3?5 o^^ v^ ^^ a^ v s-^ o The Railway as the Business Mans Partner By WILLIAM WILSON FINLEY President, Southern Railway Company One of a Series of Lectures Especially Prepared for the Alexander Hamilton Institute ALEXANDER HAMILTON INSTITUTE ASTOR PLACE, NEW YORK CITY, U. S. A. WILLIAM WILSON FINLEY WILLIAM WILSON FINLEY. William W. Finley, President of the Southern Railway, nnust be accounted one of the big railroad men of his genera- tion. During the early periods of his career he was able to study his profession in its many aspects, as few men have had the opportunity to do, as he served various roads in widely differing capacities, and also familiarized himself with conditions in several of the most important sections of the country. When called upon, therefore, to assume the duties of a high official position he soon demonstrated his ability, and as the progressive and energetic head of the largest railroad system in the Southern States his person- ality commands attention. William Wilson Finley was born on September 2, 1853, in the little village of Pass Christian, on the gulf coast of Mississippi. This town is one of the oldest in the United States, having been settled by the French early in the seventeenth century. He was educated in private schools at Pass Christian and grew to early manhood in the atmosphere of this picturesque section of the South. At the age of twenty he entered the service of the old New Or- leans, Jackson & Great Northern and the Chicago, St, Louis & New Orleans Railroads. This was on May I, 1873, and until March 1, 1883, he loyally stuck to this typical pioneer system, which was in a chronic state of bank- ruptcy. He spent three years as stenographer in the vice- president's office, nine months as secretary to the Receiver, one year as secretary to the agent for the trustees, four years as chief clerk of the general freight department, and three years as assistant general freight agent. In these positions he gained much valuable experience, and attracted attention in railroad circles as a young man of promise. On March 1 , 1 883, he was offered and accepted the post of assistant general freight agent of the Texas & Pa- cific division of the Missouri Pacific Railway, which he held until December 15, 1885. From the latter date until July, 1 886, he was assistant general freight agent for the receiver of the Texas & Pacific Railway, and from July, 1886, to September 15, 1888, general freight agent of the same road. From September 15, 1888, to May, 1889, he was 'n> !^ general freight agent of the " Pan Handle Route," compris- ing the Fort Worth & Denver City, the Denver, Texas & Fort Worth, and the Denver, Texas and Gulf Roads. In May, 1 889, Mr. Finley became chairman of the Trans-Missouri Traffic Association, with headquarters at Kansas City, Mo. On October 1 , 1 890, he went to the Western Passenger Association at Chicago, 111., and served until May 20, 1892, in the same capacity. From May 23. 1892, until April 10, 1895, he was general traffic man- ager of the Great Northern and the Montana Central Rail- ways, and from April 10 to October 1, 1895, commis- sioner of the Southern States Passenger Association at At- lanta, Ga. On October 1, 1895, Mr. Finley went to the Southern Railway as third vice-president. It will be seen that he had received a thorough training before he entered the service of the road with which he was to make a lasting rep- utation. From May 15 until September 15, 1896, he was second vice-president of the Great Northern Railway, but on the latter date he returned to the Southern Railway as second vice-president. In December, 1906, he was elected president of the Southern Railway Company, succeeding the late Samuel Spencer, and has filled this place vnth marked distinction ever since. He is also president of the Southern Railway Company in Mississippi, the Mobile & Ohio Railroad Company, the Cincinnati, New Orleans & Texas Pacific Railway Com- pany, the Alabama Great Southern Railroad Company, the Georgia Southern & Florida Railway Company, the Vir- ginia & Southwestern Railway Company, and the Northern Alabama Railway Company. He is also a director of the Chicago, Indianapohs & Louisville Railway Company, the Old Dominion Steamship Company, and other companies. On March 3, 1910, the degree of LL.D. was conferred upon Mr. Finley by Tulane University, of Louisiana, and on June 2, 1910, the same degree was conferred upon him by the State University of Kentucky. Mr. Finley is widely knowTi as a student of transporta- tion problems. He is a fluent and convincing speaker, and his addresses delivered in various sections of the country have done much toward making the railroad situation clear to the public. The Railway as the Business Man's Partner By WILLIAM WILSON FINLEY The railway is the partner of the modern business man in a very real sense. Whether he be a producer or a distributer, transporta- tion in some form is necessary for the carrying on of his business. The railway, which is the most efficient and economical means of trans- portation by land that has yet been^devised, en- ters into every stage of business, from the con- centration of raw materials at the factory to the distribution of finished products to whole- salers, retailers and to final consumers. It en- larges the area over which each producer and distributer can do business. Without it, or some equally efficient means of transportation, the producer of any commodity would find the area from which he could draw his raw ma- terials very much restricted and would find his business confined to supplying only such an amount of that particular commodity as could be consumed within a restricted area. The distributer would be limited to selling in a narrowly restricted market and to handling in large volume only such articles as could advantageously be produced in his neighbor- hood and for which there might exist a large local demand. He could sell, only in small quantities, articles produced in other localities, the selling price of which would be greatly enhanced by the cost of their transportation in wagons or on pack animals. Commerce Before the Railroad Era It was the partnership between transporta- tion and all kinds of business which, from the dawn of history to the development of a prac- tical steam locomotive by George Stephenson, less than a hundred years ago, confined the development of manufacturing and merchan- dising on a large scale principally to localities having the advantage of natural or artificial waterways. The seas, the lakes and the navi- gable rivers were the great commercial high- ways of the world. Population was concen- trated in proximity to the waterways. Inland regions were but sparsely peopled, for even agricultural population tended to concentra- tion in areas within practical wagon-haul of the cities and towns on the waterways. The relatively few people in localities at greater distances from water transportation labored under substantial economic disadvantages owing to the difficulty of marketing what they produced and of obtaining the products of other regions. Each community, and, to a 6 large extent, each family, produced the greater part of the commodities which it consumed. However rich such an inland community might have been in natural resources and in opportunities for agricultural and industrial development, its people had no incentive to make use of their advantages beyond the point necessary to supply their own needs. The scale of living in such localities was relatively low. The actual necessaries of life were usually abundant, though generally lacking in variety, but even the most wealthy could scarcely ob- tain articles which are now in almost universal use, and which have come to be regarded as essential to comfortable living, even by families of very moderate means. Rzdlways Ejilarged the Earth To a limited extent canals aided in interior development, but vast regions were rendered capable of profitable agricultural and indus- trial development and were enabled to sup- port relatively dense populations only when the economic efficiency of the railway had been established. George Stephenson and the great army of men who have followed him in the construction and operation of the railways of the world may be said to have enlarged the earth, economically speaking, for they have increased many fold its capacity for sustaining human life. Transportation Makes Possible Specialization Owing to differences in climate and to the localization of supplies of minerals and other natural resources, certain localities have ad- vantages for the production of certain things, and other localities have advantages for the production of other things. Transportation makes possible the specialization of industries. It enables the people of each locality to de- vote their energies chiefly to producing those things for which they possess superior advan- tages. They can produce these commodities in much larger volume than is necessary to supply the local demand, selling their surplus in the markets of the world, and supplying their needs for other commodities from the surplus production of other localities. This may be made clear by an illustration. Natural advantages have made Pittsburg a great center of iron and steel production, and, upon the foundation of this primary industry, there have been built up a great variety of secondary industries which use iron and steel as their raw materials. If the manufacturers of the Pittsburg district had been restricted to the markets of their immediate neighbor- hood, supplemented only by such as they could reach by wagon-haul and water trans- portation, their iron and steel industry and their many secondary industries would be small indeed as compared with their present proportions. The railway has been the active 8 partner that has made the present day Pitts- burg district possible. It lends a helping hand at ever};^ stage of the iron and steel industry from carrying ore, lime, coal and coke to the furnace to hauling to market the finished pro- ducts in all their forms, from the structural material for a great steel building to a cambric needle or the hair-spring of a watch. By col- lecting and carrying into the markets of Pitts- burg the products of other localities in the United States and foreign countries, it enables the people of that district to concentrate their energies upon their own great industries. Such illustrations might be multiplied in- definitely, and it could be shown that the rail- way is directly or indirectl}^ the partner of every individual except those, if there be any such in any civilized country, who are self- supporting in the narrowest sense of the word, using no foods, clothing, furniture, or imple- ments except such as they or others living in the same way in their neighborhood produce, and who aid in the production of nothing that is to be carried out of their locality. The Railway and Its Territory Are Partners Partnership implies working together for a common end. The owners of each individual enterprise in a community along the line of a railway, whether it be a farm, a factory, a mine, or a mercantile establishment, are all working for the development and prosperity of their individual business enterprises. The sum of their achievements represents the ad- vance of the community as a whole, and each one of them may be said, therefore, to be working for the benefit of the community, even though he may contribute nothing to public-spirited movements. Intelligent self- interest impels the railway to be an active partner in this work of community develop- ment. The volume of its business is abso- lutely dependent upon the demand of the communities along its lines for transportation service. It follows that the business of a rail- way can be increased only as this demand for transportation service increases. Hence, we find the railways of the United States gener- ally working, through land and industrial de- partments and various kinds of advertising, to aid the development of the territory which they traverse. The Law of Increasing Returns The work of the railways in this direction is based on sound business principles, for the reason that the business of transportation by rail is subject to the economic law known as the law of increasing returns. Under the operation of this law, so long as the volume of traffic is not so great as to tax the facilities of the railways beyond their capacity for eco- nomical operation, each increase in that vol- ume results in a decrease in the unit cost of operation. lO This grows out of the fact that, as the volume of business handled by a railway in- creases, its expenses do not ordinarily increase in the same ratio. A certain proportion of the expenses of a railway, including its fixed charges, taxes and, to a large extent, its gen- eral expenses, bear practically no relation to the volume of business handled. Expenditures for maintenance of roadway and structures are, to a certain extent, de- pendent upon the volume of business, but, if the railway is to be operated at all, a very considerable proportion of them must be made whether the business is heavy or light. Ex- penditures for maintenance of equipment are affected to a much larger extent by fluctua- tions in the volume of business, but a certain proportion of these are due to deterioration which would go on whether the equipment was in use or was standing idle on side-tracks. Practically the only expense which may be said to vary directly with fluctuations in the volume of business are those for conducting transportation. It will be seen, therefore, that, so long as the aggregate volume of traffic is not so large as to tax the facilities of the railway beyond the point of economical opera- tion, an increase in the volume of business does not bring about a proportionate increase in the total cost of maintaining and operating the property. II Filled Seats Cost No More Than Empty Seats This may be illustrated by referring to the passenger business. On some lines of railway, in the more densely settled parts of the country, the volume of passenger traffic is so heavy and regular that the railways can count on having many of their trains filled to their capacity on every trip. This is particularly true of suburban traffic and passenger busi- ness between large cities. Even on such rail- ways, however, there are many passenger trains which must be run to accommodate the public even though they may carry very few passengers. On railways in more sparsely set- tled regions a passenger train loaded to its capacity is the exception, and the average number of passengers per train may be rela- tively small. It costs the railway practically as much to haul a passenger train over its road with all of the seats empty as with them filled. It is apparent, therefore, that if by aiding in the development of its territory a railway can make any addition whatever to the average number of passengers carried in its trains, the result is to decrease the expense of carrying each passenger and make a corresponding addition to its net revenue. Advantage of Traffic Density In the same way, ideal conditions affecting the movement of freight on a railway would consist in having each freight car loaded to 12 its capacity and having each freight train made up of these loaded cars to the Hmit prescribed by the tractive power of the loco- motives in use and the maximum grade to be encountered. Under these ideal conditions, there would be no movement of empty freight cars, but each car, on being unloaded, would be able to obtain a return load at the same point. Such ideal conditions are impossible of attainment, but railway managements are constantly striving to approximate them as nearly as possible. Especially in local freight train service, trains must be operated that are far below the tractive power of locomotives, and, as freight must be loaded and unloaded at each station, it is impracticable to load the cars in such a train to their capacity. It is apparent that the average loading of local freight trains could be very substantially increased without materially increasing the cost of their opera- tion. Through freight as a rule is handled more economically. Cars can more generally be loaded to their capacity, and, under some conditions, solid train loads can be hauled for long distances. But, even in the through freight business on main lines, the traffic is generally heavier in one direction than in the other, necessitating more or less movement of empty cars. It is the aim of the management of a railway, therefore, to co-operate with the communities on all parts of its lines for the development of a greater density of traffic and 13 with a view to building up, as nearly as pos- sible, an equal volume of traffic in both direc- tions, so as to reduce the percentage of empty car mileage to a minimum. It will be seen, therefore, that the railway, in its partnership with the business man, has a direct and vital interest in his prosperity, for, unless the volume of its traffic is sufficient to tax its facilities to the limit of economical operation, each additional unit of traffic which the business man can give to the railway to be handled at remunerative rates adds to the net income. The Guiding Principle of Traiffic Officers This co-operation of the railways is not limited to aiding in securing the location of additional inhabitants and industries. It goes farther, and the railway is an active ally of the business man in his efforts to extend his markets. This is reflected in the freight rates of the American railways, which are lower than those of any other country, notwith- standing the much higher rates of pay of American railway employees. This has been brought about largely by the efforts of Ameri- can railway managers to enlarge the markets of producers on their lines. A guiding prin- ciple of traffic officers is to make rates to move the traffic. The traffic officer endeavors so to adjust his rates as to secure the best net re- sults from the entire volume of traffic, but he can consider neither the capitalization of his 14 company nor the value of its property as a controlling factor in rate making. His dis- cretion is confined within very narrow limits by competitive forces beyond his control and by the necessity of making rates that will move the traffic under the competitive market conditions which the business men on his line must meet. The Business Man $ Interest in Railway Prosperity Partnership implies not only working to- gether for a common end but also mutuality of interest. Each partner is interested not only in the success of all the partnership undertakings, but he is interested in the in- dividual success of each of his partners. I have shown that, in the partnership between the railway and the business man, the railway is interested in the prosperity of the business man. The latter is no less interested in the prosperity of the railway. We have seen that, in our modem civiliza- tion, transportation is directly or indirectly a factor in all business, and that, without effec- tive agencies for the concentration of raw ma- terials and the distribution of finished pro- ducts, business opportunities would be very greatly restricted. It follows that the pri- mary interest of the business man in the rail- way is in adequacy of facilities and efficiency of operation. If he is doing business in a community, the railway facilities of which are sufficient to handle only eighty or ninety per 15 cent, of the business output of the community, his operations are correspondingly restricted. He can hope to maintain and increase the volume of his business only if the railways are able to provide additional carrying capacity. The ability of the railways to do this is di- rectly dependent upon their credit, which in turn must be supported by a sufficient margin of net income over the costs of operation to attract capital to investment in railway enterprises. The Limits of Governmental Regulation As a railway is a public highway, it is a proper function of the government to protect all travelers and shippers from undue dis- criminations in charges or in service when the service is performed under substantially similar circumstances and conditions. As the operating company must exercise a monopoly of transportation over this highway, it is a proper function of the government to prevent unreasonable or extortionate charges for the service performed. Neither as a matter of sound economics nor of sound public policy can governmental regu- lation of the railways be carried beyond these limits, and it is to the interest of the business man that it should not be. It is to his inter- est that the railway should receive just and reasonable compensation for each specific serv- ice which it performs, as it is only in this way that railway credit can be maintained and i6 adequate facilities be provided. It is, I be- lieve, a property right in which a privately owned railway is protected by the Constitu- tion of the United States to receive just and reasonable compensation for each specific serv- ice performed, and I believe that it is to the ultimate interest of the business man that the railways should be protected in this right rather than that by the exercise of govern- mental authority their revenues should be so reduced as to restrict the value of capital in railway enterprises. Prosperity and Railroad Progress The business man has still another interest in the prosperity of his railway partner. There are on the pay-rolls of the railways of the United States more than a million and a half of employees. The purchasing power of each member of this vast army is dependent upon the maintenance of the wage-paying power of the railways. The money received by railway employees finds its wa}^ through all the chan- nels of trade and is a factor of local business importance in practically every community in the United States. The railw^ays are also large purchasers of the products of industries which in turn support another vast army of em- ployees. Through these channels, the bene- fits of the maintenance of wage-paying and purchasing power are so widely distributed as to reach directly or indirectly practically every 17 3 0112 072423046 individual in the United States, whatever may be his business or occupation. This interest of the business man in the railways was very well expressed in an address by one of the most prominent merchants of the United States, in which he said: "Let any merchant look over his records for years; let him note the fat years and the lean years; let him then mark the years of railroad extension and railroad improvements — of railroad spending. Let him mark on the other side the years of railroad retrenchment, and he will find that the years when his pros- perity has waned have been the years when the railroads were not progressing." 18 iSOki UN