GIFT OF 
 
 
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 NOV 39 I9t* 
 
 Governmental Regulation 
 
 of 
 
 Common Carriers by Railroad 
 
 An Address 
 
 Delivered Before The 
 
 Graduate School of Business Administration 
 
 of 
 
 Harvard University 
 
 UNIVERSITY 
 
 P OF 
 
 - rpo 
 
 By George Stuart Patterson 
 
 April 4, 1916 
 
I V A- \ O 
 
Governmental Regulation of Common 
 Carriers by Railroad 
 
 "Regulation is not intended to be a mere 
 wanton exercise of pozver. It is a restriction upon 
 the management of the railroads. It is induced 
 by the public interest or safety."* 
 
 The railroad transportation plant of the United 
 States comprises 250,000 miles of line, which with 
 double tracks, yards and sidings, approximates 376,000 
 miles of track. 
 
 The capital securities, that is, the stock and 
 funded debt of these companies, which were outstand- 
 ing in the hands of the public on June 30, 1914, 
 amounted to approximately $15,719,692,925^ of 
 which probably sixty per cent, were bonds and other 
 forms of indebtedness, and forty per cent, was stock, 
 the latter being owned by over six hundred and twenty 
 thousand stockholders. Insurance Companies with 
 their thirty-four millions of policies outstanding, and 
 Savings Banks with their ten million seven hundred 
 thousand depositors, hold probably over ten per cent, 
 of these securities. 
 
 * Per Mr. Justice McKenna in Erie R. R. vs. New York, 233 
 U. S. 671,683. 
 
 f Includes only railroads with annual operating ' revenues over 
 $100,000. 
 
 Z 29 
 
During the year ending June 30, 1914, the operat- 
 ing revenues* of the railroads amounted to $3,047,- 
 019,908, their operating expenses to over $2,200,000,- 
 ooo and their net operating income to $675,511,552, 
 while the number of their employees for the year end- 
 ing June 30, 1914, was 1,695,483^ and the compen- 
 sation of such employees aggregated $1,373,422,472. 
 
 During the same .period of time these Carriers 
 paid in taxes over $140,000,000. 
 
 That the people of the United States have a vital 
 interest in the efficiency of their system of railways is 
 self evident. It is obviously essential to our welfare, 
 economic and otherwise, that we have adequate rail- 
 road facilities, i. e., sufficient track, stations, equip- 
 ment and other facilities properly maintained and 
 efficiently operated, and that the charges for the use 
 of such facilities shall not only be nondiscriminatory, 
 but shall also be just, reasonable and compensatory. 
 
 It is equally clear that sound public policy requires 
 that there shall be governmental control and regula- 
 tion of railroad charges, and possibly of other features 
 of railroad transportation, and that such control should 
 be exercised, not by statute laying down a hard and 
 fast rule and affording no play to varying conditions, 
 but through a body of experts, under a salary sufficient 
 
 * Includes only railroads with annual operating revenues over 
 $100,000. 
 
 t The number of employees for the year ending June 30, 1913, was 
 1,813,289, and the reduction in number in 1914 was due to the decrease 
 in business and rigid economies forced upon the railroads by their 
 diminishing net income. 
 
to attract men of the widest experience, and with such 
 tenure of office as would render them free from polit- 
 ical influence of any kind. 
 
 A fair example of another kind of regulation, i. e., 
 by statute, is found in the extra crew laws of the 
 various States. The extra crew 7 law makes the num- 
 ber of trainmen on a train depend solely upon the num- 
 ber of cars in the train, irrespective of the character 
 of service performed by such train. For example ; one 
 of the usual types of this law requires a greater num- 
 ber of trainmen on trains consisting of four or more 
 passenger coaches, and on freight trains of thirty or 
 more cars, than is required by trains of a lesser num- 
 ber of cars, thus ignoring the fundamental considera- 
 tion that the number of trainmen should depend not 
 upon the number of cars but upon the character of 
 the service performed by that train, whether through, 
 or local, the amount of switching required, the condi- 
 tions under which the switching is performed, and the 
 differences in grade over which trains are run.* 
 
 Another example of vicious regulation by statute 
 is the two-cent passenger fare law passed by many 
 of the States, which ignores entirely the cost of the 
 passenger service, and affords no opportunity for a 
 proper increase in fare to take care of the large in- 
 creases in the expenses of passenger transportation, 
 which have taken place in recent years. 
 
 * See report of New Jersey Public Utility Commission, January 
 23, 1912. 
 
 z 29 
 
 34345? J 
 
It would seem clear also, that a body of experts 
 necessary to efficiently carry out these processes of 
 regulation, should be an administrative body, and not 
 a Court. 
 
 The problems incidental to railroad regulations 
 are Essentially administrative, and not judicial, for 
 they involve (as has been frequently pointed out by 
 the Interstate Commerce Commission) not merely the 
 respective interests of the complainant and of the 
 defendant railroad company, but involve also the para- 
 mount interests of the community, which may be sub- 
 stantially affected by the controversy. 
 
 For example: A controversy between X, whose 
 mine is located in the Pocahontas District in West 
 Virginia, and the Norfolk & Western Railway Com- 
 pany serving that district, as to the rate to be charged 
 on bituminous coal shipped from Xfs mine to Norfolk 
 for subsequent transshipment by water, involves 
 something more than the isolated question of the value 
 to X of that transportation service and the reason- 
 ableness of the charge therefor. 
 
 Such a controversy, by reason of competitive con- 
 ditions in the bituminous coal industry of the East 
 involves amongst other things : 
 
 (a) Rates from all other mines on the Norfolk 
 & Western Railway in the Pocahontas District to 
 Norfolk, for transshipment by water. 
 
 (b) Rates from mines in the New River District 
 on the Chesapeake & Ohio Railway and from mines 
 
on the Virginian Railway to Newport News and 
 Sewells Point, for transshipment by water. 
 
 (c) Rates from mines in the Cumberland-Pied- 
 mont, Myersdale, Austen-Newburg and Somerset 
 Districts on the Baltimore & Ohio and on the Western 
 Maryland Railroads in the States of West Virginia 
 and Pennsylvania, to Baltimore and Philadelphia for 
 transshipment. 
 
 (d) Rates from the mines on the Pennsylvania 
 Railroad, New York Central Railroad, and Buffalo 
 Rochester and Pittsburgh Railroad, in the Clear- 
 field District in the State of Pennsylvania to Baltimore 
 and Philadelphia for transshipment. 
 
 (e) The all-rail rates, from mines on the Balti- 
 more & Ohio Railroad, Pennsylvania Railroad, New 
 York Central, and Buffalo, Rochester & Pittsburgh 
 Railway into New England. 
 
 This apparently simple controversy, therefore, be- 
 tween one coal company and the Norfolk & Western 
 Railway Company, affects directly and indirectly the 
 commercial prosperity of all the bituminous coal fields, 
 from which bituminous coal is shipped to the East for 
 local, coastwise, or export trade, and of all the large 
 railroad systems engaged in that traffic,* and may also 
 determine the extent to which coal traffic shall move 
 through the competing ports of Norfolk, Lambert's 
 
 * This traffic is so large that its diversion would seriously affect 
 the prosperity of some of these companies. 
 
Point, Baltimore and Philadelphia for transshipment 
 by water to New England. 
 
 Is such a controversy one which can properly be 
 settled in a court of law, in a proceeding, in which the 
 only necessary parties, would be X and the Norfolk & 
 Western Railway Company ? 
 
 A court of law is necessarily restricted, in the 
 determination of an issue, to the evidence before it, 
 together with the few facts of which a court may take 
 judicial notice, and the court can only determine the 
 issue, as presented by the parties. 
 
 As Mr. Acworth has pointed out,* railway ques- 
 tions are largely questions of discretion and commer- 
 cial instinct, "and they are absolutely unsuitable for 
 determination by the positive methods of the law court 
 with its precisely defined issues, its sworn evidence, 
 and its rigorous exclusion of what, while the lawyer 
 describes it as irrelevant, is often the precise class of 
 consideration which would determine one way or 
 other the decision of the practical man of business." 
 
 An administrative body, on the other hand, can 
 and should force the production of other evidence, 
 and will consider the effect of their decision on other 
 persons, and other localities, not parties to the pro- 
 ceeding, and is not hampered, therefore, by the lack 
 of proof which may be presented by the contending 
 parties. 
 
 *The Relation of Railroads to the State (page 12) by W. M. 
 Acworth. 
 
Our railways are national in character, that is to 
 say, the direct and immediate effect of their activity 
 is not confined to the locality or localities in which 
 those activities may be exercised. 
 
 The commercial competition of points of pro- 
 duction is such in this country, that the action of a 
 railroad company in one portion of the country may 
 seriously affect the economic development of an- 
 other portion of the country. For example: 
 
 The competition between flour milled at Minne- 
 apolis, Kansas City, Chicago, Milwaukee, Buffalo 
 and various points through Ohio and Indiana is of 
 such a character that a change in the rates from one 
 of those territories to the Atlantic Seaboard neces- 
 sarily affects the ability of the other producing 
 points to compete in the Eastern markets. 
 
 So, also, intra-state -rates on raw material to 
 important points of production, or rates on finished 
 material to important points of consumption, may 
 affect the ability of points of production in other 
 States to compete in common markets. 
 
 State action making unduly low rates, freight 
 or passenger, or State action unduly increasing the 
 operating expenses of a railroad company, throws a 
 direct and immediate burden* upon the entire traffic 
 and operation of that company, which is reflected in 
 its inability to properly serve the people in other 
 
 * See "The conflict between State and Federal Regulation of Rail- 
 roads" by Walker D. Hines, published in the Annals of the American 
 Academy of Political and Social Science for January, 1916. 
 Z 29 
 
8 
 
 States, or by compelling them to pay higher charges 
 than they would otherwise be compelled to pay. 
 
 One of the primary reasons* for the adoption of 
 our Federal Constitution was the burden imposed 
 upon our commerce as a whole, by the conflicting 
 regulations of the different States, and it was to 
 eliminate that burden, that the exclusive power to 
 regulate interstate commerce in matters of national 
 concern, was taken away from the States and vested 
 in the Congress of the United States. 
 
 One of the tests, which the Supreme Court of 
 the United States has laid down, for the purpose of 
 determining whether any subject of interstate com- 
 merce is of national concern is the answer to the 
 question does the subject require uniformity of treat- 
 ment? If it does it is national in character, and as such 
 can be only dealt with by the national legislative body.f 
 
 Railroad regulation is a subject which requires 
 that, in its exercise, there shall be no discrimination 
 in favor of the products or people of particular states, 
 and that the body which is to enforce such regulation, 
 shall have a broad comprehensive knowledge of the 
 necessities and requirements of the entire country. 
 It, therefore, follows that there must be uniformity 
 of action, and such uniformity of action can only be 
 secured through the medium of one central body 
 responsible to the entire country, and not through 
 
 * Critical Period of American History (page 144) by James Fiske. 
 f Minnesota Rate Cases, 230 U. S. 352, 401, 402. 
 
the medium of the representatives of 48 States, who 
 are responsible only to their respective constituencies. 
 
 If then our governmental regulation is to be 
 affected by and through an administrative body, 
 what is to be the personnel of that body, and their 
 tenure of office? 
 
 It will hardly be doubted that the problems inci- 
 dental to railroad regulation are fundamentally 
 difficult, and their proper solution calls not only for 
 industry and intelligence, but also for the posses- 
 sion and exercise of that knowledge and imagination 
 which can foresee the economic effect of the rate 
 structure under consideration. 
 
 Let us assume that the administrative body has 
 before it, the question as to the rates on coal, or ore, 
 or limestone, to any of the iron furnace districts 
 east of Chicago, or the rates on the finished product 
 from such furnaces to the great competitive mar- 
 kets in the East. 
 
 The decision of this question might call for a 
 consideration of the extent of the competition be- 
 tween Cleveland, the Mahoning and Shenango Val- 
 leys and Pittsburgh as points of manufacture, or the 
 competition, if any, between the bee-hive coke manu- 
 factured in ovens in the Connellsville District in Penn- 
 sylvania, in the Pocohontas District in West Virginia 
 and that produced in by-product ovens at other points. 
 The Commission might have to consider the relative 
 freight rates from the Atlantic Seaboard, on ore im- 
 
10 
 
 ported from South America and Sweden, as compared 
 with the rates on ore mined in the States of Minnesota 
 and Wisconsin, and before they had finished their 
 labors, they might be called on to remember that the 
 furnaces in the States of Alabama and Tennessee, by 
 reason of their cheap labor and their proximity to the 
 sources of their supply of raw material, can and do ship 
 pig iron to New England in competition with furnaces 
 located at eastern points and in Northern New York. 
 
 The solution of such a question, might deter- 
 mine conclusively, the economic future of any of 
 these points of production. 
 
 The Commission would also have to keep before 
 them, the effect of the tonnage and the rates under 
 consideration, upon the revenues of the carriers, 
 for as the Interstate Commerce Commission said in 
 the 1910 Rate Case (20 I. C. C, at pages 262, 263) : 
 
 "Our railroads must be maintained in a 
 high state of efficiency. This the public in- 
 terest demand. Commerce and industry cannot 
 afford to wait on transportation facilities. Our 
 rates should be such as to render possible a 
 high-class, not an extravagant, service. * * * 
 
 "It is generally conceded that within the next 
 few years, if our means of transportation by rail 
 are to keep pace with the calls upon them, very 
 large sums must be expended in the way of new 
 construction and new equipment. While some 
 small portion of this may come from current earn- 
 ings, the great bulk must be new capital, and this 
 capital must be obtained from the investing public. 
 
II 
 
 "If, therefore, we are to rely in the future, 
 as we have in the past, upon private enterprise 
 and private capital for our railway transportation, 
 the return must be such as will induce the invest- 
 ment. It is therefore not only a matter of justice, 
 but in the truest public interest, that an adequate 
 return should 'be allowed upon railway capital." 
 
 Our administrative body then must be composed 
 of men of ability and foresight, with a thorough knowl- 
 edge of the subject, and they must receive a compensa- 
 tion commensurate with their ability and responsibility. 
 
 Furthermore, their term of office must be of 
 such length, as to make the position the life-work 
 of the applicant, and thus remove the political in- 
 fluence incident to a short term of office. 
 
 As preliminary then to our discussion of the 
 subject we W 7 ill consider these propositions as settled: 
 
 (a) Public policy requires that there shall be 
 efficient governmental regulation of common car- 
 riers by railroad. 
 
 (b) Efficient regulation requires a careful and 
 exhaustive examination of the subject, by a trained 
 body of experts, and accordingly no regulation by 
 statute can be efficient. 
 
 (c) The questions incidental to regulation are 
 largely administrative and are not judicial in their 
 nature. They involve not simply the interest of the 
 particular litigant in the particular issue, but they 
 
12 
 
 necessarily affect other important issues and the inter- 
 ests of many persons and localities not parties to the 
 controversy. They must he settled, in the first in- 
 stance by an administrative body, and not by a court. 
 
 (d) The economic effects of the decisions of 
 this administrative body or Commission, are so im- 
 portant and far-reaching, that the Commission 
 must be composed of men who are making the sub- 
 ject their life study, and who shall receive adequate 
 compensation for their services, and whose tenure 
 of office shall be so long as to be entirely free from 
 all political influence of any description. 
 
 (e) Railroad regulation fundamentally affects 
 questions of national importance* which require uni- 
 formity of treatment. Such regulation should not be 
 any more subject to State action, than our tariff, cur- 
 rency, or the operations of the Post Office Department. 
 
 Let us examine the present method of regula- 
 tion, and see how far it conforms to the principles 
 which have been outlined as a basis for efficiency. 
 
 As Mr. Samuel Rea, President of the Pennsyl- 
 vania Railroad Company, said in his address to the 
 Chamber of Commerce of New York on December 3, 
 1914: "The time is ripe for suggestions concerning 
 constructive railroad regulation and policy," and it is 
 
 * See an address by Frank Trumbull entitled "Railway Service : 
 Is it a National Problem or a Local Issue?" 
 
13 
 
 upon the suggestions made by him at that time, that 
 the views expressed in this paper are primarily based. 
 Governmental regulation, as at present consti- 
 tuted, involves the use of many regulating agencies, 
 all operating at the same time upon such common car- 
 riers by railroad as come within their jurisdiction and 
 as Mr. Acworth says:* "it is only to be regretted that 
 the quantity of the law errs as much on the side of 
 excess as its quality on the side of deficiency/' 
 
 Those regulating agencies are: 
 
 (a) The Interstate Commerce Commission, act- 
 ing under the authority of the Interstate Commerce 
 Act, its amendments and supplements. 
 
 (b) Acts of Congress fixing compensation for 
 carrying the mails. 
 
 (c) Action of Arbitration Commissioners under 
 the terms of an Act of Congress. f 
 
 (d) State Public Service Commissions, operat- 
 ing under the terms of the Public Service laws of their 
 respective States. 
 
 (e) Acts passed by State legislatures, establish- 
 ing certain rates, freight and passenger, or prescribing 
 operating conditions. 
 
 It may tend to clarity of discussion to consider 
 these methods in the reverse order of their statement. 
 
 *The Relation of Railroads to the State by W. M. Acworth. 
 fAct of July 15, 1913. 
 
I. ACTS PASSED BY STATE LEGISLATURES 
 ESTABLISHING RATES, FREIGHT AND 
 PASSENGER, OR PRESCRIBING OPERAT- 
 ING CONDITIONS 
 
 A. State statutes establishing passenger and freight 
 
 rates 
 
 Examples of these statutes, so. far as passenger 
 fares are concerned, are the two-cent maximum fare 
 laws of Minnesota, Ohio, Indiana, Illinois and West 
 Virginia. 
 
 In freight cases, reference may be made to the 
 Maximum Freight law of Minnesota (Minnesota Rate 
 Cases, 230 U. S., 352), to the North Dakota Lignite 
 Rate Law (Northern Pacific vs. North Dakota, 236 
 U. S., 585), and to the rates established by the State 
 of North Carolina, under the Act of October 13, 1913, 
 (Royster Co. vs. R. R. Co., 38 I. C. C, 190). 
 
 As heretofore pointed out, the fundamental vice 
 of the two-cent passenger fare law is, that the rates 
 fixed thereby, do not bear the slightest relation to 
 either the cost or value of the service. 
 
 This rate was fixed by the State Legislatures 
 without the slightest examination into the cost of the 
 passenger service, utterly ignoring the fact that a 
 large portion of the passenger business (the commuta- 
 tion service) is being transacted at less than 2 cents a 
 mile, and that the practical requirements of the com- 
 mutation traffic would not permit its rates to be raised 
 
15 
 
 to the maximum amount required by the statute. 
 These statutes further ignored the fact that the cost 
 of transporting passengers was increasing year by 
 year, and thus operated to prevent the carrier from 
 raising its passenger rates to meet the burden of such 
 increase in costs. 
 
 That such costs have been increasing in recent 
 years will appear from the opinion in the "Five Per 
 cent. Case'' where the Commission said (31 I. C. C, 
 350: 
 
 "The unit of cost of moving' certain kinds of 
 bulk freight carried in large volume appears to 
 have been reduced by more efficient operating 
 methods despite increases in the rate of wages; 
 on the other hand, the unit cost of moving passen- 
 gers has been almost uniformly increased, inde- 
 pendently of the effect of wage advances, through 
 the use of heavier equipment, the adoption of 
 safety devices, and better service." (Page 387.) 
 "We know of no provision of law under 
 which we should be justified in increasing freight 
 rates to provide a return upon property used ex- 
 clusively in the passenger service, much less to 
 take care of losses incurred in such service. In 
 our opinion each branch of the service should con- 
 tribute its proper share of the cost of operation 
 and of return upon the property devoted to the 
 use of the public." (Page 392.) 
 
 In the Western Passenger Case, (37 I. C. C., i), 
 the Commission said (Page 41) : 
 
 Z 29 
 
i6 
 
 "The evidence in this case has shown: 
 
 "Substantial improvements in the passenger 
 service have been made since 1900 at large ex- 
 pense to carriers, resulting in a greater degree of 
 comfort, convenience, and safety to the traveling 
 public. 
 
 "The conditions under which the passenger 
 service is performed do not admit of all the cor- 
 responding economies in operation that have 
 been effected in the freight service. 
 
 "The increased cost of service due to greater 
 costs of labor, materials, and taxes not offset by 
 corresponding economies which are practicable in 
 operation, is entitled to consideration." 
 
 The Supreme Court of the United States in speak- 
 ing of the two-cent fare law of one state said, (Nor- 
 folk & Western Railway Co. vs. West Virginia, 236 
 U. S., 605, 614) : 
 
 "It is clear that by the reduction in rates the 
 company is forced to carry passengers, if not at 
 or below cost, at merely a nominal reward con- 
 sidering the value of the traffic affected." 
 
 It is also interesting to note that in some of the 
 States in question, the Interstate Commerce Commis- 
 sion has permitted interstate rates to go into effect 
 which are on a higher basis, than the rates fixed by the 
 State statutes, and has also, in a litigated case, declined 
 to recognize the rate fixed by the State statute, as evi- 
 dence of the unreasonableness of the higher rate appli- 
 
17 
 
 cable to interstate transportation in that locality. 
 Trier vs. Railway Company, 30 I. C. C, 352. 
 
 So, also, in a recent case the Interstate Commerce 
 Commission have declined to take freight rates fixed 
 by the Minnesota statute as the measure of reasonable 
 interstate rates in that State. Holmes vs. Hallowell 
 vs. Ry. Co., 37 I. C. C., 627. 
 
 Another example of State legislative freight 
 rates, will be found in Chapter 51 of the laws of 1907 
 of the State of North Dakota, fixing maximum intra- 
 state rates for the transportation of lignite coal. 
 
 The Supreme Court of that State found as a fact 
 that as to one railroad company, the rate in question 
 "is slightly remunerative, but in fact non-compensa- 
 tory, considering the volume of freight carried and the 
 property of the railroad devoted thereto." (26 North 
 Dakota, page 439.) 
 
 As to another company that same Court found 
 "that the carriage of lignite coal by the 'Soo' Line 
 within this State during said fiscal year was not only 
 non-profitable, but occasioned a loss to it when its 
 fixed expenses apportionable to all traffic are in proper 
 proportion, an amount assigned to and charged 
 against the earnings from this commodity/ 7 (26 
 North Dakota, 439.) 
 
 The State insisted* that the statute could be sup- 
 ported as a matter of public policy in that it was to aid 
 
 *Nor. Pac. Ry. vs. North Dakota, 236 U. S. 585, 598. 
 
iS 
 
 in the development of a local industry, and thus confer 
 a benefit upon the people of the State. 
 
 It may be sound public policy, to develop a partic- 
 ular industry, in a particular State. That is a matter 
 for that State to decide, but no one will be heard to 
 suggest that the people of one State should be taxed 
 for the benefit of an industry located in another State. 
 Yet that is the practical effect of State statutes which 
 establish unremunerative freight and passenger rates, 
 the loss to the carrier being shifted (at least in part) 
 to the people and traffic of other States. 
 
 It has been estimated (Five Per cent. Case, 31 
 I. C. C, 351, 375),,that the effect of the reduction in 
 passenger fares in Ohio, Indiana, Michigan and Illi- 
 nois by State statute was to cause a loss in revenues to 
 ten of the carriers affected, of nearly $18,000,000 for 
 the period between 1906 and 1913, which loss has 
 imposed a burden either in rates or in impairment of 
 service upon the traffic and people of other states. 
 
 B. State legislation affecting operating conditions. 
 
 In addition to the burden which has been imposed 
 upon the people of the United States, by the passage 
 of State laws prescribing maximum freight and pas- 
 senger rates, there is also the economic injury inflicted 
 upon the entire country by the passage of State laws 
 regulating the details of railroad operation. 
 
 In the year 1913, 1395 bills, regulating the details 
 of practical operation of railroads, were introduced in 
 
'9 
 
 the legislatures of the various States then in session. 
 Two hundred and thirty of these bills were enacted 
 into law. Amongst these laws were acts regulating 
 the hours of service, time of payment, terms of em- 
 ployment of employees, rules for flagging trains, 
 prescribing kind of headlight, equipment of passen- 
 ger trains, speed of livestock and other freight 
 trains, protection and elimination of grade cross- 
 ings, equipment of all stations and shops. 
 
 In his recent and very convincing address on 
 this subject, before the State Bar Association of 
 Tennes-see, Mr. Alfred P. Thorn said: 
 
 "Three States have passed laws making it 
 illegal' for a Carrier having repair shops in such 
 State to send any of its equipment which it is 
 possible to repair there, out of the State. Fif- 
 teen States have attempted to secure prefer- 
 ential treatment of their State traffic by heavy 
 penalties for delay in movement. Twenty 
 States have extra crew laws. Twenty-eight 
 States have headlight laws with varying re- 
 quirements as to character of lights." 
 
 In the year 1915 there were introduced in the 
 State Legislature then in session, 1097 bills directly 
 regulating railroad operation, of which 137 were en- 
 acted into law. Amongst those enacted into law were 
 bills regulating the size of crews, the hours of service, 
 the character of headlights and other appliances on 
 equipment, the speed of freight trains, the stops of 
 
20 
 
 passenger trains, the installation of signals, elimina- 
 tion of grade crossings, the location of stations, etc.* 
 
 It will hardly be contended that a legislative 
 body has or can -acquire the technical knowledge 
 necessary to enact legislation of this kind. The 
 most scientific method of regulating (if the subject 
 be one which requires regulation) such matters, 
 would seem to be by action by a Commission after a 
 careful investigation of the facts, an investigation 
 which cannot be made by a legislature, on account 
 of other necessary demands upon its time. 
 
 Indeed, many of the States which enacted the 
 laws referred to, possessed Public Service Commis- 
 sions with ample power to deal with the situations 
 covered by the bills. 
 
 But careful investigation of the subject, by a 
 body of experts, is not desired by the interests 
 which seek the passage of laws of this character. 
 
 In 1911 the Public Utility Commission of New 
 Jersey was directed by the Senate of that State to 
 advise as to the propriety of the passage by the 
 Legislature of an extra crew law. 
 
 After a careful consideration and hearings, at 
 which the labor organizations were fully represented, 
 that Commission on January 25, 1912, advised the 
 Senate, that in the opinion of the Commission the 
 Bill should not be passed as it was defective and 
 
 * "Railroad Regulation in Illinois," by Blewett Lee, 10 '111. Law 
 Review, page 402. 
 
21 
 
 erroneous in principle, and that the extra cost to 
 the companies was a public and social waste. 
 
 Notwithstanding this report, the Legislature of 
 New Jersey subsequently passed an Extra Crew Law. 
 One example of the operation of this law, was to 
 require one of the railroad companies to employ an 
 additional brakeman upon a through passenger train, 
 which made only one stop in the State of New Jersey, 
 and which train already carried four railroad em- 
 ployees, and seventeen mail, dining car, and Pullman 
 employees, or twenty-one in all. This statute and a 
 similar one in Pennsylvania, cost the railroads in 
 those two States, $1,721,327.91 during the calendar 
 year 1914, an absolute economic waste. 
 
 Legislation of this character is, as Governor 
 Hughes pointed out in his veto of the bill in the 
 State of New York, "simply arbitrary exaction and 
 taking of property without due process of law." 
 
 Wasteful and injurious as is the extra crew law 
 to the public interest, it is but slight as compared to 
 the maximum train law, which has been enacted in 
 one State, and the passage of which is being con- 
 tinuously urged in many States. 
 
 This law limits the number of cars to a train, 
 thereby increasing the number of trains, and like 
 the extra crew law, its fundamental object, is the 
 employment of unnecessary men, with the conse- 
 quent economic waste. 
 
 As you know, railroad companies during the 
 last fifteen years have been spending large sums of 
 
22 
 
 money in the construction of larger and heavier cars 
 and more powerful locomotives, for the purpose of 
 increasing the average loading per car, as well as 
 the average number of cars per train, and thus 
 effecting a reduction in freight train mileage, with 
 the consequent saving in operating expense. 
 
 The use of this larger and heavier equipment has 
 necessitated (as the Commission pointed out in the 
 Five Per cent. Case, 31 I..C. C, 351, at page 377) 
 heavier rails, stronger bridges, better ballast, more 
 ties, reduction in grades and elimination of curves. 
 
 Enormous expenditures have been made for the 
 purpose of increasing the train loading, and the 
 efforts of the Carriers in this respect have been de- 
 clared by the Commission to be "great advances in 
 efficiency" (31 I. C. C., at page 411). This efficiency 
 which has resulted in the saving of expense, will 
 be curtailed by a law limiting the number of freight 
 cars on a train, thus forcing an increase in the 
 number of trains and number of employees. 
 
 The plea of those who urge the enactment of 
 maximum train and extra crew laws is safety. The 
 real reason is to force the employment of additional 
 and unnecessary men. So far as the writer knows, 
 no accident has ever happened which would have been 
 prevented by the passage of either of these laws. 
 
 In the trial of the Extra Crew Case in the 
 State of Pennsylvania, it was a significant fact that 
 the labor organizations, with their hosts of witnesses 
 
23 
 
 of many years experience, could not and did not pro- 
 duce one single instance of an accident to pas- 
 sengers or employees, due to the failure to have the 
 train crew prescribed by the Act. The same point 
 was emphasized by the Board of Public Utility 
 Commissioners of New Jersey, when they said:* 
 "The Board believes it to be extremely significant 
 that at the two public hearings the advocates of this 
 measure, or one similiar to it, were unable to cite, 
 when challenged, any serious accident resulting 
 from the employment of insufficient train crews."f 
 
 One more example of the character and eco- 
 nomic value of legislation of this kind. 
 
 It has been the practice for many years for 
 many railroad companies to make surprise tests 
 from time to time, as to whether their employees 
 are obeying the signals. As a matter of fact, those 
 tests show that those signals are obeyed in more 
 than 99 per cent, of the cases. 
 
 In order to prevent, however, the disciplining 
 of the men who fail to stand the test, a bill has been 
 introduced in one, if not more than one State Legis- 
 lature, making it a criminal offense to make a test 
 of this kind without giving prior notice to the 
 employee. 
 
 The passage of a law of this kind would be 
 a direct menace to the safety of the traveling 
 public. 
 
 * Report of the Public Utility Commission to the Senate, January 
 23, 1912. 
 
 t The people of Missouri in a recent referendum declined to enact 
 an extra crew law. 
 z 29 
 
24 
 
 As in the case of State legislation fixing freight 
 and passenger rates, the economic waste resulting 
 from extra crew, maximum train laws and other 
 laws of this character is and will be borne in part, 
 by the people and traffic of other States. No sound 
 argument can be advanced in favor of any State 
 statute regulating the details of operation. 
 
 II. STATE PUBLIC SERVICE 
 COMMISSIONS 
 
 Regulation by State Commission of intra-state 
 rates and practices affecting such rates, as well 
 as of operating conditions, has so far proceeded 
 that nearly every State has a Commission, with 
 complete power to prescribe intra-state rates and 
 practices, as well as operating conditions, such as 
 the number and schedules of trains, character of 
 equipment, construction and location of stations, 
 etc. 
 
 Regulation by State Commission is, of course, 
 based on a far sounder principle than regulation by 
 State statute, but public policy now demands that 
 the State Commissions be divested of jurisdiction 
 over intra-state rates and that such jurisdiction be 
 vested in the Federal Government. The reasons 
 for this statement are as follows: 
 
25 
 
 (a) State rates directly affect interstate rates. 
 
 The route of the New York Central between 
 Buffalo and New York City is intra-state. The 
 routes of the Pennsylvania Railroad, the Erie Rail- 
 road, the Lehigh Valley Railroad, and the Dela- 
 ware, Lackawanna & Western Railroad Compa- 
 nies between those same points are interstate. If 
 the New York Public Service Commission should 
 reduce the rate on any article from Buffalo to New 
 York via the lines of the New York Central, it is 
 obvious that such reduction will, for competitive 
 reasons, and to put shippers and consignees on the 
 lines of the other roads on a competitive equality 
 with the New York Central, force a correspond- 
 ing reduction of the rates on the Pennsylvania and 
 the other interstate routes. 
 
 Following the first "opinion of the Interstate 
 Commerce Commission in the Industrial Railways 
 Case, 29 I. C. C. 212, the Trunk Lines canceled 
 their allowances to the South Buffalo Railroad 
 Company, owned by the Lackawanna Steel Com- 
 pany at Buffalo, thus forcing shippers, located on the 
 South Buffalo Railway, to pay the lo-cent charge of 
 the South Buffalo Railway in addition to the freight 
 rate of the Trunk Line. The New York Commission 
 forced the New York Central to reinstate their 
 allowances to the South Buffalo Railway, on the 
 intra-state route. The effect of this action was, that 
 until the Interstate Commerce Commission permit- 
 
26 
 
 ted the carriers to reinstate the allowances on the in- 
 terstate routes, shipments originating on the South 
 Buffalo Railway naturally went by the New York Cen- 
 tral, as the rate was 10 cents less than the rate via 
 the other routes. Similar action on the part of the 
 Pennsylvania State Commission, in connection 
 with the allowances paid the Union Railroad at 
 Pittsburgh, necessarily accorded an advantage to 
 consignees located in Philadelphia on the Pennsyl- 
 vania Railroad, whose route is intra-state between 
 Pittsburgh and Philadelphia, as compared with 
 consignees located on the Baltimore & Ohio in Phila- 
 delphia, whose route from Pittsburgh is interstate. 
 As Mr. Justice Hughes said in the Shreveport 
 Case, 234 U. S., at page 351: 
 
 "Wherever the interstate and intra-state 
 transactions of carriers are so related that ttie 
 government of one involves the control of the 
 other, it is Congress, and not the State, that 
 is entitled to prescribe the final and dominate 
 rule, or otherwise Congress would be denied 
 the exercise of its constitutional authority, 
 and the State, and not the Nation, would be 
 supreme within the national field." 
 
 The rates established by the State of Minne- 
 sota which were under consideration in the Min- 
 nesota Rate Case, 230 U. S. 352, by reason of com- 
 petition, have directly forced reductions in many inter- 
 
27 
 
 state rates. (Holmes and Hallowell vs. Ry. Co., 
 37 I. CC 627.) 
 
 So, also, intra-state rates directly affect inter- 
 state rates, owing to the provisions of Section 4 of 
 the Interstate Commerce Act, which prohibits the 
 through rate from exceeding the sum of the local 
 rates. (See Through Rates to Points in Louisi- 
 ana, 38 I. C. C. 153.) 
 
 So, also, in a recent case (Western Rate Ad- 
 vance Case, 35 I. C. C. 497) the carriers were 
 refused permission to advance certain interstate 
 rates, apparently (see pages 589, 668, 669) upon the 
 ground of the much lower basis in effect for intra- 
 state rates. 
 
 Other examples of intra-state rates directly af- 
 fecting interstate rates will be found in R. R. Com. 
 of La. vs. Ry. Co., 23 I. C. C. 31 ; McCormick vs. Ry. 
 Co., 37 I. C. ^234; Texarkana Freight Bureau vs. 
 R. R. Co., 38 I. C. C. 55; The Five Per cent. Case, 
 31 I. C C. 351, 387; F. S. Royster vs. R. R. Co., 38 I. 
 C. C. 190; Houston Ry. Co. vs. U. S., 234 U. S. 342. 
 
 (b) At least one State Commission, has 
 frankly adopted a policy of protecting their own 
 industries against the competition of industries of 
 other States, by the adjustment of intra-state rates, 
 and are thus, through this medium, accomplishing 
 the commercial discrimination which the Consti- 
 tution of the United States was designed to pre- 
 vent. 
 
28 
 
 Examples of State action, of this character, 
 will be found in R. R. Com. vs. Ry. Co., 23 I. C. C. 
 31 ; Houston Ry. Co. vs. U. C., 234 U. S. 342, and 
 McCormick vs. Ry. Co., 37 I. C. C. 234, and it 
 violates one of the fundamental requirements of 
 our system of government, viz., that 
 
 "Interstate trade was not left (by the 
 Constitution) to be destroyed or impeded by 
 the rivalries of local governments."* 
 
 (c) As heretofore pointed out, the depletion 
 of the revenues of the carriers resulting from un- 
 justly low rates made by State Commissions, must 
 be made up, by the rates on interstate traffic and 
 the traffic of other States. 
 
 Notwithstanding the findings of the Interstate 
 Commerce Commission, in the Five Per cent. Case, as 
 to the inadequacy of existing passenger rates (supra, 
 pages 14, 15), the action of one of the State Commis- 
 sions, in suspending up to this time, the increase of the 
 intra-state rates in that State, has not only prevented 
 the increase of such rates, but has to a large extent 
 prevented the railroad companies from receiving the 
 increase on interstate rates permitted by the Interstate 
 Commerce, because the interstate rates may be de- 
 feated by purchasing tickets at intra-state stations. 
 
 Under existing law, the Interstate Commerce 
 Commission has the power to deal with a discrim- 
 
 * Per Mr. Justice Hughes in the Shreveport Case, 234 U. S., at 
 page 350. 
 
29 
 
 ination against interstate traffic resulting from 
 intra-state rates (Houston Railway Co. vs. U. S., 
 234 U. S. 342), but it is probable that the State 
 rates are valid (so far as this question is con- 
 cerned), no matter how discriminatory they may 
 be, until the Interstate Commerce Commission has 
 specifically passed upon the question of discrimi- 
 nation. Minnesota Rate Case, 230, U. S. 352).* 
 
 If we are to have that uniformity of rate regu- 
 lation, and that prevention of discrimination 
 against localities, and the commerce of other states, 
 which is so essential to our commercial develop- 
 ment, and which the commerce clause of the Con- 
 stitution was designed to secure, we must have 
 State control divested from intra-state rates. 
 
 In Canada, a railroad operating in two or more 
 provinces, is subject to the Dominion Parliament, 
 and the Railroad Commission created thereby, and 
 is not subject to the Provincial Legislatures.f 
 
 It will hardly be contended that the commerce 
 of Canada, is more interdependent than the com- 
 merce of the United States, so far as the necessity 
 
 of uniformity of rate regulation is concerned. 
 
 
 State Control Over the Issue of Railroad Securities 
 
 At the present time the Interstate Commerce 
 Commission has no jurisdiction over the issue or 
 
 * See Federal Control of Interstate Railroad Rates by Henry W. 
 Bikle in the University of Pennsylvania Law Review for December 
 1914. 
 
 f "Railroad Regulation in Illinois and Elsewhere," by Blevvett Lee, 
 10 111. Law Review, page 402. 
 
30 
 
 sale of securities. Some of the State Commis- 
 sions have that jurisdiction, and many railroad 
 companies are required to obtain the consent of the 
 State Commission of one, or of sometimes more 
 than one State. 
 
 The unavoidable delay and conflicting regu- 
 lations and procedure, incident to securing the con- 
 sent of more than one Commission, must inevitably, 
 in many instances, seriously affect the price at 
 which the necessary capital can be secured. 
 
 Without meaning to intimate that the follow- 
 ing, is other than an isolated instance, the annual 
 report of the Southern Pacific Railway Company 
 contains this statement: 
 
 "To provide funds for corporative pur- 
 poses, arrangements were made with bankers, 
 in May, 1913, for sale of two-year notes at a 
 very satisfactory price. Authority of the 
 California Railroad Commission to issue the 
 notes was obtained without delay; approval by 
 the Arizona Corporation Commission, how- 
 ever was withheld, pending certain assurances 
 and guaranties on the part of the Company 
 with reference to the conduct of its business in 
 Arizona which it was not warranted in giving 
 and, during the time the matter was pending 
 before the Commission, the condition of the 
 money market had so changed that a sale of 
 the notes could not be made. Further consider- 
 ation of a two-year note issue was abandoned, 
 and one-year notes were issued instead, and 
 
sold at a price yielding approximately $275,000 
 less than would have been received had the 
 two-year notes been issued without delay. 
 Under the laws of California and Arizona the 
 issue of one-year notes did not require Com- 
 mission approval." 
 
 Mr. Blewett Lee (in his interesting paper be- 
 fore referred to) points out how one State by a 
 provision in its public utilities law, has been en- 
 abled to exact large sums of money from railroad 
 companies incorporated under the law of that 
 State, for permission to issue bonds, much of the 
 proceeds of which are to be used for improvements 
 in other States.* 
 
 All power with respect to the issue or sale of 
 railway securities should be taken away from the 
 States,f and be vested in the Interstate Commerce 
 Commission to the extent and in the manner here- 
 inafter indicated. 
 
 State Control of Railroad Operating Conditions. 
 
 It can hardly be doubted, but that, in the in- 
 terest of economy and efficiency, there must be the 
 same uniformity in the exercise of the power of 
 regulating operating conditions, as in establishing 
 and regulating rates. 
 
 * If there had been similar legislation in other States through 
 which one of our large railroad systems runs, that company, would 
 have been obliged to pay to the states, nearly the entire capital received 
 under a recent loan. 
 
 f See recent report of the Massachusetts Public Service Commis- 
 sion on the New York, New Haven and Hartford Railroad Company. 
 
32 
 
 Economy and efficiency does not permit, in the 
 case of a railroad running through two or more States, 
 of varying regulations in those States as to the char- 
 acter of safety appliances and equipment, hours of 
 labor, character of headlight, etc. Furthermore, oper- 
 ating regulations of State Commissions, like State 
 laws, may substantially increase operating expenses 
 and thus ultimately affect interstate revenues and 
 rates. Certainly such subjects as signals, number of 
 trainmen, length of trains, character of road-bed and 
 equipment, should be as completely removed from the 
 jurisdiction of the States as have the questions of 
 safety appliances, and the hours of service of employ- 
 ees, by the action of Congress. (Ry. Co. vs. U. S. 222. 
 U. S., 20; Ry. Co. vs. Washington, 222 U. S., 370; 
 Erie R. R. Co. vs. New York, 233 U. S., 671.) 
 
 Divesting State commissions of jurisdiction 
 over the rates and operating conditions of railroads, 
 does not mean the abolition of State Public Utility 
 Commissions. There remains an ample field for 
 their jurisdiction, in the case of public utilities, not 
 subject to the Interstate Commerce Act. 
 
 There is another feature, incident to State Com- 
 mission regulation of railroads, 'which operates against 
 the efficiency of such regulation. No one can view 
 without concern, the increasing tendency, to consider 
 the appointments to that position as purely political. 
 It can hardly be anything but disheartening to a con- 
 scientious commissioner to feel that his appointment 
 
33 
 
 does not depend upon his efficiency, but upon the politi- 
 cal exigencies of the moment.* 
 
 The position requires industry, conscientious abil- 
 ity, and faithful service. Many members of the State 
 Commissions possess these attributes, but their 
 method of selection or election, tends more and more, 
 to disregard each and all of these features. 
 
 III. ACTION OF ARBITRATION COMMIS- 
 SIONS UNDER THE TERMS OF THE ACT 
 OF CONGRESS OF JULY 15, 1913 
 
 As you are doubtless aware, wage disputes be- 
 tween railroads and their employees, may be settled 
 by voluntary arbitration by arbitrators appointed 
 under the terms of the Act of Congress of July 15, 
 
 When you remember that during the year ending 
 June 30, 1914, the number of employees was 1,695,483, 
 and their compensation aggregated $1,373, 422,472, 
 it can readily be seen that the decisions of the arbitra- 
 tors may substantially affect the revenues of the Car- 
 riers. How important those various increases in 
 wages are may be seen from the fact that in the case 
 of 30 of the 35 Eastern railway systems, if the scale of 
 wages for 1909 had been in effect during 1913, the 
 labor costs, of the latter year, would have been less by 
 fifty-one millions of dollars, than they actually were.f 
 
 * In twenty-two States, the Commissions are elected. See "The 
 Government and the Railroads," by Otto H. Kahn in the World's 
 Work, February, 1916. 
 
 fThe Five Per cent. Case, 31 I. C. C, at page 379- 
 
34 
 
 In 1914, the last year for which the figures are 
 available, wages were approximately 62.4 per cent, of 
 the operating expenses (exclusive of taxes), and 45 
 per cent, of the operating revenues. 
 
 Notwithstanding the necessary relation between 
 passenger and freight rates of the Carriers, and the 
 wages paid their employees, the Act of Congress does 
 not provide for the representation by the Interstate 
 Commerce Commission in the arbitration proceedings 
 under the Act, and we have had, therefore, in the past, 
 decisions by arbitrators, increasing wages, without the 
 slightest responsibility on the part of the arbitrators, 
 with respect to the rates necessary to secure the funds 
 to provide for such increases. 
 
 Thus in the 1913 Arbitration between the Eastern 
 Railways and the Order of Railway Conductors and 
 Brotherhood of Railroad Trainmen, the report of the 
 Arbitrators, in granting the increase said (page 29) : 
 
 "The Interstate Commerce Commission, and 
 not this Arbitration Board, has the duty ot de- 
 termining whether the railroads can earn in addi- 
 tion to their other charges, without an increase in 
 freight rates, the rates of pay that this Board 
 believes to be due at the present time to the con- 
 ductors and trainmen, which rates are embodied 
 in the Award following." 
 
 The question of whether the rate of wage should 
 be fixed, irrespective of the then financial ability of the 
 carrier to pay the same, is not the question. No 
 
35 
 
 matter how the wage may be fixed it must ultimately 
 be paid out of operating revenues, i. e., the receipts 
 from the transportation of passengers and freight, 
 which in turn depend upon the size of the passenger 
 and freight rates. 
 
 There is, therefore, an intimate and direct connec- 
 tion between the wage and the transportation rate, 
 and the public is interested in both. 
 
 It is hardly probable that the same economies can 
 be expected in the future, to the extent that they have 
 been obtained in the past, by increase in the capacity 
 of the transportation units. Many of the improve- 
 ments of the future, such as elimination of grade cross- 
 ings, installation of automatic signals, enlargement 
 and beautification of stations, etc., will be financially 
 unremunerative. 
 
 It therefore follows, that any future increases in 
 wages, will have to be paid for (in large part) out of 
 increases in freight and passenger rates, and not out of 
 operating economies. This being so, the body which 
 has ultimate control of the rates, should participate in 
 the deliberations of the Board of Arbitrators, and thus 
 remove the present anomaly, under which, the agency 
 which grants the increase in wages, has not the slight- 
 est responsibility with respect to the fund out of which 
 the wages are to be paid. 
 
 The public interest demands, also, another change 
 in the scope of the arbitrations. In the past,* the 
 
 * This is not owing to any defect in the Arbitration Act, but to the 
 nature of the controversies, which have been presented for arbitration. 
 
36 
 
 arbitrations have been entirely one sided, that is to say, 
 the employees present certain demands, and the ques- 
 tion arbitrated is, whether those demands, or some 
 modification thereof, shall be granted. The employees 
 have nothing to lose under this method, and by the 
 simple process of making their demands high enough 
 in the first instance, they may obtain, through a com- 
 promise, all they originally expected. 
 
 There are various rules and regulations, which 
 from time to time the labor organizations of employees 
 in the train service have forced upon the carriers. As 
 to many of these there are grave doubts as to whether 
 their existence is compatible with the public welfare. 
 For example : 
 
 (a) If an employee's schedule of pay calls for 
 10 hours, or 100 miles, and he makes his run in 4 
 hours, or runs only 90 miles, he is not obliged to do 
 any more work under the existing regulation. 
 
 (b) In various instances the men are paid twice 
 for performing the same work. They are guaranteed 
 their mileage or the hours, which ever is the greater, 
 and in addition, if at the end of a freight run, they are 
 required to switch a car of stock to a stock yard or 
 perishable freight to a team track or warehouse, addi- 
 tional compensation is allowed, notwithstanding the 
 time consumed in doing such additional work is 
 included in the regular hours. They secure this allow- 
 ance whether overtime accrues or not. 
 
37 
 
 (c) The present rules provide for a guarantee of 
 daily pay, though the man may only do 10 minutes 
 work on a "run" for which he is called. 
 
 Under those circumstances the Company should 
 have the right to call the employee for another run. 
 
 May it not be doubted whether rules of this char- 
 acter are compatible with efficiency and economy, and 
 any arbitration of a demand for an increase in wages 
 should involve also an arbitration of the demand on 
 the part of the Companies, for an abrogation of these 
 and similar rules. 
 
 IV. ACTS OF CONGRESS FIXING COMPEN- 
 SATION FOR CARRYING THE MAIL (IN- 
 CLUDING THE PARCELS POST) 
 
 Under existing law, the Railroad Companies are 
 paid for the transportation of mail (including the Par- 
 cels Post), under a schedule of rates prescribed by the 
 Act of Congress of March 3, 1873, which rates were 
 reduced by the Act of July 12, 1876, and further re- 
 duced by the Acts of July 17, 1878, and March 2, 1907. 
 
 Rates established by this method are open to the 
 same objections as rates fixed by State laws, and the 
 rates named in the statutes bear no direct or adequate 
 relation to the cost or value of the service. 
 
 The Carriers believe that the rates in question are 
 unjustly low and in support of their belief show : 
 
 (a) That the rates are based, 90% on the weight 
 of the mail transported and 10% on Railway Post 
 
38 
 
 Office Cars for sorting mails in transit. The weight 
 is obtained by weighings of the mail (carried by each 
 Carrier) for ninety days once every four years. As 
 the mail increases from time to time, the Railroads are 
 underpaid (even under the rates fixed by the Act), for 
 all mail transported during the period subsequent to 
 the date of weighing and until the next weighing takes 
 place. 
 
 (b) A joint Committee, (of which Senator 
 Bourne was Chairman) of the Senate and House of 
 the Sixty-third Congress, appointed to investigate the 
 questions relating to the Railway Mail Pay, reported 
 under date of August 31, 1914, that the Railroads were 
 underpaid at least Three Millions of Dollars per year. 
 
 (c) Mr. Robert H. Turner, Secretary of the 
 Committee, reported that the Railroads were under- 
 paid approximately Twelve Millions of Dollars per 
 year (Railway Mail Pay Hearings, page 962), and 
 Mr. M. O. Lorenz, Associate Statistician of the Inter- 
 state Commerce Commission said that he thought there 
 was an underpayment of at least 10 per cent, (or 
 $5,000,000), although he recommended a further test 
 of his conclusions. (Railway Mail Pay Hearings, 
 page 894.) 
 
 (d) The Committee on Postal Affairs of the 
 Merchants Association of New York, under date of 
 October 21, 1915, (page 17 of the report), advised the 
 Association, that the Railroads now r underpaid for 
 mail carriage, to the extent of approximately Eleven 
 or Twelve Millions of Dollars per year. 
 
39 
 
 (e) The Congressional Committee before re- 
 ferred to, reported (Appendix, pages 33-39) that dur- 
 ing the years 1909-1910, the mail traffic earnings were, 
 per car mile, 22 per cent, less than the passenger traffic 
 earnings, and slightly over 20 per cent, less than the 
 average earnings of the entire passenger service, 
 which, as you will remember, the Interstate Commerce 
 Commission in the Five Per cent. Case (31 I. C. C, 
 387-392) found were less than they should be. 
 
 (f) Mr. Louis D. Brandeis, Special Counsel for 
 the Interstate Commerce Commission in the Five Per 
 cent. Case, said, in his brief in that case (page 133), 
 after discussing the evidence submitted to the Bourne 
 Committee: "It seems clear that the Railway Mail 
 service is at present unremunerative to the Carriers." 
 
 (g) A joint Congressional Committee reported 
 in January, 1901, that the Railroads were not then 
 overpaid. During the period 1900-1915, total receipts 
 of the Post Office Department increased 181 per cent., 
 total expenses increased 177 per cent., while the 
 amount paid the Railroads for carrying the mail only 
 increased 60 per cent. During that same period all 
 expenses, except Railway Mail Pay, increased 239 
 per cent. 
 
 The scientific and equitable method of determining 
 the question of proper compensation, is that urged Dy 
 the Carriers upon Congress, viz., that the Interstate 
 Commerce Commission should be given jurisdiction to 
 pass upon the question. 
 
4 o 
 
 V. REGULATION BY THE INTERSTATE 
 COMMERCE COMMISSION UNDER 
 THE PROVISIONS OF THE INTER- 
 STATE COMMERCE ACT 
 
 If what has been said heretofore, with respect to 
 railroad regulation, through State agencies and di- 
 rectly by Act of Congress, be correct, it follows that the 
 necessary Governmental regulatory power should be 
 exercised through a Federal Commission with sufficient 
 numbers and proper personnel, and with such powers 
 as may be necessary to accomplish efficient regulation. 
 To accomplish these propositions, it is suggested: 
 
 (a) That the membership of the Commission 
 should be materially increased, and the additional 
 members of the Commission should be selected from 
 men having broad experience in railroad management, 
 operation, traffic and finance. 
 
 During the year 1915,* 964 formal complaints 
 were filed with the Commission, 902 decisions render- 
 ed, and 205 cases dismissed by stipulation. 200,000 
 pages of testimony were taken, and 198 cases were 
 orally argued before the Commission, 103 days being 
 devoted to this latter purpose. As it was obviously 
 impossible for the Commission (now composed of 
 seven members) to devote 103 days to argument, and 
 at the same time take 200,000 pages of testimony, the 
 latter was taken chiefly before 45 examiners. 
 
 * See Annual Report of the Commission for 1915. 
 
41 
 
 The Commission, also, during this period, con- 
 ducted four investigations, pursuant to resolutions of 
 Congress, as well as a large number of investigations 
 instituted upon their own motion. 
 
 The Commission also disposed of 210 applica- 
 tions to suspend tariffs, entered 822 orders for 
 relief from the operation of the Fourth Section 
 of the Act, exercised the necessary supervision over 
 the accounts of the Carriers, enforced the Safety 
 Appliance and Hours of Service Law, and exercised 
 their powers over Express, Telegraph and Telephone 
 Companies. In addition to this work the Commission 
 are responsible for the valuation of 250,000 miles of 
 railroad and the property of telegraph, telephone, ex- 
 press companies, pipe line companies, and other com- 
 mon carriers subject to the Act. 
 
 This inordinate press of business has prevented 
 some matters, from receiving the personal attention of 
 the Commission, which the importance of the subject 
 requires, and has necessitated their delegation to sub- 
 ordinates. This is a distinct element of weakness in 
 the present system, and is likely to increase if not 
 promptly remedied. 
 
 There is also in some instances, a distinct waste 
 of time involved in the present method of taking tes- 
 timony before the Examiners, and too much time has 
 to be devoted by officers of carriers in attenuance at 
 these hearings. 
 
4- 
 
 As Commissioner Harlan has said in the Western 
 Advance Rate Case, (35 I. C. C, 497, 681) : 
 
 "Too much time and labor are expended in 
 the recurring rate contests, and some way should 
 be found under legislative authority for arriving 
 at results more promptly than is now possible 
 under our present powers and practices." 
 
 The tenure of office (seven years) of the Commis- 
 sion should be materially increased, and their present 
 compensation ($10,000 per annum) should be in- 
 creased to a figure, commensurate with the labor and 
 responsibility which the work entails. 
 
 The members of the Canadian Commission receive 
 annual salaries of $15,000, and their appointments are 
 for life. There cannot be the slightest doubt but that 
 the labor and responsibility incident to a position on the 
 Federal Commission is much greater than on the Can- 
 adian Commission, yet the members of our Commis- 
 sion receiye less compensation, and are subject, every 
 seven years, to the menace of non-reappointment. 
 
 (b) For the reasons heretofore given, the juris- 
 diction of the Interstate Commerce Commission should 
 be specifically extended over all intra-state rates and 
 practices affecting such rates. 
 
 (c) The Commission should be given specific 
 jurisdiction* to prescribe minimum as well as maxi- 
 mum rates, as it is as much against public policy to 
 
 * For an example of the exercise by the Canadian Commission of 
 its power to prevent reduction in rates, see in re Canadian Northern 
 Ry. Company's Special Freight Tariff, Order No. 24727. 
 
43 
 
 have unreasonably low rates* as it is to have unrea- 
 sonably high rates. 
 
 (d) The Commission should be vested with the 
 power, not to permit or prohibit the issuance of securi- 
 ties, but to require full publicity of such issues, and 
 equal publicity as to the application of the proceeds 
 thereof.f 
 
 The advantage of this plan, over that advocated of 
 giving the Commission complete jurisdiction over the 
 issuance of securities, is, that it will not substitute the 
 discretion of the Government for that of the manage- 
 ment of the railroad, as to the purpose for which the 
 issue should be made, and will also remove the injur- 
 ious delay, which in many instances, will necessarily 
 result, if Governmental permission has to be had be- 
 fore the securities are issued. 
 
 That delay which would be inevitable, if the Com- 
 mission were required to sanction the issue, would add 
 to the cost of securing new capital, and, therefore, 
 would be contrary to the public interest. 
 
 The publicity of the purposes of the issue, and of 
 the application of the proceeds, will prevent the recur- 
 rence of such financial transactions, as have in the 
 past, been deserving of severe criticism. 
 
 * See opinion of Commissioner Harlan in Western Advance Rate 
 Case, 35 I. C. C, at page 681. 
 
 t This conforms to the views expressed by the Railroad Securities 
 Commission, of .which President Hadley of Yale University was chair- 
 man, in their report to President Taft, under date of November I, 1911. 
 
44 
 
 (e) If jurisdiction over operating conditions is 
 to be taken away from the States, it would probably 
 be desirable to vest jurisdiction in the Federal Commis- 
 sion over certain operating matters, such as the num- 
 ber of the train crew, adequacy of signal protection, 
 etc. It would not be possible, in this paper, to discuss 
 the proper scope of this jurisdiction and its essential 
 limitations. 
 
 Public policy demands that full jurisdiction be 
 given to the Federal Commission over rates and prac- 
 tices affecting rates, but public policy also demands, 
 that the freest latitude be accorded the operating de- 
 partments of the Railroads, that is, to the men devot- 
 ing their lives to the extremely technical questions of 
 railroad operation. 
 
 Governmental control over operating conditions 
 (by reason of their complexity, the necessity for knowl- 
 edge of local conditions, and the importance of practi- 
 cal experience), is more likely to tend to inefficiency 
 than to efficiency, though national control, through a 
 Commission, is infinitely better than control through 
 federal or state statute, or state commission. 
 
 (f ) Jurisdiction should be vested in the Federal 
 Commission to determine the reasonable rate to be paid 
 by the Government for the transportation of the mail 
 and parcels post, just as the Commission has today the 
 power to determine the reasonable rate to be charged 
 for the transportation of Governmental supplies and 
 employees. 
 
45 
 
 (g) Pooling Arrangements. 
 
 Carriers could be specifically permitted, subject 
 to the approval of the Commission, to make traffic 
 agreements which will secure the maintenance of rea- 
 sonable rates, the elimination of discrimination, and 
 the elimination of duplication of service, particularly 
 in connection with the passenger service. It is highly 
 probable, that economies in both freight and passenger 
 transportation could be effected, by the elimination of 
 the duplication of existing passenger service by differ- 
 ent railroads between two cities, and by the pooling 
 of freight traffic or earnings therefrom. 
 
 The prohibition in the Interstate Commerce 
 Act against the pooling of traffic, is a relic of the 
 idea, that the public interests were best served by 
 competition. The underlying basis for that idea 
 was that competition prevented unreasonably high 
 rates and improved service. A regulatory body, 
 such as a Commission, can secure these results 
 without the necessity of competition. Unrestricted 
 competition generally means waste, as is recognized 
 by the decisions of many State Commissions, pre- 
 venting the duplication of existing public utilities, 
 and by the statutes of many States which require 
 a certificate of public necessity before a proposed 
 utility can even be incorporated. 
 
 (h) Power to suspend tariffs. 
 It seems to be a more or less general view that 
 the Interstate Commerce Commission suspends all 
 
46 
 
 tariffs making increases in rates. Such is not the 
 fact, as will appear from an examination of the 
 records of the Commission. At present the Com- 
 mission has power to suspend tariffs for a maxi- 
 mum period of ten months, the result of which is 
 that if a rate so suspended should subsequently be 
 found to be reasonable, the carriers lose the reve- 
 nue during the period in question, while if the rate 
 had gone into effect and had subsequently been 
 held to be unreasonable, the shipper would be enti- 
 tled to reparation. 
 
 It is probable that there should be some modi- 
 fication with respect to the exercise of the power. 
 Possibly it might with advantage be confined to 
 cases involving questions of discrimination be- 
 tween localities, and be not exercised in cases 
 which involve only the question of an advance in 
 rates, unless there should be a more or less general 
 advance, such as w r as involved in the Five Per cent. 
 Case. 
 
 (i) The accounting requirements formulated 
 by the Commission, the uniform demurrage rules,* 
 the regulations for the transportation of explosives, 
 and the bill of lading recommended by the Inter- 
 
 *The present condition of congestion on the eastern railroads, 
 would seem to indicate the necessity of securing the co-operation of 
 the Commission, towards increasing the demurrage charge, in cases 
 where consignees are using freight cars for warehouses. See speech 
 of George D. Dixon to the National Wholesale Lumber Dealers Asso- 
 ciation, March 16, 1916. 
 
47 
 
 state Commerce Commission are a few examples* 
 of the constructive work done by that body, and 
 the people of the United States want more of work 
 of that kind on the part of the Commission. Why 
 should not our railroad legislation be as constructive 
 as our banking and currency legislation? Why 
 should not the Commission be given express au- 
 thority to make recommendations to Congress and 
 to the States, with respect to railroad legislation, 
 present and prospective? 
 
 A Commission so empowered, might well call 
 to the attention of the country, the growing burden 
 of railroad taxation, state and national, and the 
 economic injury inflicted thereby upon the country 
 at large. The country needs, what Mr. Charles 
 Francis Adams, the first Chairman of the Massa- 
 chusetts Commission, designated as "the eventual 
 supremacy of an enlightened public opinion," and 
 the country looks to the Federal Commission, to 
 secure such enlightenment on all railroad questions. 
 
 The effect of the present method of regulation on 
 the revenues of the carriers. 
 
 The question may be asked: Has this conflict- 
 ing, inefficient regulation injured the carriers, and 
 consequently the general public? Yes, without the 
 shadow of a doubt. 
 
 * See address by A. J. County before the Wharton School of the 
 University of Pennsylvania. 
 
48 
 
 Let me call your attention to the figures 
 shown by the property investment and income ac- 
 counts for the period 1900-1915,* of the Pennsyl- 
 vania, New York Central, and Baltimore Ohio 
 Systems, the roads which the Commission regarded 
 as typical of railroad conditions east of Chicago 
 and north of the Potomac River. 
 
 In the case of the Pennsylvania System, the 
 net operating income for 1915 was the lowest 
 (with one exception, the year 1904) of any year 
 since 1901, and in the fourteen years since 1901, 
 the property investment had increased 650 mil- 
 lions of dollars; that is, roughly speaking, this amount 
 of investment has earned nothing. 
 
 The year 1915 was not extraordinary; 1914 
 was almost as bad, it furnishing the lowest (with 
 two exceptions) net operating income since 1901. 
 In 1913, the year of largest returns, where the total 
 operating revenue was 38 millions of dollars higher 
 than in any previous year, the return on the prop- 
 erty investment was lower than in any previous year. 
 
 As Mr. Rea pointed out in his testimony in the 
 Five Per cent. Case, the Pennsylvania System, in a 
 year which was the largest in its history, so far as 
 traffic was concerned, with a larger amount of cap- 
 ital obligations oustanding than ever before, with 
 a plant larger, more complete, and more efficient 
 than at any time, finds itself no better off, so far as 
 
 * Fiscal years ending June 30th. 
 
49 
 
 its owners are concerned, than it was fifteen years 
 ago, when the country was just emerging from a 
 period of financial, commercial and industrial de- 
 pression, at least as severe, as any recorded. 
 
 If we were to examine the figures of the New 
 York Central and the Baltimore & Ohio, we would 
 find the same general facts therein and tendencies 
 disclosed thereby, as in the case of the Pennsyl- 
 vania System, and it was these facts which led Mr. 
 Willard, the President of the Baltimore & Ohio, to 
 say to the Commission on November 23, 1913, in 
 his opening speech in the Five Per cent. Case: 
 
 "I have shown that tendencies, which have 
 been operating over a period of at least ten 
 years, have resulted in such diminishing net re- 
 turns that it has gradually come about that 
 money invested in these railroads, because of 
 the low average rates prevailing in so-called 
 Official Classification Territory, and for other 
 reasons, does not earn the same return as 
 money invested in other enterprises of similar 
 kind or character. As a matter of fact money so 
 invested during the last three years, taken as a 
 whole, has earned no return whatever. In view of 
 all this, those responsible for the management of 
 these properties would not be justified in continu- 
 ing large expenditures of new capital for ad- 
 ditional facilities and equipment, even if such cap- 
 ital were available at reasonable rates of interest.' 
 
50 
 
 These views were expressly confirmed by the 
 Commission by their finding in the Five Per cent. 
 Case, (31 I. C. C, at page 384) : 
 
 "That the net operating income of the 
 railroads in Official Classification Territory,* 
 taken as a whole, is smaller than is demanded 
 in the interest of both the general public and 
 the railroads."f 
 
 As a necessary result of the financial condition which 
 has just been described, we find that comparing the 
 five calendar years ending 1914 with the five calen- 
 dar years ending 1910, the latter period shows a de- 
 crease, as compared with the former, of 42 per cent, 
 in new mileage built, 32 per cent, in freight cars 
 ordered, 29 per cent, in locomotives ordered, with an 
 increase of 4%% in passenger cars ordered.^ 
 
 Railroad improvement has come to a stand- 
 still, for, as Mr. Rea said in his speech before the 
 New York Chamber of Commerce: 
 
 "Apparently the interests of everyone 
 have been safe-guarded under public regula- 
 tion except the interests of those who furnish 
 the money for the public service; and we must 
 protect these investors upon whom we must 
 rely for future capital. Failure in the last 
 
 * This condition is not peculiar to the eastern roads. See Western 
 Advance Rate Case, 35 I. C. C. 497. 
 
 f There will be a substantial improvement in the figures for the 
 year ending June 30, 1916. 
 
 $ Article by Mr. S. O. Dunn in the North American Review for 
 November, 1915. 
 
decade to protect the railroads and railroad 
 investors has at last produced a lack of confi- 
 dence in public regulation, and we now know 
 that through the weakness of the railroads, 
 the whole country is suffering." 
 
 Does anyone suppose that the public interests 
 permit railroad development to stop? With 250,- 
 ooo miles of main track, are we content with only 
 27,604 miles of second track? Are we to stop build- 
 ing and enlarging classification yards, installing 
 automatic signals, removing grade crossings, con- 
 structing steel cars?* Yet that is what will happen 
 under our present system of regulation, if we are to 
 look to private capital for the development of our rail- 
 way facilities ; and a very slight experience of govern- 
 mental operation of railroads in the United States, will 
 confirm Mr. Acworth's statement, that no country has 
 ever accepted government ownership because it was 
 more desirable as an abstract proposition, but have 
 only done so for military reasons, inability to 
 secure private capital,f etc. 
 
 FEDERAL VALUATION OF RAILROADS 
 
 No discussion of the subject of governmental reg- 
 ulation of railroads would be complete, without a 
 
 * As to the importance of our railway system in connection with 
 the question of national preparedness, see speech by George D. Dixon 
 before the International Trade Congress on December 6, 1915. 
 
 t See "The Relation of Railroads to the State," by W. M. Acworth, 
 1914. 
 
52 
 
 reference* to the valuation of all the property owned 
 or used by common carriers subject to the provision 
 of the Interstate Commerce Act, which is now being 
 undertaken by the Interstate Commerce Commission 
 pursuant to the provisions of the Act of Congress of 
 March i, 1913. The Act provides in substance that 
 the Commission shall ascertain and report: 
 
 The value of all the property owned or used by 
 every common carrier subject to the provisions of this 
 Act. 
 
 The original cost to date, cost of reproduction 
 new, and cost of reproduction less depreciation, of 
 each piece of property owned or used by said common 
 carrier, for its purposes as a common carrier. 
 
 The original cost, and present value, of all lands, 
 rights of way, and terminals owned or used for the 
 purpose of a common carrier. 
 
 The original cost, and present value, of property 
 held for purposes, other than those of a common car- 
 rier. 
 
 Financial history of the Carrier increases or de- 
 creases of stocks, etc., syndicate and other financial 
 arrangements net and gross earnings expenditure 
 of all moneys and the purposes for which the. same 
 were expended. 
 
 * For a thorough discussion of the valuation work, see articles by 
 C. A. Prouty and Thomas W. 'Hulme (General Secretary of the Presi- 
 dent's Conference Committee) in the Annals of the American Academy 
 of Political and Social Science for January, 1916, as well as an address 
 delivered before the Traffic Club of Chicago on February 29, 1916, by 
 Pierce Butler, of Counsel for the President's Conference Committee. 
 
53 
 
 Amount and value of any aid, gift, grant, right of 
 way, or donation made to any common carrier by any 
 government or by individuals ; value of land grants and 
 concessions made by the carrier in exchange therefor. 
 
 It has been frequently stated that the valuation is 
 only to be used for the purpose of fixing rates. If this 
 were so, the question might well arise as to the wisdom 
 of expending the enormous sum of money (fifty mil- 
 lions* or more) which the work will cost, in view of 
 the few rate cases in which the valuation figures will 
 be of importance. 
 
 If you will examine the thousands of decisions 
 which the Federal Commission has handed down, you 
 will find, in how few instances, the question of the val- 
 uation of the property of the carriers, is of any impor- 
 tance in that connection. The railroad rate structure 
 of the country has been a matter of continual growth 
 and development, primarily based upon the commercial 
 necessities of each service, and rates, accordingly, are 
 generally based, upon the value of the service, and not 
 upon the cost of the service, or the value of the propeny 
 employed therein. Of course, there are instances, in- 
 volving a general advance in rates, as in the recent 
 Five Per cent. Case and Western Rate Advance Case, 
 and also cases where the carriers claim that their 
 property is confiscated under rates fixed by Federal or 
 State authority, in which the value of such property 
 becomes of great importance. 
 
 * See article by Mr. Hulme, before referred to. 
 
54 
 
 The Valuation Act is itself silent as to the pur- 
 poses for which the valuation is to be used, though it 
 states, that all final valuations fixed by the Commission 
 shall be "prima facie evidence of the value of the prop- 
 erty" in all proceedings under the Interstate Commerce 
 Act, in judicial proceedings to enforce that Act, and in 
 judicial proceedings to enjoin orders of the Commis- 
 sion. 
 
 That the purpose of the Valuation Act is nor 
 merely an incident of rate regulation, will be seen from 
 the recommendations of the Commission on the subject 
 (which doubtless were the potent reason for the enact- 
 ment), as made from time to time, for twenty-five 
 years prior to the passage of the Act. The Commis- 
 sion recommended that a valuation should be made for 
 these purposes : 
 
 1 i ) To obtain a trustworthy estimate of the 
 relation existing between the present worth of rail- 
 road property and its cost to its proprietors. 
 
 (2) In determining whether rates as fixed by 
 the Government are confiscatory. 
 
 (3) In connection with railway taxation. 
 
 (4) In the ascertainment of a proper deprecia- 
 tion reserve. 
 
 ( 5 ) In testing the accuracy of the balance sheets 
 of the carriers ; and in the organization of railway sta- 
 tistics in general. 
 
55 
 
 (6) In determining whether the railroads are 
 under or over-capitalized. 
 
 The people of the United States are fortunate in 
 having been able to secure the services of Mr. C. A. 
 Prouty as Director of the Valuation Division organ- 
 ized by the Commission, his many years of experience 
 as a member of that Commission making him peculiarly 
 fitted to be in charge of this responsible work. 
 
 The Government is at present surveying about 
 4000 miles of road a month and expect to complete the 
 work by approximately January i, 1920. 
 
 The Rail Carriers have appointed Committees of 
 engineering, land, equipment, accounting officers, as 
 well as counsel, for the purpose of accomplishing the 
 duty of co-operating with the Government, which the 
 Act specifically requires. 
 
 Some idea may be obtained of the magnitude of 
 the valuation work, when you consider that the Com- 
 mission is required to ascertain not only the present 
 value of 376,000 miles of tracks and sidings, but the 
 value also of thousands of acres of land used for ter- 
 minals, as well as the value of the securities and all 
 other kinds of property owned by the carriers. The 
 Commission is also required to ascertain the original 
 cost to date, cost of reproduction new, and cost of 
 reproduction less depreciation, of each piece of prop- 
 erty, owned or used by the carriers, for their purposes 
 as common carriers. 
 
56 
 
 To find the cost of reproduction new, requires 
 the ascertainment of grading quantities, their yardage 
 and classification, a determination of questions of 
 shrinkage and subsidence, the 'form and manner in 
 which the road shall be reproduced, and the time re-< 
 quired to reproduce the same. It requires also the 
 ascertainment of engineering charges, contingencies, 
 interest during construction, taxes, amounts to be 
 allotted to promotion organization and administration, 
 materials on hand, and working capital, as well as the 
 determination of the unit prices to be applied to the 
 quantities so ascertained. 
 
 In determining reproduction less depreciation, 
 the Commission will be required to ascertain not 
 only the extent and amount of depreciation, but 
 also the extent and amount of appreciation, and 
 finally there will come the ascertainment of the 
 intangible values, which the Act designates as "other 
 values and elements of value," such as location, going 
 concern, etc. 
 
 Amongst the details, which the Act requires the 
 Commission to ascertain, is the original cost to 
 date of "each piece of property owned or used by 
 said common carrier for its purposes as a common 
 carrier." Though it may be possible to obtain the 
 purchase price of a piece of property, it w r ill be 
 impossible, in many instances, to allocate to such 
 piece of property the appropriate overhead charges 
 and the cost of putting the property in place, all 
 
57 ''.: J .' 
 
 of which are necessary elements in determining the 
 cost to date of that piece of property. The records 
 of the carriers have never been required to be kept 
 so as to show the cost to date of each piece of prop- 
 erty, and the attempt to ascertain the same, would 
 probably involve a minimum expenditure of 50 mil- 
 lions of dollars.* 
 
 This brief outline of the magnitude of the val- 
 uation work will show how difficult, if not impps- 
 sible, it is for a Commission of only seven members, 
 with its manifold other duties, to give the time to 
 the valuation work, which the importance of the 
 subject demands. 
 
 Before leaving the subject of valuation, it may 
 be of interest to know the position of such of the 
 State Commissions as were represented at the 
 recent argument before the Interstate Commerce 
 Commission, on certain questions arising under the 
 Valuation Act. 
 
 They contended, in substance, that the Inter- 
 state Commerce Commission should not ascertain 
 the value of the property of the carriers, but should 
 ascertain simply the three cost figures and other 
 detail required by the Act, and leave for the future, 
 when some rate case arises, the determination of 
 some amount, which the Commission, in its then 
 
 * See Address of Director Prouty before the National Association 
 of Railway Commissioners, 1914, page 140 of the proceedings. 
 
58 
 
 judgment, should fix as a proper basis for rate reg- 
 ulation. 
 
 An attempt has been made in this paper to outline 
 the present system of railroad regulation, its inherent 
 defects, and to suggest for consideration certain reme- 
 dies. 
 
 Certainly there is no question before us to-day 
 which more vitally affects the economic develop- 
 ment of the United States. 
 

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