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might be handled expeditiously and economically. The statistics of ton-miles and passenger-miles over a long series of years indicate that the normal growth in freight traffic is an increase of 100% every 12 or 13 years, and that the passengers carried one mile double every 15 or 16 years. In order that the normal growth might be taken care of satisfactorily it was necessary to construct new lines, to increase main-line trackage, to increase the number and capacity of sidings, to revise and enlarge terminals, enginehouses and shops, and to purchase new locomotives and cars of greater capacity and better design. These heavier units of rolling stock and motive power required bridge renewals and the enlargement of clearances in tunnels, cuts and overhead structures. In the interest of train service economies it was desirable to reduce grades and to eliminate curvature; and in many cases the capacity of the roads was increased and their operating costs lowered by constructing cut-offs or otherwise shortening the line haul.

Although the greater part of these improvements was financed by the sale of new securities, it was believed to be sound policy to take a part of the capital out of income, so as to keep down the capital obligations. Such a policy was possible on the typical road under the net income up to and during the greater part of the decade which ended with 1909. But with the enactment of the amendments of 1906 and 1910, which gave the Interstate Commerce Commission the power to fix maximum rates and to suspend rates initiated by the carriers, the inflexibility of the rate structure, and the steadily advancing costs in operation, caused net income to shrink. As the opportunities for large-scale economies in the progressive development in the art of transportation grew less, it became increasingly difficult to absorb the advances in wage rates and the increases in material costs.

About that time (1910) the railroads began their efforts to convince the Interstate Commerce Commission that higher rates were justified by changed economic conditions, but they were unsuccessful. The net income continued to drop and in 1914, when the World War began, the railroads were in serious financial difficulties. The loss in earning power had affected their credit. Railroad securities, particularly new issues of stock, were no longer marketable on favorable terms, and issues of new or refunding bonds carried higher interest rates. Net income was not sufficient to justify appropriations for betterments. Many of the strong roads reduced their dividend rate and many of the weaker roads suspended all dividend payments. Another group of the weak lines began to default in the payment of interest on funded debt. New construction practically ceased. Improvements were curtailed. Orders for new locomotives and cars were far below the normal rate of renewals.

Such was the situation when the World War began in 1914. In that and in the following year many weak roads were forced to the wall. The total railroad mileage in the hands of receivers

in 1915 comprised one-sixth of the total in the United States.

The financial catastrophe which threatened to overcome the strong as well as the weak roads was averted by the large volume of traffic caused by orders from the Allies for munitions and other war supplies. These orders brought feverish industrial activity and a large movement in raw materials as well as in finished products. As a result, railroad earnings, both gross and net, in 1916 exceeded all previous records.

For the moment the ultimate financial needs were pushed into the background. The heavily increased tonnage brought additional revenues which absorbed the further advances in wages and materials, but under the stress of the overload, and in view of high construction costs, little could be done toward providing the additional facilities and equipment which normally would have been provided in the years 1910 to 1915.

And so it came to pass that when this country entered the war in April, 1917, our transportation system, already taxed nearly to its traffic carrying limit, had to assume heavier burdens. How the problem was met at the time is described in Chapter II. Suffice it to say here that in 1917, under the Railroads' War Board form of voluntary unification, the initial load was satisfactorily carried. Late in 1917, however, difficulties were encountered which justified complete unification under federal control. That form of control continued until March 1, 1920. Chapters II to XX

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are devoted to a recital of the organization, methods and results under governmental operation.

During 1919, while Congress was deliberating upon the several plans for the post-war solution of the railroad problem, the demand for a resumption of private management was overwhelming. Congress summarily dismissed all plans looking toward Government operation or ownership in any form. The national policy finally adopted, when the railroads were returned to their owners for private operation, is expressed in the Transportation Act of 1920. The Act, which may be said to mark a new era in the relations between the Government and the railroads, is discussed in Chapter XXI.

The remaining chapters are devoted to the outstanding events in 1920 and 1921, the two years immediately following the period of federal control, and to the railroad situation as it existed in July, 1922.

CHAPTER II

THE RAILROAD SITUATION DURING THE

DECADE 1906-1916

I

N order to understand the railroad situation during and directly after America's partici

pation in the World War, it is necessary to review the events which preceded the critical period from April, 1917, (when the United States declared war against Germany), to March, 1920, (when the railroads were restored to their owners after 26 months of operation by the Federal Government). That period of three years is marked by as many fundamental changes in railroad administration. First came the voluntary unification of all railroads and the attempt on the part of the individual carriers to act together in the war emergency as one system under the direction of a Railroads' War Board invested by the carriers with power to suspend and disregard individual and competitive interests. This voluntary unification lasted from April 11, 1917, to December 28, 1917, or almost 9 months. The second change was the compulsory unification of all railroads under federal control, lasting 26 months (until March 1, 1920). The third came with the passage of the Transportation Act of 1920, which restored the railroads to private management and fundamentally modified the policy of public regulation.

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