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cent. Is it too much to say that such facts are a complete answer for those who persistently view with alarm the outlook for American railroads?
In this case the railroads argued that they had put their surplus earnings back into their properties and had capitalized these additions to their properties and that they were entitled to have their properties valued on the basis of their reproduction cost and thereby entitled to impose an additional burden of freight and passenger charges upon the public. The Interstate Commerce Commission took the position that “whether value means investment, cost of reproduction or something else, our position is that a railroad may not increase rates upon shippers for the reason, and as an outgrowth of the fact that it has accumulated out of rates a balance of profit which has been invested in the property. This investment must take care of itself, it must bring a return for itself, either in increased traffic, or in a reduction in the expenses of operation." The commission pointed out that if the investment of surplus would authorize the increase of rates then “the shipper is worse off each time he pays a rate which allows a revenue over and above a reasonable return upon the original investment."
In this case decided in 1911 may be seen the battle lines laid down for the contest between public and private interest which is now being waged in the third period of railroad exploitation of the public—the period of forcing money out of the public to maintain the fortunes of the railroad dynasties through guaranteed income. As railroad properties have been overloaded with security issues, representing the capitalization of excessive profits made or to be made out of public service, these corporations have steadily approached their present dilemma wherein they find it impossible to justify the exaction of the rates they desire on the basis of a necessary reimbursement for the cost of service.
It is well known to all students of transportation problems that the railroads, distinct from all other industries, do not keep cost of service accounts, that it is impossible to tell from the accounts of a railroad the actual cost of hauling its freight or passenger traffic, of transporting a particular commodity a specified distance. In the western rate case of 1911, the commission endeavored to ascertain the relation between the cost of service and the proposed charge for the service. The railroad executives unanimously opposed the application of any such standard and agreed that the cost of service could not and should not be ascertained. They insisted that rates should be based upon what the traffic would bear and that the traffic manager's judgment should be supreme in his determination of what rate the traffic would bear and what profit he should obtain. The commission summed up the railroad position in the following emphatic language: “This theory entitles the railroad to enter the books of every enterprise which it serves and raise or lower rates without respect to the earnings of those whose traffic it carries. This is not regulation of railroads by the nation, but regulation of the industries and commerce of the country by its railroads. • a position which may fairly be characterized as a modern extension of the ancient principle of divine right.”
The railroad managers knew that such a position could not long be maintained against the opposition of intelligent and honest public officials and so the pressure increased for fixing railroad rates upon the basis of that vague, uncertain thing called the "value" of the property. It happened about this time that Senator LaFollette was pressing before congress his demand for a valuation of the railroad properties, in order that the public might know how much those properties had cost. He sought for a valuation to determine the investment in the railroads, because as some of the books of the railroads had been destroyed and all railroads' accounts were unreliable, a valuation of railroad properties was necessary to find what they represented as actual investment.
Senator LaFollette's bill became a law and, as so many times before, the railroads saw their opportunity to prevent the purpose of a law in the public interest and to make it an instrument for private advantage. They had exhibited the same tactics in regard to state railroad commissions and the Interstate Commerce Commission. They had fought against the creation of such regulatory bodies. They had fought against every grant of power to them, they had complained on every occasion when called to account for their misdeeds that they were hampered by public regulation. Yet in the testimony in the western rate case it was admitted by the chief spokesman for the carriers that regulation had saved the railroads from themselves, that under competition between the various railroad exploiters they had cut each other's throats. President Ripley of the Santa Fe, admitted that prior to regulation the railroads had suffered and not made what he regarded as a proper return and their condition had improved under regulation. Commissioner Lane, in his opinion, asked: "Could there be any position less reasonable than to cry out against restrictive legislation and in the same breath ask benefits under this legislation which never were and admittedly never could have been won in the open field of unlimited competition ?"
True to their traditions the railroads, having opposed Senafor LaFollette's program, made plans as soon as that program had become a law to misuse it for private profit. For the past ten years they have been carrying on a persistent campaign for the valuation of their properties at amounts between 50 per cent and 100 per cent greater than the actual investment in them and at the same time they have sought before the commission and in the courts to establish as a law that they shall be entitled to earn interest upon this inflated valuation; even though it may be twice the amount of actual investment, and even though a large part of that investment has come from voluntary and involuntary donations by the public.
The Great War came, and the railroads again, as in the Civil War, seized the opportunity to ride their schemes for private profit to victory on a wave of patriotic fervor. These railroads that make such sweeping claims of the efficiency of private enterprises, failed to meet the national need in time of war. Their operations collapsed under the strain of our entry into the war. The results of the mismanagements of decades piled up and swamped the railroads. Lines were congested; terminals were blocked; locomotives and freight cars were out of repair in such numbers that there were neither the cars nor the motive power necessary to transport freight. The allied armies in Europe were forced to reduce their rations because the foodstuffs from America could not break through the tangle of transportation and be loaded for shipment at the Atlantic ports. The railroad executives hurried into Washington, demanding, as ever, more money, higher rates and government aid. Otherwise, in the language of one of their spokesmen, there would be but one result—they would “smash.”
The government took over the railroads because their private managements had failed utterly to meet the emergency. The government, using the trained operatives of the railroads, and subordinating private greed to public necessity, untangled the snarl of traffic. The tremendous transportation of food products, machinery and men necessary to support the armies in Europe was established and maintained throughout the war.
To take over the railroads in this emergency required some legislation providing for the payment of compensation to their private owners. We could draft men but we would not draft property. We could conscript lives but we would not conscript dollars. We could take a worker supporting a family, although with some difficulty, on a wage of $1,500 to $2,000 a year and pay him as a soldier $360 a year. But we would not take a rail
a road property earning a million dollars a year and force the use of that property to transport that soldier and his food without paying the railroad what it might earn in time of peace. So the guarantee principle got its start in our law and the railroads were guaranteed the average of their earnings during three of the most prosperous years in railroad history.
Then, having taken more than they were entitled to out of our war appropriations, the railroad aristocracies began the most infamous poisoning of public opinion in all our history. They have spread far and wide the legend that federal control cost nearly $2,000,000,000. Yet Walker D. Hines, director general of railroads, himself before and after federal control a railroad official, made an official report in which he said: "My judgment is that federal control has not cost a cent more than private control would have cost in the same difficult period, but on the contrary has cost considerably less."
Then at the end of the war these railroads that had been taken over, broken down, inefficient, half helpless, unable to perform their necessary service, raised a great cry that they had been under-maintained, that they had been wrecked by public regulation. The statistics with which the records of congress are filled show this to be one of the record-breaking lies in history. Perhaps it may be eventually described as the giant of all great lies, the tallest falsehood of all time.
But under cover of this abuse of government, under cover of this unpatriotic slander and libel of their own government, the railroads managed to put across a further step in their present program to obtain guaranteed earnings. The Esch-Cummins act was passed providing that the Interstate Commerce Commission must fix rates that would return 512 per cent to 6 per cent upon that unknown quantity called the "value" of the railroads upon which they shall be entitled to earn interest in transportation rates.
Briefly, this is a struggle to determine the amount of the mortgage which the private owners of the railroads shall be given against the American people, a mortgage which the people will not be permitted to pay off, a mortgage which will always grow greater and never grow less, a burden which we shall impose not only on ourselves but on posterity. This mortgage is to include within its terms a grant of absolution for all the sins of the American railroad exploiters against the American people.
It makes no difference, according to the railroad claims, whether the railroad property is in land given by the public or in surplus earnings extorted from the public through unjust rates. It makes no difference, according to the railroad claims, what the amount of the investment is. If expert accountants and high salaried engineers by intricate and fantastic theorizing can calculate for a railroad property an artificial, imaginative "value," a thing unknown to political economy, or to the ancient law, and if a commission, and then a court can be persuaded to put its seal of approval upon that "value," the burden of paying for all time, interest upon that amount of money so fixed by theoretical calculation may be imposed upon the public as an annual obligation.
In order that it may be clear what these railroad claims mean in dollars and cents, let two figures be placed in opposition.
From the best evidence obtainable it seems clear that the actual private investment prudently made and remaining in the existing properties of the American railroads does not exceed $15,000,000,000. It is equally clear that the total of claims of "value" made by the railroads before the Interstate Commerce Commission exceeds $30,000,000,000. Of course, these claims are padded beyond all possibility of acceptance, but the railroads in recent official statements have indicated that they will contend to the bitter end for claims that will amount to upwards of $25,000,000,000. If then these claims are to be allowed the railroad aristocracies will have fastened upon the common people of America, the producers and consumers, the shippers and travelers, the burden of a mortgage of not less than $25,000,000,000 of which approximately $10,000,000,000 represents no private contribution to public service. The allowance of such a claim would be equivalent to an order of court that the American people give a note for $25,000,000,000 in exchange for $15,000,000,000 received.
It is dangerous to deal in superlatives and yet it is probably safe to say that the allowance of this $25,000,000,000 claim would accomplish the most colossal swindle of a people by its rulers in all ages.
The railroad problem of today can be expressed in reasonably simple language: Are we to have regulation of the railroads by the people, for the public interest, or are we to continue to have regulation of the people by the railroads in all ages ?
The railroad tradition persists. The heirs of the founders of the railroad aristocracy are following in their fathers' footsteps but where their ancestors reaped in millions they seek to reap in billions. They fill the newspapers and public forums of the nation with the same clamorous falsehoods that were circulated 50 years ago. They profess as loudly as ever that their sole aim is public service and they demand with the same audacity that public service must be subordinated to private profit or else it will be a failure. Undismayed by the wreckage of railroads strewn along their path, undismayed by their recurring failures to meet the needs of the times, unembarrassed by the fact that railroad families have grown steadily richer as railroad service has grown steadily poorer, unembarrassed by the fact that out of railroad receiverships and railroad reorganizations have always come greater fortunes for private individuals