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UNIV. OF
LIBRAR
A PROPOSED SOLUTION
OF
THE RAILROAD PROBLEM
WILLIAM W. COOK
General Counsel of
The Mackay Companies,
Postal Telegraph-Cable Company,
Commercial Cable Company,
and author of
"Cook on Corporations"
ELKIBRARY OF CONGRESS CARD A17-1402
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Reclas
A PROPOSED SOLUTION OF THE RAILROAD
PROBLEM
NEW YORK, October 24, 1917.
HON. FRANCIS G. Newlands, Chairman, Joint Committee on
Interstate Commerce, Washington, D. C.
DEAR SIR:
For ten years I have advocated government control of
Σ the railroads without government ownership. Coupled with
such government control would be government guaranty to
finance the railroads. In presenting that idea I contributed
articles to the North American Review in June, 1908; Mc-
Clure's Magazine, January, 1912; Harpers' Weekly, April
4, 1914; Yale Law Journal, March, 1915; Michigan Law Re-
view, November, 1915; a series of letters in the New York
Sun in the year 1916; an article in the Yale Law Journal in
January, 1917, and I also discussed the subject in the Prefaces
to the Sixth Edition (1908) and the Seventh Edition (1913)
of my work on Corporations. I drew a proposed Act of Con-
gress to carry out my plan, and it was introduced in the United
States Senate by Senator Thomas, December 7, 1915 (Senate
Bill No. 18). As counsel of The Mackay Companies, con-
trolling many telegraph and submarine cable systems,
through ownership of their stocks, I know the feasi-
bility, simplicity and efficiency of this plan. American lawyers
have much to do with railroad administration, but no Ameri-
can lawyer heretofore has proposed any fundamental solution
of the railroad problem. When the natural leaders cease to
lead, dangerous remedies may be adopted.
The same fundamental idea has now been adopted as a
war measure in Great Britain and Canada and soon will be
in the United States, namely, government control without
government ownership, but with government financing.
Great Britain: That country is handling its railroads to-
2
day under this plan. The English railroads are being managed
by a committee of railroad general managers, and the govern-
ment guarantees to stockholders the same dividends that they
received prior to the war. The results have been eminently
satisfactory, and, in fact, the profits to the government have
been so great that the government declines to state what they
are.¹
United States: The Presidents or chief executive officers
of the great American railroad systems, aggregating over 90
per cent of the railroad mileage, have formed an Association
for co-operation between the railroads. Now that war has
broken out this Association is taking steps which amount prac-
tically to a consolidation of all the railroads of the country
under one management for operating purposes. They adopted
a resolution April 11, 1917,
"that during the present war they will co-ordinate their operations
in a continental railway system, merging during such period all their
'Mr. Henry W. Thornton, formerly of the Pennsylvania Railroad
Company and later General Manager of one of the chief English railroads,
said, in an article published in the Railway Age Gazette in June, 1917, on
the subject of control of the English Railways by the British Government
during the present war:
"In eliminating the financial necessity for seeking traffic, it also
enabled the railways to revise their time-tables and cut out duplicate
services, excursion trains, unremunerative mileage, and what may be
termed profit-seeking facilities generally. Various stations, and even
whole sections of line, have also been closed. Furthermore, re-
strictions were placed upon pleasure party and race meeting arrange-
ments, affecting the public to such an extent as only to be possible
when enforced upon patriotic grounds by an executive acting with all
the authority of the Government behind it. I might mention here
that one of the most drastic measures brought into operation, with
the object of reducing railway travel, has been the universal raising
of all ordinary fares by 50 per cent. * Generally speaking, the
volume of traffic is at least 50 per cent in excess of what it was
during the busiest year the railways had experienced previous to
the war; but apart from occasional congestion and delay it has been
worked satisfactorily, notwithstanding the fact that about 142,000
railway men (23 per cent of the pre-war staff) have joined the colors,
either for general or railway service abroad, and that it is being
conducted with fewer engines and wagons."
* *
3
merely individual and competitive activities in the effort to produce a
maximum of national transportation efficiency.
•
992
That Association, together with the war Acts of Con-
gress, gives the government practical control of American rail-
roads without government ownership, and practically operates
the railroads as one system, pools their equipment, routes their
traffic, regulates their train service, and eliminates duplications
of service. The war is repealing the Sherman Anti-Trust
Act of Congress of July 2, 1890. That Act did good work in
breaking up railroad combinations, which threatened to con-
trol the public, but the public is now learning by the march of
events how to control without that Act. It may safely be
predicted that the American railroads will never go back to
competition, and that the past public policy of railroad compe-
tition is gone forever. It is a momentous step in the right
direction. It is the application of the plan I have advocated for
years, except that it lacks the financial backing of the govern-
ment. That backing will have to come, and with it the govern-
ment will insist on public control, instead of private control. It
will mean what the railroad men themselves are now bringing
about, namely, one vast unified railroad system, covering the
whole United States. In fact, with almost unbelievable rapidity
all of our great industries are being subjected to government
control. The natural evolution of years is being accomplished
2 President Willard, of the Baltimore & Ohio Railroad, and Chairman
of the Advisory Railroad Commission on National Defense in an address
June 29, 1917, said:
•
"One of the first problems requiring serious consideration after
the declaration of war was the matter of transportation, and I feel
that it is a great credit to the railroads of this country that in just
five days after the Congress had declared war, men representing the
175 principal independent railroad companies in the United States
assembled in Washington, and, after listening to a presentation of
the situation, they voted unanimously then and there, and signed
papers confirming their action before they left the city, giving to
a small committee of five men, selected by these railroad representa-
tives, full power to control the operation of all the railroads in the
United States during the period of the war in order that the rail-
roads might thereby be in a position to respond immediately and as
a unit to any demand made upon them by the President in the
interest of the general situation."
4
in a few months. And never again will we swing back to the
old system in its entirety. Especially so with the railroads,
without money, without friends, without hope under the
present régime.
Canada: That country has adopted this idea perma-
nently, and not merely as a war measure. A Royal Com-
mission, consisting of Mr. Acworth, the eminent railway econ-
omist of London, Sir Henry L. Drayton, Chairman of the
Canadian Railway Commission, and Mr. Smith, President of
the New York Central Railroad, rendered a report May 2,
1917, in which Mr. Acworth and Sir Henry L. Drayton rec-
ommended that a Dominion Railway Company be organized,
consisting of five Trustees to operate all the railroads in Can-
ada, excepting the Canadian Pacific, the Canadian Government
to assume financial responsibility. The Trustees were to ac-
quire the stock of those railroads without disturbing outstand-
ing bonds and debentures, and without the government guar-
anteeing those bonds and debentures.
8
This plan in part has now become a law, not by the liberal
or labor party, but by the conservative party, headed by Sir
Robert Borden, the Premier. On August 1, 1917, in the
Canadian Parliament, the Minister of Finance, Sir Thomas
8
President Rea, of the Pennsylvania Railroad, was reported on August
9, 1917, as favoring the Canadian Government's proposal to nationalize the
Canadian Northern Railway. He is reported to have said: “Only one
large system is pre-eminently profitable," and adds that the crux of the
problem is Who is to provide for the deficiency in earning and interest
charges and operating expenses and furnish the capital essential to finish
and properly equip the new lines in the next ten years or more? "Ob-
viously," concludes Mr. Rea, "the only available source in sight that can
shoulder that great responsibility is the Canadian Government. It is also
obvious that the Canadian people will not shoulder these obligations and at
a future date permit private companies or stockholders to be the bene-
ficiaries. The majority Commissioners suggested operation by a board
of trained railroad and business men, with practically a life tenure of office.
This is an experiment which may fail, but some such co-operative plan
must be adopted to meet with the approval of the Canadian people. The
burden is too great to be left solely to private capital and initiative, because
there is no present or immediately prospective earning capacity to warrant
private capital in assuming that load, and all capital sources are being
drained by the war."
5
White, placed before the House of Commons a proposal that
the government should acquire $60,000,000 of the capital
stock of the Canadian Northern Railway Company (the re-
maining $40,000,000 being already owned by the govern-
ment), and said:
"This opens up a great vista to the imagination of the members
of this House and the people of this country, because it means that
the people of Canada will own, not only a highway from Halifax to
Vancouver, but a great transcontinental railway system in its grades,
curvatures and connection second to none.
214
The Canadian Parliament has passed the bill. This is
government control and government financial responsibility
* Further details as drawn from the statement made to Parliament by
Sir Thomas White on that occasion are as follows;
"With the $40,000,000 par value of stock which we now have, we
shall be the absolute owners of the Canadian Northern Railway
system. Whatever money we expend in payment of fixed charges,
for betterments or for rolling stock, will enure to the direct and
sole benefit of the people of Canada. We think it desirable, in the
interests of efficiency of management, and for the purpose of financ-
ing, that the system should continue to be administered as a cor-
porate entity. Therefore, we propose, as I have stated, to acquire
all the outstanding stock."
As to the mode of determining the value of the $60,000,000 of stock,
Sir Thomas White said that it would be by arbitration, and if all of the
arbitrators did not agree the Supreme Court of Canada should decide the
matter. Sir Thomas further said:
"We are preserving the corporate entity of the Canadian North-
ern Railway Company. When we get the stock, we are absolute
masters of the Board of the Canadian Northern Railway Company
and of its entire administration, and the Board, as we constitute it,
will be the Board of the Canadian Northern Railway Company car-
ried on for its shareholders, who will then be the people of Canada.
In other words, the private ownership of the shares is entirely
eliminated.
*
*
*
"In the appointment of the board of directors and the general
administration of the Canadian Northern Railway system we shall,
of course, have to consider what is in the interests of the public.
Speaking offhand, I should say this: There are on the staff of the
Canadian Northern some exceedingly capable officials-men like Mr.
McLeod, Mr. Hanna and Mr. Mitchell, the operating heads of the
several departments. My own view is that the government would
be wise to retain as far as possible the services of these men in
connection with the administration of the system.
*
*
*
*
*
"It is true that the Governor in Council, through the ownership
6
without government ownership. The Canadian Northern
Railway system comprises about one-third of the railway
mileage in Canada. The only difference between my plan and
the proposed plan of the Canadian government is that under
my plan the stock in the railroads would continue to be owned
by the public in the form of government guaranteed stock of
the five Federal Railroad Companies, while under the Cana-
dian plan the government will own all of the stock.
The Canadian plan is good and we have a similar one in
our recent device of Federal Boards controlling Federal Cor-
porations. The next logical step is a Federal Railroad Board
of the stock, will have the power to elect the board, but we propose
that the operation of the Canadian Northern Railway system shall
be through its boards of directors. The administration of this
system will therefore be under the boards, and not immediately
under the minister, as the Intercolonial is under the Minister of
Railways. In other words, we shall not have the actual physical
property in this system, but we shall have control of the stock in its
entirety, and we shall name the boards, and the boards will in turn,
through their executive officers, administer the system.
*
*
*
*
*
"It could hardly be self-constituted, because it would have to
be constituted in the first place by some authority, but after it was
constituted the vacancies arising would be filled by the remaining
members; in other words, it would be a complete sovereignty in
itself-self-perpetuating."
"The Railway Age Gazette, the leading railway paper of this country,
first approved the majority report of the Canadian Commission and then
disapproved it. Thereupon Mr. Acworth wrote that journal a letter read-
ing as follows:
"I value highly your opinion, and regret that you do not ap-
prove of the solution of the Canadian railway problem recommended
in the majority report. I do not think it would be proper for me to
argue with you. But without arguing I should like to deal with two
points in your article.
"You think that our proposed board of trustees 'would be a
clumsy device for management'; you say that 'any commercial con-
cern, to be successfully managed, must have its executive work
conducted under the direct supervision not of five men but of one
man.' I agree, and that is what is proposed. We have recommended
that there should be three trustees, the best railway men that can be
obtained. Let us call the chairman the president, and the two other
whole-time trustees vice-presidents. We have recommended this
board should be completed by the addition of two other members not
7
controlling Federal Railroad Corporations, organized for the
purpose of controlling by stock ownership or otherwise all the
railroads of the United States. The proposed Act of Con-
gress attached to this paper carries out that idea. Briefly, the
plan set forth in that proposed Act is as follows:
I. Congress should incorporate five Federal Railroad
Companies for five divisions of the whole country. This cor-
responds to the plan of the twelve Federal Reserve Banks.
2. These five Federal Railroad Companies would ac-
quire gradually the stocks and bonds of the present railroad
companies, each in its own district, just as the Canadian
Government is about to acquire the stock of the Canadian
Northern Railway Company. These stocks and bonds would
be acquired at their actual value by purchase, exchange or
condemnation. The Federal Railroad Companies could ob-
tain the money by the issue of their own stock with 3 per
cent dividends guaranteed by the government, with a possible
extra 3 per cent if earned, all over 6 per cent to go to the gov-
required to give their whole time; and we have assumed that they
will leave the normal management of the railway to the president
and his two vice-presidents. The only difference between our pro-
posed board of trustees and the ordinary railway board of directors
is that we have limited the number of non-experts to two. The
reason for this is obvious, and I will refrain from stating it.
"Further, you express yourself in favor of a scheme 'under
which the ownership and management of the present private rail-
ways would be left in private hands' and 'the enterprise and efficiency
of private management retained. I agree, but unfortunately am
compelled to add the words 'if possible.'
"I invite you to re-peruse pages 49 and 50 of our report. If we
have come to a wrong conclusion in saying that a private company
certainly could not be formed in Canada, probably could not be
formed outside Canada, while in any case formation outside Canada
would be open to the gravest objection, I invite you to put us right.
If you will work out in such detail as to permit of fruitful criticism a
private company scheme that in your judgment will meet the situa-
tion, you will confer an important service on the people of Canada.
For my part, six months' study of the question has taught me that
to desiderate or even to adumbrate a scheme is one thing, to work
it out in practical detail of dollars and cents is quite another. The
former is easy and valueless, the latter, I have been reluctantly con-
strained to believe, is, under the circumstances, impossible."
8
ernment. Such guaranteed stock would also be issued to pro-
vide fresh money for railroad extensions and additional
facilities; also to acquire from time to time at their actual
value the present outstanding railroad obligations. The guar-
anteed dividends could be at a higher rate than 3 per cent, if
necessary, and would vary from time to time according to
general conditions, but when once fixed as to any particular
issue would not be subsequently changed for that issue.
3. The Federal Railroad Companies would then control
the present railroad companies and could take over their tan-
gible property if the state charters ceased to be desirable, or
could condemn the railroads if necessary.
4. A Federal Railroad Board (similar to the present
Federal Reserve Board) nominated by the President and con-
firmed by the Senate, would name the directors of the five
Federal Railroad Companies and would control the finances of
those companies and regulate all railroad rates and service.
Mr. Acworth has discussed the merits and demerits of
this plan in an article reproduced at the end of this paper. The
plan embodies the idea of government control and govern-
ment financial responsibility (reduced to a minimum) with-
out government ownership. These two fundamental inter-
woven features, namely, a government guaranty and govern-
ment control, may well be considered separately.
Government guaranty: The public insists that the rail-
roads shall increase their terminals, tracks and facilities. The
railroads are willing, but haven't the money and can't get it.
Sir Thomas White, Minister of Finance, in the debate on the bill
authorizing the Canadian Government to purchase $60,000,000 par value
of stock of the Canadian Northern Railway, said: "The chief advantage
of preserving the corporate identity of all the companies embraced in the
system is that it maintains the financing which is already being done and
it facilitates future financing; that is to say, by acquiring—and that is the
third alternative of which my honorable friend spoke-the entire $100,-
000,000 of the capital stock of the Canadian Northern Railway Company,
which in turn controls the stock of all the underlying companies, the Gov-
ernment is enabled to assist the corporate financing of that system. In
other words, the system of finance which has been adopted and which is
now being employed will continue to be employed, the Government giving
such assistance as may, from time to time, be necessary."
· 9
Investors are afraid.
$1,000,000,000 a year is needed for
at least the next five years and yet the railroads cannot obtain
a tenth part of that sum. Last year only $64,101,000 was
raised by the railroads, exclusive of refunding; since January,
1915, only $91,535,000. High grade first mortgage bonds
in 1905 sold at an average price of 103, but to-day those same
bonds are selling at an average price of 84. The New York
Central not long ago issued $100,000,000 debentures bearing
6 per cent interest. Last winter, when its stock was above
par,
it offered to its stockholders $25,000,000 new stock at par,
but the stock declined and the offer collapsed. To-day its stock
sells at 71. The railroads have got to have money to keep
up with the growth of the nation in population and commerce,
but money they cannot get. The investor is afraid of regu-
lation. This is the crux of the trouble. Mr. Prouty, the
veteran Interstate Commerce Commissioner, says:
"This is the point at which regulation will break down if at
all. Can private capital be induced, under the treatment which is
accorded that capital by the regulating body, to invest? If govern-
ment ownership ever comes in the United States it will probably be
because private capital cannot be obtained in sufficient amounts to
afford an adequate service."
Railroad men point out that no double track railroad is
found west of the Mississippi excepting one; that since January
1, 1915, only $12,910,520 has been raised by the railroads by
the issue of stock; that the year 1915 saw less new railroad
'Mr. Thom, representing as counsel practically all of the railroads,
says $1,500,000,000 a year, including refunding. See p. 73 of your Record.
Mr. Kruttschnitt, in his testimony, said (p. 921):
"Bearing the expenditures in mind which have been already
made and realizing that a large additional amount will be necessary
to provide for the desired adequacy of transportation facilities and
for the refunding of maturing debt, it is necessary for the responsi-
ble railroad managers and for the statesmen of the country to form
some estimate of the capital requirements during, say, the next ten
years. It is, of course, impossible to be accurate in making this
estimate. Mr. James J. Hill a number of years ago estimated that
$1,000,000,000 per annum would be necessary. Some have estimated
that a very much larger amount would be required. Without under-
taking to accurately state any amount, it is obvious that the neces-
sary capital requirements to keep the railroads abreast of the times
and to provide for the refunding of maturing obligations will be
enormous, almost staggering to the imagination. And the question
is: Where is this money to come from?"
ΙΟ
construction than any year since the Civil War; that while the
industrial development of the country is phenomenal, the rail-
roads are standing still, and that the American people will in-
sist on new railroad facilities even if government ownership
is necessary to obtain them. Meantime, trade is blocked for
lack of cars, locomotives and tracks. Last winter coal lay at
the mouth of the mines and grain at way stations while prices
soared. To-day the situation is still worse by reason of the
.war. The railroads cannot handle the traffic. They have
not the money and cannot get it. And if the investing
public have no confidence now in the credit of the railroads in
these days of unprecedented railroad traffic, the prospect of
interesting investors in the future is gloomy indeed. It is be-
coming more and more evident to railroad men, as well as
the public, that the money cannot be had in sufficient quantity
except in one way, and that way is government aid. I have
read carefully your proceedings to this date and fail to find any
solution that will really produce the necessary money. On the
contrary, Mr. Thom, as counsel for practically all of the rail-
roads, shows that the monetary situation of the railroads is
desperate. All through the hearings of your Committee
there is a note of despair on the part of the railroads. Help
us or we perish. The volume of traffic is increasing daily,
but the railroad facilities to handle that traffic are increasing
not at all. Investors are afraid and will not put up any more
money. Even if railroad rates were increased, investors
would doubt their continuance after the war. As Chatham
said: "Confidence is a plant of slow growth in an aged
bosom." The railroads say that government aid is imperative.
They do not ask a government guaranty, because they say they
did not suppose the government would give it. What hap-
pens when the owner of a gas works cannot raise money to
increase his plant to keep up with the growth of a city? He
is forced by public interest to step aside and make way for
someone who can, or else the city takes over the works.
9
8
8 Pp. 58, 59 of your Record.
* Pp. 246, 247 of your Record.
II
Now this is a dangerous situation and there seems no
way out except by a government guaranty or government own-
ership. We may not like it, but that is what we are coming
to. Furthermore, government aid in some form is right, be-
cause the government has already taken almost complete power
over the railroads through the Interstate Commerce Commis-
sion. The government should guarantee at least 3 per cent
dividends on the stock of newly created Federal Railroad Cor-
porations, the stockholders to receive an extra 3 per cent if
earned and declared, and all over the 6 per cent should go to
the government itself. That would produce the money."
10
Government control: Before considering government con-
trol it is well to inquire as to the character of the present
private control, bearing in mind that the railroads are great
national highways, rivers of commerce, natural monopolies,
the control of which naturally belongs to the public. Whom
do the present railroad directors in the United States
represent?
The stockholders they certainly do not represent. The
stockholders no longer attend the meetings. They merely send
in their proxies. There are tens of thousands of them living
hundreds of miles away from the annual meeting. Personal
attendance has become impossible, and, in fact, personal at-
tendance would require a convention hall. The Union Pacific,
with its $321,835,100 of capital stock, holds its annual meet-
ing in Utah; the Southern Pacific, with its $272,677,905, in
Kentucky. Stockholders' meetings have become a legal fiction
and a farce. The elections merely perpetuate present control.
No one claims in these days that the stockholders really elect
the directors.
The public is certainly not represented by present railroad
directors. The public has nothing to say about them. Not
even the different parts of the country are represented by these
directors. For instance, the Mississippi Valley has eight great
railroad systems with 116 directors. Only 26 of these are
10 The only place in the United States where railroad extensions are
keeping up with the demands of the public is in New York City, where the
city furnishes the money by issuing its 4 to 42% bonds at about par, and
the money is used to extend the underground railroad system.
12
identified with that valley; 88 are in the east. Of these
88 eastern directors, New York has 59, Pennsylvania 16
and Massachusetts 6. And yet these eight railroad systems
are the bones of the west-in fact, they are the life
blood. Is it right that these boards of directors should be non-
residents? Thirty-two years ago President Hadley wrote:
"Where one set of men own a railroad and another set of men
use it, the two only coming in contact through the medium of the
railroad management, we have a state of things corresponding to the
'absenteeism' of Irish landlords, and involving conflicts or dangers
of the same kind." 11
Does anyone think that this can continue? John Finley
was right when he said, “Democracy, beginning in the Missis-
sippi Valley, is seeking now a perfect impersonal transporta-
tion machine." "An impersonal machine!" That means a
great deal. It means that the public shall control. The
present control is an intensely personal control. Controlling
men vary with the times and requirements. This has been so
with the railroad kings. Their necessary characteristics in the
beginning were not the same as now. Huntington, Vander-
bilt and other pioneer railroad men were big, pugnacious,
brainy builders. It was a dominating and even domineering
type, not easy to deal with, not always fair. In spots it still
exists. Competition was cannibal competition. The manage-
ment was predatory instead of public, wolfish instead of fair,
ruthlessly prehensile. The country looked upon the railroads
as pirates. Such presidents as Charles Francis Adams were
brushed aside. The Hepburn Investigating Committee in
New York uncovered some six thousand discriminations by
one railroad alone. Fairness was not the order of the day.
Big shippers got cut rates by cunning and graft. Those were
the fine free days when "all sorts of rates could be had and all
sorts of tariffs could be found."12 They found, however, that
it does not pay to be unfair. The New York Central Railroad
has been trying for years to get a monopoly of railroad freight
terminals in New York City. Last spring the legislature
stopped it.
11
Hadley on Railroad Transportation, p. 21.
12 21 I. C. C. Rep. 347.
13
But the American people do not harbor resentment, and
the present unpopularity of the railroads is due not to that,
but to a far deeper cause, namely, that a democracy will not
permanently allow a public business to be operated for private
profit. This did away with private carrying of the mails, trans-
formed plank roads into public highways, built the canals,
created public irrigation ditches, and will take the control of
the railroads out of private hands and place them in the hands
of the government. The great question is, How shall this be
done? I favor control through a Federal Railroad Board
described below. About a year ago the National City Bank,
the largest bank in the country, in its monthly publication,
decried the idea of government aid to the railroads. It now
reverses itself and sends up the Macedonian cry of “Come
over and help us!" The imperative demand for more money
for more railroad facilities is becoming insistent. We
are moving swiftly onward. Wall Street says the government
should advance $2,000,000,000 to the railroads. Naturally
one asks, on what security? The only available security is the
giving up of "control." Is Wall Street willing to pay the
price?
The fact is that of present railroad directors, some have
inherited their positions; others have come in by a self-per-
petuating process; others have taken office by default, the
company being in trouble; others have broken in by a coup,
and still others represent the bankers. I am speaking of the
directors and not of the operating staff. The operating staff
has been slowly built up on merit, and on merit alone. The
best man to the front, and a wonderful staff it is, but they
are operating men, not public men.18
Again these directors, as a rule, own very little stock in
13 The Railway Age Gazette in its issue of October 5, 1917, said:
"The managers of the railways know, first, that there are not
many roads in this country that could now, or are likely ever to be
able in future to cut melons. They also know that it is most inex-
pedient for the railways as a whole that those which can do should
do so. Unfortunately, the hands of the responsible managers are
often forced by men in Wall Street whose avarice is only surpassed
by their ignorance of the state of public opinion west of the Alle-
gheny Mountains."
14
their company. You can easily ascertain the facts as to that
by asking the railroads, and they would be illuminating facts.
These directors largely represent the bankers, as they
have for twenty years past. The bankers have to raise the
money for refunding railroad notes and bonds, and hence it
is easy for the bankers to control the railroads. Now, bankers
are unfitted to control railroads. They have neither the train-
ing nor experience. They occupy a dual and inconsistent
position in running the railroads. The greatest financial jour-
nal in the world, the London Statist, has pointed this out.¹*
New Haven sold at 255 in 1902. It was run by the bankers.
It now sells at 26 and is headed for a receivership. They did
not loot it. They simply mismanaged it: tried to have it buy
all the railroads, steamboats, trolleys and electric lights in New
14 "Recent events have disclosed latent dangers and drawbacks from so
close an association of bankers with railway and industrial enterprises,
that errors of management or of judgment are attributed by the public
not to the managing staff, or to the entire body of directors upon whom
responsibility rests, but to individual banking houses whose representa-
tives are directors of undertakings suffering from misfortune of one kind
or another.
"Experience has, in fact, demonstrated that no banking house can
perform the double task of carefully and impartially weighing the claims
of borrowers of the savings of the investing public and of directing the
affairs of every large borrower it assists to obtain capital from the public.
It is now realized that for issuing houses to be both bankers and directors
means the limitation to a restricted circle of the number of persons who
can obtain the capital they need, and that the undertakings lucky enough
to secure as directors representatives of the great issuing houses obtain
an undue share of the new capital available.
*
*
*
*
"It is of vital importance to the public welfare that bankers should
not be tied up to a limited number of undertakings, but should be able
to consider on its merits any and every application for new capital from
whomsoever it may be received, in order that all sound enterprises may be
encouraged, and that the savings of investors may be safely placed in cor-
porations which offer the greatest security and the most profitable return.
It is the duty of bankers to act impartially as between borrowers and
investors, and to scrutinize with the greatest care the securities offered and
the prices demanded before recommending those securities to the investing
public. If, however, bankers are directors of enterprises which need
to borrow largely, they unintentionally throw their weight on to the side
of the borrower against the investing public."
15
England. No wonder the present bankers' control is dis-
credited. The public does not trust them to charge higher
railroad rates, and will not grant them federal charters, and
will not buy their railroad stocks and bonds. The public dis-
trusts them intuitively and instinctively, although not always
consciously. That distrust caused the public to insist that
the railroads must compete, and the courts held that two com-
peting railroad systems in the northwest could not unite,15 not
even through a holding company, 10 and that a railroad cannot
legally control its competitor by stock ownership," and that
railroad pools are illegal.18 Only now, under stress of war and
a changing public opinion, is competition between railroads
being abandoned, and properly so.
16
But this will not be allowed permanently unless public
control be substituted, to say nothing about the financial neces-
sities of the railroads, which cannot be met except by govern-
ment aid. How can the change to public control be brought
about without full government ownership? The present rail-
road charters cannot be amended so as to take the voting power
away from the stockholders, because that would be uncon-
stitutional.19
However, Congress may grant federal charters to the
railroads. When those charters are drawn the government can
retain the right to name the directors. That was what the
old federal charter of the Union Pacific Railroad did in part,
namely, reserved to the government the right to name five
directors.20 The legal possibilities in the drafting of these
federal charters I discussed a few months ago in an article
in the Yale Law Journal, a copy of which I sent you. The
proposed Act of Congress, attached to this paper, gives to the
government, acting through a Federal Railroad Board, the
15 Pearsall v. Great Northern Ry., 161 U. S. 646 (1895).
16 Northern Securities Co. v. United States, 193 U. S. 197 (1904).
17 United States v. Union Pacific R. R., 226 U. S. 61 (1912).
18 United States v. Freight Assoc., 166 U. S. 290 (1897); United States
v. Joint Traffic Assoc., 171 U. S. 505 (2898).
19 Lord v. Equitable Life, etc., Soc., 194 N. Y. 212 (1909).
20
13 U. S. Stat. 361 (1864).
16
power to name the directors in these new proposed Federal
Railroad Companies. That Federal Railroad Board, thus
dominating the railroad situation, would be nominated by the
President and approved by the Senate, very much the same
as the present Federal Reserve Board of our banking system.
The plan is certainly simple enough and has that precedent,
besides the Federal Farm Loan Board, 21 and the Federal Ship-
ping Board,22 and the Federal Board of War Insurance,23 and
the Federal Board of Food Control,24 with the Government
owning a part or all of the stock of such corporations. Ameri-
ica is utilizing the corporation to separate the swelling mob of
office hunters and grafters from the ever-increasing public
administration of quasi public and even private enterprises.
The proposed Act of Congress, attached hereto, incor-
porating federal railroad companies, contemplates acquiring
present railroad stocks and bonds by purchase or exchange or
condemnation and even acquiring the present railroads them-
selves by condemnation, if necessary. All this is to be done
gradually, to avoid shocks, waste, unfair prices and hasty inex-
perience. The railroads themselves, however, propose to you
that Congress shall pass a law that the present railroads shall
take out federal charters at once or else cease doing interstate
business on a certain date. This is to be done under the power
of Congress to "regulate" commerce. Power to "regulate"
$17,000,000,000 of property is alleged to give power to destroy
$17,000,000,000 of property, by forbidding its use unless it
turns itself inside out by accepting a federal charter. That is
21 Act of July 17, 1916.
22 Act of September 7, 1916.
Act of September 2, 1914; 38 U. S. Stat. 711.
**Act of Congress of August 10, 1917. While that Act did not ex-'
pressly authorize the government to organize and subscribe for the stock
of a corporation, yet a corporation was organized in Delaware August
16, 1917, to carry out the purposes of the Act for control and conservation
of certain crops. Its entire capital stock of $50,000,000 is owned by the
government. This was done under Sections 13 and 14 of the Act, although
it is a little difficult to see how the words of those sections authorize the
formation of a corporation and the subscription by the United States
Government to its capital stock.
17
hardly "due process of law." To the ordinary mind it would
seem that the penalty of death does not fit the fictitious crime
of holding on to a state charter which everybody admits is
legal. I realize the desperate situation of the railroads, but I
doubt the legality, feasibility or value of this plan of forcing
the railroads to take out federal charters.25 I think twenty
years would not suffice for the litigation over any such scheme.
A charter is a three-phase contract between the state, the cor-
poration and the stockholders. To disregard all three phases
of that contract would be revolutionary. Congress can no
more violate a contract than the state. 26 The decisions referred
to by railroad counsel, that the Acts of Congress relative to
uniform rates may displace pre-existing contracts to the con-
trary, have little bearing on this proposition of arbitrarily and
summarily transferring the title to $17,000,000,000 of prop-
erty. And the old corporations are to continue. Certainly
Congress cannot dissolve them, and hence the new federal cor-
porations will have two charters, one from the state and one
from Congress, with inextricable conflict, litigation and
Pandora box confusion. The railroads themselves cannot
afford to have compound charters. We would still have conflict
of state regulation with national regulation; state commissions
with the Interstate Commerce Commission; state persecution
with national intervention. Many of the railroads already have
25 I doubt the power of Congress to prohibit interstate commerce, ex-
cept as the equivalent of a police regulation. In the Lottery Case, 188 U. S.
321, the court sustained the stopping of interstate transportation of lottery
tickets, but the court was careful to say (p. 362) that this power of Congress
"cannot be deemed arbitrary," and cannot infringe rights secured or pro-
tected by the Constitution. Even so, four judges dissented. Congress also
has power to prohibit White Slave traffic. Hoke v. United States, 227 U. S.
308; Caminetti v. United States, 242 U. S. 470. Congress may also prohibit
transportation of intoxicating liquors. Clark Distilling Co. v. Western,
etc., Ry., 242 U. S. 311. But it will be noticed that in all these cases there
is an element of police regulation, and, in fact, the Supreme Court said
(227 U. S. 323) that Congress in exercising its power over interstate com-
merce "may adopt not only means necessary but convenient to its exercise,
and the means may have the quality of police regulations.”
26
Sinking Fund Cases, 99 U. S. 700.
27 P. 98 of your Record.
18
two or more charters in different states. The result is paralysis
in some instances. The New Haven cannot mortgage its prop-
erty because Massachusetts refuses, although Connecticut and
Rhode Island are willing. This certainly is a hydra-headed
proposition. If state charters continue the states will still claim
the right to regulate their own creations. No man can serve
two masters. Judge Knowlton suggests that the state rail-
road charters may be amended by Act of Congress so as to
allow a transfer of the corporate property to a federal corpora-
tion on vote of the stockholders.28 This is unprecedented and
I think unconstitutional. Even if legal, what good would it do
if the stockholders refused to vote in favor of the change? A
mistake might render due at once all of the bonds of the pres-
ent railroad corporations; billions in amount. If so, every
railroad would pass into a receiver's hands, unless the govern-
ment assumed the debt. 29
Compare this with the simple, safe and gradual process of
a federal corporation first acquiring present railroad stocks and
bonds by purchase or condemnation and later taking over the
railroad properties. The railroads themselves know that
merely getting federal charters will not produce the necessary
cash. Mr. Thom so stated in his plea.30 Why, then, these
makeshifts of the railroads-this bewildered and bewildering
P. 1055 of your Record.
20 A somewhat similar problem faced the Canadian Parliament re-
cently when it decided to purchase the stock of the Canadian Northern
Railway Company rather than the railroad system itself. The Minister of
Finance said: "If the Dominion Government acquired by expropriation
the physical assets of the Canadian Northern and the other railways in
the system, it would be obliged to find the money to take care of the short
date and other indebtedness I have mentioned, or if it failed to find the
money to take care of that indebtedness, it would follow that the creditors
of the company in respect of the short term and floating indebtedness,
would be in a position to appoint a receiver, with the result that the funded
indebtedness would at once become due, as to the principal owing under
several trust mortgages securing it. The result would be chaos so far as
the financial condition of the system is concerned."
30 P. 103 of your Record.
19
talk ?³¹ Apparently it is to escape the clutch of state commis-
sions, and no one can blame them for that. Then, too, federal
railroad stocks could not be sold except with a government
guaranty, and the railroads are not prepared to give up their
present control for such a guaranty. The situation is full of
possibilities and, I would add, imperative necessities. Mean-
time, Canada has adopted the stock-purchasing plan in regard
to the Canadian Northern Railway Company.
Is this the same as government ownership? The New
York Evening Post, in commenting on the Canadian plan,
said that this is "almost the last step short of government
ownership and operation of Canadian railways." A profes-
sional writer in Collier's, a few months ago, in advocating
federal charters for the railroads, referred to my plan as
follows:
"Another suggests a Federal holding company for all the rail-
roads of the United States, and makes his suggestion read so
cleverly and so ingeniously that you all but forget that he is drawing
only a thin veil over government ownership."
This is an easy way of characterizing my proposal. So
far from the proposal being a government ownership plan, its
sole purpose is to avert government ownership; otherwise I
would drop it instantly. And it is not the same as government
ownership. Government ownership would mean an additional
31
Among other nostrums proposed to your Committee is the issue of
shares without par value in the proposed new federal charters to railroads.
I have watched that mode of issuing shares for several years, but have
failed to discover any public good in it. Apparently it merely renders safe
the issue of watered stock. The public mind associates market value with
par value. The public neither knows nor cares whether the shares are
without par value, but it looks for par value and holds someone morally
responsible if the shares are worthless, whether with par value or without.
For the reputable promoter shares without par value are unnecessary; for
the dishonest promoter they merely enable him to defraud the public
safely. Excessive issues of shares would seem to be facilitated by this
scheme because there is no limit or restriction on the amount which may
be issued for property. Under the old law if a promotor went too far
in valuing the property he was liable. Under this new scheme he is not
liable at all. The public generally has little idea of the property for which
shares are issued, and hence if there is no limit to the number the danger
of fraud is greatly increased. Shares without par value add to the
mystery while decreasing legal and moral responsibility.
20
national debt of about $20,000,000,000. My plan would not.
Government ownership would prevent the states from taxing
railroad property and would deprive the states of about $150,-
000,000 annual income from taxes. This plan would not.
Government ownership would give all the powers and direct
authority of an owner. This plan gives the government merely
the control. Government ownership would be direct adminis-
tration by the President and his Cabinet. This plan means
advisory control, exercised through a gradation of separate
.bodies, each checking and balancing the other, namely, a Fed-
eral Railroad Board, Railroad Directors, General Managers.
The English Government is handling its railroads to-day
under practically the same plan, and yet no one calls that
government ownership. One of the government managers,
Mr. Thornton, an American, says that England will not go
back to the old system after the war. Again, government
ownership would have no stockholders, while my plan con-
templates hundreds of thousands of stockholders eager
to get 6 per cent instead of 3 per cent, and quick to
oppose any invasion of politicians. This plan also contem-
plates paying each member of the Federal Railroad Board
$12,000 a year, with the possibility of $62,000 a year if
the Board holds down expenses, and keeps out the politi-
cians, and succeeds in paying the guaranteed 3 per cent, the
proposal being to pay each of them $10,000 extra for each one
of the five federal railroad corporations which pays the 3 per
cent. The activity of politicians is best offset by the hope of
reward of the managers. As a matter of fact, this plan is a
compromise between private ownership and government own-
ership. As to its being a veil for government ownership, this
railroad writer might as well say that the United States own
Cuba because it controls Cuba, or that it did own the old Union
Pacific Railway because it named part of the directors. Presi-
dent Ripley, of the Atchison, Topeka & Santa Fe Railroad, has
recently been quoted as saying:
"I have never ceased to believe that government ownership of
the railroads is not merely a possibility but a high probability. The
way matters are going the government must step in and take charge
21
unless meantime some other means of saving the railroads is
found.'
9) 82
The brilliant work of Yves Guyot, published three years
ago, on "Where and Why Public Ownership Has Failed,"
culminates in a declaration that governments should not own,
but should "control." That is exactly my contention. The
33
32 Mr. Markham, President of the Illinois Central Railroad, takes issue
as to this statement of Mr. Ripley, and says:
(1) That the interest on government bonds would be only one-half.
of 1% less than what "strong" railroads must pay, taxes considered. [How
many "strong" railroads are there? The statement as to difference in in-
terest is incorrect. The difference would be nearly 3%. The 6% deben-
tures of the New York Central sell to-day at less than par, even though
spiced with an option of convertibility into stock.]
(2) That the present consolidated management of the railroads shows
what can be done without government ownership. [This statement is cor-
rect, but the public will not allow consolidated management to continue
after the war, although traffic will go down and expenses stay up.]
(3) That the present war use of the railroads also shows that gov-
ernment ownership is not necessary in that respect. [True, but that ceases
with the war.]
(4) That the war debt will be very great without adding $20,000,000,-
coo for the railroads. [True, too, but so far as my plan is concerned it
does not create an additional national debt.]
Mr. Markham is silent on the crushing fact that the railroads are not
raising, and cannot raise, the $1,000,000,000 fresh money a year necessary to
furnish additional railroad facilities to keep up with the growth of the
country. Railroad earnings now are great but expenses are fully abreast.
Anyone can see what will happen when the war is over and business de-
clines.
33
P. 438. "First: Neither States nor municipalities should attempt
tasks especially adapted to individual effort.
"Second: In the case of those utilities in which the public interest is
general, as railways, water, gas, electricity, tramways, etc., there must be
a physically and morally responsible body, accountable to the public on the
one hand and the service on the other, and protected by contracts against
vacillations of public opinion, and the extortionate demands of interested
groups, whether employees, consumers or politicians.
"Third: For individuals the watchword should be action; for local
and State governments, control."
Mr. Acworth, when he appeared before you in Washington on May
7, 1917, said: "Some day, perhaps, having learned by experience, a
parliament and a people may recognize that management for the people
22
plain fact is that we will have to adopt something like the plan
outlined in the bill attached hereto, or go to government own-
ership. The great, the fundamental, the all-absorbing problem
is how to establish non-partisan, non-political public control
of the railroads. Canada faces that problem to-day and will
soon announce its proposed solution. America will watch the
experiment with intense interest. Can a democracy devise a
non-partisan, non-political public control of railroads, as it
devised the Supreme Court of the United States? Canada
inclines towards a self-perpetuating body. I favored that idea
in an article written ten years ago, but I fear that such a body
would fail to respond to the deep currents of the industrial life
of America. Those currents are responded to by the President
and the Senate, and may be safely trusted as to a Federal
Railroad Board, as they have been trusted in the selection of
other boards mentioned above.
Let us now examine some of the perplexing problems of
the railroad question and see whether government control is
not better than present private control or proposed government
ownership.
Wasteful Competition. Competition is a very good thing
in trade and manufacturing. But competition between rail-
roads is discredited, first because it refuses to exist, and sec-
ond, because it is wasteful. In England competition between
railroads has been abandoned. George Stephenson, the origi-
nator of the railroad locomotive, foresaw this inevitable trend
in the railroad business seventy-five years ago. "Where com-
bination is possible," he said, "competition is impossible." For
more than thirty years after that Parliament legislated against
is not necessarily management by the people; that there are other branches
of government besides the judicial branch, unsuited for popular inter-
ference, and may establish a permanent State railway organization, with
its own board of directors, with its own separate budget and entirely
independent of parliamentary control.
"It would be controlled, like any private company, by a judicially
minded commission, and required, also like a private company, to earn
dividends for its stockholders, the people. And then a main objection
to government railways in a democratic State will have lost its force."
23
the consolidation of railroads. This legislation proved to be
utterly futile. In 1872 a parliamentary committee made an
elaborate and exhaustive investigation of the subject. In its
report it said that consolidation "had not brought with it the
evils that were anticipated, but that, in any event, long and
varied experience had fully demonstrated the fact that, while
Parliament might hinder and thwart it, it could not prevent
it." In America the same irresistible tendency has prevailed.
In New England there is no railroad competition left. Else-
where no more competitive railroads are possible and the trunk
lines work together. Even now ninety per cent of the railroads
appear as a unit before your Committee. They are surely get-
ting together. They know that railroad competition is waste,
besides leading to rebates and discriminations. Even present
competition involves an enormous waste. Duplicate trains,
unnecessary trains, duplicate stations, expensive branch ticket
offices, advertisements, and a whole cohort of runners play
havoc with railroad balance sheets. Not long ago President
Ripley, of the Atchison, said that every night five competing
trains start from Chicago for Kansas City, six for Omaha and
five for St. Paul, and that probably one for each would suffice.35
Wyman on Railroad Valuation and Rates (1916) says (pp. 337,
338):
34
"Nothing is clearer today than that competition in railroad
rates between railroads is practically impossible, and not in the in-
terest of the public. A long-continued and expensive experience has
proven to the business interests of the country that such compe-
tition is not desirable from their standpoint. The only practicable
competition is in service, and the plan herein suggested could be
made to give much better service than existing conditions admit,
because equipment as well as the other facilities could be pooled."
35 Wyman says (pp. 336, 337):
"If the six lines operated between Chicago and St. Paul were
all owned by one company, the method of operation would be
different, and more economical, than under the present six man-
agements. The Chicago, Burlington & Quincy and the Chicago,
Milwaukee & St. Paul have short lines, and for much the greater
part of the way they have water grades. The Chicago & North
Western has the shorter line but heavier, though not excessive,
grades.
"Evidently, through freight traffic can be carried at less unit cost
24
A combination of all the railroads, such as I propose, would
put an end to this. All railroad men agree that the saving
would be vast. It may truthfully be said that competition is
the bane of the railroads. Thirty-nine years ago Charles
Francis Adams wrote:
"We find that railroad competition has been tried all over
the world, and that everywhere, consciously or unconsciously, but
with one consent, it is slowly but surely being abandoned. In its
place the principle of responsible and regulated monopoly is assert-
ing itself."
86
Commissions, state and interstate. These have served
their purpose well. They have been a sedative for twenty-five
years. But they have outgrown their usefulness. The state
commissions have become an unqualified, unmitigated nuisance,
so far as the railroads are concerned. They have become cen-
ters of tyranny, narrow, selfish and destructive. They have
few defenders and fewer friends. Practically everybody agrees
that they have got to go, and the sooner they go the better, so
far as the railroads are concerned. The Interstate Commerce
Commission still has some use, but it is breaking down. It is
attempting the impossible. Federal charters and a federal
board in control could and would dispense with that Commis-
88
on the Chicago, Burlington & Quincy and the Chicago, Milwaukee
& St. Paul than by the other four roads. If the through freight
traffic were concentrated on these two lines, practically all of their
through freight trains would be filled up to the capacity of the
engines, and the whole through freight traffic would be hauled in
fewer trains, with fewer train crews, and hence at less expense.
"The same is true as to the passenger traffic. Two or three
of the lines would be found able to carry the through passenger
traffic at less cost than the others, and such traffic would be diverted
to them. There would then be two or three through lines moving
through passenger trains, carrying something near their capacity,
instead of five lines [the sixth line does not operate through pas-
senger trains], moving more trains, many of which are carrying cars
only partly filled, which is the present condition.
"There is a further advantage in such an arrangement, in that
during periods of maximum traffic movements the lines not ordinarily
employed for the through traffic would be utilized to move the
surplus. This would avoid the necessity of constructing additional
tracks and other facilities which would be required if one of the
lines secured more than its share of the traffic."
Railroads, Their Origin and Problems, pp. 204, 205.
25
sion, or, rather, absorb it as an investigating and consulting
body. Commission rule is worn out and is going. The rail-
road men are urging you to extend it by adding subordinate
commissions, but the railroad men do not really want them.
The railroad men are trying to get away from the state com-
missions, which are clutching at their throats and cannot be
shaken off except by federal railroad charters. Two cent laws,
full crew laws and various other choice assortments of laws,
are a part of the state regime, and the Interstate Commerce
Commission and Acts of Congress are but little better. Writ-
ing twenty-six years ago, Mr. Acworth said that the adop-
tion of
"direct State regulation, of constant and minute interference by a
government department * by a series of haphazard and piecemeal
decisions *will* land the country quite unexpectedly in a logical
impasse, from which there can be no outlet, except by State purchase
of the entire railway system."
1987
We have reached that impasse. Mr. Acworth, in an
article in the Economic Journal, published in London, Septem-
ber, 1915, said, in regard to the Interstate Commerce Com-
mission:
"In July, 1914, after an inquiry extending over more than twelve
months, the majority of that Commission solemnly reaffirmed their
refusal of three years earlier to permit the trunk lines to raise their
rates. Under the compulsion of gross and palpable fact they re-
versed that decision some six months later. But it is safe to say
that for every dollar Jim Fiske stole from the Erie-and he stole a
good many-the inhabitants of the United States lost a million in the
months succeeding July, owing to financial depression and trade dis-
location consequent primarily on the unintelligent appreciation of
the situation by the Interstate Commerce Commission.
""
Physical valuation and watered stock. At present, on
account of alleged watered stock, the life is being ground
out of the railroads by commissions, legislatures and Congress.
But is there any water? Up to the present the physical valua-
tion scheme points to no water. Indeed, the increase in ter-
minal values has been so great that the Commission is appar-
ently alarmed, and has decided not to make any complete valua-
"Preface to "The Railways and the Traders."
26
38
tion of the railroads after all. And even if the valuation
should fall short, there is no occasion for confiscation. We
are infinitely better off than Europe in this respect. In Eng-
land, when the railroads were built, the Lords who owned the
land would not enact a railroad charter until they were paid
an exorbitant price for the railroad right of way. American
railroads are capitalized at $62,65739 per mile, bonds and stock
included; Great Britain at $274,562⁰; all Europe at $121,-
At a hearing before the Commission at Washington, January 29,
1917, Mr. Prouty said (p. 45, President's Conference Reprint): “We have
decided that the purpose of this Act is not the making of a final valuation,
but the marshalling of certain facts out of which a final valuation may
be made." The Railway Age Gazette in its issue of September 28, 1917,
contains the following:
"Charles A. Prouty, director of the division of valuation, of the
Interstate Commerce Commission, has filed a memorandum in the
Texas Midland case, stating that while the solicitor's brief covers the
legal points involved, the law of valuation is in such a plastic state
that the decision of the commission will go far toward fixing the law
in many instances, and he therefore confines himself to what he
calls the practical considerations involved. Director Prouty says
that while he fully concurs in the holding of the solicitor that the
valuation act does not require the commission to find an ultimate
value, it is still his conviction that an ultimate value for rate-making
purposes should be stated, and that the full benefit of this valuation
cannot be realized unless this be done. However, he says, this does
not mean that any sort of the work now being done, or of the money
now being expended, is thrown away because the commission is not
required to establish at this time such ultimate value; for the facts
are being prepared to be reported to Congress under the present act
and a final value can be quickly stated when Congress has deter-
mined by whom and possibly by what rule such value shall be
determined."
The obvious answer to this is that Congress is disqualified to fix
rates, and the main business of the Commission is that very thing.
3º Dunn on Government Ownership of Railroads, p. 32.
40 The British railroads "commonly had to incur enormous expenses to
get their charters through Parliament, and to pay for land several times
its value. It has been estimated that it has cost the British railways
$25,000 a mile to get their franchises from Parliament. To these things is
largely due their very heavy capitalization, amounting to $274,562 per mile."
Dunn, pp. 17, 18. Acworth in "The Railways and the Traders," pp. 234,
235, says "the same spirit which prompted, and the same legislation which
permitted Lord Petre to levy blackmail on the old Eastern Counties
[Railway Co.] to the tune of £100,000 has survived in England from that
day to this."
27
41
214. In England there is no demand that the "water" be
squeezed out. In America the demand comes from the west,
which holds few stocks and bonds. But it is well to remember
the precept of M. Thiers: "The state must act like an honest
man." If physical valuation should show there is no "water"
at all, it would be poetic justice. But in any case, the above
figures show that to recognize the validity of present railroad
stocks and bonds by absorbing them at their present actual
value into new federal railroad charters is not a radical propo-
sition. In the recent debate in the Canadian Parliament rela-
tive to buying the stock of the Canadian Railway Company, the
storm center was not the plan, but the price. There, as here, it
was asserted that the stock was all water. There, as here also,
it was claimed that the stock had no value. Certainly the Com-
mission had so reported. The government, however, thought
it better to pay something for the stock than to adopt gov-
ernment ownership.
There is but
That way
Labor. This is an unsolvable problem for present control.
First, the railroad unions force higher wages; then Congress
raises them still higher. The railroads are helpless. The rea-
son is that the public has no sympathy for them. All that the
public demands is that traffic shall not be stopped.
one way of regulating this railroad labor trouble.
is to enlist public sentiment in favor of fair wages; no more;
no less. That public sentiment can never be enlisted while
present control continues. If, however, a Federal Railroad.
Board, representing the public, were in control, I venture to
say that public sentiment would quickly insist on labor getting
its just deserts. A great strike never succeeds as against
public sentiment. I am aware that government-owned rail-
roads are forced by labor votes to increase wages, but the
plan herein set forth is designed to separate the voters so far
from the control that the voters would have many bulwarks
to surmount before they could increase wages, build unneces-
sary railroads, give unnecessary service or break down the
41
"Dunn, p. 43.
28
discipline and economy of the railroad system. Nor does this
mean unfairness towards railroad labor. High wages is an
essential principle of American life. Unfortunately, foreign
cheap labor produces cheap goods, which in times of peace un-
dersell American goods, and that forces American labor, includ-
ing transportation, down to a competitive basis. Then, too,
labor is like the ocean, ceaselessly seeking an equilibrium.
Labor adjusts itself. It rises here and falls there, higher now
and lower then, beyond the power of man to control, but follow-
ing always, sooner or later, the immutable law of supply and
demand.
Present investments as affected by this plan. Do not
imagine that I propose that present railroad stockholders shall
turn in their stock for new 3 per cent guaranteed stock share
for share. Some of the present stock is worth more, some
less than the 3 per cent guaranteed stock. The exchange would
be made in each instance on a basis fixed by the Federal Rail-
road Board. Nor would present stockholders be required to
exchange at all. They could refuse, and then the Federal Rail-
road Corporation, if it desired the stock, would have to con-
demn and pay to the present holder the full value of the stock
in cash. That prospect is certainly better than the present pros-
pect. Things are getting worse instead of better. Railroad
stockholders should realize that their present directors have
made a failure of their management. A new deal is necessary
if the investors are to save their investments. They have
from $17,000,000,000 to $20,000,000,000 already in and $1,-
000,000,000 a year sought for. They have on their hands a
group of directors who are distrusted by the public. Until
that distrust is removed the investment is unsafe. The in-
vestors' only hope is to substitute public control that will allow
higher rates and check higher expenses, especially those due
to regulation. This can never be brought about by the present
control. Anyone can see that. In order to get fresh money
and protect money already in, government aid is imperative,
just as the European Allies now get American money, through
the American Government, at 3½ and 4 per cent, formerly
29
obtained with difficulty at 52 and 6 per cent, and just as the
Canadian railroads are turning to the government for aid.
Government ownership. I shall not discuss this at length.
Government ownership would have its advantages. It would
furnish the necessary fresh money, stop state regulation, abol-
ish the Interstate Commerce Commission, end discriminations.
and rebates, save the waste of competition, and end the present
conflict between the public and the railroads.
My plan would equally well accomplish all this.
But government ownership would have its disadvantages,
and some of them are insuperable. It would be a political
machine and our republican institutions could not stand that
strain; it would give bad service, unnecessary service, make
undesirable extensions and be subject to labor unions. It
would create an additional $20,000,000,000 debt, and in addi-
tion there would be an annual deficit in operation. It would
deprive the states of about $150,000,000 annual income from
taxes.
I believe my plan would avoid all this. The railroads are
opposed to the plan because they want to continue as they are.
They ignore it and concentrate their efforts on attacking gov-
ernment ownership, as though that were the only alternative
to the present private control. They refuse to believe what all
thinking men now see is inevitable, namely, that public control
in some form or other is bound to come within the next few
years, inasmuch as the railroads cannot get the money which
they must have. They no longer have the confidence of the
public and cannot get it. Financial aid must come from the
government and with it will come some form of public control.
Meantime there is chaos in railroad financing, maintenance and
management.
AN
Yours respectfully,
WILLIAM W. Cook.
PROPOSED ACT OF CONGRESS
ACT TO PROVIDE FOR THE CREATION OF FEDERAL RAILROAD COMPANIES,
TO ESTABLISH A MORE EFFECTIVE SUPERVISION OF RAILROADS IN THE
UNITED STATES, AND FOR OTHER PURPOSES.
Section 1-Wherever the words "Federal railroad company" are used
in this act the words shall be construed to refer to each of the five cor-
porations to be organized under this act as herein provided.
30
The words "Federal Railroad Board" used in this act shall be con-
strued to mean the board of six members herein provided for.
The words "Secretary of Railroads" used in this act shall be con-
strued to be the head, at the seat of Government, of an executive depart-
ment to be known as the Department of Railroads, said head to be ap-
pointed by the President, by and with the advice and consent of the Senate.
Said appointee shall receive a salary of $12,000 per annum and his term
and tenure of office shall be uniform with other members of the Cabinet.
FEDERAL RAILROAD DISTRICTS
Sec. 2-Continental United States, excluding Alaska, is hereby divided
into five districts, to be known as New England railroad district, Central
railroad district, Southern railroad district, Northwestern railroad district
and Central Pacific railroad district.
The New England railroad district shall include the New York, New
Haven & Hartford Railroad system and all other railroads in Maine, New
Hampshire, Vermont, Massachusetts, Rhode Island and Connecticut not
controlled by any railroad system in another Federal railroad district.
The Central railroad district shall include the Pennsylvania Railroad
system, New York Central Railroad system, Erie Railroad system, Balti-
more & Ohio Railroad system, Chesapeake & Ohio Railroad system and all
other railroads in the States of Illinois, Indiana, Ohio, Michigan, Penn-
sylvania, New Jersey and New York not controlled by any railroad system
in another Federal railroad district.
The Southern railroad district shall include the Southern Railroad
system and Illinois Central Railroad system and all other railroads in the
States of Delaware, Maryland, Virginia, North Carolina, South Carolina,
Georgia, Florida, Alabama, Tennessee, Kentucky, West Virginia and Mis-
sissippi and the District of Columbia not controlled by any railroad system
in another Federal railroad district.
The Northwestern railroad district shall include the Chicago, Mil-
waukee & St. Paul Railroad system, the Chicago & Northwestern Railroad
system, the Northern Pacific Railroad system, the Great Northern Railroad
system and all other railroads in the States of Wisconsin, Minnesota,
North Dakota, South Dakota, Montana, Wyoming, Idaho, Oregon and
Washington not controlled by any railroad system in another Federal
railroad district.
The Central Pacific railroad district shall include the Union Pacific
Railroad system, the Atchison, Topeka & Santa Fe Railroad system, the
Southern Pacific Railroad system and all other railroads in the States of
Iowa, Nebraska, Kansas, Missouri, Arkansas, Louisiana, Texas, Oklahoma,
Colorado, New Mexico, Arizona, Utah, Nevada and California not con-
trolled by any railroad system in another Federal railroad district.
Any question which may arise as to whether a particular railroad is
included within any particular Federal railroad district shall be decided by
the Federal Railroad Board.
FEDERAL RAILROAD COMPANIES
Sec. 3-The Federal Railroad Board shall supervise the organization
in each of the said districts of a Federal railroad company by nine indi-
viduals in each district selected by the Federal Railroad Board, and there-
upon such individuals in each district shall under their seals make an
organization certificate which shall specifically state the name of such
Federal railroad company, the territory and extent of the district as de-
fined by States in Section 2 of this act, the city and State in which its
principal office is to be located in said district, the amount of capital stock
($9,000), and the number of shares into which the same is divided ($10
each), and the number of shares subscribed for by each incorporator (100).
The said organization certificate shall be acknowledged before a judge of
31
some court of record or notary public; and shall be, together with the
acknowledgment thereof authenticated by the seal of said court or notary,
transmitted to the Secretary of Railroads, who shall file, record and pre-
serve the same in his office. Upon the filing of such certificates with the
Secretary of Railroads as aforesaid, each of the said Federal railroad com-
panies shall become a body corporate, and as such and in the name desig-
nated in such organization certificate, shall have power:
First-To adopt and use a corporate seal; to have succession in per-
petuity, unless it is sooner dissolved by an act of Congress or unless its
franchise becomes forfeited by some violation of law; to make contracts;
to sue and to be sued in any court of law or equity; to appoint by its board
of directors such officers and employees as are not otherwise provided for
in this act, to define their duties, require bonds of them and fix the penalty
thereof, and to dismiss at pleasure such officers or employees; to prescribe
by its board of directors by-laws not inconsistent with law, regulating the
manner in which its general business may be conducted, and the privi-
leges granted to it by law may be exercised and enjoyed; to exercise such
incidental powers as shall be necessary to carry out the purposes of
this act.
Second-To acquire, hold and exercise the power of ownership of any
or all of the shares of the capital stock and bonds and other obligations of
any or all railroad companies within its district as aforesaid; also to con-
struct, acquire, maintain and operate railroads within its district; also to
issue shares of its capital stock from time to time, either for cash or
in exchange for shares of stock or bonds or other obligations of
any and all railroad corporations within its district, on such basis
of exchange as may be authorized by its board of directors; also to
issue shares of its capital stock from time to time for such purposes
(including its own expenses and disbursements) connected with or
incidental to the control, acquisition, construction, management, use and
development of railroads, railroad business and railroad stock, bonds or
other obligations already issued or hereafter to be issued by railroad
companies within its district (including the issue of Federal railroad
company stock, to provide money to enable any railroad company in
its district to pay or purchase outstanding obligations or to pay for past
or future improvements, equipment or extensions, stock of such railroad
company being issued to the Federal railroad company in consideration of
such money), as may be determined by its board of directors; also to
exercise the power, which is hereby given to it, of eminent domain, to
acquire any shares of the capital stock or bonds or other obligations of any
and all railroad corporations within its district or to acquire any railroads
themselves or railroad property or property for railroad purposes, in its
district whenever in its opinion it is necessary or advantageous to it to do so
by condemnation under judicial process, and the United States District
Court or courts of the district wherein such stock or property is located
shall have jurisdiction of proceedings for such condemnation. The prac-
tice, pleadings, forms and modes of proceedings in causes arising under
the provisions of this act shall conform, as near as may be, to the practice,
pleadings, forms and proceedings existing at the time in like causes in the
courts of record of the State within which such District Courts are held,
any rule of the court to the contrary notwithstanding.
Third To vote its own holdings of stock and to solicit proxies from
other stockholders to vote their holdings of stock in any railroad corpora-
tion in its district, and such vote of such stock and proxies by the Federal
railroad company for directors in said railroad corporation or corporations
shall be limited to persons who shall have resided within the district for
at least nine months in each of the five years prior to the election, and have
been actively engaged during said five years in the district in commerce,
32
agriculture or some other industrial pursuit, or in the practice of a
profession.
Sec. 4-At least six members of the board of directors of each Federal
railroad company shall for at least nine months of each of the preceding two
years have resided in the district in which they have been chosen directors.
No Senator or Representative in Congress shall be an officer or director
of a Federal railroad company. No director of a Federal railroad com-
pany shall be an officer, director or employee of any other railroad com-
pany. Any director of any Federal railroad company may be removed at
any time for cause by the Federal Railroad Board. The board of directors
of each Federal railroad company shall consist of nine members, all of
whom shall be appointed by the Federal Railroad Board. Protests by
stockholders or by the public shall be open to public inspection. Vacancies
from any cause in the boards of directors of any Federal railroad com-
pany shall be filled by the Federal Railroad Board. The directors of each
Federal railroad company shall receive such compensation as the board of
directors may determine in advance in each instance, subject to the ap-
proval of the Federal Railroad Board. The board of directors of each
Federal railroad company shall at its first meeting (after its first board
retires from office) designate three directors to serve one year from the
next first day of January, and three for two years, and three for three
years, and thereafter all directors shall hold office for three years. Each
Federal railroad company shall every three months make a full report of
its operations to the Speaker of the House of Representatives, who shall
cause the same to be printed for the information of the Congress.
STOCK ISSUES AND GUARANTY OF DIVIDENDS
Sec. 5-The capital stock of each Federal railroad company shall be
divided into shares of ten dollars each. The outstanding capital stock
may be increased from time to time as authorized by the board of direc-
tors. When the capital stock of any Federal railroad company shall have
been increased, the board of directors shall cause to be executed a cer-
tificate to the Secretary of Railroads showing the increase of capital
stock. The shares shall be represented by certificates which shall be
transferable.
Sec. 6-Dividends on the stock of each Federal railroad company
shall not exceed 6 per cent.
Sec. 7-The United States Government hereby guarantees the pay-
ment of 3 per cent dividends on the shares of the stock of the several
Federal railroad companies, and the Secretary of the Treasury is hereby
authorized and directed to sign the name of the United States of America
to a guaranty to that effect on the face of the certificates of stock issued
by the corporation (the guaranty on cancelled certificates to be cancelled
when the certificates are cancelled by transfer), the form of said guaranty
to be as follows:
"The United States of America hereby guarantees to the record holder
of this certificate of stock the payment by the Federal railroad company
issuing the same 3 per cent annual dividends on the shares of the capital
stock represented by this certificate payable semi-annually on the first days
of January and July of each year after the date of this guaranty.
"If at any time the United States of America by Act of Congress
ceases to pay said guaranty, the United States of America shall pay to the
holders of said certificates of stock the price at which they were originally
issued or the value at the time of issue of the property for which they
were originally issued."
The said guaranteed rate of dividend may be varied by Congress from
time to time, but not as to any issue already made.
Sec. & The United States Government shall be entitled to all the
profits of the several Federal railroad companies in excess of said 6
per cent dividends, and shall apply such excess profits to extensions and
33
improvements, or purchase of railroad bonds or stock, or reduction of
rates, or retirement of stock issued hereunder, or for any other purpose
said Government may deem best in connection with the railroads.
Sec. 9-National banks and Federal reserve banks may invest and deal
in the shares of stock of the said Federal railroad companies or any of
them, and such shares may be transferred to and deposited with the
Treasurer of the United States in lieu of United States bonds as pre-
scribed by sections 5159 to 5189, inclusive, of the Revised Statutes of the
United States as amended and by Section 4, sub-division "Eighth" of the
"Federal Reserve Act," and may be deposited with the Treasurer of the
United States as security for deposits by said Treasurer of funds of the
United States in national banks, and may be deposited as security for
and in accordance with the Act of Congress of May 30, 1908, amending
the national banking laws. The board of trustees, established by Act of
Congress of June 25, 1910, to establish postal savings depositories may
invest postal savings funds in such shares as securities of the United States
within the meaning of that act. Said shares of the capital stock of said
Federal railroad companies or any of them shall be receivable at par as a
satisfactory collateral security for Federal reserve notes and as a reserve
available as eligible paper under the Federal Reserve Act and as invest-
ments by Federal reserve banks.
Sec. 10-The Federal railroad companies shall proceed with all reason-
able despatch to acquire sufficient of the outstanding capital stock of the
Pennsylvania, New York Central, Iillinois Central, Chicago, Milwaukee &
St. Paul, Chicago & Northwestern, Union Pacific, Atchison, Topeka &
Santa Fe and Southern Pacific Railroad systems, to control those railroad
companies; each Federal railroad company so to acquire the stock of any
said railroad system or systems within its district. Such acquisition may
be by purchase or by exchange of Federal railroad company's stock for
the stock of said railroad system or systems, or by condemnation pro-
ceedings.
FEDERAL RAILROAD BOARD
Sec. 11-A Federal Railroad Board is hereby created which shall con-
sist of six members, one to be the Secretary of Railroads and the remain-
ing five members to be appointed by the President of the United States,
by and with the advice and consent of the Senate. In selecting the said
five members of the Federal Railroad Board not more than one shall be
selected from any one Federal railroad district. The said five members
shall devote their entire time to the business of the Federal Railroad Board
and shall each receive an annual salary of twelve thousand dollars, payable
monthly, together with actual necessary traveling expenses. In addition
to the salaries hereinbefore provided for, each of said six members shall
each year receive ten thousand dollars for each and every one of said five
Federal railroad companies which pays its guaranteed dividend without
resort to the guarantor, each year being taken by itself. No Senator or
Representative in Congress shall during his term of office, or for five years
thereafter, be a member of the Federal Railroad Board. The members
of the said board shall be ineligible during the time they are in office
and for two years thereafter, to hold any office, position or employment in
any railroad company, and shall not, during that time, hold or own stock
therein. At least one of said five members shall be a person experienced
in the management and operation of railroads. One member shall be
designated by the President to serve for two years, one for four, one
for six, one for eight, and one for ten years, and thereafter each member
so appointed shall serve for a term of ten years unless removed for cause
by the President. Whenever a vacancy shall occur, whether by expiration
of term or otherwise, among the said five members of the Federal Railroad
Board, a successor shall be appointed by the President with the advice
and consent of the Senate to fill such vacancy. The President shall have
power to fill all vacancies that may occur on the Federal Railroad Board
during the recess of the Senate by granting commissions which shall
34
expire thirty days after the next session of the Senate convenes. Of the
five members thus appointed, one shall be designated by the President as
Governor and one as Vice-Governor of the Federal Railroad Board.
The Governor of the Federal Railroad Board, subject to its supervision,
shall be the active executive officer. A majority of the members at a
meeting duly called shall constitute a quorum and a majority of those
present at such meeting shall be sufficient for affirmative action. The
salaries and expenses of the Federal Railroad Board shall be paid by the
Federal railroad companies in proportion to the respective outstanding
capital stock of each from time to time. The Federal Railroad Board shall
annually make a full report of its operations to the Speaker of the House
of Representatives, who shall cause the same to be printed for the infor-
mation of the Congress. The Federal Railroad Board shall have power
to examine at its discretion the accounts, books and affairs of each Federal
railroad company and to require such statements and reports as it may
deem necessary, and shall at all times furnish full information to the
public regarding its operations and the operations of each Federal railroad
company.
Sec. 12-Said Federal Railroad Board is hereby given the power to fix
and determine all interstate railroad rates and service, and also such
intrastate rates and service as Congress has power to regulate under the
Constitution of the United States. No State or State commission or other
State authority shall fix, determine or regulate any rates, service or opera-
tion of railroads owned by any of said Federal railroad companies.
Sec. 13-No stock shall be issued by any Federal railroad company
except after the approval thereof by the Federal Railroad Board, which
board shall also first approve the use to be made of such stock and the
terms of its issue. All financial operations of every Federal railroad com-
pany shall be approved by the Federal Railroad Board before becoming
effective.
Sec. 14-This act may be altered from time to time or repealed.
Inasmuch as Mr. Acworth, of London, has appeared be-
fore your Committee and given very valuable testimony, it
may interest you to read the following reprint of an article by
him in "The Economic Journal" of March, 1916, relative to
my idea:
A New Project of Railway Control in the United States
By W. M. ACWORTH
The present writer has often said that the strongest argument for
the nationalization of railways is that, if not nationalized, they must be
controlled by the State; and that, so far, no State has worked out a reas-
onably satisfactory system of control. A few years ago it looked as
though such a system might be worked out in the United States. But
unfortunately they began too late. And before the wise people could make
their work effective, the shortcomings of the companies in various direc-
tions-a bad breakdown of the operating organization, a series of disas-
trous accidents, not a few financial scandals, and so forth-and, finally, the
dread that Wall Street control, as typified by the late Mr. Harriman,
would establish an imperium in imperio, swept the public off their legs; and
the fools rushed in, with the politicians of the baser sort at their head,
and proceeded to smash the machine. At the present moment it would
be difficult to find a human being throughout the length and breadth of
35
the States who is satisfied either with the methods of railway regulation
at present in force or with the results that they have achieved. The
recent appointment, at the urgent insistence of President Wilson, of a
Congressional Commission to investigate the whole subject is one sign of
the public disenchantment. Another may be found in a paper contributed
to the Michigan Law Review of November last by a distinguished com-
pany, or, as they say in America, "corporation" lawyer, Mr. William W.
Cook.
Mr. Cook is not only Standing Counsel to a group of cable and tele-
graph companies, but also the author of the standard textbook, Cook on
Corporations. Mr. Cook says straight out, "Commission regulation as a
complete and final remedy is an absolute failure." He proposes a sweeping
change: in effect that the Federal Bank plan should be applied to the
railroads. And he has drafted a bill showing the manner in which his
idea might be brought into force by Congress. In outline his scheme is as
follows: There would be formed five Regional "Federal Railroad Com-
panies." The five regions would be: (1) New England; (2) what is now
known as Trunk Line Territory, namely, the whole of the country north
of the Ohio and the Potomac that lies between the Atlantic and the
Mississippi; (3) the southeast of the Mississippi; (4) the southwest; and
(5) the northwest.
Each company would issue sufficient of its own stock, which would
be guaranteed a fixed rate of dividend by the United States Government,
to enable it to acquire by purchase a controlling interest in the stock of
the railroads within its territory. Owning a majority of the stock of the
Pennsylvania Railroad, for instance, the Federal company would elect the
directors of that company and control its policy, just as the Pennsylvania
Railroad itself at this moment appoints the directors and controls the
policy of the Pennsylvania Company, the Pan-Handle, and the scores of
other corporations that nestle under the widespread Pennsylvania wings.
The Board of Directors of each Federal Railroad Company would consist
of nine, three appointed by the Federal Railroad Board, hereafter men-
tioned, and six selected by the stockholders of the Federal Railroad Com-
pany, who would be required to be residents within the district.
Mr. Cook points out quite fairly that his plan can be introduced
gradually. Not only can each district be taken in hand separately, but
there is no need to acquire the majority of the stock of all the railroads in
the district immediately. The control of the New Haven road, for in-
stance, would practically mean control of New England. And control of
the Pennsylvania Railroad and the New York Central would practically
mean control of the whole of the Trunk Line Territory. Mr. Cook makes
a startlingly strong point in favor of some change in the present system
when he points out that, on the one hand, the Mississippi Valley contains
half the States of the Union, and is in both area and population more than
half the country; while, on the other hand, out of 117 directors of the
eight great systems connecting the Valley with the outside world, twenty-
three are identified with the Mississippi Valley, while ninety-two are
resident in the States bordering on the Atlantic seaboard. It may be fairly
36
answered from a company point of view that the directors represent the
owners of the railroad stock. But can one be surprised that this answer
does not satisfy the inhabitants of the Valley? May it not well be that
this absentee ownership, typified, often unjustly, to the ordinary plain
citizen by the bogie of "Wall Street," is still, as it was in the days of the
Granger laws, the root cause of the hostility of the West to the railroads?
Mr. Cook's proposed Federal Railroad Board would be not a company,
but an organ of the Government. It would consist of six members, five
appointed by the President of the United States with the approval of the
Senate, and the sixth, the Secretary of Railroads, a new member of the
Cabinet. It would be apparently in Mr. Cook's scheme the one regulating
authority, superseding the Interstate Commerce Commission, for it would
fix and determine all interstate railroad rates and service and approve all
issues of stock and the proposed financial operations of every Federal
Railroad Company.
Mr. Cook's scheme, novel and revolutionary though it be, certainly
deserves respectful consideration. And it will doubtless receive it from the
newly-constituted Congressional Commission. Financially, it is sober and
conservative; for there would be no need for any great sums of money,
as presumably a very large number of shares of the existing railroads
would be gladly surrendered to the Federal companies in exchange for
their own stock. And it is certainly arguable that the working out of the
scheme might even show a financial surplus. Moreover, the principle of
Government control by means of stockholding was in practical effect
in Mexico for a good many years, and looked like being quite a success
till government in Mexico went to pieces. Certain criticisms seem obvious.
Can forty-five directors plus six supervisors really direct 250,000 miles of
railroad? Will not the various districts fight each other? Texas has
notoriously enacted local protection by means of its Railroad Commission.
And other States have done the same, to a less frequent extent. Might
we not well see the Southern Federal Railroad Board, for instance, elected
on a ticket of protection of Birmingham, Ala., against the competition
of Youngstown and Pittsburg? Most serious of all-and Mr. Cook has
attempted to provide against the danger-is this: Is it to be hoped that
the appointments for Federal Boards and Federal Directorate could be
kept out of politics? And has any dispassionate outsider, however badly
he may think of railroad men, ever rated the average American railway
man, either in intellect or integrity, as low as the average American poli-
tician? Jay Gould was an exceptional phenomenon. He died very many
years ago, and, as a journalist wrote next morning, "is still dead." But
Tammany still lives and flourishes. And the methods and morals of
Tammany are still not without frequent and successful imitators outside
New York. Unless Mr. Cook felt sure that his scheme would keep the
railroads out of politics, in the American sense, we feel sure that he him-
self would not be among its advocates. And as we do not ourselves feel
sure, we fear that his remedy would be worse than the disease. Un-
doubtedly the disease is serious. Undoubtedly a remedy, and a drastic
one, must be found. For the American people, who have for some years
been busily engaged in throttling their railroads, are already discovering
that they have at the same time been throttling the prosperity of their
country.
UNIVERSITY OF MICHIGAN
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