"Railroad officials are constantly engaged in the work of adjusting rates so as to meet as far as practicable the requirement of their patrons. In times of depression of business they make reduction in rates in order to enable shippers to send their commodities to certain markets, and keep industrial establishments from being closed. These reduced rates are often so low as to barely cover the cost of transportation. But they are meant to be temporary in their operation, and to be advanced when business conditions have become more favorable."It must be obvious that when the restoration of such rates is obstructed, so that railroad officials are not permitted to advance rates except by permission of a government bureau after an investigation which must consume considerable time, railroad officials will naturally hesitate, and often decline, to make reductions in rates which involve considerable loss of revenue without any compensating benefits to their companies, either in the present or future."It is easy to see the effect of this. Railroads would no longer be able to afford the desired assistance to shippers, however anxious they might be to do so. The rates would in a large measure lose their elasticity, and become rigid, and a condition similar to that existing in France would be created, where state controlled rates prevent railroads from building up the territory."
"Railroad officials are constantly engaged in the work of adjusting rates so as to meet as far as practicable the requirement of their patrons. In times of depression of business they make reduction in rates in order to enable shippers to send their commodities to certain markets, and keep industrial establishments from being closed. These reduced rates are often so low as to barely cover the cost of transportation. But they are meant to be temporary in their operation, and to be advanced when business conditions have become more favorable.
"It must be obvious that when the restoration of such rates is obstructed, so that railroad officials are not permitted to advance rates except by permission of a government bureau after an investigation which must consume considerable time, railroad officials will naturally hesitate, and often decline, to make reductions in rates which involve considerable loss of revenue without any compensating benefits to their companies, either in the present or future.
"It is easy to see the effect of this. Railroads would no longer be able to afford the desired assistance to shippers, however anxious they might be to do so. The rates would in a large measure lose their elasticity, and become rigid, and a condition similar to that existing in France would be created, where state controlled rates prevent railroads from building up the territory."
In considering this question, we must not forget that when we destroy elasticity and flexibility in our rates, we prevent reductions of rates, as well as the raising of rates. Its tendency is not only to prevent the reduction in particular instances that has resulted in great advantage to the shippers and the country in the past, but it prevents the lowering of the general average of rates. There have been comparatively few complaints, as to the unreasonableness of the rates of this country per se. The vast majority of complaints, against the reasonableness of rates, is the claim that they are relatively unreasonable. Under the American system of rate adjustment, with its freedom to meet commercial and economic conditions, the general average of rates per ton per mile has voluntarily been reduced by the carriers of the country from 1870; not so strikingly since 1896 as previously, but substantial reduction as follows:[J]
1896802|19027571897789|19037631898753|19047801899724|19057661900729|19067481901750|1907759
The leaders of railroad management and the ablest experts on railroad economics in foreign countries have approved in the most enthusiastic language, the wisdom which has preserved to the American railway system its freedom of management and its flexibility of rates, subject only to the limitations of reasonable rates, equality among shippers, and the avoiding of all devices that might result in discrimination among those who use these public means of transportation.
The view of M. Emile Heurteau, president of the Orleans Railroad, speaking of the American system of roads, said:
"We would be only too glad to adopt the American system of fixing the lowest rates proper, and making up the loss of profit on each shipment out of the increased volume of business they make the railways available to, which is the only economically and commercially right and sensible way of doing. We would be glad to build up our territory as the American railways do, by encouraging its industries, by opening its markets, by enabling it to compete with other territory contributing to the same markets."But we can not do that; the state-controlled rates prevent it, however strong our desire or the people's may be."Railroads under government supervision must set their rates close to the maxima then, and maintain them there, for their own salvation. There are many times when, if it were possible, we would like to lower freight charges to meet some special emergency, such as the necessities of a district suffering from a crop failure, for example."That is not philanthropy, but commercial sense, to help the man who creates business for you, when he is hard pressed, and to increase the volume of traffic that is falling because people have not the money to pay the price they have been accustomed to pay easily. But if we should once lower our rates—possibly to the point of loss, as American railways have done frequently in crises—we would not be allowed to restore them later, when they could be fairly restored."The wonderful growth and development of the United States is the admiration of the whole world. I have no doubt it is to be attributed largely to the freedom you have always enjoyed in your commercial and industrial life."Opportunity is given here for railways and communities to be mutually helpful, and splendid use has been made and is being made of it. The few cases of complaints against your railways, the expansion of trade through the opening of European markets to the producers of your Central and Western States, who are enabled to deliver their products abroad, the low cost of transportation that enables them to compete there with theforeign producer near at hand, whose railways are in no position to help him—all these things seem to me sufficient evidence of the success and desirability of the American practice in the management and regulation of railway matters."Any economist, any business man, any transportation manager will tell you that the present American method of fixing freight rates is the only logical and rational one."
"We would be only too glad to adopt the American system of fixing the lowest rates proper, and making up the loss of profit on each shipment out of the increased volume of business they make the railways available to, which is the only economically and commercially right and sensible way of doing. We would be glad to build up our territory as the American railways do, by encouraging its industries, by opening its markets, by enabling it to compete with other territory contributing to the same markets.
"But we can not do that; the state-controlled rates prevent it, however strong our desire or the people's may be.
"Railroads under government supervision must set their rates close to the maxima then, and maintain them there, for their own salvation. There are many times when, if it were possible, we would like to lower freight charges to meet some special emergency, such as the necessities of a district suffering from a crop failure, for example.
"That is not philanthropy, but commercial sense, to help the man who creates business for you, when he is hard pressed, and to increase the volume of traffic that is falling because people have not the money to pay the price they have been accustomed to pay easily. But if we should once lower our rates—possibly to the point of loss, as American railways have done frequently in crises—we would not be allowed to restore them later, when they could be fairly restored.
"The wonderful growth and development of the United States is the admiration of the whole world. I have no doubt it is to be attributed largely to the freedom you have always enjoyed in your commercial and industrial life.
"Opportunity is given here for railways and communities to be mutually helpful, and splendid use has been made and is being made of it. The few cases of complaints against your railways, the expansion of trade through the opening of European markets to the producers of your Central and Western States, who are enabled to deliver their products abroad, the low cost of transportation that enables them to compete there with theforeign producer near at hand, whose railways are in no position to help him—all these things seem to me sufficient evidence of the success and desirability of the American practice in the management and regulation of railway matters.
"Any economist, any business man, any transportation manager will tell you that the present American method of fixing freight rates is the only logical and rational one."
In the investigation of railways by the Senate committee in 1905, Mr. W. M. Acworth, who is regarded as one of the leading experts in England on railroad transportation and railroad economics, was invited to appear before the committee, with the request to give a review of the historical facts bearing on the control and management of the railways of England. After complying with the request of the committee, certain questions were asked him that were of great importance at that time in the consideration of the questions then being investigated by the committee. One of these questions involved the effect of the provision of the new canal and traffic act of Parliament, which for the first time embodied the provision that "railway companies must make no increase except for good cause, if anybody objects," and which, as construed by the courts, prevented any increase of a rate where objection was made, until after hearing by the board of trade.
His examination will be found in the third volume of the hearings of that investigation, pages 1848, 1852, 1853 and 1854, and was as follows:
"Since it has been decided that no rate can be put up once it has been put down, without appeal to the law courts, the railway companies have practically arrived at the conclusion that they will not put them down because they do not know whether they will have an opportunity to put them up again."SenatorCullom: Do you think it works to the advantage of the people that the railways will not put the rates down for fear they will not get a chance to put them up again?"Mr.Acworth: Personally, I have no doubt it does not. It is fair to remember always that it may protect the weaker in commercial strife. It is rather hard on the weaker man to be crowded to the wall by a wholesale concern in any walk of life. But if it be true in ordinary business that, on the whole, the public gains by the wholesaling method, it is probably true in railway business also. I think that, so to speak, the heart has been taken out of the railway man. The railway men understand this business; they know how to manage it in their own way. The railway men think 'the responsibility has ceased to be ours; we must maintain the status quo,' and that is what they do."TheChairman: You think that dividing responsibility impairs the administrative power of the officials of the roads as well as the service they render to the public?"Mr.Acworth: From the operating point of view, I do not think our railways have been sufficiently interfered with to prevent them developing the goodness of the service. But as to rate making, I have no doubt that the interference of Parliament, the courts, and the Executive has all tended to stereotype and keep rates at an unnecessarily high level."TheChairman: Would you say that, on the whole, the power to make rates generally and primarily should be left to the railroads and to the free play of the forces of the business world?"Mr.Acworth: Speaking as an individual student, I have no doubt that that is the process that will arrive at the best results for the community, with this exception: That I fully think it is necessary that the community in some way should interfere to protect all customers from unfair treatment."TheChairman: You think that the power should reside somewhere to correct excessive and extortionate rates by summary and proper proceedings?"Mr.Acworth: I am not sure that I should go so far as to say excessive rates regarded as excessive in themselves. I am myself inclined to think that excessive rates will correct themselves. The wise men will discover that it does not pay to charge excessive rates. But I think the law should interfere to prevent unfair rates to A as compared with the rates given to B. It seems to me that the State is bound to insist that the rates shall be public, and that practically will settle it, for if they are public they have got to be fair; I am inclined to think the law should confine itself to securing that, where there is a difference made as between A and B, the difference should be a difference for a commercial reason, and not for any reason of personal favoritism."SenatorForaker: And I understand you to say that the effect of fixing maximum rates is to lessen the tendency to reduce rates, which railroads had practiced before this legislation was enacted?"Mr.Acworth: I am not quite sure that the maxima have really had very much effect at all. It has been a tendency, but I do not think an important tendency. But the interpretation by the courts of the undue preference law, and the recent limitation that having once reduced you can not subsequently increase, have had that effect markedly, I believe."SenatorForaker: So that the rates for the transportation of freight on railroads in England have not been declining, I take it from your statement, in recent years, but have remained practically stationary?"Mr.Acworth: I do not know what the average rate is, because there are no statistics in England; but my own impression would be that it had probably not declined to an appreciable extent, whereas in an earlier period it certainly did decline pretty fast."
"Since it has been decided that no rate can be put up once it has been put down, without appeal to the law courts, the railway companies have practically arrived at the conclusion that they will not put them down because they do not know whether they will have an opportunity to put them up again.
"SenatorCullom: Do you think it works to the advantage of the people that the railways will not put the rates down for fear they will not get a chance to put them up again?
"Mr.Acworth: Personally, I have no doubt it does not. It is fair to remember always that it may protect the weaker in commercial strife. It is rather hard on the weaker man to be crowded to the wall by a wholesale concern in any walk of life. But if it be true in ordinary business that, on the whole, the public gains by the wholesaling method, it is probably true in railway business also. I think that, so to speak, the heart has been taken out of the railway man. The railway men understand this business; they know how to manage it in their own way. The railway men think 'the responsibility has ceased to be ours; we must maintain the status quo,' and that is what they do.
"TheChairman: You think that dividing responsibility impairs the administrative power of the officials of the roads as well as the service they render to the public?
"Mr.Acworth: From the operating point of view, I do not think our railways have been sufficiently interfered with to prevent them developing the goodness of the service. But as to rate making, I have no doubt that the interference of Parliament, the courts, and the Executive has all tended to stereotype and keep rates at an unnecessarily high level.
"TheChairman: Would you say that, on the whole, the power to make rates generally and primarily should be left to the railroads and to the free play of the forces of the business world?
"Mr.Acworth: Speaking as an individual student, I have no doubt that that is the process that will arrive at the best results for the community, with this exception: That I fully think it is necessary that the community in some way should interfere to protect all customers from unfair treatment.
"TheChairman: You think that the power should reside somewhere to correct excessive and extortionate rates by summary and proper proceedings?
"Mr.Acworth: I am not sure that I should go so far as to say excessive rates regarded as excessive in themselves. I am myself inclined to think that excessive rates will correct themselves. The wise men will discover that it does not pay to charge excessive rates. But I think the law should interfere to prevent unfair rates to A as compared with the rates given to B. It seems to me that the State is bound to insist that the rates shall be public, and that practically will settle it, for if they are public they have got to be fair; I am inclined to think the law should confine itself to securing that, where there is a difference made as between A and B, the difference should be a difference for a commercial reason, and not for any reason of personal favoritism.
"SenatorForaker: And I understand you to say that the effect of fixing maximum rates is to lessen the tendency to reduce rates, which railroads had practiced before this legislation was enacted?
"Mr.Acworth: I am not quite sure that the maxima have really had very much effect at all. It has been a tendency, but I do not think an important tendency. But the interpretation by the courts of the undue preference law, and the recent limitation that having once reduced you can not subsequently increase, have had that effect markedly, I believe.
"SenatorForaker: So that the rates for the transportation of freight on railroads in England have not been declining, I take it from your statement, in recent years, but have remained practically stationary?
"Mr.Acworth: I do not know what the average rate is, because there are no statistics in England; but my own impression would be that it had probably not declined to an appreciable extent, whereas in an earlier period it certainly did decline pretty fast."
The effect of a similar law, passed in England, as shown by the testimony of Mr. Acworth, confirms the views of the committee which have been expressed in this report, that with such a provision embodied in the present interstate commerce law, there would be few reductions or advances in American rates. If it had the effect in England of destroying the flexibility of the rates of the carrier and interfered with the development of England's commerce, as well as her railroads, how much more serious would be the result in this country, that is in the process of rapid development, both as to its commerce and territory? It has been credibly stated that the Board of Trade of England is now seriously considering a recommendation for the repeal of that provision of the statute.
AN ANALYSIS OF THE COMMUNICATION TO THE COMMISSION—MANY OF ITS OBJECTIONS APPLY TO THE AMENDMENT OFFERED IN COMMITTEE.
9. When this bill was referred to your committee for its consideration the chairman addressed a letter to the Interstate Commerce Commission, inclosing the bill, and requested the opinion of the commission as to the wisdom of incorporating the amendment into the interstate commerce law.
The chairman replied in the following communication:
"Interstate Commerce Commission,"Washington, January 29, 1908."Hon. Stephen B. Elkins,"Chairman Committee on Interstate Commerce,"United States Senate, Washington, D. C."Dear Sir: The Interstate Commerce Commission has the honor to submit the following in response to your communication of 24th instant, transmitting a bill (S. 423) to amend section 6 of the act to regulate commerce, introduced by Senator Fulton December 4, 1907, and requesting the commission to 'advise the committee before its next meeting, January 31, their opinion of said bill and what action they would suggest thereon.'"Whilst the views of the entire commission can not be definitely ascertained within the time named, because of absences on official business, a majority of the commissioners and probably all of them would not be disposed to favor the enactment of this measure."To give to the protest of a single shipper the effect of preventing the advance of any rate until the reasonableness of that advance was affirmatively determined by the commission would establish a hard and fast rule of doubtful fairness to the railroads and questionable advantage to the public. Under existing conditions we are of the opinion that it would beunwise to adopt the arbitrary limitation which this bill proposes, whatever may be found desirable or necessary in this regard in the future."It is further to be observed that the passage of such a bill at this time would impose a burden upon the commission which it ought not to be asked to undertake. If every proposed advance had to be investigated by the commission and officially sanctioned before it could take effect, the number of cases to be considered would presumably be so great as to render their prompt disposition almost impossible. In instances of justifiable increase the necessary delay resulting from the probable volume of cases would work injustice to the carriers. Until conditions become more stable and the substantive provisions of the act are more completely observed in railway tariffs and practices we entertain the belief that a wider latitude of discretion on the part of carriers than this measure allows should be permitted."It is also suggested that the practical effect of the proposed amendment might be to prevent voluntary reductions of rates by the carriers. If no rate could be increased without the approval of the commission after affirmative showing by the carrier it might happen that many reductions now voluntarily accorded would not be made."This subject of rate advances was discussed in our recent annual report to the Congress, and that portion of the report is transmitted herewith for the information of your committee. It concludes with a recommendation relating to the matter in question in which the entire commission concurred, and that recommendation is now respectfully renewed."Very respectfully,"Martin A. Knapp,"Chairman."
"Interstate Commerce Commission,
"Washington, January 29, 1908.
"Hon. Stephen B. Elkins,"Chairman Committee on Interstate Commerce,"United States Senate, Washington, D. C.
"Dear Sir: The Interstate Commerce Commission has the honor to submit the following in response to your communication of 24th instant, transmitting a bill (S. 423) to amend section 6 of the act to regulate commerce, introduced by Senator Fulton December 4, 1907, and requesting the commission to 'advise the committee before its next meeting, January 31, their opinion of said bill and what action they would suggest thereon.'
"Whilst the views of the entire commission can not be definitely ascertained within the time named, because of absences on official business, a majority of the commissioners and probably all of them would not be disposed to favor the enactment of this measure.
"To give to the protest of a single shipper the effect of preventing the advance of any rate until the reasonableness of that advance was affirmatively determined by the commission would establish a hard and fast rule of doubtful fairness to the railroads and questionable advantage to the public. Under existing conditions we are of the opinion that it would beunwise to adopt the arbitrary limitation which this bill proposes, whatever may be found desirable or necessary in this regard in the future.
"It is further to be observed that the passage of such a bill at this time would impose a burden upon the commission which it ought not to be asked to undertake. If every proposed advance had to be investigated by the commission and officially sanctioned before it could take effect, the number of cases to be considered would presumably be so great as to render their prompt disposition almost impossible. In instances of justifiable increase the necessary delay resulting from the probable volume of cases would work injustice to the carriers. Until conditions become more stable and the substantive provisions of the act are more completely observed in railway tariffs and practices we entertain the belief that a wider latitude of discretion on the part of carriers than this measure allows should be permitted.
"It is also suggested that the practical effect of the proposed amendment might be to prevent voluntary reductions of rates by the carriers. If no rate could be increased without the approval of the commission after affirmative showing by the carrier it might happen that many reductions now voluntarily accorded would not be made.
"This subject of rate advances was discussed in our recent annual report to the Congress, and that portion of the report is transmitted herewith for the information of your committee. It concludes with a recommendation relating to the matter in question in which the entire commission concurred, and that recommendation is now respectfully renewed.
"Very respectfully,"Martin A. Knapp,"Chairman."
"Very respectfully,
"Martin A. Knapp,
"Chairman."
It will be observed by an examination of this communication from the commission that it deemed it unwise to recommend the adoption of the amendment to the sixth section as offered in Senate bill 423, but the letter refers to its former report as expressive of its views upon this subject, which recommended a somewhat similar provision, but differing in this respect. In Senate bill 423 the filing of a protest would suspend the taking effect of the rate until after full hearing as to the merits of the advance. The recommendation of the commission in its former report, referred to in the communication, recommended the adoption of a provision that would confer upon the commission, upon the filing of a complaint, the discretion to suspend the rate until final hearing. The amendment to the bill before your committee offered during its consideration, and which has been fully discussed in this report, was in substance the recommendation of the commission.
An analysis of the letter of the chairman of the commission, stating the objections to the enactments of the proposed amendment intolaw, sustains many of the reasons which have been urged in this report against the approval of the principle announced by that amendment. The committee quotes from the letter, as follows:
"(a) To give to the protest of a single shipper the effect of preventing the advance of any rate until the reasonableness of that advance was affirmatively determined by the commission, would establish a hard and fast rule of doubtful fairness to the railroads and questionable advantage to the public."(b) Under existing conditions we are of the opinion that it would be unwise to adopt the arbitrary limitation which this bill proposes."(c) If every proposed advance had to be investigated by the commission and officially sanctioned before it could take effect the number of cases to be considered would presumably be so great as to render this prompt disposition almost impossible."(d) It is further to be observed that the passage of such a bill at this time would impose a burden upon the commission, which it should not be asked to undertake."(e) In instances of justifiable increase all necessary delay resulting from probable volume of cases would work injustice to the carriers."(f) Until conditions become more stable and the substantive operations of the act are more completely observed in railway tariffs and practices, we entertain the belief that a wider latitude of discretion on the part of carriers than this measure allows would be permitted."(g) It is also suggested that the practical effect of a proposed amendment might be to prevent voluntary reductions of rates by the carriers."(h) If no rate could be increased without the approval of the commission after affirmative showing by the carrier, it might happen that many reductions now voluntarily accorded would not be made."
"(a) To give to the protest of a single shipper the effect of preventing the advance of any rate until the reasonableness of that advance was affirmatively determined by the commission, would establish a hard and fast rule of doubtful fairness to the railroads and questionable advantage to the public.
"(b) Under existing conditions we are of the opinion that it would be unwise to adopt the arbitrary limitation which this bill proposes.
"(c) If every proposed advance had to be investigated by the commission and officially sanctioned before it could take effect the number of cases to be considered would presumably be so great as to render this prompt disposition almost impossible.
"(d) It is further to be observed that the passage of such a bill at this time would impose a burden upon the commission, which it should not be asked to undertake.
"(e) In instances of justifiable increase all necessary delay resulting from probable volume of cases would work injustice to the carriers.
"(f) Until conditions become more stable and the substantive operations of the act are more completely observed in railway tariffs and practices, we entertain the belief that a wider latitude of discretion on the part of carriers than this measure allows would be permitted.
"(g) It is also suggested that the practical effect of a proposed amendment might be to prevent voluntary reductions of rates by the carriers.
"(h) If no rate could be increased without the approval of the commission after affirmative showing by the carrier, it might happen that many reductions now voluntarily accorded would not be made."
The nine reasons suggested by the commission why the original amendment offered to section 6 should not be adopted, fully sustain the committee in reporting the bill adversely, and to a great extent, fully justify the views which it has expressed in this report as influencing the actions of the committee in its adverse report upon the amendment proposed in the committee.
The committee is unable to appreciate the force of the suggestion of the modification proposed to the original amendment, as in any way changing the principle embodied in it, or the practical results which would flow from its adoption. If the power was conferred upon the commission, when a rate was advanced, upon complaint to suspend the going into effect of that rate until a final hearing, every objection urged by the commission to the adoption of the bill, but the first two, would be applicable to the modification proposed by the commission to the original amendment.
Under the modification suggested by the commission the burden imposed upon it would be greater, if possible, than under the original amendment. Under the original amendment, by force of the statute, the filing of the protest would suspend the advanced rate, and the hearing upon the merits would take place after the thirty days had expired. Under the suggestion of the commission conferring upon it the discretionary authority upon complaint to determine whether the rate should go into effect at the time prescribed by law or be suspended, there is imposed an official quasi judicial duty upon the commission, which it should not perform except upon proof that probably the rate sought to be advanced would ultimately be determined to be unreasonable. Remembering the large number of changes of rates daily, and the fact that under the law the complaint could be filed at any time within the thirty days, would it not be an impossible undertaking for the commission to hope to perform this official act with justice to the public or to the carrier? In the multiplicity of duties now demanding its most earnest attention, would not the practical operation of such a law compel it to enter a pro forma order of suspension until the final hearing, when the commission, upon an examination of the complaint, is satisfied that it presented a prima facie case of unreasonable advance?
An official tribunal charged with the duty of preventing an unreasonable advance in rates would be constrained, on the presentation of such a complaint, to issue the order of suspension. If the slightest doubt was raised in its mind as to the reasonableness of the advance, its official obligation would require it to enter the order of suspension. Is there any question that such a prima facie case could be made where the consideration of the protest would, of necessity, be ex parte?
The committee is not, therefore, able to draw a distinction between the original amendment and that proposed in committee. In the opinion of the committee the reasons stated in the letter of the chairman of the commission, and the reasons given in this report, not only justify it but compel an adverse report.
CONDITIONS CONFRONTING CONGRESS.
10. The act of June 29, 1906, took effect August 28, 1906. It has been operative only about twenty-eight months. During half of that period of time the country has experienced the effects of asevere commercial panic; business has been prostrated; transportation paralyzed; thousands of cars have been stored on the sidings, and hundreds of engines have been placed in the shops, awaiting the revival of business. From conditions existing today, we have a right to assume that before many months we shall be approaching normal conditions. The commission has not had sufficient time to interpret and construe the recent law and to promulgate its orders in reference to the action of the carriers under it. Many of the traffic questions involved, under the provisions of that law, are yet to be construed and put in force by orders of the commission. Is it wise, under these conditions, to begin amending that statute by introducing provisions inconsistent with the basis of the act? It has been shown that under the power conferred by that recent enactment, the commission is vested with the power to change an existing unreasonable rate and to fix for the future a reasonable rate. It has also the authority conferred upon it to award reparation to the extent of any injury resulting to a shipper, by reason of the existence of an unreasonable rate.
Attention has been called to the opinion of the commission, as expressed in its decisions, narrowing very greatly the right of the carrier to advance a rate that would meet with its approval upon hearing. The committee must assume, in considering this question, that both the shippers and traffic officials, with knowledge of the views entertained by the commission upon the question of an advance of rates, will in the one case be prompt to avail themselves of that attitude of the commission, and in the other that they will seek to so adjust their rates as to bring their schedules within the rulings of that tribunal. The committee believes the highest duty of the commission is to bring together shippers and carriers, to the end that each may see that neither can be permanently prosperous at the expense of the other. It further believes that in many instances this effort has been made by the commission, and successfully made. It cannot be accomplished by statutes causing rigidity of rates. The most sensitive spot in the great business dealings of the country is the railroad rate. This rate must be raised or lowered, not in obedience to a rigid statutory law, but in obedience to the varying conditions of trade and commerce.
The National Board of Trade, one of the most important commercial organizations in the country and one of the most influential, met in Washington on Tuesday, January 19, 1909. Two proposedresolutions were submitted to that convention. First, by the Philadelphia Press League, urging an amendment to the interstate commerce law, to permit railroads engaged in interstate traffic to enter into the making of agreements under the supervision and control of the Interstate Commerce Commission. The second proposition was submitted by the Scranton Board of Trade, embodying the provisions of the amendment offered in the committee upon the consideration of Senate bill 423, and approved in the report of the Interstate Commerce Commission as to the advance of rates.
These resolutions were referred to the committee on resolutions having charge of interstate commerce matters. That committee, through its chairman, made the following report, which was unanimously indorsed by the convention of the National Board of Trade:
"The committee on interstate commerce law respectfully reports that, in its judgment, the National Board of Trade ought not at this time to recommend any change in the laws relating to interstate commerce."
"The committee on interstate commerce law respectfully reports that, in its judgment, the National Board of Trade ought not at this time to recommend any change in the laws relating to interstate commerce."
The convention was not satisfied with the passage of this resolution, but the chairmen of the several committees of that association were subsequently authorized and directed by resolution to urge the conclusions of the board in its name whenever possible.
The country is now demanding repose in its industrial upbuilding. It is not a time to experiment and to change the basis upon which the former acts to regulate commerce have been predicated. The recent law passed by Congress so greatly enlarging the authority of the commission should, before changes are sought, have the opportunity of at least a fair trial as to the value of its provisions in the regulation of interstate commerce. When trial has been given and normal conditions have been restored, any defect in the regulating statute can then, in the light of experience, be promptly remedied.
FOOTNOTE:[J]The average rate per ton mile in 1908 was 7.54 mills.
[J]The average rate per ton mile in 1908 was 7.54 mills.
[J]The average rate per ton mile in 1908 was 7.54 mills.
FOR THE YEAR ENDING JUNE 301909
PREPARED BY
SLASON THOMPSONManager of the Bureau of Railway News and Statistics
INTRODUCTION
"The function of accounts is to record facts. True accounting is nothing more, nor nothing less, than the correct statement of what in fact has taken place, and the measurement of that fact in an appropriate figure."—Prof Henry C. Adams.To be of the highest value, statistics must be accurate, uniform and continuous.
"The function of accounts is to record facts. True accounting is nothing more, nor nothing less, than the correct statement of what in fact has taken place, and the measurement of that fact in an appropriate figure."—Prof Henry C. Adams.
To be of the highest value, statistics must be accurate, uniform and continuous.
Nothing in the nature of statistics under official authority more confusing and misleading has ever been issued from the government printing office than those portions of the Twenty-third Annual Report of the Interstate Commerce Commission for the year ending June 30, 1909, purporting to deal with the financial results of the railways of the United States for the fiscal years 1908 and 1909.
On the first page of the Report the financial results of the last two fiscal years are set down thus:
OperatingRevenuesOperatingExpensesTaxesOperatingIncome1908$2,461,521,345$1,721,327,155$83,775,869$655,418,32119092,494,115,5891,662,102,17289,026,226742,987,191
The mileage operated in 1908 is stated as 228,164.80 and in 1909 as 233,002.67 miles.
On page 54 of the report the summary compiled from the monthly reports gives the following comparative figures for the same years:
TotalOperatingRevenuesTotalOperatingExpensesNet RevenueTaxes1908$2,421,542,004$1,687,144,975$734,397,029$83,775,86919092,443,312,2321,615,497,233827,814,99889,026,226
The mileage is the same as above, with the added information that the mileage operated at the end of the fiscal year 1908 was 229,952.36; and at the end of 1909, 234,182.70.
It will be observed that the taxes in both summaries are identical, but in one they are subtracted from net revenues and in the other they are not.
An insert facing page 54, giving the details of the monthly reports from which the table on that page is compiled, reveals the common source of both sets of returns and gives the key to the discrepancy between them. This is no less than the inclusion in the former of the revenues and expenses from "outside operations," which are excluded from the summary on page 54, in which the "net revenue" only from such outside source is mentioned and added to the net revenue from rail operations.
The impropriety and inaccuracy of such accounting becomes manifest when its effect is seen to vary the ratio of operating expenses to earnings from 69.67% to 69.93% in 1908, and from 66.12% to 66.64% in 1909.
On pages 64 and 65 appears another set of income figures for the year ending June 30, 1908. This is compiled from the annual reports of the carriers operating 230,494 miles of line, from whichthe mileage of switching and terminal companies is excluded. It supplies the following summary:
Year Ending June 30, 1908.Rail operations:Operating revenues$2,393,805,989Operating expenses1,669,547,876Net operating revenue724,258,113Taxes78,673,794Net revenue from outside operations5,977,268Operating income651,561,587Ratio of operating expenses to earnings69.72
As these figures are compiled from the only returns which furnish data respecting all the various phases of railway operation in the United States, they will be accepted in subsequent pages as the official returns for 1908.
The above figures are exclusive of returns from switching and terminal companies, whose earnings, according to the monthly reports in 1908, were $23,028,773; expenses, $16,383,481, and taxes, $1,245,261.
Grossly Exaggerated Dividends.
But these are venial variations compared to the deliberate misrepresentation as to dividends on page 62 of the report, where it is stated:
"The amount of dividends declared during the year was $386,879,362, being equivalent to 7.99 per cent on dividend-paying stock. For the year ending June 30, 1907, the amount of dividends declared was $308,088,627."
This statement is the more reprehensible because the inaccuracy of the reference to dividends in 1907 was exposed a year ago, and $115,550,909 of the 1908 total is proved to be fictitious by the line in the condensed income statement of the report (page 65) reading: "Dividends declared from current income, $271,388,453." It takes dividends from surplus, dividends by leased companies, and dividends from surplus of leased companies to make up that gross deception as to the dividends declared in 1908. And all these "several dividends" are only made statistically possible by including in current income $274,450,192 "other income" NOT derived from transportation.
It is impossible to overestimate the harmful popular effect of exaggerating the dividends paid by the railways by $80,693,665 in 1907 and $115,550,909 in 1908. The public mind does not stop to distinguish between dividends "declared," dividends paid out of "income" and net dividends actually paid out of net earnings of railway traffic.
This whole statistical structure of fictitious dividends has been built up in successive reports upon the false premise of including intercorporate payments on both sides of the income account. What the public is entitled to know is the disposition of the gross sum paid by it for transportation services—those services which the Act to Regulate Commerce was passed to regulate.
Bewildering Changes in Nomenclature.
Scattered through the official reports for 1908 the student is confronted with numerous changes in terminology, many of which are for the better, but nearly all impair that continuity of names and phrases which is so desirable in comparative statistics. For instance, the public has been taught, by official practice, to speak of the revenues of the railways derived from the transportation of passengers, freight, mail and express, as "Gross earnings from operation." The phrase is descriptive, definite and clear. For this the Commission has substituted "Rail operations, operating revenues." Former reports spoke of "Income from operation," which now gives place to "Net operating revenue." To this is added the "net revenue from outside operations," making a "Totalnet revenue," from which "Taxes accrued" are deducted, the remainder being "Operating income."
It will be perceived that this last phrase, which covers revenues from which operating expenses and taxes have been deducted and to which the net revenues from outside operations (sometimes they involve a deficit) have been added, comes perilously near the "Income from operation" of preceding reports.
The exclusion of the reports from switching and terminal companies in some instances, while they are included in others, introduces an element of perplexing uncertainty at every turn and really vitiates all comparisons with former reports.
The Commission itself seems to realize the bog into which the official statistician has plunged its accounts, when it says:
"The changes in the income account submitted in the report under considerationare so far reaching in their results, in a number of instances, as to impair direct or close comparison with figures for similar items in previous statistical reports."
And now it is proposed to throw all the accumulated statistics of twenty-two years out of consecutive gear by substituting the calendar for the fiscal year.
The writer has deemed the foregoing comments necessary to clear the atmosphere before proceeding to the introductory summary showing the salient features of the railway industry in 1909 compared with similar items in 1899 and 1889. The data for 1909 is compiled from the annual reports to this Bureau covering 221,132 miles of operated line, together with the monthly reports to the Commission of earnings and expenses of all classes of roads for that year, covering an average operated mileage of 233,002.
Summary of Railway Results in 1909, 1899 and 1889, with Percentages of Increase for each Item by Decades.(m = 1,000; d = decrease.)Item188918991909Increase over 1889Increase over 1899%%Miles of line153,385187,534234,18252.724.9Miles of all track195,958250,784340,00073.535.5Net capitalization (m)$7,366,745$9,432,041$13,508,71183.343.2Net capitalization per mile of line48,02151,76457,96220.711.9Net capitalization per mile of track37,59338,52739,7305.63.1Gross earnings from operation (m)964,8161,313,6102,443,312153.286.0Gross earnings per mile of line6,2907,00510,48666.749.7Expenses of operation (m)644,706856,9681,615,497150.588.4Expenses of operation per mile of line4,2044,5706,93364.951.7Net earnings from operation (m)320,101456,642827,814157.981.2Net earnings per mile of line (m)2,0862,4353,55270.245.8Ratio of expenses to earnings66.8165.2466.12d 2.31.0Receipts from passengers (m)$254,041$291,113$564,302122.193.8Receipts from freight (m)642,662913,7371,682,919161.884.1Receipts from mail (m)21,90135,99950,935132.641.5Receipts from express (m)19,77826,75663,669221.9137.9Passengers carried (m)472,171523,176880,76486.568.3Passengers carried one mile (m)11,553,82014,591,32729,452,000154.8101.8Receipts per passenger per mile (cents)2.1651.9781.916d 11.5d 3.1Freight tons carried (m)539,639959,7631,486,000175.354.8Freight tons carried one mile (m)68,727,223123,667,257222,900,000224.380.2Receipts per ton per mile (mills)9.227.247.55d 17.04.2Locomotives, number29,03636,70357,22097.055.9Locomotives, weight (tons)1,161,4401,945,2594,158,000258.0113.7Passenger cars (number)24,58633,85046,02687.235.9Freight cars, number829,8851,295,5102,113,450154.663.1Freight cars, capacity (tons)16,597,70034,978,77073,126,370340.5109.0Average tons in train179243388116.959.6Employes, number704,743928,9241,524,000116.264.0Employes, compensation$389,785,664$522,967,896$1,003,270,000157.491.8Proportion of gross earnings40.4039.8041.001.43.0Proportion of operating expenses60.4661.0262.102.71.7Taxes$27,590,394$46,337,632$91,280,000230.896.9Per mile of line180247390116.657.9Proportion of gross earnings2.863.533.7330.45.6
There is not a line or figure of this table, with its percentages of increase, that does not testify at once to the amazing growth of American railways and to the equally amazing economical basis upon which they render incalculable services to the American people on terms that challenge the admiration of less favored peoples.
Review of the Last Three Calendar Years.
Where the Twenty-second Annual Report of the Interstate Commerce Commission minimized the loss inflicted on the railways by the business depression of 1908, the Twenty-third Annual Report naturally, and by reason of the same cause, minimizes the substantial recovery of 1909. Where the former showed a loss in gross earnings of only $164,464,941 below the preceding year, when the actual result of the depression was nearly $300,000,000 ($298,457,576), the latter shows a recovery of only $21,770,228, when it was approximately $282,000,000 ($281,934,932).
The explanation of this discrepancy is, of course, the Commission's adherence to its own fiscal periods of statistics, which do not happen, in this instance, to coincide with the ebb and flow of adversity and prosperity. The true movement of railway traffic before, during and after the recent business depression is more nearly reflected in the following figures for the calendar years 1907, 1908 and 1909, compiled from the monthly returns to the Interstate Commerce Commission, divided into periods of six months: