PUBLIC OWNERSHIP OF
RAILROADS
I V "
STATEMENT
OF
HON. ALBERT M. TODD
PRESIDENT OF THE
PUBLIC OWNERSHIP LEAGUE OF AMERICA
IN THE
HEARINGS BEFORE THE COMMITTEE
ON^kgTERSTATE COMMERCE, UNITED
STim6s\lSENATE : : SIXTY FIFTH
\_CoNGREy s : : : THIRD SESSION
FEBRUARY 21, 1919
SEP 26 1960
GOVT.
ROOAi
WASHINGTON
GOVERNMENT PRINTING OFFICE
1919
" This country and all that is within it belongs to the people who inhabit
it." Abraham Lincoln.
"Every measure must be tested by this question only: Is it just? Is it for
the benefit of the average man, without influence or privilege? Does it embody
the highest conception of social justice, without respect to person or class
or particular interest?" Woodroiv Wilson.
" Real public ownership is the essence of democracy. Instead of dividing
men into masters and mastered, it brings men together in a union of interest,
and affords the conditions necessary for the highest traits of conscience and
character." Prof. Frank Parsons of the Boston Law School, in " The City for
the People."
" In its search for truth the commission had to overcome many obstacles,
such as the burning of books, letters, and documents and the obstinacy of
witnesses who declined to testify until criminal proceedings were begun for
their refusal to answer questions. The New Haven Railroad system has
more than 300 subsidiary corporations in a web of entangling alliances with
each other, many of which are seemingly planned, created, and manipulated
by lawyers expressly retained for the purpose of concealment of deception."
V. 8. Interstate Commerce Commission, July 11, 1914.
2
PUBLIC OWNERSHIP OF RAILROADS
STATEMENT OF HON. ALBERT M. TODD, PRESIDENT OF THE
PUBLIC OWNERSHIP LEAGUE OF AMERICA
IN THE HEARINGS BEFORE THE COMMITTEE ON INTERSTATE COM-
MERCE, UNITED STATES SENATE, SIXTY-FIFTH CONGRESS,
THIRD SESSION, FEBRUARY 21, 1919.
Pages.
PART I. PRELIMINARY BRIEF 3-11
PART II. BASIC PRINCIPLES OP PUBLIC OWNERSHIP AND ITS ACHIEVEMENTS
THROUGHOUT THE WORLD 11-20
PART III. RAILWAY EXPLOITATION UNDER PRIVATE OWNERSHIP 20-44
PART I. PRELIMINARY BRIEF.
Now that the curtain is falling on the last scene of the greatest tragedy of the ages
born of avarice and the lust for power we rejoice together that a new day is about to
dawn upon our world, in which we hope no drainas of hate and avarice will ever
again be enacted by the nations, but from the sacrifices of blood and treasure which
have poured upon liberty's altar, absolute justice shall become the universal law.
During the enactment of this great tragedy the minds of men have been so largely
engrossed in preserving human liberty from military aggression, that many questions
of high importance relating to the economic prosperity of the American people could
not receive fair consideration.
Among these great economic problems those involved in the determination of the
ownership and operation of our great public utilities, and particularly of our railroads,
now demand the first attention of Congress.
Many years of experience both as a shipper and consumer, and as a student of the
problem in both our own and foreign countries, have convinced me that there is only
one way in which the problem can be justly solved and that is by actual national
ownership as well as governmental operation. For years the conviction has grown
upon me that the ownership and operation by the Nation of all those utilities neces-
sary for the common good is not only a natural and just function of government, but
is absolutely necessary to secure democracy, justice, and prosperity.
I shall accordingly discuss this question from the standpoint of the largest economic
and political good in the interest of our entire citizenship, and especially of the Public
Ownership League of America, the members of which body have requested me to
represent them in these hearings. This league, of which I have the honor to be
president, does not advocate Government ownership of private industries, but is
4 EXTENSION OF GOVERNMENT CONTROL OF RAILROADS.
largely devoted to studying and applying the practical problems of democratic gov-
ernment in a broad and impartial manner, and sending its findings to all parts of the
country. It is especially interested in promoting Government ownership of those
resources and agencies which are natural monopolies and which the Government
can own and manage better for the general public welfare than they can be owned and
managed by private interests.
Up to several years before the war there was some room for doubt as to whether it
was entirely desirable and practicable at that time for the Federal Government to
take over the ownership and control of the railways. Subsequent events now throw
the burden of proof on those who claim that our hundreds of railway systems in private
hands can not be adequately and profitably controlled by the Government in the
public interest.
After over 30 years of acquaintance with this problem as a manufacturer and shipper,
as a member of the National House of Representatives, as a citizen interested in his
fellow men and the ultimate success of democracy, after many months of study of
Government-owned railways in the countries of Europe and documentary study of
their operation in other countries, and after long study and direct acquaintance with
the ways our railroads have debauched and swindled the American people and Govern-
ment, as I showed you when I presented our case on January 29, 1918, I have become
convinced that Government ownership of our railways is as much a necessity for
peace, progress, and democracy in this country, as is the League of Nations a necessity
for peace, progress and democracy the world over.
In the more extended argument and proof which we wish to place in the volume
of hearings, of which this is but a brief introduction, and which we should like to
present in full orally if there were time at our disposal, we have urged your favorable
consideration of the bill and the general proposition for Government ownership of
our railways which was intrioduced in the House of Representatives by Mr. Gary on
March 7, 1918.
We respectfully urge that this honorable committee report to the Senate in favor
of actual Government ownership of our railways for the following reasons:
First, Government ownership of our railways is desirable; second, it is practicable;
and third, it is the only right solution of our great reconstruction problem.
I. Government ownership and management of our railways is highly desirable:
F|rst, because it, like our postal service, will be run for the general social welfare,
not for any particular group or class of men.
Second, because the railways are a natural monopoly, and a private monopoly is
abhorrent to democracy.
Third, because Federal and State Government regulation has ever failed of its
purpose and will continue to do so no matter how "stringent" Congress attempts to
devise the regulations.
Fourth, because of the tremendous evils of private ownership under either strict
regulation or even Government control without ownership.
Fifth, because the Government has shown that it can handle the railroads success-
fully, even under the most adverse conditions and in the face of a host of unparalleled
obstacles which would not have been so well met by the railroads even if free from
all regulation.
A list of 15 of the most serious of these obstacles and a list of 25 of the most out-
standing accomplishments of the Railroad Administration we give in the body of
our argument.
Sixth, because the two Directors General of the Railroad Administration, with the
consent of President Wilson as indicated by Mr. McAdoo, have asked for a five-year
eontinuance of Government control which is practically an argument for Government
ownership, both Mr. McAdoo and Mr. Hines asserting that Government ownership
would solve the whole problem very simply and effectively, even if they did not
personally favor it.
Seventh, because the service of the railroads to the people can be vastly improved
over what it has been under private control, or would be if the regulations were changed
as requested by the railroads.
Eighth, because all interests can be better taken care of as a whole than under
private ownership those of the investors, the employees, the executives, the ship-
perSj the consumers, and the general public.
Ninth, because the people of this country are sick and tired of the mismanagement
of the great transportation systems of this country in the interest of a few financiers,
and demand a decided change, preferably Government ownership.
As a partial indication of the demand for public ownership beyond the evidences
you have before you, we present the following petitions from many workingmen's
organizations, shippers, merchants, and the general public, with 5,000 actual signa-
EXTENSION OF GOVERNMENT CONTROL OF RAILROADS. 5
turos, and representing many thousand more. You can not judge the unrest and the
public demand by the press, since the common people do not have much of a voice
in our press, especially not as much as have the predatory classes.
Tenth, because corrupt control of many public officials wou^d be less in evidence
if this railway business were handled as is the post office.
Eleventh, oecause there would be more initiative and originality developed in
this work under proper provisions directed thereto than exist under private
management.
Twelfth, because the workers would have a better chance to live happy, efficient,
and democratic lives than under a system of private control and exploitation.
By evidence and argument in the body of our presentation attached hereto we
thus prove that public ownership of the railways is desirable.
II. Our second main line of argument is that it is practicable:
First, because it haa already been demonstrated that, under peace conditions, our
present Government organizations for railway control could effectively and econom-
ically manage our railways under a well devised scheme of Government ownership.
Second, because Government ownership of railways is in successful operation in
two-thirds of the countries of the world; because no country ever permanently
abandoned Government ownership of railways after once instituting it, no matter how
poor some of the plans of ownership and operation have been; and because if it can
prove a success in those smaller countries with their short hauls, higher costs of rights
of way, many provisions for sen-ing the public and safeguarding the employees and
with other financial handicaps which put them at a disadvantage in a financial statis-
tical comparison, it can not help being a success here. In fact, it has been well claimed
that it would be easier to operate all of the railroads of this country as a unified system,
under Government ownership and without the many legal and other handicaps under
which railroads must struggle as private enterprises, than it is to run one private
system like the Rock Island or the New Haven.
Third, because as has been abundantly shown, and as was pointed out by Senator
Newlands as chairman of this committee in 1916, the Government has the constitu-
tional right to take over these public-service instruments of transportation, and the
cost can easily be met by the Government through the issue of bonds. Let us have a
new issue of Liberty bonds that will free us from the many dangers of a great private
force for evil in our democracy.
Fourth, because Japan took over her railways after the Ruasian war and has managed
them successfully, and because England is about to nationalize her railways after this
war, as stated by the British minister of munitions on December 4 last, and since
then restated by the Prime Minister.
Fifth, because our Government has successfully built the Panama Canal and built
and operated the railways therewith, and because we have a great force of men in
the Army who have handled the most difficult of railway transportation problems
in France as a prime factor in fighting and conquering autocracy abroad. When
these men return, and with practical railway executives free from partisan or selfish
motives, instead of financiers in general control, either as a Secretary of Transporta-
tion and assistants as provided in Mr. Gary's bill, or otherwise, we can easily take
over these railways and give the world another great example of how democracy can
be made safe and successful for a great people.
Sixth, because it would be easily possible to continue the present Government
control of the railroads until the valuations of the properties now under way by the
Interstate Commerce Commission are complete, and thoroughly matured plans for
purcliasing linos can be worked out by Congress.
Seventh, because the interests now against Government ownership would speedily
come around to it after Government control and final ownership had been decided
on with equity to all; and especially v/hen these financial interests foresaw that the
large speculative profits and "loot" were to be eliminated by superior regulation.
As with municipal utilities, the strength of the opposition to public ownership de-
pends entirely on the efficiency of public regulation. Previous regulation haa made
:< looting" of the roads and public possible. The financiers still hope for the huge
speculation profits. Why not remove the loot and secure public ownership of the
railways at the same time, since they inevitably and naturally go together?
III. Our third general proposition is that the Government should take over the
ownership and control of the railroads because it is not only desirable and practi-
cable, but because it is the only right thing to do.
First, because the other plans open to us are all full of danger of continued discord
and injustice.
Second, because this plan alone will avoid the many conflicts of authority between
State and National authorities in this matter. We do not favor in detail lion. W. J.
6 EXTENSION OF GOVERNMENT CONTROL OF RAILROADS.
Bryan's plan of dual Government ownership, both by the States and by the Federal
Government, because in our judgment it will intensify this conflict of authority and
needlessly cause friction, rather than decrease conflict and friction, as thought by
Mr. Bryan. We highly respect Mr. Bryan's motives and patriotism, but we believe
this plan impractical.
Third, because Government ownership and control alone will relieve Congress
and our State legislatures of the overpowering burden of continual agitation of the
railway question. Peace is not possible at any other price; and the problems of
reconstruction apart from the railway question are so great that oiu- legislatures should
be free to work out the practices of democracy in these many emergency lines.
Fourth, because only through Government ownership can we best correlate the
railways with our merchant marine, our canals, the post office, and other public
utilities, such as the telegraph, telephone, and cable lines which will probably soon
be nationalized.
Fifth, because no other plan is more than a palliative of the railway disease and no
other will meet the test which President Wilson has set up for wise and just demo-
cratic legislation, in the following noble words:
''The days of political and economic reconstruction which are ahead of us no man
can now definitely assess but we know this, that every program must be shot through
and through with utter disinterestedness, that no party must try to serve itself, but
every party must try to serve humanity, and that the task is a very practical one
meaning that every program, every measure in every program, must be tested by this
questionj and this question only: Is it just, is it for the benefit of the average man,
without influence or privilege; does it embody in real fact the highest conception of
social justice and of right dealing, without respect to person or class or particular
interest? "
II. PUBLIC-OWNERSHIP BILL.
The bill which so far best embodies the principles which we have stated is H. R.
10550, introduced by Mr. Gary on March 7, 1918. We do not claim that it is perfect,
but that it is surely a good start for a sound and permanent solution. It may not be
best to have a secretary of transportation. We agree in most particulars with the
plan presented by the railway employees. The main provisions of this bill are aa
follows:
(1) It authorizes the President to take over the rail and water transportation systems.
(2) Compensation to owners is to be determined by the Interstate Commerce Com-
mission, based on the actual and legitimate cost of the railways.
(3) Until compensation ia awarded, 5 per cent income on true value as estimated
by the Interstate Commerce Commission is to be paid.
4) A secretary of transportation, to be the director of transportation, is provided.
5) Employees are to be permitted to form associations for their mutual benefit.
6) A minimum wage is to be fixed by the secretary of transportation.
7) $500,000,000 is appropriated for administration purposes.
8) Provisions for securing honest accounting are made.
9) Provisions for punishing those who wilfully obstruct the Government operation
are suggested.
Following this brief summary we present:
III. PLANS FOR MEETING OUR NATIONAL RAILWAY EMERGENCY.
Two gigantic emergencies face the United States to-day. One is bound up with
the problem of establishing a permanent peace for the world; the other is the problem
of reconstruction at home. The most important issue in the problem of world peace ia
the establishment of a League of Nations; the most important issue in our home emer-
gency is that of the democratic management and ownership of our railways.
Few indeed have failed to realize the world emergency and the importance of the
League of Nations; we have fought for this and nothing less will serve us as the reward
for entering the world war. We are not all so well acquainted, however, with the
importance of a satisfactory solution of the railway problem as the keynote of
national reconstruction.
There is a great danger that the world emergency in the establishment of a League
of Nations for international justice and a permanent peace will overshadow and
obscure our greatest reconstruction problem here at home. While our vision is turned
to Europe and our President's noble efforts toward achieving an instrument for perma-
nent peace in the world, many of our citizens are overlooking the work of powerful
private interests here that are attempting to secure an undemocratic and selfish
solution of the railway problem. There is great work abroad for our President and all
EXTENSION OF GOVERNMENT CONTKOL OF EAILEOADS. 7
who can help him in the international emergency; there is pressing work for all of
us to do here at home in meeting the national emergency.
Is it necessary for us to bring forward arguments to prove that the proper solution
of the railroad problem is the greatest reconstruction issue before America? In the
past the railroads have been the greatest source of economic loss to the whole people,
the greatest political evil, and the single greatest deterrent to loyal democratic
progress that has existed. Multitudes of facts from all skies and in the great volumes
of "hearings" before the Interstate Commerce Commission and the committees of
Congress are available for the overwhelming proof of this conclusion. The President
has already voiced the tremendous importance of the railway problem, and we may
pass on to the several suggestions for the solution of the great difficulty without
presentation here of all of the supporting facts. Billions upon billions of dollars are
involved in the solution of this railway issue; the most gigantic railway and financial
interests are determined to lead and force Congress to solve this problem as they
selfishly desire. To solve the problem aright now means a gain of probably 50 to 100
years of progress in our democratic growth; the success of private interests during
the Nation's present obsession with the world issue will make it increasingly difficult
for America to secure that democracy which she hopes to hold up as an example for
all the world.
The most important railroads have been taken over by the Government as a war
measure. This governmental control was to continue up to 21 months after the final
declaration of peace if need be. Former Director General McAdoo and the present
Director General Hines have urged that either the period of control be extended until
the first of January, 1924, in order that Government operation might be tested under
normal peace conditions, and that time for sound permanent legislation may be
obtained; or that the roads be almost immediately relinquished to their directors.
President Wilson has come out for no one plan of solution of the problem and has left
the entire matter to Congress. The great problem is thus before Congress and the
country.
In the thorough solution of any problem it is essential that a relatively large number
of possible solutions be suggested, and impartially and critically examined. As er-
Eected, many peace plans were proposed at lie Peace Congress. This has been -a
leasing, not an evil. After thorough criticism of these various plans, the final solution
is a far better one than if only one or tvro plans from one or two nations had been
presented. For the solution of our national railway emergency there are at least four
leading types of solution-. One of these, or a combination of two or more of these,
will be, in general, the final solution determined upon by Congress and the people.
The choice of some of these solutions would be disastrous to the American people and
the hope of present-day democracy. One or two of the plans contain solutions in
thorough accord with democracy and our general evolution as a free people.
We can not take the space here to examine exhaustively ach of these hypotheses.
Such a course would mean a presentation of the advantages and disadvantages of
each tentative solution proposed, and a conclusion as to the best possible solution.
This work has been somewhat exhaustively done and we shall present here only the
general arguments and supporting data which clearly lead to a rejection of all but one
of the conclusions.
The one common fault of all the plans so far submitted to the consideration of the
committee and the public, with the exception of those of the Directors General of
the railroads, is that they are devised to benefit more a particular class than the whole
public. Even those for some f orm of Government ownership and control have favored
one group more than another. The railway employees, for instance, want two-thirds
of their proposed board of directors for the national railway system selected from their
group. Former Secretary of State Bryan's so-called "dual plan" in our judgment
would plunge the country into the old "States-rights" fight again. The plans of the
associations of security-holders would give them special advantages. The plan of the
railway executives considers principally the desires of the great financial corporations
which have a private ruther than a public interest in the railways.
Another common fault of the plans that do not provide for outright Government
ownership or continued Government control, is that they fail to estimate properly
the immense difficul ties involved in going back to private control. The railroads
were in such a deplorable condition before the war, the needs of the reconstruction
period for the attention of Congress in other direct ions are so tremendous, the necessity
of connecting up the railways with the mercantile marine and our whole system of
water transportation is so impc-mt i ve the great probh-n of " unscrambling '' < lu> roads
after this period of unified Government control and operation is so difficult, if not
impossible the dangers of sending many roads into receiverships, bringing on an
industrial panic, and doing injustice to the owners of the roads, are so real and impend-
8 EXTENSION OF GOVERNMENT CONTROL OF RAILROADS.
ing the desirability of getting a permanent solution through congressional legislation
that will set the railway problem aside and leave Congress free to act for the country
along other lines is so much a national emergency, that we can not and dare not go
backward to private control at this time. The only path is forward along the natural
lines of evolution of a service that, like the postal system, unites all parts of the Nation,
penetrates all parts, and necessarily must course through all parts like the blood in
the circulatory system of our bodies.
These various" plans which have been proposed, including two or three which we
have tried atgreat expense and found wanting, are as follows:
I. Private ownership and management with no Government regulation.
I T. Private ownership and management with little Government regulation.
III. Private ownership and management with much Government regulation.
IV. Private ownership with exclusive Government operation.
V. Government ownership with private operation.
VI. Government ownership and Government operation.
We shall not take the time here to analyze each of these plans, going into the details
of the advantages and disadvantages of each with the presentation of evidence and a
final comparison of all to determine impartially which is best for the country. We
shall present only the sufficient arguments and supporting data which clearly lead us
to a rejection of all but one of the plans. In view of the fact that the railway valu-
ations by the Interstate Commerce Commission will probably not be complete until
about January, 1923; that the problem is the most complex and gigantic ever pre-
sented to Congress for solution, and in view of the pressing importance of a sound
and permanent solution, and for other reasons, too great care and too much thorough
study and scientific investigation can not be given to this emergency.
Congress is not obliged, however, to solve this problem permanently at once, nor
even within 21 months after peace has been declared. By a simple amendment, as
suggested by former Director General McAdoo, the time may be extended to give
opportunity for the valuation necessary to right action to be completed and a sound
study of the problem made. The prewar legislation of Congress has been so injurious
and unjust to the people at large, and the entire basis of competition instead of coop-
eration has been so false to the real principles of national transportation, that the
present need and demand is for an entirely new plan and spirit of national railway
ownership and management.
Plans 1 and 2: This country has for many years carried on the most expensive ex-
periment and test of private ownership and management with little governmental
supervision ever witnessed. It has found that private ownership and management
of railways is impossible and disastrous. Such plans would to-day wreck our very
democracy. No one advocates them. All agree that we must practically take over
the railways to secure their operation for the benefit of the whole people.
Plan 3: Even plan 3, which provides for private ownership and management with
a great deal of governmental regulation, supposedly in the interest of the whole peo-
ple, has so far proved a failure. This is the plan we were pursuing immediately pre-
ceding the war. As President Wilson said, this plan had nothing helpful or affirma-
tive in it. " It would be a disservice alike to the country and the owners of the
railroads," he said, "to return to the old conditions unmodified. Those," he said,
" are conditions of restraint without development. There is nothing affirmative or
helpful about them." All parties are agreed with the President on this matter. In
fact, the period of Government control to win the war has made such changes in
unifying and "scrambling" the roads that to restore them precisely to the prewar
status is utterly impossible. _ It can hardly be approximated. President Wilson
and the former and present Directors General of the Railways have indeed suggested
the return of the roads to private control very soon, but only as an alternative to a
plan which they consider very much better, the latter two declaring for a five-year
extension of Government control. All view euch a return to prewar conditions as a
calamity; and only an utter failure of Congress to act could thus turn the wheels of
democratic progress backward. We have faith that something affirmative and helpful
can be done. Let us pass on to examine it.
The different plans for strong governmental control, such as those of the railway
executives and tne majority of the Interstate Commerce Commission, have the fatal
difficulty of ultimate failure to regulate the railroads. The best-laid plans of the Na-
tion which have been and could be adopted would speedily prove inadequate, and the
old inequalities, injustices, and undemocratic developments would reappear. The
operation of railroads is a natural governmental function, in the public interest, to be
operated by the public for the public. They can not be owned by a class, operated
by a class, for a class. To attempt to struggle along with Government regulation is
like struggling to make water run up hill. A natural Government monopoly of this
size and character must be run by and for the people and to do this the people must
own it as they now do the Postal Service, and, in most other countries, the railroads.
EXTENSION OF GOVERNMENT CONTROL OF RAILROADS. 9
It is very significant that the Government of Great Britain, after struggling for years
unsuccessfully in attempting to regulate the railroads has, through the Minister of
Munitions, and as late as December 4, 1918, publicly announced that it was the Gov-
ernment's policy to nationalize the railways. "That great step," he said, "it has
at last decided to take."
England has also considered plan 5, that of providing Government ownership with
private management in the hands of one chartered company. But this plan prac-
tically means and loads to Government ownership. It is an experiment that is un-
necessary to take. All the initiative that has been displayed in private railroading
can be secured and all the necessary stimulus to workers can be obtained, without
recourse to the old means of providing competing lines. All the principal advantages
of the old can be procured without its disadvantages and the new stimuli to superior
and honest service in the public interest under public ownership can be made even
stronger and of a higher order than under the old largely corrupt system of private
ownership and operation. We are opposed to Government guarantees of income to
1 to 18 private companies. Ownership and operation by the public is the only method
open for avoiding the evils of Government guarantees to private corporations.
IV. SUCCESS OF PRESENT GOVERNMENT CONTROL UNDER THE RAILROAD
ADMINISTRATION .
The various representatives of the railways and many publicity bureaus and news-
papers controlled by the great corporations have made such an effort to discredit the
the present Government control, in the fear that the five-year extension will be
granted and Government ownership result, as President Willard and others suggested,
that we desire to show the great obstacles met and overcome, the actual accomplish-
ments, and the needed reforms recommended, which only Government ownership
and operation can safely secure. Of course, the present system is neither Govern-
ment ownership nor operation.
OBSTACLES, ACCOMPLISHMENTS, AND REFORMS OF THE RAILROAD ADMINISTRATION.
A. Great obstacles successfully met by the Railroad Administration during the first
year of Government control:
1. Worst winter in the history of railroads.
2. War demands -army of millions of men to be transported to the cantonments,
seaboard, and back.
3. Plague of influenza, playing havoc with workmen, 18,000 employees sick at one
time in New England alone.
4. Greatest burden of both freight and passenger traffic in railroad history.
5. Alarming coal shortage (248 mines idle because of lack of cars).
6. Terrible freight congestion (180,000 loaded freight cars on the eastern lines alone;
many freight embargoes).
7. Putting in and training inexperienced men.
8. Drafting of thousands of employees.
9. Chaos in railroad management, poor handling of cars, locomotives, etc.
10. Great amount of overtime pay necessary to get repair work done. Had also
but six months of increased rates to meet 12 months of increased pay.
11. Inability to get new cars and locomotives because of need for them overseas,
and our shortage of men.
12. No serviceable locomotives in reserve (at beginning of this winter, however,
1.000 in reserve).
13. More or less opposition on the part of railway executives to successful Govern-
ment control for fear it would become permanent.
14. Necessity of handling freight and making repairs at any cost.
15. No complete valuation of the railroads on which to compute rates, make a
budget, etc.
B. Some noteworthy accomplishments of the Railroad Administration in one year or
less:
1. Eliminated wasteful competition.
2. Eliminated the congestion which paralyzed the railroads at the beginning of
the war.
3. Arranged for a better movement of freight in many ways.
4. Improved locomotives and got a surplus of 1,000 by this winter when there *yas
" not a single serviceable car in reserve ' ' when the administration took over the roads.
5. Distributed care and locomotives to where they were needed.
6. Obtained the cooperation of the railroad employees in increasing the hours of
labor to meet the shortage. Has the indorsement of the employees for continued con-
trol and Government ownership, as shown in the preceding hearings.
117546 19 2
10 EXTENSION OF GOVERNMENT CONTROL OF RAILROADS.
7. Increased the shipments of coal, starting with a decrease for January, 1918,
ovor the same month for the previous year, up to 741,666 cars, or about 73,183,300
tons this year.
8. Got food to the allies in enormous quantities after it had been held up by the
eastern congestion, due to private competing management.
9. Developed a far better use of freight and passenger terminals.
10. Rerouted traffic to eliminate circuitous routes, resulting in a great increase in
ton miles and a decrease in train miles, which is the essence of national railroading,
impossible under private control.
11. Pooled repair shops, thus increasing their efficiency and reducing the average
distance locomotives had to be sent for repairs.
12. Consolidated ticket offices and made tickets good on any route between cer-
tain points, with a great saving and convenience to the public.
13. Made an annual saving by these means of more than $85.000,000 and probably
a clear $100,000,000. These savings would be greatly increased in peace times, and
the cost of no system of public ownership and operation could equal the wastes and
public losses of social service under the old private ownership of this most important
function of Government transportation.
14. Provided many improvements and reforms in working conditions, decreases in
the hours of labor, and increases in pay.
15. Furnished transportation, both freight and passenger, at less, or not more, of an
increase than obtained for other important commodities.
16. Cooperated closely with other important Government activities such as the
Emergency Fleet Corporation, the telegraph, the telephone systems, etc.
17. Made great gains in decreasing losses by theft of property from the roads. In
1914 carriers reported to the Interstate Commerce Commission losses by theft of over
$10,000,000. The Railroad Administration has been active in preventing these and
secured 10,530 arrests for thefts and over 8,000 convictions.
18. Organized a bureau for suggestions and complaints which has been of great
value in improving the railway service nationally. Decresed accidents to a minimum.
19. Secured great economies of labor and money in more unified management, such
as rerouting, common use of terminals, elimination of needless passenger trains, the
common use of freight cars, introduction of the "sailing day, " and others.
20. Greatly improved the statistical records and bookkeeping, which will for the
first time in history insure that the facts about railroads in this country will be ascer-
tained. Saved millions by eliminating an army of "legal advisers."
21. Established the "permit system, "thus preventing the loading of traffic without
assurance that it can be disposed of at its destination.
22. Standardized the equipment to a considerable degree, thus making for great
economy and transfer from one railroad to another.
23. Established a uniform freight classification.
24. Introduced a system of heavy loads on cars.
25. Unified many competing and individualistic lines into one organized system
for the whole country.
It has been claimed that the railways might have formed some kind of general
organization by which they would have been a,s successful as the Railroad Adminis-
tration if they were also freed from restricting laws. These accomplishments would
be impossible outside of Government control and the Government dare not lessen
its restrictions but must make them so strong and sweeping that the result is iittle dif-
ferent from Government ownership, except that the people suffer disadvantages and
losses which would be prevented by Government ownership.
C. Reforms which should be continued under peace conditions (as recommended by the
Railroad Administration):
"Many of the changes in railroad operation inaugurated during the period of the last
year should prove of permanent value and should continue, if possible, whatever
form of control is decided upon for the railroads. Such reforms include
1. The maintenance of the permit system, which I have just described, so as to
control the traffic at its source.
2. The maintenance of heavy loads for cars.
3. The pooling of repair shops.
4. The elimination of circuitous routes freight routes; circuitous, round-about
routes.
5. The unification of terminals.
6. The maintenance of the "sailing-day plan."
7. The consolidation of ticket offices.
8. The utilization of universal mileage tickets.
9. The standardization of equipment.
10. The maintenance of uniform freight classification introduced by the United
States Railroad Administration.
EXTENSION OF GOVERNMENT CONTROL OF RAILROADS. 11
11. The maintenance of common time tables between important points.
12. The maintenance of high demurrage rates and uniform rules.
13. The establishment of through waybilling of freight from points of origin to
destination.
14. Rendering unnecessary the rebelling by connecting or intermediate routes.
15. The elimination of the old practice of mileage or per diem rental for the use
of freight or passenger cars of one carrier by another.
16. The simplification of the old practice of apportioning interline passenger revenue.
17. The utilization of water routes for the relief of crowded rail lines.
The members of our league do not see how it is possible to secure these and other
necessary improvements in railway service with justice to all without Government
ownership and operation. Not one of the many plans for private ownership and
control submitted to you by interested parties will permanently and economically
secure these reforms one-tenth so surely and as well for our people as Government
ownership and operation. Why longer avoid the inevitable issue? Why let out-grown
economic theories of competition thwart our handling of this railway emergency?
Having reviewed the conditions which led to public control of the railroads, the
obstacles which the Government was obliged to lace, the results achieved notwith-
standing these obstacles, and the various solutions proposed , I now come to the most
important phase of the question, Who shall own and operate our railways? Private
interests for private profit only, or the American people, through the agency of their
Government, as a natural public function necessary to promote democracy, justice,
and the general welfare?
I will endeavor to answer this question from the standpoint of democracy and the
common good of the American people.
PART II. BASIC PRINCIPLES OF PUBLIC OWNERSHIP.
V. THE BASIC PRINCIPLES OF PUBLIC OWNERSHIP AND A SUBVEY Of ITS WORLD
ACCOMPLISHMENT.
"This country and all that is within it belongs to the people who inhabit it.".
(Abraham Lincoln.)
"Real public ownership is tlie very essence of democracy. Instead o/ debasing
human nature by conflict and corruption and dividing men into mailers and mastered,
it brings men together in a union of interest, accords to all the share in the development
arising from the exercise of judgment and discretion in the control of business affairs,
and affords the cooperative conditions necessary for the highest traits of conscience
and character." (Prof. Frank Parsons, Boston Law School, in The City for the
People.)
The principles underlying public ownership may be divided into two classes. One
is connected with ideal government in ita relation to civil liberty and equality of
opportunity. This we call "democracy" and "political justice." The other
relates to providing those material things and services necessary to our welfare and
happiness which we call "economic justice." Both are closely interwoven, and
together they form the sum of human justice which we know as ' ' social justice, ' ' a term
inclusive of all the relations of mankind in an ideal commonwealth.
Liberty and equality are essential principles of justice as determined by social
inheritance; but to analyze correctly social relations a broad comprehension of eco-
nomic conditions is necessary. It was this desire to study questions of justice and
civil liberty which led the author many years ago to seek information concerning the
great public utilities and their relation to national life and public welfare.
Constant and intimate relations for a number of years with the railway, telegraph,
telephone, express, and variousother public utilities had brought valuable experiences
to me in my business relationsas manufacturer and shipper. Investigation* carried on
while a Member of the National House of Representatives added to this experience
facts of an official nature which increased this interest. Repeated visits abroad gave
opportunity to investigate personally the conditions under which public utilities
were being operated in foreign lands under both public and private ownership. The
last visit occupied 14 months in the year 1912-13, during which time 14 countries
were visited. These, together with those investigated during other trips, included
Austria, Bavaria, Belgium, Denmark, Egypt, England, France, Greece, Holland,
Italy, Norway, Prussia, Saxony, Scotland, Sweden, and Switzerland.
RAPID SPREAD OF PUBLIC OWNERSHIP.
AH of these countries, 16 in number, publicly own and operate their telephone and
telegraph systems as parts of the postal service. Ten publicly own and operate their
entire railway systems, four own them in part, while only two (England and Scotland)
12 EXTENSION OF GOVERNMENT CONTROL OF RAILROADS.
have been operating their railroads entirely under private ownsership. Since the
outbreak of the present war, the government of these two countries has taken pos-
session of the railroads also, and without doubt will assume actual and permanent
government ownership in the near future. Russia, Japan, Australia, and New Zea-
land also publicly own and operate their entire railroad systems, while China, Mexico,
and the countries of South America own theirs in whole or in part. All of these own
their telephone and telegraph systems as well, and many countries own the majority
of their municipal utilities. The United States of America is the only Nation in the
world which does not publicly own and operate its telephone and telegraph systems
as government functions, and will have the unenviable distinction of being the only
civilized country controlled by special privilege should she alone decide to continue
this intolerable system of "invisible government."
This tendency to be ruled by private monopoly led Ambassador Bryce in his Ameri-
can Commonwealth to declare: "In England we have the form of monarchy with the
spirit of democracy; while in America there exists the form of democracy with the
spirit and essence of monarchy. '' This statement is unfortunately too true, due to
the fact that in England as well as in all the other countries of Europe, public utilities
are largely owned and operated by the people, their operation being considered neces-
sary and natural governmental functions. Those few minor undertakings which are
allowed to be privately owned in these countries are considered as public trusts which
are required to give impartial service and make full accounting to the people of their
stewardship.
PUBLIC OWNERSHIP A NATURAL GOVERNMENT FUNCTION AND NECESSARY TO SECURE
DEMOCRACY.
In America, on the other hand, the private monopolies which own and control the
great public utilities have practically become the financial and political masters of
the people, for, by means of unjust rates made possible by fictitious capitalization,
dishonest financing, and illegal practices, they have amassed great wealth and have
grown so powerful as largely to control law and government. By secret rates and
rebates they have crushed out competition and obtained monopoly. By interlock-
ing directorates and combination of capital they have controlled or defied law and
evaded regulation. Through control of much of the press and other means of public
education'they have influenced public opinion, largely controlling nominations and
elections to public office, and ultimately directing the making and administration
of law.
When a few men thus control the great functions of government, that equality of
opportunity which is fundamental to democracy can not exist. There can be no
function of government more natural and necessary to the promotion of general pros-
perity and happiness than the public ownership and operation of all those agencies
which contribute to the public good and which by their nature are monopolies, and
these include not only the public utilities devised by man, but many of those vast
resources of nature which the Almighty placed above and below the earth for the
service of all his creatures.
Since our National Constitution was written a century and a quarter ago, human
genius has harnessed nearly all the forces of nature in so many ways that there is
scarcely a function in our daily life that is not performed by them nor a condition of
life which they have not revolutionized. Then, we could speak only within the radius
of our voices; now, we speak from ocean to ocean. Then courier, stage, or slow sailing
boat carried our written messages; now, a few seconds suffice to encircle the globe.
Then, our persons and the products of our farms and factories traveled on land at the
rate of 20 miles a day; now, our fastest trains exceed a thousand.
As the Creator of the Universe gave to all mankind from the foundation of the world
to the end of time, the air, the water, the sunlight, the heat, the treasures of the earth
with all their powers and possibilities, so it devolves upon the city, the State and the
Nation to preserve inviolate to its citizens the widest and freest use of these gifts for
the common welfare. This can not be done where private monopoly exists, for one
man or a group of men usurp those rights which belong to all.
LIBERTY EQUALITY FRATERNITY.
When first traveling in Europe in 1875 to study their social institutions as well as
the masterpieces of art and architecture, and the monuments of antiquity, I observed
with interest over the entrances to public buildings and churches in France the
words "Liberty, equality, fraternity," the impressive motto of the French revolution
forced upon the world by the tyranny of blinded wealth: and when extending these
EXTENSION OF GOVERNMENT CONTROL OF RAILROADS. 13
travels to other countries it wag interesting to observe the extent to which applied
democracy was enjoyed by the people.
In order to secure indisputable evidence of the success of public ownership with
which to disprove misstatements continually being made in the press and on the plat-
form, I procured during the travels referred to, a large and valuable collection of
official reports and data of an absolute authoritative nature, besides personally taking
over 500 photographs of the various utilities in operation in many countries. To
this collection I added several hundred photographs taken by official photographers.
This interesting collection contains street railway tickets from many cities and
countries of Europe, with fares of but 1 cent for moderate distances, and averaging
approximately 2 cents for all distances. These gave superior service from the receipts
of which each city made a large profit applied for reducing taxation or swelling the
fund of the "common good.''
In England the very highest quality of coal gas was being supplied under municipal
ownership, in some instances at rates as low as 25 cents per 1,000 cubic feet. And
even at this rate a profit was made, owing to honest and efficient administration.
Electricity was everywhere supplied at rates lower than those charged by private
companies in America, notwithstanding the fact that in most of these countries there
is but little water power.
Local telephone calls were 2 cents, and phones in homes and offices cost less than
half the American rate.
Checking of baggage or parcels for storage at the railway stations was only 2 cents,
as against 10 cents in the "United States. And all these public utilities were efficiently
administered and gave a profit to the Government. That these rates to the general
public have not been established at the expense of the employees we demonstrate
below.
PUBLIC OWNERSHIP BRINGS JUSTICE TO LABOR.
The rule prevailing in both municipal and national utilities in countries where
public ownership exists, is that labor shall be paid not less than the full wages accorded
by private companies for like service, nor less than the amount fixed by labor unions.
In many countries a minimum wage law exists for government employees upon the
railroads, telegraph, telephone systems, etc., and this rule exists in principle under
municipal ownership in nearly all cities.
In Great Britain wages paid municipal employees on the tramways, gas and electric
utilities were about $1.75 per day before the war, skilled labor being higher. And
these wages, have, of course, risen rapidly during the war. When it is remembered
that the families of employees get their street car tickets, gas and other services at
about one-third the cost in American cities, their real wages, when measured in public
service to their families, will be seen to be much higher than those paid in America.
For instance, a motorman or other workman can buy 100 rides of the average length
as in the United States, or 175 rides of nearly 2 miles each for one day's wage, whereas
the American employee will receive but 50 rides for the same money. One day's
wage in England and Scotland will buy on the average over 4,000 cubic feet of gas of
the best quality, double the amount derived in America for the same work, although
the wages are higher as measured in money.
Strikes and labor trouble of any kind are so extremely rare as to be almost unknown
under public ownership, for the public has no interest nor desire to treat its own
"citizen employees" otherwise than with generosity and justice. It desires to
receive the best service and is glad to give a full equivalent. The sole consideration
under public ownership is to secure to everyone perfect service under just conditions,
while under private ownership as practiced in America the sole motive is to obtain
private profit; and even where good service is given the motive remains the same.
One of the greatest complaints against the Railroad Administration here in America
by railroad executives has been that the employees have been helped to a decent
standard of living by higher wages and better working conditions.
Under public ownership, laws and agreements are entered into providing for con-
ciliation, arbitration, etc., by which all questions are usually settled quickly and
amicably. Employees being partners in the business and enjoying the public service
for themselves and their families have no motive to destroy that which tends to their
own welfare. The facts already given would seem sufficient to show that a degree of
social justice greater than is known elsewhere prevails where public ownership exists,
for the public as consumers secure the necessities of life upon terms far more just
than could be otherwise possible, while employees receive better wages and better
treatment as well.
It is highly significant that the employees of our railways are practically unanimous
for Government ownership and willing to do anything to help make it a permanent
success.
14 EXTENSION OF GOVERNMENT CONTROL OF RAILROADS.
PUBLIC OWNERSHIP IN ACCORD WITH OUR CONSTITUTION.
The greatest statesmen and constitutional lawyers of every democratic country
agree in the view that it is not only the right but the duty of Government national,
state, and municipal to perform every function which is necessary to protect and
extend the rights, opportunities, and happiness of its citizens. In fact, this was the
supreme purpose of the founders of our Republic, and in order to secure and protect
these rights they placed at the head of our National Constitution the following
preamble:
"\Ve, the people of the United States, in order to form a more perfect union, estab-
lish justice, insure domestic tranquillity, provide for the common defense, promote
the general welfare, and secure the blessings of liberty to ourselves and to our pos-
terity, do ordain and establish this Constitution for the United States of America."
It must be noted that they sought to provide and secure to posterity the people of
to-day all the blessings which accompany^ civil liberty. They hoped to secure for
our people domestic tranquility, which, is impossible with private railway control.
The other purposes are incapable of being realized under the private ownership of
our natural monopoly of transportation. Should our present lawmaking power
refuse in this great crisis to provide, in letter as well as in spirit, progressive legislation
necessary to carry out the fundamental principles of the Constitution, there is left an
appeal to the citizenship which our martyred President, Abraham Lincoln, stated
in the following words:
"This country and all its institutions belong to the people who inhabit it, and
whenever they shall tire of their existing Government they have the constitutional
right to amend it, or the revolutionary right to overthrow it."
If, then, this principle that the will of the people should rule has found its advo-
cates among makers of laws and constitutions throughout the centuries when the
conditions of society were more simple than now, and when nations have owned and
operated their own highways, post offices, etc., is it not much more natural, neces-
sary, and just that these same principles of public ownership should be extended
under the present and more complicated conditions of society, when the various
forces of nature are imperatively called upon to render service? Justice replies,
"Yes."
We are living in an era of evolution and revolution. Democracy must triumph
over greed. That "invisible government" of private monopoly which sets at nought
the will of the people through the combined power of the railways, telegraph, tele-
phone, gas, electricity, street railways, and other public utilities, must be done away
with in the name of liberty.
VI. SOME TYPICAL EXAMPLES OF PUBLIC OWNERSHIP.
To make clear by example the workings of public ownership under conditions that
fully prove that our public ownership of railways would be even more successful than
those systems abroad, we present for your consideration the difficulties and triumphs
under public ownership in Switzerland. Our great country can profit by the many
years of successful experimentation with public ownership abroad, and does not have
the handicaps of pioneering, short hauls, great cost per mile in construction, etc.
HOW THE RIGHTS OP THE PEOPLE WERE SAFEGUARDED FROM THE BEGINNING AND
HOW FEDERAL OWNERSHIP OF THE SWISS RAILWAYS WAS ACQUIRED.
From the building of the first railroad in Switzerland, the question whether railroads
should be constructed and operated by the state or by private corporations has been
agitated. The first railroad built in Switzerland the road from Zurich to Baden
(23 kilometers), opened on the 9th of August, 1847 was built by a private company.
But the people were distrustful of the power which the private companies might
ultimately acquire in the control of the Government, and the Federal council two
years later at the request of the citizens consulted a number of railway and other
experts, among whom were the well-known English engineers, Stephenson and
Swinbourne. These latter experts advised the construction of the railways by the
State and recommended the establishment of a complete national system. A number
of the other experts consulted, whose environment had been that of the private
financial interests, advised in favor of construction by companies under state super-
vision with a guaranty of interest by the State, while other favored public ownership
both by the Federal Government and Cantons.
On the 7th of April. 1851, a special commission of the national council itself made
an official recommendation providing for the public ownership and operation of the
EXTENSION OF GOVERNMENT CONTROL OF RAILROADS. 15
railways under joint government control (national and state). The national council
itself refused to follow the vote of this commission, and in July, 1852, declared iu
favor of private ownership. The rights of the people, however, were thoroughly
safeguarded both in the Federal and cantonal law by abundant provisions limiting
the rates of charge and profits and providing that construction and operation should
be carried out with honesty, efficiency, and economy, and that the Government at
all times should have access to the accounts and records. The franchises, also con-
templating the ultimate taking over of the properties by the authorities either coa-
tonal or federal on just terms, whenever the public decided either that the profits
of tho companies were too great, or that public management would insure them oetter
service, compelled the companies to honestly advance construction and operation,
to give efficient management, and perform the service at just ratea; otherwise the
nation would exercise its rights and acquire the roads for government operation.
Under these conditions the public interest was safeguarded and the Swiss people
did not find it necessary to take over the railroads for several years, since the stringent
provisions of the law demanding honest and efficient management, secured good service
at just rates. It was found, nowever, that the companies were gaining political
influence with the national government which, though not highly dangerous at the
time, would grow in extent and become a menace to national security. Accord-
ingly, pressure was brought to bear on the government to purchase a controlling influ-
ence and interest in the stock of the railways, which it did, and under this and other
systems acquired financial interests in the privately owned railways.
The Government had by. the year 1890 acquired quite a large control by purchase of
the majority of stock in some of the most important systems. As the terms for which
many of the franchises had been given to the companies would expire in the spring of
1898, the Swiss people invoked the rights which they had long enjoyed through the
system of direct legislation, and by a petition demanded that the council (the mem-
bers of which were already favorable to this action), should frame a bill providing for
the taking over of the most important railway systems and submit this as a referendum
to be voted upon at the forthcoming election.
The salient features of this bill were that the Government should purchase and take
over at the expiration of the franchises, the five most important railway systems,
which were the Jura-Sim ploa, the Centrale, the Nord-Est, the Union Swiase, and the
Goihard, a length of line that approximated 1,700 English miles. The bill thus sub-
practical basis. An administrative council of 11 members was provided who were to
keep constantly in touch with the various cantonal governments and give careful
attention to the needs of the people.
WHY THE SWISS TOOK OVER THEIE RAILWAYS UNDER PUBLIC OWNERSHIP.
In connection with the bill which the national council had drafted at the request of
the voters to provide for public ownership of the railroads, the national council issued
a message embodying the reasons which compelled it to recommend the passage of the
bill. Among these reasons were the following:
1. That the unification of the systems under one head would reduce the expense of
operation, by doing away with useless duplication.
2. Federal operation of the lines being conducted by a single administration could
provide a better trained administrative body than a large number of private companies.
3. Since Prussia, Austria, and other States were enjoying the earnings from their
publicly owned railroads which would soon place them out of debt, the Swiss railroads
if privately owned could not compete with them in rates and thus higher charges must
be paid by the Swiss people.
The Federal council also made it clear in this interesting message that continued
private ownership was a menace to the political life of Switzerland, because the
profita accruing from the roads left the country in the form of dividends to foreigners
rather than contributing to the extension and improvement of their own railways.
5. Higher wages, reasonable hours, and better living conditions would be enjoyed
by the railway employees under government ownership. l r pon this subject the
m.^sage also says: " Private companies, as a rule, pay high salaries for the performance
of certain functions, and to make up for these expenditures they economize upon
wages of common employees, who, since they are very numerous, occasion the great
bulk of expenditures.'
16
EXTENSION OF GOVERNMENT CONTROL OF RAILROADS.
PUBLIC OWNERSHIP SUBMITTED BY REFERENDUM TO THE POPULAR VOTE AND ACCEPTED
BY AN OVERWHELMING MAJORITY.
The vote on the proposition, for the national acquisition of the railway system was
taken on the date fixed by law, February 20, 1898. It called out an unusual number
of voters. Out of 734,000 citizens having the right to vote, 570,000, in round numbers,
exercised that right. This is the largest proportion of votes ever cast. The purchase
law was accepted by a majority of over 200,000, the votes standing 386,634 for to 182,718
against. ^The result showed an overwhelming majority in favor of national ownership.
My investigations of the practical workings of this _ national system of railways
extending over 30 years lead to very decided convictions respecting the efficiency
of this system in comparison with our own deplorable lack of system. Permit me to
give further details respecting rates, quality of service, etc.
swiss "ABONNEMENT" TICKETS AND REGULAR FARES AND QUALITY OF THE VARIOUS
CLASSES OF SERVICE.
Besides the season ticket for six weeks referred to, the Swiss Federal railroad admin-
istration issued until after the beginning of the present war "Abonnement" (special
eeason) tickets, good for unlimited travel on all the Federal lines (1,701 miles) and
on all the steamers of the Swiss lakes (Geneva, Zurich, Lucern, Neuchatel, etc.):
First class.
Second class.
Third class.
Two weeks
$13.50
S9.65
S6.80
One month
21.25
14.50
10 60
Three months
52.11
36.67
26.05
Six months
81.56
56.94
40.53
One year
129. 31
90.71
64.66
Respecting the quality of service of the various classes: The native Swiss ride
almost entirely (except the wealthiest) in the third class. It is clean, sanitary, and
comfortable, but lacks upholstery. The second class is used largely by the wealthy
Swiss and foreign tourists, including Americans, except the very wealthy, and in some
cases those who desire to appear wealthy. It is practically equal to the first class
in America. The first class is but very little different from the second, and in many
cases the first and second are precisely the same, the only thing which distinguishes
them being the label. Both classes are often in the same car, divided with a partition,
but the "poster" showing the class is often changed as circumstances require. The
first class is usually used by the very wealthy or sometimes those who desire to appear
so; and by some foreigners who have not learned all the conditions; often by Americans
with women in the party. But the services of the first and second classes are usually
identical. I usually used the second class, as is seen by the ticket I exhibit. There
were always reputable, intelligent and delightful people to meet, and the atmosphere
seemed entirely democratic.
For regular journeys the rates per mile one way were as follows: First class, 3.2 cents;
second class, 2 cents; third class, 1.6 cents.
The three classes averaged 2.3 cents per mile for single journeys, and for round trips
about 1.5 cents per mile each way. Fifty-five pounds of hand luggage are allowed to
be carried free in the passenger cars.
As has been already mentioned, the Swiss railways, owing to the country being
almost entirely mountainous, and abounding with many chasms, requiring bridges
at dizzy heights, and construction of countless tunnels being necessary, the actual
cost of construction of the road is many times greater per mile than in any other coun-
try. Marvelous engineering feats have been accomplished in the construction of
these roads, which have never been executed elsewhere in the world. Among these
are wonderful "corkscrew" tunnels in which the trains, after crossing a chasm or
canyon over a very high bridge, move around in spirals like those of a corkscrew or
coiled springs, in order to make grades that will permit their emerging 200 or 500
feet or more at a point directly below or above the entrance, depending on the direc-
tion in which they are going. One of the most famous of these is a double corkscrew,
shaped like the figure 8. Of the well-known tunnels, the St. Gothard, is 9 miles
and the Simplon (double track) is 12 miles in length, the two costing $21,000,000.
There are over 1,000 tunnels on the Swiss Federal system.
EXTENSION OF GOVERNMENT CONTROL OF RAILROADS.
17
THE HIGHER COST OF THE SWISS RAILWAYS, PURCHASED BY THE GOVERNMENT FOR
$175,000,000, AND THE LOWER FARE.
With the unparalleled difficulties of construction in the Alps, the actual cost of
the Swiss railways must have exceeded five times that of the average of the American
roads, and had they been promoted and financed under American methods the rates
of fare would naturally be five times as great as they now are. But under the honest
building and management that the Swiss law required, the fares for regular trips
average practically the same-as in America, while the "season " tickets are only a frac-
tion of the charges made in America.
When the Government finally took the roads over, about 1,700 miles, it paid for
them approximately $199,000,000, or $117,000 per mile on the average, including a
large mileage of tunnels and bridges averaging $1,000,000 per mile.
A suggestive account of the purchase of these lines by the Swiss Government was
prepared for the Mus6e Social of Paris, by its Swiss correspondent, Mr. Horace Micheli,
a translation of which may be found in Volume III, No. 6, December, 1898, of the
American Economic Association. Attention here is called to the protection the
Swiss people enjoyed in taking over their railroads under public ownership through
the constitutional and democratic right of "direct legislation," with the initiative
and referendum " in these proceedings.
The data following will set before you a number of the important facts relating
to public railway ownership in the principal countries of the world, Switzerland
included.
VII. PUBLIC RAILWAY OWNERSHIP IN FOREIGN COUNTRIES.
MILEAGE.
PUBLIC AND PRIVATE
The following table shows the number of miles of State and private railways in
31 countries, except in those States where the statistics for both systems are mixed
(given together). The United States stands with China, Spain, Egypt, and the United
Kingdom in not having public railways, with the exception of the 50 miles at Panama
and a few other very short lines. In France the Government owns all the roadbeds,
and the system is far more of a unified one than in this country.
Few persons who talk glibly against Government ownership of railways realize
that 27 countries now have government ownership of from 50 miles to all the railways
of the country. Germany is first with 35,000 miles, and Russia next, with about
34,000. India has over 29,000 miles, and Austria-Hungary over 23,000 miles.
One of the greatest organized forces which the allies had to combat was the unified
railway systems of the central powers. One of the greatest sources of weakness and
of great losses of men of both England and America was their decentralized, indi-
vidualistic systems which, after a period of futile efforta to meet the war emergency,
had to be taken over by the government in each country.
According to these statistics, there are approximately 585,384 miles of private
road, and 189,226 miles of State railroad in the world, a percentage of about 32.3 per
cent, or approximately one-third. If we leave the 260,000 miles of private mileage
in the United States out of the calculations we have a percentage of 58 of nationalized
railways, and if the mileage of the United Kingdom is also omitted, more than three-
fifths of the mileage of the 29 following countries is owned by the State. ^ And this
does not include private railways operated by the government as in Austria, nor the
road beds owned by the State in France.
Mileage and niflnagcment of the railways of the world.
Country.
Management.
Total
!:::ir.:.,'
in?lucled
in tables.
State
mileage
included.
A Igeria
Mixed
2,871
1.803
Argentina . . .
19,722
3.490
Austria *
State...
14,217
11,987
Belgium
do
2,715
2,706
Brazil
Mixed
10,821
6.727
Bulgaria -. . . . .
State
1.200
1.200
Canada
Private
29.304
1,742
Chile
Mixed
5.020
3,236
China
Private
606
Cuba
.. ..do
2,580
130
TJmiinftrV
State...
1,219
1.219
117546 19-
IS EXTENSION OF GOVERNMENT CONTROL OF RAILROADS.
Mileage and tnanagement of the railways of the world Continued.
Country,
Management.
Total
mileage
included
in tables
State
mileage
included.
Egypt
State
1,486
Prance
Mixed.....
25 314
5 626
Germany .
State
38 154
35 95'
Holland
Mixed
2,063
1, 233
Hungary 1 . ..
State
13 332
11 229
India
do
35 285
29 317
Italy
do
8,481
8,481
Japan . .
do
5 473
5 473
Mexico
do
6, 193
6 193
Norway . . .
do ...
1 917
1 635
Portugal . .
Mixed
1 521
713
Koumania
State
2 205
2 205
Russia
Mixed
40^ 036
33'i>28
Siam
State
506
506
Spain . . . .
Private . . .
9 076
Sweden
P.M
8,-806
2 P64
Switzerland .
S.M
3 155
1 701
Union of South Africa
State
8 2S1
8 281
United Kingdom
Private
23,691
United States . . .
...do...
260.000
50
1 Private railways largely operated by the State.
Panama R. R.
RELATIVE TRANSPORTATION EFFICIENCY OF PRIVATE AND PUBLIC OWNERSHIP.
A leading test of private and public ownership of railways is efficiency of freight
transportation in number of tons of freight carried per ton of car capacity. Public
ownership, as hown in the following authoritative table, is far more efficient than
private ownership in actual success m getting the work of a country done. Great
Britain and the United States stand near the 'bottom of the list. England has suffered
as much as has the United States from private ownership, and, from present indica-
tions, will probably have State ownership and control before our legislators devise a
permanent solution for our railway problem. The table equalizes the conditions
existing in the United States, with its long hauls and consequent lower terminal cost,
and in other ^countries, with short hauls and multiplied uses of the terminals. The
average haul for Sweden is thus less than one-fifth that of the United States and its
terminal facilities are burdened with five times the cost. In this and practically
every test possible, our country would be at an advantage over other countries in
instituting public ownership.
Number of tons carried per ton of car capacity for the countries of the world.
Country.
Ownership.
Date.
Ton-
milos
moved
per ton
of car
capacity.
Rank in
efficiency.
Government
1913-14
8,347
1
New South Wales
do. ..
1915
6,203
2
Austria
...do....
1913
5,107
3
Hungary
...do
1912
4,902
4
.. do
1913
4,123
Germany
...do
1913
3,962
6
do
1913
3,553
7
Holland . . ...
Mixed
1913
3,476
8
United States
Private companies
1914
3, 169
9
Belgium
Government
Private companies
1912
1912
3,052
2,957
10
11
Sweden
Mixed
1912
.2,912
12
Canada
Mexico
Private companies
Government
1915
1913
2,623
2,099
13
14
Great Britain
Private companies
1913
'809
15
Included 600,000 -private cars. (United States is ninth in efficiency.)
EXTENSION OF GOVERNMENT CONTROL OF RAILROADS.
19
ECONOMICAL USE OF ROMJNG STOCK.
Another test is the efficient use of the capital stock owned by the railways. Our
country has the longest average hauls between terminals, and thus ha to make fewer
stops to load and unload, and yet the cars are so inefficiently managed in comparison
with nationalized systems that it stands low in the list in 'the group of nations and
below practically all the publicly-owned systems.
Daily movement of freight cars.
Country.
Ownership.
Average
haul in
miles.
Tons car-
ried per
ton of car
capacity.
Rank In
efficiency.
Japan
GnvArrrmfint . .
94.10
99.3
1
Switzerland
do
46.81
8S. 1
2
Austria
do
65.63
77.8
3
New South Wales
do
38.58
71.6
4
Hungary
da
71.80
69.3
5
Germany
....do...
62.04
63.9
6
Sweden
. . .do
4"). 70
63.6
7
Holland
Mixed
56.00
62.6
8
Government
52.36
5S 3
9
France
Private companies
77.60
88.2
10
New Zealand
Government
39.4
11
Private companies ... ....
1 25. 00
33.2
12
Southern Australia
C! o vemment
117. 64
30. 1
13
Italy
do
24.1
14
United States . . . .
Private companies . .
256 00
12.2
15
Canada
do '.
247.00
10.6
16
Mexico
rjnvArnTnftiit , , . ,
210.00
10.0
17
i Company haul; national haul estimated at 40 miles. (United States fifteenth.)
VIII. STANDARDS BY WHICH TO TEST RAILWAY EFFICIENCY.
If our time were not so limited we should present for your consideration a fuller state-
ment of definite standards by which to judge the efficiency of public and private
ownership and the comparative standing of our country before the war with other
countries. We believe that the evidence shows that this standing in efficiency and
service to the public will be very little changed by any regulatory devices which
Congress may provide that the only thing to do ia to purchase these roads and provide
for them efficient administration, a very easy and simple tiling to do for such a natural
monopoly at the present time compared with the futile effort to regulate and make
efficient what can not be regulated nor made efficient private railway ownership.
In an exceptionable address given by Hon. David J. Lewis, who has for a long time
served the country with high distinction as a Member of Congress and in other Federal
capacities, he has set up certain fundamental tests of Government and private owner-
ship and has applied them to the operation and services of the railways of the world.
Each of these tests applied in a scientific and impartial manner demonstrates beyond
cavil that Government ownership is to-day far more socially efficient than is private
ownership. We beg to present below an otilline of his tests as given before the Open
Forum of Baltimore, May ]2, 1918, and the reeonstructioa conference at Washington,
D. ('., January 9 to 11, 1919. We respectfully urge that the entire report of these
researches by Mr. Lewis in this problem should be obtained by this .committee and
printed in the records. It is too valuable as an aid in a broad, unbiased solution of
this greatest emergency of reconstruction not to be made available to the conimi
the Congress, and the people. A very large share of the hearings have necessarily been
with various railway interests. At least one scientific study of this problem, from the
standpoint of the whole people, should also appear.
Mr. Lewis's seven testa were given substantially as follows:
GOVERNMENT AND PRIVATE RAILWAY DIRECTION.
[Examined with reference to certain standard trsts.]
Test I. The capital invested. -(a) In respect to its security; (6) constancy of remunera-
tion; (c) amplitude and readiness of supply.
Test II. Economic efficiency, with respect to: (a) Utilization of rolling stock; (ft) rout-
ing of freight; (c) coordination of railway carriers with water curriers; (d) simplicity of
rates and fiscal practice.
20 EXTENSION OF GOVERNMENT CONTROL OF RAILROADS.
Test III. Effectiveness of personnel in respect to: (a) Work accomplished; (6) relative
exemption from accident; (c) experience of certain countries in this regard, before and
after Government railway direction.
Test IV. Social efficiency. Government and private direction examined with respect
to: (a) Movement of potential freight traffic; (6) transportation costs per capita and
per ton; (c) costs per unit of service; (d) fast freight, pick-up, and delivery services.
Test V. Social efficiency. Government and private ownership examined with
respect to: (a) Movement of potential passenger traffic; (6) cost per unit of service; (c)
adjustments of rates to services; (d) effect rate reductions; (e) popular passenger rates;
(/) feeding the train, sleeping facilities, frequency of service.
Test VI. Railway development, with respect to: (a) Extension; (6) its exercise to
prevent industrial depression; (c) to utilize waterways.
Test VII. Government and private direction with respect to: (a) The functioning
of the State itself; (6) military exigencies; (c) equilibrium of its active power with
organized agencies of individuals; ( d) railway strikes; (e) political problems; (/) method
of acquisition; and (g) method of management.
Summary. Government or private direction results of preceding tests applied as
standards.
We may be permitted to quote here the concluding paragraph of this comprehensive
and factual, not theoretical, investigation.
"Railway transportation is naturally national in its characteristics. It is govern-
mental in its requirement of the sovereign power of eminent domain, in its use of the
taxing power to levy taxes, discriminating taxes, to secure the necessary revenue. It
is national in the form of organization it must take for effective management, the
president,, the board of directors, the stockholders' meetings, to formulate its laws,
and their majority rule. The railway organization clearly simulates the government
with its President, his Cabinet, the Congress and its majority rule. I say it is national
in its characteristics, not individualistic. And to its other national characteristics
national ownership should be added. Give their owners first the ' 'just compensation "
of the Constitution, their managers the oath it prescribed for dutiful service, and set
the flag over every depot in the land. Only in this way can our railways be com-
pletely devoted to the accomplishments of broad national policies conceived with a
view to the maximum service of our country in peace and in war."
PART III. RAILWAY EXPLOITATION UNDER PRIVATE OWNERSHIP.
IX. A SURVEY OP THE PROMOTION, FINANCING, AND ADMINISTRATION OF AMERICAN
RAILROADS, AS DISCLOSED BY INVESTIGATIONS OF THE INTERSTATE COMMERCE
COMMISSION RESPECTING FIVE IMPORTANT RAILROAD SYSTEMS COVERING APPROXI-
MATELY ONE-THIRD OF THE ENTIRE MILEAGE OF THE UNITED STATES, AND SUM-
MARIZED FROM THESE INVESTIGATIONS IN THE OFFICIAL GOVERNMENT REPORTS
AS FOLLOWS: NEW YORK, NEW HAVEN & HARTFORD RAILWAY co. (REPORT NO. 6569,
JULY 11, 1914); THE LOUISVILLE & NASHVILLE RAILROAD CO. (REPORT NO. 4788,
FEB. 9, 1915); THE CHICAGO, ROCK ISLAND & PACIFIC RAILWAY CO. (REPORT NO.
6834, JULY 31, 1915); THE CINCINNATI, HAMILTON & DAYTON RAILROAD CO., AND
THE PERE MARQUETTE RAILROAD CO. (REPORT NO. 6833, MAR. 13, 1917); ST. LOUIS &
SAN FRANCISCO RAILROAD CO. (REPORT NO. 5933, JAN. 20, 1914).
The promotion, financing, and administration of American railroads marks a dark
but impressive and instructive chapter in our country's history. It is a record of a
Nation's shame, which can only be fully atoned for when the American people shall
have supplanted the "invisible government" of private financial autocracy with
real and living democracy by owning and operating for the common welfare all those
natural functions of government necessary for the common good. Then only will
America enter into her destiny and enjoy the fruition of the labors and hopes of ita
people. Further experimentation with regulation under the false notions of the ne-
cessity of private control, competition, initiative, etc., must be stopped in the inter-
est of the public welfare.
It is an unpleasant task to bring before the public view the manner in which gov-
ernment, the press, and politics have been corrupted, and the rights of citizens, both
political and economic, imperiled or destroyed; yet it is due to the American people
that they know the truth, and thus be able to select and apply remedies that shall be
safe and sufficient for all time to protect and advance justice and democracy.
As our country now faces the problem as to who shall own and operate the railways
in the future private interests for private profit, or American citizens for the common
good whether the railways shall own them or they own the railways and since the
determination of this question by Congress will be largely based in the manner in
which these public agencies have been recently administered, it is most important
that the history of operations during the past 20 years be known. Accordingly, the
EXTENSION OF GOVERNMENT CONTROL OF RAILROADS. 21
facts of recent occurrence will be most largely considered; yet it is also important to
view the foundations laid many years ago on which modern railroad financing and
administration in America have been built. Accordingly, the facts will be stated
with but brief reference to early railroad history.
The first era of railway promotion in the United States saw the building of roads
and lines which afterwards by consolidation were merged into larger systems, im-
portant ones becoming the New York Central & Hudson River, the Pennsylvania
lines, the Erie, and the Baltimore & Ohio. The three first mentioned soon became
known as controllers of legislation and as practicing questionable methods of finance
and administration. The valuable book by Charles Francis Adams, "Chapters of
Erie," well illustrates the system of exploitation largely used in those early days.
PROMOTION OF THE PACIFIC RAILWAYS.
About 1850 the Government decided to make extensive surveys for a railway
system to be built to the Pacific coast. After these surveys had been made at the
expense of the Nation, a private corporation known as the "Credit Mobilier" was
formed for the purpose of privately controlling the vast system of railway transporta-
tion planned by the Government. The giving over of these rights to this corporation
marks the first widely known chapter in the dark history of American promotion and
financing of railways. The history of this event is recorded in two congressional
reports of investigations covering more than 1,300 pages. The first known as ' 'The
Poland Report" (report No. 77 of Select Committee of House of Representatives to
investigate alleged ^'Credit Mobilier," Feb. 18, 1873, 42d Cong., 2d sess.); and the
''Wilson" report, No. 78, of Select Committee of House of Representatives to make
inquiry of the affairs of the Union Pacific Railroad Co., the Credit Mobilier of America,
etc.
These reports disclose most important facts relating to the reckless manner in which
Members of Congress were bribed or influenced by promises of profit to turn over the
building and ownership of these lines to a private corporation. The investigation
showed that one prominent Congressman who afterwards became President of the
United States and two others who were nominated for the Vice Presidency were
implicated in the transactions, as well as others. Time and space do not permit the
recital of details, and it may be sufficient for the present to quote briefly from the
conclusions reached by the investigating committees mentioned. We quote from the
Poland report:
' 'But such is the tendency of the times, and the belief is far too general, that all men
can be ruled with money, and that the use of such means to carry public measures is
legitimate and proper. In a free Government like ours we can not expect the people
will long respect the laws if they lose respect for the lawmakers."
We quote the following from the Wilson report:
"A great highway was to be created, the use of which for postal, military, and other
purposes was to be secured to the Government. Your committee deem it important
to call special attention to the declared object of this act, to accomplish which object
the munificent grant of lands and loan of the Government credit was made. Congress
relied for the performance of these great trusts by the corporators upon their sense of
public duty; upon the fact that they were to deal with and effect a large capital of
their own; upon the presence of five directors appointed by the President especially
to represent the public interest, to hold no stocK. Your committee find themselves
constrained to report that the moneys borrowed by the corporation under a power
given them only to meet the necessities of the construction and endowment of the
road have been distributed in dividends to the corporators; that the stock was issued
not to men who paid for it at par in money, but who paid for it not more than 30 cents
on the dollar in road making; that of the Government directors some of them had
neglected their duties and others had been interested in the transactions by which
the provisions of the organic law had been evaded; that at least one of the commis-
sioners appointed by the President had been directly bribed to betray his trust by
the gift of $25,000, and that there had been attempt to induce influential Members of
Congress to become interested in the profits. * * * We think the facts we have
stated would furnish ground for judgment of forfeiture of all the franchises, including
the principal franchise."
In this connection it would be interesting to recall, if time permitted, the letters of
C. P. Huntington, president of the Pacific Railway, and other directors of the same
road, which came to light later in a lawsuit, in which he referred with contempt to the
public officials whom he controlled with his money, and the disgust and weariness which
seized him by reason of the time he was obliged to spend in Washington to get the legislation
he wanted.
22 EXTENSION OF GOVERNMENT CONTBOL OF RAILROADS.
It would be natural to suppose that after these disclosures of the wicked acts and
violations of all laws by the two Pacific railroad companies, either shame or fear
would cause them to discontinue their methods; yet they continued largely to control
Congress for many years, and as late as the 55th Congress succeeded in getting fresh
legislation enabling them to cheat the Government out of vast sums which they still
owe the Nation and which through various devices they have evaded paying.
The building of the Pacific railroads has passed into history, leaving its dark blot
on our national escutcheon, only to be effaced as time rolls on, bringing with it forget-
fulness. The later period, though not so notably corrupt in its flagrant and open
bribery of Government officials, has been equally wicked from the standpoint of its
effect upon the economic welfare of our people. One of the outstanding examples of
this period is the work of the late E. H. Harriman, who, starting as a small broker, by
the manipulation of money and securities, without building any roads or doing any
other constructive service to mankind, amassed a fortune estimated at about
$250,000,000.
Such is a brief review of railway promotion in the earlier days. We will now
rapidly survey the methods used in more recent times by some of the chief bankers
and railway financiers of America whose influence now extends over the entire
world in controlling money, credit, and monopolies in all lines of manufacturing and
commerce, as well as railroads in the United States.
RECENT REFINED METHODS OF RAILWAY FINANCING AND ADMINISTRATION HISTORY
OF A NATION'S SHAME, SHOWING THE ILLEGAL AND FRAUDULENT PRACTICES OF
AMERICAN FINANCIERS AND EXECUTIVES DURING THE PAST TWENTY YEARS IN FALSI-
FYING THEIR ACCOUNTS TO COVER UP THE EMBEZZLEMENT OF THE COMPANY'S
FUNDS AND THE EXPENDITURES OF THE STOCKHOLDERS' MONEY FOR INFLUENCING
AND CONTROLLING LEGISLATION, POLITICS, AND THE PRESS; THE FRAUDS PRAC-
TICED BY DIRECTORS IN TAKING FOR THEIR PRIVATE USE THE FUNDS OF THE COM-
PANY; THE DECEPTIVE ACCOUNTING REGARDING CAPITALIZATION, INVESTMENT,
ETC., AND THE BURNING OF THE BOOKS AND RECORDS TO SECURE SECRECY OF THEIR
ACTS, AS SHOWN IN THE OFFICIAL REPORTS OF THE INTERSTATE COMMERCE COM-
MISSION.
During the years from 1912 to 1915 various complaints were made by shippers and
the public to Congress and the Interstate Commerce Commission respecting certain
illegal practices of five important systems of railways and their resulting inefficiency
of service and unjust rates. On account of these complaints, which seemed well
substantiated, the Interstate Commerce Commission, partly on its own initiative and
partly in compliance with resolutions of Congress, made investigations, and issued
their official reports of findings, in the years 1913 to 1917, respecting the unlawful
practices and financial transactions of five railway systems comprising approximately
one-third of the country's entire mileage. The systems investigated by the Inter-
state Commerce Commission and reviewed herein are:
The New York, New Haven & Hartford Railroad Co., report No. 6569; date July
11, 1914.
The Louisville & Nashville Railroad Co., report No. 4788; date February 9, 1915.
The Chicago, Rock Island & Pacific Railroad Co., report No. 6834; date July 31,
1915.
The St. Louis & San San Francisco Railroad, report No. 5933, January 20, 1914.
The Cincinnati, Hamilton & Dayton Railroad Co. and the Pere Marquette Railroad
Co., report No. 6833; date March 13, 1917.
These investigations were made with the most painstaking care possible, covering
long periods of time, in which special agents of the commission were employed to
secure information and to investigate the books and accounts. Officers of the com-
panies were summoned before the commission and several thousand pages of testi-
mony were taken. The findings of the commission were published in their official
reports mentioned, and disclose, among others, the following facts:
The evidence secured by the commission shows that every railroad company investi-
gated knowingly falsified its accounts, partly in order to hide expenditures of large
sums for controlling politics and elections and influencing legislation and the admin-
istration of laws; falsified the accounts respecting capital, expenses, and profits, BO
that the commission, in many instances, was unable to find for what purpose vast sums
were expended ; and in many cases the books and accounts were burned by the directors
in order to hide, in so far as possible, various illegal transactions. Many of these arts
were done, as the records conclusively show, by directors who are well known as among
the world's greatest financiers; yet even though many records were willfully destroyed,
the commission was able to secure sufficient evidence in many cases to disclose the
names, dates, and facts.
EXTENSION OF GOVERNMENT CONTROL OF RAILROADS. 23
In order to place these various illegal practices ia systematic order before you and
our people, to demonstrate the unregulatal>le character of this private control of a
natural monopoly, and to refer readily to official evidence and the findings of the com-
mission, they may be briefly classified as follows:
1. Extravagant speculations and purchases of -worthless securities in the interests
of the directors; peculations from the stockholders' money by illegal devices, accom-
panied by the falsifying of books and accounts and their later burning by the directors.
2. Illegally spending the stockholders' money and property to corruptly influence
politics, the press, and public opinion, and to secure secrecy respecting their acts.
3. Acts to secure a monopoly against the public interest, by the violation of the laws
of many States as well as of the nation.
4. The organization by the railway directors of "fake " corporations, with "dummy "
officers to hide the identity or the real promoters, and shield them from prosecution.
5. The voting to themselves by the directors of extravagant salaries, in addition to
which large sums were taken by some of these officials without warrant of law.
The various acts recited are necessarily interwoven and mil be grouped by subjects
as systematically as convenient.
All the extracts from the commission's report respecting the various railway systems
are taken verbatim from the records.
"No. 569. IN RE FINANCIAL TRANSACTIONS OF THE NEW YORK, NEW HAVEN &
HAKTPORD RAILROAD o. JULY 11, 1914.
"REPORT OF THE COMMISSION TO THE SENATE OF THE UNITED STATES.
" By the COMMISSION:
" The Commission has the honor to submit the following report in compliance with
the resolution of the Senate dated February 7, 1914:
"SCOPE OF THE INVESTIGATION,
" Public hearings were held extending over a period of 60 days of almost continuous
session. Witnesses in a position to have knowledge of the transactions under scrutiny
were examined. In the search for truth the Commission had to overcome many
obstacles, such as the burning of books, letters, and documents and the otatinacv of
witnesses who declined to testify until criminal proceedings were begun for tneir
refusal to answer questions. The New Haven system has more than 300 su bsidiary cor-
porations in a web of entangling alliances with -each other, many of which are seemingly
planned, created, and manipulated by lawyers expressly retained for the purpose of
concealment or deception.
"The result of our research into the financial workings of the former management
of the New Haven system has been to disclose one of the most glaring instances of
maladministraticai revealed in all the history of American railroading. In the course
of the investigation many instances were uncovered of violation of the laws of different
States. As pointing to violations of State laws, we have turned over the evidence
concerning local occurrences in New York City to the district attorney for the proper
district, and the testimony relating to irregularities in Massachusetts and Rhode
Island have been laid before the proper authorities of those States. The -Commission
has also furnished the Department ol Justice with a complete record of the testimony.
' ' The difficulties under which this railroad system has labored in the past are internal
and wholly due to its own mismanagement. Its troubles have not arisen because of
regulation by governmental authority. Its greatest losses and most costly blunders
were made in attempting to circumvent governmental regulation and to extend its
domination beyond the limits fixed by law.
"The subject matter of this inquiry relates to the financial operation of a railroad
system which, on June 30, 1903, had a total capitalization of approximately $93,000,000,
of which $79,000,000 was stock and $14,000,000 bonds. In the 10 years from June 30,
1903, this capitalization was increased from $93,000.000 to $417,000,000, exclusive of
stock premiums, or an increase of $324,000,000. Of this increase approximately
$120,000,000 was devoted to its railroad property and was expended for betterments
and equipment. This leaves the sum of $204,000,000, which was expended for opera-
tions outside of its railroad sphere. Through the expenditure of this sum this railroad
system has practically monopolized the freight and passenger business in five of the
States of the Union. " It has acquired a monopoly ol competing steamship iines and
trolley systems in the section which it serves. The financial operations accessary for
these acquisitions, and the losses which they have entailed, have been skillfully
concealed by the juggling of money and securities from one subsidiary corporation
to another.
24 EXTENSION OF GOVERNMENT CONTROL OF RAILROADS.
SIGNIFICANT INCIDENTS.
"Marked features and significant incidents in the loose, extravagant, and improvi-
dent administration of the finances of the New Haven as shown in this investigation
are the Boston & Maine despoilment; the iniquity of the Westchester acquisition;
the double price paid for the Rhode Island trolleys; the recklessness in the purchase
of Connecticut and Massachusetts trolleys at prices exorbitantly in excess of their
market value; the unwarranted expenditure of large amounts in "educating public
opinion;" the disposition, without knowledge of the directors, of hundreds of thou-
sands of dollars for influencing public sentiment; the habitual payment of unitemized
vouchers without any clear specification of details; the confusing interrelation of the
principal company and its subsidiaries and consequent complication of accounts;
the practice of financial legerdemain in issuing large blocks of New Haven stock for
notes of the New England Navigation Co., and manipulating these securities back
and forth; fictitious sales of New Haven stock to friendly parties with the design of
boosting the stock and unloading on the public at the higher 'market price;' the
unlawful diversion of corporate funds to political organizations; the scattering of
retainers to attorneys of five States, who rendered no itemized bills for services
and who conducted no litigation to which the railroad was a party; extensive use
of a paid lobby in matters as to which the directors claim to have no information;
the attempt to control utterances of the press by subsidizing reporters; payment of
money and the profligate issue of free passes to legislators and their friends; the in-
vestment of $400,000 in securities of a New England newspaper; the regular employ-
ment of political bosses in Rhode Island and other States, not for the purpose of having
them perform any service but to prevent them, as Mr. Mellen expressed it, from
'becoming active on the other side;' the retention by John L. Billard of more than
$2,700,000 in a transaction in which he represented the New Haven and into which
he invested not a dollar; the inability of Oakleigh Thorne to account for $1,032,000
of the funds of the New Haven intrusted to him in carrying out the Westchester
proposition; the story of Mr. Mellen as to the distribution of $1,200,000 for corrupt
purposes in bringing about amendments of the Westchester and Port Chester franchises;
the domination of all the affairs of this railroad by Mr. Morgan and Mr. Mellen and
the absolute subordination of other members of the board of directors to the will of
these two; the unwarranted increase of the New Haven liabilities from $93,000,000
in 1903 to $417,000,000 in 1913; the increase in floating notes from nothing in 1903
to approximately $40,000,000 in 1913; the indefensible standard of business ethics
and the absence of financial acumen displayed by eminent financiers in directing the
destinies of this railroad in its attempt to establish a monopoly of the transportation
of New England. A combination of all these has resulted in the present deplorable
situation in which the affairs of this railway are involved."
Pages 35 to 41 of the report give a history of the celebrated transaction in which 18
miles of railroad, in which Directors J. P. Morgan, sr., William Rockefeller, and some
promoters who were their friends, were interested, was unloaded by them on the
railroad company at a meeting kept secret from the rest of the board of directors, at
which meeting President Mellen presided. This property proved to be more than
worthless to the stockholders, having been operated at an annual loss of over $1,000,000,
annually, and for which their directors forced them to pay the vast sum of
$36,434,173.25.
The principal accounts respecting this transaction were kept in the office of J. P.
Morgan & Co. , in such a manner as to hide the purposes for which moneys were received
or expended, under the title of "Special Account No. 2." Part of the accounts were
kept by another banker interested in the transaction named Oakleigh Thorne, respect-
ing whom the commission report says:
"It appeared during the progress of this investigation that the personal records of
Thorne which might have shown all the details of these disbursements had been burned
by him in January, 1912."
This transaction is all the more sensational since Mellen, president of the road, was
not permitted by the directors, who robbed it to the extent of millions of dollars, to
know who got the money.
Another startling fact, the exact counterfeit of which has perhaps often occurred
in the history of American railroading, but never before known and published, is
revealed in this investigation respecting this road. The record shows conclusively
that President Mellen of the road was practically appointed, or selected, at the instiga-
tion of J. P. Morgan, sr., and when this "president" desired to ascertain the facts
respecting the transaction in which the road was robbed by a conspiracy of Mr. Morgan
with three other directors without the knowledge of the rest of the board, "President "
Mellen was not permitted by Mr. Morgan to know (as he expressed it over his official
signature as disclosed in the record) "who got the money for the truck turned over."
The following is from the report:
EXTENSION OF GOVERNMENT CONTROL OF RAILROADS. 25
"THE NEW YORK, WESTCHESTER & BOSTON RAILWAY co.
' ' The Westchester is a story of the profligate waste of corporate funds. The road was
not necessary as a part of the New Haven system. It parallels other lines already
owned by the New Haven and traverses territory which the New Haven already
served. That it was recognized as unnecessary by the New Haven itself at its incep-
tion is evidenced by the fact that the New Haven sought an injunction to restrain the
construction of this road on the specific ground that it was not in answer to any public
necessity and paralleled its already existing line.
"The enormous sum of $36,434,173.25 was expended for a road only 18.03 miles in
extent, which is being operated at an annual loss of approximately $1,250,000, and
which will have to increase its earnings four and one-half fold before it can pay its
operating expenses and fixed charges. It is inconceivable that this enterprise could
have been entered into by the New Haven as a result of the mandates of good judg-
ment and proper railroading.
" The Westchester acquisition was planned and executed by a special committee of
the board, consisting of directors Morgan, Rockefeller, and Miller, with president
Mellen as chairman. The vote appointing this committee 'on proposed competition
between the Connecticut State line and Harlem River, with power,' does not dis-
close an intention to authorize the buying of charters and promotion securities and
the building of a new railroad, much less one at a cost of $36,000,000. It is ambiguous
and was evidently intended to conceal a secret purpose. The full board was not
taken into the confidence of those directors who wanted theee securities purchased,
and no report was ever made by this committee placing the situation as they found
it before the board.
' ' The first information the board had concerning the extravagant acquisition of West-
Chester and Port Chester securities was on November 8, 1907, when this committee
made its only report. It was then learned that $11,155,000 had been expended in
obtaining control of these two insolvent promotion schemes, and that this expendi-
ture carried with it an obligation to construct two railroads, under franchises of doubt-
ful validity, paralleling the existing line of the New Haven.
"There is no record that this committee ever required from these parties an item-
ized statement of the disbursements they made of the funds advanced from 'special
account No. 2" nor was any such statement ever rendered. No vouchers were taken.
Special account No. 2 on the books of J. P. Morgan & Company shows nothing more
than the lump sums received from the New Haven and the disbursement of the same
to Thorne and later to the Millbropk Company on notes of the respective payees.
It appeared d uring the progress of this investigation that the personal records of Thorne
which might have shown the detail of these disbursements nad been burned by him
in January, 1912, as before stated.
"In a letter of October 30, 1906, to C. S. Mellen from the attorney, Francis Lynde
Stetson, who was representing all the parties in the deal, namely, J. P. Morgan &
Company, the Millbrook Company, Perry and Thorne, and the New York, New Haven
& Hartford Railroad Company, there is the following language which is significant
as to the course the committee was pursuing:
" 'Referring to the conversation this morning between yourself, Mr. Thorne, and
myself, it has occurred to me that it is possible that Mr. Thorne's purchases and even
his payments may have to begin before he shall have ascertained the validity of the
two principal charters which he is to acquire, and that in the event of the develop-
ment subsequently of their invalidity it might be that the money spent would be
money lost.'
"The report of this committee, however, was unanimously 'approved, ratified,
and confirmed ' at the meeting of the board of November 8, 1907, at which the follow-
ing directors were present: Mellen, Rockefeller, Morgan, Milner, Thayer, Brooker,
Brush, Warner, Cheney, Miller, Skinner, Barney, Taft, Wittemore, Elton, Heming-
way, Robertson, Robbins, and Parker.
After this meeting of the board at which this undetailed report was ratified. Mr.
Mellen went to see Mr. Morgan, and requested more information as to the expenditure
of the amounts. According to Mr. Mellen's evidence, Mr. Morgan asked him if he
knew who wrote the report, and upon Mr. Mellen's reply, ' Yes; Mr. Stetson wrote it,'
Mr. Morgan asked him, ' Do you think you know more than Stetson?' ^ Mr. Mellen
admitted he did not, and apparently acquiesced, but took the precaution to write
upon the back of his report, while still smarting under the humiliation of the interview
with Mr. Morgan, the following words:
"'The trouble with this there is nothing to show who got the money for the truck
turned over. I don't like the looks of it, but I don't see why the matter should not
be made plain. If I had the stock and sold it, I should expect others would state
26 EXTENSION OF GOVERNMENT CONTROL OF RAILROADS.
they bought it of me; but that don't seem to have been the disposition here. I never
have known the first thing about who originally held the securities, what they were
sold for ; and no one thought that I was entitled to know. Perhaps I am not. I would
feel better if there were at least a disposition to let me know something more than
appears in the record.
"'(Signed) C. S. M.'"
*****'**
" The solution of the difficulties was the further expenditure of $1.524,072.77. This
was artfully arranged by having the New Haven on June 15, 1908. transfer to its sub-
sidiary, the New England Navigation Company, 8,000 shares of its stock at $150 per
share, which the Navigation Company in turn transferred to Charles S. Mellen, the
president of both corporations, who conducted the negotiations. On March 5, 1909,
an additional 1.495' shares of New Haven stock at $158 per share was in like manner
placed in Mr. Mellen 's possession, and certain sums of money were also advanced to
him from time to time.
"There were just 13 tilings that had to be done, according to Mr. Mellen, to get the
Westchester out of its franchise difficulties, and it is significant that all amendments
to the franchises were obtained, and the sequence was that the New Haven, in
addition to these things, received 30,431 of the 34.053$ outstanding shares of the New
York, Westchester & Boston Railroad Co. stock, which Mr. Mellen testified was not
worth 10 cents a pound. The testimony is somewhat occult, but the character
of the transaction is no less certain. This money was used for corrupt purposes and
the improper expenditures covered up by the transfer to the New Haven of these
worthless securities.
*******
" No comment is necessary to make clear to the mind the corrupt and unlawful
nature of this transaction, and it would seem that the amount illegally expended
could be recovered from Mr. Melleu and the directors who authorized it."
*******
In accordance with the opinion expressed above by the commission as to the
responsibility of those who perpetrated this wrong upon the stockholders of the New
Haven, suit was some time ago instituted by 17,023 stockholders against Messrs.
Morgan and Rockefeller, who were directly responsible for the swindling of the stock-
holders, and other directors who were either directly or indirectly responsible. The
amount of damage claimed in the suit to be restored to the stockholders was $150, 000,000.
Respecting these men the commission says: "Some are guilty for acts committed;
others, the greater number, for their failure to act. They are alike culpable and
responsible to the stockholders."
MILLIONS WASTED IN THE PURCHASE AT EXTRAVAGANT PRICES OF TROLLEY LINES
AND STEAMSHIP COMPANIES AT THE EXPENSE OF THEIR STOCKHOLDERS.
The following is from pages 41-44 of the report:
"The purchase of the Rhode Island trolleys was another instance of millions wasted
in acquiring properties that bring an annual deficit instead of a surplus, and consti-
tute a liability instead of an asset in the New Haven system.
"The United Gas Improvement Co., of Philadelphia, that controlled this property
under lease, had capitalized the future hopes of the proposition into a holding com-
pany known as the Rhode Island Securities Co. and had issued $19,899,000 of deben-
tures, which represented an investment of approximately only $6,000,000. The
difference in these amounts was, as Mr. Mellen testified, merely capitalized water.
"Not to be deterred by extravagant expenditure, Mr. Mellen undertook to ex change
the debentures of the Providence Securities Co., which he had created for the pur-
pose, for these debentures of the Rhode Island Securities Co., and to add theroon
the guaranty of the New York, New Haven & Hartford Railroad Co., both as to prin-
cipal and interest. The result of the transaction was to enable the United Gas Im-
provement Co. to realize par value on these securities, based merely upon lively
expectation of future possibilities, and thereby immediately placed the burden of the
watered stock upon the backs of the New Haven stockholders.
" The millions that were made from this transaction did not come through magic, but vwe
brought into existence at the expense of the stockholders of the New Haven, upon whom
and the public the yoke of giving value to these securities ultimately rested, and the
New Haven stock was diluted to the extent of the water thus added.
EXTENSION OF GOVERNMENT CONTROL OF RAILROADS. 27
"This gas company also owned some Connecticut trolley lines, and it was made a
further condition of the Rhode Island trolley acquisition that the New Haven take over
these properties.
"When the details had been worked out by Mr. Mellen for the assuming of this
additional burden the board of directors without question acquiesced. Mr. Mellen.
testified that these Connecticut trolleys represented a payment of about $10 000,000 more
than their value.
"The Rhode Island and Connecticut trolley ventures are further evidences of the
prodigality in the expenditure of the money of the New Haven stockholders in
carrying out an unlawful policy of transportation monopoly."
MALADMINISTRATION COST THE STOCKHOLDERS $20,000.000 ADDITIONAL.
On pages 55 and 56 is the following:
"THE NEW ENGLAND INVESTMENT & SECURITY co.
"This company and its affairs constitute a striking illustration of the deliberate
attempt to entangle the New Haven with street railways which has recently been
publicly avowed by former President Mellen.
" The Supreme Judicial Court of Massachusetts (198 Mass. , 413) decided in substance
that this company was not separate and independent of the New Haven, but was a
mere device of that company to continue to hold stock in Massachusetts trolleys in
violation of the laws of that State.
"The testimony shows that Charles S. Mellen held control of the common stock of
this company through James B. Brady, as a dummy, until quite a recent period.
These shares have been transferred to Sanderson & Porter, a firm of railroad contrac-
tors and builders, who since 1902 have from time to time been engaged in operations
for the New Haven.
" It seems quite clear in view of the relations of this firm with the New Haven in
the past that this stock is now held by Sanderson & Porter for the New Haven.
"All profits which this company has made in the past have been the result of
transactions in the purchase and sale of securities in which the New Haven had title
or large interests, not in the open market, but under circumstances which would have
been collusive and fraudulent if this security company was in fact an independent
organization entirely separate from the New Haven.
On its note there were turned over to it at one time $9,918.145.65 of securities
bought and paid for with New Haven funds.
The inside facts as to its dealings show a continued operation in violation of Massa-
chusetts laws and in flagrant violation of the injunction issued by the highest court
of that State.
" A summary of the operations of the New England Investment & Security C'o. as
recorded on its books appears in the appendix, identified as Exhibit D. "
JUGGLING THE ACCOUNTS TO INCREASE CAPITALIZATION AND HIDE IRREGULARITIES.
It has always been a favorite device of the American railroads to print additional
certificates of capital stock which represent no real value, and sell them to the public,
and in other cases by juggling back and forth of the assets and accounts to suit the
private purpose of directors and financiers, to form an excuse for increased rates.
The Interstate Commerce Commission refers to these methods in the following ex-
tracts from pages 57-58 of the report.
"QUESTIONABLE METHODS EMPLOYED TO INCREASE THE AMOUNT OF CAPITAL STOCK.
"Increases in capital stock of the New York, New Haven & Hartford Railroad
Co. have been made upon the basis of transfers of assets from oi>e subordinate com-
pany to another.
"The steamship properties of this system at one time were held "by the New Fug-
land Navigation Co., approximating a cost of $11,500,000. This latter company in
1907 transferred the title to these steamship properties to the Consolidated Railway
Co. at a value of $20.000.000. The Consolidated Railway C'o. thereupon increased
its capital stock $20,000,000. The Consolidated Railway Co. wae then merged with
the New Huven, and the stock of the latter company increased $30,000,000, $20.000.000
of which went to the New England Navigation Co., and placing in its treasury by
this transaction $20,000,000 Consolidated Railway stock, which by the merger
became New Haven stock, with a market value of over $30,000,000. It was this
stock with which control of the Boston & Maine Kailroad Co. was secured.
28 EXTENSION OF GOVERNMENT CONTROL OF RAILROADS.
"MANIPULATION OF ACCOUNTS.
"Proper accounting demands that the records of a company should reflect accu-
rately trie transactions relating to th e matter recorded , and where accounts fail to reveal
a true history of the transactions it can be due to but one of two causes carelessness
or design.
"Several transactions appear of record which show that by no stretch of imagina-
tion can the irregularity of recording be classified as due to carelessness; the following
are illustrations :
" In February, 1911, the New York, New Haven & Hartford Railroad purchased
23,520^ shares of the Rutland Railroad Co. 's stock from the New York Central & Hud-
son River Railroad Co., giving in exchange therefor its check upon the Farmers'
Loan & Trust Co. in the sum of $2,364,977.15. No entries can be found in the record
of the New Haven Company which reveal this transaction. The stock thus acquired
was on the same day, with a check for $135,022.85, delivered to the New England
Navigation Co. in exchange for its note of $2,500,000. The effect of the recording of
this transaction is that the sum paid the New York Central for the stock shows as a
cash advance to the New England Navigation Co.
"February 14, 1910, the New England Navigation Co. sold, through the firm
of J. P. Morgan & Co., 50,000 shares of New York, New Haven & Hartford Railroad
Co. stock at a price of 157 net, the cash proceeds amounting to $7,849,000. A check
was remitted by J. P. Morgan & Co. for $5,162,203.02 to the New England Naviga-
tion Co., and 16,744 shares of Worcester, Nashua & Rochester stock were acquired
for the account of the New England Navigation Co. at a total cost of $2,686,796.98."
DUMMY COMPANIES FORMED TO HIDE THE IDENTITY OF RAILROAD OFFICIALS AS TO
THEIR COMPLICITY IN ILLEGAL ACTS AND FRAUDS ON THE STOCKHOLDERS.
The following is from pages 45, 60, and 61 of the official report.
"Witnesses who were officers of some of these companies appeared before the com-
mission and testified that they acted as 'dummies' under the directions of Robbins and
of attorneys selected by him. Some of them handled, without any knowledge of the
nature or purpose of the transactions, checks approximating $3,000,000.
"DUMMY COMPANIES.
"The frequency with which dummy corporations and dummy directors appear in
this record leads to the conclusion that some one high in the counsels of the New Haven
had an obsession upon the subject of the utility of such sham methods. The directors
of the Billard Company confessed that they were dummies and knew nothing of its
operations. Why men of respectability and standing as these appear to be should lend
their names as dummies passes, comprehension.
"In the organization of one of the steamship companies the young lady stenographer
was made president; and a youth of 21 years of age by the name ofGrover Cleveland Richards
was selected as treasurer of another company.
"Clerics and irresponsible persons were drawn upon to supply the demand for dummies
in the financial joy riding by the management of the New Haven.
"Mellen's stock in the New England Investment & Securities Co. was held by
James B. Brady, who testified that he was merely a dummy for Mr. Mellen. Director
Skinner's stock in this same company was held by a relative and a bookkeeper in his
office. Thus, throughout the entire story of deception, the New Haven management
vainly endeavored to hide the true facts behind these dummy individuals and dummy
corporations.
"As a matter of law, such devices are feeble and puerile, but if the master financiers
behind these New Haven transactions could use these sham methods and thus give
their indoresment to the availability of such crooked schemes to cover the true sub-
stance and fact of financial transactions it indicates a low state of financial morality.
No condemnation can be too severe to apply to the frequent use of these companies
by the New Haven.
_ -' 'While in many States there are safeguards established by law, in other States there
is such a prodigality in the creation of corporations as to greatly prejudice the interests
of investors, creditors, and the public welfare generally.
While stock in the New Haven road was listed on the New York Stock Exchange a
large portion of its funds were invested in "blue sky" corporations, the officers of
which knew nothing of the purposes or assets of the companies of which they were
managers or officers.
EXTENSION OF GOVERNMENT CONTROL OF RAILROADS. 29
HOW OFFICIALS PROFITED AT THE EXPENSE OF THEIR ROADS BY CONTRACTS WITH COM-
PANIES IN WHICH THEY OR THEIR FRIENDS WERE FINANCIALLY INTERESTED.
The records of the New Hayen, as well as the other railway systems investigated,
invariably show that the officials did not purchase their supplies in a businesslike
manner and at reasonable prices, but at extravagant prices in their own interest with-
out regard to that of the stockholders. As this was the general custom, the history
abounds with many like transactions.
"LARGE PURCHASES WITHOUT BIDS.
"Purchases of cars and coal are two large expenditures that railroads make. The
New Haven purchased cars almost exclusively from James B. Brady without compe-
tition and to the extent of some $37,000,000. Mr. Brady, as a witness, made no secret
of his generosity to the officials with whom he had business. His methods were justi-
fied by him on the ground that the officers of the New Haven were old friends.
"Locomotives were purchased from a company in which a director of the New
Haven was also a director. Many supplies obtained by the New Haven were from
companies having directors who were also directors of the New Haven.
^'Corporate economy is not practicable where gifts and obligations arising from
friendship tend to obscure official duty."
The following extract respecting the railroads' expenditures for controlling politics
is found on pages 61-62 of the report.
POLITICAL CONTRIBUTIONS.
"The New Haven Railroad had no politics. It was Democratic in Democratic
States and Republican in Republican States. As Mr. Mellen testified, its effort was
always to 'get under the best umbrella.'
"Payments made for political purposes totaled a large sum.
"For instance, in 1900, $50,000 was contributed by the New Haven for campaign
purposes through J. P. Morgan & Co. No proper and complete voucher for this
payment appears on the books of the New Haven Co.
"In 1904 a payment of $50,000 was made through Mr. Mellen for political purposes.
This was secretly done and not reported to the directors or stockholders or in any
manner made public.
"No public -service corporation may rightfully use corporate funds to promote a
political cause or to support a political candidate or a political party.
"A corporation as such has no political principles to maintain and no political
candidates to support.
"The revenues of a public-service corporation are for the most part derived from the
exercise of the right delegated to it by the sovereign power to tax the public by fixed
rates established in accordance with law. Shippers and the traveling public may be
presumed to be divided in political opinion. Corporate revenue derived by public
tax from men of one political conviction can not be used to support the fortunes of a
candidate or party of contrary political principles.
"Regardless of the injustice to stockholders and travelers belonging to another
party which results from such use of funds, the withdrawal from corporate use and the
diversion to political use is illegal and indefensible.
"Nor is the ' education ' of the public upon economic issues any part of the province
of a corporation such as here in question.
"Such political and 'educational' use of corporate funds is a gross injustice to the
stockholders and the public."
LOSSES OF 560,000,000 TO $90,000,000 DUE TO WASTE, MISMANAGEMENT, AND SPECULA-
TIONS BY RAILROAD OFFICIALS, AND ATTEMPTS) TO CONTROL POLITICS, TUB PRESS,
AND PUBLIC OPINION.
The following is from pages 63-70 of the official report:
"WASTE IMPAIRMENT OF VALUE LOSSES.
"In attempting to estimate the losses of the New Haven stockholders, the three
large items of loss with which we are confronted are those arising out of the accruisi-
tion of the Boston & Maine stock, the New York, Westchester & Boston stock, and the
Rhode Island trolleys.
"Two hundred and nineteen thousand one hundred and eighty -nine shares of the
common stock, 6,543 shares of the preferred stock, and one bond of the Boston & Maine
30 EXTENSION" OF GOVERNMENT CONTROL OF RAILROADS.
Railroad are carried for the New Haven by the Boston Railroad Holding Co., as of
December 31, 1913, at $30,303,653.18. There must of necessity be a large loss upon
the capital invested in this Boston & Maine stock, by reason of the depreciation thereof
in the market, caused by the New Haven's mismanagement.
" It is difficult to form an estimate of the extent of this depreciation.
"The Boston Railroad Holding Co., on October 1, 1909, took over the New Haven's
Boston & Maine stock at $140 per share.
"At present the Boston & Maine stock is selling in the market at somewhere around
$40 per share.
"The market depreciation of the common stock of the Boston & Maine owned by the
New Haven is therefore $20,475,025.68.
"Where figures are submitted as estimates herein they are and must of necessity be
taken only as approximations.
"There is the additional loss growing out of the unfortunate Billard transaction of
$2,748,700 unless John L. Billard is compelled, as he should be, to make restitution.
"In addition there have been large expenses incurred in litigation, in procuring
legislation, and in a vain attempt to stem the tide of adverse popular opinion.
"A summarization of these figures, where they are specific, is as follows:
Depreciation (using market price of $40) :
Boston & Maine $20, 475, 025. 68
Billard transaction 2, 748, 700. 00
Total depreciation and loss 23, 223, 725. 68
*******
"A summary of the foregoing losses is as follows:
Boston & Maine $23, 223, 725. 68
New York, Westchester & Boston 11,457,156.09
Hartford & Worcester Street Railway 73, 394. 27
Springfield Railway companies 203, 221. 15
Worcester Consolidated Street Railway 10, 500. 00
Worcester & Southbridge Street Railway 15, 580. 00
Connecticut Co " 12, 535, 386. 01
Rhode Island Co 18, 352, 336. 41
Total 65, 871, 299. 61
*******
"From all of the foregoing and from a careful consideration of the method in which
expenditures, not specified herein, have been made, it is submitted that a reasonable
estimate of the loss to the New York, New Haven & Hartford Railroad Co. by reason
of waste and mismanagement will amount to between $60,000,000 and $90,000,000.
"The splendid property of the New Haven Railroad itself will be called upon for
many a year to make up the drain upon its resources resulting from the unpardonable
folly of the transactions outside the proper field in which stockholders supposed their
moneys were invested.
"But honesty and efficiency of management of this property as a railroad only
will undoubtedly, in time, restore its former standing.
"EVIL OF INTERLOCKING DIRECTORATES.
"A system of interlocking directorates has frown up and flourished in the past
few years which has brought about combinations and intercorporate relationships
not conducive to the public welfare. On the New Haven board of directors there
was a representative of the Pennsylvania Railroad, which railroad owned 35,000 shares
of New Haven stock; there was a representative of the New York Central, which
owned 35,000 shares; there was a representative of insurance interests that owned
35,000 shares, and a representative of an express company that had a contract with
the railroad; there were directors who were also directors of the Standard Oil Co.,
the United Steel Corporation, the Pullman Co.; in fact, every other interest seemed
better represented on the New Haven board than the average stockholder's interest.
"There are too many ornamental directors and too many who have such childlike
faith in the man at the head that they are ready to indorse or approve anything he
may do.
"The handling of bank deposits and security sales of these corporations are massed
in a few hands, carrying with them a power and domination over large amounts of
banking capital as well as the control of great railroad systems. These and other
evils as the result of interlocking directorates are now well recognized and known,
and they have been emphasized oy the disclosures of this investigation.
EXTENSION" OF ^GOVERNMENT CONTKOL OF EAIUtOADS. 31
"FUNDS TO BE RECOVERED ON BEHALF OF THE STOCKHOLDERS.
"From the facts developed in this investigation, it would seem that there is little
question concerning the recovery of a substantial amount of the stockholders' money
that has been wasted.
"If any expenditures were made in violation of the antitrust laws of the United
States, are not such expenditures ultra vires and is it not the legal obligation of the
directors to satisfy out of their own fortunes any loss which results to the company?
"These are all pertinent questions in the light of the developments brought about
by this investigation.
"Directors can not without accountability deplete a corporate treasury in ventures
which are in violation of the law of the land.
"DIRECTORS CONSCIOUSLY TRANSGRESSING ANTIMONOPOLY LAWS.
"The evidence shows that in pursuance of the policy of transportation monopoly
the New Haven purchased the Connecticut trolleys, the Rhode Island trolleys, the
Massachusetts trolleys, steamship lines, the Boston & Maine Railroad, and other means
of transportation that were available and purchasable. That this plan was done in
violation of the Federal statute it seems quite -clear, for competition was sought to be
destroyed. That the directors were conscious they were proceeding along lines that
were probably inhibited by law is evidenced by the testimony of Director Elton, that
as each line was purchased some one would ask the question in the board of directors
if it were not in violation of law, and that Mr. Robbms, general attorney for the New
Haven, would state to the board that the New Haven charter permitted them to do
anything.
"It appears, therefore, that not only were these consolidations contrary to law, but
these directors were cognizant of that fact, and contented themselves with the advise
of counsel that under the company's charter it could do anything it pleased.
"NEW HAVEN MONOPOLY CORRUPT.
"This investigation has demonstrated that the monopoly theory of those controlling
the New Haven was unsound and mischievous in its-effects. To achieve such monop-
oly meant the reckless and scandalous expenditure of money; it meant the attempt
to control public opinion; corruption of government; the attempt to pervert the
political and economical instincts of the people in insolent defiance of law. Through
exposure of the methods of this monopoly the invisible government which has gone
far in its efforts to dominate New England has been made visible. It has been clearly
proven how public opinion was distorted ; how officials who were needed and who could
be bought were bought; how newspapers that could be subsidized were subsidized;
how a college professor and publicists secretly accepted money from the New Haven
while masking as a representative of a great American university and as the guardians
of the interests of the people; how agencies of information to the public were prosti-
tuted wherever they could be prostituted in order to cany out a scheme of private
transportation monopoly imperial in its scope.
"DIRECTORS CRIMINALLY NEGLIGENT.
"It is inconceivable that these wrongs could have gone on without interference
if the members of the board of directors had been true to the faith they owed the stock-
holders. A number of directors appear in many instances to have voted without
knowledge and to have approved the expenditure of runny millions without informa-
tion. According to the te.-aimony of same of the directors they merely approved
what had been done b y some comm ittee or by some officer of the company. The direc-
tors' minutes reveal that it was largely a body for ratification and not authorisation, as
the law intended a board of directors should be. None of the directors would have
been so careless in the handlihg of his own money as the evidence demonstrates they
were in dealing with the money of other people. The directors actively or passively
acquiesced in the efforts of the Mellen-Morgau- Rockefeller regime to ex tend the domi-
nation of this corporation over the whole transportation field in New England.
" If these directors who were faithless to their stewardship were held responsible in
the courts and at the bar of public opinion for the failure to do those tilings they should
have done, the lesson to directors who do not direct would be very salutary.
"Directors should be made individually liable to civil and criminal laws fur the
manner in which they discharge their trust. A corporal ion con be no better or worse
than those who operate it. It should be just as grave a crime to plunder stockholders
or the public through a railroad corporation as it is to personally rob an individual.
32 EXTENSION OF GOVERNMENT CONTROL OF RAILROADS.
"SUBSIDIARY CORPORATIONS CONDEMNED.
"It was found in the investigation of the New Haven system that there were 336
subsidiary corporations, and the books of the NewHayen road proper reflect only a
small part of the actual financial transactions of the railroad. Many of these subsid-
iary corporations served no purpose save an evil one. They were used to_cover_up
transactions that would not bear scrutiny, and to keep from the eyes of public officials
matters that were sought to be kept secret. The commission should have the power to
examine not only the books, records, papers, and correspondence of interstate carriers,
but of subsidiary companies as well.
"REMEDY IN PUBLIC CONSCIENCE AND LAWS.
"The insuring of honesty throughout the management of the great railroads of the
country is a most important question before the people to-day, and only when through
exposure of wrongdoing and an awakened public conscience coupled with effective
laws this result is produced, may railroading be placed upon the high level that it
should, occupy. The revelations in this record make it essential for the welfare of the
nation that the reckless and profligate financiering which has blighted this railroad
system be ended, and until this is fully done there will be no assurance that the story
of the New Haven will not be told again with the stockholders of some other railroad
evstem as the victims. "
THE CHICAGO, ROCK ISLAND & PACIFIC RAILWAY CO.
Having reviewed some of the principal transactions of the New York, New Haven,
and Hartford Railroad Co., in defrauding its stockholders and the public, extracts
will now be submitted from the official report of the Interstate Commerce Commission,
No. 6834, dated July 31, 1915, entitled "In re financial transactions, history, and
operation of the Chicago, Rock Island & Pacific Railway Co.
Owing to the limits of space available in this statement to Congress and having
gone into the transactions previously investigated in considerable detail, we will
content ourselves with brief extracts from the official report just mentioned, which
when read in full discloses a duplication of the illegal acts of the other systems inves-
tigated, together with some new details respecting the salaries of its officers and the
manner in which they abstracted for their private uses from the company treasury
large sums without accounting therefor. The same system of false accounting, ex-
travagance, waste, and the use of the stockholders' money for controlling politics and
the press and for other illegal acts is found in the official report of the commission.
SPECULATION, EXTRAVAGANCE, AND EMBEZZLEMENT BY OFFICIALS REDUCES VALUE
OF STOCK FROM $200 PER SHARE TO $20 ONE OFFICIAL GETS $500,000 FOR 10 MONTHS'
TIME.
The results of these illegal practices was to reduce the value of the stock which
in 1902 was $200 a share to $20 in 1914 and to put the road in the hands of a receiver-
all in the private interest of a minority of its directors without the knowledge of the
rest of the board for the purpose of further exploiting the stockholders.
Among the acts so startling and sensational as to vie in interest with the wildest
fiction should also be mentioned the following:
The chairman of the executive committee, L. F. Loree, in addition to a salary of
$75,000 per annum, demanded and received a contract giving him a present or "bonus "
in an additional sum of $500,000 after the expiration of his five-year contract. Owing
to trouble which arose between him and the rest of the 'board after only 10 mouths'
service, he was given a "bonus" of $450,000 to quit the job, so that his compensation
for 10 months exceeded $500,000.
A majority of the officers seemingly took money from the company's treasury
whenever they desired without warrant of law or without specifying the purpose the
money was to be used for. A stockholder who brought suit to secure an investigation
and an accounting of the acts of the directors was paid $217,000 to relinquish his suit
in order to keep these facts from public knowledge.
The following extracts from the official report of the commission, giving a sketch
of the system, the methods by which the directors squandered the funds of the stock-
holders in extravagance, speculations, and dishonesty, and the conclusions of the
Interstate Commerce Commission, are found on pages 43 to 61 of the report.
" In 1902 the main line of the Chicago, Rock Island & Pacific Railway Co. extended
from Chicago to Denver, with branch lines to St. Paul, Minneapolis, and Kansas City.
The territory served is one of the richest and most prosperous in the country and the
EXTENSION OF GOVERNMENT CONTROL OF RAILROADS. 33
system's ramification of branch lines insures to it a large volume of tonnage. It was
then thriving and its prospects were promising, its stock selling in the markets of the
world at more than $200 a share. In 1914 the shares had fallen to $20 and the road is
now in receivers ' hands. The evidence shows that the earnings of the railway company
have steadily increased, and that in 1914 they were the largest in its history."
In 1902 plans were laid by five directors to form a syndicate and holding company
and secure control of the road to plunder and wreck it.
The following is from the official record:
" SYNDICATE CONTROL
"In 1901 Daniel G. Reid, W. H. Moore. J. H. Moore, and W. B. Leeds purchased
about $20.000.000 of stock of the company, and by the use of proxies they soon became
members of the board of directors. W. B. Leeds being made president and D. G. Reid
chairman of the executive committee. This syndicate procured the selection of other
members of the board of directors, notably F. L. Hine, George McMurtry. and George T.
Boggs, each of whom appears to have acted and voted in accordance with the wishes
of the members of the syndicate. One other director stated that he knew but little
of what was being transacted in the affairs of the railway company, and that he was a
member of so many other boards of directors that he had no opportunity to examine
into things for himself, but had to take the word of those in authority. Thus the syndi-
cate controlled the board through the directorships held by themsleves and by those
subject to their wishes.
"ORGANIZATION AND USE OF HOLDING COMPANIES
" In July, 1902, the syndicate organized two holding companies, the Chicago, Rock
Island & Pacific Railroad Co. of Iowa, and the Rock Island Co. of New Jersey. The
railway or operating company will be referred to hereinafter as the railway company,
and the holding companies as the Iowa company and the New Jersey company,
respectively. The St. Louis & San Francisco Railroad Co. will be referred to as the
Frisco."
The directors paid a large sum to have a suit suppressed which would have exposed
their illegal transactions. Upon page 46 occurs the following:
"A significant transaction at this time is that growing out of the action of C. H.
Venner, a stockholder of the railway company. _ He made demands upon the officers
of the railway company in December, 1902, and in January, 1903, for a list of its share-
holders. Being ignored he instituted on January 31, 1903, a proceeding in a State
court of Illinois to enjoin the organization of the holding companies and the exchange
of railway company stock for their securities. In February and March, 1904, the
railway company paid Venner $291,000, ostensibly in consideration of his delivery to
it of securities of the New Jersey company and of the railway company valued at
$91.000 and stock of the Nebraska Central Railway and of the Nebraska Construction
Co. of a nominal value of $200,000. Thereupon the suit to restrain the holding com-
panies' plan was dismissed. Neither the Nebraska Central Railway Co. nor the
Nebraska Construction Co. had any road or other tangible assets, and their stock is
therefore considered to be without value . The conclusion is obvious that the payments
to Venner were in consideration of his refraining from further prosecuting in the courts
his opposition to the syndicate plans."
Compensation and peculations of officers who defend salaries of $50,000 to $75,000
for themselves but assign the wages of clerks, telegraph operators, conductors, and
brakernen which, when combined, average approximately $2.50 a day as the reason
for the financial troubles of the road.
On pages 47-50 is the following account:
"SALARIES OF AND CONTRIBUTIONS TO OFFICERS AND DIRECTORS.
' ' The salaries paid to some of the principal officers at various periods were as follows :
Per annum.
H. U. Mudge, president . $60, 000
L. F. Loree, chairman executive committee (one-half to be paid by the Frisco) 75, 000
R. A. Jackson, vice president and general solicitor 50, 000
R. R. Cable, member of board of directors 32, 000
W. B. Leeds, president 32, 000
B. L. Winchell, president 40, 000
B. F. Yoakum, chairman executive committee 30, 000
Daniel G. Reid, chairman board of directors 32, 000
C. II. Warren, first vice president 35, 000
34 EXTEXSIOK OF GOVERNMENT CONTROL" OF RAILROADS.
"Mr. Mudge, president of the railway company and now one of the receivers,
asserted that the troubles of the railway were in a measure due to increase of wages and
governmental regulations. When asked what wages he referred to as being increased
he pointed out the wages of clerks, telegraph operators, conductors, and brakemen.
While he regarded the wages of these minor employees as having partially sapped the
financial strength of the railway, he declared that the salaries paid to the higher
officers of the company had no appreciable effect on its expenses.
D. G. lleid upon the witness stand was interrogated and answered as follows:
'Question. Mr. Reid, do you think these men earned these high salaries?
'Answer. I do not think there is a man who did not earn more than he was getting.
'Question. In other words, you defend paying these high salaries?
'Answer. I defend nothing. Here is 8,000 miles of railway; a man who can run
8,000 miles of railroad is worth all he can get.'
"Many large contributions were made to officers and directors of the railway com-
pany. George T. Boggs, a director and secretary to the board of directors of the rail-
way company, arid also a director in the two holding companies, admitted that he
served in these capacities merely as a dummy for the syndicate. On the question of
the rights of the public to have corporate funds of common carriers properly applied,
he testified as follows:
" 'Question. Do you consider that the directors of a railway company, a public-
service corporation, have the right to do whatever they please with the money of the
railway company?
" 'Answer. As in their judgment seemed right; yes.
" 'Question. Did it ever occur to you that the money in the treasury of the railway
company was the result of taxation of the public in passenger and freight tariffs, and
that the public had an interest in the funds in the treasury?
' 'Answer. I don't know that I ever thought of it particularly.
' ' ' Question . And that the public had a concern in the funds of the railway company
not being dissipated in order that they might be applied to improvements and bet-
terments and to proper purposes?
" 'Answer. I never considered that they were dissipated.
" ' Question. And did it ever occur to you that in taking money from the treasury of
the railway company, a public-service corporation, an additional burden was placed
upon the passenger and freight traffic in order to make good the loss?
" 'Answer. No; I never thought of it in that light.
" 'You don't believe it now, do you?
" 'Answer. No.'
"This opinion was also expressed in effect by other officers and directors. It ap-
peared to be the idea of those in control of the railway that it was no concern of the public
what became of the corporate funds so long as rates were reasonable. Those stating
this opinion apparently did not take into consideration the fact that if the funds
derived from transportation services are expended waettfully or corruptly the inevi-
table result must be either increased charges in order to enable the railway company
to obtain money to pay operating expenses, or bankruptcy.
"Following are specific instances shown of record of the contributions referred to:
"J. E. Gorman, first vice president in charge of freight and passenger traffic, was
Becretly paid $18,750 per annum, making his total compensation $43,750, whereas the
pay roll showed $25,000.
"C. A. Morse, chief engineer, received a salary of $15,000 per annum and a secret
bonus of $3,000 on the first of each vear.
"Upon the retirement of R. A. Jackson as general solicitor he was given $100,000
in cash.
"As an inducement to L. F. Loree, chairman of the executive committee, to relin-
quish, after 10 months' service, a joint contract with the railway company and the
Frisco under which he was to receive a salary of $75,000 per annum for a period of five
years and in addition was to be paid a bonus of $500,000 at the expiration of the con-
tract, he was given bonds of the railway company of a par value of $450,000. This
was borne equally by the two companies, and the proportion of the railway company
was charged to profit and loss. The total amount borne by the railway company in
this transaction exceeded $250,000.
"C. H. Warren, vice president, was given by the railway company $150.000 in par
value of the common and $105,000 in par value of the preferred stock of the New
Jersey company and $50,000 in cash. There was no board authorization for the latter
expenditure, the item being represented in the records of the railway company merely
by a voucher signed by D. G. Reid.
"R. R. Cable, a member of the executive committee, received from the railway
company $30,000 in bonds of the Iowa company, then worth $24,500, for hie services
in the acquisition of the Burlington, Cedar Rapids & Northern Railway Co. , and he was
EXTENSION OF GOVERNMENT CONTROL OF RAILROADS. 35
paid by the latter company $85,000 iu the same transaction. Mr. Cable also received
another contribution, which will be referred to later.
"Robert Mather, vice president, was given $25,000 in cash.
"As hereinbefore indicated, when the capital stock of the railway company was
increased to $75,000,000, shares of the par value of $880,500 were placed iu the name
of the president, to be thereafter distributed in accordance with the following resolu-
tion of the executive committee passed at a meeting held in New York July 1, 1902:
"'Resolved, _That such portion as the president may determine of the shares of the
increased capital stock or the company not required for the purpose of the foregoing
resolutions shall be disposed of at par by the president for the benefit of such officers of
the company as the president shall elect and determine. '
"This stock was later exchanged for securities of the Iowa and New Jersey companies
in the same manner as was stock of the stockholders of the railway company.
"Following this exchange R. R. Cable received securities of "a market value of
$368,300 for which he paid $200,000.
"H. A. Parker, first vice president, received securities then worth $27,900, for
which he paid but $15,000.
"Robert Mather received securities of a market value of $145,912 above his payments
therefor.
"The contributions to officials of the railway company in excess of their salaries
aggregated about a million dollars.
"IRREGULAR VOUCHER PAYMENTS.
"Unexplained vouchers for amounts aggregating $72,523.45 were disbursed to the
officers of the railway company for purposes not clearly denned. One such voucher
for $6,823.12 was drawn apparently to reimburse W. H. Moore for losses sustained by
him in 'supporting the market while bonds of the railway company were being
sold.' The voucher was certified by D. G. Reid, 'for the benefit of the railway
company. ' No papers were attached to the voucher and no other information was
available with respect to the disbursement.
"Another voucher in favor of the Liberty National Bank of New York City, in ex-
change for a cashier's check issued to Robert Mather for $25,000, is charged to 'general
expenses' under 'operating expenses.' This voucher refers to a miscellaneous file
shown by the index thereto to have comprehended 'contributions to campaign
committee. ' The file, however, was not produced, and a diligent effort on the part
of the accountants to secure it was unavailing. Without this file it is impossible to
state the purpose for which the money was expended, but the generalization 'contri-
butions to campaign committee,' in the light of the practices indulged in by the
syndicate in question, is clearly suggestive.
"The books of the railway company reveal payments aggregating $44,066.05 to
the Denver Post. The vouchers attached read, 'for advertising in editorial and news
columns. ' Other entries show that three of these vouchers, aggregating $20,000, cover
a refund that this newspaper received at the rate of 25 cents per hundred on its freight
carried over the lines of the railway company from points in Wisconsin.
"Another voucher is for $50,000 to S. M. Felton, for the railway's proportion of
amount ' paid by E. H. Harriman and his associates for money expended by them to
secure the discontinuance of a line of road being constructed in 1900 between Peoria,
111., and Clinton, Iowa, as per agreement between R. R. Cable, chairman of the board,
and E. H. Harriman. ' "
BY SPECULATION, ETC., AGGREGATK OF LOSSES OVER 137,000.
"The aggregate losses sustained by the railway company in connection with the
foregoing transactions may be summarized as follows:
Expenses of maintaining and housing holding companies, more than. . . $290, 000. 00
I Yif o deal, approximately 6, 500, 000. 00
Alton deal, approximately 6, 370, 000. 00
Trinity & Brazos Valley Rv. deal, morn than 4, 500, 000. 00
Consolidated Indiana and Deriog coal coBUtaiOM, at lra.st 1,300,000.00
Contributions or gratuities to officers and directors, about 1, 000, 000. 00
Venner transaction 217, 000. 00
Miscellaneous and unexplained expenditures 72, 523. 45
"These items show an aggregate loss to the railway companv of more than
$20,000,000. In addition thereto it is to be noted that prior to .lune :JO, 1914, the rail-
way company paid to financial institutions, in connection with the issuance of bonds,
corni lissions aggregating more than $1,600,000, and suffered discounts of more thau
$17,700,000.
36 EXTENSION OF GOVERNMENT CONTROL OF RAILROADS.
INDIVIDUAL PROFITS OF PROMOTERS; OFFICERS, AND DIRECTORS OF THE HOLDING
COMPANIES.
"The amount of gains accruing to W. B. Leeds, D. G. Reid, W. H. Moore, and
J. H. Moore through their control and manipulation of the railway company are
probably not ascertainable. Reid, when interrogated with a -view to ascertaining
his profits from the various transactions, explained that he always burned his books
at the end of each month.
''The quotations placed in the record from the stock market of the New Jersey
company stock and the railway company stock showed wide fluctuations. Whatever
have been the gains realized by these persons, it is certain that the present holders
of the stocks and bonds of the holding companies have that which is of little or no
value.
REPORTS TO STOCKHOLDERS.
"Misrepresentation of assets in reports to stockholders appears to have been a prac-
tice of the directors of the railway company. On June 30, 1904, a book surplus was
claimed for the railway company of $22,343,955.26. By June 30, 1914 ; the company
conceded a reduction of this surplus to $6,199,841.08, and even this amount was
fictitious.
*******
"The directors also reported as assets the 5 per cent debenture bonds of the Iowa
company, which were in fact worthless, but which were reported as worth nearly
$6,000,000.
"In view of the fact that the reported value of the 'securities' listed for the year
1914 was nearly $18,000,000 in excess of their actual value, instead of a surplus of
more than $6,000,000 claimed by the railway company, there should have been shown
a deficit of over $11,600,000.
"Another misleading and objectionable practice of the railway company officials
was the failure to state on the pay roll the true amounts paid to its officers.
"The publication of misleading reports to stockholders can not be too severely
condemned, and the individuals guilty of such acts should be subject to adequate
penalties.''
The bankrupting of railways in the United States has invariably occurred from
maladministration and speculation on the part of the officers in charge, and never
because of insufficient revenues when wisely and honestly administered. Receiver*
ships have always resulted from the above cause or else have been planned by directors
for their own private gain. In some cases the condition of the companies did not
warrant receiverships, even though the directors had placed their companies in an
embarrassing condition. The receivership of the Rock Island system is an example
of the cause last mentioned, and was planned without the knowledge of the majority
of the board by a conspiracy of a few directors in which they were joined by the chief
counsel of the company, who afterwards acted as a receiver in their interest. ' ' Fake "
legal proceedings were had through attorneys employed fraudulently to prevent
the stockholders defending their rights.
' The following is taken from the official report:
RECEIVERSHIP DELIBERATELY PLANNED AND EXECUTED BY OFFICIALS FOR PURPOSE
OF DEFRAUDING STOCKHOLDERS.
"The syndicate decided to put the railway into a receivership. The general
counsel of the railway company at the suggestion of W. H. Moore, a member of the
syndicate, drew the bill asking for a receivership and engaged an attorney ostensibly
to represent the other side. The bill was placed in the nands of this attorney with
the name of the complainant omitted and he was instructed by the general counsel
to locate some creditor of the railway company willing to act as complainant. There
was an agreement between the general counsel and this attorney as to the parties the
latter would recommend to the court as receivers, the general counsel agreeing to
instruct the attorney appearing for the railway company to acquiesce in the recom-
mendations so made.
"The board of directors of the railway company was not informed of the intention
to file a bill for receivership and at no meeting of the board was any authority ever
given for such action. Members of the board of directors not in the confidence of
the syndicate were kept in ignorance of the fact that such a bill had been prepared.
The stockholders had no information of the purpose to put the railway company into
a receivership, although a stockholders' meeting was held after the date upon which
the receivership bill was completed by the general counsel, and this general counsel
EXTENSION OF GOVERNMENT CONTROL OF RAILROADS. 37
attended the meeting. According to the testimony, the bill was completed by the
general counsel March 29, 1915, and the fact that it was to be filed whenever desired
by those in authority was known only to certain insiders. The testimony clearly
establishes the fact that the ^ railway company could easily have paid the debt of
$16,000 upon which the receivership application was based, and that arrangements
probably could have been made to meet all pressing obligations of the railway com-
pany.
"The creditor at whose instance the receivership application was filed appeared as
complainant by request. R. P. Lament, the president of the American Steel Foun-
dries, the complainant, testified that he would not have thought of bringing such a
proceeding against the railway company unless he had understood that it would be
regarded as not unfreiendly but as a friendly act to oblige the railway company. He
only consented that his company should appear as complainant when he was assured
that this course was in accordance with the wishes of the railway company and that
his company was not to have any care or expense in the preparation of papers or pay-
ment of counsel fees. The suit was not a bona fide proceeding to collect a debt, but
was instituted to carry out the purposes and schemes of the syndicate controlling the
railway.
"N. L. Amster, who was elected to the board of directors of the railway company
by the minority stockholders at the stockholders' meeting held in Chicago, April 12,
1915, believing, according to his testimony, that no sincere effort was being made by
other members of the board to finance the obligations of the railway, undertook to
assist in raising about $6,000,000 needed by the railway to meet obligations soon there-
after to mature. On April 16, 1915, he met and conferred with Messrs. James, McLean,
and Schumacher, all directors of the railway and members of the executive committee,
and discussed the company's finances. These three expressed approval of his pur-
pose to negotiate for the money. Amster testified that he had secured assurances for
the furnishing of the money from responsible Boston bankers on securities which the
railway company had. When he arrived in New York on the morning of April 20 to
report this fact he went to the office of the railway company and, quoting his testi-
mony, ' could not find anybody there that would say anything, except a lot of people
moving back and forth. I left the office and found on the ticker that the Rock Island
had been put in the hands of a receiver.' This, Amster testified, was the first informa-
tion he had of the receivership or that such a step was in preparation, yet he was a
director of the road and after the stockholders' meeting in Chicago, April 12, traveled
from Chicago to New York with Roberts Walker, the general counsel of the railway
company."
It will be remembered that the bill was completed by the general counsel on
March 29, this fact being known only to a special few.
The bill was filed April 20. The records of the New York stock market reveal that
the railway stock was inactive until the day this bill was completed, March 29. Then
the stock began to be largely dealt in, and the price increased from $20 to $39 a share.
When the bill was filed and receivers were appointed the stock d.ropped from $39 to
$20 a share.
It is a forceful commentary on the methods by which a great railway may be manipu-
lated into a receivership when it is noted that the general counsel, after drawing the
bill for a receivership, sold hia stock, and the local counsel, who represented the rail-
way company in the receivership proceedings, owned no stock in the railway company,
and that none of those directly participating in the receivership proceedings had any
financial interest in the railway company. The real owners of the railway the stock-
holders, the security holders, and the directors, except those composing the syndicate
and in its confidence were in ignorance of the receivership application. Mr. Mudge,
former president of the railway company, is one of the receivers.
The general counsel for the railway ^ company, who planned the receivership in
obedience to the will of the syndicate, is now counsel for the receivers.
SUMMARY AND CONCLUSION.
This review, giving a brief glance at the wild speculations, frauds, and conspiracies
of the officials to plunder and wreck the properties intrusted to their care and place
heavy burdens upon both the stockholders and public, needs no further commentary
than the closing words of the Interstate Commerce Commission in its report:
'The property of the railway company will be called upon for many years to make
up the drain upon its resources resulting from transactions outside the proper sphere
in which stockholders had a right to suppose their moneys were invested. This record
emphasizes the need of railway directors who actually direct. There are too many
passive directors who acquiesce in what is being done without knowledge and with-
38 EXTENSION OF GOVERNMENT CONTROL OF RAILROADS.
out investigation. A director of a railroad is a quasi public official who occupies a
position of trust. A director who submits blindly to the exploitation of his company
is a party to its undoing and he should be held responsible to the same extent as if he
had been a principal instead of an accessory before the fact. The greater his promi-
nence the greater his responsibility and the greater his dereliction. Obviously a man
of large affairs could not attend to all the details in intricate transactions, but it ia
inconceivable that a director of ordinary business prudence and sagacity would sanc-
tion large expenditures without an inquiry as to the purposes of such disbursements.
So long as this situation exists, however, it suggests the need of a law to charge such
directors with individual responsibility for the dissipation of corporate funds.
"The Clayton antitrust act, which becomes effective October 15, 1916, will make it
unlawful for any person at the same time to be a director in two or more competing
corporations, any one of which has a capital, surplus, or undivided profits aggregating
more than $1,000,000, but common carriers are expressly exempted from its applica-
tion. It should be just as grave _an offense for an official of a railway to be faithless to
his trust for financial gain as it is for an elected official of the Government to betray
his trust for money reward.
"By this case the need of some limitations on the issuance of stocks and bonds by
common carriers, whether directly or through holding company devices or otherwise,
is again demonstrated."
THE LOUISVILLE A NASHVILLE RAILWAY SYSTEM.
This railway system was investigated by the Interstate Commerce Commission.
The results of its investigation are to be found in the official report of the commission
No. 6319, dated February 16, 1915, entitled: "In re Financial Relations, Rates and
Practices of the Louisville & Nashville Railroad Co., the Nashville, Chattanooga &
St. Louis Railway, and other Carriers."
This investigation^was the result of a resolution of the United States Senate,
prompted by complaints of the public respecting illegal acts of the above company
and its subsidiaries, in which it requested^ the Interstate Commerce Commission to
inquire into the financial affairs and capitalization of the company, its practices, and
its efforts to illegally influence or control politics, legislation, and public opinion.
Because of the fact that some of the records and accounts of the company had been
burned by them and the further fact that the commission was permitted by the com-
pany to inspect but part of those which remained, and the further fact that the officials
of the road and other witnesses summoned to appear before the commission refused
to testify, the commission was unable to ascertain but part of the facts. The testi-
mony obtained was, however, sufficient to incriminate tne company in many unlaw-
ful acts, among the most important of which were the violation of laws, both Federal
and State, in respect to monopolies ; the use of the stockholders ' money to control legis-
lation, politics, and the press; and the deceptive manner in which the accounts
were kept respecting the capital investment and the operating expenses.
An added romantic interest attaches to this report, since it includes correspondence
between two railroad presidents, who proudly styled themselves " Pizarro " and " Cor-
tez," joyfully imagining they have "subjected the natives" and can now divide the
Western Hemisphere between them.
On account of the refusal of certain officials to testify before the commission regard-
ing their acts, an appeal was made to the Supreme Court of the United States, which
court, in December ; 1917, issued a mandamus directing these witnesses to appear
before the commission and testify. ( When this ^additional evidence is taken, the
result will be to make the investigation of added interest.
As the stories of all the railway systems investigated by the commission are nearly
identical and include practically all of the same illegal acts, we will, for lack of space,
record only some of the principal features brought out in this case.
The following brief extracts from the commission's report, outlining the history of
the road, its accounting as to capitalization, operating expenses, etc., appear in pages
168-173:
"On November 10, 1913, immediately following the adoption of the Senate resolu-
tion above referred to, the commission ordered an investigation into the questions
presented and served formal notice of tibia investigation upon the carriers concerned.
Thereafter examiners of the commission were directed to examine the accounts,
records, and memoranda of the Louisville & Nashville Railroad Co. and the Nashville,
Chattanooga & St. Louis Railway, with a view to securing all information in the files
of these carriers that would throw .light upon the questions contained in the Senate
resolution. Certain obstructions have been placed in the way of the commission 'a
EXTENSION OF GOVERNMENT CONTROL OF RAILROADS. 39
examiners by the carriers, and these will be referred to later. The facts stated herein
were secured from the annual and statistical reports and the contracts and tariffs
on file with the commission; from such of the carriers' records and accounts as were
voluntarily submitted by them; from testimony given at formal hearings in other
cases before the commission; ami in a few cases, that will be indicated, from inter-
views by the commission's examiners with railroad officials and other persons. The
questions presented by the resolution will be stated and answered in numerical
order, accompanied by such comment as seems necessary. Following the report
will be found an appendix illustrating and supplementing certain of the answers."
INTEREST OP THE LOUISVILLE & NASHVILLE RAILROAD CO. IN OTHER RAILROADS.
The Louisville & Nashville Railroad Co. was incorporated in Kentucky in 1850.
The line from Louisville to Nashville, 185.81 miles in length, was completed and
placed in operation in 1859, forming the nucleus of the present system. Various
extensions have since been constructed, aggregating 399.56 miles, and making a
total of 585.37 miles constructed by the company under its own charter. The annual
report of this carrier to its stockholders for the year ended June 30, 1913, shows that
it owned or controlled on that date 7,889.77 miles of the road. A comparison of the
miles of road constructed by this company under its own charter with the total miles
of road owned or controlled by it well illustrates its activity in securing control of
other railroads.
The several lines acquired by the Louisville & Nashville through purchase, lease,
control, or otherwise, together with the dates of acquisition and the length of each,
are listed under appropriate titles in Appendix A to this report.
OVER $16,000,000 CHARGED IN BOOKS AS COST OF ROAP BUT NOT EXPENDED.
' ' Before the Louisville & Nashville advised the commission that such of its records
as were made prior to August 28, 1906, would not be submitted for. inspection, sched-
ules of most of the cost of road accounts had been drawn from the ledgers preparatory
to completing the analysis of the accounts frum information to be secured from the
journals and other records of original entry. While a complete analysis of the^e
accounts was prevented by the Louisville & Nashville the preliminary analysis was
sufiieient to indicate that the cost of road account is heavily burdened with charges
which do not represent actual construction cost. From such incomplete information
it is concluded that at least $16,000,000 shown in the cost of road accounts covers
items which should not be charged as a part of the cost of this carrier's road, as follov, a:
Discount on stock $1, 440, 018. (;0
Other expenses in connection with the sale of stock 32. 671. 4S
Discount on bonds 2, 192, 142. 57
Other expenses in connection with the sale of bonds 8, 537. Go
Interest and dividends 1, 917, 535. 13
Amounts credited to profit and loss:
For reasons not stated $2, 640, 000. 00
To provide a surplus in order that a stock dividend
of 100 per cent might be paid 6, 300, 000. 00
To raise book value of stock above the actual cost of
acquirement 1, 422, 784. 00
To adjust difference between advances made for
construction and par value of bonds received in
settlement therefor 78, 447. 72
10, 441, 231. 72
16, 032, 136. 85
" The above statement is illustrative of the character of charges which the carrier
has included in its cost of road account. A full examination of the carrier's accounts
might disclose conditions under which some of the above amounts could be properly
charged to cost of road account, but it is also possible that other improper items would
be found which would greatly augment the amount shown."
STOCK DIVIDEND OP 100 TO 200 PER CENT DECLARED AND EXCESSIVE CHARGES MADE
TO PROPERTY ACCOUNT.
The extracts referring to the above subjects are taken from pages 171-173 of the
commission's report.
As shown in the above table, a stock dividend of 100 per cent was declared bv the
Louisville & Nashville on October 6, 1880. According to a corporate history ol thia
40 EXTENSION OF GOVERNMENT CONTROL OF RAILROADS.
railroad which was found in its office, 10 stock dividends were declared by this com-
pany between 1860 and 1891.
"To make possible the stock dividend of 100 per cent declared on October 6, 1880,
the amount of surplus was arbitrarily increased by raising the book value of certain
assets. From the corporate history above referred to it appears that when this divi-
dend was declared the book value of the carrier's property exceeded its capital stock
liability."
*******
" In declaring this stock dividend the directors were confronted with the fact that,
notwithstanding the excess of cost of property over the capital stock liability, the
entire net surplus on October 1, 1880, amounted to only $3,671,383, which was insuffi-
cient to pay the full amount of the dividend. To meet this situation the assets of the
company were revalued, and the board of directors voted that the book value of
certain assets should be increased. Accordingly entires were made on the books of
the company crediting the profit and loss account and correspondingly increasing the
book value of the following assets in the amounts shown below to $7,212,226.
"The above-mentioned entries brought the profit and loss account to $10.883,609,
to which was charged the 100 per cent dividend of $9,065.000.
" The above facts illustrate the manner in which permanent improvements on the
Louisville & Nashville .have in the past to a large extent been made out of earnings
and subsequently charged to the capital account. As the commission in its annual
reports has previously pointed out, only by the fullest publicity and public super-
vision of stock and bond issues may such increasing of the capital accounts of carriers
at the expense of the public be prevented."
*******
"EXCESSIVE CHARGES TO PROPERTY ACCOUNT.
" The issued capital stock of this carrier amounts to $16.000.000, par value, of which
$15.984,787.50, par value, is outstanding. It appears that cash aggregating only
about $9,831,840.77 was received for this stock, while an amount exceeding $8,107,-
398.50 was given to stockholders in the form of stock dividends and by the sale of stock
at prices below par and also below market value. Included in this amount is a stock
dividend of 200 per cent on the outstanding capital, which was authorized by the
board of directors on August 10, 1873. The dividend as originally declared amounted
to $4.324.032.96, which was charged to the carrier's property investment account on
July 31, 1873, as an offset to the carrier's liability for stock issued from which no funds
were derived. Later the dividend was increased $251,671.79, which amount, how-
ever, was not charged to property investment but to profit and loss. Of this amount
$181,567.66 was recorded in the books by an entry dated June 30, 1875. and represented
the dividends of 200 per cent on $91,201.44 of capital stock held in the treasury."
HOW THE DIRECTORS SPENT LARGE SUMS OF THE STOCKHOLDERS' MONEY TO CONTROL
THE PRESS, POLITICS, AND LEGISLATION AND TO INFLUENCE PUBLIC SENTIMENT, FOR
WHICH PURPOSE THEY FORMED THE "TENNESSEE RAILROAD ASSOCIATION"; OTHER
"FAKE" ORGANIZATIONS FOR THE SAME PURPOSE WERE FORMED.
The following extracts are from pages 230 to 233 of the report:
' EXPENSES FOR THE PURPOSE OF MAINTAINING POLITICAL AND LEGISLATIVE AGENTS.
<
" Expenditures by the Louisville & Nashville during this period which appear to
have been for the purpose of maintaining political and legislative agents amounted
to $23,274.41. This amount was distributed as follows:
Expenditures for securing copies of and information concerning legislative
bills of particular interest to the Louisville & Nashville $1, 413. 58
Expenditures directly assignable to specific legislation 5, 596. 60
Contributions to various committees or associations for the purpose of influ-
encing legislation 6, 611. 29
Expenditures on account of legislative agents in general 9, 652 . 94
"FOR THE PURPOSE OF INFLUENCING PUBLIC SENTIMENT.
"The accounts of the Louisville & Nashville disclose that between September 1,
1906, and July 1, 1914, this carrier expended at least $59,322.48 for the purpose of
creating public sentiment in favor of its plans.
" Of this amount, over $53,000 was spent in a publicity campaign in Alabama in the
endeavor to mold public opinion through the medium of the press. Part of the balance
EXTENSION OF GOVERNMENT CONTROL OF RAILROADS. 41
was contributed by the Louisville & Nashville to a fund made up by numerous car-
riers to finance a campaign in Louisiana to prevent the change of tax laws. In order
that the railroads concerned might preserve an outward appearance of indifference in
regard to the legislation in question, the contributions for this purpose were placed
in the hands of a bank to be disbursed by it as if in furtherance of banking interests.
If the commission's examiners had been accorded access to the correspondence files
of this carrier and to its accounts prior to 1906, there seems no doubt that information
as to other substantial expenditures for the purposes referred to in the question would
have been secured.
"TENNESSEE RAILROAD ASSOCIATION.
" The Louisville & Nashville was one of the railroads which about 1884, for the
purpose of combating adverse legislation in Tennessee, formed the Tennessee Railroad
Association."
OVER 7,000,000 MILES OF FREE TRANSPORTATION GIVEN TO LEGISLATORS, GOVERNORS,
JUDGES, AND OTHER OFFICIALS AND FRIENDS. LETTER TO "DEAR BRIBE GIVER."
In the testimony taken during these investigations by the commission, which ia
printed in a volume of 519 closely printed pages (S. Doc. No. 461, 64th Congress,
1st sess., 191G), over 150 pages of testimony appear in reference to bribing of legis-
lators, chiefly through passes, which aggregate over 7 ; 000, 000 miles of free transporta-
tion. These passes were accepted by governors, and in many cases by judges, as well
as by more than 90 per cent of the members of the legislatures of the various States
through which the lines passed. That these passes were understood by the legislators as
bribes is clearly shown in letters where they promise the railway officials to ''give
them whatever they wanted" in return for the passes. An interesting letter is one
introduced in the evidence, in which the writer addresses the railway official as
"Dear Bribe Giver."
[J. A. Clement, lawyer, 11-12 Baker Building.]
DICKSON, TENN., October 7, 1915.
Mr. D. G. HUDSON,
Nashville, Tenn.
DEAR BRIBE GIVER: You promised rne Saturday you would send pass for Mr. J. C.
from Dickson to Nashville and return, Monday, but you overlooked your hand again.
Luke must have you thinking. Please send it by the 2.15 train to-morrow, if possible.
Yours truly,
J. A. CLEMENT.
DIVISION OF THE NEW WORLD TWO RAILWAY PRESIDENTS APTLY CALLING THEM-
SELVES CORTEZ AND PIZARRO, BELIEVING THEY HAD SECURED THE CONTROL OP
THE AMERICAN PEOPLE, PROPOSED A DIVISION OF AMERICA BETWEEN THEM.
In the investigation of the records of the Louisville & Nashville Railroad Co.,
letters were discovered between Milton H. Smith, president of the L. & N. Road,
and Samuel Spencer, president of the Southern Railway, giving vent to their full-
ness of joy in having as they thought obtained control of the country as had Cortez
and Pizarro of the natives four centuries ago. This aptly illustrates the illimitable
ambition of the railway financiers. The following from the letters of these two rail-
road presidents is extracted from pages 369-372 of the evidence and report of the
Interstate Commerce Commission.
A letter from President Smith, of the Louisville & Nashville Railroad, to President
Spencer, of the Southern Railway:
[Personal and confidential.]
ON PENNSYLVANIA RAILROAD TRAIN No. 21,
February 22, 1896.
SAMUEL SPENCER, Esq., .
President Southern Hailway, 60 Broadway, New York City.
DEAR SIR:
PIZARRO. How shall we divide the new world?
CORTEZ. I will take North America and you can have all of South America, except
, and neither of us will do anything to the Isthmus without notice to and cooper-
ation of the other.
42 EXTENSION OF GOVERNMENT CONTROL OF RAILROADS.
PIZARRO. While Patagonia is not a very large or important part of the world, yet,
perhaps, it is as much as I can tote.
Refer to typewritten report of our interview at Kenesaw, Ga., on October 28, 1894,
and to the interviews and correspondence that have taken place since that date, and
to that portion of our interview of this morning relating to the future of certain railroads
that are or may be tributary or competitive with roads controlled by the L. & N. R. R.
and the Southern Ry.
May it not be well to review the subject and perhaps make our understandings more
specific?
Your affairs, since our interview in October, 1894, progressed with rapidity, and
without, so far as I know, encountering serious difficulties. You have acquired the
G. S. & F., the Atlanta & Florida, and the Central Railroad has been reorganized in
accordance with your plans. I do not recall now what has been done with the Macon
& Northern, nor what has been done with the G. M. & G., Macon & B'ham, and one
or two other roads, although I believe you told me that your intention was to allow the
Macon & B'ham to be abandoned. The Paducah, Tenn. & Alabama and Tenn.
Midland Rds. have been disposed of as anticipated. The L. & N. will not compete
for the control of the M. & C. Rd. The L. & N. will not compete for the control of the
B'ham, Sheffield & Tenn. River Rd., provided you will acquire it, should it become
necessary to do so to prevent its extension into Birmingham, or will not permit it to
get into a position where it may become a disturber. The L. & N. Rd. will not con-
pete for the control of the Mobile & Birmingham with the expectation that you will
acquire it. It is not clear what disposition ought to be made of the Georgia & Ala-
bama Railroad.
*******
I have advised Mr. Belmont of our agreement that neither party will acquire the
property of the Marietta & North Georgia Railroad Co, without the consent of the
other. You may, therefore, freely communicate with him upon the subject, and
I assume he will do likewise.
Yours, truly,
, President.
Letter from Samuel Spencer, president of the Southern Railway, to M. H. Smith,
president of the Louisville & Nashville Railroad Co.:
NEW YORK, February 29, 1896.
Mr. M. H. SMITH,
President L. & N. R. R., Louisville, Ky.
DEAR SIR: Your letter of the 22d instant.
PIZARRO. Since our last conversation, the division of the New World between us
haa made some progress.
^ CORTEZ. Yes; you seem to have acquired Patagonia, and I have secured a con-
siderable part of North America which touched my former territory, but it seems
to me you have acquired a considerable neck of the Isthmus which is the connecting
link between us. Was it understood that connecting links which touched both of
us should be a matter of consultation before acting or not?
PIZARRO. * * * I agreed that it is desirable to renew the subject and, if prac-
ticable, to make our understanding more specific. The principles on which 1 think
this understanding should be based are:
(1) That neither the L. <fc N. nor the Southern shall acquire lines in the territory
of the other, and that lines connecting with or touching one and not the other shall
be regarded as in the territory of the one which they connect or touch.
(2) That neither will acquire lines allied by former ownership, lease, or otherwise,
to the other, and which at the moment are not controlled by reason of pending reor-
ganizations or other cause.
(3) That neither will acquire lines which connect with or touch both, either directly
or through subordinate or controlled lines without previous consultation and, if
possible, agreement.
(4) That neither will foster the construction of new lines or the completion of
unfinished ones into the territory of the other, but when questions with reference
to such lines arise, we shall proceed by agreement with each other, if possible.
Will you please consider this and say if such a declaration of principles is satisfactory?
*******
Confirming our verbal understanding of the 22d instant, I beg to say that we will
give no encouragement to the construction of such a line without previous consulta-
tion and understanding with you, but if the present projectors, or others, develop
EXTENSION OF GOVERNMENT CONTROL OF RAILROADS. 43
sufficient .strength to carry the enterprise through from Nashville to Harriman we
will cooperate with you on a fair basis as to the handling of any business in connectioa
with it which is competitive with you. I note your advices to Mr. Belmont con-
cerning our agreement that neither party will acquire the property of the Marietta
& North Georgia without the consent of the other, and I confirm that agreement.
Yours, very truly,
S. SPENCER, President.
It had been intended to include in this evidence extracts from the report of the
investigations of the Interstate Commerce Commission respecting the affairs and
finances of the Pere Marquette Railroad Co. and Cincinnati, Hamilton & Daytoa
Railway Co.; also the investigation respecting the St. Louis <fe San Francisco System,
in both of which the same essential conditions were found as have been recorded
respecting the three systems already reviewed. Time and space, however, do not
make it convenient for including these railroad systems in the present evidence.
X. CONCLUSIONS.
We think we have submitted a sufficient body of authoritative and unimpeachable
evidence to clearly lead to but one conclusion, namely, that no regulation short of
actual and complete Government ownership and operation will solve the railway
problem. Our principal transportation and communication systems reach to all parta
of the Nation and are continuous, not located in spots and groups, as are factories
and other enterprises. They are thoroughly national in character, and must be nation-
alized to be socially effective.
It may, of course, be five or ten years after Government ownership comes before
the merits of the plan are outstanding above private ownership. But the period ia
which the Government has been in control and facing a world war and the most
adverse obstacles of all kinds here at home, has been quite sufficient to demonstrate
both to unbiased experts and to millions of our people, railway employees almost
universally, and many others, that Government control must be continued.
If the roads go back to private hands there is grave danger that the recent national
labor disturbances on the railways will be duplicated with greater losses than were
then imminent. The employees and the people now have a new standard and ideal
that is definite and concrete m their minds. They will not rest long under the ineffi-
ciency and exploitation of the old regime. They have been made partners in a
democracy of industry, and they will not readily go back to the petty autocracies
and exploitations of private railway management. They wish to live as well as to
build up profits largely for others; they desire homes and leisure, and some of the
simple happinesses that are the right of all freemen. To pass the railways back into
private hands just because some interested parties desire them, and who speak with
bated breath 01 Government ownership as if it were a dread scourge not to be thought
of or reasoned about and investigated candidly in a broad international manner,
will but start again the old iniquities under one form or another, and initiate a fight
that may take in all transportation systems and public utilities, and carry over into
public ownership enterprises that are not natural monopolies, and that our Gov-
ernment can not well, or should not now, undertake to operate. The wise and safe
policy for Congress to follow is at least to heed the disinterested advice of the two
railway directors general and to give a fair test to Government control for five or
more years; but the extravagant and unjust rate of rental which Congress is now
giving the railroads should be reduced to a rate what is fair.
Neither need Congress be afraid of the loss of initiative and enterprise in our rail-
ways when nationalized. The questions are: Will there really be any appreaciable
loss, and would not even a considerable loss of this character be made up by other
gains? More progress has been made in railway reform in the past year under Gov-
ernment control than in the past 50. Does this indicate lack of initiative? If we had
Government ownership, as well as operation, disinterested initiative and inventive
ability could come to the fore. Since the aim would be national service in peace
or war, great opportunities would arise for thousands of adaptations to the needs of
the country, never imagined by the managers who (interfered with by legislators
who were trying to regulate the unregulatable, and by investors and financiers, who
demanded big earnings instead of increased safety, improved lines of service, and
thorough coordination of all the agencies of transportation) spent all their efforts
in making the roads profitable financially.
We are on the road to a cure of Government dry-rot, stagnation z and petty officialism
which curses many democratic efforts. Great reforms are on their way, and no greater
stimulus to efficient government could be devised than to take over these railways,
44 EXTENSION OF GOVERNMENT CONTROL OF RAILROADS.
with the large business operations they entail. Not only must there be an op^n-
mindcd and honest test of Government control, but Congress and our people should
etucly carefully the methods and results of Government ownership and operation
in the many other countries enjoying this plan, with the ultimate object of making
it our national policy. We have seen no tendency on the part of Congress to go fully
into this matter. If Government ownership will succeed so splendidly abroad, it
has a far better chance of success in our great country, with its many railway advan-
tages over the smaller countries having Government ownership. Careful studies
ehow that these systems are now far more efficient than our own in essential respects
Public ownership of railways need not be as a red flag to Congressmen. Our postal
and other employees by the thousand have not built up a political machine in the
postal service, even though they are suffering from salaries below what are necessary
for a reasonable standard of living to-day. If they have not engaged in widespread
political activities and if there is not in the postal service the great inefficiency pre-
dicted of Government ownership, why continue to be frightened by the words "public
ownership of the railways?" Railway executives and their representatives raise
this fear as a bugaboo, but they do not prepare briefs against public ownership nor
argue it on its merits. Fear and prejudice and false associations of what is good,
or may be made good, with what is hated, serve them much more readily.
Government ownership of our railways is thus desirable; it is practicable; and it is
the only democratic and just solution of the railway problem, the great emergency
of American reconstruction.
If the ideals which we are seeking prevail, service not profit, democracy not autoc-
racy, will rule. What we sow to-day we shall reap to-morrow. We look forward to
the time, which we hope may be in the near future, when through the patriotism
of our citizens and the heroism of our soldiers, the victory which has come to our
arms will here at home consummate an industrial peace that shall be wise and just to
all, as one of the best fruits of the great sacrifice America has made in this world
struggle. Among the fruits of such peace, those who believe in equality of oppor-
tunity, civil liberty and democracy, hold as highly essential the public ownership
and operation of our railroads, our public utilities, and our natural resources, for in
this way alone can control be "of the people, by the people, and for the people."
o
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