greater, as this estimate allowed only about $300,000,000 for under-maintenance and for differences in the quantities of materials and supplies on hand at the beginning and at the end of Federal control.
A great deal of controversy arose over the question of relative maintenance during and prior to Federal control, but the differences hinge mainly upon the degree of under-maintenance. There can be no doubt that the condition of the properties was not so good at the end of Federal control as at its beginning, but the exact degree of deterioration cannot be determined as no inspection or survey was made when Federal control began. The records show conclusively that the normal rate of renewals of rails, ties and ballast was not kept up during Federal control, and the universal complaint of the railway executives that freight cars were not maintained at normal standards is supported by the opinions of experts. On the whole, the conditions of locomotives did not suffer, but less than the normal amount of work was done on passenger cars. Bridges and buildings suffered because of neglect in painting, but on the other hand many improvements were made in shops and in engine-house facilities. Whatever may be the degree of under-maintenance it should be remembered that it was impracticable during the greater part of the period of Federal control to obtain the necessary amount of materials and full forces of men. These difficulties were partly removed in 1919, but in that year the serious decline in traffic and in earnings made it inexpedient, in the judgment of the director-general, to attempt to make up the deficiences. A proviso in the contract between him and the railway companies gave the director-general the option of measuring his maintenance obligations by the amounts actually spent by each company during the three years prior to Federal control, these amounts to be properly equated to allow for increases in the cost of wages and materials, and he chose to limit the expenditures so as to keep them within that obligation, leaving the accounting and the settlement to be worked out after the termination of Federal control. Instructions were issued, however, that nothing essential to safety in operation was to be left undone. An inspection of the amounts spent for maintenance, particularly for maintenance of equipment, indicates that even with a generous allowance for the higher wage rates and material costs, the director-general expended amounts which were equivalent to those spent by the railway companies prior to Federal control. This method of comparison, however, takes no account of the important factor of relative efficiency of labour. During 1918, when so many railway men were drafted or had volunteered for military service, the percentage of inexperienced employees was abnormally large, and during 1919 the general lowering of the morale and the frequent strikes of men engaged in maintenance work led to a much lower degree of efficiency. The director-general held to the view that the Federal Control Act and the standard contract based upon it did not require him to take account of relative efficiency that his obligation ended when he had expended an amount equivalent, when properly equated for the higher wage rates, to that spent in the test period. The railway companies on the other hand insisted that if in the test period 100 man-hours cost $30 and produced 10 units of work, and if during the year 1919 the same number of man-hours cost $60 but produced, say, 8 units of work instead of 10, the spirit of the Act is not followed unless the director-general spent enough in excess of $60 to produce 10 units of work. This is the real point of difference. In the settlements made since the termination of Federal control this issue has been avoided by a policy of compromise and by lump-sum adjustments in which maintenance is but one factor, but it is probable that some of the companies which have large claims for under-maintenance pending may prefer to take the case to the courts for decision.
Too much emphasis, however, should not be placed upon the financial results of Federal control. Deficits might have been reduced or entirely avoided, and a surplus laid aside for the settlement of claims, if the 1918 advances in rates had been greater or if supplementary advances had been made in 1919 to take care of the further wage increases granted in that year. The attitude of the administration was that it made little difference whether the higher operating costs were met indirectly through taxes or were directly collected from shippers and passengers in higher rates. As between the two alternatives the administration chose the first on the ground that another rate advance would have a serious effect upon the already much disturbed business conditions, and would be made the excuse for further profiteering. Speaking in general terms it may be said that the policy of the Government in taking the railways and operating them while the war was in progress was vindicated by the favourable operating results which flowed from a centralized and unified control. On the other hand it may be said that the experience of the post-war period of Federal control was not such as to justify a peace-time policy of Government operation or ownership under a democratic form of Government which relies upon the free play of the forces of competition. The unfavourable reaction of public opinion may be traced primarily to the elimination of competition in service. The railways were finally returned in response to an overwhelming public demand that private operation be restored, and almost immediately after its restoration, the desire for competitive service caused the abandonment of practically all the innovations of unification under Government control and operation.
The Transportation (Esch-Cummins) Act of 1920.—The conditions under which the railways were returned, and the policies of public regulation as they existed in 1921 were fixed by the Transportation Act of Feb. 1920, amending the original (1887) Act to Regulate Commerce. Besides providing for the restoration of operating control to the owning companies the Act provided that during the first six months, the so-called transition period, while railway rates and wages were in process of further upward revision, the Government would continue the guaranteed rentals paid during the period of Federal control. A Railroad Labor Board was created to pass upon wage matters, and made substantial increases in July 1920. The Interstate Commerce Commission was instructed to establish rates so that on the basis of current costs and under honest, economical and efficient operation, they would yield net operating income sufficient to pay a fair rate of return upon the value of the railway properties held for and used in the service of transportation. For the first two years the fair rate of return was set at 5½%, with an extra 0.5% (6% in all) to make provision for improvements chargeable to capital accounts. This mandate to the Commission, however, applied to the railways as a whole, or as a whole in territorial groups. For the purposes of the Act the Commission later divided the railways into three general groups, the eastern, the western and the southern. The mandate did not apply to individual roads in a group. Obviously a rate scale which will yield 6% to all of the railways in a group will yield more than 6% to some and less than 6% to others. No relief is provided for the railways which earn less than 6%, but when more than 6% is earned by a railway, the excess is to be evenly divided with the Government. The railway is to hold its proportion of such excess in a reserve fund and the one-half which goes to the Government is to be held by it as a general railroad contingent fund to be administered by the Commission in assisting the weak roads by loans. The reserve fund created by a railway from its excess earnings is to be held for interest charges or dividends in lean years, but whenever that fund is more than 5% of its property value, the excess over 5% may be used for any lawful purpose.
The problem of the weak railway has been for many years the principal obstacle in the path of a satisfactory solution of the railway question. In the determination of competitive rates, for example, a scale which will give a reasonable return upon the value of a weak railway will give too much to the strong railway. Conversely, when the scale gives a reasonable return, but not more, to the strong railway, the weak one cannot live. In practice the regulating authorities have been forced to adopt a middle ground with, perhaps, a tendency to lean more toward preventing an unreasonably high return to the strong than an unreasonably low return to the weak. An attempt has been made to meet this problem in the Transportation Act which provides for the ultimate elimination of the weak railways by consolidation with the strong. The Commission is ordered to prepare and adopt a plan for the consolidation of railway properties into a limited number of systems. Such a plan is to preserve a reasonable degree of competition and to maintain so far as practicable the existing routes and channels of trade and commerce. The desiderata are that the several systems shall be so arranged that the cost of transportation as between competing systems, and as related to the values of the properties, shall be approximately the same, so that these systems can employ uniform rates in the movement of competitive traffic, and can earn, under honest and efficient management, substantially the same rate of return upon the value of their respective properties. The Commission in June 1921 was engaged upon the formulation of such a plan, but as the Act pro-
