THE

HE most extraordinary changes ever known in public opinion and federal legislation relating to railway matters were those which recently occurred regarding railroad consolidations.

For almost thirty years public sentiment and federal legislation forbade every consolidation or agreement which would interfere with unrestricted competition in the construction of new railway lines, the rendering of service, or the making of rates. At the end of 1917 Government control was adopted, and the first order issued by the new Director General abolished railroad competition. When, early in 1920, the railways were returned to private operation, it was under legislation directing the Interstate Commerce Commission to proceed at once to make a plan for their consolidation into a "limited number of systems"; and in September, 1921, the Commission made public a tentative plan for merging the railroads by wholesale into nineteen great systems.

The gradual consolidation of the railroads. into a comparatively small number of large systems would merely be in conformity with a tendency which has prevailed since the first railroads were built. Nearly every large railroad is a combination of many small lines.

When Railroads Began to Combine In the twenty years from 1870 to 1890 the railway mileage of this country more than trebled, increasing from 53,000 to 164,000 miles. This rapid increase resulted in intense competition, consisting largely of open or secret cutting of rates with disastrous effect on earnings. To stop this rate-cutting the managers of the railways formed various "pools," under which a specified part of the competitive traffic or earnings was assigned to each of the competing carriers. These pools were destroyed by the passage in 1887 of the original Interstate Commerce Act. The railway managers then entered into traffic agreements which prescribed maintenance

of certain rates and provided penalties for departure from them. The Supreme Court of the United States soon held that these traffic agreements were in violation of the Sherman Anti-Trust Law.

This ushered in the era of large consolidations, intended not only to prevent excessive competition in rates but to effect large scale economies in operation. These consolidations were brought about in various ways. Parallel railways sometimes bought each other's stock and put representatives on one another's boards of directors. The great consolidated system directed by E. H. Harriman was built up chiefly through the purchase of the stock of other companies by the Union Pacific or its subsidiaries. In some cases there were formed "holding companies," which acquired competing railways by buying their stocks. The most notable example was the organization, under the leadership of James J. Hill, of the Northern Securities Company, which, through ownership of the stock of the Northern Pacific, Great Northern, and Burlington systems, was to have effected the merger of these so-called "Hill" lines. One of the great consolidations was that of the New York, New Haven & Hartford, the Boston & Maine, and other roads in New England, during the régime of Charles S. Mellen.

The Government Then Opposed

The various large consolidations effected during this period, like the earlier traffic associations, were successfully attacked by the Government under the Sherman Anti-Trust Law. The Northern Securities merger was held illegal by the Supreme Court in a famous decision. Later dissolution of the merger of the Union Pacific and Southern Pacific was decreed.

The persistent attacks of the Department of Justice caused the disintegration of many of the large combinations. Meantime the Government, with great inconsistency, was carrying out another policy which was ren

dering its railway "trust busting" a work of supererogation. The main ground of its attacks upon railway consolidations was that they interfered with competition in rates. In 1906, however, Congress passed the Hepburn Act, empowering the Interstate Commerce Commission to reduce any rate that it found excessive or unfairly discriminatory; and in 1910 it passed the Mann-Elkins Act, giving the Commission power to prohibit any proposed advance in rates that it found unreasonable. This legislation virtually deprived the railways of power to make rates. Nevertheless, the Government persisted in its policy of trying to enforce unrestricted competition right up to the time when it seized all the railways and began to operate them as a single system.

Lessons from War-Time Control

The main cause of the change in the attitude of the public and public men toward railroad consolidations was our war-time railroad experience. That experience convinced many that regulation which prevented not only consolidations, but even reasonable coöperation between competing roads, made it impossible for the railways as a whole to render the largest practicable amount of useful public service. In consequence, a widespread sentiment sprang up in favor of consolidation into a few systems, or even a single system. This sentiment was so strong that many confidently expected unified Government operation would enable the railways to handle a much larger amount of traffic, and to handle it more economically. These expectations were disappointed. The railways in 1918, under unified operation, handled only 2 per cent. more freight than in 1917, while their operating expenses increased over 40 per cent. In 1919 there was a decline of traffic, but a further increase in expenses. The failure materially to increase the traffic handled, and the large increase in operating expenses, were generally attributed to excessive centralization of management, which destroyed competitive rivalries and opportunities for independent initiative.

While our war-time experience was the main cause of the remarkable change in sentiment regarding railroad consolidations, there was another important cause. Railway experts and economists had pointed out for years that the Government's efforts to enforce unrestricted competition did not tend to prevent rates from being made excessive, since regulation had transferred from the

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railroads to the Interstate Commerce Commission the power of rate-making, but that it did greatly increase the difficulties of the Commission in regulating rates fairly and beneficially. In every part of the country there are some railways which are relatively "strong" financially, and others that are relatively "weak." It was pointed out that if the Commission made as high rates were needed by the weak lines, the strong railways would make more money than the public would approve. If it made them only high enough to enable the strong roads to earn what the public deemed reasonable, it would make it impossible for the weak railways to live. The remedy for this condition, it was argued, was to consolidate weak and strong roads wherever practicable. This reasoning strongly influenced many members of Congress and largely shaped the consolidation provisions of the Transportation Act. The Government Now Proposes Consolidation

This Act, as already stated, directs the Interstate Commerce Commission to adopt a plan for the consolidation of all the railways into a limited number of systems. But this must be so done that "competition shall be preserved as fully as possible, and wherever practicable the existing routes and channels of trade and commerce shall be maintained." Under another law the Commission is making a valuation of all the railways, and the Transportation Act provides that if two or more railways are consolidated they must not, after being merged, have outstanding more bonds and stocks than the Commission's valuations of the combined properties.

One of the most important provisions regarding consolidations reads: "The several systems shall be so arranged that the cost of transportation as between competitive systems and as related to the values (valuations) of the properties through which the service is rendered shall be the same so far as practicable, so that these systems can employ uniform rates in the movement of competitive traffic and under efficient management earn substantially the same rate of return upon the value (valuations) of their respective railway properties."

The point should be emphasized that under this legislation any consolidations which are made must be effected by the railways voluntarily. The Government could buy all the railways, consolidate them as it pleased, and then sell or lease the consolidated systems

to private companies. But as long as the railways remain in private ownership, while the Government can say what consolidations must not be made, it cannot compel any consolidations to be made, because it has no constitutional power to force any railway company to buy the property or securities of another.

What Consolidation Would Involve The proposed consolidation of all our railways into a few systems would involve the most gigantic changes in ownership and management of railways ever made without their transfer to Government control. The railway system of the United States is five times as large as that of any other country, and ten times as large as that of England or France. The number of steam railways in the country is 1811, and their total mileage is almost 264,000.

There are hundreds of small independent railways scattered over the country. They were built for speculative purposes or to serve local needs, real or imaginary, and most of them lead a starveling existence. It would be best to abandon those which do not render a service that is essential under present conditions, and for those which are really needed by the public to be acquired by the large railways and used as branches and feeders.

Furthermore, there can be no question that many consolidations of larger railways in all parts of the country would be beneficial, if so made that they would be fair as between the railways themselves and at the same time preserve a reasonable amount of competition. Traffic would be more evenly distributed over the country's railway mileage and uniform development would be practicable, thereby promoting more economical and better service on lines where operating costs are now relatively high and service is comparatively poor.

In considering consolidations we should not, however, overlook the fact that they can be carried out illogically or on too large a scale. Everybody who has studied the operating results of our railways knows there is no merit in mere size. The operating and financial results of the present large systems usually are better than those of the small railways; but there are many comparatively small roads which have made their physical properties and service better, carry more tons of freight per car and per train, and get better financial results than most of the larger systems.

Professor Ripley's Plan

The first plan of consolidation prepared for the Interstate Commerce Commission under the Transportation Act was made by Professor William Z. Ripley, of Harvard University. Professor Ripley showed remarkable thoroughness and skill in so working out the combinations as to forestall various objections that might be raised and at the same time make them comply with the requirements of the Transportation Act. The difficulties he encountered in making a plan which would literally comply with the requirements of the law are strikingly illustrated by the fact that the twenty-one systems he proposed vary in mileage from 764 miles to 22,900 miles, had total earnings in the year 1917 of $8000 to $43,000 a mile, net operating incomes of $1400 to $7800 a mile, and net return varying from 3 per cent to more than 6 per cent. The total mileage included in his plan is only 221,000, leaving about 45,000 miles unassigned to any system. The average mileage of the systems he proposed is 10,500. This exceeds the mileage of any single railway in the country except the Atchison, Topeka & Santa Fe.

Under Professor Ripley's plan there would be one large system in New England, five from Chicago and the Mississippi River to New York, two from the Great Lakes to the soft coal mines in the Chesapeake Bay region, four in the Southeast, five from Chicago and the Mississippi River to the Pacific Ocean, two from Chicago to the Southwest, one small system in the southern Michigan peninsula, and the Florida East Coast Railway, which would not be included in any of the larger systems.

Nineteen Systems Only

The Interstate Commerce Commission used Professor Ripley's plan as the basis of its own tentative plan, but made a number of important changes and proposed only nineteen systems. In the Commission's own plan, as made public in September, it assigned a few important railways, such as the Delaware, Lackawanna & Western, to different systems, doubtless intending definitely to assign each of them to a system after hearings. It also authorized the important railways in New England to be either united with railways running west from New York, or to be put together as a single New England system.

Space will not permit mention of all the railways included in the Commission's pro

posed systems, but the larger railways suggested for each group are as follows:

(1) New York Central; Pittsburgh & Lake Erie; Rutland; Michigan Central; Big Four; Western Maryland; Boston & Maine.

(2) Practically all of the lines now included in the Pennsylvania Railroad System.

(3) Baltimore & Ohio; Philadelphia & Reading; Central of New Jersey; Chicago, Indianapolis & Louisville; New York, New Haven & Hartford.

(4) Erie; Delaware & Hudson; Delaware, Lackawana & Western; Bessemer & Lake Erie; Wabash Lines east of the Missouri River.

(5) Lehigh Valley; New York, Chicago & St. Louis; Toledo, St. Louis & Western; Wheeling & Lake Erie; Bessemer & Lake Erie.

(6) Pere Marquette; Ann Arbor; Detroit, Toledo & Ironton.

(7) New York, New Haven & Hartford; Boston & Maine; Maine Central; Bangor & Aroostook.

(8) Chesapeake & Ohio; Virginian.

(9) Norfolk & Western; Toledo and Ohio Central.

(10) The lines of the present Southern Railway System.

(11) Atlantic Coast Line; Louisville & Nashville; Nashville, Chattanooga & St. Louis; Norfolk Southern; Florida East Coast.

(12) Illinois Central System; Seaboard Air Line.

(13) Union Pacific System; Chicago & North Western System; Wabash lines west of the Missouri River.

(14) Chicago, Burlington & Quincy; Northern Pacific; Chicago Great Western; Minneapolis & St. Louis; Spokane, Portland & Seattle.

(15) Chicago, Milwaukee & St. Paul; Great Northern; Duluth & Iron Range; Duluth, Missabe & Northern; Spokane, Portland & Seattle.

(16) Atchison, Topeka & Santa Fe; Colorado & Southern; Denver & Rio Grande; Western Pacific.

(17) Southern Pacific; Chicago, Rock Island & Pacific; El Paso & Southwestern.

(18) St. Louis-San Francisco; St. Louis Southwestern; Chicago & Alton; Missouri, Kansas & Texas.

(19) Chicago & Eastern Illinois; Missouri Pacific; Kansas City Southern; Texas & Pacific; Gulf Coast Lines; International & Great Northern.

Some Difficulties to Be Overcome

It may be argued that certain of the systems proposed are too large, although most of them are smalier in mileage and in the total traffic handled than some of the existing systems. The consolidations proposed would not seriously disrupt existing traffic routes and commercial relationships, since in many cases the railways it is proposed to combine already work more or less closely together. They would not destroy competition, since there would be two or more large systems in almost every part of the country.

The practical difficulties encountered in trying to carry out this or any similar plan are bound to be very large, if not insurmountable. Railways which because of advantages of location, superior condition of physical properties, and sound financing, are able to earn substantial net returns on any reasonable basis of rates, will be extremely reluctant to accept as partners railways which are disadvantageously located, whose physical properties are not in good condition, and whose financial results always have been poor, at any price which the owners of these latter railways will accept. Financial difficulties would also be encountered in effecting some of the proposed consolidations in compliance with the requirements of the Transportation Act. For example, the Northern Pacific and Great Northern jointly own the Burlington and have used its stock as collateral in the issuance of bonds. It is proposed to put the Northern Pacific and Burlington into one system and the Great Northern into another. This would require a revolution in the finances of these railways. It is proposed completely to dismember some systems, such as the Wabash, which would involve important and difficult financial changes.

Again, under the law, before two or more railways whose total valuations were less than their combined capitalizations could be united they would have to reduce their outstanding securities; and this always has been practically impossible without receivership.

Before the plan of consolidation tentatively adopted by the Interstate Commerce Commission can be made permanent, opportunity must be given to all concerned to present their views. These hearings are sure to disclose the greatest diversity of opinion among public men, financiers, shippers, and railway officers regarding both the desirability of extensive consolidations at all, and the particular combinations which the Interstate Commerce Commission has suggested.

If the law merely authorized the railway companies to make such consolidations as the Interstate Commerce Commission might hold were in the public interest, and under such financial arrangements as the Commission might approve, there would be in course of time many important mergers. The authority to effect consolidations actually given by the Transportation Act is, however, subject to such limitations and restrictions that it is doubtful if rapid progress will be made toward merging the railways into a comparatively small number of systems.

ВАСКА

ACK of the obvious campaign which women have been conducting on behalf of the Conference on Limitation of Armament, back of the presence of four women on the American advisory committee, there lies a subtle network of relationships which the women of various countries have quietly been establishing for years.

Women are great sentiment makers. Through their international organizations and through the magazines which those international groups publish they have been collecting and disseminating information concerning the mental attitude, the characteristics, the actual government of the peoples and countries of the world.

In Shanghai there is a women's club which has been sending messages to women of other countries. About bound feet? Or opium? Not at all. They were brochures on the art, the age-old craftsmanship, which China desires the world to believe she would like to be left alone to follow.

In Hawaii there is a women's club whose representatives have met with the women of other countries. To talk about the abolition of the poi bowl? Or how to make leis? Not at all. They met to discuss citizenship training, better educational facilities, all those public institutions by which the Islanders hope for greater self-development.

From Sweden, from France, from Turkey, from Georgia, from Poland, from Crimea, cables constantly come to women leaders of organizations in this country. Inquiring about things of peculiar concern to women? Not at all. They ask for an explanation of a policy of our national government, or of a State law, or of an action by some group of citizens.

That these lines of communication have resulted in formulating opinions which have had their effect upon international relationships has been recognized even by governments. Recently the Mexican Government invited the General Federation of Women's Clubs to send five women as guests of honor for the celebration of one hundred years of freedom in Mexico. The Federation did

send representatives, and these women were entertained for sixteen days by the Mexican Government. They were taken on trips of inspection through public institutions, they had interviews with Government officials, they were given every opportunity to acquaint themselves with conditions in Mexico to-day. Before they left they were urged to tell the Mexican women how to organize clubs and how to affiliate such clubs with similar groups of women in other countries.

The Women's Congress at Geneva

A dozen governments gave evidence of the importance with which they regard these international activities of women by sending official delegates to the congress of the International Woman Suffrage Alliance in Geneva, Switzerland, a year and a half ago. There the women of thirty-one countries met together and counseled for days-ostensibly on the program of work for the present two-year period, in reality upon how better relationships might be established between their nations.

The responsibility of the individual citizen for right conduct, and the vital necessity of perfecting neighborhood government as the first step toward perfecting national government in its relations both at home and abroad, were stressed again and again. The official delegate of the German government, Frau Marie Stritt, said, with quiet emphasis: "There will be no question of future war so far as Germany is concerned, so long as we are able to continue in the Reichstag as large a proportion of women members as we now have."

It was the Japanese delegate to the Congress, the wife of Sir Edward Gauntlett, who said, "My little head is too stupid to grasp this question of world relationships, but I think that if we Japanese learn to think and act rightly the other nations will like us better. I am going home to tell my people this." To-day the ninety-year-old leader of thought among Japanese women, Madame Kaji Yajima, has taken the little competence which the women of her country gave to her