§ 9. Transportation Act of 1920. After the armistice, the return of the railroads to private control became the subject of much discussion in financial and in political circles. Though railroad finances fared better after the increase of rates in May, 1918, net earnings fell again in the temporary business recession early in 1919, to rise again in the business boom of mid-1919; then, as a result of the continued rise of costs and wages, fell again nearly to zero by mid-1920. The Interstate Commerce Commission then granted a large increase of rates, both passenger and freight, effective in September, 1920. Meantime in February the " Transportation Act of 1920," otherwise known as the Esch-Cummins Act, became law, returning the railroads to their owners March 1, 1920. This law necessarily postponed the task of "unscrambling" the railroad omelet and settling the government's indebtedness to the several roads. But, more important for the future, amendment of the Interstate Commerce Act increased its membership to eleven, and in various ways implied a new, or advanced, view of the railroad problem. The chief new features are:3

1.  Rates must be adequate to yield a fair return on the aggregate value of the property of the carriers, either in the entire country or in rate groups. This is assumed to be the first two years 5 1/2 per cent (but may be 1/2 per cent more to make provision for improvements) on the valuation to be fixed by the Commission.

2.  Net earnings of any carrier are to be limited to 6 per cent and one half of the excess, the other half to be paid to the Commission for a contingent fund to be lent to weaker roads or used in other ways helpful to the railway conditions.

3 The labor adjustment features of the law have already been indicated in ch. 22.

3.  All the railroads are to be consolidated into a limited number of systems by a plan to be prepared by the Commission, but this plan as yet is only to be recommended, not enforced upon the carriers. Within each system, consolidation, mergers, division of traffic, and pooling may be authorized by the Commission.

4.  Joint use of terminals may be required by the Commission.

5.  Stricter control is to be exercised over railroad policies, including security issues, routing of traffic, car service, discrimination, and other features.

§ 10. Significance of the Transportation Act. This act was almost unanimously conceded, by those of divergent views, to contain many commendable features, and is generally characterized as the last trial of private ownership as well by those who favor as by those who would deplore such an outcome. It brings to an end the regime of private railway ownership and management in the United States, in which private interests were uppermost for good and for evil. In that period constructive minds have built great railroad systems and have developed marvelously the technic of railroad management; but great financial interests have made the railroads the pawns with which they played a game for private riches and personal power. The most important question to be answered is this: how is it going to be possible to preserve the vitalizing force of competition in railroad transportation when competition between carriers has been ended ?

The question is paradoxical, but it admits of a valid answer, if the American public has wisdom and political virtue enough to apply it. That answer is: keep politics out of railroad management; preserve and intensify the motives of personal ambition everywhere among the officers and employees of railroads; let merit, not favoritism, determine appointments; let railroad service in all its branches be a technical career in which one who succeeds in any position, on any road, in any part of the country, may hope for recognition and worthy reward anywhere else where there is a bigger job to fill. Railroads as such can no longer compete in rates; it is a question whether they may even continue to compete in service, for that too must tend to become standardized, as well in quality as in price. But only in a figurative sense did railroads ever compete. Railroads are impersonal things; only men compete, only men can have motives that are an essential part of the idea of competition. Under a wise public policy, men ought to continue to compete in railroad work and management; indeed, they might do it more effectively than under the regime of personal and corporation favoritism and of frenzied finance that made such monumental failures of many of the railroads under unregulated private management in the past.

References

Adams, H. C, American railway accounting. A commentary. Pp. 465. New York State. 1918. By the director of the accounting and statistical work of the I. C. C. from 1887 to 1911.

Brown, H. G., Transportation rates and their regulation. N. Y. Macmillan. 1916.

Johnson, E. R., and Van Metre, T. W., Principles of railroad transportation. Pp. 619. N. Y. Appleton. 1916.

McFall, R. J., Railway monopoly and rate regulation. N. Y. Longmans. 1916.

Materials for the study of elementary economics by L. P. Marshall and others. Pp. 627, 628. Univ. of Chic. Press. 1913.

Ripley, W. Z., (Ed.), Railway problems. Bost. Ginn. 1907.

Ripley, W. Z., Railroads: rates and regulations. N. Y. Longmans. 1912.