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A complete and exact statement of the financial results for 1918 is not available in separate form, but summaries of the income account were published monthly by the Operating Statistics Section. They apply only to Class 1 roads and do not include any of the auxiliary services, such as Pullman lines and steamboats; nor do they include the expense of the regional and central offices of the Administration. The figures, however, give a sufficient indication of the relation between the aggregate net operating income of Class 1 railroads and the rentals which were paid by the Government. The difference between the two amounts represents much the greater part of the deficit under federal control.

CONDENSED INCOME ACCOUNT *
Class 1 Railroads in Federal Control. Years 1918 and 1917

Increase or
Decrease

Item

1918

1917

Amount

Per Cent

21.4 40.3 D 23.5

D28.3

Operating revenues. . $4,842,695,884 | $3,988,827,671 853,868,213
Operating expenses. . 3,939,315,122 2,808,544,956 1,130,770,166
Net operating revenue 903,380,762 1,180,282,715 D276,901,953
Net railway operating
income

688,200,083 960,492,111 D272,292,028 Standard return

890,335,685 Per cent net railway

operating income to standard return

77.3 Deficit.

202,135,602

* D denotes decrease. These returns include the results of oper. ation of 150 Class 1 railroads with an aggregate road mileage of 230,769. Net railway operating income as used here corresponds with its definition in the Federal Control Act, viz., net operating revenue, minus railway tax accruals and uncollectible railway revenues, plus or minus the net balances for equipment rents, joint facility rents, and miscellaneous federal income items (if any). The standard return given here is the figure as it appeared at that time. Since then it has been changed slightly by adjustments.

The deficit was due to an increase in operating expenses which was relatively and absolutely much more than the increase in operating revenues. It will be recalled that a general increase in freight and passenger rates was made effective in June. The wage increases, however, while awarded in May, were made retroactive to January 1. In his final report to the President, Director General Hines estimated that if the advances in freight and passenger rates had been effective from January 1, 1918 the additional revenues in 1918 would have been $494,000,000. This amount, of course, would have wiped out the deficit and would have left a surplus.

It was impracticable, however, to increase the rates at the very beginning of federal control. The reasons why they were not made effective until June have already been given. The record, therefore, must stand as given-a deficit of over $200,000,000.* This deficit and the deficit in 1919 are frequently referred to as the “cost” of Government operation.

As this phase of the question is to be discussed in the review of the results for the entire period of federal control, it may be passed here with the brief comment that so far as the ultimate cost to the public was concerned it made little differ'ence whether the deficit in 1918 was met from the public treasury, or was avoided (as might have been done) by larger increases in rates. In either case the public pays the bill. The higher cost of railroad operation, however met, was an element in the cost of the war; and the amount of the deficit is not large when we consider the cost of other large scale Government activities incident to the war. The outstanding fact is that during 1918, when adequate transportation was so vitally necessary, the railroads functioned effectively as a part of the war machine, and they served the public reasonably well under very trying conditions. The writer believes that the results achieved under federal control during 1918 were more favorable than would have been possible under a continuation of private control.

*This is the loss on the operation of Class 1 roads. Including all activities of the Railroad Administration, and its organization costs, the deficit for 1918 was about $245,000,000.

CHAPTER XIII

THE GENERAL SITUATION IN 1919

THE

HE situation with which the Director Gen

eral of Railroads had to deal during the

second year of federal control of railroads was different in many respects from that of 1918. During the first year (1918) the controlling motive was to operate railroads as an effective part of the Government's war organization. The compelling forces of patriotism were behind the employees, the officials, and the general public. The railroad organization worked faithfully to produce the kind and the volume of transportation which was vitally necessary for war purposes, and the public cooperated willingly in accepting war-time restrictions in service. As has already been indicated, the results were fairly satisfactory from the viewpoint of the emergency which federal control was intended to meet.

The less satisfactory record of 1919, the second year of federal control, may be partly explained by the changed conditions. The spur of patriotism behind the working forces was lacking. The war-time tension relaxed almost immediately after the signing of the armistice and there was a distinct lowering in morale. Shippers, travelers, and state-regulating authorities began a campaign to restore the pre-war status. Congress adopted

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a critical attitude toward the Railroad Administration and delayed or withheld the appropriations recommended by the Director General. The decline in traffic and the shrinkage in net income compelled a closer scrutiny of expenses. The atmosphere was befogged by propaganda designed to create a favorable public attitude toward each of the many plans advanced for the solution of the railroad problem, and practically all of he propagandists set out to discredit the record of the Railroad Administration. Then, too, there was the normal reaction on the part of the general public against the continuation of war-time Government control.

Just before Mr. McAdoo's retirement from the office of Director General he advocated a continuation of federal control for five years. The Federal Control Act provided that the railroads should be returned to their owners within 21 months “following the date of the proclamation by the President of the exchange of ratifications of the treaty of peace. Mr. McAdoo expressed the view that federal control during one year of war and one or two years of the reconstruction period (on the eve of a presidential campaign) would not furnish an adequate test of the advantages of unified operation. He feared that most of the “fundamental reforms” inaugurated during his regime as Director General could not be continued “if the country prefers to continue in existence the hundreds of different railroad companies as in the past." He believed that a five-year extension of operation by the Government would per

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