tion and common use of facilities, and during the first six months
following voluntary unification, the heavily increased traffic was
handled satisfactorily. But during the late autumn and early
winter of 1917 acute traffic congestion occurred at the Atlantic
seaboard ports, through which the greater part of the war supplies
was exported, and the blockade extended back to the important in-
land industrial centres. The congestion was caused by several fac-
tors, among which two were outstanding. One has already been
mentioned the financial inability of the railways to keep up their
former programmes of providing additional facilities in advance of
traffic needs. The second was the lack of effective coordination
between the railways and the several branches of the Government,
each of which demanded priority of movement for its freight, there-
by creating great confusion. The congestion and its interference
with traffic, the perilous financial condition of the railways, the
spirit of unrest among railway employees because of the greatly
increased wage rates paid by manufacturing and ship-building plants,
and the need of better coordination of all agencies essential to the
successful prosecution of the war, led to the President's proclama-
tion of Dec. 26 1917, taking over the railways to be operated by the
Government from Jan. I 1918. The Government could advance
the funds required to provide the additional facilities urgently needed
for war purposes; by paying a rental equivalent to pre-war net
operating income it could prevent further bankruptcy of railway
companies; by paying higher wages than the railway companies
were able to pay, it coula remove the cause of unrest among em-
234
RAILWAYS
employees ; by making the railways a branch of the Government it
could more effectively coordinate transportation with other Govern-
ment activities ; and by the complete temporary elimination of lines
of corporate interest a more effective unification of all facilities and
equipment would be possible.
Federal Control in the War. The Federal Control Act of 1918
provided that the railways should be operated for the President
by a director-general of railroads. Practically all of the rail-
ways were taken over, and were operated, with little change in
the individual units, by Federal managers (in nearly all cases
the former operating executive) reporting to regional directors,
seven in all, who in turn reported to the director-general. The
latter was assisted by staff-directors in charge of the several
divisions law, finance, purchasing, traffic, operation, labour,
accounting, public service and capital expenditures. With few
exceptions the entire organization, from the Federal managers
to the regional and division directors, was made up of men
carefully selected from the railway service. Political influence had
no play in appointment. The Act provided that the railways
should be returned to their owners for private operation within
21 months after the signing of the treaty of peace. The Govern-
ment during the period of Federal control was required to keep
up the usual standards of maintenance, so that the properties
would be returned at the end of Federal control in as good con-
dition and as complete in equipment as when taken. Failing
to do this, the railway companies were to be compensated for the
deficiencies. The annual rental was set as a sum equal to the
average annual net operating income earned by the companies
during the three years ended June 30 1917. The principles of
unification and consolidation of facilities and equipment were
carried much further by the director-general than by the Rail-
road War Board. Terminals and other facilities, and locomo-
tives and cars, were used in common. Advertising, soliciting,
off-line agencies, and other normal competitive activitives were
abolished. Traffic was routed by the most convenient lines, re-
gardless of shippers' directions, or of the effect of diversions on
the earnings of the individual units in the national system. The
aim was to utilize every instrumentality of transportation to
the highest degree of traffic-handling efficiency.
The results of Federal control during the year 1918 while the war
was in progress were satisfactory in that they met the emergency.
The traffic of that year, both in ton-miles and in passenger-miles,
exceeded all previous records. What was more important, the
coordination of railway management with other branches of the
Government had the effect of producing the kind of transporta-
tion most necessary for war purposes. The congestion of the
early winter of 1 9 1 7 was quickly relieved. The heavy demands of
troop movements were completely met. The loaded cars on hand
at the seaboard were always a little ahead of the ocean-going
tonnage capacity, and the railways, after May i, kept up their
part of the programme of moving export food supplies for the
civilian population of the Allies. The insistent preference given
to war traffic naturally entailed some curtailments in service
for civilian population of the United States. These curtailments
were patriotically accepted. A system of centralized control
established priority for the various kinds of freight and con-
trolled traffic at the source by requiring permits before freight
would be accepted. Such permits were not issued unless trans-
portation conditions at destination were such that the freight
could be quickly unloaded. Manufacturers and dealers were
asked to load cars with larger shipment units, or otherwise to
conserve car space by changing methods of packing. One of the
first acts of the director-general was to appoint a commission to
make recommendations as to wage increases. The commission
made its report in May and. its recommendations were adopted
and made retroactive to Jan. i 1918. The increases in pay-roll
expenditure were substantial. Coincident with the promulga-
tion of the new wage scale, the director-general created the
Board of Railway Wages and Working Conditions and later he
appointed three Boards of Adjustment to pass upon disputes
as to working rules and discipline. Both the wage and the ad-
justment boards were bi-partisan with equal representation
from the officials, representing management, and from the execu-
tives of the labour organizations, representing the employees.
During 1918 there were no strikes or other labour disturbances.
The director-general was given almost autocratic authority to
increase freight and passenger rates and other transportation
charges or regulations. The Interstate Commerce Commission
and the state commissions temporarily were shorn of power.
An increase of 25% in freight rates and about 20% in passenger
rates was made effective in June, a few days after the wage
increases were announced. While in a general way it was hoped
that the advances in rates, coupled with the expected econo-
mies in unified control, would offset the higher wage rates and
other increases in operating costs, the net financial results were
regarded as of secondary importance as compared with the
increase of transportation capacity. The rate advances were in-
sufficient to meet rising costs and the final result of the first year of
Federal control, with no allowances for deficiences in main-
tenance or depletion in stocks of materials and supplies, was
a deficit of over $200,000,000. In other words, the net operat-
ing income earned by the director-general was that much less
than the rentals paid to the railway companies. This deficit,
however, may properly be regarded as one item of the cost of
carrying on the war. In view of the satisfactory transporta-
tion service, particularly during the summer of 1918 when the
armies of the United States were at the height of their activi-
ties, and comparing the deficit with the expenditures of other
branches of the Government, the cost was not great. ,
The second phase of Federal control was the period from
the signing of the Armistice in Nov. 1918, until March i 1920,
when the roads were returned to private management. This
post-war period of Federal control was not marked by results
as satisfactory as those of 1918. It would have been much
better if the period of Federal control had ended Dec. 31 1918.
Immediately after the Armistice the moral factor of patriotism,
which had been so effective during the first ten months of Fed-
eral control, almost entirely disappeared. As soon as the war
was over the employees through their organizations began a
campaign to hold and to extend further the concessions which
had been made freely under the exigencies of war; the thoughts
of the officers began to turn to their corporate and personal inter-
ests; and among a minority of the administration officials active
steps were taken to bring about an indefinite extension of Fed-
eral control with the ultimate aim of nationalization. The
public, however, had little patience with the director-general's
proposal to Congress that Federal control should be extended
five years, and the suggestion had little support outside of the
labour organizations and the political forces aligned on the side
of nationalization. Chambers of commerce, shippers' organiza-
tions, and the general public, in the natural reaction against
perpetuating war-time governmental control of business, in-
sisted that the railways should be returned to private control.
This general attitude toward the subject, and the alarming
deficits which were being added to that of 1918, influenced
Congress to take active steps to restore the railways to their
pre-war status, but great difficulty was experienced in agreeing
upon a plan which would be satisfactory in detail to both the
House and the Senate. While the hearings and the debates
dragged throughout the year 1919, the transportation service
suffered in efficiency and among the more radically inclined
employees there were frequent and serious strikes. It was
found necessary to grant further increases in wages and to enter
into the so-called " national agreements " containing many
burdensome and restrictive rules such as, for example, the
abolition of piece-work in shops. Most of these national agree-
ments were made almost on the eve of the return of the rail-
ways. They were drawn by the labour advisors to the director-
general and were adopted over the protest of the railway operat-
ing officials. These national agreements were partially abrogated
July i 1921, by order of the Railway Labor Board created by
the Transportation Act of 1920.
The final cost to the Government for the 26 months of Federal
control was estimated by the director-general at a minimum of
" ,200,000,000. It seemed probable that it would be much
RAILWAYS
235
greater, as this estimate allowed only about $300,000,000 for
under-maintenance and for differences in the quantities of ma-
terials and supplies on hand at the beginning and at the end of
Federal control.
A great deal of controversy arose over the question of rela-
tive maintenance during and prior to Federal control, but the
differences hinge mainly upon the degree of under-maintenance.
There can be no doubt that the condition of the properties was
not so good at the end of Federal control as at its beginning,
but the exact degree of deterioration cannot be determined as
no inspection or survey was made when Federal control began.
The records show conclusively that the normal rate of renewals
of rails, ties and ballast was not kept up during Federal control,
and the universal complaint of the railway executives that
freight cars were not maintained at normal standards is sup-
ported by the opinions of experts. On the whole, the conditions
of locomotives did not suffer, but less than the normal amount
of work was done on passenger cars. Bridges and buildings
suffered because of neglect in painting, but on the other hand
many improvements were made in shops and in engine-house
facilities. Whatever may be the degree of under-maintenance
it should be remembered that it was impracticable during the
greater part of the period of Federal control to obtain the nec-
essary amount of materials and full forces of men. These diffi-
culties were partly removed in 1919, but in that year the serious
decline in traffic and in earnings made it inexpedient, in the
judgment of the director-general, to attempt to make up the
deficiences. A proviso in the contract between him and the
railway companies gave the director-general the option of
measuring his maintenance obligations by the amounts actually
spent by each company during the three years prior to Federal
control, these amounts to be properly equated to allow for
increases in the cost of wages and materials, and he chose to
limit the expenditures so as to keep them within that obliga-
tion, leaving the accounting and the settlement to be worked
out after the termination of Federal control. Instructions were
issued, however, that nothing essential to safety in operation
was to be left undone. An inspection of the amounts spent for
maintenance, particularly for maintenance of equipment, indi-
cates that even with a generous allowance for the higher wage
rates and material costs, the director-general expended amounts
which were equivalent to those spent by the railway companies
prior to Federal control. This method of comparison, how-
ever, takes no account of the important factor of relative effi-
ciency of labour. During 1918, when so many railway men
were drafted or had volunteered for military service, the per-
centage of inexperienced employees was abnormally large, and
during 1919 the general lowering of the morale and the frequent
strikes of men engaged in maintenance work led to a much
lower degree of efficiency. The director-general held to the
view that the Federal Control Act and the standard contract
based upon it did not require him to take account of relative
efficiency that his obligation ended when he had expended
an amount equivalent, when properly equated for the higher
wage rates, to that spent in the test period. The railway com-
panies on the other hand insisted that if in the test period too
man-hours cost $30 and produced 10 units of work, and if during
the year 1919 the same number of man-hours cost $60 but pro-
duced, say, 8 units of work instead of 10, the spirit of the Act
is not followed unless the director-general spent enough in
excess of $60 to produce 10 units of work. This is the real point
of difference. In the settlements made since the termination
of Federal control this issue has been avoided by a policy of
compromise and by lump-sum adjustments in which mainte-
nance is but one factor, but it is probable that some of the com-
panies which have large claims for under-maintenance pending
may prefer to take the case to the courts for decision.
Too much emphasis, however, should not be placed upon the
financial results of Federal control. Deficits might have been
reduced or entirely avoided, and a surplus laid aside for the set-
tlement of claims, if the 1918 advances in rates had been greater
or if supplementary advances had been made in 1919 to take
care of the further wage increases granted in that year. The
attitude of the administration was that it made little difference
whether the higher operating costs were met indirectly through
taxes or were directly collected from shippers and passengers in
higher rates. As between the two alternatives the administra-
tion chose the first on the ground that another rate advance
would have a serious effect upon the already much disturbed
business conditions, and would be made the excuse for further
profiteering. Speaking in general terms it may be said that the
policy of the Government in taking the railways and operating
them while the war was in progress was vindicated by the
favourable operating results which flowed from a centralized
and unified control. On the other hand it may be said that the
experience of the post-war period of Federal control was not such
as to justify a peace-time policy of Government operation or
ownership under a democratic form of Government which relies
upon the free play of the forces of competition. The unfavour-
able reaction of public opinion may be traced primarily to the
elimination of competition in service. The railways were finally
returned in response to an overwhelming public demand that
private operation be restored, and almost immediately after its
restoration, the desire for competitive service caused the aban-
donment of practically all the innovations of unification under
Government control and operation.
The Transportation (Esch-Cummins) Act of 1920. The conditions
under which the railways were returned, and the policies of public
regulation as they existed in 1921 were fixed by the Transportation
Act of Feb. 1920, amending the original (1887) Act to Regulate Com-
merce. Besides providing for the restoration of operating control
to the owning companies the Act provided that during the first
six months, the so-called transition period, while railway rates and
wages were in process of further upward revision, the Government
would continue the guaranteed rentals paid during the period of
Federal control. A Railroad Labor Board was created to pass upon
wage matters, and made substantial increases in July 1920. The
Interstate Commerce Commission was instructed to establish rates
so that on the basis of current costs and under honest, economical
and efficient operation, they would yield net operating income suffi-
cient to pay a fair rate of return upon the value of the railway
properties held for and used in the service of transportation. For
the first two years the fair rate of return was set at 55 %, with an
extra 0-5 % (6 % in all) to make provision for improvements charge-
able to capital accounts. This mandate to the Commission, how-
ever, applied to the railways as a whole, or as a whole in territorial
groups. For the purposes of the Act the Commission later divided
the railways into three general groups, the eastern, the western and
the southern. The mandate did not apply to individual roads in a
group. Obviously a rate scale which will yield 6% to all of the
railways in a group will yield more than 6 % to some and less than 6 %
to others. No relief is provided for the railways which earn less than
6 %, but when more than 6 % is earned by a railway, the excess is to
be evenly divided with the Government. The railway is to hold its
proportion of such excess in a reserve fund and the one-half which
goes to the Government is to be held by it as a general railroad
contingent fund to be administered by the Commission in assisting
the weak roads by loans. The reserve fund created by a railway from
its excess earnings is to be held for interest charges or dividends
in lean years, but whenever that fund is more than 5 % of its property
value, the excess over 5 % may be used for any lawful purpose.
The problem of the weak railway has been for many years the
principal obstacle in the path of a satisfactory solution of the railway
question. In the determination of competitive rates, for example, a
scale which will give a reasonable return upon the value of a weak
railway will give too much to the strong railway. Conversely, when
the scale gives a reasonable return, but not more, to the strong
railway, the weak one cannot live. In practice the regulating au-
thorities have been forced to adopt a middle ground with, perhaps,
a tendency to lean more toward preventing an unreasonably high
return to the strong than an unreasonably low return to the weak. An
attempt has been made to meet this problem in the Transportation
Act which provides for the ultimate elimination of the weak rail-
ways by consolidation with the strong. The Commission is ordered
to prepare and adopt a plan for the consolidation of railway proper-
ties into a limited number of systems. Such a plan is to preserve a
reasonable degree of competition and to maintain so far as practi-
cable the existing routes and channels of trade and commerce. The
desiderata are that the several systems shall be so arranged that the
cost of transportation as between competing systems, and as related
to the values of the properties, shall be approximately the same, so
that these systems can employ uniform rates in the movement of
competitive traffic, and can earn, under honest and efficient man-
agement, substantially the same rate of return upon the value of
their respective properties. The Commission in June 1921 was
engaged upon the formulation of such a plan, but as the Act pro-
236
RAILWAYS
vided no way in which its recommendations might be enforced when
objections were raised against its terms, there seemed likely to be
long-drawn-out controversy and additional legislation before an ideal
scheme of consolidation into a small number of systems of fairly
equal financial strength would be made effective. The new Act en-
larges the powers of the Commission over financial management and
requires it to exercise a general supervision over all new issues of se-
curities. The Railway Labour Board (consisting of nine members
divided equally among representatives of management, labour and
the public) is empowered to fix wages and working rules.
The foregoing outline mentions most of the important new features
in the 1926 legislation amending the original Act to Regulate Com-
merce and the amendments up to 1920. The fundamental provisions
of the original Act remained in force in 1921 and had been extended
or otherwise strengthened. Briefly, the Commission is required to
see that rates and charges are just and reasonable; to prescribe the
rules under which rates may become effective; to prevent unfair
discriminations between shippers, carriers or localities; to prevent,
except when specifically authorized, the charging of a higher rate
for a short haul than for a longer haul over the same route in the
same direction; to prevent the pooling of freight or earnings; to
require complete reports from carriers in prescribed form ; and to
prescribe and enforce uniform rules for accounting and for compila-
tion of statistics of operation.
In addition to the Federal legislation just described, each state
exercises its powers of regulating intrastate traffic and of exercising
what may be termed " police powers " over railway management
and service within its own borders. The line between Federal and
State regulation is not clearly drawn, and controversies between the
two authorities have been frequent. On the whole, the tendency of
court decisions during the decade 1910^20 was toward according
greater powers to the Federal commission and less power to the
State commissions, as it has been shown that the states, when ex r
ercising control over intrastate rates and service, may indirectly
discriminate against interstate traffic and service.
In addition to the changes in the Act to regulate commerce, new
legislation was enacted during the decade which strengthened and
extended the laws pertaining to safety appliances and accident pre-
vention. These laws govern certain features of design and main-
tenance of locomotives and cars and of operating' methods in train
service. For example, the use of high-power headlights has been
made compulsory, and the requirements as to boiler inspection and
the general condition of locomotives have been made more rigid.
The scope of the laws governing maximum hours of service was
enlarged. The eight-hour basic day, prescribed for train service
employees by the Adamson Act, passed by Congress in 1916, was
extended during the period of Federal control to apply to practically
all classes of railroad employees.
Statistics. The salient features of mileage, investment, income
and transportation production in ton-miles and passenger-miles,
are shown in Table I. compiled by the Bureau of Railway Economics,
Washington, D.C., under date of March 21 1921. The figures apply
only to Class I. railways, i.e. those which have operating revenues
in excess of $i ,000,000 per year. These railways comprise about 92 %
of the total main-track m., about 95% of the total capitalization,
and they earn about 97 % of the total operating revenues.
In interpreting the figures in Table I. it is necessary to bear in
mind that the results of 1917-20 were very much affected by war
conditions and by Federal operation of railways from Jan. I 1918
until March I 1920. The period was one of abnormally high operat-
ing expenses and of greatly diminished net income, notwithstanding
the large operating revenues. Obviously a continuation of the low