UC-NRLF SB 3fi Reorganization of the Railways JOHN BYRNE & COMPANY Washington, D. C. Reorganization of the Railways By TAYLOR VINSON '< Huntingdon, W. Va. JOHN BYRNE & COMPANY Washington, D. C. TABLE OF CONTENTS. Page Reorganization of the Railways 2 National Transportation Court 7 Powers of the National Transportation Court 8 Consolidation and Reorganization 12 Appoint a Director for Each Carrier 13 Terminals 14 Facilities 14 Advice from the Commission 14 Controversies with the Government 15 General Jurisdiction 15 Employees Compensation 15 Taxation 16 Production of Evidence 17 Rules and Regulations 17 Appeals from its Rulings 17 Interstate Commerce Commission (To be reorganized) 19 Removal of Commissioners 19 Appellate Jurisdiction 19 State Commissions 20 General Principles 21 Bureau of Statistics 21 Suspension of Schedules 21 Minimum Rates 22 Differentials 22 Wages 22 Pooling Arrangements 23 Conference of Carries 23 Coal Cars 24 Distribution of Excess Earnings 24 Carriers ' Compensation for Services to the Government . . 25 Amendments to Interstate Commerce Acts 25 Existing Evils Must be Removed 27 Evils to be Eradicated 31 Necessity for a Central Authority 35 Additional Regulating Bodies 45 Railway Financing 49 Federal Incorporation, 55 Police Power 65 Terminals 71 Transferring Existing Railways to Federal Corporations .... 76 V 456697 Bonds and ther Obligations 78 Exchange of Stock 81 Fixing Stock Values , 82 Reorganization of Capitalization 86 The Public Welfare 91 The Investor in Railway Securities 95 The Present Stockholder 100 Analysis of the Securities Holders ' Plan 106 The Obliteration of State Commissions Ill Existing State Authority Over Interstate Railways Con- demned by the Supreme Court > 128 Regional Districts 131 Excess Earnings 135 One-third of Excess to Employees 137 What Shall be Done with Excess Earnings 144 Plan of the Railway Executives 148 Free from Political Influence 150 Regional Railways 155 Advantages of Regional Railways 166 Operation of Regional Railways 174 Government Guaranties , 178 French Financing of Roads a Failure 185 Regulation of Railway Employees 189 The Right to Strike 195 Suggestions of the Supreme Court . . 202 Return of Railways to Their Owners 205 REORGANIZATION OF THE RAILWAYS The experience we have had with our rail- way problems demonstrate very fully many of the evils that must be eliminated before we can hope to have an efficient system of trans- portation adequate to the public needs. Fi- nancing the carriers has not always been either honest or wise. Many errors, both of judgment and methods, have appeared in the construction and operation of the railways, and such mistakes have tended to depress their credit. Regulation by commissions and other public officials, reducing income and in- creasing expenditures, together with the re- strictions found in State and National legis- lation, have all combined to increase the bur- dens of the railways and rendered them un- able in most instances to properly perform their functions as common carriers. In order to give the public the service to which it is entitled, these evil practices must be abandoned, railway finance reorganized and credit established and maintained. Rates and charges will have to be so adjusted on a reasonable basis as to yield the investor in railway securities a fair return. Capitaliza- tion should represent as near as may be the actual value of the property used in conduct- ing transportation. Complete governmental regulation with pri- vate ownership and operation must be the main purpose of the Congress to achieve in any plan that will meet the public require- ments. It is believed that the plan herein sub- mitted, if adopted, will afford a unified system of transportation that will be just to the pub- lic, the investors and the employees. It was thought advisable to make a short analysis of some other plans that have been suggested, in order to contrast them where they differ as a part of the general argu- ment: PLAN A Establish The National Transportation Court, having original and appellate jur- isdiction, both judicial and administra- tive B Amend the Act creating the Interstate Com- merce Commission and extend its powers, giving right of appeal to The National Transportation Court. c Give State Commissions primary jurisdiction over interstate and intra state commerce, with right of appeal to Interstate Com- merce Commission. These three tribunals will be all the machin- ery for a complete system of Governmental regulation of railways. They will have full and final jurisdiction to hear and determine every possible question that can arise pertain- ing to both state and interstate transporta- tion. State Commissions will be auxiliary to the Interstate Commission. There may be a question as to the power of the Transportation Court to exercise both ju- dicial and administrative functions. As its judicial powers can only be exercised in mat- ters pertaining to interstate commerce, it is more than likely that the Supreme Court would decide that any administrative tribunal vested with authority to deal with all ques- tions affecting that subject could likewise ex- ercise quasi judicial powers to the extent of affording a proper court review. If, however, its functions cannot extend to the judicial power, but would be confined to purely admin- istrative matters, then its orders can be sub- ject to court review in the manner and to the 6, same extent as Interstate Commissions may now be reviewed. If the commerce clause does not give the Congress power to provide a judicial review by a tribunal specially ap- pointed for the purpose, it must follow neces- sarily that the Congress does not have the un- qualified right to regulate interstate com- merce. In any event court review would lie only to the orders of the Transportation Court, as er- rors of State and Interstate Commissions may be corrected by that tribunal on appeal. TRANSPORTATION COUKT Congress should establish a Tribunal by the name of NATIONAL TRANSPORTATION COURT, composed of One railway executive and operator, Two lawyers experienced in railway laws, One large shipper, One banker familiar with railway financing, One representative of employees, One representative of agriculture, One representative securities holders, One manufacturer. Each to be among the ablest men of the class from which he is taken. Term of office, twelve years, after first ap- pointments; so arranged that three will be appointed every four years. Appointments made by the President and to be confirmed by the Senate. Eemovals can only be made by impeachment in same manner and for same causes as United States Judges are im- peached. Salaries : twenty thousand dollars a year. 7 8 POWERS OF THE COUBT (1) To appoint, remove and fix the compen- sation and prescribe the duties of all clerical and other employees, experts and attorneys, that it may deem expe- dient to properly perform the duties of the court. (2) To have appellate jurisdiction over all orders issued by the Interstate Com- merce Commission. This appeal to be the sole remedy for all those who deem themselves aggrieved by the Commis- sion's rulings, and to be heard upon the original record made before the Com- mission. In the appellate proceedings the Transportation Court shall exercise administrative powers where the exi- gency of the case demands it ; and shall also exercise its judicial powers, which shall operate as a court review of the Commission's administrative orders, to the same effect as District courts now have jurisdiction to grant court reviews, which authority and jurisdiction shall be taken from all courts now having such power and vested in the Transpor- tation Court exclusively. 9 (3) To have same authority to enforce its rul- ings and findings, as United States Courts have to enforce their judgments and decrees. (4) To issue charters of Federal incorpora- tion of all railways and steamship com- panies handling interstate commerce, under forms to be prescribed by the court. (a) The court to ascertain the average value of outstanding railway stocks running over a period of three years, and cause the federal com- pany to issue its stock at par in payment for the outstanding stock on the basis of the average value so ascertained. The present holder of stock shall surrender the same for cancellation, on receipt of the fed- eral corporation stock. The court shall thereafter ascertain the full value of the property of the rail- way, and the Federal corporation shall issue such additional shares of its stock at par to the present stockholders or their assigns, as may be necessary to cover the ac- 10 tual value thereof when so ascer- tained. In like manner the value of rail- way bonds and other outstanding evidences of debt shall be ascer- tained, and any holder of such se- curities may surrender them and accept the stock of the Federal cor- poration at par in lieu thereof. (b) The court shall not permit rates and fares to be fixed so low that they will not yield a minimum of five per cent, per annum, to be applied on all the stock issued by the Fed- eral corporation under efficient management. The court may so adjust rates and fares as to pro- duce an emergency fund over and above the five per cent, minimum. The emergency fund may be ap- plied on dividends when an unu- sual condition arises to prevent the carrier from earning the minimum. (c) The court may require the carriers to pay for permanent improvements, additional rolling stock, new con- struction, extensions, better ter- 11 minal facilities, out of the proceeds of stock sales. (d) The court shall approve all stock and securities issues, fix a minimum price at which the same may be sold, and specify the purpose to which the proceeds will be applied. (e) The certificates of incorporation to be issued by the court shall give to the carrier all the powers, includ- ing right of condemnation, which are necessary or expedient to en- able them to construct and operate railways in the most efficient man- ner, including the right to condemn and appropriate streets, alleys, and other public property of cities, towns, villages, and other munici- palities, whevere the same are rea- sonably necessary for transporta- tion purposes. (f) The court shall prescribe rules for the corporate organization of the company after the charter is is- sued. (g) The court may direct the surrender of all existing charters to the states 12 under whose authority they were granted, and may enjoin any car- rier operating under a State char- ter from doing any interstate or other business affecting interstate commerce. (h) Existing carriers shall convey and transfer all their property to the Federal company under such forms of transfer as the court may pre- scribe. (5) CONSOLIDATION AND REORGANI- ZATION The court shall have and exercise full authority and jurisdiction over all mat- ters pertaining to the consolidation and reorganization of railways. It may au- thorize one carrier company to acquire by purchase, lease or consolidation any parallel competing lines to be operated by a single management. This shall in- clude the right to acquire and operate electric railways and steamship lines, as part of its transportation system. The court shall, whenever practica- ble, raise all railway receiverships upon such a basis of capitalization as will 13 permit the carrier to earn five per cent, on its stock for dividend purposes, and to this end may intervene in any re- ceivership proceedings for the purpose of aiding the court wherein the cause is pending to a speedy disposition of it. (6) APPOINT A DIKECTOK FOB EACH CAKKIEK The court shall appoint one compe- tent person who will be an ex-officio member of the board of directors of each carrier company with the same powers thereon as any other member of the board, w r ho shall attend all the meetings of the board, rendering such counsel and assistance as he may. He shall make such report to the court as it may require. He may ask the board to remove the chief executive head of the carrier for inefficiency, or failure to properly per- form his duties, and report his action to the court, which shall ascertain the facts, and if in the court's opinion the facts warrant it the board shall remove the official complained of, upon the re- quest of the court. 14 (7) TERMINALS Each carrier shall be entitled to the use of the terminals of any other carrier when practicable. The conditions and compensation for such use thereof may be fixed by the court when the carriers cannot agree. The court may order the increase of any terminal facilities and apportion the cost of the construction and maintenance thereof among the carriers using the same. (8) FACILITIES The court shall have power to require the carriers to provide themselves with all the necessary rolling stock, track- age, yards, terminal and other facili- ties for the expeditious handling of all the traffic that may be offered them under normal conditions. (9) ADVICE FEOM THE COMMISSION The court may require information or advice from the Interstate Com- merce Commission in furtherance of the discharge of its duties under this act. 15 (10) CONTROVERSIES WITH THE GOV- ERNMENT The court shall hear and determine all matters in controversy between the carriers and the United States Govern- ment arising out of the possession and operation of the railways by the Gov- ernment under the Act of Congress. It shall fix the date when the Government shall return possession and control of the carriers to their owners. (11) GENERAL JURISDICTION The court shall have general jurisdic- tion over all matters affecting inter- state commerce or the agencies em- ployed therein, and may prescribe and enforce all rules and regulations that will facilitate the movement thereof. (12) EMPLOYEE'S COMPENSATION The court shall establish a work- man's Compensation Bureau, who shall make compensation for all injuries re- ceived by the carriers' employees, ex- cept injuries wilfully inflicted on him- self by the injured. 16 The compensations shall be paid out of a fund created by the payment of one per cent, on each pay roll into the treas- ury of the bureau, one-fourth of which shall be deducted from the wages of the employees and the other three-fourths paid by the company. This percentage may be increased or decreased as the requirements may demand. No suit shall be brought or main- tained in any court by an employee or his personal representative against any carrier on account of personal injuries, but all compensations therefor shall be paid out of the fund provided for the purpose. The court shall prescribe all the rules and regulations for administering the compensation department. (13) TAXATION The court shall, under such rules as it may prescribe, ascertain the value of railway properties in every state, coun- ty, municipality or taxing district ; and on the values so found the state taxing authorities shall levy the same rate of taxation as it imposes on other tangible 17 property within its jurisdiction. The taxes so levied shall be paid at such times as the taxing authorities may di- rect. No other taxes shall be levied or col- lected under state law upon the prop- erty, income, or stock of the carrier company. ( 14 ) PRODUCTION OF EVIDENCE The court shall have the same power to administer oaths, examine witnesses, require the production of records, books, papers and documents to be used as evidence that is exercised by United States courts of general jurisdiction, and a like power to punish for contempt or failure to obey its orders. (15) RULES AND REGULATIONS The court shall have power to pre- scribe all rules and regulations and procedure that may be necessary or ex- pedient to enable it to properly perform any and all the duties required of it under this act. ( 16 ) APPEALS FROM ITS RULINGS The United States Supreme Court shall have jurisdiction to review, set 2 18 aside or modify any order or judgment of the National Court of Transporta- tion wherein questions of law are in- volved. The Supreme Court shall de- termine whether such appeals to it shall be granted in each case, and prescribe the procedure therefor. INTERSTATE COMMEKCE COMMISSION (To be reorganized) (a) EEMOVAL OF COMMISSIONERS The commissioners shall not be re- moved during their term of office, ex- cept by impeachment proceedings in the same manner and for the same causes that United States judges are im- peached. (b) APPELLATE JURISDICTION Any party complaining of an order or finding of a state commission, which may affect either directly or indirectly interstate rates, or differentials, pref- erences, discriminations, or practices in the operations of the carrier, or les- sens the ability of the carrier to earn the minimum dividend of five per cent, on its stock, may have such order or finding reviewed by the Interstate Com- mission. The Interstate Commission shall prescribe the method and proce- dure of appeal. It may hear the matter on the record made before the state com- mission, or it may require additional 19 20 evidence. Upon such hearing the Com- mission shall enter such order as it may deem just, if it pertains to or affects di- rectly or indirectly interstate com- merce ; but if it finds that the order of the state Commission does not affect interstate commerce, the appeal shall be dismissed and the order appealed from shall become final. (c) STATE COMMISSIONS Every state Public Service Commis- sion shall be auxiliary to the Interstate Commission, and shall have authority to hear and determine in the first in- stance all questions of rates and prac- tices in railway operation, preferences and discriminations arising within their respective states, affecting both state and interstate commerce. The In- terstate Commission may refer any proceedings instituted before it to the State Commission having jurisdiction thereof for investigation and report. From the orders of State Commissions an appeal shall lie to the Interstate Commission by any party aggrieved. 21 (d) GENEEAL PKINCIPLES So far as practicable the Commission shall ascertain, promulgate and apply in each case general principles of trans- portation. As far as practicable the Commission shall so adjust rates as to permit the movement of all commodi- ties that may be offered for shipment, provided they will yield a profit to the carrier and not materially interfere with the movement of general traffic. (e) BUKEAU OF STATISTICS The Commission shall enlarge its statistical bureau, so as to include all the statistical work of the National Court of Transportation. The bureau shall issue monthly bulletins showing receipts and disbursements of the car- riers and changes in rates made in that month. (f) SUSPENSION OF SCHEDULES Schedules of new or changed rates shall not be suspended for a longer period than ninety days in any event. Whenever the Commission can not com- plete its investigations within that 22 time, it shall provide a method whereby the carrier shall refund to the parties entitled any excess charges if the rates should not be sustained. (g) MINIMUM BATES The Commission shall not fix rates so low that they will not yield a minimum of five per cent, for stock dividend pur- poses, after paying operating expenses, fixed and overhead charges, under effi- cient management, but may fix mini- mum rates not inconsistent with this provision. (h) DIFFEKENTIALS The Commission shall have power to determine and fix all differentials be- tween rates on commodities moving from different points to the same mar- ket over different lines of railway. (i) WAGES Controversies over wages and work- ing conditions between carriers and employees shall be submitted to the Commission for investigation. After making the investigation the Commis- sion shall make a recommendation as 23 to how the controversy should be set- tled, specifying the details thereof. Pending the investigation the carrier shall neither increase nor decrease the wages. Any understanding or agree- ment made between two or more em- ployees to strike shall be deemed an agreement in restraint of interstate commerce and subject to the law pro- hibiting such agreements. This shall not, however, prohibit any individual employee from resigning his position, provided he has no previous agreement or understanding to do so. (j) POOLING AEEANGEMENTS Any two or more carriers may enter into such pooling arrangements as they may deem advisable, which shall be ap- proved by the Commission when in its opinion the public interest will not be prejudiced thereby. ( k ) CONFEEENCE OF C AEEIEKS The carriers may confer and agree with each other on their respective schedules of rates to be filed before the Commission, and the same shall be adopted and remain in effect until com- 24 plaint is made, or changes made by the carriers. In preparing such schedules the Commission shall assist the car- riers in determining the reasonableness of such rates in the first instance. (1) COAL CAKS The carrier on whose line coal is mined may require a connecting carrier over whose line the coal is distributed to furnish an equitable proportion of coal cars in which to handle the traffic. Such equitable proportion shall be de- termined by the Commission, when the carriers fail to agree among them- selves. (m) DISTEIBUTION OF EXCESS EAENINGS The Interstate Commission shall whenever practicable so adjust non competitive rates and fares, and the di- vision of joint through rates between strong and weaker railways, and the compensation for the exchange and use of equipment on their respective lines, as to favor the weaker roads, and lessen the excess earnings of the more pros- perous carriers when such excess exists. 25 Provided, however, That no railway shall be required to render any service that does not yield some surplus over the out-of-pocket cost of handling the particular traffic. (n) CARRIERS' COMPENSATION FOB SERVICES TO THE GOV- ERNMENT Whenever representatives of the United States Government fail to agree with the agents of the railways on the compensation for any services rendered or to be rendered to the government, the Interstate Commission shall fix such compensation and the time of its payment. (o) AMENDMENTS All Interstate Commerce Acts will be amended so as to include the foregoing provisions. All acts inconsistent with these amendments, and with the act creating the National Transportation Court, shall be repealed. EXISTING EVILS MUST BE KEMOVED The railways of the United States have been reduced to a condition that to say the least is most deplorable. Past railway financing and operation, together with the method of govern- mental regulation that has been applied to the carriers for the last decade by both state and nation, has been such that now our whole transportation system seems on the verge of collapse. Through a mistaken sense of duty to the public our public tribunals have persistently reduced the revenues to the carriers, while at the same time increased their expenditures, and thereby so affected their credit as to make it impossible for them to se- cure the capital necessary to supply them- selves with adequate facilities with which to take care of the public's business. Under an emergency the operation of the carriers has been taken over by the govern- ment while still remaining under private own- ership. The Director General seeks to retain the carriers for a period of five years after peace has been promulgated, while the present law extends this control for twenty-one months thereafter. In the meantime the Con- 21 28 gress is receiving suggestions in an endeavor to formulate a plan for placing the railways in such a safe and sane position that they may discharge all the functions of common car- riers, and give to the public an adequate and efficient transportation. What should be done with the railways is a question that the Congress must answer by appropriate legislation. Many recommenda- tions have been made and many more can rea- sonably be anticipated. Any effective plan which the Congress may adopt that will meet the public demands must contemplate the removal of certain obstacles that have heretofore hindered the carriers in the discharge of their duties. Every hin- drance so far as practicable should be re- moved, so that the management will have a free hand to render the best possible service to the public. The carriers must be unham- pered by restrictive laws, either State or Fed- eral. Among the Federal laws that restrain and limit the action of the carriers to the public detriment are : the Sherman Anti-Trust Law, the Clayton Act, the Erdman-Newlands Act, the Employers' Liability Act, the Adamson Law. The handicaps which these acts of Con- 29 gress place on the carriers should be removed by the repeal of the statutes so far as they apply to railways and their employees. A proper tribunal with full regulatory power can correct the evils that these laws were in- tended to prohibit, and such remedies will be infinitely better for the public, the carrier and the employees, for they will be both speedy and equitable to all concerned. When the pub- lic welfare will be advanced thereby the regu- latory tribunal will permit and authorize the carriers to combine parallel competing lines, enter into pooling arrangements, and joint use of equipment and terminals, and co-oper- ate with each other. Every interest of em- ployees can be better secured by having such interest protected by the regulating tribunal and all their rights determined at once than is possible by statutory enactment, which re- quires a long court process to be enforced. State laws are almost universally restric- tive of the powers of the carrier, and wherever they can materially interfere in any way with the carrier's ability to give the public an ef- ficient and equitable transportation they must be set aside, for all handicaps and obstacles that stand in the way of an adequate and 30 speedy service must be removed. This can only be done by Federal incorporation. The most vital evil that threatens the rail- ways is a loss of credit brought about princi- pally by the rate making powers refusing to permit rates that will produce sufficient rev- enues. The cure for this evil is to prohibit the Interstate Commerce Commission from fixing rate schedules so low that in normal times they will not, under efficient management, produce a minimum of five per cent, per annum on the actual value of the property to the investor. With the foregoing evils out of the way the managers can have no excuse for any failure to give the public the most efficient transpor- tation that any country has yet enjoyed. That these things may be accomplished and the carriers required to discharge their full duty to the public, to their security holders and to their employees, a strong independent tribunal must be created, with full power and jurisdiction to determine every question per- taining to the subject of transportation. Such a tribunal I call The National Transportation Court, EVILS TO BE EEADICATED I Present methods of railway capitalization (a) Over-issues of securities, by re-issuing stock on basis of actual value of prop- erty. II State police powers that affect adversely In- terstate Commerce, such as (a) State control over railroad charters. (b) State regulation of rates and practices. Ill State valuation for tax purposes. IV Existing railway financing. V Present methods of court review of Commis- sion's orders. VI Strikes of railway trainmen to be prevented. VII Kestrictive Federal legislation will be re- pealed. 31 32 The establishment of the plan herein sug- gested will secure (1) A scientific and unified system of trans- portation, applicable alike to both State and Interstate Commerce. (2) A stable and certain credit for the rail- roads, that will enable them to sell their stocks to investors at not less than the par value. (3) The elimination of all excess capitali- zation by having securities issues rep- resent the actual value of the rail- road property, used in conducting transportation. (4) A minimum return of five per cent, per annum to the stockholders, after pay- ing expenses and fixed charges. (5) Skilled experts State and Interstate Commissioners to pass upon all rate regulation, preferences, discrimina- tions and practices in railway opera- tions. (6) A court review of Commission orders limited exclusively to the Transpor- tation Court, which will hear the case on the original record made before the Commission, without any addi- tional pleadings or evidence. (7) A settlement of all railway labor con- troversies by the Interstate Com- merce Commission. (8) The uninterrupted operation of trains and the prevention of strikes. (9) The Federal incorporation of railways and the preservation of their identity, both as to property and management, and security holders. (10) The co-operation of railways, by pool- ing arrangements, consolidations, joint use of tracks, terminals and equipment, with the approval of the Interstate Commission, with compe- tition in service. (11) The establishment of a workmen's com- pensation for injured railway em- ployees. (12) Federal tribunals vested with full reg- ulatory power having authority to hear and determine every possible question that can affect railway transportation, with private owner- ship and management. (13) An equitable distribution of excess earnings whenever such condition may arise, by giving weaker roads a greater share of joint through rates, 34 lowering noncompetitive rates, and a graduated tax on excess profits. (14) An expeditious and inexpensive rem- edy to shippers whereby they can have their complaints tried before the State Commission, with appeal to the Interstate Commission, and reach a final determination of it within one- third the time and for one-fifth the expense that is now required. (15) Lower levels of rates, and efficiency of service. NECESSITY FOR A CENTRAL AUTHORITY Every successful enterprise must have in some form or other a head to it with supreme authority to direct its activities. This is pe- culiarly true of any plan that will insure a scientific system of transportation. It is im- possible to have an efficient governmental reg- ulation of the carriers, without the creation of a Federal Tribunal to which all questions af- fecting transportation, whether of rates, dis- crimnatory practices, capitalization and fi- nance, wages and operation may be referred for solution and adjustment. In the very na- ture of the problems to be solved such a tri- bunal will be called upon to exercise both ju- dicial and administrative powers, and there- fore I am calling such a tribunal The National Transportation Court. It will have both orig- inal and appellate jurisdiction, in administra- tive as well as judicial questions necessary to be solved. It would possess original jurisdic- tion in all matters of (1) Federal incorpora- tion, (2) securities issues, (3) extension of lines, (4) new construction, (5) removal of ex- ecutive heads of the carriers for inefficient 35 36 management, (6) appointment of a member of the board of directors of the carrier com- panies, (7) ascertainment of railway values for taxation and stock issuing purposes, (8) establishing and administering a workman's compensation bureau for the benefit of injured employees, (9) the reorganization of bank- rupt carriers, and (10) the settlement of all the questions growing out of Government op- eration. This court would have appellate jur- isdiction over all the orders and judgments of the Interstate Commerce Commission, and its finding thereon would be final except in such questions of law as the Supreme Court might determine that it should review. In consider- ing the appeals from the Interstate Commerce Commission the National Transportation Court would exercise the same judicial func- tions that the Federal courts may now exer- cise over the orders and findings of the Com- mission. This appeal would be the judicial remedy of any party who complains of the Commission's orders, and would provide an expeditious method of court review of the Commission's findings. It would simplify and expedite the court review very greatly, as the questions could be determined upon the orig- inal record made before the Commission with- 37 out any new pleadings or evidence, and there- by reach a final judgment within a month or two after the Commission's order is entered, whereas under the present law an independent suit must be brought in some court and prose- cuted under regular court forms, involving the making of an entirely new record on new evi- dence. These court proceedings are very ex- pensive to the parties, and are attended with all the delays incident to a long and protracted litigation. Pending the period when the case is before the court for final judgment both car- rier and shipper are at a loss as to how to reg- ulate their business affairs. In addition to doing away with the expense and delay of present court proceedings, by substituting a speedy and inexpensive appeal to the Trans- portation Court, the greater advantage lies in the fact that the appeal will be heard by a tribunal largely composed of expert transpor- tation men, already familiar with all the law and practices of the transportation business. On the other hand under the present system the judge before whom a proceeding is brought to enjoin the Commission's order, is not ac- quainted with the theories of rate-making or rate structures and to a certain extent must grope in the dark for his conclusions, however 38 learned he may be in the general principles of law. There is necessarily a great lack of har- mony in the rulings of the courts of original jurisdiction, where so many of them in every part of the country are called on to solve these transportation problems and as a consequence a new trial is generally had by one side or the other taking appeals either to the Circuit Court of Appeal or to the Supreme Court, and frequently to both. It is apparent that this long round-about method of reviewing by the courts, the findings of the Commission, involving as it does so much cost and delay, must be superseded by a shorter and simpler procedure before a highly expert tribunal, if the welfare of both public and carriers is to be protected. The power to supervise and correct the orders of the Commission, and thereby cen- tralize in one tribunal the whole scope of court review, as well as to fix the general principles upon which rate structures should be based, and transportation conducted, must be exer- cised by one central tribunal before it is pos- sible to have a unified system of transporta- tion. This tribunal will also have in the last anal- ysis supervision and appellate jurisdiction 39 over all State action that in any way material- ly affects the national transportation. All State powers over the instrumentalities used in interstate transportation will be made to harmonize and co-operate with the Federal scheme of regulation, so that the whole can be molded into one scientific unified system. This harmony can be brought about in a very sim- ple and easy way by providing that appeals may be taken from the findings of State Com- missions to the Interstate Commission on all rulings that affect either directly or indirectly interstate commerce. In this way all the State Commissions can act as subsidiary or- ganizations to the Interstate Commission to whom cases brought in the first instance be- fore the Interstate Commission may be re- ferred to the State Commission for investiga- tion and report. This procedure would result in a harmonious action of all regulating tri- bunals, State and Federal. State tribunals would be part and parcel of the unified system of Federal regulation operating under na- tional law. This would eliminate all ques- tions of conflicting powers, and divergent find- ings which heretofore have been a great men- ace to both the public and the carriers, result- ing in favoritisms and discriminations. 40 Under the plan proposed the powers of the Interstate Commerce Commission would ex- tend to (1) all rate making and rate regula- tion including differentials; (2) approval of railway consolidations and joint operation of parallel competing lines; (3) approval of pooling agreements between the carriers; (4), directing and regulating the joint use of terminals; (5), the prevention of unreason- able preferences and discriminations; (6), adjust all questions of interchange of traffic between the carriers including the pro rata share for joint through traffic; (7), hear and determine all matters of wages and working conditions of employees in controversies con- cerning them, and (8) , hear and determine all appeals from State Commissions. In any system of railway regulation that may be devised it will be necessary to provide the legal machinery with which it can be di- rected and made effective. This machinery should not be complicated nor difficult to un- derstand. It should be plain and simple, and at the same time have the power to solve speedily and wisely every practical problem and question pertaining to transportation. It is earnestly insisted that the machinery sug- gested is adequate for that purpose. The 41 State Commissions will be preserved and their expert knowledge and ability will be used in aid of a unified system of Federal regulation without becoming a menace to it as heretofore. There will be a commission on the ground, rep- resenting both intrastate and interstate inter- ests, under an appellate supervision of Fed- eral authority. All evidence may be taken be- fore them in the first instance, which will not only facilitate the hearing, but will do away with the necessity of sending out special ex- aminers who are often poorly equipped for the business in hand. Under the present practice the evidence in a large number of cases before the Interstate Commission is taken in Wash- ington, requiring high-priced experts and counsel to come across the continent and re- main for weeks and months at a time. It can reasonably be anticipated that in practice there would be no appeal taken from a great number of the findings of the State Commis- sions, even though they did involve interstate questions, for the National Transportation Court would so systematize all transportation business that the State Commissions would be guided by the rules promulgated by this court of last resort. The National Transportation Court, with 42 its original and appellate jurisdiction ; the In- terstate Commerce Commission having both original and appellate jurisdiction, and the State Commissions having certain original jurisdiction, constitute all the machinery re- quired to put into operation and maintain an adequate system of transportation. By the creation of these three tribunals and linking them together in a harmonizing co- operation, the evils which have driven the country's transportation into a state of col- lapse will entirely disappear. It would be interesting to know how great has been the evil and how much it has cost the public directly and indirectly, that has re- sulted from the States' efforts to control the railways and regulate commerce. Let us be generous in our estimates of the motives back of this general purpose and say that in most instances it was the expression of an honest purpose to correct inequalities either real or imaginary. The fixing of unreasonably low passenger rates by legislative enactment, changing the common law liability for the acts of fellow servants, requiring duplicate train crews, lia- bility for killing stock regardless of negli- gence, progressive increase of taxation, per- 43 sistent reduction of local rates, and many other restrictive and oppressive obstacles thrown in the way of the carriers, have been the rule of State action heretofore. These have all tended to render the carrier less able to discharge its full duty to the public, and the public have suffered and are now suffering the consequences of these mistakes, for we have to pay the bills no matter what happens. Congressional action has been more restric- tive than liberal toward the carriers, greatly increasing their troubles and their expenses without giving them any corresponding bene- fits. Both State and Federal laws have denied to the carriers the right to co-operate not only for their mutual benefit, but for the benefit of the public, and have forced them into useless and wasteful competition that has cost many millions of dollars each year, and compelled expensive and inadequate service. If we add to the evils above enumerated the extremely high cost of doing their financing in the last ten years in the way of commissions, discounts and bonuses, in order to secure the money re- quired in their operation, it should occasion no surprise that the carriers are now in such a state of confusion and despair that they will utterly collapse unless something is soon done 44 to remove these forces that are uniting to drive them into bankruptcy. And, the conse- quences flowing from such a disaster must be borne by the public. The experience of the last two years affords conclusive proof that railways cannot per- form their functions as common carriers, un- less the Congress removes all these obstacles, and places them in a position where they will have the financial and physical ability to per- form every service which the public interest may require. Without equipment and termi- nal and trackage facilities, and necessary ex- tensions, the carriers can no more do their work efficiently than a man may do his with his hands tied. But it requires money, and vast sums of it, to secure these things, and the carrier can procure money in only one of two ways, viz : either out of surplus earnings, or selling securities. Very few if any of the rail- ways can earn enough surplus to meet these demands, and consequently they must resort to stock sales with which to supply the neces- sary capital. But unless they are practically certain of earning enough to pay a five per cent, minimum dividend on their stock they cannot sell it except at a ruinous discount. The public must suffer by a failure of the car- 45 riers to do their full duty, and they cannot per- form their duty unless they can secure neces- sary capital, and they will never be able to get the necessary capital until the Congress re- moves their shackles. We, the public, are more interested in having an adequate rail- way service than in any other factor in our in- dustrial life. If we are to prosper we must have a dependable transportation system, for without it we cannot know how to produce or buy or sell, or arrange our ordinary business affairs. Give us the most efficient transporta- tion system that is possible, and the public are willing and anxious to pay whatever is neces- sary to secure it. Give the carriers the power to serve the public, and a Federal tribunal the power to require them to do it whenever they hesitate or fail to perform their functions. Additional Regulating Bodies Any plan for the reorganization of our transportation system which the Congress may adopt will have to provide tribunals or commissioners that can determine the infinite variety of questions that will arise from day to day. The solution of these problems should not be postponed any longer than is necessary to take the evidence and present argument. 46 No tribunal should be so congested with busi- ness that it could not take up and speedily dis- pose of the matters that come before it. It is apparent that no one commission or court could have the time to hear and decide these controversies as they arise. All the plans that have been laid before the Senate Interstate Commerce Committee contemplate new aids and helps to the Interstate Commission. The witnesses all realize that the work to be done would be much more than the Commission could possibly perform. Some have recom- mended that a number of subsidiary Commis- sions be organized throughout the country with jurisdiction over transportation ques- tions that arise in their respective districts. The carriers have suggested that a Secretary of Transportation be appointed as a member of the Cabinet with very extensive authority, in addition to the Interstate Commission. These various suggestions have been made under a belief that amounts to positive knowl- edge that no one tribunal could do the work that will be required. Provision for a court review of the orders of the Interstate Commis- sion will have to be made. This review should be made speedily by a body of experts exercis- ing judicial powers rather than by the regular 47 law judges sitting as a court and not expert in transportation questions. The cost and delay of bringing these cases to a final judgment in the ordinary legal procedure under the pres- ent method should be a sufficient reason for the creation of a Transportation Court before which all the orders of the Interstate Commis- sion would have to go for court review when anyone sought to invoke that remedy. This method of appeal to the Transportation Court would divest the inferior United States Courts of their present jurisdiction over these mat- ters, and bring them all to one tribunal that could decide them along the lines of a unified system of transportation of which it would be the head and directing force. In addition to exercising appellate powers, and court review over the orders of the Interstate Commission the Transportation Court would have original jurisdiction over all railway financing, Fed- eral incorporation, securities issues, exten- sions and new lines, reorganization of bank- rupt properties, settlement of questions be- tween the Government and the carriers grow- ing out of Government operation ; to require carriers to install and maintain an efficient service, and supervise the workman's compen- sation bureau. The Court of Transportation, 48 the Interstate Commerce Commission, and the State Commissions would have all they could reasonably do to properly regulate the rail- way and water transportation of the United States. This plan will provide all the machin- ery that will be required to place the system into operation and keep it in the best working condition, and at the same time it will be neither complex nor difficult, but will be plain, simple and especially expeditious. It will have the advantage over other plans that have been offered, in that it will be able to work out and maintain a unified and harmonious system of transportation for the whole country. EAILWAY FINANCING The history of railway building in the United States is mainly a chronicle of the ef- forts of the ablest pioneers in the country's de- velopment to secure capital with which to carry on their enterprises. Money was not plentiful nor was credit widely extended. The only practical way whereby capital could be secured for any large construction program was to hold out to the investor the prospect of large profits. In order to sell bonds secured by mortgage over the property, it became nec- essary to issue to the purchaser of a bond a stock bonus equal, and often greater, in amount than the face value of the bond. The inducement to the investor was the expecta- tion of a large profit to be realized out of the increased value of the stock to be brought about by a successful operation of the road after its construction was completed. Prior to 1900 most of the railways were originally constructed by this method of raising the nec- essary capital. Most of the railways of the United States owe their beginning and origi- nal construction to a policy of issuing to the in- vestor large blocks of watered stock. It was a 49 4 50 system of financing based on necessity, and to this system we owe in a large measure the marvelous development of our resources that took place in the last half of the nineteenth century. The investor was moved to part with his money by the expectation of a large return in the shape of profits. Eailway investments were precarious, and attended by great risks, owing to the fact that most of the lines had to go into bankruptcy and reorganization involv- ing tremendous losses to the original inves- tors. Their expectation of great profits did not always materialize, and they suffered losses instead of realizing profits. The pres- ent holders of railway securities are actuated by the same motives as their predecessor in- vestors namely, the expectation of profit. And any future investor will be moved by pre- cisely the same consideration, to-wit: profit. It has been estimated that the carriers will require in the next five or six years an addi- tional expenditure of ten billions of dollars in order to rehabilitate their properties and place them in a position to properly move the traffic that will be offered them under normal condi- tions. That enormous sums of money for this purpose must be supplied in the immediate fu- ture is admitted by all. To raise these colossal 51 sums almost at once is an imperative neces- sity, for it is a condition precedent to any ef- ficient system of transportation that may be devised. Where is it coming from, and how can it be secured? There are those who be- lieve that the Government should either fur- nish the money out of its own treasury or lend its credit through which the money could be procured. These persons do not seem to real- ize that for many years to come the taxpayers will have to bear very heavy burdens to main- tain the financial integrity of the conutry on the obligations that the Government has al- ready incurred. The Government's outstand- ing obligations together with billions yet to be issued, have already impaired its credit, for its bonds are now selling in the open market at a discount of seven or eight per cent. It would be very unwise to impose upon the Gov- ernment the further obligation of providing capital for the carriers by assessing the tax- payers, when the Congress can enable the car- riers to secure their own money on as favor- able terms as those by which the Government can secure it. Whatever new money the carriers may re- quire can be and should be provided by invest- ors purchasing the carriers' securities. 52 The future investor being no different from those either of the present or the past, can only be tempted to part with his money by a reasonable expectation that his investment will be profitable. Under the present laws, both State and Federal, any investment in railway securities is attended with great risk of loss, and for whatever small amounts the carriers can secure, even for renewal purposes, they have to pay an exceedingly high rate of interest and ruinous discounts and commis- sions. If the President should turn the roads back to their owners without any legislation of Congress, and leave them as they were before the Government took charge of them, it would be impossible for most of them to sell their se- curities for new money and we would have a disabled service and ultimate bankruptcy. Let us bear in mind that it is just as necessary to the public welfare that investors should pur- chase large amounts of railway securities in the immediate future as it is to have the trains operated now. It is expedient, therefore, that some plan be devised and put into operation at an early date whereby investors will feel jus- tified in purchasing new issues of railway stocks. 53 There are two essential factors that influ- ence those who have money to invest the ele- ment of safety and risk, and the prospect of profits over and above the usual interest re- turn on the sum invested. The security of an investment reduces profit expectations. As the security is lessened, there must be a corre- sponding expectation of increased profits over and above interest returns. The most attrac- tive stock that can be offered to an investor is one with a fixed minimum dividend that is cer- tain, or as near as human foresight can make it with a reasonable prospect that the dividend can be increased by efficient management of the property. If a plan should be adopted Avhereby the carriers could be compelled to earn for their shareholders a certain dividend, at least of five per cent, per annum, this would make the investment absolutely safe as to principal, and sure for a reasonable interest or dividend return. Add to this the sanguine expectation of a profit in the way of increased dividends, and the investor would feel that a railway stock was the most attractive pur- chase that he could possibly make. With this character of stock to offer the public, the prob- lem of railway financing would be solved. Such securities would be almost as current as 54 a TJank note. It would be the safest possible investment for savings banks, insurance com- panies, and trustees and executors, and espe- cially for all those who are not in active busi- ness but depending for their living upon small incomes. This stock would be the very best kind of collateral for bank loans. This char- acter of stock can be issued by the railway companies in the following manner, viz : All the carriers will take out Federal char- ters of incorporation from the National Court of Transportation. The present companies, whose charters were issued under State au- thority, would convey and transfer all their property to the Federal corporation having the same name. As a consideration for the property so taken over the Federal Corpora- tion would agree to pay or take care of all out- standing obligations of the present company as they matured, and in addition to the as- sumption of these debts the Federal Corpora- tion would issue to the existing stockholders its own stock at par, in payment for their stock based upon an actual value which would be ascertained and fixed by the National Trans- portation Court. The present State corpora- tions would be dissolved and all their stock issues cancelled. All stock issues of the Fed- 55 eral corporation would be approved by the Transportation Court, and would yield a min- imum dividend to the stockholders of five per cent, per annum. The law would provide that rate schedules should not be fixed so low as to prevent the carrier from earning a mini- mum dividend of five per cent, under an ef- ficient management. The Transportation Court would have the power to require a change of management for inefficiency. It can be readily seen, when fully under- stood, that there are no real difficulties in the way to prevent the adoption of this plan. FEDEKAL INCOKPOKATION In the exercise of its supreme authority over interstate commerce the Congress can provide a method for the incorporation, under Federal law, of all interstate carriers. The advantages of operating under a Federal char- ter of incorporation, instead of State charters, are very great. Among the many reasons the following may be mentioned : (1) Every carrier would have the same powers and would be subject to su- pervision by the same authority and tribunal. (2) There would be a central Federal bodv 56 to approve and authorize all stock issues. This would give to the invest- ing public the assurance that every share of outstanding stock repre- sented an actual cash value that had gone into the property. In most of the states the carriers are compelled to pay to the State large sums of money for the privilege of making new stock issues, or bond issues, and where a railway runs through several states, these fees amount to very large sums. The delay in securing authority for new stock or bond is- sues from a number of states is par : ticularly serious, in view of the fact that the company's financing must be postponed until all the States have given their consent. (3) The cost of paying annual charter fees to the States through which the road is located is quite an item of expense that would be saved to a Federal cor- poration. (4) A very great saving would be made in taxation by having the Federal tri- bunal fix the values of railway prop- erty for the purposes of State taxa- 57 tion. Upon the values so fixed the State taxing authorities would levy the same rate as they would impose on other tangible property within their respective taxing districts. This would also eliminate all the cost and expense which the carriers now incur each year by making out re- ports for taxing boards, and attend- ing hearings, and prosecuting suits and proceedings for the correction of illegal assessments. State authori- ties are prone to place a much higher value upon the property of a foreign corporation than upon local property,, for the purposes of taxation. This practice has become very unjust. In recent years a large part of the time of the Supreme Court has been taken up in investigating these evils and at- tempting to correct them. The case of Southern Kailway Co. vs. Greene, 216 U. S. 400, and later cases further emphasize this habit, of which the following are in point : Cheney Brothers Co. vs. Massachu- setts ( 1918), 246 U. S. 147; Lake Iron Co. vs. Wakefield 58 (1918), 247 U. S. 350; and many others decided at the same term of court. The taxes on railways have in- creased so rapidly in the last three or four years that it has become a seri- ous menace to the revenues of the car- riers. The taxes on class 1 roads for the year 1917 increased over 1916 from $157,000,000 to $214,000,000, which was thirty-seven per cent, in one year, while the net operating in- come for the same period decreased $114,000,000, or about eleven per cent. With net revenues falling at the rate of eleven per cent, and taxes increas- ing at the rate of thirty-seven per cent, and operating expenses increas- ing twenty per cent., it is no wonder that railway credit is impaired. The taxes for 1917 were more than fifty per cent, of all interest requirements on the railway bonded debt, and the taxes were almost equal to all the dividends declared that year by these companies. The following table of comparisons will show how absurd are the methods in vogue 59 for taxing railways. The N. & Y. & S. & W. Eailway Company paid $172,000 in taxes, with its net income of $241,000 ; while the P. & W. Va. Eailroad Company had a net income of $1,030,000, and paid $88,000 in taxes. The Great Northern had a net income of $23,021,- 000, and paid $6,297,000 taxes; while the C., M. & St. Paul paid $6,517,000 in taxes, and had a net income of $4,605,000 : Net Name of Company Detroit, Toledo & Ironton C I & W Miles 502 321 Income $163,000 225,000 Taxes $96,000 129,000 Ann Arbor 295 69,000 157,000 Atlantic City . . . 177 195,000 153,000 Det G H. & M 190 1,000 41,000 N. Y. S. & W 135 24,000 172,000 K&M 170 1,158,000 280,000 L & N. E 296 896,000 230,000 C. T. & S. E 374 501,000 235,000 Rutland 454 547,000 253,000 Cin. Northern 245 290,000 129,000 C P in Maine 233 55,000 114 000 Lehigh & H 96 352,000 98,000 Monongahela 108 2,000 37000 Port Leading 21 47,000 103 000 Atl. & St. Lawrence .... D T Short Line 166 80 00,000 291,000 136,000 95000 Buffalo & Susquehanna . Pittsburg & W. Va Port Reading . 252 63 21 657,000 37,000 47.000 112,000 23,000 103.000 60 COMPARISON OF LEADING COMPANIES Net Name of Company Miles Income Taxes Penna. R.R 4541 $39,548,000 $9,612,000 N. Y. C 6079 25,599,000 12,123,000 B. & 4723 8,095,000 4,455,000 N. Y. N. H. & H 1905 2,404,000 3,336,000 P. C. C. & St. L 2398 5,740,000 3,197,000 Erie ; 1989 1,820,000 2,377,000 Phil. & R 1126 8,548,000 2,036,000 Union Pacific 3622 37,605,000 4,543,000 C. M. & St. Paul 10256 4,605,000 6,517,000 Chicago & N. W 18108 17,125,000 5,677,000 Great Northern 8230 23,021,000 6,297,000 Northern Pacific 6522 29,502,000 6,910,000 Under Federal incorporation all these troubles of tax inequalities and ex- cesses would be done away with and railroads would pay only their equi- table share of taxation, along with other property. It is manifestly un- just that the people of Ohio and West Virginia should be compelled to pay a higher price for their transportation, in order to enable the carrier to meet excessive tax assessments levied by other States. Under Federal incor- poration the carrier would have no concern with State authorities about 61 its taxes except to check over and verify the totals. (5) The power of State Commissions to hamper and embarrass interstate commerce would be ended. All their power for evil would be gone while their experience and ability can be used to aid the national system of transportation instead of placing serious obstacles in its way as hereto- fore. Their activities will be greatly extended along lines that will be a strong support to the national sys- tem. They will hear the evidence and enter their findings in the first in- stance in most of the controversies that will arise affecting interstate commerce. Such cases of course will be subject to review by the Interstate Commission and in this way harmony of rulings and orders can be pre- served. The State Commissions to all intents and purposes will be changed into national tribunals and governed by the Federal law of rail- way regulation in all matters that may come before them affecting inter- state commerce. Federal incorpora- 62 tion of carriers is the only way by which State and Federal Commis- sions can be made to co-operate in maintaining a single unified system of transportation. ( 6 ) A large number of States have reserved the right to their legislatures to alter or amend the corporate charters which they have authorized to be is- sued. And all the states, I believe, have provisions whereby the charters they have issued may be forfeited by appropriate proceedings. The carriers are now all operating under charters granted by the States, which are subject to be amended or changed or even forfeited by State authority. They are the creatures of the State and the Supreme Court has decided that the State has the right to control them according to all the limitations and conditions of the law under which they were granted. International and G. N. Ewy. Co. vs. Anderson County (1918), 246 U.S. 424; Kansas City, &c. Kwy. Co. vs. Stiles (1916), 242 U. S. Ill; Kailroad Co. vs. Maryland (1875), 21 Wall 456. Under the reserved power to change or amend corporate charters a State Legislature could make such changes and amendments as would seriously jeopardize not only the integrity of their securities, but their power to perform their corporate functions. The Federal authorities cannot take this power away from the States, and as long as the carriers must operate under State charters, they will be under State authority so far as their corporate organization is concerned. The right to issue stock or bonds and prescribe the purposes for which they may be sold, and the price which they must bring, will be under the exclu- sive control and jurisdiction of the States. Many and serious have been the threats made by State authorities to forfeit railway charters, and have receivers appointed to take charge of the prop- erty. A corporation chartered by one State will be permitted to do busi- ness in another State only by comply- 64 ing with the laws of that State re- specting foreign corporations. These laws are generally very exacting and difficult to obey by carriers operating in several States. If the conditions are not strictly complied with the permit to do business may be with- drawn, and the carrier will become a legal outlaw, and although its line of railway extends from one end of the State to the other, it cannot law- fully do the business of a common carrier. These are not imaginary evils nor do they produce only imag- inary troubles. As long as they exist they will be real obstacles and ever present menaces to the ability of the carrier to properly serve the public. Why keep these manacles on the car- riers since they can do no possible good, and can only result in harm? Federal incorporation would remove every complication and perplexity that could possibly arise by virtue of State authority over State charters of incorporation. 65 POLICE POWER (7) One of the most extensive powers that is possessed by the States is known as their Police Power. The full ex- tent of this power has never been pre- cisely defined by either State or Fed- eral Courts. The Supreme Court has often named the general subjects that the State may deal with under the ex- ercise of this authority, including such matters as affect the public health, the public morals and the gen- eral welfare of the people of that State. In the exercise of the Police power, State authorities are con- stantly obstructing the free flow of interstate commerce in their zeal to promote a purely local interest. They are imposing onerous burdens upon it that it should not be compelled to bear. The continually increasing conflict and turmoil between State authorities and those engaged in in- terstate commerce over the police power of a State to regulate that com- merce, that the Supreme Court is flooded with these controversies. At the October term, 1917, of the Court, 5 66 it had to set aside the statutes and orders of six States on account of im- posing illegal burdens on interstate carriers. At the next term the same court decided five cases involving the right of the States under the police power to control the activities of in- terstate railways in the discharge of their functions as common carriers. As long as the railway companies con- tinue to operate under State charters and are subject to the police power of the State, there must remain doubts and uncertainties as to the extent to which State jurisdiction may be ex- ercised over interstate carriers. Under such conditions the States will continue to enact restrictive meas- ures with the knowledge that the Su- preme Court will set them aside if they are grossly oppressive. But this involves a long and expensive litigation, and often great losses to the carriers pending the legal pro- ceedings to test the validity of the act. State Legislatures will continue to pass two-cent-fare laws without any investigation or knowledge of their 67 reasonableness, and leave it to the carrier to prove that such statutes are confiscatory. It is claimed by many that the States and not the Congress have the exclu- sive jurisdiction over all purely intra state traffic. This claim will be con- ceded where the carrier does no inter- state business. This situation can exist only where the carrier is purely intra state and handles no traffic that comes from or goes to a carrier doing an interstate business. The inter- state business moved by an interstate carrier is directly affected by all the intra state traffic hauled over its line. The revenues derived from traffic moving from one State to an- ther are mingled with the receipts arising from carrying passengers and freight between points in the same State. Out of this fund the ex- pense of operation and maintenance, as well as all other expenses, are paid. The same trains manned by the same crews move both State and interstate traffic indiscriminately. It is impossible to separate the service 68 or allocate the cost of conducting it. Any reduction in fares or rates on traffic between points in the same State is a direct and immediate bur- den upon the interstate passengers and shippers who must make up the loss in order to keep the carrier in a condition of efficiency. The Federal regulatory body must have the power to adjust the charges on both intra and interstate traffic that is hauled by an interstate carrier, to the end that unreasonable charges may not be imposed upon either class of busi- ness. This Federal tribunal can be depended upon to do full justice to the local rates and fares. There is no more reason to expect that this tri- bunal will impose discriminatory burdens upon local traffic than there is to expect a Federal judge to be un- just to the people of the State where he lives, simply because he is an offi- cial of the United States Government. Only by having both intra and inter- state rates fixed by the same regu- lating commission or tribunal is it possible to work out any unified or 69 harmonious system of transporta- tion. The State traffic is so handled and min- gled with the interstate business that the two classes supplement each other, and are part and parcel of the same general movement over a road whose lines and equipment extend from one State into another. Owing to the direct and immediate effect that State traffic has on interstate business and the agencies by which interstate traffic is conducted, there can be no question as to the power of Congress to regulate it. The most feasible method by which this can be accomplished is to give State Com- missions authority to hear and deter- mine in the first instance questions of interstate transportation with the right to appeal to the Interstate Com- mission and ultimate review by the National Transportation Court. In this way all controversies over a con- flict of State and Federal authority could be determined in the most ex- peditious manner. If it should be de- cided that an order of the State Com- 70 mission was one over which the State authorities had exclusive jurisdic- tion, the Federal regulating bodies would not attempt to change or mod- ify it. In any legislation which Congress may enact respecting railways, there should be a section specifically defin- ing and fixing the limits of State ac- tion, under and by virtue of its police power, affecting interstate transpor- tation. The States are entitled to know the ex- tent to which they may go in the law- ful exercise of their police powers over the instrumentalities of interstate commerce. The possession of this knowledge would put an end to a very great deal of legislation that the Su- preme Court is called on to set aside, because of its violation of the Federal Constitution. In the act providing for Federal incorporation of inter- state carriers, the Congress could place such limitation upon State ac- tion concerning these corporations as it might deem suitable for the pub- lic welfare. 71 TEKMINALS (8) In the immediate future railway man- agers must arrange for increasing on a large scale practically all railway terminals. This will be one of the first necessities that will confront them, no matter whether the govern- ment takes over the railways under a policy of government ownership, or whether they are to be turned back to the owners under a policy of govern- ment regulation. To extend and re- construct the terminals so they will be adequate for the future growth of traffic will involve not only the ex- penditure of enormous sums of money, but will likewise require the acquisition of much property both public and private. As terminals are necessarily located in and near cities and large towns, the new tracks will have to occupy the public streets, parks and possibly other public prop- erty owned or controlled by the mu- nicipality. The difficulties of secur- ing these properties from the munic- ipal authorities will be many and serious if the carriers continue to op- 72 erate under State charters. The rail- way companies as now organized can secure the requisite land for new ter- minals only (1) by agreeing with the municipal authorities on the plan for the terminals, and the compensation for the right to occupy the streets and parks, and for taking the public prop- erty, or (2) by invoking the right of eminent domain to condemn the streets, parks and other public prop- erty. To adopt either one of these methods would be well nigh a hope- less task. If the railway company should for any reason be compelled to condemn the property, it would be confronted with the most serious legal difficulties. The proceedings would be under State law and controlled by State statutes. The first question to be determined is, to what extent can property already devoted to a public use be condemned and appropriated to another and different public use? It is by no means clear that such a right can be exercised at all over the protest of the municipality owning 73 the property. Many of the State con- stitutions make provision only for the taking of private property for public use. Nearly all the States pro- vide by statute that railways cannot occupy the streets and alleys of an incorporated town or city without permission of the council or other governing body. In such States con- demnation proceedings would not lie to acquire the right to extend termi- nal tracks across any street or alley, and in such States the companies would be compelled to accept what- ever terms and conditions the coun- cils saw fit to impose. In many in- stances these would be prohibitive for one reason or another, and the car- riers would be helpless. When such insuperable difficulties as these stand in the way of a great public improve- ment, which is necessary for the wel- fare of all the public, they should be removed. If the city of Chicago should refuse to permit necessary ter- minal tracks to occupy her streets, except upon ruinous terms, there ought to be some power that could 74 give the right of condemnation, for the terminal facilities will be for the use and benefit of all the people in all the States. Only the Congress can give such a power in the exercise of its jurisdiction over interstate com- merce. The Congress cannot give the right of eminent domain to State cor- porations to take property which by the laws of the States that created them they are prohibited from acquir- ing. The only way in which the nec- essary streets and alleys and parks may be had for the purpose of con- structing adequate terminals, is for Congress to require Federal incorpo- ration for all interstate railways, and vest in these corporations the right to condemn streets and alleys and other municipal property sufficient for the purpose of constructing an adequate system of terminals. In the exercise of such right of condemna- tion, the interest of the city and its inhabitants can be amply safe- guarded, so that they will suffer the least possible inconvenience. In the past the carriers have been great- 75 ly embarrassed by State action in some cases, and lack of it in others, in their efforts to secure necessary capital. Federal authority has no control over stock or bond issues. That the States have in various ways placed burdens upon the carriers, and hindered them seriously in con- ducting their transportation does not admit of question. Owing to the fact that the carriers will be compelled to do a tremendous amount of financing, as well as increase their terminal facilities in the immediate future, the present lawful authority of the states over existing charter powers, and also over the power of condemnation, constitutes the greatest barrier in the way of establishing an efficient transportation system. Transportation that will render the best public service must have but one central power of regulation. If the public is to obtain the kind of service that will best promote its welfare, it is essential that the carriers be not hampered in their activities and de- sires to give good service, but they 76 must be given a free hand for their in- itiative, and their power to render the most efficient service. The national authority only should exercise the power of regulating the carriers in the public interest, in all those things materially affecting interstate trans- portation. TEANSFEEEING EXISTING EAILWAYS TO FEDEEAL COEPOEATIONS Assuming that Congress will provide for Federal incorporation, the question naturally arises as to the method whereby the Federal corporation will become the owner and pos- sessor of the railways and property now be- longing to the existing railway companies. The plan contemplates that the Federal cor- poration will not only take over all the prop- erty of the present companies, but will operate them in the future. In creating the Federal corporations the Act of Congress will vest in them the power to acquire these properties, and pay for them by issuing its own stock in exchange for the outstanding stock of the pres- ent corporations. It will likewise give to such corporations all the powers requisite to the purpose of carrying on the business of trans- 77 portation, including the power to raise money and condemn all the property needed in their enterprise. At the same time it is presup- posed that the exercise of these extensive powers will be for the public welfare, and im- poses a corresponding duty. One of the problems to be solved is how to deal with the present holders of railway stocks and bonds. Upon what basis will these securi- ties holders be asked to surrender them and accept in lieu thereof new securities or obli- gations of the Federal corporation? The whole matter will be greatly simplified by the Federal corporation issuing but one class of securities, and that would be common stock. It would give no mortgage or other liens upon its property, nor issue any preferred stock, ex- cept where such securities become imperative, and it would have the right to issue interest- bearing notes having the effect of a lien upon the company's property, for the purpose of ex- tending or refunding maturing bonds. In the course of time all senior securities would be retired and the whole capitalization would be represented by one class of stock the com- mon. 78 BONDS AND OTHER OBLIGATIONS The National Transportation Court would ascertain the actual value of all bonds and other evidences of debt calling for the pay- ment of money at all events, by the existing corporations. To ascertain such values will not be difficult, nor can they jeopardize in any way the interest of the holders of such securi- ties. Such valuation is for the purpose of fixing a basis of exchanging them for the stock of the Federal Corporation. In every case this stock will be surrendered in exchange for bonds and other indebtedness, at its par value. The holders of these securities will have the privilege of exchanging them for the Federal Corporation stock on the values fixed by the Transportation Court, but will not be com- pelled to do so. Whether or not they will make the exchange will be entirely in their dis- cretion. To illustrate : In a given case the Transportation Court would fix the value of a mortgage bond at ninety-five cents on the dollar. The holder could surrender his $1,000 bond for $950 of the stock of the Federal Corporation. On a min- imum five per cent, dividend on the stock, the yield on his security would be $47.50. If the 79 bond were five per cent, interest, it would yield him $50.00. Which would he prefer to hold? The bond would be absolutely good, for its interest would be deemed a part of oper- ating expense, and the Federal Corporation has assumed its payment upon maturity, be- sides it is a subsisting lien on the property. At maturity the holder would receive its face value. Both principal and income are fixed and cannot fluctuate. The bonds, however, are subject to taxes, which would reduce the income. On the other hand, the income on the stock is not fixed. It may be anything more than five per cent, but cannot be less. If the company should earn six per cent, the income would be $57.00, or $7.00 more than the bond interest. The chance of receiving a greater income, and thereby increasing the market value of the stock, would be an inducement to make the exchange. The stock would be ac- cepted in lieu of the bond whenever the market price of the stock was above par. The stock would not be subject to taxes. Under Federal incorporation the position of the bond holder would be greatly strength- ened. Every element of risk would be re- moved. Loss could not occur. His lien over the property would still be preserved. His 80 mortgage contractual rights would remain un- impaired. The payment of the interest and principal would be certain. Under these con- ditions these railway bonds would be as stable as government bonds, and much more desir- able, where bearing a greater rate of interest, as most of them do, unless the taxes on them were excessive. The obligation by the Federal Corporation to pay these bonds and their in- terest, would add much to their security as it is now under present conditions. The importance of preserving the integrity and the value of railway bonds cannot be over- estimated. The principal asset of the savings banks, insurance companies, trust companies and bank collateral and trust estates is made up of railway bonds, and any material depre- ciation in their value, or uncertainty of inter- est payments, would precipitate such a panic as would for many years cripple our whole in- dustrial fabric. Already the present depres- sion of railway credit is being keenly felt by those who are seeking new capital for indus- trial enterprises. On the 31st day of Decem- ber, 1917, the Class 1 railways had $9,445,- 295,771 in bonds issued and outstanding in the hands of their creditors. No other element of credit is comparable to this in magnitude. 81 EXCHANGE OF STOCK The Act of Congress creating the Federal Corporations will authorize them to acquire existing railway properties and pay for them by issuing its own stock therefor in exchange for the stock of the carrier companies now out- standing. Stock of the Federal corporations will be issued at par. An actual cash value will be fixed by the Transportation Court on the present stock of the carriers at which it will be surrendered and Federal Corporation stock at par will be taken in lieu thereof. The present stockholders will be precisely the same persons and institutions that will hold all the stock of the Federal Corporations. The only difference being that the par value of the Fed- eral Corporation stock which they receive will not be the same in amount as the par value of the stock now owned by them, although the ac- tual value will be the same. The process will be for the stockholder in the present corpora- tions whose charters were all issued under State authority to exchange his stock for stock in the Federal Corporation. The stock he re- ceives will have the same intrinsic value as that which he surrenders for it. The present corporations will convey and transfer by appropriate deeds all their prop- 6 82 erty to the Federal Corporation which will have the same name. As a consideration for this property the Federal Corporation will as- sume the payment of all the obligations of the present company, and agree to pay them as they mature. In addition to the assumption of the payment of all the debts, the Federal Corporation will issue its stock at par to the stockholders of existing companies in ex- change for their present holdings, the value of which would be determined by the Transporta- tion Court. It would so operate that the same stockholders that now own and control exist- ing companies would own and control the Fed- eral Corporation, which would own and oper- ate the same line of railway that is now owned and operated by existing corporations created under State authority. The stockholders of the present companies would exchange their State charters with all the handicaps that State laws throw around them for Federal charters freed from State regulation and in- terference, and without any hindrances what- ever. FIXING STOCK VALUES A first impression may lead to the conclu- sion that the effort to place a real and an ac- tual value upon the railway stocks now out- 83 standing, would encounter many difficulties. A consideration of the method proposed will correct this impression. In the first instance the Transportation Court would ascertain the average market value of the stock by using certain periods (say June 30th for a number of years) as a test for the average. The same method, and the same dates, June 30, 1914, can be used that was applied in the Government Control Act, under which the Director General began the operation of the railways, January 1, 1918. In order to illustrate, we will take the Southern Eailway as an example : On the 31st of December, 1917, the Southern had outstanding $185,650,000 of stock. As- suming that the average value of the stock as shown by the test periods would be forty-five, the total value of all the stock on this basis would be $83,542,500. This amount would rep- resent the prima facie actual value of the stock as of that date. The basis for this value of course would be the price for which the stock was bought on the stock exchange. As soon as this sum ($83,542.500) was ascer- tained by the Transportation Court the Fed- eral Corporation would issue to the Southern stockholders its own stock at par to the same 84 amount, viz : $83,542,500, and the stock of the existing Southern Railway Company would be exchanged and retired. In most instances it is claimed by stock- holders in railway corporations that the stock exchange price is lower than the true and ac- tual value of the stock. As a consequence these shareholders would naturally demand from the Federal Corporation more shares than the test average would give them. This claim would be fully met by the Federal Cor- poration giving to the stockholder a receipt showing the number of shares he had turned in and the number he had received in exchange therefor, and which would provide that if it should be found after a full valuation of the company's property thereafter to be made by the Transportation Court that the stock was worth more than the average price for which issues had been made, that new stock would be issued to the holder of the receipt to cover the increased value so found. As to all the elements that should properly go into the sum that will represent the true value of railway property, no two well in- formed experts or economists have quite agreed. Some claim that the present value should be limited to original cost without in- 85 terest. Others say it should be the cost of re- production, while still others claim that rail- way property should have the same corre- sponding increase in value due to the growth and development of the country as other real property, in addition to the money investment. That the same increment that enhances real estate values on account of increased popula- tion, both farms and city property, should be applied to railways. Value depends on earn- ings, and earnings on rates and rates upon public commissions. So complex is this whole subject of ascertaining the real value of rail- way property that the Interstate Commerce Commission has had the matter under consid- eration for the last four years and have reached no conclusion as to all the elements that should enter into it. This whole question of fixing the actual value of railway properties must finally be determined by the Supreme Court, when it specifies the elements of value that should be taken into consideration in reaching a just conclusion as to value, the problem will be solved, and then it becomes a matter of detail to work out. The Congress cannot lay down rules whereby railway values can be fixed, for this is not a legislative ques- tion but it belongs exclusively to the judiciary. 86 KEOKOANIZATION OF CAPITALIZA- TION When we consider that the stock today (May 1, 1919) of all the railways belonging to Class 1, with the exception of only eight, is selling on the market at prices less than par, it be- comes apparent that a readjustment of the stock issues is imperative. The values which the investing public places upon eighty-five per cent, of the stock of these companies ranges all the way from ninety-eight to ten cents on the dollar. The face value of this stock is in round numbers $7,300,000,000, while the present market value will not exceed $4,500,000,000. Of course the present market value of the stock is lower than its true value. An average value determined as heretofore in- dicated would, it is estimated, increase this present value to $5,000,000,000. If to this there be added the sum of $300,000,000, to represent the difference between the market price and the true and actual value, it would leave out- standing stock issues having a par or face value over the true value of $2,000,000,000. In other words, if the stock of the railway com- panies should be so adjusted that the actual value was represented by the par value, there would be $2,000,000,000 of this stock that 87 would be cancelled or written off as having no present actual value. However, the holder of this excess stock has an expectancy in many cases a mere hope that in course of time the growth of business resulting in increased earnings will give to this excess stock some value. It should be remembered that such in- creased earnings will be reflected in larger dividends on the lesser amount of new stock that will represent actual value in the first instance, and consequently would send the market value of this stock above par. It fol- lows necessarily that with such a grade and character of stock the company can provide additional capital, on at least a par basis if not at a premium, as every dollar of stock is- sued would represent a dollar in cash that had actually gone into the improvement of the road and its facilities. This plan contemplates a reorganization of the railways so far as their capitalization is represented by stock issues. It means that all existing stock will be replaced by new stock to be issued by the Federal Corporation, wherein the actual value will be equal in the first instance to the face value of the stock, and which in the near future will be selling on the market at a price above par. Most of the 88 railways have in the past gone through bank- ruptcy and receiverships, necessitating a com- plete readjustment of their capitalization. These reorganizations have operated to scale down bond issues even, so as to reduce interest or fixed charges, resulting in new mortgages, and a cancellation of outstanding bond and stock issues. The following report illustrates the princi- ples of reorganization as applied to the Boston and Maine Railroad. It will be a long while before the $49,000,000 of common stock can have any actual value for dividend purposes. "B. & M. PLAN IS SUBMITTED "CONSOLIDATION SCHEME Is WORKED OUT BY EAILROAD^S OFFICIALS "Boston, Feb. 25. Hearings before the Public Service Commission on the peti- tion for perfection of the plans for reor- ganization of the Boston and Maine Rail- road in this State began to-day. Counsel representing the Boston and Maine Mi- nority Stockholders Association said a long legal battle over the proposed con- solidation of the leased lines might be ex- pected. He requested that the hearings be postponed for two weeks, as he said the 89 railroad was 'in comfort under receiver- ship/ The commission refused the re- quest and counsel for the road began the introduction of evidence in support of the reorganization plan. "Counsel for the Boston and Maine presented a plan for consolidation which he said had been worked out by officials of the road. Stockholders of the leased lines surrendering their holdings would get preferred shares in the Boston and Maine, with the stipulation that the inter- est rate should be the same in both cases. The unfunded debt of $18,000,000 would be cared for by an issue of bonds to be taken up by the Government through a mortgage proceeding. "Operation of the lines under Federal control would be upon the standard rates of the last three years. For a period of five years preferred stockholders would get eighty per cent, of their dividends and holders of the common stock would receive nothing. The net income above the pre- ferred dividends would create a trust fund through which the bonded debt would be cancelled. The commission took the prop- osition under advisement." 90 In reorganization plans the bankers have taken heavy discounts and commissions from the bonds, while receiving large blocks of bonus stock. The bankers, however, are not to be condemned for these profits for it was the only possible way at that time whereby the conflicting interests of senior and junior lien holders and stockholders could be harmonized, and the company rehabilitated with new credit and given the status of a going concern. One of the advantages that the proposed plan will have over the old method of reorganization will be the strengthening of all bond issues without in any way impairing their value or integrity, and giving to the stockholder a new stock possessing equal value with that which he now holds, upon which a minimum dividend of five per cent, is made sure and certain. With the purpose of establishing a better transportation system for the whole country than the one we now have, the Congress with its committees on interstate commerce have been making investigations into every phase of the subject. A great many witnesses and experts have appeared before the committee and given their testimony and suggestions. The railways, the investors, the shippers, the employees, the State Commissioners, the In- 91 terstate Commerce Commission, and commer- cial and industrial associations and econo- mists have sent their ablest representatives to offer plans and advise with the Congressional committees who are making this investiga- tion. These witnesses have been gentlemen of long experience and conspicuous ability. In every instance the wisdom of the scheme or plan offered has been tested and analyzed by a thorough and searching cross examina- tion, conducted by each member of the inves- tigating committee of Senators and Eepresen- tatives of the House. From the course this in- quiry has taken it is evident that the commit- tee has in mind certain fundamental and pri- mary interests which must be safeguarded in any concrete plan they may adopt. This I think fully appears in the published reports of the hearings. These interests are : (1) The public welfare. (2) Interest of the employees. (3) The investor. (4) The corporation itself. (5) Existing stockholders. (1) THE PUBLIC WELFAKE Consideration for the general public inter- est must be the guiding principle upon which a 92 permanent and an efficient transportation sys- tem can only be established. This purpose will be paramount to everything else. If sec- tional bias or local self interest shall be per- mitted to color the deliberations of Congress into adopting a scheme for the readjustment of the railways, to the detriment of the public, viewed as a whole, it will fail almost as soon as it is put into operation. The public must be satisfied that the carriers under the reorgan- ized system will perform the services required of them in the most efficient and expeditious way, and that the manner of doing these serv- ices will not result in excessive charges nor discriminatory practices. The public must be made to believe that the personal interest of employees, investors, corporations, and exist- ing stockholders shall be subordinated to the public welfare whenever there is a conflict. The reason for this is apparent, in view of the fact that in the last analysis the public will pay all dividends, all wages and all expenses of operation. All these items, including profits, will be a tax upon the people, which they will have to pay. The public has been under the impression for many years that it is paying dividends on watered stock that orig- inally represented no actual money invested 93 in the property, and they feel that this is an injustice. How much foundation there is for this belief, it is not necessary here to deter- mine. The public does know, however, that Class 1 roads have outstanding approximately $2,000,000,000 of stock in excess of actual pres- ent value. This very fact creates in the mind of the average man the conclusion that there is something radically wrong in railway cap- italization. Whether this notion is well founded or not, this frame of mind is a source of suspicion which must be removed before the public will feel that it is receiving a fair show. The public must have an abiding confidence in the plan that Congress shall finally adopt, and as a prerequisite to such confidence there must be proof that all "watered" stock has been eliminated. This can only be done by calling in outstanding stock and issuing in exchange therefor new shares based upon actual value, under the supervision of a Federal tribunal charged with this duty. The public want to know that they are paying dividends upon sums that represent the true worth of the property, and in such event there will be no effort to reduce rate schedules while dividends are under ten or twelve per cent. The public are much more interested in an adequate serv- 94 ice than in small dividends. In any and all events, the public must be satisfied with the plan, and made to believe that they can de- pend upon being served whenever service is re- quired continuously and without interruption. The public demands of Congress the estab- lishment of a system of transportation that will be permanent, efficient and dependable. They realize that it must be so arranged that the carriers can earn enough money not only to keep out of bankruptcy, but to require an ample reward to investors and employees, as well as to provide all the requisite facilities. The public no longer entertains sentiments of malice toward the carriers, but on the con- trary they demand the removal of every ob- struction and unnecessary burden that has been placed upon them by State and Federal legislation. The public has committed itself to no plan or program of reorganization to submit to Congress. In view of the fact that there has been such a diversity of opinion among the experts who have appeared before the Commerce Committee, the public cannot be expected to develop a scheme of its own, but it must depend on the Congress to exercise its own judgment as to the plan that will best meet the public requirements. THE INVESTOR IN RAILWAY SECURITIES Those who buy railway stocks and bonds are controlled by human impulses. Senti- ments of philanthropy and benevolence find a very small place in their calculations. The law cannot compel any one to purchase these securities. Every purchaser must be per- suaded that it is to his pecuniary interest to exchange his money for them. There must be an inducement offered to him, in the way of an assurance that his investment will yield on the whole better returns than others that are open to him. Every one takes under consideration three factors in determining the course of his investments, viz : safety, certainty of interest returns, and prospective profits. When the principal is represented by a stock or bond that cannot fall in value except in time of great national calamities, it would be deemed a very safe investment, and the in- vestor would not apprehend any loss of prin- cipal. A stock that would have back of it the moral pledge of the nation, the sworn duty of Federal Tribunals vested with full authority, and the legal obligation of a railway, that the 95 96 stock of that carrier should be made to yield a minimum dividend of five per cent, per annum, would be accepted by the most cautious and critical as a certainty of paying at the very least a return of five per cent, per annum on the investment. In addition to the induce- ment of safety of principal and certainty of dividend there is presented the reasonable ex- pectation of profit. The gambling instinct is inherent in most men, and they will risk more when there is a good prospect of receiving a profit over and above the ordinary interest re- turns. Before the investor can be tempted to purchase railway stocks at par it is necessary to inspire him with confidence in their permanent stability of value. He must believe that the annual income will be certain, and a profit is reasonably sure. As the investor will have to put up enormous sums of money in the next ten years in order that the carriers may properly equip them- selves to handle the public's business, it is es- sential that the railways be placed in a posi- tion where they can offer him a security that will meet his approval. He must be satisfied that his investment is surrounded by every safeguard of protection. To secure from the investor vast sums of money in the immediate 97 future is a condition precedent to any reorgan- ization of the railways that will enable them to render proper service. To provide the nec- essary capital is the first step to be taken, and the first question to be answered is what kind of security will be most tempting to the in- vestor? The stock will represent a real and actual value, it will pay a minimum dividend of five per cent, on that value, and will carry with it a probability of a good profit. These peculiar features will meet every possible requirement of the most conservative investor. The stock should be made still more attrac- tive by exempting it from all taxation. Banks should be authorized to make loans on the stock as collateral amounting to ninety-five per cent, of its par value. All those who are required to execute bonds to the United States should be permitted to use the stock as secur- ity for the performance of the bond. So far as Congress has the power it should make the stock a proper investment for savings banks, trust companies and insurance companies. In addition to the inherent value of the stock, legislation can add much to its desirability. In order that the stock may be free from all doubts and complications that could cast 7 98 suspicion upon its value, its issues, in every in- stance, would be approved by the Transporta- tion Court, which would be a guaranty to the investor and the public that the face value of the stock had gone into the improvement of the property. The most prudent purchaser would not be called upon to find out how many bonds were outstanding, the size of the earn- ings on the probability of not paying divi- dends. The law would take care of all these inquiries, and there would never be a railway stock traded in on the stock exchanges for less than par. As it is now, with eight or nine ex- ceptions, all the railway stocks are bought and sold at a price much below par. Under the present regime a purchaser of stock takes a serious risk of a fall in price attended by con- sequent loss. It is this element of risk, which is very real, that has driven the price of stocks down to their present low levels. The more power exercised over the carriers by State authority, together with the hampering legislation of Congress, the greater will be the risk, and consequently the difficulties of sell ing new stock at a fair price will continue to increase. The present statutes, both State and Nation, give the investor neither protection nor en- 99 couragement. They look upon him as a legiti- mate object of prey, and they have proceeded to prey upon him. Not in a decade has there been any statute passed that did not increase the carriers troubles and add new charges to the cost of operation. Every act has been punitive in its purpose and effect, and has tended to decrease the power of the company to earn dividends for its stockholders. To this cause more than to all others combined may be attributed the present condition of our- railways. By virtue of the power of regula- tion exercised by both State and Federal Gov- ernments the railway shareholder has seen the value of his stock shrink from day to day, until in most instances he could not now sell it for more than fifty per cent, of what he paid for it. During this decade we have had a gen- eral prosperity much above normal (with the exception of 1915) in which every one shared, except the investor in railway stocks. He knows what adverse legislation has cost him. He is aware of what it can do. by what it has done. He is not buying railway stocks now save at ruinous prices to the seller. He will not purchase again under existing laws. Yet the railways are compelled to get from him in the immediate future billions of dollars of 100 new money. There' can be no progress made toward establishing an efficient transporta- tion system until State laws of regulation are superseded, and the restrictive legislation of Congress is repealed. With his past and pres- ent experience he will not invest in railways until he is assured that the investment is safe, the income certain, and a profit reasonably sure. This is not an unreasonable position be- cause it is one that he is justly entitled to take. X THE PRESENT STOCKHOLDER Any investment that results in shrinkage of value and consequent loss is unfortunate. The investment itself may have been induced by excess optimism, lack of knowledge of true values, or poor judgment. And in many in- stances purchases have been made as a specu- lation pure and simple. Whatever happened to be the inducement for the venture the pres- ent holder of railway shares finds that the ac- tual value of the shares is probably sixty per cent, of their face value, and much less than what he paid for them. Among the leading railways there is now a wide margin between face value and market value of their stocks, as shown by the quotations from the stock ex- changes. In Class 1 roads the par value of the 101 stock is about $2,600,000,000 more than the present market value. This difference must be adjusted so that the par value will not be greater than the actual value. This readjust- ment cannot be made without the present shareholders suffering what may appear to be losses. There can be n'o loss in the readjust- ment as the loss has already been incurred. The purchaser who paid seventy for his stock a few years ago could not sell it now for more than fifty or fifty-five. And unless there is an equitable reorganization and the carriers put upon a sound financial basis, bankruptcies are sure to follow, and his stock will continue to decline and its value may be practically ex- tinguished through receiverships and reorgan- ization. The responsibility for this vanishing stock value is due primarily to a faulty system of railway financing and capitalization. But it must be remembered that it was the only method by which capital could be secured, at the time, with which to construct new lines and extensions. By an equally faulty system of governmental regulation, both State and National, the railways have not been permit- ted to increase their earnings to the point that would strengthen their credit, and thus have 102 the ability to obtain new money and thereby maintain the value of their stocks. The condi- tion that confronts the present stockholder is a serious one indeed. He realizes that if the railways are to continue to operate under State charters in the future, they can only se- cure new money by selling bonds or some other form of security that will be superior to his stock. He knows that vast sums of new money must be provided at once in order that the railways may discharge their functions as common carriers, which will necessarily oper- ate to further depress the value of his hold- ings. The question for him to consider is how can he save something and be protected from the impending wreck? To this question there can be but one answer ; and that is, scale down the par value of his stock until it will repre- sent the actual value of the property owned by the carrier, so that his future holding will be a dividend paying stock at all events, with a reasonable expectation of some profit. He cannot complain of this adjustment for it will not only stop future losses, but will give him a reasonable return upon the value of the prop- erty used in conducting transportation, and by implication he is not entitled to more. The public cannot be heard to complain of this ar- 103 rangement for the court has said that justly they should pay such reasonable return. It may be thought by some that it is particu- larly unfortunate that existing stockholders should suffer losses. Quite true, but the pub- lic should not guarantee the purchaser of stock against loss, and if he is the victim of the pres- ent situation it cannot be helped ; but the sug- gestion, made by this plan is that he will not continue to be oppressed, and will be saved from further loss. The effect that this adjustment will have on rates for the future cannot be determined with much certainty owing to the increased expense of operation and maintenance. But the prac- tical workings of the plan can be illustrated by applying it to Class 1 roads for the year 1917. In round numbers which I will use the aggregate outstanding stock of these rail- ways on December 31, 1917, was $7,352,000,000. Their net income was $589,044,000, or eight per cent, on the capital stock. The dividends amounted to $221,482,000, being three per cent, on the stock. After making $70,000,000 of spe- cial appropriations there was a surplus of $295,286,000 transferred to profit and loss. The proposed plan would give to the stock a value of seventy, which is liberal, and would 104 make outstanding stock amount to $5,146,400,- 000. The earnings of the companies on this stock would be $589,044,000, or eleven and four-tenths per cent. The dividend on this stock at five per cent, would amount to $257,- 320,000, which when paid, would leave a surplus of $331,680,000 for special appropria- tions and profit and loss of six and four -tenths per cent. This illustration takes no account of the great savings that would be made in the way of taxes, license fees, cost and expense that are now imposed by State authority. All such savings would go to swell dividends and increase surplus earnings without increasing rates. The ultimate eft'ect of this plan of recapital- ization will be to reduce rates and keep them steady at a generally lower level, and at the same time place the investors security upon a safe basis where the fluctuations in value will be reduced to the lowest possible minimum. The tendency will be toward increasing values of the stock, and a consequent movement to- ward lower rate levels. It is impracticable for the carriers to do any new financing by selling stock when the outstanding issues are selling in the market at a price far below par. If it could be sold at 105 all, and in most cases it could not, it would have to be placed at such a discount that it would greatly increase the par value over the actual value and add to the burden which the public would be expected to bear in the course of time. One of the Senators of the Interstate Commerce Committee apropos of this question said : "We ought to relieve the people of the country of the excess capital charge, if we can do it in fairness to capital, and at the same time preserve efficiency and economy in oper- ation." This expresses, not only the sentiment of members of Congress, but the universal feel- ing of the public. Excessive capitalization will always exer- cise an evil influence in any system of trans- portation that may be adopted. ANALYSIS OF THE SECURITIES HOLDERS' PLAN On the 31st day of January. 1919, the Na- tional Association of Owners of Eailroad Se- curities, speaking through their President. Mr. S. Davies Warfield, filed with the Senate In- terstate Commerce Committee a carefully pre- pared plan for the financial reorganization of the railways. It would probably be a little more accurate to say, a plan for future railway financing. Any suggestion coming from so re- spectable a source as this is entitled to receive serious and earnest consideration. It may be taken for granted that while these gentlemen represent primarily the interest of investors in railway securities, they have likewise kept in mind the public welfare in the plan which they present. It is with this feeling that they will welcome any suggestion from the stand- point of the shipper, that may tend to strength- en the securities which they now own, or which they may purchase of new issues, that I ven- ture to make an analysis in the way of recom- mendations concerning some of the matters which they urge. 106 107 The first of the "Fundamentals" of the plan submitted is : ( 1 ) "A minimum rate of return on the prop- erty investment in the railroads, fixed by Act of Congress, through rates adjusted as occa- sion may demand, in order that the securities of the railroads may be stabilized and their credit established on a basis necessary to se- cure the money to provide the shippers and traveling public adequate facilities and serv- ice/' This is a very clear statement of a general principle which, if incorporated into the plan that Congress will adopt, will practically solve the problem of a proper reorganization of rail- way finances. But before it can be accepted as a whole the dominant assumption needs inter- pretation. It provides for "a minimum rate of return on the property investment." In- stead of requiring a return on "property in- vestment" the requirement should be a mini- mum return on the value of the property used in conducting the transportation. The differ- ence between "property investment" and ac- tual value of property used is very great. This can be best illustrated by a concrete example. At the end of the year 191 7 the Seaboard Air Line reports to the Interstate Commerce Com- 108 mission showed that the company had a prop- erty investment of $192,423,000, Also that this company had outstanding $131,483.000 in bonds and long term debt and $60,950,000 in stock, making its capitalization $192,433,000. Property investment includes all stock and bonds at their face value, or par. A minimum rate of five per cent, on property investment would not be too much, and therefore the min- imum return to the security holders of the Sea- board Air Line would be five per cent, on $192,- 544,000 the property investment, which is $9,627,200. If we look to the actual value of the property as a basis for dividends, and fix that value at the face value of the bonds, plus the market value of the stock we will have $131,483,000 of bonds, and the market price of the stock which is eight, giving a stock value of $4,807,600, which gives a total value of the property at $136,290,600, that would yield a minimum of five per cent., or $6,814,530. The difference between what the public would be required to pay on "property investment" and actual value of the property is $2,712,770. On this same basis of calculation, the public for 1917 would have paid $130,000,000 minimum dividends upon stock in Class 1 roads that had no actual or market value whatever. 109 In view of the results that would follow a requirement of a minimum dividend on "prop- erty investment" instead of actual value, I would respectfully suggest that the first fun- damental of the plan be amended by striking out "property investment" and inserting "value of property used in conducting the transportation." If the words "property in- vestment'' are to be retained the proposition will become so palpably unjust and burden- some that I believe the Congress would never enact it into law. The time has come when the railways should be capitalized on a basis of actual values, if their credit is to be established and main- tained. If the public could speak it would cer- tainly demand that it be saved from paying in- comes on excess values, and after all the pub- lic must believe that it is receiving a fair meas- ure of justice as a condition precedent to the success of any plan that may be evolved. The only feasible method of reorganizing railway capitalization whereby excessive stock issues may be superseded by stock that has an actual par value is by Federal incorpo- ration. But the plan proposed by the National Se- curities Holders Association opposes Federal 110 incorporation and gives the reasons in sup- port of its opposition, as follows : (1) "The principal purpose thereof (Fed- eral incorporation) seems to be the oblitera- tion of State Commissions." This statement does not give the full pur- pose of Federal incorporation, nor is it accu- rate when it assumes that "the purpose is to obliterate State Commissions." The neces- sity for Federal incorporation is to remove from the States the power to hamper and place undue burdens upon Interstate Commerce. This inhibition would apply to all State tri- bunals, including legislatures commissions, taxing boards, and all other State authorities vested with power to restrict or interfere with the easy, natural movement of commerce be- tween the States. This commerce should be freed from every hindrance, not necessary for the general public welfare. No State should be permitted to use its power to work discrim- inations in favor of its own citizens, and against the general public. This authority of the States over their own railway charters to change, amend and revoke gives them the undisputed right to regulate and control the issuance and sale of securities by the rail- ways, and consequently all railway financing Ill is dependent upon and subject to the will, the whim or caprice of State tribunals. Every rate or charge prescribed by State authority directly and immediately affects all the rev- enues of interstate carriers, and the regula- tion of the operation of trains adds to the ex- pense, and is a drain upon the sum of its earn- ings. Every reduction of rates on shipments between points in the same State, together with increased expenses imposed by State au- thority lessens the value of the stocks and bonds of the railway, and makes these secur- ities less stable and less trustworthy. The Obliteration of State Commissions It is not apparent that the advocates of Fed- eral incorporation expect that State commis- sions will be discontinued. There is no reason why they should be done away with under Fed- eral incorporation. On the contrary the State Commissions should form a part of the Fed- eral scheme of regulation. They will co-oper- ate with the Interstate Commerce Commis- sion. They will in the first instance hear and determine most of the controversies between the carriers and shippers arising within their respective States. This jurisdiction will ex- tend to both interstate and intrastate traffic, 112 subject to review by the Interstate Commis- sion. All their judgments and orders con- cerning purely intrastate matters that do not affect interstate business will, of course, be final, while their orders involving interstate business may be corrected by the Interstate Commission. On the record made by the State Commission The Interstate Commission will act as an appellate tribunal, and will deter- mine its own appellate jurisdiction depending on whether the order appealed from affects in- terstate commerce, or is purely intrastate in its operation, in which latter event the order of the State Commission would become final. This method of procedure will insure a well defined system of transportation upon which both the carriers and the public may rely. By this method of co-operation between the State and Interstate Commissions many advantages will be obtained, such as (a) Eliminating most of the examiners for the Interstate Commission. (b) A speedy hearing before a local tri- bunal, possessing an intimate knowl- edge of local conditions and having a wide experience and extensive expert knowledge of transportation prob- lems. 113 (c) The remedy for errors and mistakes is through, appellate process to the In- terstate Commission, thereby reliev- ing the parties from a long and ex- pensive litigation in the courts, on a new record and original testimony. (d) It will preserve the harmony of a gen- eral transportation system, by re- moving the conflicts that arise be- tween the exercise of State police power, and the power of Congress over interstate commerce. (2) Another objection to Federal incorpo- ration is : "It means turning over the prop- erties to the Government under an Act of Con- gress that, to obtain the object sought by those advocating it, shall completely surrender rights now possessed by their owners, the re- lease of which might eventually prove suicidal to them." There are so many vital things assumed in this statement that they must be examined separately in order to appreciate their full significance. (a) Federal incorporation "means turn- ing over the properties to the Government under an Act of Congress." This statement shows a misconception of the whole scope of 8 114 Federal incorporation. The carriers are now operating under charters granted by State au- thority. Federal incorporation means that they would operate under charters granted by Federal authority. The corporate powers of the companies would be practically the same. The company would be owned and controlled by identically the same stockholders. The property would be the same, and the manage- ment would be the same. So far as the prop- erty of the company is concerned the Govern- ment would have no more control over or in- terest in it than the States do now. The Fed- eral regulating body would have, however, the right to require a board of directors to remove an executive officer on the ground of ineffi- ciency but for no other cause. A moment's re- flection makes it apparent that there would be no turning over to the Government the pres- ent property of the railways. But the prop- erty would be turned over by one corporation to another having the same stockholders with the same control and management. The stock- holders would be turning their own property over to themselves, freed from the incubus of hostile State action, which has and would con- tinue to decrease the value of their securities. 115 (b) That "to obtain the object sought by those advocating it" (Federal incorporation). If those who advocate Federal incorpora- tion have any other object than to place the railways upon a safe and sane foundation, it has not been disclosed by the hearings held by the Senate Interstate Commerce Committee, nor is it to be found in the plan submitted by the Securities' Holders Association. It may be assumed that the proponents of Federal in- corporation believe that it is the only method by which excess capitalization can be reduced to the point where the capitalization will fairly represent the true and actual value of all the property used in conducting transportation. They also believe that this is the only course to pursue that will enable the carriers to es- tablish and maintain the credit necessary to supply themselves with needed capital. They do know that the adoption of this policy will be eminently just to the public, and will insure to the investor both present and future an adequate return upon all the values he may have put into the property. It will likewise give assurance to the public that they will not be called on to pay dividends on stock that rep- resents no real value whatever. 116 (c ) -'Shall completely surrender rights now possessed by the owners, the release of which might eventually prove suicidal to them.'' It will be presumed that the author of this paragraph had in mind the rights of securities holders when he speaks of the rights of the "owners," as the securities holders are con- sidered to be the owners of railways, although technically this is not strictly accurate, yet it is true in substance. What are the rights "now possessed by the owners" that they will have to completely sur- render? There can be but one right which they will be called upon to surrender, and that is the right to operate their railways under a charter issued by the State instead of one granted by Federal authority. Eights incor- porated in State charters can be no more fav- orable to the securities holders than kindred rights contained in Federal charters. The Congress can authorize a Federal charter that will be infinitely more attractive and valuable to the stockholder than the States can possibly do, without changing their constitutions. As an example : The States, generally speaking, prohibit railways from appropriating public property, streets and alleys, without the con- sent of the municipality wherein they are lo- 117 cated. The Congress can give its corporation the right to condemn and occupy streets and alleys, without the consent of any State au- thority, municipal or legislative. In view of the necessity of building new and extensive terminals in practically all the cities and large towns, the right of the railways to secure the requisite ground for this purpose, becomes at once of the most vital concern, not alone to the stockholders but to the general public as well. The possession of the right to condemn and oc- cupy streets and alleys with terminal tracks, by the carriers will save to them and their se- curities holders hundreds of millions of dol- lars in the next few years. It must be presumed that Federal incorpo- ration means that these corporations will be granted every power necessary or expedient lo better enable them to give the public an ef- ficient service. Whatever surrender of property rights "now possessed by the owners" which they will be required to make, they will be simply surrendering these rights to themselves. There will be no right lost in the process of surrender, but additional rights and powers of tremendous importance and value will be obtained. 118 If this paragraph means that the rights "now possessed by the owners" are the rights that pertain to securities holders as such, and not the rights belonging to the property owned by the corporation, it will be necessary to con- sider such rights as arise out of the contrac- tual obligations of the corporation, and also the right of the stockholder, for they divide themselves into two separate and distinct classes. Contractual obligations are the evidences of debts owed by the corporation, which it has given its written promise to pay. These are bonds secured by mortgage over the property or its income, and notes usually secured by collateral. The holders of these securities are creditors of the company, and as a class have no interest in the future earnings, except as they tend to strengthen or lessen the security of their holdings. All the right possessed by this class of owners is the right to have their debts paid, as they mature. But Federal in- corporation can in no wise lessen or impair this right. The lien over the property to se- cure their payment will not be disturbed. All their mortgage rights will be preserved. The Federal corporation will assume the payment of all these obligations when it takes over the 119 railway. This class of securities will not be surrendered or parted with by their holders. They will be greatly strengthened as the earn- ing of a five per cent, dividend on the stock presupposes that the earnings will be suffi- cient to provide interest payments and take care of the contractual obligations as they ma- ture. It follows that the requirement of a sur- render of rights contained in the statement can only refer to the rights of existing stock- holders. The stockholders possess the right to man- age and control the business and affairs of the company through a board of directors which they select from among their own number. They also have a right to the profits which the company earns after the payment of fixed charges and the expense of operation. Under Federal incorporation the same stockholders would, in precisely the same way, manage and control the affairs and business of the com- pany, as they exercised under State charters, and this right would in no sense be impaired or restricted, or surrendered. The same is equally true of their rights to all the profits earned by the company after paying expenses and fixed charges. The wealth and income of the stockholder is enhanced by increased net 120 earnings. Net earnings will be increased in proportion to the saving in the items of ex- pense. The maintenance of corporate organ- ization under a State charter is very expen- sive, while there would be no expense attached to corporate organization under Federal law. State action also decreases gross income, and adds to the expense account. The manage- ment of the railway would be the same whether operated under State or Federal charter, and the profits or net earnings arising under Fed- eral incorporation would be much more than if operated under a State charter. The quan- tity of outstanding stock cannot affect net earnings unless there is so much excess capi- talization as to impair the credit of the com- pany, in which event it would have a depress- ing effect on profits. Under Federal incorpo- ration the stockholders would receive more profits than under State charters. There is a contingency, however, which could arise whereby the present stockholder would re- ceive more profits than he would realize by surrendering his present holdings in exchange for the stock of a Federal corporation. That contingency could arise in those cases where the present market price of the stock would range from eight to thirty cents on the dollar 121 of the par value. Such carriers now have an excess capitalization of fifty to sixty per cent, as represented by their outstanding stock. If some device can be contrived that will give a value to this excess stock, which now has none it will enure of course to the benefit of those who own it. This can only be done by collecting enough revenue from the public to give it a value that would make it marketable. What right, either legal or moral, has the holder of such stock to have the public taxed for his enrichment? He cannot claim that he has any legal right to impose this burden, for the courts have time and again ruled that his legal right is limited to a reasonable return on the value of the property used in conducting the transportation. This excess capitalization represents no property values whatever, and therefore he can have no legal right to a return or income on a stock having no value. The courts have intimated without so holding that six per cent, is a reasonable income or return to the investor on the value of all the property used by the carrier in conducting its transpor- tation. As a consequence the only right which might be invaded by a surrender of this value- less excess stock is one based upon purely moral considerations. The argument might 122 be made by the holder of this stock that he bought it at a time when prudent men believed that it was well worth the price paid for it, and constituted an attractive investment. But by an unwise exercise of the power of regula- tion, both State and National, the value of the stock has been reduced, entailing consequent losses. And, as the representatives of the pub- lic are primarily responsible for his loss that there is a moral obligation upon the part of the public to make him whole. That through no fault of his he now finds himself between the upper and the nether millstones. It may be urged in answer to this argument, that he purchased the stock with his eyes open he had full knowledge of the power of State and Nation to so regulate the railway as to impair its ability to earn dividends on its stock he trusted to the wisdom of his co-stockholders to so manage the company's affairs as to protect his purchase he knew that in every invest- ment there is a large element of risk the risk he took must be increased or diminished by an infinite variety of unforeseen circumstances he was cognizant of the fact that Govern- ment has exhibited no ability to manage or regulate industrial enterprises with economy and efficiency that wherever Government has 123 laid its hands upon the railways the result has been increased expense and lower net in- come. The fault does not all lie with govern- mental interference, however. The custom of issuing excess stock in the policy that has here- tofore characterized railway financing was sufficiently well known to put him upon his guard. He should have seen that the tendency of railways generally was toward more dras- tic regulation, lower net earnings and a de- cided impairment of railway credit, all of which were contributing to lessen the value of outstanding stock. In view of these well- known conditions how can it be contended that there is a moral obligation upon the part of the public to guarantee the stock purchaser against loss in making an imprudent bargain? The inevitable conclusion is that the rights, both legal and moral, now possessed by the owners of this stock when surrendered to a Federal corporation, can in no wise affect them prejudicially, nor can such a turning over "eventually prove suicidal to them." Another objection to Federal incorporation presented by the security holders is : "Endless litigation would ensue, in which the States would participate, to contest the abrogation of tlieir right to exact the perform- 124 ance on the part of railroads of certain obliga- tions assumed by them as conditions imposed in return for franchise rights that had been granted to them by the States." This argument presents the question as to the policy of having Interstate Commerce reg- ulated by Federal authority alone or shall the States have an independent concurrent juris- diction over interstate transportation along with the Federal power? The argument goes much further and assumes that the States should have and exercise exclusive jurisdic- tion over all railway financing; that it would be the sole function of the States to control, prohibit or allow all stock and bond issues and prescribe the terms upon which these issues may be sold, and naming the purposes for which the proceeds may be used. It requires no argument to prove that this exclusive power over railway financing which the States now possess, has done more to destroy railway credit, and embarrass railway operation, than all other causes combined. To show what an evil this is it is only necessary to refer to the experience of every railway that has had occa- sion to do any considerable financing in the last fifteen years. The New York, New Haven and Hartford is a conspicuous example. To 125 remove from the carriers this great menace of State regulation of their financial opera- tions is one of the principal reasons that make Federal incorporation a necessity. Every ob- stacle that stands in the way of establishing and maintaining a high degree of railway credit must be removed before it is possible to provide an adequate transportation system. To ask that the present power of the States over railway financing be preserved is to ask that all the evils growing out of it be not only continued but greatly augmented in the fu- ture. Kailway operation in the past decade has demonstrated and brought to the fore evils and mistakes from which all transportation has been greatly hampered, and the public wel- fare has suffered. It is the duty of Congress to enact such legislation as will relieve the public from these burdens, by placing our transportation upon a safe and sane basis. This can only be done by centralizing all reg- ulatory authority in one Federal scheme with one Federal tribunal over all subordinate boards or commissions. The plan suggested herein contemplates the co-operation of all the State Commissions as part of the Federal or- ganization. The jurisdiction of the State Commissions over purely intrastate rates and 12G practices, where they do not affect interstate traffic, will in no sense be impaired. At the same time they will render great aid to the Interstate Commerce Commission on practi- cally all questions of interstate commerce. To the claim that endless litigation would grow out of a policy of Federal incorporation an answer can be made. The statement itself can only be predicated upon conjecture. While litigation is always a possibility, as there is no power to prevent any one from instituting a suit, yet what are the probabilities that such litigation would ensue? Who would bring such a suit, a stockholder or the State? We have already seen that the stockholder would have no legal right that would be impaired or threatened by exchanging his stock in a State corporation for stock of equal or greater value in a Federal corporation owning and operating the same property. Therefore he could not maintain a suit as he could show no loss of a property right. Of course he would not bring a suit to maintain a moral right even if such a right existed. The State as a stockholder would have the same status as an individual stockholder and could not succeed in a court. If a State should bring a proceeding to com- pel the corporation which it has chartered to 127 perform the conditions of the charter the an- swer to the suit would be that the corporation's business was an interstate carrier over which the Congress had exclusive jurisdiction and regulatory power. That the Congress, by ap- propriate act, had required it to cease doing an interstate business, or anything affecting interstate commerce, and to turn over to the Federal corporation all its property and in- strumentalities used in connection with con- ducting interstate transportation. That under the Federal Constitution such Act of Congress would be the supreme law of the land and must be obeyed regardless of State laws to the contrary. This answer would be complete and the suit would be dismissed. Another reason why the States would not go into litigation would arise from the fact that Federal incor- poration would give the citizens of each State a much better transportation system than it would be possible for the States to provide. The general welfare of the people of each State would be greatly promoted by Federal incor- poration, and no State would be tempted to take a step in opposition to the best interest of the people of that State. In view of the reasonable certainty of the failure of any liti- gation undertaken to resist the carrying out 128 the policy of Federal incorporation, it is in- conceivable that any State or stockholder would embark in such an enterprise. Existing State Authority Over Interstate Railways Condemned by the Su- preme Court "The interblending of operations in the conduct of interstate and local business by interstate carriers is strongly pressed upon our attention. It is urged that the same right of way, terminals, rails, bridges, and stations are provided for both classes of traffic ; that the proportion of each sort of business varies from year to year, and, indeed, from day to day; that no division of the plant, no appor- tionment of it between interstate and local traffic, can be made today, which will hold tomorrow ; that terminals, facilities, and connections in one state aid the car- rier's entire business, and are an element of value with respect to the whole prop- erty and the business in other states ; that securities are issued against the entire line of the carrier and cannot be divided by states; that tariffs should be made with a view to all the traffic of the road, 129 and should be fair as between through and short-haul business; and that, in substance, no regulation of rates can be just which does not take into considera- tion the whole field of the carrier's opera- tions, irrespective of state lines. The force of these contentions is emphasized in these cases, and in others of like na- ture, by the extreme difficulty and intri- cacy of the calculations which must be made in the effort to establish a segrega- tion of intrastate business for the purpose of determining the return to which the carrier is properly entitled therefrom. "But these considerations are for the practical judgment of Congress in deter- mining the extent of the regulation neces- sary under existing conditions of trans- portation to conserve and promote the in- terests of interstate commerce. If the sit- uation has become such by reason of the interblending of the interstate and intra- state operations of interstate carriers, that adequate regulation of their inter- state rates cannot be maintained without imposing requirements with respect to their intrastate rates which substantially affect the former, it is for Congress to de- 9 130 termine, within the limits of its constitu- tional authority over interstate commerce and its instruments the measure of the regulation it should supply. It is the function of this court to interpret and apply the law already enacted, but not, under the guise of construction, to pro- vide a more comprehensive scheme of reg- ulation than Congress has decided upon. Nor, in the absence of Federal action, may we deny effect to the laws of the state en- acted within the field which it is entitled to occupy until its authority is limited through the exertion of Congress of its paramount constitutional power." Geo. T. Simpson vs. David Shepard, 33 Supreme Court Kep. 729. In the foregoing Minnesota rate case the Supreme Court has pointed out the serious dif- ficulties that hinder the railways in dealing with State authority over interstate carriers. The court has said as plainly as it is permitted to say, that these complications must continue until Congress takes from the States the power they now possess over interstate com- merce which can be exercised indirectly. This statement of the Supreme Court is the strong- est possible argument against leaving the car- 131 riers subject to state control; and is therefore a complete answer to the position taken on this proposition by the National Association of Securities Holders. KEGIONAL DISTKICTS The plan of the securities holders contem- plates dividing up the whole country into six Kegional Districts, which would include a railway mileage ranging from 34,000 to 50,000 miles in each district. The object of this dis- tricting is to provide aids and helps to the Interstate Commerce Commission in its duties of regulation. New commerce commissions of three members would be appointed by the President for each of these districts, and the appointees would be recommended by the two political parties. As an aid to the Eegional Commissions rate committees shall be ap- pointed upon which the railways and the ship- pers shall be represented. It will be seen that the creation of six new commerce commissions, supported or opposed as the case may be by six rate committees which are separate and distinct tribunals, will add very greatly to the machinery for regu- lating interstate commerce. 132 The objection to this regional plan is (1) That the new Commerce Commissioners will be selected by the Executive Committees of the political parties. These selections will be made judging the future by the past upon purely political considerations, without refer- ence to fitness or qualification for the particu- lar duties to be performed; (2) It would in- troduce so many complications and untried ex- periments in the regulatory scheme that it would take many years, (a) to train the new commissioners and (b) determine their proper functions and provinces; (3) By the process of appeal it would add to the overburdened Interstate Commission rather than relieve it of some of its duties; (4) The machinery of it would be complex and cumbersome; (5) The State Commissions are, generally speak- ing, trained experts in transportation mat- ters, having had wide experience in dealing with all these problems. These commissions already organized and fully equipped with ex- pert knowledge, and familiarity with local conditions, can do everything that is possible for the Eegional Commissions to do in much shorter time and giving the work a vastly su- perior ability. They can also pass upon and determine purely intrastate matters, some- 133 thing which the regional commissions cannot do. The State Commissions can and should be representatives of both State and National laws in regulating commerce. With the proc- ess of appeal to the Interstate Commission there would be no conflict between State and Federal jurisdiction, and a system of trans- portation unified and harmonious would nec- essarily result. As between the proposition to create reg- ional districts and supply them with a lot of new and untried machinery as necessary helps to the Interstate Commission, and the plan to secure the co-operation of the State commis- sions as part of Federal regulation machinery there can be no question as to which would yield the best results. The Securities Holders plan further pro- vides : "That no railroad shall build new mileage unless it shall show the necessity for it * * * * and shall receive the sanction of the State commissions of the respective States having jurisdiction." The unfortunate experience that the rail- ways have had in this respect with the Texas and other State commissions, affords a com- plete answer to this proposal. If the Chesa- 134 peake & Ohio Hallway Company should desire to build new mileage in Illinois to provide for the traffic offered to it in that and other States, it would be compelled to obtain the sanction of the Commissions for Virginia, West Vir- ginia, Kentucky, Ohio, and Indiana, as well as Illinois. Each one of these Commissions would look at the proposition from a different angle, and from their own local point of view. It must be remembered that the people of every other State in the Union whose goods would be handled over C. & O. tracks are as much interested in the facilities for the trans- port of their commodities by this railway as are the people who live in the States where these facilities are located. This becomes a national question exclusively, as all the peo- ple are directly interested. It follows that this predominant national interest should not be controlled by State action, but should be under the sole jurisdiction and regulation of Federal authority. There is no real reason why the States should control extensions, construction of new mileage or the acquisition of greater facili- ties upon the part of the railroads, but on the contrary there is every reason why they should not do so. 135 EXCESS EABNINQS In order to dispose of excess earnings the following is suggested by the Securities Hold- ers, viz : "If any of the railways shall earn a rate of return in any one year greater than six per cent. * * * the excess shall be devoted to the following purposes : "(a) Thirty-three and one-third per cent, shall be set aside as a fund to be used for the benefit of the employees under the plan ; " (b) Thirty-three and one-third per cent, of such excess shall be returned to or retained by the railroad company for its own use ; "(c) Thirty-three and one-third per cent, shall be held in the fund to be devoted to the purposes provided under the plan and under the direction of the regional commissions, or Interstate Commerce Commission." There is very good reason for the belief that the Senate Interstate Commerce Committee are greatly concerned over the matter of widely divergent earnings of those carriers who operate parallel competing lines of rail- way between common points. The four rail- ways operating between Xew York and Chi- cago are compelled to have the same rates and fares between all common and competitive 136 points. No two of the roads have the same transportation expense, and as a consequence their earnings differ widely. The rate that will give one of these carriers a large net earn- ing will produce for another no net earnings whatever. As the rates must remain the same on all these lines, there necessarily results an excess earnings or profit to one while on the others the earnings are comparatively low. What shall be done with these excess earnings let us say for example, of the New York Cen- tral is a very practical question which con- tinually comes up for solution. The Securities Holders propose to divide this excess into three equal parts, giving one to the employees, one to the railway company, and the other to go to a fund with which to provide equipment for railways generally that needed financial assistance. We can better appreciate both the weakness and the strength of this plan of disposing of excess earnings by applying it to concrete cases and demonstrate how it will work out in actual practice. Taking the earnings of the Philadelphia and Eeading and the Baltimore and Ohio Kailways for the year ending Decem- ber 31, 1917, we can make the comparisons that will illustrate the workings of the plan. The 137 P. & K. operated 1,126 miles of road and had a net income of $8,548,000. The capital stock was $114,843,000. Six per cent, on this the sum proposed to be earned amounts to $6,890,580, which would be the dividend per- mitted on the outstanding stock before any surplus earnings could accrue. This dividend taken from net earnings will leave $1,657,420, as the excess earnings to be distributed. The employees would receive one-third of this sum, amounting to $552,473.00, in addition to their regular wages. Only the outstanding stock of these roads is being used to represent property invest- ment in these illustrations. The B. & O. oper- ated 4,723 miles of road, which produced a net earning of $8,095,000. Six per cent, on its stock ($210,000,000) is $12,600,000, which would have to be paid before there could be any excess earnings to divide. But the earn- ings lacked $4,515,000 of paying dividends, so there would be no excess earnings and the employees of the B. & O. would receive nothing but their wages. ONE-THIKD OF EXCESS TO EMPLOYEES If this plan should be adopted how would it affect the employees and what influence would 138 it have on their wages, their morale and their loyalty and how much better service would they give? It must be assumed that the B. & O. em- ployees were just as faithful and as competent and worked just as hard for the interest of their employer as the employees of the P. & R. At the end of the year, however, they will see a great banquet spread for the P. & R. men, at which there will be more than half a mil- lion dollars divided up among them while the B. & O. men will receive nothing, although they did as much work and did it as well as the others. No argument will convince them that they are not entitled to receive the same com- pensation for the same kind and quantity of work that is paid to any other railway em- ployees. Immediately there is a demand for an increase in wages, and if not granted they will be discouraged and take less interest in their work. This same apathy would extend to the employees of every other railway that had no excess earnings to divide resulting in discontent and inefficiency among most of the railway employees in the United States. Those employees who would not receive any excess earnings would be endeavoring to find employment with the railways that were mak- 139 ing them. Wages could not be so adjusted as to provide for obtaining the third of excess earnings, as it could not be determined in ad- vance what they would be. The employees would be constantly finding fault with the management because excess earnings were not provided. This would give rise to a demand that the rate schedules be raised so as to in- sure the excess, and this would be a never- ending source of annoyance and confusion to the rate-making authorities. This program would seriously embarrass the management and hamper it in its ability to give the public proper, service. How would this excess be divided between the employees entitled to it? If the division should be on the basis of the wages paid, there would be a conflict of interest among those whose wages were unequal in amounts. The low wage man would clamor for a raise while the best paid would endeavor to keep all other wages as low as possible. Any change of wage schedules would meet the condemnation of all those employees whose portion of the division would be adversely affected. All in all, it is perfectly apparent that no greater cause of unrest, discontent or ineffi- ciency among railway employees can be imag- 140 ined than the proposed plan of a division of excess earnings. The fundamental weakness of this plan is the assumption that the employees are enti- tled to a share of the excess earnings. It must be the policy of every successful carrier to pay the employees full and generous compensation in the shape of wages for all the work they do, including their skill, ability, and loyalty to the company. It must be assumed that railway employees in the main are composed of a class of men who will give their honest and best en- deavor to their business when they feel that they are receiving just and ample pay for what they do. This proposed division of excess earnings is based upon the assumption that the employees will not do their duty as well as they can, even though their wages are per- fectly satisfactory, and in order that they may be induced to do better work they must be tempted by the promise of more money, which they have not justly earned. I do not believe that this assumption is in any way justified for it suspicions the integrity of these men, which in a large measure cannot be impeached. The money which is proposed to be divided either justly belongs to the railway which earned it or to the public from whom it was 141 taken. The employees have no claim upon it legally or morally. The fund was produced through a rate structure made necessary by the economic conditions of the country in con- nection with the physical situation of other and competing carriers. The employees have nothing whatever to do with either one of these co-operating causes. For all that they do, they are paid a just and satisfactory com- pensation. The men who furnish supplies, en- gines, cars, rails and ties, and other equipment used in transportation, for which they have all been paid the full value, are as legitimately entitled to share in the division of excess earn- ings as the employees. They both contribute their time and energies to the general trans- portation enterprise. One is as essential as the other. The skill and fidelity of the engine builder is entitled to as much consideration as the experience and loyalty of the engineer who handles it, and both alike contribute to the successful movement of trains. The proposal when stripped of verbiage means the taking by legislative enactment of money belonging to one person and giving it to another who has no more claim upon it than others who have contributed to the success of the general enter- prise. 142 This would be class legislation of the crass- est kind, and class legislation is most repre- hensible from every point of view. To select from the mass of the public a particular class of men, whether they be workmen, employers, or professional men, and make them the spoiled petted favorites of governmental care and partiality, is a gross perversion of all the fundamentals of a free people who are equal before the law. Such a policy would breed a spirit of resentment, and sow the seeds of dis- cord among men, culminating in overwhelm- ing disaster. The general public will not sub- mit for long, patient though they are, to an injustice of which they are the acknowledged victims. Class legislation is the forerunner of class war, and class war strikes at the root of civilization. Railway employees, as well as others, should be treated as citizens and free men, having the ability to manage their own affairs in their own way. What they demand, and are rightly entitled to, is justice and not char- ity. They will resent and scorn the idea that they are dependents upon a governmental benevolence not given to their fellow working- men. If they desire, as many of them do, to par- 143 ticipate in the profits earned by the carrier that employs them, they can purchase the stocks of the company, and they should be paid sufficient wages to enable them to do so if they should so elect. It would add very much to their feeling of independence and manliness to know that they had earned their property, and had not come by it as a dole through govern- mental favoritism. In order that another third of the excess earnings may be disposed of, the Securities Holders plan provides that through a Na- tional Eailway Association, composed of In- terstate Commerce Commissioners and repre- sentatives of the railways, this money can be used to aid railways in providing their neces- sary equipment. This proposition is an acknowledgment that the plan of the Securities Holders will not give to the railways sufficient credit to enable them to secure all the additional capital necessary for their purposes by issuing additional se- curities. Yet the railways must have this credit as a condition precedent to any efficient system of transportation which the Congress may establish. It is necessary that a scheme of recapitalization must be so ordained that it will place the railways on a safe and certain 144 financial basis. This is the foundation stone upon which the whole structure of railway ef- ficiency must rest. The suggestion that independent associa- tions or corporations be formed for the pur- pose of financing the railways, and aiding them to provide new capital for equipment or ex- tensions, or terminal facilities, is an admis- sion of weakness that will perpetuate the evils that are driving them, into bankruptcy. This suggestion may be based however upon the necessity of finding some method whereby ex- cess earnings may be distributed so as to ex- cite the least unfavorable comment. WHAT SHALL BE DONE WITH EXCESS EABNINGS? This question is receiving the serious con- sideration of the Senate Committee who are called upon to deal with all the problems con- nected with the reorganization of our whole transportation system. Operating under the same rate schedules between the same points, some of the carriers will show much greater net earnings than others. When the rates are so adjusted as to give the weaker roads enough income to secure a proper return to their stockholders, the same 145 rate structure will yield to the stronger roads an earning that may be deemed excessive. The rates and charges between common or com- petitive points cannot be changed, but must remain the same for all the roads whose lines reach these points. The members of the Sen- ate Committee are deeply concerned over the matter of disposing of the earnings that are to be considered excessive. The difficulty sur- rounding this particular problem is one of the least which the committee will have to solve. It is always easier to distribute money than it is to accumulate it, and this situation is no exception to the rule. These excess earnings can be greatly dimin- ished by the establishment of a more equitable basis of the traffic arrangements between the stronger and the weaker roads than has here- tofore prevailed. This can be done by (1) Giving to the weaker carriers a larger proportion in prorating with the stronger carriers in all interchanges of traffic between them. In the main the stronger carriers take the lion's share of the joint rate, which they can compel by reason of their advan- tageous position. This practice can be, and should be reversed, in all 10 146 cases where the strong road will have an excess earning. The strong roads can be required to accept a much smaller share of the joint profit than the weaker ones. (2) Entering into pooling and joint opera- tion agreements, with the Interstate Commissioners' approval between the strong and weak roads, with such consolidations as will not be detri- mental to the public welfare, and (3) charging the weak carriers a smaller sum for car rentals when on their lines. In many ways the roads having excess earn- ings can favor the weaker roads, thereby ma- terially reducing their excess earnings. ( 4 ) Another very effective way by which ex- cess earnings may be lessened would be to re- duce non-competitive rates and fares. Such rates and fares can be reduced where they are purely local and can only affect, in a remote way, the local fares and rates on the weaker lines in other localities. In many cases these drains upon the fund of excess earnings would entirely absorb the excess. Taxation. If, however, there should remain the menace of excess earnings after the fore- 147 going demands have been met, the whole amount of it can be dissipated by a process of a graduated excess profits tax. The Act of Congress can provide that all net earnings in excess of ten per cent, and not more than twelve per cent, should be taxed twenty-five per cent., that earnings in excess of twelve per cent, and not more than fifteen per cent, should pay a tax of fifty per cent., and all over fifteen per cent, should pay a tax of 75 per cent, these taxes to be paid to the Federal Gov- ernment. This policy of taxation would operate so that the strong carriers would give all the as- sistance possible to the weaker ones, and at the same time would bring about reduced local charges. It would tend to promote consolida- tions, pooling arrangements and the joint use of equipment, tracks and terminals. Co-oper- ation would be encouraged, and at the same time the initiative of individual management would be preserved and rewarded. The Gov- ernment would receive additional revenues, and the public secure the best possible service. PLAN OF THE EAILWAY EXECUTIVES The executive officials of the railways have submitted a plan of reorganization to the Sen- ate Interstate Commerce Committee, the main feature of which is to have a minister of trans- portation as a member of the President's cab- inet. This cabinet officer, together with the Interstate Commission, would be vested with supreme regulatory power over the railways. It was evidently the belief of the railway ex- ecutives that being a member of the Presi- dent's official family this minister would be in a position to secure from the national admin- istration, including the Interstate Commis- sion, a fuller measure of justice for the railways than had heretofore obtained. At the threshold of this proposition comes up the question : Will the minister dominate the Pres- ident, or will the President control the minister in all those matters pertaining to transportation? Serious objections to this plan have been interposed by those who have spoken and written upon this plan. Some of these objections have been stated by the Secur- ities Holders as follows : "We live under a partisan form of gov- 148 149 eminent. A proposal to turn these prop- erties over to a newly appointed cabinet officer with the political power possible under such proposal, would seem to sub- stitute a political form of control for a non-political regulatory body like the In- terstate Commerce Commission. It would be unfortunate to create a situation under which these great properties might be car- ried into politics by placing them under a cabinet officer subject to change every four years, and in the present case in two years. It would make the railroads the political center of the presidential cam- paign soon to open. The execution of practical matters affecting railroad serv- ice and credit during the reconstruction period before us is altogether too vast and serious to be intrusted to a newly created cabinet official whose qualifications are now unknown. The occasion is imme- diate, decision is required, and the man- ner of execution of what may be decided upon is vital to the business, financial and agricultural interests of the country and to the general public." One of the most eminent students of railway problems, in speaking of this plan, says : 150 "The plan proposed by the railway ex- ecutives would not provide any real pro- tection for their security holders. It would not correct the radical defects of the existing relations between the Gov- ernment and the companies, but it would complicate these relations and provide new kinds of governmental control. It would furnish new formulas for making rates, and new grounds for litigation and for court reviews, but it would not furnish the companies with a sound basis for ob- taining the credit which they need. It would fail to put an end to the recurring cycles of railroad bankruptcies and reor- ganizations." The following reasons may be considered as emphasizing the causes for opposing the plan offered by the railway executives : FKEE FEOM POLITICAL INFLUENCE Political parties now exercise the governing power in every civilized country in the world. The leaders of these organizations are seeking support from those who are able to influence the voters in their behalf. Without this sup- port the party would disintegrate and go to pieces, and the leaders would be supplanted by 151 other men who would assume the reins or gov- ernment. The aspiration of every political party, and especially the men who shape its destinies, is to get into power and to keep the control in their own hands. The power of the distribution of patronage to their adherents cannot be overestimated. In the very nature of things the strength of the party and its leaders will be increased in proportion to the number of places they have to fill with their own political supporters. These places are sought not only for the compensation they pay but more often to gratify the perfectly laud- able ambition of the applicant. The desire to be the postmaster in a country village is just as strong in the minds of the men who want the place as is the desire to be a senator of the United States in the minds of other men. And in nearly every instance the small postmaster is truly loyal to the men and the party from whom he receives his appointment, and can be depended upon to use all his energies to rally his friends to their support when the oc- casion presents itself. These subordinate place holders form the nucleus of the local or- ganization upon which the candidates for state and national officers largely depend for suc- cess. It requires no argument to prove that 152 these men are selected because of their ability to bring support to the party candidate, rather than on account of their fitness to discharge the duties of the place. The inevitable conse- quence of this system is inefficiency and waste of public money. It can be accepted as a truism without a single exception in all demo- cratic governments, that the government can- not carry on any business as economically and efficiently as private management. Wherever the attempt has been made it has resulted in poor service and accumulating deficits which the taxpayer must make good. The adminis- tration of our postal system under all parties has been so inefficient that it has been a great burden on the taxpayers to meet the losses. The reason for this is that our postal system has been treated more as a partisan asset than a business enterprise. If we will keep in mind, that every appointment the Federal Govern- ment has to give out is an asset of the party in power, it would be asking too much of human nature to expect that the party in power would not use its assets for partisan political purposes. Of course we all realize that this practice makes for political strength and solidarity at the expense of business ef- ficiency. If party expediency is permitted to 153 control or influence the administration of pub- lic business, if the appointing power can sway the judgment or findings of any administra- tive or judicial tribunal exercising federal au- thority, the public must suffer and make good the waste or ultimately go into revolution as a protest against the wrongs and outrages of maladministration. The interest of the public in a transporta- tion system that will meet all the requirements of public service is so vital that the federal regulatory tribunal should be removed from the possibility of partisan bias influencing its action. It is for this consideration that Con- gress should clothe the Interstate Commis- sion, and the National Transportation Court with the same independence and freedom of action that belongs to the Federal judiciary. This can be accomplished by giving large sal- aries and long appointments, and making re- movals only by process of impeachment. Give to these tribunals both independence and power, and they will mold and fashion all our transportation problems into a harmonious and unified system that will give to the public the fullest measure of justice and service. On the other hand, if the tribunals of Fed- eral regulation of the railways are subject to 154 any partisan political influence, they will dis- appoint the public; they cannot be efficient, and the system of transportation which they are called on to administer will fail almost before it starts. EEGIONAL EAILWAYS It has been proposed that the whole coun- try shall be divided up into regions or zones to the number ranging from five to eighteen, and for each of these a railway company will be organized under a Federal charter, which shall own and operate all the lines of railway situate in the particular territory. This plan contemplates that a few mammoth railway corporations shall conduct all the transporta- tion for the entire United States. In the fol- lowing language the plan has been outlined by Mr. Victor Morawetz : (1) "A Federal Eailway Board to be cre- ated with Supreme power of regulation and control over the Federal Eailway companies to be formed as herein provided * * * *. (2) "The Federal Eailway Board to organ- ize ten to fifteen Federal railway companies under the Act of Congress. Each of these companies to have the usual powers of rail- way companies, and also power with the ap- proval of the Federal Eailway Board to ac- quire all or any existing lines of railway. In carrying out the plan the existing lines to be consolidated in the Federal corporations as 155 156 directed by the Federal Kailway Boarcl in such manner as to make ten to fifteen well- balanced railway systems." This proposal has encountered the opposi- tion of the Eailway Securities Holders who have given expression to lack of sympathy with it as follows : "This objection to the regional plan may be stated : "(a) The area of each of the (five) regional districts suggested would be more than the area of England and France combined. Eng- land and France are densely populated and their railroads serve most of the area required to be served, whereas in this country a large portion of the area of many of the regional districts suggested will be found not to be fully served by railroad facilities ; the concen- tration incident to this plan must necessarily check agricultural and industrial develop- ment, to be had chiefly through individual in- itiative and incentive in railroad construction, operation and management * * * * * . "(c) It draws the railroads closer to the general principles involved in Government ownership. It saps initiative and incentive by combining into five areas, several of them largely undeveloped, all railroads under five 157 managements which the plan proposed shall be largely governmental; why not therefore follow the plan devised by many advocates of Government ownership by forming one large company and take over the railroads? The only difference is there are regional companies that correspond to regional reserve banks as against the policy first announced in respect to the Federal Keserve System of one central bank. "Practically the difficulty of bringing about one complete consolidation of all railroads is no greater than that of five regional consoli- dations; the latter having all the disadvan- tages of limitation of service and facilities in- cident to concentration and reaches the point where further contraction would make little difference. It would result really in five Gov- ernment ownerships instead of one, with the money supplied by private means. " (d) To those who believe that in an indus- try of this magnitude, upon which is dependent the agricultural and industrial growth of the country, regulated competition or competitive service is essential to good and effective serv- ice, this plan does not appeal." The foregoing criticism takes no note of any of the good features of the scheme for regional 158 railways, but contents itself with pointing out the manifest defects. The plan recognizes and emphasizes the ne- cessity for the creation by Act of Congress of "A Federal Kailway Board with supreme power of regulation" over the railways. To the necessity for the establishment of such a tribunal every one who has had any experi- ence with existing regulatory commissions must give their unqualified assent. All those who have given any opinion on the subject have been of one mind in regard to having one centralized body vested with full power to ex- ercise a regulatory authority over the whole subject of transportation. This power must extend to a supervision over all security is- sues, and recapitalization of the railways, as well as rate making, consolidations, pooling arrangements, settling labor controversies and every other transportation question that can possibly arise. Some have thought that the Interstate Commerce Commission could be so reorganized that it could act as this supreme governing head, and their plans have made provision for innumerable aids in the form of regional and other new commissions to be cre- ated for the purpose of relieving the Interstate Commission of its new and increasing bur- 159 dens. Under the plan suggested by Mr. Mora- wetz for a Federal Railway Board, it is clear that the Board would not be empowered to ex- ercise judicial functions as well as adminis- trative duties. In the plan which I suggest this tribunal is called The National Transpor- tation Court, for the obvious reason that such a body must exercise both judicial and admin- istrative power. No transportation system can be complete or even efficient unless the legal jurisdiction of court reviews is taken out of the existing Federal courts of original jur- isdiction and vested in a single court estab- lished for that purpose. The saving in time and expense to the litigants demand that such a tribunal have and exercise judicial power over all processes of court review. This pro- cedure would develop and maintain a certain and dependable system of the law of transpor- tation. The suggestion of a Federal Eailway Board with supreme regulatory power is an an excellent one, but it should likewise be vested with the necessary judicial power to in- sure a competent and speedy court review, if Congress can give it such power. Some additional objections to the plan for the establishment of regional railways may not be out of place. The regional railway plan 160 is cumbered with too much new, complex and intricate machinery. The various agencies and governmental tribunals which must co- operate in order to put the scheme in working order are : (1) A Federal Bailway Board, (2) Ten to fifteen regional boards, (3) One central board, (4) Forty-eight State Commissions, (5) All the United States Courts, of both original and appellate jurisdiction, (6) Ten to fifteen Federal railway corpora- tions, (7) And all existing companies operating under State charters that decline to go into the Federal plan. The burdensome character of all this ma- chinery can be illustrated by applying it to a concrete case, and demonstrating how it will work out in actual practice after it has been adopted by Act of Congress. The plan says : "Except as to rates and as to other matters of which the Interstate Commerce Commis- sion now has exclusive jurisdiction the exist- ing compaies to remain subject to regulation by the several States." A shipper brings a proceeding before a State Commission against an existing railway 161 to correct what he alleges to be an unjust or discriminatory intrastate rate. After many months of taking several volumes of testi- mony pro and con, the case is submitted and the Commission issues an order to the railroad to correct the rate or discrimination as the case may be. The railway instead of obeying this order, brings a suit in a Federal District Court to enjoin the Commission from enforc- ing its order. To the plaintiffs bill in equity the Commission files its answer, and issue is joined. The case is referred to a master in chancery, who spends several months in tak- ing evidence, upon which he finally makes his report to the court. One side and often both, file exceptions to the report. The court fixes some day in the future when its time is not oc- cupied with other business when it will hear argument of counsel. After listening to the oral argument counsel are required to file printed briefs. The court must examine the whole record, including all the evidence taken before the Commission, as well as that pro- duced before the master. Most of this record is the testimony of conflicting experts concern- ing which the court has no technical knowl- edge. The judges doing the best they can, how- ever, finally reach a conclusion and perpetu- ii 162 ally enjoin the enforcement of the Commis- sion's order correcting the rate complained of. Or it may be the court will find against the railway and refuse to enjoin the order. No matter what decision the court renders an ap- peal is taken by the losing side to the Supreme Court, and after pending there for several months, sometimes a year, that court decides in favor of granting the injunction on the ground that the order affects Interstate Com- merce and the State Commission had no jur- isdiction to make the order. This leaves the shipper precisely where he was before he ap- plied to the State Commission to correct his grievances. He has been engaged in this suit never less than a year, and often as much as two years, to find nothing accomplished except serious loss in time and money. He must either submit to the payment of the unlawful rate or start all over again by bringing a new proceeding before the Eegional Board. The shipper will have the privilege of apply- ing to the Kegional Board to hear his com- plaint. After presenting his case and taking proof before the Kegional Board, that body will render its decision and issue its order of correction. But the plan provides : "But no regulation by a regional board to 163 take effect until approved by the Central Board of Regulation." This proviso makes it necessary to take the case on appeal to the Central Board, where it will be gone over by that board for the purpose of approval before the order can become effective. This will re- quire argument and a hearing with the proba- bility of taking new evidence involving time and delay. When the Central Board finally reaches a conclusion, its action then is subject to review by the Federal Kailway Board. This means still more delay before an enforcible order can be issued. For the scheme provides further : "All acts and decisions of the Central Board as well as the regional boards of regulation to be subject to the supreme authority of the Fed* eral Kailway Board.'' After the Federal Kailway Board has re- viewed the case and approved the order re- quiring the railroad to correct the evil com- plained of, requiring yet more time and delay, this is by no means the end of this controversy. In fact it is just the beginning or laying the foundation of a lawsuit. It will be remem- bered that these boards are all administrative and none of them are vested with the exercise of judicial powers. That the railroads are en- 164 titled to have a court a tribunal vested with judicial authority review the orders entered against it by administrative boards or com- missions. The constitution prohibits the tak- ing of any one's property without due process of law, and in rate regulation due process of law gives the railways the right to have ad- ministrative orders reviewed by a court in the exercise of its judicial powers. After trying the case in the regional board, then in the cen- tral board and finally before the Federal Kail- way Board, winning his contention in all of them, the shipper at last is met with an injunc- tion proceeding to restrain the boards from enforcing the order against the carrier. This is a regular suit in equity brought in one of the United States District Courts, where the case is subject to the usual court processes. Original pleadings are filed and a new record made upon which the court must base its judg- ment. The whole matter must be again gone over and fought out in the District Court ac- cording to the rules of equity procedure. In the course of time the District Court renders its decision, either approving the order or en- joining its enforcement. By a regular process of appeal the case is taken to the Supreme Court for final judgment. 165 By virtue of the regional plan the shipper who is a victim of unlawful discrimination, before he can get relief, is required to try his case, (1) before a Eegional Board, and (2) before the Central Board, and (3) in the Fed- eral Railway Board, and (4) in a District Court of the United States, and (5) finally in the Supreme Court of the United States. To be compelled to try his case in each of these five separate and distinct tribunals, with all the expense and delay incident thereto, is equivalent to a denial of the shipper's right to be relieved from unjust rates and unlawful discriminations. It must be apparent that there is too much complex machinery involved to make the plan workable so as to be expedi- tious or efficient. In contrast with this plan for Regional Rail- ways there is suggested the much simpler method of a hearing before the State Commis- sion, an appeal to the Interstate Commission, with a right to a court review by the National Transportation Court upon the record made before the State Commission. This plan will eliminate all unusual delays and expense, and it goes without question that the plan to be adopted should be very simple, and give to the 166 shipper Ms redress in the shortest possible time. ADVANTAGE OF REGIONAL KAIL- WAYS The advocates of Regional Railways have advanced but few arguments in support of their plan. One contentoin is that as our finan- cial system of Regional Banks has been a suc- cess, that the railways should be organized and operated on a similar regional basis. The assumption is that any enterprise will succeed if it can possess itself of a regional feature. This is reasoning by analogy when there is no similarity between banking and transporta- tion to support it. There is not even a resem- blance between the two enterprises. The re- gional banks are intended to be mere aids to the member banks instead of merging them all into one gigantic corporation. The mem- ber banks retain their individuality, and transact their local business in their own way and practically in the same manner as before the regional banks were formed. Whereas in the plan for regional railroads it is proposed that the existing railways will be taken over and operated by a Federal corporation hav- ing ownership and jurisdiction over twenty or 167 twenty-five thousand miles of railway wherein existing companies will lose their charters and their identity. Many other features of dissim- ilarity suggest themselves which renders this argument of analogy untenable. The principal consideration, however, back of the purpose to establish regional railways is the belief that by grouping together under one ownership and management all the rail- ways in a given region or territory, it will re- quire the stronger roads in the group to sup- port the weaker ones. In this way it is thought that the excess earnings of the strong lines can be so distributed as to help those whose earn- ings are much smaller. The best method to distribute excess earn- ings has been discussed herein at page 135, and need not now be repeated. A fatal defect in this process of reasoning is that the plan for regional railways contemplates that existing railways are expected to go into the regional scheme voluntarily, as the Federal authorities will not compel any of the carriers in a given zone to join the regional plan and become ab- sorbed by it. All existing carriers may stay out if they choose, and continue to own and operate their properties under State charters in the same manner as before regional rail- 168 ways were established. The inevitable result would be that all the weaker roads would rush into the regional system in order to re- ceive help and better the situation of their stockholders, while the stronger lines would remain out rather than be compelled to divide their earnings to the serious injury of their own stockholders. Such stockholders would receive a greater return on their investment by staying out than by going in to the new ar- rangement. They certainly would not will- ingly surrender their great advantage to their own loss of income. Under the regional plan no real benefit could be secured by the weak lines consolidating with each other. This is obvious and the plan would fail to accomplish its principal object. Even though all the roads in a given region should be compelled by Congress to surrender their property to one Federal Kailroad Cor- poration which would own and operate all the lines as a single unit, the result would be pre- cisely the same. The inherent weakness of the plan for re- gional railroads can be fully shown by apply- ing it to a concrete case, in which it will be demonstrated that the plan will not work out in actual practice. 169 In pursuance of the plan the country will be divided up into regions for each of which there will be one Federal Kailway Corpora- tion. This Federal company will issue its stock and bonds in payment for all the rail- ways located in the particular territory. The plan provides a basis for the issue of these se- curities to the existing security holders of the various railways to be taken over by the Fed- eral company. In fixing the value of existing railways the following method is provided : "It is submitted that the only fair and practicable way of measuring the value of a railroad and the just compensation to which its owners are entitled is, (a) To estimate as nearly as may be its present and prospective true operating income, under a fair as well as constitutional ex- ercise of the powers of regulation vested in the Federal and State governments, and (b) To capitalize this true operating income at a fair rate, based on the rate of interest or profit payable to obtain capital and on any risks or uncertainties affect- ing the railroad and its future operating income." This method is proposed in order "to establish the relative value of the sev- 170 eral railways to be vested in each Federal corporation, so that some of the existing companies may not obtain an advantage at the expense of the others." Applying these provisions to the Seaboard Air Line and Norfolk & Western Railways, the following results are obtained: These two railroads are used for illustration as they will almost certainly be located in the same region, and be merged together into one Fed- eral corporation. In order that the Federal corporation may know how much stock it should issue in pay- ment for these two properties it becomes nec- essary to ascertain their respective values. The value in each case will be determined by "estimating as near as may be, their true oper- ating income * * * and then capitalizing this true operating income at the prevailing rate of interest." By using the calendar year 1917 as representing this income we find that in the case of the Norfolk and Western, it amounted to $19,651,816. Capitalizing this income at six per cent, the value of the property is found to be $327,530,000. For which the Federal corporation would issue its securities in an equal amount. But the present outstanding stock and bonds of the company is only $234,- 171 948,000. This would give the present security holders $92,582,000 more stock and bonds of the Federal company than they now possess. The Federal company must earn a six per cent, return upon this increased capitalization of $37,530,000, in order that the present stock and bond holders may receive full value for their property. This earning would exhaust the whole operating income which the Federal corporation would receive as coming from the Xorf oik and Western lines. As a consequence there would be nothing earned by the N. & W. line in the nature of a surplus that could be diverted into aiding the Seaboard Air Line road, or other weaker lines absorbed by the regional railroad. Applying the same rule for determining the value of the Seaboard Air Line Bailway, we have its operating income for the year 1917 amounting to $7,237,881, capitalized at six per cent, would fix the value of this property at $120,631,000. This would be the amount of the regional railroad securities issued in payment of that property. But its present stock and bond issues in the hands of its security holders aggregate $192,433,000, which is $71,802,000 more than they would receive from the Fed- eral corporation. Securities amounting to 172 $71,802,000 would have to be cancelled and for which the holders would receive nothing. It would require all the operating income of this road, $7,237,881, to pay a six per cent, return upon the securities issued by the Federal cor- poration. It is manifest that neither line would secure any benefit from this arrange- ment, and the security holders of both con- cerns would seriously object to turning their properties over to the regional railroad under such conditions. But this method of arriving at the value of a railway cannot be provided or enforced by Act of Congress. Fixing values of property, or specifying the elements constituting value is not a legislative function, but belongs ex- clusively to the judicial department of govern- ment. Determining values is not within the scope of legislative power. The courts must fix values and lay down the rules whereby all the elements constituting value must be con- sidered. Economists have evolved many the- ories for railway valuation, such as original money cost of construction, present cost of re- construction and right of way, and the market price of stock and bonds, and earning power. How much weight should be given to each one of these factors must be settled by the courts. 173 To arrive at values by estimating the true operating income is probably the least reliable method that has yet been advanced. At best it can amount to not much more than a guess. This is apparent from the fact that many fac- tors unforeseen and uncontrollable unite to influence either up or down the operating in- come weather conditions, the fluctuations of business activity management, equipment and facilities and rates all play an important part in determining operating income. Using the N. & W. income to show these violent changes in the last ten years, they cover the following range : 1908 income $5,773,000 1909 income 6,665,000 1910 income 9,043,000 1911 income 7,557,000 1912 income 9,381,000 1913 income 11,106,000 1914 income 10,268,000 1915 income 10,409,000 1916 income 20,624,000 1917 income 19,651,000 It would not do to average these for the road has shown an actual capacity to nearly quadruple its operating income in ten years. Have the companies earnings reached their 174 maximum or is there a reasonable expectation that they will continue to increase in the fu- ture and if so to what extent? A change in rates would make a tremendous difference in operating income. The N. & W. hauled 36,000,000 tons of coal, and an increase of fifteen cents a ton would add to operating income the sum of $5,400,000 which being capitalized would augment the road's capital- ization by $90,000,000. If this plan should be adopted it would necessarily inflict upon se- curity holders the grossest injustice. OPERATION OF REGIONAL RAILWAYS The advocates of regional railways appear to have given but scant attention to the dif- ficulties that will arise wherever twenty or twenty-five thousand miles of railway are to be operated as a single unit by one executive head. Mr. James J. Hill said repeatedly that six thousand miles of track was as much as could be operated efficiently as a single unit. A little reflection must convince us that the public interest demands that competition in service should be maintained by the railways. To attract business to a particular road by reason of its rendering superior service is con- clusive proof of a wise management. Such a 175 policy pleases the patrons and brings prosper- ity to the road. It does more for it spurs the competing road into an effort to improve its own traffic conditions. But when all previous- ly competing roads in the same general terri- tory are surrendered to one corporation to own and to operate, there can be no longer any real competition between them. A single own- ership will destroy all competition in service. The stimulus for the expeditious handling of traffic will be gone. Loaded cars will stand on switches and side tracks for weeks with no at- tempt to move them. The operation of the roads by the Government is emphasizing this condition daily. The most efficient railways are those whose executive heads keep in constant personal touch with the shippers and industrial enter- prises along their lines. The shipping inter- ests require that a manager with authority to act should be so located that he can be reached in a short time for personal conferences. The good manager will have a personal knowledge of the industrial conditions of every plant on his road that offers any considerable quantity of freight. He will be cognizant of the pro- ductive possibilities of agriculture, mining, manufacturing and all other industries which 176 Ms railroad serves and lie will use his power to develop these enterprises to the highest point of production. He must act quickly upon propositions coming from his shippers. In view of the extensive area covered by twenty-five thousand miles of railway, and the diversified industries located in a single re- gion with all their complex ramifications, no manager can have the requisite information to deal with these conditions intelligently. It is true that there may be superintendents and local representatives without number, but they will have no authority to act except on routine matters and questions of very minor importance. They will have to send every- thing of consequence to those higher up for their action and approval. This is red tape and takes time, and in the meanwhile the ship- pers' business is suspended or held up await- ing the action of the manager. It is physically impossible for the operation of twenty-five thousand miles of railways ex- tending from Washington into Florida and New Orleans and from Norfolk to Columbus, Cincinnati and Louisville to be as efficient as that of the Norfolk & Western, with only two thousand miles of line, where the management 177 is personally cognizant of every detail and factor that makes for good service. A regional railway would be so huge and cumbersome that it could not be operated as skilfully and economically as the individual lines in single units. 12 GOVERNMENT GUARANTIES Some very eminent gentlemen have recom- mended that the government place its guar- anty upon bonds and stocks issued by railroad companies. The argument in support of this position is that the government should give its written pledge that the bonds and their inter- est should be paid as they mature, and that regular minimum dividends should be paid on the stock. And if for any reason the com- panies do not earn enough to meet these de- mands, the government binds itself to pay the difference. According to their contention this course is made necessary, in order to give these securities such a certainty of income that in- vestors will accept and pay for them. Under their plan of railway reorganization and re- capitalization, the carriers will fail to be self- sustaining, and the taxpayers must bear the burden of all such failures. The Spokane, Portland and Seattle Railway owned and operated in 1917 a line of railway between these cities of 554 miles. The com- pany is capitalized at $212,000 per mile, ag- gregating a total of $117,600,000. For the year's operation it had a deficit of $420,994.00. 178 179 It earned nothing on its $40,000,000 stock. Had the government's guaranty been on these securities, it would have cost the taxpayers of the country about $2,500,000 to make good the deficit. More than three-fourths of the traffic of this road was the products of timber and agriculture moved to the Pacific Coast. Under the government guaranty plan the citi- zens of Maine would be called on to pay a part of this loss. The wisdom of a policy of government guar- anties has not been discussed by its advocates. The propriety of imposing additional colossal burdens upon the taxpayers of the country in order to support their transportation plan does not seem to have occurred to them. The government's credit has been so impaired by the volume of its outstanding obligations that they have depreciated in value to the extent of seven or eight per cent. Government bonds for which the holders paid one hundred cents on the dollar, are now selling on the market for ninety-two to ninety-three cents on the dol- lar. The credit of the government will con- tinue to fall in proportion as its obligations are made to increase. We have come to that place in the history of our country where the government must adopt 180 a policy of socialism, and enter into a purpose of experimentation with socialistic theories involving as it does not only a revolution in the functions of government itself, but a com- plete reorganization of our whole industrial fabric; or the government must continue to leave our material affairs to private enter- prise, which up to this time has secured for us a progress so great that it almost borders on the miraculous. Socialism, says the govern- ment, must take over, own and operate all our industries, through bureaus and officials ap- pointed for the purpose. The anti-socialist believes that the initiative, the skill and abil- ity of the individual should not be shackled by the artificial restraints of state interference, which means the wielding of despotic power over the ablest and most forceful men in our citizenship. Men like Gary, Schwab, Hill, Harriman, Wanamaker, Ford, and Morgan, and hundreds of others who have done so much for the development of the country and the building up of its industries, would be impos- sible in a socialist's state. Their power for good would be suppressed, and their places as executives would be taken by Soviet councils, such as are now controlling the destiny of Kussia. 181 The aim of Socialism is revolution, both gov- ernmental and industrial, and revolution spells anarchy. In dealing with the railroad situation, the Congress will have to be guided by one of two opposing philosophies. The stream of socialistic tendency which has had such an impetus by recent events, will be great- ly augmented by legislative action, or it will be checked by a policy of governmental regu- lation that will amply protect the public in- terest which at the same time vouchsafe to pri- vate ownership an unhampered power of in- dividual initiative for the public benefit. Any governmental purpose to guarantee income on railroad securities will necessarily advance the cause of socialism. It is no part of the functions of government in a free country to engage in industrial pur- suits. Why should our government embark in the transportation business, when it is cer- tain that the public will receive better serv- ice under private ownership and management of the railways? The scope of government should be limited to an efficient governmental regulation, which will give to the carriers all the credit they need by a safe system of recap- italization with a legislative requirement of a minimum return, resulting ultimately in lower 182 rate levels. Every transportation enterprise should be self -supporting, otherwise it will be- come a burden on the taxpayers and an eco- nomic waste. A policy of governmental guaranties is at- tempted to be justified on the ground that it will strengthen railway credit, while that ma> be true, it will surely have a depressing ef- fect upon the credit of the government. To ask that the government lend its credit to the railways is a confession of its advocates that their general plan for railway reorganization is wholly inadequate and must fail before it fairly started. They object to the Congress requiring the regulating bodies to so adjust rates that the minimum income shall not be less than five per cent on a capitalization of actual values. Their objection is stated as follows : "We live under a democratic form of gov- ernment and the will of the people rules. That is a fact which no one would change even if it were possible, but investors are not blind to the lessons of history and to the signs of the times. They have learned that in the long run legislatures and commissions, all of whom di- rectly or indirectly, are chosen by the people and are accountable to the people, cannot be 183 depended upon to regulate railways and to fix their rates in such manner as to make railway stocks a safe investment. * * * Even if Congress should enact a law providing a just and workable method of determining the value of the property of the railway com- panies, and the rate of return thereon that is to be deemed fair and also a workable formula for fixing rates that will produce this fair re- turn, the Act of Congress itself could at any time be altered, amended or repealed." This argument is based on the assumption that the Congress cannot be depended upon to leal fairly and honorably with the people who have been induced to invest in railway secur- ities under a solemn enactment of the Congress giving them its pledge of honor that they should receive a minimum return of five per cent, on their actual cash investment. This means that this Congress has, or some future Congress will so deteriorate that the people will be warranted in withholding all confi- dence in its honor and integrity. If such a condition should unfortunately ever come to pass, every security that now upholds the in- stitution of private property will be utterly destroyed, and confiscation will have undoubt- ed sway. Our law making power has and 184 must continue to be dominated by moral con- siderations. When it loses all its sense of honor it would feel as little bound to provide for its legal contracts as for its moral obliga- tions. In any event, the sanctity of the gov- ernment's contracts is dependent upon con- gressional action, for its debts can only be paid by an appropriation voted by the Con- gress. It is just as easy for the Congress to refuse the appropriation as it would be to re- peal the act providing for a minimum return on railway securities. The only power that can compel Congress to provide for the pay- ment of the government's debts, or restrain it from repealing any act is the combined moral sense of the President, the Senate and the House of Kepresentatives. It would be most unfortunate if the people ceased to have faith in the honor of these three great branches of government constituting our law making power. Yet the whole argument for govern- ment guaranties is based on the assumption that the people cannot trust their Congress. The success of government guaranties in other countries has been recently investigated and reported upon by Mr. F. H. Fayant. A press excerpt from the report is as follows : 185 "FKENCH FINANCING OF KOADS A FAILURE "F. H. FAYANT CITES SITUATION IN WARN- ING AGAINST U. S. GUARANTEE TO LINES "The experience of France with the pol- icy of governmental guarantee of income on private capital invested in railroads have been very unsatisfactory, according to Frank H. Fayant, of the Association of Railroad Executives, in a report to that body of a study of French railroads. The adoption of such a policy in this country will inevitably lead, in the opinion of Mr. Fayant, to a lowering of the efficiency of American roads and eventually to Gov- ernment ownership. "The uneven working of the French guarantee plan before the war made the administration of the railroads a contin- uously discussed political problem, with a constantly recurring agitation for the re- purchase of the companies and their oper- ation by the State. "The expectation had been that, after a few years of development, during which time the State would be obliged to ad- vance the companies funds with which to 186 pay charges on capital not yet yielding a profit, there would follow a period of ex- panding business and rising earnings that would enable the companies, first to repay their advances from the public treasury, and later increase their dividends to the point of profit sharing with the State. "Profits for State Expected "It was confidently expected that at the end of the concession the six great lines, developed to the point of perfection under private ownership and operation, would automatically become the property of the State, free of all capital charges and with such profit making possibilities that they would provide the funds to meet a large part of the general expenses of the State. "The results, Mr. Fayant goes on to say, were very disappointing, and all but two of the roads have been forced to appeal constantly to the government. There has been no profit sharing, he says, and the guarantee has only served to entangle the weaker roads in politics and public finance. "It has been a handicap to progress and has stunted private initiative, says the re- port. 187 "Mr. Fayant, while admitting that the experience of one country is seldom an un- failing guide for another, because of dif- ferences in economic conditions, racial characteristics and national traditions and ideals, conclude that it would be a grave error for this country to go into financial partnership with the railroads. "Forsees Partisan Struggles "Instead of getting the railroads out of politics, would not such a partnership in- evitably drag them more deeply into the meshes of partisan struggles? he asks. In a word would not direct guarantee of railroad income inevitably lead to govern- ment ownership and operation? "If we are to retain the advantages of private initiative and save our transpor- tation system and all our machinery of production from the deadening blight of political meddling we ought to consider well the dangers involved in any proposal for a financial partnership between the railroads and the government. "Should we not attempt to correct the recognized faults in our system of regu- lation and build on the sure foundation of the past rather than enter on an era of 188 political experimentation with new and untried theories? asks Mr. Fayant. "If we are to have a more definite guar- antee that capital and brains devoted to the production of transportation shall be fairly rewarded, let us find a formula that will not admit of too easy translation into government ownership." KEGULATION OF EAILWAY EMPLOYEES Practically all railway employees belong to organizations or unions that have the power to quit work any time. They can stop the run- ning of all trains and paralyze every industry in the country, and bring famine and starva- tion to millions of people. They not only have the actual power to do this, but under a law of Congress recently passed they are justified, and indirectly encouraged, to exercise this power. By the common law, and by statutory enactment, any agreement or combination in restraint of interstate trade is illegal and made criminal on the ground that such a pur- pose, if carried out, would be not only detri- mental but destructive of the public welfare. But labor organizations were expressly ex- empt from the operation of these laws by a provision of Congress contained in the Clay- ton Act. By implication at least they are told not only to restrain interstate commerce, but to stop it entirely whenever it suited their own 4 private purpose. They may lawfully do an act which, if done by other men, would send them 189 190 to prison. Such class legislation as this, if persisted in, would destroy this republic. The Congress has absolute power over in- terstate commerce and all the instrumental- ities that are used in connection with it. It has precisely the same right to regulate the employment and fix the wages of all the em- ployees of a railway company doing an inter- state business, that it has to fix the rates or income of the carrier. They are both neces- sary instrumentalities in interstate commerce. They both devote their time and their efforts to interstate commerce. They are both charged with the performance of a quasi public duty, and submit themselves to be regulated by such governmental agency as the Congress may pro- vide, including the compensation for their services. They are both monopolies, and should be regulated in the public interest, as the public must pay all that each receives for what they do. Any regulating tribunal that Congress may establish must have the same jurisdiction over the wages of the employees as over the rates to be paid by the public to the carrier, for the wages are necessarily in- cluded in the rates. The consuming public pays the wages, and the public interest de- mands that it be protected from unjust exac- 191 tions imposed by either carrier or employees. If the employees demand more wages than the public thinks it ought to pay, let the contro- versy be submitted to an impartial Federal tribunal that will do justice to both sides. The public will have to pay whatever the Fed- eral authorities may fix, while the employee may accept it or not. He will be at liberty to seek other employment. Only the employees must be prohibited from entering into any agreement among themselves to tie up the whole transportation system of the country. Each individual may quit work when he chooses, but not en masse, nor as an organiza- tion that would result in stopping the running of trains. That commerce may continue to flow freely from one state to another without interrup- tion or hindrance is so vital to the very life of the people, that no body of men, however wise or benevolent they be, should be permitted to have or exercise the power to stop or check it. The railway employees today hold in their hands the power to completely destroy all in- terstate commerce, and stop every mill and factory in the United States, and bring fam- ine and starvation to all the large towns and cities. The best public interest requires that 192 the menace of such an arbitrary power lodged in any organization or combination, should be removed at once. The safety of the public should never be left to the whim or caprice of any combination organized for the purpose of promoting its own interest. The seriousness of this condition cannot be minimized by the expectation that the railway employees would not exercise the power they have to stop com- merce and bring suffering and death to the people. The Clayton Act placed this power in their hands, and then they proceeded to exer- cise it by forcing the Congress to grant them in the Adamson Act what they demanded. The Congress passed the Adamson Act to avoid the calamity that would ensue if the employees carried out their threat to strike in a body and suspend all railway traffic. If the Congress can be coerced against its will by a compara- tively small number of men to grant their per- emptory demands without any opportunity to investigate or determine the justice of the de- mand, as was done in the Adamson Act, we can expect that the same force will again be invoked. This coercive power has been used to de- stroy the independence of Congress, under a threat to destroy the public if the Congress 193 did not yield at once. If the Congress is to re- main a deliberative body, seeking to promote the general welfare, it must remove from its consideration every private interest, whether it be a labor monopoly or a capitalistic mo- nopoly. Unless the Congress can realize that the general welfare against any private or personal interest must be the basis of legisla- tion, we cannot expect a continuance of free institutions. The proposition is a very simple one, and not difficult to state. If the purpose of two per cent, of the peo- ple is hostile and destructive to the life and industry of the other ninety-eight per cent., which should prevail? Which as a matter of sane public policy should be destroyed? How can the legislative branch of the government justify an act which gives to two per cent, of the people the power to destroy ninety-eight per cent, of the people in order to subserve its own private and personal interest? Congress has the power to give to the railway employees the amplest and fullest measure of wages and working conditions consistent with the public welfare. An impartial Federal tribunal can be created that would do justice both to the employees and the public in every controversy 13 194 that can arise between them. The public has no power to coerce or injure the employees, and likewise the employees should be stripped of all power to destroy or injure the public whom they serve. What hardship or injustice could be imposed upon railway employees by having a Federal authority fix their wages and working conditions, whenever controver- sies arise? Every other public servant from the President down to the scrub woman has his compensation fixed by Federal authority under Acts of Congress. The same is true of every stockholder who has his money invested in interstate railways. Why should the Con- gress make an exception of railway employees, and give to them a power of destruction over the people, to be used if they are not permitted to fix their own compensation and prescribe their own working conditions? Congress should enact such laws as will subordinate every private interest to the pub- lic good; and especially should every organ- ization or combination of men, no matter for what purpose brought together, be stripped of the power to inflict upon the public the dis- aster of famine and death. If we cannot pro- tect the ninety-eight per cent, of the people against the exactions of the other two per 195 cent., it is conclusive proof that we have failed in our effort at self government. THE EIGHT TO STEIKE The courts, the public and legislatures, all recognize the right of working men to stop work for any reason, or even without reason. The liberty of the individual is so protected by constitutional provisions that he cannot be compelled to perform services for another against his will. If such were the case it would be a denial of freedom, and men could be forced into involuntary servitude. The right to strike should not be denied to labor organ- izations, in any personal or private business enterprise. The right of the individual to quit work at any time must be recognized whether his employment be public or private. A strike is where all the employees quit work after they have conferred together, or through their rep- resentatives. It is always the result of a pre- vious agreement to go out. The purpose of a strike is to close down the plant and prevent its running until the demands of the workmen have been satisfied. A strike says to the em- ployer, "You cannot operate your property un- less you agree with the men who have quit their jobs. You must meet our demands or go 196 out of business." In the controversies that arise between the owner of a private business one that is run solely for the profit of the proprietor and his employees, the public as such is not concerned, unless there is a strike resulting in violence. The public has but small interest in a peaceful strike which affects only the personal interests of the striking em- ployees and their employer. All the losses in- cident to a strike of this character must be borne by the employer and employees, and not by the public. But there is another kind of labor contro- versy in which the public is the main party in interest. Wherever a strike occurs among the employees of public utilities companies that stops their operation, the public at once be- comes a helpless victim. The reason why the public continues to suffer loss and outrages from these strikes, is that the public, through its legislative assemblies, have taken no steps that will give it protection against the warring factions. A street railway strike will suspend nearly every industrial enterprise in the city. Any attempt to operate the cars in the public's interest during a strike will result in violence, bloodshed and anarchy. Generally speaking, a street railway strike marks the end of a 197 reign of law, and the beginning of revolution, wherein the public is the chief sufferer. It seems incredible that the legislatures would permit this situation to continue. It is true that provision for conciliation boards have been made in some of the states. These boards have no authority to do anything toward set- tling the trouble, except to suggest a compro- mise. Their idea is to fix up a compromise re- gardless of the justice of it any temporary makeshift to stop the strike and start the cars to running again. This is all that legislation has done for the protection of the public against a practice and course of conduct, which, if permitted to con- tinue, will undermine the foundations of civil government. The failure of the legislatures, and the Congress to meet this situation frank- ly and fairly, and give to the public that meas- ure of protection to which it is so justly enti- tled, is the weakest spot in our whole system of governmental machinery. In considering this subject the legislator has not seen any difference between public and private employ- ment. He has failed to realize that the con- ductor and motorman on a trolley car are serv- ing the public in the same way as the police- man, and that the services of the engineer and 198 fireman on a train are essential to the public welfare as the soldier in the ranks. They are all working for the public, and are being paid by the public. They must not use their em- ployment so as to impose irreparable loss and injury upon the public. Kecognizing this con- dition as an ever present evil, we naturally ask what is the remedy? What can be done about it? The Congress and State legislatures have ample authority to prohibit all agreements in restraint of commerce. The Congress has al- ready enacted such a statute, but through some influence detrimental to the public wel- fare, labor organizations have been specifically exempted from its operation. If the Congress would make trainmen amenable to the same laws against agreements in restraint of inter- state commerce, that apply to all other citi- zens, there would be no such thing as a strike that would interfere with the running of trains. Every strike is the carrying into effect of a previous agreement entered into by those who go on strike. The necessary consequence of which is to stop the running of trains. This would not only restrain the flow of commerce, but would stop it entirely. If all the train crews should go on strike at the same time, in 199 pursuance of an agreement so to do, it follows necessarily that such agreement operates to restrain the movement of commerce. The strike is the power which the employees now have to compel the railway companies to grant their demands. This power to strike can only be exercised in pursuance of an agreement. If the law will prohibit such agreements, the power to strike will be destroyed, and as a con- sequence strikes will be prevented. If the strike is prohibited or done away with, how can the railway employees secure for themselves just wages and good working conditions? What remedy or recourse can they have substituted for the strike whereby they can obtain just wages and better working conditions? The very best possible wage and working conditions consistent with the public interest must be given the employees as a suit- able reward for their skill, ability and loyalty. Whatever compensation the employees receive must be paid by the public, which is the other party in interest, although the employee is not employed by the public. The Interstate Commerce Commission will stand between the employee and the public as an impartial tribunal with power to adjust all labor controversies. This Commission will 200 take the money from the public with one hand and give it to the employees with the other. It will be just to both. Can any one find any rea- sonable objection to this plan of settling labor controversies? The Commission fixes the com- pensation of the railway companies for the services they render the public, and for pre- cisely the same reason should it fix the wages. It does not permit the carriers to exact too much from the public, and its jurisdiction should likewise be extended to the employees compensations. Who is the best judge of a fair wage scale and working conditions? An impartial Federal tribunal or the employees themselves? No man should be the judge of his own case, for it is contrary to the juris- prudence of all civilized peoples. It is not ask- ing too much of the employee to say that the Interstate Commerce Commission must have the power to settle any dispute he may have with his employer. He can accept this settle- ment or not, as he chooses. If he is not satis- fied, he can quit any time he pleases. He may stop work as an individual. The only limita- tion placed upon him is that out of considera- tion for the public welfare, he must not go on a strike in pursuance of an agreement with his fellow workmen to stop the running of trains. 201 In this lie will simply be obeying the same law that applies to all other citizens. The necessity for devising a sane and just method of adjusting all controversies arising over the wages and working conditions of rail- way employees is imperative. No system of transportation can possibly be efficient or meet the public requirements which leaves in the hands of a few men the arbitrary power to stop the running of trains whenever they please. The public must be served efficiently, and continuously, without interruption from any source. In order to secure such a service the public stands ready to compensate the investor and employee alike, not only justly but even generously. That full and ample justice may be done to the public, the investor and the em- ployee, there must be some impartial Federal tribunal created with jurisdiction and power to settle every possible question that may arise between these apparently conflicting in- terests. SUGGESTIONS OF THE SUPREME COUET Time and again the Supreme Court has pointed out the inherent weakness of our transportation sytem in that the States can and do exercise a large measure of authority over interstate commerce, both directly and indirectly. The court has emphasized the con- flict of authority between State and Federal regulation in two conspicuous cases: The Minnesota Kate Cases, 230 U. S. 352, and the Shreveport Case, 234 U. S. 342 holding in the first that a State has the power to so reg- ulate intrastate rates as to affect interstate commerce, and in the latter case that the State does not possess this power. The cases are at- tempted to be harmonized on the ground that the decisions were governed by the peculiar facts of each. The court in every case that has come before it, has reiterated the dominant power of Con- gress over interstate commerce : "Wherever the interstate and intra- state transactions of carriers are so re- lated that the government of one involves the control of the other, it is Congress and 202 203 not the State, that is entitled to prescribe the final and dominant rule, for otherwise Congress would be denied the exercise of constitutional authority and the State, and not the Nation, would be supreme within the national field" * * * "Congress, in the exercise of its para- mount power, may prevent the common instrumentalities of interstate and intra- state commercial intercourse from being used in their intrastate operations, to the injury of interstate commerce. This is not to say that Congress possesses the au- thority to regulate the internal commerce of a State, as such, but that it does pos- sess the power to foster and protect inter- state commerce, and to take all measures necessary or appropriate to that end ; al- though intrastate transactions of inter- state carriers may thereby be controlled. "It. was recognized at the beginning that the Nation could not prosper if inter- state and foreign trade were governed by many masters, and, where the interests of the freedom of interstate commerce are involved, the judgment of Congress and the agencies it lawfully establishes must control/' 204 There can be no question about the power of Congress to regulate and control intrastate commerce whenever its regulation by State authority will in anywise affect either directly or indirectly the carriers engaged in interstate commerce. There can be no adequate system of transportation established unless Congress acts upon the matters that have heretofore hindered their efforts to perform their duties as common carriers engaged in interstate com- merce. KETUKN OF EAILWAYS TO THEIK OWNEKS While government control and operation of the railways has resulted in poor service and greatly increased cost of conducting the trans- portation, it has again demonstrated the in- capacity of government to manage and direct any business efficiently. The public has been compelled to pay not only increased rates and fares, but is called on to make up large losses by taxation, to meet the growing deficits brought about by the railway administration. This experiment is a complete answer to all the socialistic clamor for the nationalization of all industry, and more especially for gov- ernment ownership of all public utilities. The lesson has been a very expensive one; yet if heeded, it will save us from many a blunder and disaster in the future. While the thing is still upon us, where we can see and feel the faulty service, compared with what we re- ceived when the railways were under private management, there is almost a universal de- mand for turning the railways back to their owners. True, some of the railway employees appear still to favor government ownership 205 206 with the right of the employees to operate the roads, which position can not be said to be a disinterested one. It is practically certain that the Congress will not permit government operation any longer than is absolutely necessary. The rail- way administrator has bought a great quan- tity of equipment for the roads which their of- ficials say is not needed, nor can it be used. The railways naturally object to paying for unnecessary and surplus equipment. In ad- dition to this controversy, many other serious questions have been injected into the railway situation. Bates and fares have been raised, wages have been increased, and matters of maintenance and depreciation will have to be adjusted. It will be impossible to settle all these difficulties by the owners and represen- tatives of the government within any reason- able length of time. In many instances, the parties in interest will not be able to agree at all. Some impartial tribunal must be pro- vided before whom all such controversies may be taken for final action and decision. The National Transportation Court is the proper body to settle all questions between the Government and the owners growing out of Government operation. The day of the return 207 of the properties to their owners can oe so fixed by a tribunal specially fitted for the pur- pose as to cause the least possible friction and embarrassment to the carriers. This can be done much better by the Transportation Court than by the Congress, for the Congress would necessarily name the time when the Govern- ment would return all the roads, whether the owners would be ready to receive them or not. Immediately upon their return the owners will be compelled to make large expenditures of new capital. Provision for this capital should be made in advance of receiving the roads and the restoration of private manage- ment. The law which Congress will enact will be the basis of railway credit which alone can enable the roads to do the requisite financing. Whenever the conditions are most favor- able for each road it should be turned back, but if the government surrenders them all on the same day, it will result in certain confu- sion that should be avoided. A conference be- tween the representatives of the railways and the Transportation Court wherein agreements will be reached as to the time when each road will be turned back, will develop the most pro- pitious time when they should be surrendered. By this method the return will be more or less 208 gradual, as all the carriers could not be ex- pected to perfect their arrangements at the same time. The controversies between the owners and the Government will be numerous, involving large sums of money, and the settlement of an infinite variety of questions. These matters cannot, generally speaking, be adjusted until after the properties are returned, although it is expedient that they should be finally dis- posed of at the earliest practicable time. The National Transportation Court will be the most competent tribunal to make these adjust- ments. INDEX. Page Act to regulate commerce, plan to amend, by extending powers of Interstate Commerce Commission with right of appeal to National Transportation Court 3 Adamson Act: Exercise of power given employees by the Clayton Act in the Adamson Act 192 Passed to prevent strikes . 192 Additional regulating bodies, necessity for 45 Additions and betterments: Difficulties which stand in way of, should be removed ... 73 National Transportation Court may require carriers to pay for, out of proceeds of stock sales 10-11 No reason why states should control 134 Adequate service, public more interested in, than in small dividends 93-91 Adjustment of Eates. See also Kates. Interstate Commerce Commission to so adjust rates as to permit movement of all commodities, provided they will yield a profit 21 National Transportation Court may so adjust rates as to produce an emergency fund 10 Objections to Congress requiring, so that the minimum in- come shall not be less than five per cent, on capitali- zation of actual values 182 Eates will have to be readjusted to yield investors in se- curities a fair return 23 Administrative function : Federal Eailway Board would not be empowered to exer- cise 159 National Transportation Court must exercise 159 Power of National Transportation Court to exercise 4 Administrative orders, National Transportation Court to oper- ate as a court of review of the Commission 's 8 Administrative powers, National Transportation Court to ex- ercise, in appellate proceedings 8 Advance in rates. See Increased rates. Advice, National Transportation Court may require, from In- terstate Commerce Commission 14 209 14 210 Page Agreements : Congress and State legislatures have authority to pro- hibit, in restraint of commerce 198 Date for return of roads should be fixed by, between Na- tional Transportation Court and each road individually 207 Destructive of public welfare when in restraint of trade . 189 Employees must be prohibited from entering into, to tie up transportation systems 191 In restraint of trade, by common law, and by statutory enactment, are illegal 189 Prohibition of, by law will eliminate strikes 199 Strikes are the carrying into effect of previous 198 Analysis of securities holders plan 106 Appeals : Dismissal of, when order of state commission does not effect interstate commerce 20 From National Transportation Court to be to the United State Supreme Court 17-18 From orders of state commissions shall lie to the Inter- state Commerce Commission 20 Method and procedure of, to be prescribed by Interstate Commerce Commission 19 Process of, by state commissions to Interstate Commerce Commission would eliminate conflict 133 Appellate jurisdiction. See Jurisdiction. Appellate proceedings, administrative and judicial powers to be exercised by National Transportation Court in 8 Baltimore & Ohio Railroad, comparison of earnings made by, with those of the Philadelphia & Beading 136 Bankruptcies : Minister of Transportation would fail to end 150 Return of roads without legislation would bring ultimate 52 Sure to follow unless roads put upon a sound financial basis i 101 Bondholders. See Stockholders. Bonds : And other obligations 78 Ascertainment of value of, by National Transportation Court and issuing federal corporation stock at par in lieu thereof 9-10 Decrease in market value of government 179 Federal Railway Corporation to issue, for all railways lo- cated within its particular region 169 211 Bonds continued. Page Guaranty upon, issued by railroads to be placed by the government 178 Illustration of exchange of, for federal corporation stock 78, 79 Importance of preserving integrity and value of railway . 80 National Transportation Court to ascertain value of .... 78 Outstanding, class I roads, December 31, 1917 80 Problem to be solved is how to deal with present holders of 77 Purpose of ascertaining actual value of 78 Boston & Maine Railroad, illustration of principle of reorgan- ization as applied to 88 Bulletins, Bureau of Statistics of Interstate Commerce Com- mission to issue, showing receipts and disbursements of carriers and change in rates 21 Bureau of Statistics: Enlargement of, to include statistical work of the Na- tional Transportation Court 21 Monthly bulletins to be issued by, showing receipts and disbursements of carriers and changes in rates 21 Cabinet officer: Matters of service and credit too vast to be intrusted to newly created 149 Minister of Transportation to be member of 148 Properties might be carried into politics by placing roads under 149 Capital : Carriers have been embarrassed by state action in their effort to secure necessary 74-75 Plan of securities holders will not give railways sufficient credit to secure additional, when necessary 143 Railroads must resort to stock sales to supply necessary . 44 Required by carriers should be provided by purchase of securities by investors 51 Capitalization : Advantages of proposed plan of reorganization of 90 Excessive, will always have an evil influence 105 Federal incorporation only feasible method of reorgan- izing 109 Plan suggested will secure elimination of excess 32 Railways should be capitalized on a basis of actual values 109 Reorganization of 86 212 Capitalization continued,. Page Should represent actual value of property used in conduct- ing transportation 3 Taxation of excess 121 Car furnishing, connecting carrier may be required to furnish equitable proportion of coal cars, to carrier on whose line coal is mined 24 Car rentals, weak lines to be charged smaller sum for 146 Cars. See Coal cars. Cases cited: Cheney Brothers Co. v. Massachusetts (1918), 246 U. S. 147 57 International & Great Northern Ry. Co. v. Anderson County (1918), 246 U. S. 424 62 Kansas City, etc. Ry. Co. v. Stiles (1916), 242 U. S. Ill 62 Lake Iron Co. v. Wakefield (1918), 247 U. S. 350 57-58 Minnesota Rate Case: 33 Sup. Ct. Rep.,729 130 230 U. S. 352 202 Railroad Co. v. Maryland (1875), 21 Wall. 456 63 Shreveport Case, 234 U. S 342 202 Simpson v. David Shepard, 33 Sup. Ct. Rep. 729 . . . 130 Southern Ry. Co. v. Greene, 218 U. S. 400 57 Central authority: Necessity for 35, 38 Transportation that will render best public service must have but a single 75 Central board of regulation: Actions of regional board to be reviewed by 163 To approve regulation of regional board before taking ef- fect 163 Central tribunal. See Central authority. Certificates of incorporation: National Transportation Court to issue 11 Powers granted to carriers by 11 Charters : Federal : Congress can authorize more attractive, than states . 116 National Transportation Court to issue, for federal incorporation of railways and steamship companies 9 Loss of, under regional plan of operating railways .... 167 213 Charters continued. Page State: Carriers operating under, may be enjoined by Na- tional Transportation Court from doing business affecting interstate commerce 12 Complications arising from 63-04 Difficulties of securing necessary properties for construc- tion of terminals if roads continue to operate under 71 Federal incorporation will eliminate complications arising from 64 National Transportation Court to direct surrender of existing 11-12 Operation of carriers under, will leave doubts and uncertainties as to extent of state jurisdiction over interstate carriers 66 Circumstances and conditions, causes attributable to present condition of railways 99 Class legislation: Evils of 142 Beprehensible from every point of view 142 Clayton act, power of railway employees under 192 Coal cars, connecting carriers may be required to furnish equitable proportion of, to carrier on whose line coal is mined 24 Commissioners : Interstate commerce: Removal of, by impeachment in same manner as United States judges 19 Representatives of railways and, to comprise Na- tional Railway Association 143 Plan suggested will secure skilled 32 Selection of, for regional commissions, how made 132 Commission, See also Interstate Commerce Commission; Re- gional commissions; State commissions Burdens of roads increased by regulation of 2 Cannot be depended upon to regulate railways and fix rates in such manner as to make railway stocks a safe investment 183 Compensation : Carriers : Interstate Commerce Commission to fix, for service to government, whenever a disagreement 25 Owners of roads entitled to 169 214 Compensation continued. Page Employees: Creation of a fund for payment of, for injuries .... 16 Establishment of suggested plans will insure, for in- juries 33 Public which pays, only party in interest 199 To receive, for injuries 15 Federal authority fixes, of public servants, with exception of railway employees 194 National Transportation Court to prescribe all rules and regulations for administering ,. . 16 Competing lines : Compelled to have same rates and fares 135, 145 Have same rates but different earnings 136 Competition : Public interest demands maintenance of competition of service 174 Regulation of competitive service essential 157 Single ownership will destroy competition of service .... 175 State and federal laws have forced carriers into useless and wasteful 43 Traffic conditions improved by 175 Complaints, establishment of suggested plans will insure ex- peditious and less expensive determination of 34 Conciliation boards, provisions for, have been made in some states 197 Conference of carriers on their respective schedules of rates to be filed before the Interstate Commerce Commis- sion 23-24 Confiscation, constitution prohibits taking of property with- out due process of law , 164 Conflict : Between state and interstate traffic 67 Method of eliminating between state and federal tri- bunals , 39, 69 Congress: Actions of, toward carriers have been more restrictive than liberal 43 Any legislation enacted by, should define and fix limits of state action and its police powers affecting interstate commerce 70 Argument for governmental guaranties of securities is based on assumption that people cannot trust 184 215 Congress continued. Page Cannot be depended upon to deal fairly with the people who invest in railway securities 183 Clutch of every private interest must be removed by, to promote the general welfare 193 Complete governmental regulation with private owner- ship and operation must be main purpose of, to meet public requirements 3 Complications between state authority and interstate car- riers will continue until state power over interstate carriers is removed by 130 Considerations enumerated for judgment of, to determine necessary regulation 129 Employment may be regulated and wages fixed by 190 Freedom of interstate commerce to be governed by 203 Laws enacted by, providing workable method of deter- mining value of property, could at any time be al- tered or repealed 183 Laws should be enacted by, as will subordinate every private interest to the public good 194 Method by which strikes could be eliminated by 198 Method of arriving at the value of a railway cannot be enforced by . . . ., 172 No doubt as to power of, to regulate state traffic 69 Per cent, of tax on excess earnings could be provided by act of 147 Power of: Over interstate commerce as reiterated by courts . . . 202 Over state commerce 203 To control intrastate commerce when it affects inter- state commerce 204 To fix wages and better working conditions 193 Rules whereby railway values can be fixed cannot be laid down by 85 Should enact legislation to place transportation system upon a safe basis 125 State corporations cannot be given right of eminent do- main over state property 74 State legislatures and Congress have authority to prohibit agreements in restraint of commerce 198 Will not permit government operation to continue longer than necessary 206 Consolidation and reorganizations 12 216 Consolidation and reorganizations continued. Page Authority and jurisdiction over, to be exercised by Na- tional Transportation Court 12 Complete reorganization of whole industrial fabric nec- essary 180 Consolidation of the Norfolk & Western and Seaboard Air Line under regional plan, illustrated 171 Establishment of suggested plans will secure cooperation of railways by consolidation 33 Federal Railway Board to have supreme power over con- solidations 158 Eeceiverships to be raised by National Transportation Court upon basis of capitalization to permit carriers to earn five per cent, on its stock 12-13 Construction : Errors in, have tended to depress credit of roads 2 Plan of security holders provides that no new mileage be built unless necessity therefore shown 133 Contractual obligations : Defined 118 Rights of holders of, under federal incorporation will be maintained 118 Will be strengthened under federal incorporation 119 Controversies : Between owners and government will be numerous upon return of roads 208 Impartial tribunal must be provided for settlement of . . 206 With the government arising out of federal control act to be determined by National Transportation Court 15 Cooperation : Between state and federal commissions can be accom- plished only by federal incorporation 62 Carriers denied right of, by state and federal laws 43 Establishment of suggested plans will secure 33 Corporate organization, rules for, after charter is issued, to be prescribed by National Transportation Court 11 Court of review, National Transportation Court to act as, of Commission 's administrative orders 8 Courts : Authority and jurisdiction of review should be taken from, and vested in the National Transportation Court 8 Illustration of procedure before state commissions and when cases taken to . . . 160-162 217 Courts continued. Page Must fix values and lay down the rules whereby all the elements constituting value must be considered 172 Weight given economists theories for railway valuation must be settled by 172 Credit: Government : Depreciation of 179 Governmental guaranties will have a depressing ef- fect upon 182 Impairment of, by outstanding obligations 51 Will continue to fall in proportion as its obligations are made to increase 179 Railway : Cause of and cure for loss of 30 Depression of, being keenly felt 80 Government should be limited to extent which will give carriers the necessary credit they need 181 Governmental guaranties will strengthen 182 Laws Congress will enact will be basis of 207 Loss of, the most vital evil that threatens the rail- ways 30 Must be established and maintained to secure proper service 2 Obstacles that stand in way of, must be removed . . . 125 Plan of securities holders will not give railways suf- ficient, to secure additional capital when necessary 143 Plan suggested will secure a stable and certain 32 Railways should be capitalized on a basis of actual values if, to be maintained 109 Deficit : Of Railway Administration borne by the public 205 Resulting from government operation must be borne by taxpayers 152 Under government guaranty plan, of Spokane, Portland & Seattle Ry. would be borne by citizens of Maine . 178, 179 Depreciation, matters of, under government control must be readjusted 206 Differentials, Interstate Commerce Commission shall have power to fix, between rates on all commodities 22 Directors: Appointment of, by National Transportation Court for each carrier 13 Powers and duties of 13 218 Page Discrimination, procedure necessary when shipper victim of unlawful .. . 165 District Court, actions of Regional Board, Central Board of Regulation and Federal Railway Board taken before . . 164 Dividends : Class I roads, December 31, 1917 103 National Transportation Court may apply on, when condi- tions arise, to prevent carriers from earning five per cent, minimum 10 Regular dividends should be paid on stock 178 Due process of law, taking of property without, prohibited by the constitution 164 Earnings. See also Excess earnings. Comparison of, Philadelphia & Reading and Baltimore & Ohio for year ending December 31, 1917 136 Economists : Disagreement between, as to elements that should repre- sent true value of railway properties 84 Theories of, for railway valuation . . . .- 172 Efficiency of service, establishment of suggested plans will in- sure 34 Emergency fund: National Transportation Court may apply on dividends when conditions arise to prevent carriers from earning five per cent, minimum 10 Rates may be so adjusted by National Transportation Court as to produce 10 Eminent domain, Congress cannot vest state corporations with right to exercise, over state property 74 Employees. See also Public servants. Comparison of benefits derived by, from excess earnings of Baltimore & Ohio and Philadelphia & Reading 138 Compensation of, paid by public, the only party in in- terest 199 Demand of, is justice not charity 142 Desiring to participate in profits can purchase stock .... 143 Division of excess earnings would cause discontent among 140 Effect of excess earnings upon 137 Exercise of power given railway employees by the Clayton Act in the Adamson Act 192 Government ownership favored by . . .. 205 219 Employees continued. Page Impartial federal tribunal can be created that would do justice in determining controversies, to both public and 193, 194 Just wages should be paid to 140 Legislators fail to realize that motonnen and conductors operating trolleys serve the public in same manner as policemen 197 Must be prohibited from entering into any agreements to tie up transportation systems 191 Must not go on strike in pursuance of an agreement .... 200 Not entitled to share in excess earnings 141 Part of excess earnings to be shared by 136, 137 Power of: To destroy interstate commerce 191 To destroy or injure the public whom they serve, should be stripped from 194 Under Clayton Act 192 Practically all railway employees belong to organizations that have power to cause cease of work at any time . . . 189 Public no power to coerce or injure 194 Regulation of railway 189 Wages could not be so adjusted so as to provide their re- ceiving third of excess earnings 138 Will resent idea that they are dependents upon a gov- ernmental benevolence 142 Equipment : Bought by Railroad Administration not necessary ...... 206 Establishment of suggested plans will secure cooperation by joint use of 33 Part of excess earnings to be used in purchase of 136, 143 Evidence : Establishment of suggested plan will secure findings being made upon original record without additional . . 32 National Transportation Court to have power to require production of 17 Evils : Existing, must be removed 27 List of those which should be eradicated 31 Examiners, no necessity for, under proposed plan 41 Excess earnings 135 Comparison of benefits derived by employees of the Bal- timore & Ohio and the Philadelphia & Reading from . . 138 220 Excess earnings continued. Page Distribution of: Best method for 167 Establishment of suggested plans will insure equi- table 33 Receiving serious consideration of Senate Commit- tee , 144, 145 So as to favor weak lines 24, 167 Under securities holders plan 135 Division of, would cause discontent among employees . . . 140 Effect of, upon employees 137 Employees not entitled to share in 141 Equipment to be provided from part of 136, 143 Financial assistance for railways generally to be pro- vided from 136 Graduated excess profits tax- on 146 Part of, to be shared by employees 136, 137 Per cent, of tax on, could be provided by act of Congress 147 Plan proposed for diminishing 145 Pooling arrangements to diminish 146 Promotion of pooling by taxation of , 147 Reduction in noncompetitive rates to reduce 146 Senate Committee greatly concerned over 135 Strong roads should favor weak lines and thereby reduce 146 Taxation on, would give government additional revenue . . 147 To be divided into three equal parts 136 To be so adjusted as to favor weak lines ,. . . 144 Exchange of stock 81 Executive committee, Regional Commissioners to be selected by 132 Executives. See Railway executives. Existing evils must be removed 27 Existing state authority over interstate railways condemned by the Supreme Court 128 Expedited service, stimulus for, will disappear if roads operate as a unit 175 Facilities: Both interstate and local business provided with same . . . 128 National Transportation Court to require carriers to pro- vide necessary, for expeditious handling of traffic under normal conditions , 14 Fares, competing lines compelled to have the same 135, 145 Fayant, F. H., situation of financing of roadsi by France, cited by 185 221 Page Federal authorities: Carriers will not be compelled to enter into regional scheme by 167 Have no control over stock or bond issues 75 National interests should be under sole jurisdiction of . . 134 Federal charters. See Charters. Federal commissions, cooperation between state and, can only be accomplished by federal incorporation 62 Federal control. See Government control. Federal control act, controversies with the government arising out of, to be determined by National Transportation Court 15 Federal corporation. See also Federal incorporation. Division of country into regions under supervision of . . 169 Jurisdiction of, over regional railways 167 One class of securities to be issued by 77 Proposed powers of 76 Eeplacement of stock by issuance of new stock by 87 Eights of owners of stock when surrendered to 123 Stocks and bonds to be issued by, for all railways located in the particular region under supervision of 169 Stock of, to be issued at par 81 Transferring existing railways to 76 Under regional plan, to have jurisdiction over 20,000 or 25,000 miles of railway 167 Federal corporation stock. See Stock. Federal courts, full extent of police power has never been precisely defined by 65 Federal government, tax on excess earnings to be received by . 147 Federal incorporation: Additional rights and powers will be obtained under 117 Advantages of 55 Advantages of, to bondholders 79-80 Complications arising from state charters would be elim- inated by 64 Contractual obligations will be strengthened under 119 Defined 114 Efficient and equitable transportation can only be se- cured by 29-30 Establishment of suggested plans will secure 33 Existing carriers to transfer property to, under forms prescribed by National Transportation Court 12 Management of railways to remain the same under .... 120 222 Federal incorporation continued. Page Method of, should be provided by Congress 55 National Transportation Court to issue charters for .... 9 Necessary properties for construction of adequate termi- nals can only be secured by 74 Necessity for 110 Objections to 113 Only feasible method of reorganizing capitalization .... 109 Opposed by National Securities Holders Asso 109 Powers necessary for better and efficient service will be given roads under 117 Power of state commission to hamper and embarrass in- terstate commerce would be ended by 61 Profits would be greater under, than under state charters 120 Proposed plan of operation of regional railways by .... 166 Reasons for National Securities Holders Asso. opposing . 110 Bights of holders of contractual obligations will be pre- served under 118 Security holders objection to 123 State and federal commissions can be made to cooper- ate by 61-62 State courts will be changed into national tribunals by . . 61 Stockholder's rights not to be disturbed under 119 Surrender of rights under 116 Tax inequalities and excesses would be eliminated by ... 60 Welfare of people of each state would be promoted by . . 127 Federal laws: Carriers must be unhampered by restrictive 28 Expensive and inadequate service caused by 43 Investment in securities under present, attended with great risk 52 Investors neither protected or encouraged by federal stat- utes 98-99 List of, that restrain and limit action of carriers to the public detriment 28 Right of carriers to cooperate denied by 43 Statutes that handicap carriers should be repealed 29 Useless and wasteful competition caused by 43 Federal legislation. See Legislation. Federal organizations, cooperation of state commissions with 125 Federal Railway Board: Actions of Regional Board and Central Board of Regula- tion subject to review by 163 223 Federal Bail way Board continued. Federal railway companies under regional plan to be under supreme power of ........................ 155, 158 Should be vested with necessary judicial power to insure a competent and speedy court review .............. 159 Supreme power over securities, recapitalization, rate mak- ing, consolidations, pooling and labor controversies to be vested in ..................................... 158 To organize ten to fifteen federal railway companies . ... 155 Would not be empowered to exercise judicial as well as administrative function ........................... 159 Federal railway companies, to have power to acquire all or any existing lines of railway ............... . ...... 155 Federal regulation. See Regulation. Federal statutes. See Federal laws. Federal tribunals. See Tribunals. Financial partnership, partisan struggles forseen if govern- ment enters into, with railroads ................... 187 Financing of carriers: Carriers will be compelled to do a tremendous amount of financing ........................................ 75 Effect of power of states over ....................... 125 Failure of, in France ............................... 185 Has not always been honest or wise .................. 2 History of ......................................... 49 Impossible for carriers to do new financing while stock sells so far below par ............................. 104 Jurisdiction of states over, in connection with federal power ........................................... 124 Method proposed to solve problem of .................. 53 New York, New Haven & Hartford, example of consider- able financing .................................... 124 Part of excess earnings to provide financial assistance to railways generally ................................ 136 Railway finance must be reorganized and credit main- tained to secure proper service ..................... 2 Suggestions of independent associations and corpora- tions for ........................................ 144 Unwise to impose upon government the obligation of ... 51 Fixing stock values .................................... 82 Foreign trade, cannot prosper if governed by many masters . . 203 France, financing of roads by, a failure ................... 185 Franchises, obligations assumed by roads in return for ..... 124 224 Free institutions, basis of Congressional legislation necessary for continuance of 193 Freedom from political influence 150 Freedom of action, National Transportation Court and Inter- state Commerce Commission should be clothed with same, as belongs to the federal judiciary 153 French financing of roads a failure 185 Furnishing cars. See Car furnishing. General jurisdiction. See Jurisdiction. Government control: Congress will not permit, longer than necessary 206 Date for termination of, to be fixed by National Transpor- tation Court 15 Deficit due to, borne by the public 205 Demonstrated incapacity of government to manage busi- ness efficiently 205 Effect of: On stockholders 122 Outlined 175 Political influence upon 152 Has resulted in poor service and deficits 152 Increased rates under, borne by the public 205 Matters of maintenance and depreciation under, must be adjusted 206 Not as economical as private control 152 Public to replace losses due to, by taxation 205 Eesulted in poor service 205 Socialistic clamor for government ownership answered by 205 Government operation. See Government control. Government ownership: Favored by railway employees 205 Regional plan draws roads closer to principles of 156 Regional railways plan would result in five, instead of one 157 Socialistic benevolence, employees will resent idea that they are dependents upon 142 Governmental function, industrial pursuits in a free country not a 181 Governmental guaranties. See Guaranties 1 . Governmental regulation. See Government Control; Regula- tion. 225 Page Grouping : Koads under one ownership and management in a given region 167 Strong roads to support weak lines in a given region . . . 167 Guaranty : Governmental 178 Any governmental purpose to guarantee income on railroad securities will advance cause of socialism 181 Argument for, of securities is based on assumption that people cannot trust their Congress 184 Burden of failure of proper earnings if stocks and bonds are guaranteed by the government will fall upon the taxpayers 178 Success of, in other countries 184 To be placed upon stocks and bonds of railroad companies 178 Will strengthen railway credit but will have a de- pressing effect upon the credit of the government . 182 Wisdom of policy of 179 Harmony, method whereby harmony can be brought about ... 39 Impartial tribunal. See Tribunal. Impeachment, removals from National Transportation Court to be made by, in same manner as applying to United States judges 7, 153 Income : Consideration to be given to, in fixing value of roads . . . 169 Governmental purpose to guarantee, on railroad securities will advance cause of socialism 181 Necessary instrumentality in interstate commerce 190 Net, class I roads, December 31, 1917 103 Objections to Congress requiring adjustment of rates so that the minimum, shall not be less than five per cent. on capitalization of actual values 182 Increased rates, borne by public under government operation 205 Industrial enterprises, railway executives of efficient railways keep in constant personal touch with 175 Industrial pursuits, not a part of the functions of the gov- ernment in a free country 181 Information and advice, National Transportation Court may require, from Interstate Commerce Commission 14 Interstate commerce: Cannot prosper if governed by many hands 203 15 226 Interstate commerce continued. Page Considerations enumerated for judgment of Congress to determine necessary regulation of 129 Dismissal of appeals to Interstate Commerce Commission, when order of state commission does not affect 20 Freedom of, to be governed by Congress 203 Interblending of operations in conduct of, and local busi- ness , 128 Power of Congress over: As reiterated by the courts 202 When intrastate commerce affects 204 Power of railway employees to destroy 191 Bates and income are necessary instrumentalities of 190 State authorities constantly obstructing, in exercise of police powers 65 Supreme Court flooded with controversies over police powers of states to regulate 65 Interstate Commerce Commission: Advantages of cooperation between state commissions and 112-113 Appeals from orders of state commission shall lie to ... 20 Appellate jurisdiction of 19 Carriers' compensation for service to the government to be fixed by, when disagreement 25 Carriers to be assisted by, in determining the reasonable- ness of rates to be filed before 24 Controversies over wages shall be submitted to, for in- vestigation 22 Cooperation between state commissions and 111-112 Could act as supreme governing head over regional rail- ways 158 Differentials between rates on commodities shall be fixed by 22 Dismissal of appeals to, when order of state commission does not affect interstate commerce 20 Establishment of suggested plan will secure settlement of labor controversies by 33 Extension of powers of, by proposed plan 153 Fullest measure of justice and service will be obtained by giving full regulatory power to 153 General principles to be followed by 21 Jurisdiction over wages should be extended to 200 Method and procedure of appeal to be prescribed by ... 19 227 Interstate Commerce Commission continued. Page Minimum rates shall not be fixed by, below a level that will not yield five per cent, for dividend purposes . 22 Minister of Transportation would resemble 149 National Transportation Court may require information or advice from 14 No conclusion reached by, as to elements that should enter into value of railroad properties 85 Plan giving primary jurisdiction over interstate and in- trastate commerce to state commissions with right of appeal to 4 Plan to amend act creating, extending powers of, with right of appeal to National Transportation Court .... 3 Proceedings instituted before, may be referred to state commissions for investigation and report 20 Process of appeal by state commissions to, would elim- inate conflict 133 Kates to be so adjusted by, as to permit movement of all commodities, provided they will yield a profit 21 Regional districts to help 131 Removal of appointees to, by impeachment 153 Should be clothed with same independence and freedom of action as belongs to the federal judiciary 153 State commissions to aid 126 State commissions will be auxiliary to 4 Supreme regulatory power over railways in conjunction with the Minister of Transportation to be vested in ... 148 To be reorganized 19 Wages should be fixed by 200 Will stand between employee and public as an impartial tribunal with power to adjust all labor controversies . . 199 Would be overburdened by establishment of regional commissions 132 Interstate Commerce Commissioners. See Commissioners. Interstate Commerce Committee: Disposition of excess earnings receiving serious considera- tion of 144, 145 Greatly concerned over divergent earnings 135 Intrastate commerce. See State commerce. Investments : Factors that influence 53, 95 Legislatures and commissions cannot be depended upon to regulate railways and fix rates in such manner as to make railway stocks a safe 183 228 Investments continued. Page Railway, attended with great risk 50 Six per cent, a reasonable return on 121 Investors : Capital required by carriers should be provided by pur- chase of securities by 51 Factors necessary, to obtain investors in securities .... 96 Features of proposed plan will meet every possible re- quirement of 97 In railway securities 95 Motive of expected profits actuated, in railway securities 50 Plan must be devised whereby, will feel justified in pur- chasing new issues of railway securities 52 Judicial function: Federal Eailway Board would not be empowered to exer- cise 159 Fixing of railway values belongs exclusively to the ju- diciary 85 National Transportation Court: Must be exercised by 159 Power of, to exercise 4 To exercise, in appellate proceedings 8 Would exercise same, as federal courts in consider- ing appeals 36 Jurisdiction : Appellate : Interstate Commerce Commission to exercise 19 Matters over which National Transportation Court would have 8, 36, 39 Federal corporation over regional railways 167 National interests should be under sole jurisdiction of federal authority 134 National Transportation Court: General 3, 15 Original 47 No transportation system complete unless legal, of court reviews is given one single court 159 Operation of carriers under state charters subject to po- lice powers will leave doubts and uncertainties as to extent of state jurisdiction over interstate carriers .... 66 Over employees compensation should be extended to the Interstate Commerce Commission 200 229 Jurisdiction continued. Page Plan of giving primary, over state and interstate rates to state commissions with right of appeal to the Interstate Commerce Commission 4 States have, over purely intrastate traffic 67 Under regional plan federal corporation to have, over 20,000 or 25,000 miles of railway 167 Labor controversies: Establishment of suggested plan will secure settlement of 33 Federal railway board to have power over 158 Interstate Commerce Commission will stand .between em- ployee and public as impartial tribunal to adjust 199 Necessity for method of adjusting, is imperative 201 Labor organizations: Exempt from provisions of Clayton Act 189 Bight to strike should not be denied 195 Legislation. See also Class legislation. Any enacted by Congress should define and fix limits of state action and their police powers affecting interstate commerce 70 Basis of Congressional, necessary for continuance of our free institutions 193 Burdens of railways increased by national and state .... 2 Congress should enact, necessary to place transportation systems upon a safe basis 125 Necessity for, against strikes 197 Public entitled to, against strikes 197 Railroad question must be answered by Congress with ap- propriate 28 Removal of obstructions against roads placed by state and federal, demanded by the public 94 Roads would be unable to sell securities if returned by the President to private control without appropriate . . 52 Legislative function, fixing values of property, or specifying the elements constituting value not a 85, 172 Legislatures : Cannot be depended upon to regulate railways and fix rates in such manner as will make railway stocks a safe investment 183 State, have authority to prohibit all agreements in re- straint of commerce 198 Level of rates. See Rates. Litigation, comparison of present and proposed method o . . 36-37 230 Page Local interest, zeal of state authorities to promote, in exercis- ing police power obstructs free flow of interstate com- merce 65 Loss ; incident to strikes must be borne by employer and em- ployee 196 Maintenance, matters of, under government control must be adjusted 206 Management : Amount of business attracted to a particular road proof of wise 17i Difficulties of, if lines cover a vast area 176 Transportation Court to have power to require change of, for inefficiency 55 Under federal incorporation to remain the same 120 Wise management of a particular road attracts business 174 Manager, difficulties encountered by, if roads cover a vast area 176 Market value: Face value of stock compared with, on May 1, 1919 .... 86 Present, of stock, lower than true value 86 Merger. See Consolidation and reorganization. Minimum rates: Interstate Commerce Commission shall not fix, below level that will not yield five per cent, for dividend purposes 22 National Transportation Court not to allow rates that will not yield a minimum of five per cent, per annum . 10 Minister of Transportation: Full measure of justice for railways could be obtained by 148 Objections to 148 Placing of properties under, would be political center of presidential campaign 149 Real protection would not be provided security holders by 150 Supreme regulatory power over railways in conjunction with the Interstate Commerce Commission to be vested in 148 To be a member of the President's cabinet 148 Would fail to end recurring cycle of bankruptcies 150 Would furnish new formulas for making rates 150 Would resemble Interstate Commerce Commission 149 Morawetz, Victor, regional railway plan outlined by 155 231 Page National interests: Should be under sole jurisdiction of federal authority . . . 134 State action should not control 134 National Railway Association, Interstate Commerce Commis- sioners and representatives of railways to compose . . . 143 National Securities Holders Association: Federal incorporation opposed by 109 Reasons for opposition of, to federal incorporation .... 110 National Transportation Court: Acts inconsistent with, to be repealed 25 Administrative powers to be exercised by, in appellate proceedings 8 Advantages of, in litigating cases 37 Appeals from rulings of, to be to the United States Su- preme Court 17-18 Appellate jurisdiction of, over all orders issued by Inter- state Commerce Commission upon appeal to 8 Appoints to be made by President and confirmed by Senate . . 7 Approval of stock and securities issues by 11 Ascertainment of values of stocks and bonds by, and is- suing federal corporation stock at par in lieu thereof .9-10 Authority and jurisdiction of review should be taken from all courts and vested in 8 Carriers operating under state charters may be enjoined by, from doing business affecting interstate com- merce 12 Certificates of incorporation to be issued by 11 Charters to be issued by, for federal incorporation of railway and steamship companies 9 Composition of 7 Conditions and compensation for use of terminals, to be fixed by, when carriers cannot agree 14 Contrast of procedure necessary under regional plan and plan of 165 Controversies with the government arising out of Federal Control Act to be determined by 15 Date for return of roads to private control should be fixed by 15, 207 Director for each carrier to be appointed by 13 Emergency fund may be applied on dividends by, when conditions arise preventing carriers from earning a five per cent, minimum 10 232 National Transportation Court continued. Page Enlargement of Commission's Bureau of Statistics so as to include statistical data of . . . . 21 Existing carriers to transfer property to federal company under forms prescribed by 12 Fixing minimum selling price of stock and securities is- sues by 11 Fullest measure of justice and service will be obtained by giving full regulatory power to 153 General jurisdiction of 15 Increase in terminal facilities may be ordered by, and cost apportioned among carriers using the same 14 Information or advice may be required from. Interstate Commerce Commission by 14 Intervention of, into receivership proceedings for pur- pose of aiding a speedy disposition 13 Judicial functions exercised by the courts in considering appeals would be vested in 8, 36 Jurisdiction over consolidation and reorganization of rail- ways to be exercised by 12 Matters over which appellate jurisdiction would be vested in 36 Matters over which original jurisdiction would be vested in 35-36 May direct surrender of state charters 11-12 Method of fixing stock values by 82 Must be created to determine questions pertaining to transportation 30 Must exercise both judicial and administrative power . . . 159 Original and appellate jurisdiction to be vested in 35 Original jurisdiction of 47 Powers of: To exercise both judicial and administrative functions 4 To require change of management for inefficiency ... 55 Proper body to settle all questions between government and owners 206 Proposed plan of: Establishing, with original and appellate jurisdiction, both judicial and administrative 3 Extending powers of Interstate Commerce Commis- sion with right of appeal to 3 Rates may be so adjusted by, as to produce an emergency fund .. 10 233 National Transportation Court continued. Rates that will not yield a minimum of five per cent, per annum not to be permitted by ...................... 10 Reason for necessity of .............................. 47 Receiverships of railways to be raised by, upon basis of capitalization as will permit carriers to earn five per cent, on its stock ................................ 12-13 Removals only by impeachment in same manner and for same causes as United States judges ............... 7, 153 Rules and regulations for: Administering compensation, to be prescribed by ... 16 Corporate organization of company after charter is issued, to be prescribed by .................... 11 Performance of its duties to be prescribed by ...... 17 Rulings and findings of, to be enforced in same manner as United States courts enforce their judgments and decrees .......................................... 9 Salaries of members ................................ 7 Should be clothed with same independence and freedom of action that belongs to the federal judiciary ....... 153 Stock issues should be approved by .................. 97-98 Term of office of members of ........................ 7 To operate as a court of review of the Interstate Com- merce Commission 's administrative orders ........... 8 To require: Carriers to provide necessary facilities for expedi- tious handling of all traffic under normal condi- tions ........................................ 14 Production of evidence, and punish for contempt or failure to obey its orders ...................... 17 Value of bonds and other obligations to be determined by 78 Values of railway properties to be ascertained by, for purpose of levying state taxes ..................... 16-17 Workmen 's compensation bureau to be established by ... 15 Necessity for a central authority ......................... 35 New York, New Haven & Hartford R. R., an example of con- siderable financing ............................... 124 Noncompetitive rates, reduction in, to reduce excess earnings 146 Norfolk & Western Ry. Co.: Operating income, 1908 to 1917, inclusive ............. 173 Results of applying regional plan to, illustrated ....... 170 Obligations, bonds and other ............................. 78 Obstacles, Congress must remove, before railways can perform their functions as common carriers ................. 44 234 Page Operating income: Arriving at values, by estimating true, probably the least reliable method yet advanced 173 Capitalization of, at a fair rate in determining value of roads 169 Change in rates would make a tremendous difference in . . 174 Decrease in, for Class I roads, 1917-1916 58 Factors unforseen and uncontrollable unite to influence . . 173 Norfolk & Western R. R., 1908 to 1917, inclusive 173 Operation : Errors in, have tended to depress credit of roads 2 Method of operating efficient railways 175 Partisan struggles, forseen, if government enters into financial partnership with roads 187 Party in interest, compensation of employees paid by public which is only 199 Philadelphia & Reading Railway, comparison of earnings made by, with those of the B. & O 136 Pleadings, establishment of suggested plan will secure findings being made upon original record without additional ... 32 Police power 65 Any legislation enacted by Congress should define and fix limits of state, affecting interstate commerce 70 Full extent of, has never been precisely defined by state or federal courts 65 Most extensive power possessed by the states 65 Operation of carriers under state charters subject to, will leave doubts and uncertainties as to extent of state jurisdiction over interstate carriers 66 State authorities constantly obstructing interstate com- merce in exercising 65 States entitled to know limits of, over interstate com- merce 70 Supreme Court flooded with controversies over, of states . 65 Political influence: Effect of, upon government operation 152 Federal tribunals will disappoint public if subjected to . 153 Freedom from 150 Political parties, appointees for commerce commission of re- gional districts to be named by 131 Political positions: Men selected for, because of their ability to bring sup- port to the party candidate, rather than for fitness .... 152 235 Political positions continued. Page Sought not only for the compensation but to gratify ambi- tion of applicant 151 Politics, properties might be carried into, by placing under cabinet officer 149 Pooling : Agreements for, to diminish excess earnings 146 Carriers may enter into, with approval of Interstate Commerce Commission 23 Establishment of suggested plan will secure cooperation by 33 Federal Railway Board to have power over 158 Taxation on excess earnings would promote 147 Power of Commission. See Interstate Commerce Commission. President : Members of Commerce Commissions for each regional dis- trict to be appointed by 131 Roads would be unable to sell securities if returned by, without legislation 52 Presidential campaign, placing of properties under Minister of Transportation would be political center of 149 Price, fixing minimum selling, of stock and securities issues, by National Transportation Court 11 Private Control: Complete governmental regulation with, must be main pur- pose of Congress to meet public requirements 3 Date for return to be fixed by National Transportation Court ' 15 Government cannot carry on business as economically as . 152 Private interest; clutch of, must be removed by Congress to promote the general welfare 193 Private management. See Private control. Procedure : Before state commissions 160-161 When complaint filed with Regional Board 162 Production of Evidence. See Evidence. Profits: Employees desiring to participate in, can purchase stock . 143 Would be greater under federal incorporation than under state charters 120 ' ' Property investment ' ' : Defined 103 Difference between, and actual value of property ...107-108 236 Page Prosperity, nation can not prosper if interstate and foreign commerce governed by many masters 203 Public: Chief sufferer as result of strikes 197 Entitled to legislation against strikes 197 Impartial federal tribunal can be created that would do justice in determining controversies, to both employees and 193, 194 Losses due to government operation to be made up by tax- ation 205 More interested in adequate service than small dividends 93-94 No power to coerce or injure employees 194 Power to injure or destroy, should be stripped from em- ployees 194 Removal of obstructions against carriers placed by state and federal legislation demanded by 94 Safety of, should never be left to any combination organ- ized to promote its own interest 192 Servants of, must not use their employment so as to impose loss and injury upon 198 Public detriment, list of federal laws that restrain and limit the action of the carriers to the 28 Public interest : Clutch of every private interest must be removed by Con- gress to promote 193 Demands that it be protected from unjust exaction im- posed by either carrier or employees 190 Maintenance of competition in service demanded by 174 Safeguarding of, paramount to everything else 91, 92 Public requirements, complete governmental regulation with private ownership and operation must be main purpose of Congress to meet 3 Public servants: Compensation of, fixed by federal authority with exeep- tion of railway employees 194 Employment must not be used in such manner as to im- pose loss and injury upon the public 198 Legislators fail to realize that motormen and conductors operating trolleys serve the public in same manner as policemen , 197 Public tribunals. See Tribunals. 237 Page Public utilities: Government operation answer to socialistic clamor for government ownership 205 Public become helpless victims due to strikes of employees of 196 Public welfare: Agreements or combinations in restraint of trade, are illegal and destructive of 189 Power of Congress to fix wages consistent with 193 Eailroad administration : Deficits of, borne by public 205 Equipment bought by, unnecessary 206 Railway employees. See Employees. Railway executives: Constant personal touch kept by, of efficient railways with shippers and industrial enterprises along their lines . . 175 Plan of 148 Railway Financing. See Financing of carriers. Railway securities holders. See Security holders. Rate committee, regional commissions to be aided by 131 Rate making, Federal Railway Board to have supreme power over 158 Rates. See also Adjustment of rates; Minimum rates. Change in, would make a tremendous difference in oper- ating income 174 Competing lines compelled to have same 135, 145 Elimination of conflict between state and federal author- ities by proposed plan of regulating state 69 Establishment of suggested plans will insure a lower level of 34 Minister of Transportation would furnish new formulas for making 150 National Transportation Court not to permit, that will not yield a minimum of five per cent, per annum 10 Necessary instrumentalities in interstate commerce 190 No rate can be just unless it takes in whole field of car- riers operations 129 Will have to be readjusted so as to yield investors in se- curities a fair return 2-3 Recapitalization : Effect of proposed plan 104 Federal Railway Board to have supreme power over 158 238 Recapitalization continued. Page Illustration of saving to be affected under proposed plan of 103-104 Scheme of, must be so ordained that railways will be placed on safe financial basis 143 Receivership : National Transportation Court may intervene in proceed- ing of, for purpose of aiding a speedy disposition .... 13 Raising of, by National Transportation Court, upon basis of capitalization as will permit carrier to earn five per cent, on its stock 12-13 Regional Banks : Analogy between, and regional railways .166, 167 System in use for, should be organized for regional rail- ways 166 Regional Board: Actions of, to be reviewed by Central Board of Regula- tion 163 Procedure followed when complaint filed with 162 Regional Commissions: Machinery of, would be complicated and cumbersome . . . 132 Rate committees to be appointed to help 131 Selection of Commissioners for, by executive committees . 132 Separate rate committees to aid 131 Would overburden the Interstate Commerce Commission 132 Regional Districts 131 Commissions of three members each to be appointed by President for each 131 Country to be divided into six 131 Object of 131 Plan of security holders in dividing country into 131 Rate committees for, to be separate from Regional Com- mission 131 Size of 156 Regional plan: Adoption of, would inflict the grossest injustice upon se- curity holders 174 Carriers not compelled to join 167 Consolidation of the Norfolk & Western and Seaboard Air Line Railways under, illustrated 171 Division of the country into regions with Federal Railway Corporation for each 169 Draws railroads closer to the general principles of gov- ernment ownership 156 239 Regional plan continued. Page Federal corporation to have jurisdiction over 20,000 or 25,000 miles of railways under 167 Issuance of securities under 169 No benefit secured by weak lines consolidating with each other under 168 Railways to lose charters and identity under 167 Results of applying, to Seaboard Air Line and the Nor- folk & Western Railways, illustrated 170 Results of Congress compelling all roads in a given region to surrender their property to be operated as a single unit 168 Six thousand miles maximum trackage for efficiency of operation under 174 Value of railroad property as determined under proposed 171 Weak lines to be supported by strong lines under 167 Weak lines would immediately enter into, while strong lines would continue to operate under state charters if carriers not compelled to join 168 Will not work out in actual practice 168 Regional railways 155 Advantages of 166 Agencies necessary for success of 160 Analogy between, and regional banks 166, 167 Carriers will be expected to voluntarily enter into regional scheme 167 Contrast of procedure necessary under, and plan of Na- tional Transportation Court 165 Federal Railway Board to have supreme power over . . 155, 158 Good features of, overlooked 157 Governmental tribunals must cooperate in order to put plan in working order 160 Huge and cumbersome 160, 177 Interstate Commerce Commission could act as supreme governing head 158 Mammoth railway corporations to conduct all transporta- tion for entire country 155 Operation of 174 Organization and operation of railways on regional basis 166 Plan outlined by Victor Morawetz 155 Plan would result in five government . ownerships instead of one 157 Proposed plan of operation by Federal Corporation 166 Railways securities holders oppose plan for 156 240 Regional Railways continued. Page System in use for regional banks should be organized for 16(5 Regulation : Congressional : No progress toward efficient transportation system until repeal of restrictive 100 Federal: Analysis of suggested plans for system of 3-4 Conflict of authority between state and 202 Limitations to be placed upon 181 Private ownership and operation with complete, must be main purpose of Congress, to meet the public re- quirements 3 Suggestions of Supreme Court for elimination of con- flict between state and 202 Tribunals necessary for complete system of 4 State: Conflict of authority between federal and 202 Suggestions of Supreme Court for elimination of con- flict between federal and 202 Regulation of railway employees 189 Regulatory tribunal. See Tribunal. Rehabilitation, enormous sums necessary for, within next five or six years 50 Reorganization. See Consolidation and reorganization. Reorganization of capitalization 86 Illustration of principle of, as applied to Boston & Maine R. R 88 Restraint of trade: Agreements or combinations in: By common law and by statutory enactment are il- legal 189 , Congress and state legislatures have authority to prohibit 198 Destructive of public welfare 189 Strikes operate to restrain movement of commerce . . 199 Return : Government should be limited to extent which will give