St. Louis Post-Dispatch
February 10, 1918

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é EF EO. Ee cieremn aes er CRE ERO ee an ies ser ™ ome, Re ee tl 7? es ry r% * 3 * was 5 a . ) Folly to Set Time Now for oe to Private. Control With 7 How Can Anyone Know, He Asks, What Problems in Finance This Nation Will Face at That Time and, Besides, What Reason.Is There Now for: Resolving Upon a Course That May Be Obviously Unwise, if Not Fatal, at the Date Set for Its Accomplishment? i et i a al ca ae i _ Afte r a Long Release From the Deaipebitive System, | Their Re-Entry Into It, Without Adequate Pro- tective Legislation for the Government, the’ Roads and the Investors Alike, Planned and En- forced in the Light of the Surrounding Circum- stances, Would Be to Invite National Disaster. i a all ale el ee x~ - . nc ~is 3 2 e “a> “4° \ -~* Ve ° ~~" . : Y 4 - = Ss Se . , . 2 au *s . > Sige ~ . + Sar La wie Ft re SS» C2 ’ a ats . " * . + owes A “5! be “7 G /! oe i * 4 . , - nas 4% ~ a * mee ne tag oe MR, Oe os , mo +4 pie ‘ : e- ¥ . . ’ ove tale oe > a “ » “a < OTH the Senate and the House will take up during the current week -the ad- | *. : 2" RS “ : ‘ * ee t,o Ms ministration bill, providing necessary legislation for financing and administer- | ing the business of the railroads so long. as ‘they are under Government con- | trol. The House bill provides that the roads shall be returned to private ownership | within two years after the conclusion of the war, while the Senate measure limits the control to 18 months after the war. limit should be set now. William Gibbs McAdoo, Secretary of the Treasury and, by virtue of holding this office, Director General_of Railroads, in the following remarkable article, tells Post-Dispatch readers why the administration holds this ' view. He also discusses other ere re * he faces as Director of the nation’s railroads. ° By WILLIAM GIBBS McADOO, Secretary of the Treasury and Director-General of Railroads. ‘YS Dec, 26, 1917, the President, acting under O the authority conferred upon him by the transportation and the appurtenances thereof lo- cated wholly or in part within the boundaries of the Continental United States, and consisting ef railroads, and owned or controlled systems of coastwise and inland transportation engaged in general transportation, whether operated by steam or by electric power, intluding also ter- minais, ‘terminal companies and terminal. asso- ciations, sleeping and parlor cars, private irs and private car lines, eleyators, warehouses, tele- graph and telephone | lines and all other equip- | Congress in the act of Aug. 29, 1916, took ment, over the control of “each and: every system of (when I took charge of the railroads T found 9n The administration view is that no time | Under the unified control it is possible to make , common use of all tracks and facilities and equip- { may illustrate it at once by saying that the Hastern lines a terrible congestion of traffic, which has not yet been relieved, and that was due not wholly to the fact that they had insufficient facilities of all kinds—that is, on the most con- \ gested systems--but they had an_ insufficient amount of motive power. The railroad equipment of the country, the cars’? of the country, might be sufficient for immediate ‘ needs if we could only get the use of them, but. as lohg as ‘a large’ percentage of them are used for Warehouse purposes and kept standing in ter- pedihe- iin Ae Ee ar 6 . py el a : ‘ + , Par Y - B ~ ’ eo = * a a ment and appurtenances commonly used upon or{ minals idle the car equipment of the country is | operated as a part of such rail or combined rail and water systems of transportation; to the end that such systems of transportation be utilized for the transfer and transportation of troops, war material and equipment, to the exclusion so far as may be necessary of all other traffic thereon; and that so far as such exclusive use be not necessary or desirable, such systems of transportation be operated and utilized in the a a performance of such other service as the national interest may require and of the usual and ordinary business and duties of common carriers.” The administration was confronted with the | Ge necessity of taking an extraordinary step to _ golye an_extraordinary transportation problem. - J think it was obvious that Federal control would + have to be asserted over the transportation sys- ' tems in order to get-a more efficient operation and to get increased facilities for the demands e “Ot the war, primarily the military necessity. I _ think that under the competitive system of man- _ agement it was impossible to get the co-operation i of facilities which is essential at this time. , 1 may cite some of the compelling needs which | eould only be met by putting the power of the ; Government back of railway operation. . , a "Land absolute co-ordination and, as far as nec- Ce Srhe tas ettiber ant material so. as to vail that might be necessary for transportation | h the least drain. on the country’s other de- d. ; the need for in- Of capital notensary, notwith- reg credit of many railroads; | ie Government demands for in pee nais Ampossible under private: Tpaconag end the absolute necessity for . thet: its just demands not sufficient for the need. to Let us take the question of motive power alone. Upon an investigation I found that the railroad | companies shroughout ‘the country had placed ‘orders with locomotive builders for locomotives to | be delivered in January, February and Thetaggregate of those orders, I think is, roughly speaking, 700 locomotives. Under private management those locomotives, ( 1914. (cial reassurance which was necessary \ | which the Government itself must carry forward. } I do not attempt to state the figures with ac- curacy, ee ( income we are ( $1, 035,000,000 in the fiscal year ended June 30, if delivered by the builders, would have been sent {Government commits itself to a guaranty of the )} was presented to the ‘country. WILLIAM GIBBS McADOO. help ) )instead of hurt the great financial undertakings with shrinkage in value of the assets of the say- controlling’ the railroads‘ in the new * Se Pe NED BN. eS EB Fe MN ee: EO eae ON RE : themselves, and at the same time to deal with all the other comy nomic’ problems which will undoubtedly confront it. | é, “If this bill, as enacted, requires the railroads to be tated peek to ‘thete: © owners within, say a year, or other comparatively short period after the Te turn of peace, the result will be that the.railroads, with competition serene re extinguished, will go: back into. private control without legislation to protect — 4 the public or legislation designed’ to protect the public will have to be enacted hastily, in the midst of other problems which will be. demanding the entire’ time and_attention of Congress. Neither result can be in the public int rest. “It shouldbe borhe in mind that shippers an dthe public generally will bi accustomed to new methods of doing: business with the railroads. find that the old methods under which they have been routing freight and have * been doing business will be substantially and pérhaps permanently altered, and the confusion which v:: uld arise from the attempt, suddenly to restore the: old” competitive status, the status. that.existed. prior to Dec. 28, 1917, would -ag- gtavated very: greatly, and perhaps would .offer quite insuperable ¢ ul ti if legislation was not enacted in the light of conditions as they asiph at iket, time «| such as would facilitate that process of restoration and conserve the interests of the shippers and the public generally.. I think myself that ample time wil 4 | be required to.deal with the new. railroad status with which the —— u be confronted after.the return of. peace.” “Congress to Be Too Busy After ‘the War to Worry Itself With Railros y ¢¢ JT is not only probable, but almost certain, that Cine will not itd - : . J. immediately after the close of the: ] to adopt a ce ironment in which sar CAMs i a3 LDS As -¥e Ce ea - 2 = . s ( } ._? were inherent in the old system of autonomous management of a: great many independent rail- ) road. lines, and- algo upon what railroad men of large operating. experience tell me can, be done ) in the way of operating railroads more advan- ‘ tageously under a unified control. It is my hope that very large economies: may ; be practiced. How far. they will be offset by in- \ creased cost of material and increased cost. of. § ‘ labor I do not know, but perhaps one hand will ) / wash the other. If it does and the present statua a is maintained, perhaps the Government would not. ) have to. meet any deficiency against guaranties it | may give. ‘ ) Im any case, I hopé that the. deficiency will be { in¢onsiderable, and I hope as. well; tliat we may ) have. a surplus. However, time must tell. We / must have’a fund out of which. such deficiencies can be paid if they. arise. (* Certainly we must have a fund out’ of which new. additions and improvemepts that may be necessary to make the railroads ‘more “effictent (° { / | for the’ purpose of the war can bé made and equipment which it is necessary for these to have; bev then, in thé case of failroads which need | some assistance in the way of financing,“we must ties offered was in doubt,’ or occupied. an ano-( be prepared to offer that assistatice. This applies malous position, shrinking in value all the time, | to these railroads that are under: Government con- trol. My own feeling is that the $500,000,000 is ings banks and trust companies and banks, as} about the smallest amount that we could begin but I may say that in a general way the. March. ) net income of the railroads, the character of net /( | dealing with, was something like assets invested in such securities and which had) general purpose as tHings stand now. well as in the credit power of firms, individuals ) with. I think we should have at least that much. and corporations which had a large part of their I should say that this‘fund is adequate for the If any- ) to use them as the basis.of credit which they ( thing.develops to make it necessary. to call for Upon the basis of guaranty proposed, the | | had to get from banks, a very serious situation ) additional appropriations, of course, the matter I hope the com-% will be presented to Congress. to the different railroads throughout the country ‘revenues of the railroads of about $935,000,000. ( panies themselves can take care of the maturing*+ The period immediately succeeding the war will which had ordered them. mediately of these locomotives, no matter pany ’s | delivered to the order of the Director-General and | to be paid out of that guaranteed. income. be sent as rapidly as delivered to those railroads ae \; : \ I issued an order od upon discovering the situation that all ( under a which were most in need of motive power. 4 ; 3 That would not have been pogsible under private P rotecting the Credit of Great management, because they probably. could not have agreed among themselves to any such step. Now, we can distribute those locomotives where they are most needed as rapidly as they come out of the shops. This extraordinary step being necessary, it was essential that it should be taken in a manner ¢cal- culated to help rather than to hurt a financial situation of fundamental importance. Such action hot madere was calculated to cause the gravest disturbance proposition for, 8 temporgry to the whole financial structure of this country unless unquestioned assurance could be given by )28t would be’ fair. the Government of an adequate protection to the holders of railroad securities, representing some- ) Toad bonds and obligations held not only by in- ( thing like $16,000,000,000 bonds and stocks. dividuals, but in very large part by banks and | trust companies and fiduciary institutions in the | — )u f Highly Important ie to country. If the Government, with its powers of co-or- unquestioned economies that may be practic ‘under its control of the situation, with an advan- tage of $100,000,000 over the proposed guaranty fair trade upon the merits Avoid Financial Disturbance ‘ cial structure, the basis of an immense amount of ; | Kena Even in time of peace the public interest would have made it highly important to avoid any such financial disturbance, but in th@ present war, when raising of unprecedented amounts of capital, it {they thought was necessary to enable them t would have been unthinkable and self-destructive |make improvements on their property, and the / for the Government, in taking over the railroads, ) growing difficulties of selling securities for the very much under the uncertainties of the sit- ( uation, reassure the genera! financial situation. equipment and improvements reqttired to enable ) The Government had.to take the step to promote {them to meet the unusual demands thrown upon the successful conduct of the war, and it. would , them,.not only by the activities of the war, but by have been misjudgment, most unfortunate, if the )the ordinary growth of the country, had finally ‘de- step had been taken in such a way as to make ( veloped a situation where something had to be the winning of the war more difficult. After a done to stabilize or to clarify the railroad posi- careful study of the situation I have reached the (tion in the country. conclusion that the three-year basis, as proposed in the bill now: before Congress, would not only ( these growing out of the war, its direct operations, | be reasonable and just, but that it would give the | are, of course, affected by the condition of the account they were constructed, should be anid: in addition to that, excess profits taxes aré, as shown by the last fiscal year’s earnings, has | In other words, we are taking the railroads over ‘ obligations of the. railroads, guaranty of about $100,000,000 less than | / guaranty and their status determined while they \ for what com- ( they earned in the last fiscal year of.the period, { dination and common use of facilities, with a ‘status of the railroads’ is. determined and the ( \ of the \ finance them. However, we ought to be prepared use of these prop- | erties, then I am frank to say I do not know ) There was something like $11,000,000,000 of rail- They are an essential part of our finan- | credit in the country upon which business is being ( (000 per year. done, arid the value of those securities had shrunk | The discussions about the railroad rates \be Very* desirable in the common interest. success cannot be achieved without ‘the’\dnd the inability of the railroads to earn what /8uch case there should be a fund available for 9 (any financial assistance that they might abso- Business Interests Is Essential | a: ae ee See present numerous problems of the gravest sort, some of them. very grave economic problems, are under Federal control there is no question at( which will demand immediate consideration by ll about their. ability to meet their interest ) Congress. harges. I hope that most of the companies can finance their°-own maturing obligations. @iere are only $222,000,000 of maturing railroad because with this Congress Will Be Too Busy After War to Legislate Adequately ae the year 1918. Of these $57,000,000 represents In such circamebanone it ia not only probable, \ equipments trusts and therefore I should say that but almost certain, that Congress will not find as to a large part of these obligations, once the the time immediately after the close of the war to adopt a comprehensive plan for controlling the railroads in the new environment in which they | guaranty is made effective, I should hope that the various companies could take care of them by refunding them or extending them for a short time so that the Government would not have to to deal with all the other complicated economic problems which will undoubtedly confront it. If this bill, as enacted, requires the railroads to be turned back to their owners within, say, a year, or other comparatively short period after the return of peace, the result will be that the eataring Obligations Which U. % railroads, with competition largely extinguished, May Have to Help Roads to Meet |‘ will go back into private control without legisia- a BE tion to protect the public or legislation In 1919 they have $228,000,000 maturing and in(\ to protect the public will have to be enacted | 1920 $215,000,000. It runs a little above $200,000,-) hastily, in the midst of other problems which will be demanding the entire time and atten- tion of Congress. Neither result'can be in the public interest. to help them and their credit if they cannot do it + in a normal way. There are some railroads in the hands of re- )ceivers. Reorganizations of those properties may In ‘lutely have to have. Of course, no assistance {would be given unless needed and unless again it to do so in such a way ag to disturb rather than {purpose of. making the necessary additions to {is in the public interest that the need be supplied. ' The bill provides for a “revolving” fund of ’ $500,000,000. In“the first place, we must have a fund which can. be used to make good any defi- clency in any guarantry that Congress may authorize the President to make. My own hope is that we will not have to.make good any defi- ciency. I. think it may be possible to practice The financial operations of the Government, Becks considerable economy in many directions in the operation of the railroads under one control. Of course, I can only offer an expectation, and} » stability - to: the general financial sit-{ markets of the country, and if such a large part )that is based upon some general knowledge I } that = would carry with it the finan- of the credit basis of the coup try as these securi- ‘bave practiced under private which | i in the currents of traffic, tm all prot will then find themselves, and at the same time. country will be confronted after the — t peace. Sy tae From the standpoint of the owners otf securities, it will be, in my judgment, a jurious to throw the railroads back into (control immediately after the war ends,” or with legislation hastily devised and under great pressure. The changes whlch must be made daring i will become necessary for the sake ¢ 0 economy in the movement of trattic, 1S seal to aaa in order to relieve the a ter’ of congestion and to enshie.it to:headle-~ traffic ofa temporary characters TT New Coinditiins to SATS the £ Railroads’ When the Wer Eads q ' When the war ends and before. ‘he, go back into private management, it will oubt edly be important from the Santen of th security holders to make adequate provisions fo an equalization of these conditions waded public supervision. If this is not done some re roads will find themselves divested bei ra! and at the same. time seriously em w fronted with new conditions, and ‘a So. ditions will require new and coms for the rec ~nable protection of If a time limit is put upon Congress in: these laws during a period of greatest for legislation in every. other r. rectic time may be of such nature 7 tively the first attention of I say economte situation I refer to rey seral financial situation as well—the aes: -Itis heiceuattias roads will suffér The turaing lnek' ot the sellonie Grae a controls the 6 of Se eae, ee SN islation to meet the new situation or th would thus be injurious to the public 1 and also to the interests of the security Ae ne iH ‘They wit : ANON: GS RR EP Mere RT I yapeias