Some Grounds For 
 Encouragement In 
 The Railway Situation 
 
 An Address Before 
 
 The Transportation Club of Indianapolis 
 March 31, 1911 
 
 i 
 
 By 
 
 FAIRFAX HARRISON 
 
 President Chicago, Indianapolis & Louisville Railway Co. 
 
Digitized by the Internet Archive 
 in 2015 
 
 https://archive.org/details/somegroundsforenOOharr 
 
1932 
 
 
 
 
 
 SOME GROUNDS FOR ENCOURAGEMENT IN THE RAIL- 
 WAY SITUATION. 
 
 It is with some hesitation that I venture to avow that there are 
 cheerful views on the railroad situation today, because there are so 
 many difficulties surrounding the management of railroad property 
 as almost to justify a railroad officer in becoming a confirmed 
 pessimist. But leaving for the moment to others the rehearsal of 
 the difficulties, it may be well to look for portents of good omen. 
 Fortunately, the railway horizon is not altogether black. Even in the 
 decision of the great rate case, which brought bitter disappointment 
 to many railway managers who, with confidence, had expected from 
 it some measure of relief from their immediate responsibility — even 
 in that disappointment there are grounds for encouragement. 
 
 In one vital respect that great controversy has accomplished 
 something for the railways which has never before been possible. The 
 very importance of the questions involved and the theory on which 
 the case was presented required the Interstate Commerce Commission 
 to make a thorough examination of the financial condition of all the 
 railways of the United States. The result was impressive. With 
 opportunity such as no one ever has had before, not even the great 
 banking houses, and after months of careful and serious investigation, 
 the accredited experts of the government in railway matters — the In- 
 terstate Commerce Commission — came to the conclusion and certified 
 to the world that under existing conditions the American railways are 
 financially sound. Think what this means to the doubtful investor. 
 No industry seeking- capital, with the single exception of the national 
 banks, has ever had such a certificate. One could now almost endorse 
 on a new issue of bonds “Security approved by the United States.” 
 Furthermore, because responsible and harried officers of the railways, 
 doubtful of the solution of their immediate and pressing problem 
 of prolonging successful management, had testified that the railways 
 should have additional revenue if they are to grow and prosper, the 
 Interstate Commerce Commission added the assurance that, if the 
 time shall come when such a view shall be demonstrated to be imme- 
 diately apparent, they (the Commission) will exercise the power 
 which the law vests in them and permit such advances of rates as 
 may be necessary to maintain the sound financial condition which 
 they certify now exists. Let us consider for a moment what is the 
 import of this declaration and solemn covenant. Every successful 
 railroad in the country must continue to grow. A railroad which is 
 
 1 
 
not a progressive railroad is a dead railroad. The American people 
 have been wont to look to the railways to lead in promoting and 
 encouraging new industry, for there is no industry in which they are 
 not partners. As the volume of the business grows the railways; 
 must expand and in our Jack’s bean stalk civilization such expansion 
 will always be too rapid to admit of providing the necessary money 
 out of the accumulated railway income, be it never so conservatively 
 administered. The railways must, therefore, be forever calling for 
 new capital, and that they can now do and point to a definite assur- 
 ance that the national government will foster and protect the capital 
 so invested. It was almost worth the disappointment over the ad- 
 verse decision in the rate case to realize this. 
 
 Gentlemen, the railways of the United States are not ruined by 
 the rate decision, but it has in truth called on them for a tremendous 
 new effort. 
 
 The most important ground for encouragement today is the 
 fresh stimulus which has been given to the study and practice of 
 efficiency in railroad operation, for we still hope to overcome our dif- 
 ficulties by self help rather than through enfeebling dependence upon 
 a government guaranty. 
 
 I do. not now refer to or advocate the theory or the application 
 to the railways of the so-called “scientific management” which has 
 lately been bruited over the land. Whatever may be accomplished 
 by such means in individual industrial functions, we may safely 
 assume that “scientific management,” as the term is currently used, 
 will never be practiced in the broad and complicated problem of rail- 
 road operation. The representatives of organized labor at the recent 
 hearings before the Interstate Commerce Commission spoke the final 
 word of impossibility to any such expectation when they said that 
 American labor would never submit to the mechanical limitations 
 of those methods. 
 
 Nevertheless, there is an increased efficiency of method which 
 can be practiced and which will go far to accomplish the salvation of 
 the American railways which are today operating on a narrow, and 
 hitherto ever narrowing, margin between the lowest rates in the 
 world and the highest wages in the world. 
 
 It may be admitted that many of the methods of current railway 
 operation are wasteful, but the railways do. not stand alone convicted 
 of this serious indictment. As a people we are the most wasteful 
 civilization has ever seen. It is an evidence of our youth. We use our 
 . natural resources as a child plays with his Christmas toys, with hectic 
 attention now to this, now to that, and so little care or forethought 
 
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that at the end of Christmas day many of the gew-gaws are broken 
 and destroyed. It has been so with our forests. The state of Indiana, 
 once almost entirely forest, stands, scarcely a century since the first 
 considerable immigration, practically denuded of native lumber sup- 
 ply, so that her railways are buying their crossties in Northern Michi- 
 gan and in Mississippi. We still see rotting fences of walnut rails to 
 testify to the exuberance of the original timber and the waste of the 
 pioneers. This beautiful city of Indianapolis would today be still 
 more beautiful if only one in a hundred of the great trees were still 
 standing which once made a canopy over its site. It will be recalled 
 that the city was laid out in 1821 in a dense forest. Says Mrs. Lever- 
 ing in her delightful “Historic Indiana”: 
 
 “After Indianapolis actually became the seat of government, the 
 authorities, being anxious to have the streets opened up, gave the 
 magnificent timber, in what is now Washington street, to the con- 
 tractor for removing it. After the trees were felled there were no 
 mills to cut them up and no demand for lumber, so the logs were 
 rolled up in piles and burned, to the loss of the contractor and the 
 regret of later generations. Great sugar groves occupied the ground 
 where the Soldiers’ Monument now stands and where the State House 
 is situated.” 
 
 What has become of the reservoir of natural gas which so short 
 a time ago was one of the glories of Indiana? It would be merely 
 painful to ask if it has been efficiently conserved and distributed. 
 
 Waste is the characteristic, also, of our agriculture. Rejoicing- 
 in a soil than which there is no richer in the world — the deep, black 
 humus filled area of the corn belt — many Indiana farmers go on rob- 
 bing the land of its fertility with crop after crop, and little thought for 
 the future. They have always believed that if the incredible should 
 become the actual and their land should no longer yield, they could 
 pull up and go West, as their fathers 'came to Indiana, to a promised 
 land where virgin soil forever awaits the plough. Even today, when 
 the Census tells us how many farmers have so emigrated, and there 
 appear to be limits even to the hospitality of the West, we see too 
 few Indiana farmers conserving what they have by keeping cattle 
 and feeding on their land at least a part of the abundant corn crop ; 
 i ' and at this season of the year we even see the farmer burning in the 
 field the fodder which might have carried some young cattle over 
 the winter. 
 
 We are wasteful, too, in our personal habits of extravagance. 
 Senator McCumber of North Dakota put this very well and forcibly 
 in Congress the other day when he rehearsed what the farmer, so 
 
frugal at home, spends for a day in New York. Here is his list of 
 expenses measured by farm produce : 
 
 Cab to hotel. 6 bushels of oats. 
 
 Tip to driver 15 cabbages. 
 
 Tip to elevator boy 2 dozen eggs. 
 
 Tip to bell boy \y% bushels of barley. 
 
 Breakfast .' R 2 ton of hay. 
 
 Tip to waiter.. 2 bushels potatoes. 
 
 Luncheon 1 sheep. 
 
 Tip to waiter iy 2 bushels of carrots. 
 
 Dinner 4 bushels of rye. 
 
 Tip to waiter 1 bushel of onions. 
 
 Room Half a car of turnips. 
 
 So in confessing that American railway practice has been wasteful 
 the railway man simply takes his place beside his fellow citizens in 
 other walks of life, but there is an economic pressure on him which 
 no other class of-the community has yet felt, and this has been teach- 
 ing us since the panic of 1907 that we must learn to practice efficient 
 economy in railway operation. Mr. Brandeis has undoubtedly 
 quickened this study by quoting so publicly and so dramatically as 
 to arrest the attention of the nation, the extravagant claim of one of 
 the efficiency engineers that the railways might save a million dollars 
 a day by adopting his particular panacea. While little serious con- 
 sideration has been given to this claim, it is a fact that since Mr. 
 Brandeis sounded his clarion, many responsible railway managers, 
 who had some difficulty in restraining their immediate indignation 
 at the impertinence of the assertion, have been looking about with 
 renewed energy to see where they can institute greater efficiency of 
 operation. Men who have reached the top because they have been 
 more efficient than their fellows are now taking up their belts another 
 hole and asking questions which have set many a subordinate forward 
 to a realization that he is spending money unnecessarily to accom- 
 plish his particular stint of work. 
 
 If the operating offices are studying more closely their unit costs 
 today, it may not be considered inopportune to question whether the 
 traffic officers may not with profit study the efficiency of their methods 
 also. One can fairly ask whether rate making as practiced today is 
 as efficient or as systematic as it might be. It has been well said, in 
 explanation of the apparent lack of system, that railroad rate making 
 is not a science, but, like any other price making, is an art. But this 
 statement will not justify beyond criticism our present methods of 
 
making rates. Artists are notoriously given to vagaries, and, yielding 
 to no one in admiration for what is perhaps the best equipped set of 
 men in the railway service — the traffic managers— it must be admitted 
 that there has not been much technique in their practice of the art of 
 rate making in the past. They have seldom based their rates on prin- 
 ciple ; they have sought chiefly to secure tonnage and move it, and 
 they have, out of very human necessity and temptation, made many 
 compromises under the exigencies of competition, which have resulted 
 in the present low basis of rates. Every shipper knows that he has 
 secured the reduction of more rates from the traffic manager than 
 from the railroad commissioner. It is doubtful whether any current 
 rate between competitive points can be analyzed to principles ; usually 
 it is the result of transportation and commercial history, and as little 
 represents the “value of the service” as it does the theory of “what 
 the traffic will bear.” 
 
 But hereafter under government regulation the rate maker must 
 base his work upon principle, and while probably he can never, under 
 our American conditions, create a strict science of rate making, he 
 can promote the art into a profession. A profession is the practice 
 of individual initiative under established rules ; the lawyer shapes 
 and weaves the settled rules of the law to meet new facts and condi- 
 tions under the regulation of the courts. The surgeon adjusts his 
 every operation to the sudden emergen cy, but always within the 
 limitation of the binding etiquette of his profession. Both lawyer and 
 doctor draw on science, the recorded theory of the philosopher, and 
 both use art in the particular application, but always they can cite a 
 principle for everything they do; and it is in this that a Profession 
 differs from an Art. The great painter is little bound by rules and 
 philosophy; the musician even less; their individual genius flowers 
 differently in every generation. The nightingale cannot tell why he 
 gushes melody. 
 
 It is possible that the ratemaker in the past has modeled 
 himself more on the nightingale than on the lawyer and the doctor, 
 but it is a cheering promise for the future of American railway prac- 
 tice that the necessity of constantly justifying his rates upon the 
 witness stand is forcing the traffic officer to study, for example, the 
 cost of service as an element of the basis for a rate. 
 
 It is fair to say that the traffic officer has had peculiar handicaps 
 not of his own making. One of the greatest difficulties he has met in 
 adjusting himself to regulation has been the unfortunate ease with 
 which the lawyers have defended what is sometimes bungling rate 
 making by the terrible plea of confiscation. When, in the case of 
 
 5 
 
Smyth v. Ames, the Supreme Court of the United States laid down 
 the principle that there is a minimum below which regulation may 
 not reduce railroad revenue, and restrained, on the ground that they 
 were confiscatory, the maximum rates which the state of Nebraska 
 had sought to impose on the railways, a swarm of injunctions was 
 let loose, like locusts upon the land. Every time governmental author- 
 ity regulated a rate or a system of rates, the railway officers, under 
 the advice of counsel, pulled long faces and pleaded poverty. While 
 in some cases of a general attack upon a whole system of rates it was 
 a sound plea and well taken, in other cases, involving a single rate 
 alone, it was Pickwickian. 
 
 As a result of the analysis by the Interstate Commerce Com- 
 mission of the financial condition of the railways as a whole, confisca- 
 tion, as a working hypothesis in practical rate making, is likely to be 
 relegated to the limbo of history, to be there reserved for invocation 
 in those rare cases where sudden popular fury seeks to overthrow all 
 constitutional limitation and the very bulwark of property. 
 
 The study of systematic rate making has been confused also by 
 the will-o’-the-wisp of the Physical Valuation theory. At first it was 
 the popular advocate, the shrewd politician, who seized upon Physical 
 Valuation as a slogan because he had heard so much of watered 
 securities that he believed that a valuation of railway property would 
 afford an automatic excuse for compelling a reduction of rates. But 
 after the first few valuations had been made the shrewd politician 
 dropped that theory like a hot potato. The practice of the railways 
 in the past of putting back into the property so large a proportion of 
 their revenues through maintenance expenses, and the increment of 
 real estate values which the railways claimed equally with the owner 
 of the corner lot, were demonstrated to have run up the physical 
 value of most of the railways, when ascertained by any fair system 
 of appraisal, to a figure which was dangerous to the theory that rates 
 were too high if based solely on physical value. So some railways 
 themselves who at first had opposed physical valuation, seized upon 
 the discard of the politician and promoted it into a ground for an 
 injunction. But probably this plea must now be abandoned also by 
 the railways. The implacable logic of the suggestion that on this 
 theory as values are constantly increasing, rates must also constantly 
 increase, would seem to put an end to rate making on the simple 
 arithmetic of Physical Valuation, for every student of political 
 economy knows that railway rates in the United States, taken by and 
 large, have, through the operation of general economic laws, gradu- 
 ally and steadily decreased. 
 
 6 
 
I believe that most traffic officers will be glad to be put to the 
 necessity of justifying their rates by the more difficult appeal to the 
 merits of their handiwork, and so to become practitioners of what 
 will be recognized as a learned profession. 
 
 It is a cheerful sign of the times also to observe new evidences 
 of increasing efficiency in the practice of the government function 
 of Regulation. A jury empanelled from the general body of citizens 
 is doubtless as well qualified to judge the merits of facts in contro- 
 versy as any human agency; they represent what the poet terms 
 the Common Sense of Most. But when it comes to passing 
 upon the merits of the technical activities of highly organized and 
 sensitive functions like those involved in the operation of a railway, 
 it is not too much to ask that at least a special panel should be drawn 
 for the jury in such cases. Whatever may have been the case in the 
 past, when Regulation was in its infancy, today the government 
 officers who administer the powers of regulation which the state has 
 assumed to exercise, are becoming daily better qualified and more 
 expert in their duties, and as they appreciate the problems of the rail- 
 way officer and learn from personal contact that, like themselves, he 
 is usually a very human man trying to do his duty to those who 
 employ him, and very little of an octopus, they have grown tolerant 
 and, while alert to perform the full measure of their public duty, are 
 increasingly willing to be fair, even when there are strong evidences 
 of momentary popularity to be derived from doing the thing which 
 is unfair. 
 
 While discussing regulation, I venture to suggest to some of you 
 who are engaged in other industry than railroading, that regulation 
 is not likely to be forever limited to railroads. The railroads have 
 perhaps been through the worst of their experience, and are now 
 almost ready to take their place in the safe and strictly supervised 
 rank of the national banks. In the next few years they will probably 
 be able to view with sympathy the similar subjugation of other 
 branches of industry. The recent decision of the Supreme Court 
 upholding the corporation income tax law has firmly driven in the 
 entering wedge of effective and implacable governmental control of 
 all corporate forms of activity. 
 
 The system of the social democratic state which regulation of 
 industry involves may thus be enabled to fasten upon all our com- 
 mercial life. It will perhaps next manifest itself in respect of our 
 manufacturers, and it will not be confined to the trusts. The small 
 railroad has been included with the great system and is regulated 
 equally with them; so the logic of regulation will involve the small 
 
 7 
 
manufacturer with the great. Perhaps not even the press will 
 escape regulation. Ferdinand Lasalle, who in the middle of the 
 nineteenth century was preaching in Germany advanced social doc- 
 trine, much of which has now matured into political commonplace, 
 included the press in his program of state regulation of business activi- 
 ties. He maintained that the press could be debauched only by the 
 tendency to become not a pulpit of light and learning, but a com- 
 mercial venture, deriving its principal revenue and even some inspira- 
 tion from paid advertisements, and to preserve the freedom of the 
 press he proposed that by law the publication of advertisements 
 should be limited to a government gazette. Recent events in the 
 Post Office Department at Washington imply that this is not impossi- 
 ble, even in the United States. We can then imagine the rural free 
 delivery carrier of the future leaving daily at every vine-clad cottage 
 a pound of Congressional Record encompassed and illustrated by five 
 pounds of advertisement, while the contemporary muckraking maga- 
 zine will be clad in the consciousness of the rectitude of its intentions 
 and will bear on the modest cover of its slender proportions the 
 image of a fig leaf. 
 
 The day - of the Manchester school and hisses faire is gone. The 
 day of the social democratic state is dawning. Personally, I do not 
 repine at the change, although I have been educated in the school 
 which thrilled with the achievements of unregulated capital. I do 
 not mean to laud the mere sudden acquisition of great and vulgar 
 wealth by individuals, but, regarding that as an incident to the 
 national increment of strength and power through the development 
 of the national domain, the period through which we have lived and 
 which is now drawing to a close has witnessed superb daring and skill 
 and courage on the part of our captains of industry. It is they who 
 have made our vast country blossom where it was wilderness. It 
 is they who have accomplished for the United States what every 
 nation of the world seeks ardently as an assurance of existence— a 
 steady increase of population — by providing through their activities 
 the compelling allure for immigrant labor. In fine, they must be 
 chiefly credited with those industrial triumphs which brought our 
 country in the brief period between the Civil War and the Spanish 
 War to a commercial position which has challenged the political and 
 military respect of the entire civilized world. Perhaps we grew too 
 fast, but we grew nevertheless, and that growth was due in no small 
 measure to the methods of the men who dared and in daring did, as 
 most adventurers do, things which a subsequent and more intense 
 civilization cannot approve. 
 
 8 
 
The railwa} 7 s of the United States are part of the achievement 
 of these men and they have suffered a terrific economic upheaval to 
 pay for their sins. Though the consequent struggle for the con- 
 tinued existence of the regime of private ownership and initiative is 
 not yet finished, I venture to believe that the railways may still work 
 out their salvation, but only if they will bend their energies more 
 to increasing the efficiency of their methods — to intensive cultivation 
 of their opportunities — than to resistance of decrees which organized 
 society has determined to enforce upon them. 
 
 Facing, then, the inevitable and changing front, as the world did 
 after the battle of Waterloo, it is the duty of railway officers of every 
 rank today to adjust themselves to the new conditions and accom- 
 plish in their profession a new achievement of which hereafter the 
 American people can be as proud as they now are of the marvel of 
 the construction of the railways in the generation which is dead. 
 
 It is no time to lament the past or recriminate the inevitable. If 
 it is a time of adversity it is the more a time for courage and cheer- 
 fulness, like that of Paul Jones on the Bonhomme Richard , when his 
 ship riddled and his masts shot away, his flag at last fell to the 
 bloody deck. “Have you struck?” called the English captain, and Paul 
 Tones replied with a voice of thunder: “Sir, I have just begun to 
 
 fight !” 
 
 Every schoolboy knows what was the result, and every school- 
 boy will know what the American railways can do in similar plight. 
 
 9