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rate of return thereon, and such percentage shall be uniform for all rate groups or territories which may be designated by the Commission."

The Commission's decision was a disappointment to the railroad executives and to others who believed that the 6% standard should be continued. That rate is meagre enough as a return on invested capital, and it allows little for the creation of a surplus so vital to sound credit. The Government itself, in its relations with the railroads, exacts an interest rate of 6% on loans from its revolving fund.

The reduction of the statutory rate to 534% has increased the difficulty of maintaining credit sufficient to permit the securing of new capital for needed extensions, enlargements and betterments. It is doubtful if the Commissioners who signed the majority decision gave sufficient consideration to the “necessity ... of enlarging such facilities in order to provide the people of the United States with adequate transportation. It is not improbable that the same shippers who complained about high rates, and who objected to a statutory rate of return of any kind, may, when prosperity returns, have greater reason to complain about inadequate service or failure to obtain cars. It is not easy to convince the average shipper that service is as important, if not more important, than rates, and that the railroads cannot furnish satisfactory service unless the shippers are willing to pay rates which will enable

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* Section 15a, Interstate Commerce Act as amended in 1922.

the railroads to keep their facilities and equipment in step with the constant growth in traffic demand.

However, as the matter stood during the first half of 1922, it made little difference to the typical road whether the statutory rate was 6% or 534%. The railroads as a whole, and the great majority of them individually, were not earning 534%, and had not earned that much in 1920 or 1921. For the entire year 1920 the return was 0.3%; in 1921 it was 3.3%; and during the first six months of 1922, it was 4.4%. The figures for the first 6 months, however, do not furnish a fair indication of the probable results of the entire year, since they include the lean months of January and February and do not include the best months of the fall. The net operating income of the second half is usually much better than the first half of any year.

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Reference was made in Chapter XXI to the section of the Transportation Act which contemplates the ultimate voluntary consolidation of the railroads of the United States into a limited number of large systems of fairly equal financial strength, so that uniform rates applying to all of such systems in a territorial group may yield substantially the same rate of return upon property value. The Commission was directed to prepare and adopt a plan under which such consolidations would become effective.

In such action as the Commission had taken in this matter up to July, 1922, it has moved with de

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liberation. Sometime in 1920 it began to consider the general subject and invited Professor William Z. Ripley, of Harvard University, to make an independent study and to recommend a comprehensive plan for the Commission's consideration. His report was made to the Commission during the summer of 1921, and the Commission published it as an appendix to its tentative plan, under date of August 3, 1921.* In the main, the tentative plan, which was “put forward in order to elicit a full record upon which the plan to be ultimately adopted can rest," was based upon Professor Ripley's recommendations, although it differed therefrom in a few important particulars.

In announcing the tentative plan to the carriers, the state commissions and the public, the Commission gave notice of hearings, the dates to be announced later. The hearings did not actually begin until early in 1922, when in the Southern carriers, the state commissioners and others interested, were asked to express their views on what had been proposed. The point was emphasized that the tentative plan had been put forward merely as a starting point for discussion, and the Commission urged the railroad representatives, who offered many objections to that plan, to submit constructive ideas of their own as to what the Commission should do in meeting the spirit of the Act. Up to July, 1922, nothing definite

. had been accomplished. The few hearings on the subject were confined to Southern territory. It was apparent that the Commission was feeling its way.

*63 I. C. C. 455.

The Commission's tentative plan contemplates the creation of 19 large systems which will embrace practically all of the Class 1 railroads. Alternative plans are suggested for New England. The brief titles give a general indication of the proposal :

1. New York Central
2. Pennsylvania
3. Baltimore & Ohio-Reading
4. Erie
5. Nickel Plate-Lehigh Valley
6. Pere Marquette
7. New England
8. Chesapeake & Ohio
9. Norfolk & Western
10. Southern
11. Atlantic Coast Line-Louisville & Nashville
12. Illinois Central
13. Union Pacific Northwestern
14. Burlington-Northern Pacific
15. Milwaukee-Great Northern
16. Santa Fe
17. Southern Pacific-Rock Island
18. Frisco-Katy-Cotton Belt

19. Chicago-Missouri Pacific In each case the roads named in the title are to form the main parts of the new systems which will also take in certain smaller connecting lines.

It has already been pointed out that the principal purpose of comprehensive consolidation of railroads is to eliminate the greatest obstacle in the path of effective regulation of competitive rates-the weak road. Between competitive points via competing roads, rates are necessarily the same.

A rate scale fixed to give only a reasonable return to the strong will not permit the weak to live. Rates made high enough to insure adequate earning power to the weak will yield unreasonably high returns to the strong. Both the weak and the strong are necessary to the communities which they serve locally. In practise the Commission has been obliged to compromise by establishing rate scales which would not be too meagre to the weak nor too generous to the strong, but the tendency has been to pay more attention to curbing the prosperous roads than nourishing those which are financially weak. The record of the past 30 years or more reveals a steady process of consolidation in which the weaker roads have, willingly or unwillingly, been absorbed by the larger systems.

The plan of comprehensive consolidation tentatively put forth by the Commission and, in fact, any plan which may be proposed, cannot satisfy all of the parties affected. Conflict of corporate and personal interests, jealousies, or personal ambitions of individuals, will probably delay the early adoption of any large-scale plan for voluntary consolidation.

The natural desire of the officers and directors of an individual railroad company is to maintain independence. They are not adverse to enlarging their properties if they can do so on favorable

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