if the southwestern lines are put in the same systems with the transcontinental lines, then it would be logical to put the Illinois Central, St. Paul and Missouri Pacific together. Now, in that event, would not this be the result, that there would be four strong western systems under your theory, each serv¬ ing this southwestern territory, with a north and south line, the Illi¬ nois Central System, with the St. Paul and Missouri Pacific, with north and south lines on both sides of the Mississippi River, and in addition, the southeastern systems with north £ind south lines; and I will ask whether or not in your opinion that would not furnish effective competition. A. Yes, indeed. It seems to me it would. It seems to me it would be an admirable solution of the St. Paul situation. But it is not the only one. All that we have undertaken to do, in spite of some of the comment that has been heard, is to lay before the Commission certain logical and permissible alternatives in solving this so-called St. Paul problem. Shall I proceed, Mr. Commissioner? 20 Q. (By Com, TIall) AVliat would you do witli System Number 12? A. I do uot know wliat that is, kir. irall. Q, "Well, in 'skeleton it is composed of the Illinois Central, Sea- hoard Air I,ine, a branch of the Norfolk & Western, the Gulf and Ship Island, Tennessee Central, and the Carolina, Clinchfield & Ohio. A. I could not possibly answer that, Mr, Commissioner, because I am not familiar with southeastern conditions and have made no ex¬ amination, of them. All that I recall is the quite definite comment by the president of the Illinois Central, that the road he represented seemed to have no logical relation to the Seaboard Air Line at all. He would rather be comforted in the suggestion that the Illinois Cen¬ tral bo taken away from that group, by the decision that it would never happen anyway, Q, That might be, of course, but that system as it stands in the tentative plan is matched up against System 11, which is made up of the Atlantic Coast Lino, the Louisville & Nashville, and others, and in System Number 10, the Southern, It would involve a readjust¬ ment, would it not, if the Illinois Central was taken out of System Number 1? ■ : • A, Obviously it would, yes, Q, I.ooking at it from the point of view of the southern lines, A, I should say so, yes, Q, The southern and eastern traffic, A, I assume it would, and perbai)s you may find some amiable railroad men down there who may try to help you rather than hinder you in solving that problem and working it out that way, but I would not undertake to make the effort, because I could not qualify as hav¬ ing any knowledge whatever about the southeastern situation. Q. Mr, Holden, I am reminded that in your earlier testimony in connection Avith Exhibit 256, your advocacy was for consolidating the Chicago & North Western with the Illinois Central, Missouri Pa¬ cific, and the Central of Georgia, using the North Western instead of the Milwaukee, as you do now, A, That was another of the alternative suggestions, Q, But this represents your better thought, or your later thought. 27 does it, leaving out the North "Western and including the Milwaukee in its place! A. It does, fori the reason that the North Western-Illinois Cen¬ tral system has in my mind no adequate traffic entrance into the far West, and hearing in mind all the time, as I say, the indications are that you are already on the way to establish three great western groups. By the decision in the Central Pacific case and the analogies that follow, and the apparent public acceptance of the Union Pacific, Santa Pe and Southern Pacific-Rock Island group, you seem to have made great progress toward the end I am indicating, significant prog¬ ress, as I view it. Therefore it did not seem to me that such a group, the North Western and lUinois Central alone, would adequately meet the competition in the western territory. There were some very ad¬ mirable features in such an arrangement. If you discard, or find that it is unnecessary to adopt the principle tliat I have suggested, of having access into the Southwest as well as to the Pacific territory, I think either one of those suggestions have very persuasive features^ Q. You have noted in the record thus far a good deal of expressed assent to your suggestions of the Milwaukee-Union Pacifie combina- iion, have you not? A. Assent on our part? Q, No, on the part of witnesses, one after another, in the hear¬ ings in the northern tier espedally? A. No, I have not made that statement, Mr. Commissioner; I have not undertaken to, say that. Q. Have you not noticed that in the record! A. No, I have not. I have said, I found no substantial objection to the grouping of the so-called Burlington group together. But I have made no expression on the Milwaulcee-Union Pacific suggestion. I do not moan to leave any inference from that, because as a matter of fact I have not read all of the testimony. I have not been aWe to. You and your associates know far better than I do just what the state of the record is on that subject. Now, shall I proceed? Com. Hall: Yes, please. 28 Denver & Eio Grande Western and Western Pacific. System IG groups these railroads with the Santa Fe, and if this he done it will afford the Santa Fe System with an alternative route to California through the central Avest, making available the strength of the Santa Fe terminals in California for additional traflic via this route and give to the D. & B, G. W. and Western Pacific the additional financial strength Avhich appears to he needed to develop those lines into a route of greater capacity and cheaper cost of transportation. I desire again to point out that if it is in keeping Avith the public interest to afford this great system tAvo alternative routes of this character Avithout objection from the standpoint of com¬ petition, by analogy no possible objection can exist to the grouping of Union Pacific and St. Paul together, nor to the grouping of North- em Pacific and Great Northern a\fith the Burlington. In developing the so-called four-group plan, I stated that it seemed to me it Avould be appropriate to assign an undivided half interest of the D. & E. G. W. to the Southern Pacific-Eock Island group, assum¬ ing that the Central Pacific decision had been rendered in the light of the proposal to group the Southern Pacific and Eock Island to¬ gether, Avhich meant a Southern Pacific line from California to Ogden, as Avell as from Denver to Chicago, and. that therefore it Avould be logical as Avell as helpful to the D. & E. G. W. to complete this route by assigning one-half of it to the Southern Pacific System. This is emphasized by considering the relation of the D. & S. L. to the D. & E. G. W. when the proposed tunnel and Dotsero cut-off are completed because traffic moving to and from Denver and points beyond via D. & E. G. W. AAÍ11 then no longer move via Pueblo, but over this neAV con¬ nection. This means that Santa Fe traffic Avhich moves via Pueblo Avill not he available for the D. & S. L. connection, Avhereas business handled through Denver by the Eock Island, as Avell as the Burlington Avould naturally move over that connection rather than via Pueblo. Vigorous objection has been registered, hoAvever, by the Union Pacific, and Avith less emphasis by the Southern Pacific, to this propo¬ sition and those companies go further and propose that the Eock Is- 29. land line between Omaha and Denver shall be grouped elsewhere so there can be no possible invasion of or interference with the close traffic assodation under the Central Pacifia decision between the Union Pacific and Southern Pacific. Accepting the status of the Central Padfio under that dedsion, as well as the txafSh contract between the Southern Pacific and Union Pacific which that decision carries into effect, there is of course merit in this objection, but T have seaidied the record to find any serious effort to aid the Commis¬ sion in solving the problem thus presented other than that wHch I have undertaken to suggest, which is to assign the Eodt Island line between Omaha and Denver to the group which I have proposed, con¬ sisting of the Santa Pe and 0. and Hi. W. I have indicated that in that group the C. G. W. might also be assigned so as to afford an excel¬ lent connection betAveen the Santa Pe at Kansas City and the lines of the Korth Western in Iowa and north thereof and also that for the same pu:^os8 mileage could be doubtless arranged between Omaha and Kansas City. If these several features are taken into considera¬ tion in the Santa Pe-North Western group whidh I have proposed, I believe the anxiety of the Southern Pacific and Union Pacific Avill be quieted, while at the same time filling out and completely coxmect- ing together the Santa Pe and North Western. If this be done in deference to the complaints of the Union Pacific and Southern Pacific^ then the suggestion that the Southern Pacific should own an undivided one-half interest in the D. & B. G. W. should be modified and they be relieved from that embarrassment. The solu¬ tion then seems plain, which is that D. & E. G. W. should be owned either by the Santa Pe or in undivided interest as a bridge line by Santa Pe, Burlington and if Missouri Pacific be continued as a mem¬ ber of sepamte group in the southwest, an equal interest by Missouri Pacific as AveU. If this arrangement be made, it is fundamental then that the promise of the Southern Pacific, concurred in by the Union Padfio that the Ogden ^tewuy shall remain open, be carried into a definite and final requirement. The importance of this provision is too obAÙous to require discussion and indeed appeared to be so essen¬ tial in the mind of the Commission in the decision in the Central Pa- 30 cîfic case that it took special note of it. Unless adequate provision of a permanent nature of this kind is made, it is obvious that so-called stub lines like Burlington at Denver and Missouri Pacific at Pueblo would have little opportunity to engage in transcontinental or inter- mounlain traffic. Aside from the interest to connecting lines and their dependence upon D. & R. G, W. and an open gateway at Ogden, there is an equally emphatic interest to the public in having D. & R. G. W. matured into an efficient competitor through the central west, to the Union Pacific. This has now been made more important by the terms of the traffic contract between the Southeni Pacific and Union Pacific. To the north, as well as to the south, as I have already pointed out, there are competitive transcontinental lines affording choices of route to ship¬ pers and passengers with equally efficient service and comparable distances. The Union Pacific, of course, does not contemplate exclu¬ sive proprietorship of the central route and will welcome fair com¬ petition ; therefore I anticipate that there should be no objection from any source to the proposal that D. & R. G. W. be treated as a bridge line and supplied witli the strength which may follow from the joint traffic effort wliich the arrangement I suggest would give it and which would mean increased financial strength that will provide in due time the resources needed to shorten and improve this section of another alternate route. Com. Hall: Is it your idea that two or three joint o-wners of the Denver & Rio Grande Western, and the Western Pacific would heartily unite in such dovelopinent of those lines as might be expected if one system like the Santa Po should take over those two lines, and realiz¬ ing their possibilities, try to build them upî A. I did not include the Western Pacific in the membership, Mr. Commissioner. Q. You confined it to the Denver k Rio Grande Western? A. Yes. I do not see any reason why not. As I said in my other testimony, that is the one of all of the transcontinental routes 31 that needs further development, and you have got to find, in my opinion, grouping with the idea of ultimate ownership, in some man¬ ner that will provide traffic, and at the same time I do not helieve that it should be so arranged that it would exclude traffic and in. terests of lines already in Colorado, like the Burlington. Q. That is, as to handling the traffic, but to make it a better transportation machine than it is to-day, would not one owner, like tlie Santa Fc, perhaps, be better disposed to spend money upon it than two or three, which perhaps would not have at ihe same time the same amount available for that purpose? A. I do not see the reason for that idea. In fact, on further re¬ flection, I am inclined to think I would reach the opposite conclu¬ sion. I think if there was a joint ownership of competitive railroads, the competitive influence would be to do the best that could be done with the railroad, to keep it up. I think there is analogy in other parts of the country, the largest one that I have in mind being the E. F. & P.—not in length but in volume of business. That road has certainly been developed into a very high state of physical capacity and action, ilo, I do not think the single ownership would have a bearing on that, Mr. Commissioner. Now, shall I proceed? Com. Hall; Yes. SouTTHWEsrEBH" LIHES. The Commission originated the proposal in develojnng the tenta¬ tive plan to carry the Southwestern lines, so-called, through to base upon St. Louis and Chicago, by constructing groups comprising those lines and independent lines such as the Chicago and Alton and Chi¬ cago and Eastern IHinois, thereby proposing through lines into the southwest. At the first hearing relating to western territory I pointed out that by this plan the Commission has either gone too far or has not gone far enough. The reason for this position, has, I think, been made apparent and emphatic in the showing that the evidence makes 32 of thé" importance to Burlington of tie large interehange wMch it lias always enjoyed at Si Louis and Klansas City with the southwest- cm roads. Accepting the view of the Commission that the command of the statute to group the western roads into a limited number of systems justified the carrying through of the southwestern lines to Si Louis and Chicago, the prinâple was proposed of four western groups basing in the east on Chicago and St. Louis with access to the Great Lakes and having relatively equal competitive opportunity Ijy mileage assigned to each group into the southwest and to the Gulf of Mexico, as well as through the far west and to the Pacific Ocean. It is not my intention to restate the considerations which not only justify that plan as a fair compliance with the intent of the statute, but also make it desirable for the promotion of efficiency, better handling of equipment and economy in operation. It is smd that sys¬ tems of this size would be too large for efficient management or operation. Some of these objections I have already answered, but it is now said that no single management could fairly nor properly administer a budget for expenditures for improvements over so large an area, nor of such large sums. As to the first, it is well known that existing systems, extended over many states, such as Union Pacific, Santa Fe and Southern Pacific, have met this problem in the distribu¬ tion of their budgets Avithout local omission or discrimination. The proposed Union Padfic System with the addition of Chicago and Korth "Western and Wabash has been accepted reluctantly, it is true, but I have observed no objection founded on inability to fairly dis¬ tribute expenditures over additional territory that wiU be involved. If in such a system, extending from Chicago and Duluth to Los An- gdes and Seattle, the management can distribute expenditures, or indeed if, as in the cases of the Union Padfio and Santa Pe, this has been accomplished in current years over the existing spread of terri¬ tory occupied by those systems, I think this objection may be dis¬ missed. As to the volume of annual disbursements, I have taken occasion in making ftirther comparisons with New York Central and Pennsylvania to extend these comparisons in this particular; during the five years ended Decmnber 31,1S19, the amounts charged to road 33 and - equipment on railroads comprising the western district as em¬ braced in the four-group plan which I have proposed, and as classified by the Interstate Commerce Commission, aggregated $1,356,120,888; taking one-fourth. of this amount for approximate purposes, the amount is $339,030,222. In the same five-year period and on the same basis, the roads included in System 1, New York Central, in the tenta¬ tive plan expended $382,471,840. During the same five years the roads embraced in System 2, Pennsylvania, in the tentative plan, expended $346,003,541. In other words, in both of the cases indicated, in Sys¬ tems 1 and 2, which the Commission has proposed in the tentative plan, the total expenditures over a five-year period for road and equipment substantially exceed the total expenditures made by one- fourth of the mileage embraced in the four-group plan in western territory. It may fairly be assumed, based upon not only the five- year period referred to, but upon past experience in general, that no more rapid growth in population nor in the demand for railroad ex¬ penditures may be expected in western territory than in eastern terri¬ tory, and these objections seem to me to be not well grounded. • Missouri Eiveb Basixq Points. The plan of the Commission to carry the southwestern roads through Kansas City and St. Louis to Chicago as through systems has brought out definite objections from these important basing points, indeed the attitude of the Missouri River cities, Kansas City to Sioux City, inclusive, as well as of some interior Kansas and Nebraska cities, as evidenced by the testimony submitted by their witnesses at the hearing before the Interstate Commerce Commission in Kansas City, the latter part of April, appeared to be quite hostile to the consolidation of any of the important railway properties of the United States into a limited number of systems, as contemplated by the Transportation Act, and the reasons, in general, advanced for this attitude were that the "proposed consolidation scheme would un¬ duly restrict competition, would disturb traffic routes, and wou!l)d weaken the primary markets of the west." The burden of the testi¬ mony appeared to be that if the railroads that now terminate at the 34 Missouri River were to become parts of tlirougb lines, through con¬ solidations, the present interest of the carriers in the Missouri River markets would vanish or diminish and that their efforts would he largely directed to securing the long haul to and from Chicago, or other eastern markets, and that this would be accomplished, principally, through disruption of present rate relationships, by the establish¬ ment of so-called "overhead" rates, l)y the cancellation of certain transit privileges, and by the discontinuance of absorption of cer¬ tain terminal charges. The President of the Board of Trade of Kansas City testified that as to grain, while the proposed consolidation might create other unfavorable complications, the rate basis was the main factor and that he feared that the present general plan of making through rates by adding to the local rate from country point of origin to Kansas City the proportional or local rate from Kansas City to final destina¬ tion, would be abandoned and that through rates Avould be established representing less than the combination referred to. The President of the Kansas City Stock Yards Company admitted that if consolidation would not change present operation of live stock markets, and rate bases were not changed, there would be no detri¬ mental effect. Other witnesses testified along similar lines as to traffic in general. As to grain, it is time, as testified at Kansas City, that.the Chi¬ cago Great Western, a line that terminates at the Missouri River, was largely responsible for the establishment of proportional rates on grain from Omaha to Chicago. The Chicago Great Western, hav¬ ing completed its construction to the Missouri River, was anxious to secure for its own long haul a portion of the grain originated in the territory west of the Missouri River by the Union Pacific, and by the through lines, the C. and N. W., C. R. I. & P., and C. B. & Q. Aside from the terminal elevator of the Union Pacific, at that time located in Omaha, there was practically no other storage capacity in the Omaha market, and the bulk of this western grain traveled through to Chicago, St. Louis, etc. In fact, the principal operators in the 35 Omalaa market at tkat time were quite content with, the rate adjust¬ ment that then prevailed, which provided transit privileges at Omaha with protection of through rates from point of origin to final destina¬ tion. All of this, however, happened many years ago, when rate wars were frequent and before there was effective Federal regulation and supervision. Admitting, however, that this action of the Chicago Great Western, in addition to benefiting itself, also resulted in benefit to the Omaha market, the demand, production, milling capacity and distribution of grain have so changed that to-day the Chicago mar¬ ket attemps to draw but little grain from the territory west of the Missouri Elver, its activities so far as western states are concerned, being largely confined to Iowa, Missouri, Illinois, Wisconsin, Minne¬ sota and the Dakotas. The direct movement of grain from territory west of the Missouri Eiver to Chicago is comparatively of little im¬ portance; the area of consumption tributary to the Missouri Eiver markets, including exportation via Gulf as well as via Atlantic sea¬ ports is so wide that these markets, have grown to such a magnitude, and to such importance, that they may rest assured that, regardless of what railroad consolidations may take place, they will always en¬ joy a rate adjustment that will not hamper their legitimate ambitions. Aside from the fact that the Interstate Commerce Commission has al¬ ways evidenced anxiety that there should be proper equalization of rates on grain as between markets, and the fact that all rate adjust¬ ments are subject to their approval or disapproval, it is quite incon¬ ceivable that any line, serving these markets, whether a through lino or terminal line, would attempt under these conditions to interfere with what have become the natural flow and channels of this traffic. As confirmatory of the interest of the Interstate Commerce Commis¬ sion in maintenance of equalization of rates on grain as between mar¬ kets, the following is quoted from their decision in Ex Parte 74, 58 I. C. C. 252-253, decided July 20, 1920: "There are in the middle west a number of important grain markets through Avhich it has been customary to maintain an equalization of the rates from important producing states to im¬ portant consuming regions, under which the sum of the rates into and out of the various markets is in most cases equal. The 3G application of different percentag-es in the various groups will re¬ sult in dislocation of this equalization. We find that the grain rates into and out of these markets may he increased by the gen¬ eral percentages herein approved, with the understanding that the carriers will, within thirty days after the service of this report, file tariffs restoring the equalization through the grain markets now enjoying that basis." Incidentally, it might also be mentioned that under the plan for four groups, all of these four groups would serve the Kansas City, St. Joseph and Omaha markets; all of them would serve New Orleans and Galveston. Since the earnings on grain through Missouri Eiver markets are greater when destined the Gulf than when destined Chi¬ cago or St. Louis, there would be no purpose in attempting to divert this grain through rate readjustments, from a southern to an eastern movement. The natural impulse would be to the contrary. With regard to live stock; the through rates to Chicago and St. Louis from territory west and southwest of the Missouri Eiver, so far as our investigation has developed, have never been made on the Missouri Eiver combination, but have always represented a less basis, with the exception of a comparatively small area in Nebraska, from which the through rates to Chicago are the sum of the rates to and from Omaha due to reduction in rates to Omaha by the Nebraska Legislature in July, 1907, under the so-called Aldrich Bill. The through rate, for instance, to-day on cattle from Hastings, Nebraska, to Chicago is fifty cents per hundredweight, while the rate from Hast¬ ings to Omaha is nineteen cents and from Omaha to Chicago thirty- six cents, a total of fifty-five cents per hundredweight, as compared with through rate of fifty cents. On hogs, the through rate to Chi¬ cago is fifty cents per hundredweight, while the combination on Omaha would make sixty-six and one-half cents; on sheep fifty-one cents as compared with sixty-one and one-half cents. From Sheridan, Wyo¬ ming, the through rate on cattle to Chicago is fifty-nine cents; the combination on Omaha would make eighty-six cents; on hogs eighty cents versus $1,015, and on sheep in double deck cars, sixty-six cents versus eighty-six cents on the combination. From Emporia, Kansas, the through rate to Chicago on cattle is forty-three and one-half 37 eents per htmdredweight ; the combination on Kansas City is fifty- three cents : on hogs, forty-seven and one-half cents versus sixty-three and one-half cents. From Hntchinaon, Kansas, the through rate on cattle is fifty cents, the combination on Kansas City sixty-one eents, on hogs fifty cents versus seventy-three cents. From Ardmore, Okla¬ homa, the through rate to Chicago on cattle is fifty-eight and one-half cents per hundredweight, while the combination on Kansas City would make eighty-two and one-half cents per hundredweight; on hogs sixty- nine eents versus ninety-eight cents per hundredweight. The fact that the through rates on western live stock to Chicago, St. Louis, etc., generally are less than the combination of rates on the Missouri Kiver does not appear to have militated against the suc¬ cessful operation of the Missouri Eiver markets, according to the testimony submitted at Kansas City as to the progress made by these markets, nor is there any evidence that the through lines have at any time attemped to force the long haul on this traffic; During the year 1922 the through lines contributed the larger per cent of the live stock receipts at Omaha, Sioux City, Kansas City and St. Joseph, the Burlington ranking first with 74,018 carloads, or 21.3 per cent of the total; the Santa Fe contributed 48,595 carloads, or 14 per cent of the total; the North Western 42,108 carloads, or 12.2 per cent; the C. St. P. M. and 0. 21,765 carloads, or 6.2 per cent; the Bock Island 23,783 carloads, or 6.8 per cent; the Missouri Patífic 25,826 carloads, or 7.4 per cent; and the St Paul 23,774 carloads, or 6.8 per cent. The through lines, viz.; Burlington, Santa Fe, North Western (not in¬ cluding the C. St. P. M. and 0.), the Bock Island, Missouri Pamfie and Chicago, Milwaukee é¡ St. Paul contributed 68.5 per cent of the total receipts. The bulk of the live stodc raised west and southwest of the Mis¬ souri Biver is consigned to Missouri Biver markets. For instance, in 1922, of 275,134 carloads of live stock received at Ghiimgo Union Stoeic Yards, only 3,265 carloads originated at Nebraska, or 1.2 per cent of the total; 1,861 carloads in Colorado or .7 per cent of the total; 548 carloads in Kansas, or .2 per cent of the total; 733 car¬ loads in Wyoming, or .3 per cent of the total; 530 carloads in the 38 combined southwostcm states of Arizona, Arkansas, New Mexico, Oklahoma, and Texas, also Mexico, or .2 per cent of the total. The ontiro movement from nil western states including South Dakota and the southwcatem states enumerated was 16,955 carloads or 6.2 per cent of the total, and of this entire movement, South Dakota contributed 9,565 carloads, or 3.5 per cent of the total receipts. The central states, Illinois, Iowa, Missouri and Wisconsin contributed 209,733 carloads or 76.2 per cent of the total. The four Missouri Eiver markets, Sioux City, Omaha, St. Joseph and Kansas City, received by rml in 1922 a total of 348,304 carloads, of which 70,648 ears, or 20.3 per cent of the total orij^ated in Ne¬ braska; 7,536 in Wyoming, or 2.2 per cent of the total; 26,503 in South Dakota, or 7.6 per cent of the total; 10,513 in Colorado, or 3.0 per cent, and 69,310 in Kansas, or 19.9 per cent of the totak It win be noted from the foregoing figures that out of a total of 275,134 carloads received at Chicago, 15,972 carloads or 6 per cent, originated in Wyoming, South Dakota, Colorado, Nebraska and Kan¬ sas, and that out of total receipts of 348,304 carloads at the klissouri Eiver markets, 184,510" carloads or 53 per cent of the total receipts, originated in these particular states. Live stock is a commodity that usually seeks its nearest market, with an approximate equality of net return. TMs is due to tlie char¬ acter of the commodity; it is perishable in nature, is naturally sub¬ ject to shrinkage in transit, and long hauls jeopardize to some extent arrivals at destination on scheduled time for sale -within the narrow hours assied for that purpose. All interests involved in the trans¬ portation of live stock favor the shortest haul possible of the live animals, for humane as well as for the reasons recited. So-called "overhead" rates, as stated, have always obtained and obtain to-day, to Chicago and to other eastern markets on the bulk of the live stock in which the Missouri Eiver markets are directly inter¬ ested, but it is apparent from the figures submitted that this adjust¬ ment has in no way affected the successful oneration of the markets on the Missouri Eiver, and whether or not there may be a consolida- 39 tion of the railroads, as per any tentative plans that have already been presented, or that may later he presented, there is no probability that any snecessfnl attempt that might possibly be made to reduce the present difference between the through rates to Chicago and the sum of the rates to and from the Missouri River would affect the present economic distribution of this commodity. The through lines to-day, as well as the terminating lines, are very content to have this stock rest at the Missouri River, where it may be manufactured into prod¬ ucts, to be again transported, the bulk of it in train lots and with less liability to the carrier on a large percentage of it, than in the case of the raw material. With regard to class and commodity rates generally, the voluntary adjustment of the carriers for two or more decades provided that the through rates on traffic from Chicago and from the IMississippi River, as well as on traffic originating east of the Indiana-Illinois state line, to the territory west of the Missouri River, contiguous thereto, should be based on the combination of rates to and from the Missouri River. The effect of this adjustment was to place the communities on the Missouri River, on the Mississippi River and Chicago, on a parity on traffic originating east of the Indiana-Illinois state line in competing for business in this western territory. The principle of making these rates based on the Missouri River was not the result of arbitrary ac¬ tion by Missouri River terminating lines, which also participated in the through rates to the territory west thereof, but was induced by a desire of all the carriers terminating as well as through carriers, to afford the Missouri River cities an opportunity to distribute their wares in this western territory in competition Avith shipment from the east. Furthermore, as railroads were constructed into the un¬ developed west from the Missouri River, it was natural that Avhen the river was crossed and rates wîere established to points beyond, they should be constructed by adding sums to the rates already estab¬ lished to the river, and if the Missouri River cities themselves had been satisfied with this method of making the rates and had not at¬ tempted to secure advantage over their competitors located prin¬ cipally at Chicago and St. Louis, the rates to-day would undoubtedly 40 hayo hocn on the Missouri River combination to a much greater extent than that which noAV prevails, but in the latter part of 1907, or in the early part of 1908, a complaint (I. G. C. Docket 983, 14 I. 0. C. Rep. 299, Bxirnliam-IIanna-Munger Dry Goods Goxnyany et al. v. G. R. I. S P. Railivay et al., decided June 24, 1908) was filed by certain jobbers located at Omaha, St. Joseph and Kansas City that the rates, prin¬ cipally class rates, from Atlantic seaboard to Missouri River cities were too high. The complaint, however, was directed only against the lines operating westwardly from Chicago, and the suggestion. of complainants to the Interstate Commerce Commission was that the Mississippi River basis should be abolished, but that the Missouri River should continue as a basing line in the making of rates to the territory west thereof, the reason advanced being that the country west of the Missouri River "had not developed sufficiently as yet to warrant that change." In their decision in this case, the Commission held that while (at that time) they were not impressed vith the view that the system of making rates on certain basing lines should be abolished, the through rates to the Missouri River cities were unreasonably high "because those portions of the through rates which were applied be¬ tween the Mississippi River crossings and the Missouri River cities to the through transportation were too high," and the carriers were directed to establish proportional rates on the first five classes, ap¬ plicable only on shipments originating at the Atlantic seaboard, and which rates Avere: first class, 51 cents; second class, 38; third class, 30; fourth class, 23, and fifth class, 19 cents, as compared with previ¬ ous rates, applicable on both local and through traffic of 60, 45, 35, 27 and 22 cents, respectively. This complaint of the Missouri River cities, while in a way it re¬ sulted in continuance of the Mississippi River as a basing line on this traffic, actiially resulted in "overhead" rates in so far as St. Louis and other Mississippi River cities were concerned, since these cities Avere obliged to continue to pay the local scale of 60 cents, first class, on any goods purchased at Atlantic seaboard and rehandled at the Mississippi River. Chicago*s existing disadvantage was also cor¬ respondingly'increased, the rates prior to this decision as stated, hav- 41 ing been made on tbe combination of local rates to and from the Mis¬ sissippi Eiver, the combination on Chicago being somewbat higher. This complaint was the forerunner of nmnerous subsequent similar complaints and decisions. In Docket No. 3684, Wm. Warnocic et al. v. C. é N. W. et al. I. C. 0. 21, 546, Missouri Eiver cities appealed to the Commission to establish on all trafiSc originating east of the In¬ diana-Illinois state line the same basis of proportional class rates from Mississippi Eiver as established in the Burnham-Hanna-Munger case. Docket 983, with the result that the Commission established a pro¬ portional scale on all of the ten classes applicable on traffic originat¬ ing east of the Indiana-Illinois state line, but on a somewhat higher basis than that established in Docket 983, and which was confined to Atlantic seaboard traffic. The result was an extended line of "over¬ head" rates so far as concerned St. Louis and other Mississippi Eiver cities. In Docket 951, Geo. J. Kindel v. N. Y. N. H. é H. et al., decided March 2, 1909 (15 I. C. C. 555), the rates from Missoiufi Eiver and east thereof to Denver were the subject of complaint. Prior to deci¬ sión in this case, through rates from Chicago and Mississippi Eiver to Colorado common points had been based on the combination on the Missouri Eiver. For instance, the through first class rate from Chicago to Denver was $2.05 per hundredweight, or the sum of the first class rate of 80 cents from Chicago to Missouri Eiver and the first class rate of $1.25 from Missouri Eiver to Colorado common points. The through first class rate from St. Louis was $1.85 per hundredweight, based on sixty cents to the Missouri Eiver plus $1.25 beyond. The Commission prescribed a first class rate of $1.80 from Chicago and $1.62 from St. Louis or the Mississippi Eiver. The re¬ sult, as shown, was the establishment of "overhead" rates from Chi¬ cago, Mississippi Eiver and the cast to Colorado common points and to intermediate territory to which the rates applied as maxima. In Docket 4638 (28 I. C. C. 82, decided June 18, 1910, Colorado Manufacturers Association et al. v. A. T. S S. F. et.al.), class and commodity rates between Colorado and Missouri and Mississippi 42 Rivers and Chicago were again attacked, the Commission sustaining the rates found reasonable in the previous case, Docket No. 951, from Chicago and Mississippi River, but directing a reduction from the Missouri River, not sufficient, however, to restore the through rates from Chicago and Mississippi River to the Missouri River combina¬ tion basis. In Docket 26G2 (19 I. C. C. 218), Commercial Club, Traffic Bureau of Salt Lcüce City, Utah, v. A. T. & 8. F. et al. class and commodity rates from Chicago, klississippi and Missouri Rivers were attacked. The first class at this time from Chicago to Salt Lake City was $2.85 per hundredweight, based on 80 cents to the Missouri River, plus $2.05 beyond; from St. Louis, the through rate was $2.65, based on CO cents to the Missouri River, plus $2.05 beyond. 'The Commission prescribed a through rate from Chicago of $2.45; from Mississippi River $2.27 and from Missouri River $1.90, thereby establishing "over¬ head" rates so far as concerned the Missouri River. Missouri River cities intervened in this case. In Docket 4353 (27 1. C. C. 673), State of Kansas et al. v. A. T. é S. F, et al., decided June 8, 1913, a complaint was made by interior Kansas points Topeka, Hutchinson, Wichita, etc., against class and commodity rates from Chicago and St. Louis, which were based on the combination on the Missouri River. The Commission prescribed through rates that were less than the Missouri River combination and in doing so employed the following language : "It is of secondary importance whether the present unrea¬ sonable rate adjustment from St. Louis to points in interior Kan¬ sas is due to the existence of the Missouri River as a basing line, or to some other method of making rates. The primar^^ question is whether these rates, in whatever manner constructed, are rea¬ sonable and free from undue discrimination. The manner of their construction is pertinent in this proceeding only in the oppor¬ tunity afforded to the Commission more minutely to examine the through rate by consideration also of its constituent parts." The Transportation Bureau of the Commercial Club of Kansas City also intervened in this case. In Docket 10316, Traffic BureciM of Aberdeen, S. D., Commercial 43 Ghtb V. Director General et al. (56 I. C. C. 147, also 69 I. C. 0. 427, on further hearing), decided Decemher 11, 1919, and again on June 13, 1922, the Commission established proportional rates from the Mississippi Eiver on traflSc originating east of the Indiana-Illinois state line which resulted in through rates less than the local com¬ bination. In Docket 8712, Commercial Club of Mitchell, S. D., et al. v. A. S W. Railway et al. (46 I. C. C. 1; also 48 1. 0. C. 40, upon reargument), decided July 5, 1917, and again on January 7, 1918, the result was also similar. In Docket No. 11481 (73 I. C. 0. 82), Certain-Teed Products Cor¬ poration, et al. V. A. T. S 8. F. et al., decided July 10,1922, the Com¬ mission prescribed a basis of commodity rates on roofing paper and related articles from Chicago, Peoria and St. Louis to destinations west of the Missouri Eiver and west of the Twin Cities, which basis was substantially lower than the former commodity rates, the latter, generally speaking, having originally been made by adding the class rates applicable from the Twin Cities and from the Missouri Eiver to the commodity rates from Chicago, Peoria and St. Louis in effect to the Twin Cities and to the Missouri Eiver. In addition to these cases that have been decided there are pending several complaints of a similar character. In Docket 12709, the Cham¬ ber of Commerce of Grand Island, Nebraska, attacks class and com¬ modity rates from Chicago and from the Mississippi Eiver, alleging that the present adjustment, which is substantially the combination of rates on Missouri Eiver or Lincoln, Nebraska, creates undue prefer¬ ence in favor of Missouri Eiver cities. The tentative report of the Examiner in this case contemplates publication of through "over¬ head" rates. In Docket 13839, Commercial Club of Fargo, N. D. ; in Docket 14018, Chamber of Commerce of "Watertown, S. D. ; and in Docket 14361, Chamber of Commerce of Virginia, Minn., attacks are directed against the through class and commodity rates from Chicago and Mississippi Eiver, which to-day generally are on the St. Paul com- 44 bínatíon. Theso complainants are asking that through "overhead" rates bo established. In Docket 13671, Indiana Public Service Oommission are asking that through "overhead" rates be established from Indiana cities to Iowa, Ifissduri and Missouri River, which shall be less than the pres¬ ent combination on the Mississippi River. The tentativo report of the Examiner in this case adopts the principle proposed. I apologize for all of this detail, which is tiresome, but since the burden of the evidence adduced at the Kansas City hearing by the Missouri River cities was that proposed consolidations would detri¬ mentally affect Üiese communities through anticipated efforts of the carriers to secure long hauls on their traffic, presumably through rate readjustments, we have oonsidcred it pertinent to direct attention to the voluntary adjustments that have been made by the carriers as contrasted Avith the adjustments that have resulted from complaints of communities and through direction of the Intersate ■ Commerce Commission. Furthermore, we are confident that none "will venture the assertion that in defending the so-called "combination adjust¬ ments" the through lines have not taken at least as active a part and have been as zealous in protecting the Missouri River cities as any lines that terminate at the Missouri River. In fact, it is the through lines that have usually undertaken the burden of the defense in these cases. I presume it is unnecessary to add that no direct or indireet criti¬ cism is intended in this statement of the Interstate Commerce Com¬ mission in its decisions referred to. This Governmental tribunal, in deciding upon specifi'o reasonable rates, must be governed largely by what would be reasonable from a transportation standpoint and with less regard to commercial conditions, which are always one of the most important items taken into consideration by the carriers in the establishment of voluntary tariffs. There is nothing in the history of the rates established by the car¬ riers themselves, as affecting the Missouri River cities or other so- called basing lines like St. Paul and Minneapolis, which would war- 45 rant the apparent fear expressed hy these commnnities, that establish¬ ment of throngh lines and elimination of terminating lines, through consolidation, would result to their detriment. It has been recognized quite generally that the Burnham-IIanna-Munger case (Docket 983) before referred to, a proceeding instituted by the Missouri Eiver cities themselves, was primarily responsible for the inauguration of overhead rates in central western territory. Whether or not over¬ head rates from Chicago and the Mississippi Eiver to a large por¬ tion of the territory tributary to the Missouri Eiver have retarded the progress of those communities is problematical, but based on the testimony introduced in this investigation by these communities, it is at least evident that in spite of overhead rates these cities have shown a wonderful growth and have become a most substantial industrial section of our country. The rapid expansion and development of trans-Mississippi and trans-Missouri territories, tributary to the Mis¬ souri Eiver, have been of such importance to these commercial cen¬ ters that we believe the exactitude of freight rates has become com¬ paratively a matter of less importance. A location in the midst of a large consuming territory, permitting of quick deliveries, has an in¬ estimable value. Serious reflection should convince any unbiased individual, that for the railroads to attempt to concentrate industry at Chicago would be folly; folly for them to attempt it and worse folly if they succeeded. The area of this country is too great, the population too large, and the development too intense and too diversified to permit even of consider¬ ation of such a plan. The present railroad terminals in Chicago are none too sufficient for the present activities; the natural growth of this city is enough to cause worry to present railroad operation with¬ out accentuating the situation by attempting to increase the load through diversion of traffic that legitimately belongs to other centers. An industrial plant can become too large to bo operated successfully and the same situation is applicable in a larger way to industrial cen¬ ters. Decentralization of industry in a country of such proportions, of such distances and of such an increasing population is now in prog¬ ress and rapidly becoming the order of the day, and regardless of what 46 eonsolîdation plans may finally La adopted and perhaps he executed, none will result in the abandonment of any tracks now serving the Missouri Eiver, nor in a readjustment of freight rates that will detri¬ mentally aifect tlieae important communities. The possibilities of doing business, and a greater business, will be as good if not better tlian to-day. Santa Fe, Rock Island, Burlington, North Western, hlilwaukee and Soo liave through lines from Chicago to the territory beyond the Mis¬ souri River or the Twin Cities. No reference has been given during all these proceedings to any instance where these carriers have, because of the existence of through lines, undertaken to discriminate in rates, service nor in any other way against the Missouri River cities, St. Paul or hiinneapolis. They have not attempted to establish through rates or service that would influence an undue propoiiion of the traflSe of the far western territory for the long haul to or from Chicago; on the con¬ trary they stoutly defended tlio combination basis of rate maMng and opposed overhead rates. Others than the railroads are responsible for the gradual breaking down of basing point rates and the introduc¬ tion of overhead rates. At the present time not ten per cent of the grain and live stock, originating west of the Missouri River, is shipped ori^nally from points of loading through to Chicago and east, and not ten per cent of the miscellaneous merchandise distributed in teriitoiy west of the Missouri River is shipped direct to the retail dealers from Chicago and east. When grain is ready for movement from farms the ultimate market of consumption is not yet determined. Shipment to near-by storage or so-called primary markets, such as Kansas City and Omaha, is in the nature of a transit movement into storage. At such storage points mixture, cleaning and grading is done and the grain later reforwarded to Mimieapolis, Chicago, Cindnnati, New Orleans, Galveston, New York, Baltimore, Montreal or to any of the many milling points in the south or east, or for export. If this grain was forwarded originally to Chicago it could not be reshipped to Minneapolis or to many other 47 destinations without backhauling, and consequently increasing the transportation charges. The wider range of markets to Kansas City and Omaha is a natural advantage to the dealers at those points and enables them to pay higher prices than Chicago. As to live stock : there arc large packing houses already established at Sioux City, Omaha, St. Joseph, Kansas City, Wichita, Oklahoma City, Fort Worth, Denver and also at several other interior points. The business at these points west of Chicago has increased proportion¬ ately more than at Chicago in spite of the fact that for many years through rates to Chicago have been lower than the combination of rates on the Missouri Eiver, and to-day not ten per cent of the live stock from the territory west of the kfissouri Eiver comes through to Chicago. It is therefore evident that the maintenance and growth of these outside packing plants has not been dependent upon freight- rate adjustment. It has been due primarily to the advantages in se¬ curing disposition of the live stock near to the points of origin, and the fact that around these Missouri Eiver plants there have developed large cities with considerable local consumption, and in the distribu¬ tion from the Missouri Eiver points there is the advantage of a wider range of final markets mthout backhauling, just as it is with the grain. The growth of the Missouri Eiver and Twin Cities as manufactur¬ ing and jobbing centers has not been due to advantages from a freight- rate standpoint, but primarily because of their natural location as cen¬ ters of population and trading for the surrounding territory. The ability to make prompter deliveries to retail dealers ; closer relations as between the manufacturer, jobber and retailer that have developed over long periods of business dealings and acquaintanceship ; the fact that these manufacturers and distributors are able to concentrate their stocks in carloads as against direct shipment from the eastern jobbers and manufacturers in small less than carload quantities through to final destination, have all combined to establish these trading centers and will in nowise bo disturbed by any railroad grouping. The fact that such large jobbing and manufacturing centers as Lincoln, Neb., WTchita, Kan., Oldahoma City, Okla., Dallas, Houston and Fort 48 Worth, Texas, have all developed rapidly in recent yeara without being the terminus of any lines, would seem to demonstrate ttiat this is not necessarily a controlling factor. Furthermore, the points of manufac¬ ture or origin of the raw materials are so scattered ttiat assembly at Chicago, for example, and reshipment from there, could not be econom- icahy made as against concentration and reshipment from these dties farther west;—cotton piece goods, manufactured all over the soutli and New England; shoes from New England and St. Louis and the Twin Cities; agricultural implements at various points in the Missis¬ sippi Valley, Illinois, Indiana, Wisconsin and Michigan; iron and steel artdes in Colorado, Alabama, Pennsylvania, Ohio, Indiana and Illi¬ nois ; paper in Wisconsin, Michigan, Canada and West Virginia; canned goods; dried fruits; eta, eta To attempt to assemble these various products at Chicago and then reship direct to consumers west of the Twin Cities and the Missouri Eiver would certainly involve more transportation and cost more than to do the assembling at the present distributing centers dong the Missouri Eiver and at tlie Twin Cities nearer the final consumers. In the plan I have proposed, at all of the important points west of Chicago there would be at least three systems and generally all four, and the competition between these systems for the good Avill and traffic of these communities would be so controlling as to mdke unlikely any development of a policy of rate making or serrtee against the interests of any individual community. The growth of manufacturing and job¬ bing centers is not nowadays dependent upon their maintenance as final terminal points for the in and out railroads. Such development occurs as well when through lines are in operation and through rates in effect. For example: Pittsburgh, Cleveland, Detroit, Indianapolis, Atlanta, Birmingham, Nashville, Memphis, Houston, Dallas, Milwau¬ kee, etc., are all on through lines of transportation and have overhead rates. In addition, there is considerable benefit from an operating stand¬ point in having primary markets located dosely to the fields of pro¬ duction. It permits of quick return of ^uipment for rdoadmg at 49 country elevators, whicli greatly inures to the benefit of the grain pro¬ ducer. "Without the large storage capacity at Missouri Eiver that now exists, it would not be possible to afford the transportation service that now offers and which at times has been inadequate to care for the tonnage satisfactorily during the peak of the movement. Further¬ more, a study and analysis of the transit arrangements that obtain on the Missouri Eiver and which have been established by the through lines, should be convincing of the desire of these lines to foster those markets. The Missouri Eiver markets are located in the midst of the greatest grain-gTOwing section in the country and are geographically so situ¬ ated that they are in position to take care of demands for grain, whether they come from the east, west, south or north and with a mini¬ mum waste of transportation energy. I believe that these considerations offer a conclusive answer to the objections made by the Missouri Eiver cities and St. Louis, and that no adverse commercial effect upon any of those communities mil follow the adoption of a plan of largo groups connecting directly with the eastern and southeastern lines at Chicago and St. Louis; certainly no effects might follow from efforts of such western groups that would be beyond the power of the Interstate Commerce Commission to regu¬ late and control within proper lines. Comparative Distances in Four-Group Plan. Now, Mr. Commissioner, I have only now to answer a question which Professor Eipley put to me, but the scope of it rather makes necessary a somewhat prosy answer. Eeferring to my Exhibit No. 259—cities of 25,000 or more popula¬ tion reached by western railroad systems as proposed—and concerning which Professor Eipley, at the hearing on March 1st, suggested that "to make the showing more conclusive I ought to indicate whether these systems at each one of the points mentioned afforded the short line or merely reached the place." No system of grouping the railroads as now constructed could so 50 result that oacli group would afford tlie short line at or between all competitive points and, of course, this situation does not obtain to¬ day, With one or two exceptions, where mileages are equal, some one line has the advantage to-day from a mileage standpoint between any two competitive cities, and a careful study of the mileages produced under our four-group plan does not indicate that any one group will he at any greater disadvantage, so far as the main stems of those groups are concerned, than at present. For instance, the short-line distance between Chicago and St. Paul is 398 miles, via the Chicago and North Western Railway. Under the four-group plan, which links the Chicago and North Westcni vith the Santa Fe, this group (No. 2) will of course continue to ho the short line between Chicago and St. Paul; Group 4 (Union Pacific-St. Paul) will he second with 411 miles; Group 1 (C. B. & Q.-G. N.-N. P.) will ho third with 418 miles and Group 3 (Southern Pacific-Rock Island) fourth with 512 miles. It will he noted that the proposed grouping will not affect these predominating mileages. Between Chicago and Omaha the short-line mileage is 488 miles, and obtains both via the Chicago and North Western and St. Paul, this being one of the exceptions before referred to where the mileages via two competitive lines are the same. Under the four-group plan the mileage via Groups 2 and 4 would, therefore, he 488 miles; via Group 3, 496 miles and via Group 3, 503 miles, a maximum spread of only 15 miles between the longest and shortest mileage. Between Chicago and Kansas City the short-line mileage is 451 miles. This is via the Santa Fe. Under the four-group plan, the short- line mileage would therefore he via Group 2; Group 4 would he second with 483 miles ; Group 1 Avoiald he third with 488 miles ; and Group 3 fourth with 536 miles, a maximum spread in mileages of 65 miles and which, of course, is the same difference as exists to-day via the four principal lines, Santa Fe, St. Paul, Rock Island and Burlington. Between Chicago and Butte, Montana, the short-line distance is 1,523 miles. This is via the St. Paul. Under proposed plan, only two of the four groups will serve Butte; the short-line mileage will he 1,523 miles via Group 4 (Union Pacific-St. Paul) and 1,536 miles via Group 1 51 (Burlington-Northern Pacific-Great Northern), a difference of only 13 miles. Bet-ween Spokane and Chicago the present short-line mileage is 1,834 miles. This is via the North Western and Great Northern Sys¬ tems. As proposed, the short-line mileage will be 1,854 miles via Group 1 and 1,881 via Group 4, a difference of only 27 miles. These two groups only will serve Spokane. Between Seattle and Chicago the present short-lino mileage is 2,190 miles, and tliis via the St. Paul. As proposed, Seattle will be served by Groups 4 and 1. The distance via Group 4 (Union Pacific- St. Paul) ■\^nU be 2,190 miles and via Group 1 (Burlington-Northern Pacific-Great Northern) 2,193 miles, a difference of only three miles. Between Chicago and Denver the present short-line mileage is via the Burlington, 1,018 miles. As proposed, tho short-lino mileage will be -i'ia Group 1, 1,018 miles; via Group 4, 1,048 miles; via Group 3, ],083 miles and -vda Group 2, 1,173 miles, a maximum difference of 155 miles. These are the mileages of to-day via Burlington, Union Pacific and North Western or St. Paul, Bock Island and Santa Fe, respec¬ tively, and which four principal routes represent the proposed four groups. Between Chicago and Los Angeles the short-line mileage is 2,244 miles. This via the Santa Fe. As proposed, the distance via Group 2 will be 2,244 miles; via Group 3, 2,27G miles and via Group 4, 2,298 miles, a maximum difference of 54 miles. Los Angeles will not be sers'ed by Group 1. Between Chicago and Dallas, Texas, the present short-line dis¬ tance of 972 miles is via the Chicago and Alton and St. Louis-San Francisco. As proposed, the distance via Group 4 will be 972 miles; via Group 2, 1,000 miles and -via Group 3, 1,002 miles, a maximum dif¬ ference of only 30 miles. Between Chicago and Oklahoma City, tho short-line distance of 826 miles is via Chicago and Alton, and St. Louis-San Francisco. As proposed, tho distance via Group 4 will be 826 miles ; via Group 2, 835 miles and via Group 3, 859 miles, a maximum difference of 33 miles. 52 Between Omalia and Kansas City the present short line is the Bur¬ lington, 19G miles. As proposed, mileage via Group 1 will be 196 miles ; via Group 3, 199 miles; via Group 4, 276 miles and via Group 2, 470 miles. Group 4 is the Union Pacific group and the mileage shown of 276 miles is via the present rails of the Union Pacific Koad. Group 2 is the Santa Fe-North Western group and the 470 miles is the mileage via North Western through Superior, Nebraska, a very roundabout route between Omaha and Kansas City that does not to-day engage in this traffic. I have already suggested that mileage could very possibly be arranged between Omaha and Kansas City, and in the matter of abnormal distances from St. Paul via Group 2 to certain designated ter¬ ritory. I have also proposed that the Chicago Great Western might also be assigned so as to afford an excellent connection between the Santa Fe at Kansas City and the lines of the North Western in Iowa and north thereof, which would substitute the service through Su¬ perior, and which would substantially equal the short-line mileage. Between Omaha and Butte the present short line is via the Bur¬ lington and Northern Pacific, a distance of 1,128 miles. As proposed, the distance via Group 1 will be 1,128 miles; via Group 4, 1,237 miles; the only two groups that will serve Butte. Between Omaha and Spokane, the short-line distance of 1,505 miles is via Burlington and Northern Pacific. As proposed, distance via Group 1 will be 1,505 miles ; \da Group 4, 1,595 miles. Between Omaha and Seattle the distance will be via both Groups 1 and 4,1,904 miles, the same as at present via Burlington-Northern Pa¬ cific; also via the Harriman lines. This is another of the exceptions referred to, of parity in mileage. Between Omaha and Denver the present short-line mileage is 538 miles, via the Burlington. As proposed, mileage via Group 1 will be 538 miles; via Group 4, 560 miles; via Group 3, 580 miles, and via Group 2, 929 miles. Group 2 mileage is figured via North Western through Superior, Nebraska, a route that to-day does not engage in this traffic. . Between Omaha and Los Angeles the short-line mileage of 1,810 53 miles is via the Union Pacific and L. A. & S. L. As proposed, mileage via Gronp 4 will be 1,810 miles ; via Group 3, 1,960 miles and via Group 2,1,986 noiles. Between Omaha and Oklahoma City the present short-line mileage is 538 miles, via Burlington and M-K-T. As proposed, the short-line mileage will he 541 miles via Group 3 ; 574 miles via Group 4 and 590 miles via Group 2. Oklahoma City will not be served directly by Group 1. „1 Between St. Paul and Omaha the short line distance is 346 miles, via the Chicago Great Western. As proposed, the mileage via Group 1 will be 346 miles; via Group 2, 368 miles; via Groups 3 and 4, 403 miles. . ; ! ■ ; i ■ : i! i Between St. Paul and Kansas City the short-line mileage is 483 miles, via the Bock Island. As proposed, 483 miles via Group 3 ; 518 miles via Group 4; 539 via Group 1, and 805 via Group 2, Group 2 mileage being figured via North Western and Superior, Nebraska, in connection with Santa Pe, but again, if figured via Chicago Great West- em mileage, the distance would be 511 miles. Between St. Paul and Denver, the present short-line distance is 884 miles, via Chicago Great Western and Burlington. As proposed, mile¬ age via Group 1 will be 884 miles ; via Group 4, 963 miles ; via Group 3, 983 miles and via Group 2, 1,264 miles ; the mileage via Group 2 again being figured via North Western through Superior, Nebraska. Between St. Paul and Spokane, the present short line is the Great Northern with 1,436 miles. As proposed, mileage via Group 1 will be 1,436 miles; via Group 4,1,470 miles, a difference of only 34 miles. Between St. Paul and Seattle, short line is the Great Northern with a mUeage of 1,775 miles. As proposed, mileage via Group 1 will be 1,775 miles ; via Group 4, 1,779 miles, or a difference of only 4 miles. Seattle and Spokane will only be served by Groups 1 and 4. Between St. Louis and St. Paul, the present short-line mileage is 570 miles, via Burlington. As proposed, mileage via Group 1 will bo 54 570 miles ; via Group 4,597 miles ; via Group 3, 621 milos and via Group 2, C87 miles. Between St. Louis and Omaha, present short line is the Wahash, with 414 milos. As proposed, mileage via Group 4 will be 414 miles; via Group 1, 458 miles; via Group 3, 481 miles and via Group 2, 778 miles. Between St. Louis and Kansas City the short line is again the Wa¬ hash, with 278 miles. As proposed, mileage via Group 4 will be 278 milos; via Group 3, 282 miles; via Group 1, 348 miles and via Group 2, 741 miles, but with construction of Santa Fe line to St. Louis as pro¬ posed, Group 2 distance between both Omaha and Kansas City to St. Louis would approximate that of Group 1. Between St. Louis and Denver, short-line mileage is 918 miles, via Wabash and Union Pacific. As proposed, mileage via Group 4 will be 918 ; via Group 1, 028, via Group 3,1,024, and via Group 2,1,463 miles, but with the St. Louis line of the Santa Pc, would be much less. Between St. Louis and Fort Worth, short-line mileage is 722 miles via St. Louis-San Francisco. As proposed, mileage via Gronp é will be 722 miles; via Gronp 3, 734 miles; via Group 2, 800 miles, and via Group 1, 1,730 miles. This last-named mileage is figured via Bur¬ lington, Daiver and Colorado and Southern, and of course does not attract trafSe to-day. Between St. Louis and Oklahoma City the short-line mileage is 542 miles via the St. Louis-San lk*andsco. As proposed, mileage via Gronp 4 will be 542 miles; via Group 3, 554 iniles and via Group 2, 964 miles. I have given enough illustrations to serve the purpose. In most instances it will be noted that the differences in mñeages are not great, in fact not great enough to warrant much concern from the standpoint of securing competitive traffic, particularly freight traffic. As to the hulk of competitive freight tonnage, which would be tonnage moving between principal markets, present schedules provide for arrival late in afternoons or evenmgs, so that only following morning deliveries 55 are effected, witli consequential result that the longer lines are in position to make the same deliveries. Regular delivmes axe more desirable to shippers than more rapid and irregular deliveries, and of course axe more desirable to earriers, also, from an economic stand¬ point. Absolute equality as to mileage on all competitive traffic is not physically possible as between the four groups that I have proposed, or as to any other groups that might be proposed by some one else. That is all. Q. (By Com. Hall.) Does tiiat complete your statement! A. That condudes my testimony. 5G Cross-Examin a Hon. Q. (By Lir. Scandrett) Mr. Holden, at one point in your testi¬ mony you referred to the requirement of the statute, that the lines should he so grouped that under the same schedule of rates they \vould earn substantially the same return on their value. Will you state wliether you think that that provision of the statute can or can¬ not he practically complied with? A. I think it can he practically complied with, to start with. How long the same conditions will remain, I would not undertake to pre¬ dict. But I have pointed out that the tentative plan makes a very had guess in accomplishing it in western territory by establishing these three great overpowering systems in the West, preserving in each case all of their strength, and then separating the so-called Hill System into Systems 14 and lb, leaving them all together, located in one particiilar part of the Avestern territory. So to start Avith, I do not think a comparative cost rate of return is possible. I do think by a more proper distribution, as I have indicated, by these four group plans it is practicable to average up the conditions, based upon the group method of making rates, and set those neAy Avestern systems going on that basis. Hoav long it Avould remain that Avay Avould de¬ pend upon the future. Q. In the exhibits that you have filed, you figure out your return by taking the results on the individual lines, and that carries Avith it, I suppose, the assumption that if certain lines aa'ere grouped to¬ gether, tlie aggregate return for the group would be the combina¬ tion of the return for each of the lines that constituted the group. Is that correct? A. That is correct, yes, sir. I very carefuUy explained that, that there Aras no other apparent basis for making the computation. Q. Noav, using that basis, have you figured up for any period the rate of return betAveen Avhat you call the three overpoweringly strong groups provided in the tentative valuation, and the rate of return for the Burlington and Northern Pacific proposed group, and the Great Northem-Mihvaukee proposed group? 57 A. I do not recall whetlier that has been figured or shown ia the record or not. We have shown it, however, in Exhibit No. 258, by taking the three overpowering western groups that you refer to —and so do I—with Group 1, which is the Burlington-Northern Pa¬ cific-Great Northern, and some others, and have compared the results of 1922 with the results of the standard return applied to the prop¬ erty investment of December 31, 1917 ; and as you will observe there has been a significant change in conditions and in return. Keeping in mind what Mr. Budd has just testified to, it is evident that what¬ ever may have been the facts in years gone by, those facts are quite different to-day, and there is no apparent predominant strength in the so-called Hill group of lines, so far as the return earned on prop¬ erty investment is concerned. Q. Do you think that the operating returns for 1922 are typical? In other words, are there not a great many more factors that dis¬ torted those returns than are customarily to be expected? A. I do not think one could make a prediction as to what may be expected. They were somewhat distorted, but^ the distortions, so far as strikes, costs of material, waage changes and fuel costs were concerned, wore relatively common to all western roads. The great distortion, if it is one, that is going on, is apparently a less volume of trafific in northwestern territory than in other portions of the West. How far that is contributed to by the Panama Canal, it may be a little early to make a prediction upon, but it seems significantly true that at the present time either the rate structure in the North¬ west is too low, or the volume is not sufficient to earn the basis of return which formerly prevailed in that territory. Q. If you were to indulge in prophecy, would it be your prophecy that the results on these lines in future years, the relative result as between the different western lines, would conform more nearly to the returns for 1922 than for the test period? A. I would not want to make the prediction, kir. Scandrett, be¬ cause I do not think anyone can do that; but I am simply indicating what seems to bo the present day trend. Q. Well, unless somebody is willing to predict or unless some- 58 îjody can make an estimate, yon are confronted witli this situation, that the returns in the test period present a Tery different picture than the returns for the year 1922, both of which are set out in your Exliibit 238. A. Well, instead of mnkinpf a prediction, I will make a com¬ parison. As I have already said, these northern lines ha^e no ac¬ cess whatever of moment to the reservoir of traíEc in California, and the other three lines have. There has been a tremendous growth in Califoniia traffic, as you know. Unless hy open interchange and then only on that basis, this stem has no access to soufhweatem traffic, compared with the Atchison, Topoka & Santa Fe, or even the Chi¬ cago, Hock Island & Pacifies. There has been a tremendons growth in the Southwest. New, my impressions are that there has not been the same relative growth in the Northwest. Whether there will he or not I do not know. But enough has actually happened in the growth of the traffic in the other sections of the West, which I have referred to, to indicate real ground for anxiety, against any possible weaken¬ ing of support for those roads in the Northwest. Q. Well, now, it has been generally regarded, has it not, or it has been generally thought, at least, that "the lines which are exclusively southwestern lines were the weak lines in western territory; is that not true? A. Well, now, if you mean those separately operated and separ rately capitalized railroads in the Southwest that have been one hy one going through reorganizations, yes, there has been that general statement. Q. And is it not your understanding that ßie Santa Pe System has had to carry its southwestern subsidiary, the Gulf, Colorado & Santa Pet A. That has been a common report. Not knowing anything about the accounting methods, however, I do not know enough about it to answer your question. But it has been partly attributable, as I have understood it, to the depressed sœale of Texas rates, whirii has been measux'ahly corrected, and may have something to do with the re- 59 markable sbowing of strength that the Santa Fe System has been making in recent years. Q. The same thing is true as to the Texas & Louisiana subsid¬ iaries of the Southern Pacific, that they have not been able to malîe a go of it by themselves, but have had to draw on the parent com¬ pany for support, is it not? A. I have heard that stated. Q. Now, looking to the menace of the Panama Canal, is that menace the same, do you think, all up and down the Coast, or is it greater on the South Coast than on the North Coast? A. Professor Pipley asked me that question, and I have taken occasion to ask the opinion of one or two men better versed in traific matters in the Northwest than I am, and I have been told that in their Judgment the effect is equally noticed on the northern lines, with the southern lines. Q. Ton know that there are a great many boats that do not go to the North Coast, but that do sail to and from the California ports, do you not? A. So I understand, that there are differences in that regard. Q. And if the Panama Canal is to continue the great menace that it is now, the system that has tAVO or three lines to the Pacific Coast is apt to be in a Avorso situation than one that has but one, is it not? A. Speaking only about the coast to coast traific, that Avonld have a bearing, but you have to bear in mind the opportunities for other traffic intermediate. Q. I thought I detected a note of sarcasm once or tAvice as you Avere gmng your testimony, and so I was not altogether clear as to Avhat you really Avanted to be understood as saying Avith reference to the decision of the Commission in the Southern Pacific case. Are you criticizing that, or are you not criticizing that? A. The reason you arc laboring under a cloud is because you are suspicious. There Avas not any sarcasm at all in my remarks. They Avcre quite sincere. So probably your fog Avill clear up presently. 60 Q. Then the answer to my question is that you are not in a criti¬ cal attitude toward that decision? A. I think. I explained that it was an admiralolc settlement, par¬ ticularly so from the standpoint of the Union Pacific, hccause without now owninji the Southern Pacific, you apparently have gotten a bet¬ ter grasp 071 the California traffic than jmu had before, when you did OV77 the Southern Pacific. You have got the approval of the Commission to your paragraph (5) of your traffic contract, which ties the Southern Pacific to you for active solicitation by Ogden. Q. "Well, you are now engaging in prophecy, but I hope you are correct. A. No, I am merely commenting upon an admirable settlement of an old controversy. Q. Yoiî also Imow that that settlement was approved by the other connection of the Union Pacific in Utah, the "Western Pacific— A. Temporarily. Q. (Continuing) —and also approved by the other connection of the Southern Pacific in Utah, the Denver & Rio Grande, do you not? A. That is, according to the terms of Appendix A, but the appen¬ dix VÙ11 likely be amputated shortly if this coiisolidation program proceeds and the Western Pacific passes into the hands, as the ap¬ pendix recites, of any of the larger lines, such as the Burlington or the Santa Fe. Q. Well, I supposed the Westera Pacific and the Denver & Eio Grande were fully advised as to that, just as well as you and I are. A. I presume they were. Q. But notwithstanding that, they asked the Commission to put its stamp of approval on those conditions. A. And I say, I think it was an admirable arrangement. Q. Mr. Holden, you read into! the record some figures as to the export movement of grain via the Gulf and the Atlantic Seaboard. Will you tell me what the source of those figures was? A. They were furnished to me by the Burlington traffic depart¬ ment as based upon some official reports, but I cannot at the moment say what they were. I can ask here, if you Avill allow me, Mr. Speiis. 61 Mr. Spens: Those %ares were prepared, as I recall it, m 1922, by the Western Weighing and Inspection Bnrean, operating in con- innction mth the agent of the Central Freight Association. At that tinie the question of what the proper differential shonld he from Kansas City to Baltimore versas Kansas City to Galveston was ander consideration, and these figures were prepared" by the railroads throagh the agencies T have mentioned, to detennine how mach of the grain from the dispated territory was moving to Galveston and to the Seaboard. Th^ were taken direct from the railroads' records, prin¬ cipally by the Western Weighing and Inspection Bareaa. Mr. Scandrett; Mr. Spens, was that the movement of 1S22 or 1921! Mr. Spens; My recollection is that tiie movement was for the last six months of 1921. The Witness : Yes. Mr. Scandrett; I thonght %?e woald have to have Mr. Spens on the stand before we got throagh. Q. (by Mr. Scandrett) Now, Mr. Holden, I don't know whether I shoald ask yoa this qaestion or Mr. Spens. Do yon know whether those ghipmente were merely the direct shipments from point of ori^ to the port, or did they iaclade shipments which initially, we woald say, woald move from Nebraska to Chicago and then be rcshipped! Mr. SpKis : If I may answer that. Mr. Scandrett : Yes. GZho Witness : I was going to say as long as yoa want Mr. Spans on the mtnesa stand you ask him that question. I think I know, but I woald rather have him answer it. Mr. Scandrett: It is immaterial to me who the witness is. The Witness : If it is satisfactory, I woald rather have Mr. Spens answer it, Mr. Commissioner. Com. Hall: All right, Mr. Spens. Mr. Spens: They include the direct shipments from inland sta¬ tions as well as the shipments from terminal markets along the road. Mr. Scandrett: My qaestion was whether they woald include a 62 , , ■ * shipment which moved initially to Chicago, into an elevator at Chi¬ cago and then rcshipped from Chicago. Mr. Spens: They should, yes. That was the purpose. Mr. Scandrett: Do you know what the aggregate shipments were via both tlie Gulf ports and the Atlantic ports which are shown in this compilation, that is, the total? Mr. Spens: No, I do not. I thought it was given to you in the testimony. Mr. Scandrett: Did you give the total, Mr. Holden? The Witness: I don't think I gave the total. They are available tliere from the same source. * Mr. Spens : 1 think it was from all territories. kir. Scandrett: All territories? klr. Spens: AVe have those, however, if you want them. Mr. Scandrett: Let me put this question. If you added all the figures that were given in Mr. Holden's testimony as to the move¬ ment via the Gulf ports and the Atlantic ports, would that aggregate figure check with the aggregate export figures for the same period via both the Gulf and Atlantic ports? kir. Spens: They should, yes. Q.. (By Mr. Scandrett) Mr. Holden, I understood you to criticize the statement of Judge Lovett that if all of the western systems had lines to the Gulf but had no lines east of Chicago, that the tendency would be to stimulate the movement of grain for export via the Gulf as against the Atlantic ports, is that correct? A. Hardly as harshly as that. I simply pointed out that those were the conditions to-day as to grain originating west of the Mis¬ souri Eiver and at those markets. It had been so for some years and the differential influences that movement under present condi¬ tions. Q. As I understood it, one of the reasons for your position, that if certain lines were extended into the southwestern territory all lines should be, and particularly the Burlington, was that the Burlington, if other lines extended through to Chicago and St. Louis, would have 63 "what would be in effect a closed gateway at Kansas City, is tbat trneî A. As between railroads, yes, but not as between shippers, no, sir. Q. Now, then, the reason that would be true would be that the lines originating this trafS!o in Chicago and St. Louis and the lines originating it in the Southwest in the reverse movement would hold onto that trafiic as long as they could, would theyî A. As long as they could, yes. Q. "Why would not that same reason operate if all of the lines were extended to the Gulf, to the end that the granger roads then would endeavor to move all of the grain they could to the Gulf ports, since the movement to the Gulf ports would give them 100 per cent of the revenue and a much lon^r haul than if it went to the Atlantic ports! A, It is free grain when it gets to the Missouri River. That is the best possible place for it to come in the first place, and there it is free to be shipped in any direction. Q. There is a good deal of movement direct that does not go through the Missouri River elevators. A. As the figures show, from Kansas points there are shipments direct to the Gulf, yes. Q. To put it concretely, if you had your line from Nebraska or Kansas to the Gulf, you would be far more interested in moving that grain traffic to the Gulf than you would be to Chicago, wouldn't you? A. I would not put it quite as strong as that. But the point I have made is that the rate adjustment and the control of the grain by the people who deal in it are the prevailing factors that iMicate the direction of the grain. Secondly, the present day adjustments indi- (mte on grmn on and west of the Missouri River that the Gulf routes are the preferred and the cheapest routes now, so there is no change to be developed, such as Judge Lovett was anxious about. It is al¬ ready there. 64 Q. Now, let mo read one sentence of Judge Lovett's statement. '•The Holden plan ties each one of these great granger roads up with a Gulf lino of its own, hut without any line east of Chicago or St. Louis, thus forcing all of them in their own interest thereafter, through control of car supply, and otherwise, to exert their influence ill favor of the movement of all exjKirt grain" over their own rails to. the Gulf instead of being impartial as heretofore." Now, what exception would you take to that statement! • A. I think it vastly exaggerates, the railroad influence over the situation. Q. He does not say what the extent of that influence would be, but states that it would result in their exerting their influence to ac¬ complish that end. Do you think that is not so! A. It might be true at certain times. At other times the car sup¬ ply and other features—^well, take the present facts. I do not thîiilî you can trace out any predominating influence on the part of Üie roads that have through lines that haul grain through to Chicago as against the Missouri Eiver—don't think you can find the basis in the actual facts, the rate structure and the way the business moves or the solicita¬ tion by the railroads to justify the statement. It is just a theory. Q. Well, this very proceeding to which Mr. Spens refers, in con¬ nection Avith which these figures that you have given were assembled, was a proceeding which involved a conflicting interest between lines serving the Gulf and the eastern lines, was it not! A. As I understand it, to discuss and review the differential, the contention between the routes via the Gulf and via the Atlantic Seaboard being a live one. Q. I Ayant to ask you a feAv questions about this Central Pacific situation, a feAV more. I understood you to say Üiis morning that the result of that deci¬ sion of the Commission, in the light of the conditions there were imposed, was in effect a consolidation of the Union and Southern Pa¬ cific, is tlmt correct! A. No, I did not say it in that Avay. It is not a consolidation. It is so close a traffic alliance for all traffic north of the moimtain 65 crossings, Teliachapi and Coast Hange in California, as to be a prac¬ tical extension of the Union Pacific into that California territory. Q. You, of course, realize that there is a tremendous amount of territory in California and in Oregon served by the Southern Pacific which is not áffected by these conditions. I am referring to the ter¬ ritory south of Tehachàpi, and I am referring to the part of Oregon Avhich Avas not included. A. I thinlv it would be very intimately affected, because the con¬ tract you and the Southern Pacific have made provides that on your request you can have an even rate basis on anything from Banning west, so you will have a parity of rates from Banning, about at the eastern end of the citrus or perishable fruit - district in southern California. Yoit have a right to call for an equal rate basis via the Ogden gateway to that which applies via El Paso. Q. The Southern Pacific is under no obligations to operate with us or to solicit that movement via the Ogden gateway, is it? A. Not solicit, no, but you have a right to a parity of rates be¬ tween Banning and Tehachapi. Q. Now, you also knoAV, don't you, Mr. Holden, that that Ogden route referred to in those conditions applies only to the prescribed territory in the East? A. North of. a line drawn, as shown in the agreement, which I think is the north line of Oklahoma, such line as that drawn east and Avest. Q. And east of Chicago it is the Ohio Hiver but not including the points on the Ohio Hwer. If the Union Pacific controlled the Southern Pacific, of course it would preferentially solicit that traffic from territory south to territory cast of this line in which this solicita¬ tion covered by the contract is involved, wouldn't it? A. If the Union Pacific OAvned the Southern Pacific? Q. Yes. A. I think you Avould moA-e the traffic according to the best advan¬ tage, cost being considered, Avhether you moved it via El Paso or via Ogden, and my thought Avas that the outstanding intelligence of you gentlemen Avhen you drew that line indicated that the cheaper and 66 moro clTioient route south of the line was via El Paso and vice versa via Ogden, So you drew a line and indicated a territory on neither side of which ought the other compete. There used to ho, as we always understood, a good deal of conten¬ tion between the Union Pacific and Southern Pacific in their conten¬ tion as to what ought to go by Ogden and what ought to go by El Paso, and I think the Union Pacific, on the contentions which were developed before the peace treaty was signed, pointed out how badly the Ogden gateway had been treated in the routing of the business. So apparently the parties sat down in peaceful consultation and they arrived at this line as being an intelligent solution. Q. Of course, it might be that one road Avould want the line dra\vn considerably further south than the other one would. A. Oh, yes. You made a settlement which x^ractically eliminated the competitive conditions that existed between the two routes be¬ fore. Q. Of course, you realize that the territory to which these condi¬ tions do not apply on the east is a territory of such greater extent geographically and much greater population than the territory to which the conditions do apply. A. You mean east of the Buffalo line? Q. Yes. A. I could not say as to the measuring of it in volume of ship¬ ments in that territory as compared to west of it. I don't know. Q. You referred—and I think in criticism—to the fact that the Union Pacific had opposed the grouping with the Southern Pacific- Bock Island System on the lines leading from the Missouri Eiver to Colorado. A. On the contrary, I said that if the Ogden gateway is to have eveiwthing swept aside so that nothing will interfere with it, that your objection is meritorious. Q. You can see then the inconsistency in the decision of the Com¬ mission with the conditions imposed by that decision and a grouping of the Colorado lines of the Eock Island in the Southern Pacific-Eock Island System. 67 A. Now, I will have to answer that at some length in order to do myself justice and give yon an answer. I do not think it was in the mind of arrj^ observer of this controversy that the controversy was to be broadened beyond the Union Pacific and Central Pacific. To the uninformed mind, that was supposed to be the controversy. That would seem to be indicated, first, because the Commission itself had grouped the Southern Pacific with the Eock Island, and, secondly, that they did not expect or anticipate that the Southern Pacific was to be tied to the Union Pacific. It at that time appeared to be a legitimate suggestion, that the Southern Pacific, having rails to Ogden, and having rails in the group¬ ing from Chicago to Denver, another route was in contemplation, and whether the Southern Pacific as thus constituted owned an interest in the D. & E. G. or did not, the existence of another competing route with the Union Pacific arising out of the Southern Pacific competition appeared to be in evidence. Now, when you analyze the remarkable sweep of the Central Pa¬ cific decision and of the Pacific railroad acts, that they included the Southern Pacific in the continuous line and using the Pacific railroad acts as was done, I am forced to admit, of course, you are quite right, that the Southern Pacific now in a traffic sense being a part of the Union Pacfic, it ought not to bo expected to have a through competing route alongside of it. Q. I think you were the first and only one to suggest the Southern Pacific acquiring an interest in the D. & E. G. Has anyone else sug¬ gested that, to your knowledge? A. I think not. Not to my knowledge, no. Q. Of course, if it would be logical for the Southern Pacific to acquire an interest in the D. & E. G., it would be equally logical for it to acquire an interest in the Western Pacific, wouldn't it? A. Hardly, because the Southern Pacific has its own lines paral¬ leling the Western Pacific; hardly logical. Q. Your thought would be for the Southern Pacific to have a lino from the Missouri Eiver to Colorado and then a half interest in the D. & E. G., hooking up with its own lines from Ogden? 08 A. If the Southern Pacific were to compete with the Union Pa- oific, yea, hut now we find that the Southern' Pacific north of Toha- diapi is not to compete with the Union Pacific, so therefore the condi¬ tions are quite different. Q. You would not have tho Southern Pacific a party to a traffic, agreement as to solicitation through the Ogden gateway in connec¬ tion with the Union Pacific and then turn around and acquiro an¬ other route which would bo competing against that Ogden gateway route, would youî A. No, certainly not, but paragraph 5 governing traffic solicita¬ tion I did not observe as a part of the Pacific Kailroad acta It is somewhat different from the scope of those acts. Q. We live to learn and learn to live. A. Yes, we learn how wide those acts are in their scope. Q. I believe you also made tho criticism that Judge Lovett had made no suggestion as to the disposition of the Colorado lines of thfc Bock Island. A. I think I said that. Q. Don't you know that in his testimony he discussed several pos¬ sibilities Î A. I think I remember he discussed the one I suggested, but if I havo: omitted any others, I apologize for it. I do not remember of others. I had suggested that they fit in with the Santa Pe-North Western System. I believe he conceded that would be a good sug¬ gestion. He said, I thinlc, that the Burlington ought not to have it, tha t the Union Pacific could not make any use of it. I did not mention those two before. Q. He also said, didn't he, tlaat it might be regarded as having a nuisance value to the Union Pacific and to the Southern Pacific-Bock Island System. A. Yes. I did not take those as constructive suggestions. (J. One of the strong arguments you have made in behalf of your proposal of consolidation of the Burlington, the Northern' Pacific and Great Northern is the provision of the law in regard to the près- 69 ervation of existing routes and channels of trade and commerce, is not that correct? A. Yes. Q. Ha\'ing regard to that provision of the law which would you say was the logical consolidation with the Union Pacific? The Chi¬ cago & North Western' or the Chicago, Milwaukee & St. Paul? A. They are both logical, as far as that particular feature is con¬ cerned, and, as far as I pointed out, the tonnage interchange at Omaha seems to indicate a relationship of nine to five in cars in favor of the interchange with the North Western. But no one can deny that such relationship indicates that there is an established route and channel of trade with the St. Paul, so that in that particular case, just as in other cases involved in this proceeding, it is not possible to absolutely preserve all routes and channels of trade and commerce, but you have two of them there, as you yourself have testified and pointed out, your interest has, and obviously if you are going to have a consoli¬ dation Avith the North Western you are going to select one of the tAVO. You indicate your desire to select that one Avhich is the most bene¬ ficial and Avhich has the largest volume. As pointed out, there is an¬ other suggestion Avhich does preserve existing routes. and channels of trade, and you can keep the gateAvay open at Omaha if you like, and keep up the channel Avith the North Western as far as traffic and commercial conditions and competition Avill permit. Q. I suppose that while there is an existing route and channel of trade and commerce between the Burlington on the one hand and the Northern Pacific and Great Northern on the other, there is also an existing route and channel of trade and commerce betAveen those northern lines and the Chicago & North Western, isn't there? A. Yes. Q. But not of nearly as great importance or Avith nearly as close relationship, as in the case of the Burlington. A. I presume not. Q. Well, don't you think it Avould be logical, other things "being equal, to provide for a consolidation whicli would preserve to the 70 greatest extent possible tbe existing routes and cshannels of trade and commerce! A. You have got to balance all the features, Mr. Scandrett, and not one single point. If it were only that one question, this relation¬ ship of nine to five, it would indicate a preponderance with a view of associating the Union Padfio mid NorÜi Western, but, as I have tried to point out, the other features in my judgment, inasmuch as there has got to bo a choice made there anyway, overweight and overbalance to the contrary, Q. Now, the other great requirement of the Act is that competi¬ tion shall bo preserved as fully as possible. There is not any question in your mind, is there, that less competition would be eliminated by the consolidation of the Union Pacific and the North Western than by the consolidation of the Union Pacific and the-Milwaukee t A. Well, I presume that is true. The Chicago & North Western has a line that reaches dear.out into Wyoming, but I doubt if there is much competition between that line and the Union Pacific. But, as I have pointed out this morning, the competition between the Union Pacific and the St. Paul as applying to northwest points is easily witliin the reach of the adjustments which you have aœom- plished in this Central Pacific decision. Q. Now, then, the statute requiring that existing routes and chan¬ nels of trade and commerce be preserved as fully as possible, and that competition be preserved as fully as possible, it being the fact that both of those requirements of the statute are more nearly met by con¬ solidation of the Union Pacific and the North Western than by con¬ solidation of the Union Pacific and Milwaukee, what are the facts which in your judgment override that situation and make a consoli¬ dation of the Union Padfio with the Milwaukee more ha harmony with the spirit of the law than a consolidation of the Union Pacific with üie North Western! A. As I pointed oul^ the other features of the Act seem to me to require just as much consideration, that is to say, that the systems must be so arranged that they can on the same rates operate at sub- 71 stantially the Same eoat and earn suhatantially the eame return on value. Now, I think a frank analysis of what Systems 14 and 15 indicate as compared to the Union Padfic Syatmn, as I have outlined it, indi¬ cate that those portions of the law have not to any suhstantial degree been met. Now, I do not characterize the St. Paul Eailway as a weak line by any manner of means. The eastern mid of the system is quite comparable with that of any other system occupying like territory. Mr. Byxam testified that the western end was not operating to its best advantage because of ladi of volume of business, which I suppose may be translated into the expression that it is not relatively supporting itself as compared to the eastern end of the system. So I think applying those features of the law, and particularly as I have not been able to detect any signs of the Union Padfic System being burdened yet with any so-mdled weak lines, that it is quite a legitimate suggestion, that the Union Pacifie provide the western end of the St. Paul with additional traffic, be(M.UBe the distance is some¬ thing like 300 miles shorter to Chicago, and it is an efficient line. AE it needs is more business. The eastern end of it is a magnificent prop¬ erty, and I.assert again that I simply submitted that as an inteEigent and logical, however distasteful, suggestion. Q. Now, in point of fact, w^ cannot tdl anything about the re¬ turn that is being earned or wEl be earned by any of these systems untU we know what their value is, can we! A. I think I could tell you about your system because you have not got the slightest disturbance of traffic in sight, so far im I can sec. Q. No, what I am getting at, Mr. Holden, is that aE of your figures are based on the return of property investment account and you, of course, know that some of the railroads, based on the resiEts that they have so far announced, wEl be ^ven a value by the Interstate Com¬ merce Commission substantially in excess of the property investment account and some substantially less than the property investment account; you know that. A. It seems to be indicated. 72 Q. And the property investment account is not a safe anchor to base anything on at the present time, is it, Mr. Holden? A. . It is not the only one, of course, nor the one the railroads be¬ lieve in, hut it is the one that was used in Ex Parte 74, and as long as you use it the same with all lines alüce it is useful for purposes of this kind. Q. The aggregate figure might he substantially an accurate one, hut tlie component parts of it might, some of them, he very inaccurate. A. That is true, but in such a large aggregate figure, those minor dil'ferences, I doubt if they would be hardly noticeable in the percent¬ ages you finally get to. Q. Then, as I get it, the reason which out\yeighs the fact that the existing route and channel of trade between the Chicago & North Western and the Union Pacific is the stronger one, if we may use it in the sense of the interchange being greater, and that it outweighs the fact that the consolidation of the Union Pacific and the North Western would eliminate less competition than the consolidation of the Union Pacific and the Milwaulcee—I say the fact that outweighs both of those facts, in your judgment, is that the Milwaukee, not being as good an earner as the Chicago & North Western, will perform a useful service in diluting the strength of the system of the Union Pacific? A. It is one way of phrasing it. It might be phrased in another way. Q. That is the gist of it anyway. A. I am not seeking to dilute the Union Pacific System, Mr. Scan- drett. Q. No, but I understand your point is you are aiming to get four groups which will comply with the other provision of the statute, that they shall be so constituted as under the same schedule of rates the return earned on their value will be substantially the same. A. I think that is what we are trjdng to find here in this inquiry. Com. Hall: Just a moment, Mr. Holden. Q. (By Com. Hall.) A moment ago in response to some question of Mr. Scandrett's you referred to the property investment account 73 of the railroads as having- been used in Ex Parte 74. You naean used by the railroads, don't you? A. I ought to have elaborated that. It was used by the railroads and I thought it was given consideration by the Commission. The Commission also considered the results of federal valuation and all other pertinent facts. Q. And a number of other things? A. Yes. Q. And the figure that was arrived at happened to be in the neigh¬ borhood of the jjroperty investment account, but it was not arrived at by reason of any addition to or deduction from the property invest¬ ment account; in other words, the property investment account was not taken as a base or even as a corrective. It was considered in con¬ nection with other things. The way in which that valuation was arrived at has been de¬ scribed, as stated before the Senate Committee at one time. A. I think yoii are quite right. Q. (By Mr. Scandrett.) Just one other point, Mr. Holden. I believe you stated this morning that you were Avilling that the Kansas City Southern be put in your Group 4 which is the Union Pacific group. A. No, I said if you preferred that, as I think your president in¬ dicated in some public forum or suggestion to that effect., it would be interesting, and I thought the Frisco would fit in \vith Group No. 1. Q. Did you include with the Frisco the International & Great Northern and the Texas & Pacific? A. Yes. Q. Then do I understand that you would be willing to modify your plan to that extent, by putting into Group 1 the Frisco, Texas & Pacific and the International & Great Northern, and into Group 4 the Kansas City Southern? A. I am quite willing to enter into a consideration of that, a! dis¬ cussion of .it, if you want to consider the four-group plan seriously, instead of in a hostile and critical attitude. I stand on Avhat I said. The addition of the International & Great 74 Forthora and tlio Texas & Pacific gives tlie Frisco access to Galveston and Now Orleans. Judge Lovctt, finally, later on in his statement discovered, after earlier in his statement professing to be able to discover no possible reason, that in constructing n route to the gulf for each of the four groups, that was one of the routes constructed, liccause it is an effi¬ cient route to-day, in active operation. Now, I say that if you criti¬ cize my Group 4 or that is included with your system, I am quite willing to exchange places with you, and if you prefer the Kansas City Southern—-and we are talking now about a matter of intellectual conception; we are not consolidating—am willing to trade places with you BO far as my personal analysis of the situation is concerned. Q. Unfortunately, I can only converso with you. I cannot nego¬ tiate. A. No. Q. That is over my head. - A. Wo can both express our Judgment as to what is logical group¬ ing. That is all I am doing. Mr. Scandrctt : That is all, Mr. Holden. Com. Hall: Any further interrogation of this witness, gentlemen? Q. (By Com. Hall.) Mi*. Holden, I wish you would make plain your idea about the T>. & IÎ. G. W. with a joint or tripartite ownership and operation there. In what system would it fall! We have blocked out some systems here. Would it fall in each one of the three systems where the oivners were? A. Are you speaking about the groups in the Commission's tenta¬ tive plan? Q. Yes. A. As I recall it, the tentative plan assigns it to the Santa Fe, It would fall there then, if that was the final decision. Q. Yes. A. If according to my suggestion to-day that it be made a bridge line, it would be partly owned by the Santa Fe, partly by the Burling¬ ton and partly by the Missouri iPatífie dependent as to that road as to what you decide as to the Southwestern lines. 75 Q. Then if the Burlington were in 14, let ns say—and that is ^vhere you would have it, wouldn't you, were the Great Northern there also! A. I would like to say right here that if the Commission should divide the Burlington from the Great Northern, we would have no surplus energy to devote to helping mature the D. & B. G. W. Eaüroad. Q. You mistmderstood my question perhaps. I said System 14 is where you would like to have the Burlington if the Great Northern were in there too! A. Yes. Q. And then if this idea or suggestion of yours ahout the D. & B. G. W. would ho followed, would that bring it in part in System 14! A. That would bring it in part in System 14. Of cnurse, I mn hardly answer that question and leave it in that place, Mr. Commis¬ sioner. In the first place, we do not advocate having both the Minneapolis & St. Louis and the Chicago Great Western assigned to System 14. That is a combination of favors which wo hardly think we ought to get away -with. We are willing to take one of the two, perhaps, as far as this grouping is concerned. But, to answer your question, if the Great Northern is put in System 14, with a joint interest in the D. & B. G. W. as far as Ogden and with an open gateway at Ogden, that substantially meets the out¬ lines of my discussion, leaving the southwestern situation aside for a moment. Q. Now, let me put my question in another way. Without taking any of these numbered systems here, but assuming that the Santa Fe, the Southern Pacific and the Burlington and . the other Hill lines will not all go in the same system, and also that the Missouri Pacific will not go into the same system, you would have two or three or more systems, each having an interest in the D. & B. G. W., according to your suggestion, wouldn't you! 'A. Yes! Q. Now, then, where would that put the D. & B. G. W.Ï Would it 76 1)6 in a system by itself or wonld it bo regarded as a part of each one of two or three or moro systems? Ä, The latter. I would not contemplate for it a group by itself. Q. Now, you understand the statute contemplates that this con¬ solidation is to bo in furtherance of the plan, which, if carried through, will ultimately mean that the properties in the system would bo owned and operated by one corporation. A. I thinlc that, of course, is the major conception, but I do not think it is exclusive by any means, Mr. Chairman, and I ttiink wher¬ ever fractional ownerships are desirable from the broader point of view of traffic, financial support and so forth, the lesser feature of just how üie particular ownerships should be held would be of lesser im¬ portance. Q. You think the Congress has not bid us to hew to that line? A. I don't know. Q. That these systems ultimately, if they prove to be right, fit the needs and correspond to the call that is laid down by the Con¬ gress, will result in a number of corporations equal to the number of systems, each owning and opemting its o\vn lines ? A. I think that is true. I think wo will get there if this enter¬ prise succeeds, and I do not see anything in the fractional interests that prevents it. In other words, if we had one corporation owning a given group of lines, I sec no reason Avhy that corporation by a divi¬ sion of stock or by some other method could not also own a frac¬ tional interest in such a road as the Denver & Eio Grande Western. The capital stock might be so- many hundred thousand shares and that might be divided.so that this company at the outset would own one- tliird of the shares. Mr. Bunn: Mr. Holden, are not there numerous terminals all through the country that probably must be handled in exacÜy that way? The Witness ; I was just coming to that. Mr. Bunn; The St. Paul Union Depot for example. The Witness : I was coming to that. We have often spoken of the law in that situation, but since the last hearing I have been thinking 77 how in the world we are going to hold such an institution as the St. Louis Terminal, the Kansas City Terminal and many smaller cases over the country unless we find that the law permits the owning of fractional interests in these large corporations. Q. (By Com. Hall.) We have recognized the importance of the terminal problem and we have postponed it through the laying out of the ribs, or laying down of the ribs of these various ships here. Of course, we have not attempted in the tentative plan to indicate by name all of the companies that o^vn properties that would go into these systems ? A. Let me make this suggestion: one company could o^vn the Denver & Kio Grande and give a long term trackage contract or a con¬ tract relationship to the others, if the technical legal question was the one stumbling block, so that you would get practical results. Q. You think the Denver & Eip Grande Western by its nature is plainly such a bridge line that either through separate constitution, as a separate system or in some other manner, the rights of the systems, that you have named to use it for bridge purposes and aU other pur¬ poses should be recognized and embodied in this plan? A. That is my conclusion, plus a definite, final conclusion in the plan that the Ogden gateway remain open, and, as you indicate, I do not look at the D. & B. G. W. alone as a bridge line. It has a tremend¬ ously important local territory, which is susceptible of much greater development than has yet been accomplished, and I believe that these two or three larger lines, if interested in the D. & B. G. W. from either aspect would go farther towards developing the local territory of the D. &• B. G. W., broad gauging those narrow-gauge lines, and opening up the local territory than any other way that I can think of. Q. There was one other observation that you made in the course of your statement. I may not be able to quote it correctly, but it was the suggestion that there was no reason to anticipate construction would proceed more rapidly in the west than in the east in years to come. A. I don't think I said construction. Q. You did not put it that way. 78 A. I said volume of expenditures. Q. You said the growth of the population and of the industries, I tldnlc, there is no reason to anticipato that they meant that would be more rapid in the west tlian in the east, hut it was said in its bear¬ ing on railroad development, in connection with your four systems, and their adequacy towards supplying the entire western portion of the United States! A. That is what I said; "It may fairly be assumed, based upon not only the five-year period referred to, but upon past experience in general, that no more rapid growth in population nor in the demand for railroad expenditures may be expected in western territory than in eastern territory, and these objections seem to me to be not well grounded." Q. Is that your deliberate judgment, Mr. Holden! A. I think so, Mr. Commissioner, without doubt, when you cany in mind the rapid growth in population east of Chicago, in recent years, compared to the population west, the growing demand of these densely populated communities for expenditures of one kind or an¬ other, the increase in industrial activities, calling for the greatest possible ingenuity on the part of railroad engineers, for instance, in serving these compact industrial communities. I have thought this over since the time the suggestion had been made before, conversed Avith others about it and I find no difference of view, that the problem in the eastern territory promises intricacies, more difficulties, and probably more expenditures, Avhen you consider the large public demmids as to grade separations, and things of that kind, where the conununities are dense, than in the western territorj'. Q. But you did not— A. Now, may I just go on a moment, as that reminds me of some- tliing. Judge Lovett in his statement seemed to differ with me on that point and to think that because of the widespread geography west of Chicago, and a relatively new country, that the problems of operating officera were greater out there, promised to be greater out there than in the east. 79 I do not find confiimation of that anywhere." One of the simplest operating problems is a thin western line serring an agrienltural com- mnnity, with little mantifacturing, small equipment and industrial trackage, and a relatively sparse, condition, compared to what you see when you go between here and the Atlantic seaboard via any one of the standard routes. A division superintendent in the western country can and is to¬ day easily handling 400 to 600 miles of line in the agricultural terri¬ tory. I don't know what they handle down east, but I imagine a frac¬ tion of that, a small fraeticm of it, partioularly of centers of popula¬ tion. They have add^ terminal superintendents with great frequency in the east where we rarely see thran in the 'SFest, except in one or two or three of the larger cities. So I think if you make a comparison of the actual activities, not only in the operating but in the engineering departments, in the traffic departments, taking the staffs of men and taking a survey of the tour of duty of the relative officers, eastern and western roads, you will find I am justified in saying that the problems are much more simple out there than they are east. Q. The railroad construction, new line construction, however, is more apt to be in the west than in the east, is it noti A. I think so far as new miles of line are cont^med, yes, "but at the same time there is ^ing on steadily down there third and fourth tracks and lines aromid dense terminals to expedite movement and cheapen the cost, so that the net results, as to whether the railroad construction as a whole would be more in the east than in the west, I would not venture a judgment on. Com. Hall : Yes, that has explained in fnU your statement. I was not sure I got the last of it.