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more favorably situated carriers operate, so that railroads that were always carried entirely by private capital could not compete with either those that were carried through the pioneer period by government grant, or those territorially more favorably situated.

We have today a number of railroads whose origin would have been delayed, to the great loss of the country, had they been forced to look entirely to private capital. The effect of government or public aid in these instances has been to save the pioneer private investor from loss and to establish equities with the accompanying growth of business which have now assured large profits from their transportation service even under the standard operating conditions of the present period. The Association recognizing that the Interstate Commerce Commission could not deviate in its rate making powers to take care of the less favorably situated railroad without permitting the more favorably located road such excessive earnings as would be intolerable to the public, has as one of the fundamentals of the Plan for the Return to Private operation the principle of a statutory fixed rule for rate making with a leveling process to take care of the excess earnings. This rule provides that the railroad rate shall be sufficient to return 6 per cent upon the property values in the aggregate, and where there is an excess earned to divide this excess, preferably, into three parts; one to go to the railroad as a premium upon its ability to earn such excess, thus taking care of the equities of far sighted management; another third to be used for the benefit of labor; and the balance for the acquisition of additional facilities for universal use by all the railroads. This is somewhat analogous to the Federal Reserve System which left the individual bank to serve its community, but superimposed a regional bank whose earnings were limited to 6 per cent to the stockholders and the excess applied to creating facilities available for the use of each of the individual banks dealing with the public.

In this railroad plan there is no guarantee. If the service is not performed, even though the rate is profitable, the private ownership of the railroad receives no return upon such investment. Thus the incentive is preserved to make the division of earnings to the railroad as great as possible. The obligation of the individual railroad to serve the public in the most efficient way is left unchanged, but the control of the rate structure is

such that as service is rendered a profit is returned and the ele-. mentary principle of merchandising implanted in the sale of transportation. Under such an arrangement the doors of capital now closed to the railroads would be opened and investors would freely offer funds for railroad requirements just as every other business that has opportunity for profit finds capital and credit readily available.

The idea of government guarantee takes on many forms besides the one applied during government control. There is the suggestion that government securities of a low interest rate be exchanged for all the outstanding securities of the railroads. A little reflection is necessary to show how impracticable this proposition is. To attempt to exchange existing railroad securities with their varying priorities for a government issue would be a departure in national financing greatly to be deprecated even if possible of achievement. To condemn and pay cash for these railroad properties is equally impracticable.

The quest for the way out of the present difficulties has produced other propositions equally fallacious. There is a suggestion for compulsory federal incorporation. Eminent counsel have disposed of this on constitutional grounds. The private investor looks upon the surrender of charters, under which they made their original investments, protected by the sovereign power of the states whose people are directly concerned in the prosperity of such properties, as a venture upon a sea of a peril exposed to any radical upheaval in national politics.

The crux of the problem lies with Congress. It can safely follow the rule adopted in the creation of the Federal Reserve System. The life's blood of the Federal Reserve System is the note circulating power. The keystone to this power is the gold reserve. Congress did not leave to the uncontrolled discretion of the Federal Reserve Board the regulation of this gold reserve, but by a statutory rule directed in exact terms and figures the use of this power. The life's blood of the railroad system is the rate structure. The Interstate Commerce Commission is left to struggle with the interpretation of what this rate structure should be. By the Association Plan Congress is asked to instruct the Interstate Commerce Commission by a definite rule on this question. All else in the railroad problem is a matter of detail,

as the real heart of the problem requires neither government ownership nor government guarantee. It calls for no change in the corporate structure of the railroad properties in the country; it imposes no burden upon national finances such as suggested exchanges of securities for government bonds; it leaves undestroyed the outstanding securities of the corporations; it does not deal with the question of undercapitalization or overcapitalization; nor does it guarantee that overcapitalization shall obtain any advantage; it requires no complicated machinery for installation; it does not destroy the present railroad operating and financial structures, so necessary to the continued development of the country; its effect can be obtained immediately, and Congress can add such supplemental legislation as the future may direct. It is a solution of the problem, based upon common sense and devoid of the paternalistic idea of government guarantee.

The Elements of a Satisfactory Railway Policy

THE

By NATHAN L. AMSTER

President, Citizen's National Railroads League, Boston, Massachusetts 'HE railroad policy in the United States up to the time of Federal control, was, to say the least, slip-shod and shortsighted. It was neither conceived nor carried out with a view to obtaining coöperation between the railroads, the employes, the shippers, communities served and the public. In fact the policy was such that no foundation was laid upon which to build a lasting and satisfactory business structure which could command the public confidence or adequately serve the nation. In consequence, the railroad industry as a whole became both unprofitable and unpopular. As was inevitable from the outset, the industry, as an institution, has gone the way of all other autocratic institutions.

UNIVERSAL RELATION BETWEEN RAILROADS AND PEOPLE

The people who, in the main, were responsible for both the policy and the form of railroad control of the past in their shortsightedness overlooked the fundamental fact that the railroad industry, intrinsically touches the very heart of, and indeed is, democracy. Its service comes nearer to being a part of the everyday life of the people, individually and collectively, than any other industry or institution in the country. Just how intimate is the relation between the railroads and the people is well illustrated by the fact that one-fifth of the population of the country have a direct or indirect proprietary interest in the railroads, either through ownership of stocks or bonds, or by reason of their ownership of life insurance policies or their deposits in savings banks. Then, when one considers the millions of railroad employes, the millions engaged in the manufacture and production of the fuel and supplies used by the railroads, it can be estimated that no less than one-third of our entire population is most vitally interested in the railroads, either as owners or by dependence.

CONTROL OF RAILROADS IN THE PAST

Yet, anomalous though it may be in a country essentially democratic, the control and management of the railroads-the virtual

dictation of the policy of government of an institution so close to the life of so many millions of people-has been held by a score of powerful financiers or their nominees. In other words, the life and destiny of the greatest industry in our country has remained absolutely in the control of masters whose power has been as vast and autocratic as that exercised by the Hohenzollern and Hapsburg families over the life and destiny of the German and AustroHungarian peoples.

OBJECTIVES IN A RAILROAD POLICY

This autocratic control, self-seeking and self-created, of the basic American industry must be overthrown and dispossessed as European autocracy has been dispossessed. The interests of the railroad business and of the nation, demand it. The dispossession of financial autocracy in the railroad world must form one of the essential elements of the transportation policy for the future. If this is not accomplished there must follow deterioration in railroad service, depreciation in railroad securities, and dissipation of railroad credit. In short, in determining a railroad policy for the future, we must democratize the industry by radical reform of the system of management and control, reëstablish railroad credit and fix once and for all time an invigorating rate policy. I am convinced that no satisfactory policy can be framed which does not assure:

1. Adequate transportation facilities.

2. Economical operation, with proper and ample provision for improvements in service.

3. A fair return on capital honestly invested.

4. A sound and scientific rate-making policy.

5. A better understanding and a closer relationship between the railroads and their employes.

In order that these fundamental reforms may be assured, I have come to the conclusion that we must, first of all, provide a means of accomplishing the following:

(a) The approximate valuation of the railroads in public service.

(b) Efficient management independent of the financial interests that controlled the roads in the past.

(c) Definite and statutory rate-making laws;

(d) Control of management and operation by the different interests con

cerned.

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