HOW ESCH-CUMMINS LAW LOOTS PUBLIC
Manly, Basil M.
How Esch-Cummins Law Loots Public Freight Rates Based on a Valuation Watered from Seven to Ten Billion Dollars; Returns to Roads Fifteen Percent Instead of Six Percent By BASIL M. MANLY Director,...
...They recalled how freight-rates under the Esch-Cum- ains Railroad Law were made so heavy that the wheels of traffic could hardly turn and how the bankers in the cities and small towns, acting under orders from "higher up," suddenly began to call loans and to refuse all credit for carrying crops and merchandise, so that farmers and small business men all over the country were ruined and the savings of a lifetime were wiped out overnight...
...Then a little man who had been watching everybody spoke up and told just how the Wreck occurred...
...and also follow up vigorously with the locomotive companies so that we will not have another situation as we had with the American Car & Foundry, which had the order for 1,000 cars but scarcely got started upon it "Yours truly, "W...
...They were thwarted by the courts and by subservient attorneys general...
...They heard no one except the Director General of Railroads (an ex-railroad lawyer) and the Director of War Finance (a Wall Street broker...
...Twenty-four roads, with an annual income in excess of one mil-Bon dollars, have been valued by the Commis-aion's engincers...
...This meant big profits for the "insiders" of the Pennsylvania, who also owned big blocks of Baldwin stock...
...Cause of Crash SUDDENLY there was a crash and most of the passengers found themselves in the ditch more dead than alive...
...It includes and sets down as a part of the property value of the railroads all the watered stock that has been issued, all the graft that has been paid to legislators and public officials, all the "unearned increment" in the value of rights of way and terminals, many of which were bestowed on the railroads by the people as an outright gift when the roads were first built...
...An Arkansas farmer recently shipped a calf to a St...
...The law requires the railroads to divide all surplus over C per cent on property value with the government on a fifty-fifty basis...
...On top of this came huge claims making the total cost of the guarantee period to the government up to the colossal sum of $746,-235,043, with millions of claims still unsettled...
...Rock Island, 10.84...
...DEAR SIR: Your letter of March 31, with reference to 35 engines to Baldwins and 15 to the American Locomotive, all of which is approved...
...What Law Has Cost the People SENATOR La Follette, in his successful campaign for reelection, declared that the payments from the United States Treasury to the railroads since the passage of the Cummins-Esch Law amounted to more than $1,-500,000,000...
...With every year this body is growing more and more reactionary and subservient to the railroads...
...Now this property investment account is nothing in the world but a piece of bookkeeping jugglery by the railroads with the sole purpose of camouflaging the whole process of stock waterings, graft, and financial looting that has been going on for fifty years...
...The Pennsylvania with Uncle Sam's money paid the Baldwin Locomotive Company $25,000 for repair jobs that the Interstate Commerce Commission found they regularly performed in their own shops for $4,000...
...It does not take a mathematical genius to eee that six per cent upon this excessive valuation fixed by the Commission is actually equal to about 9 per cent on the probable physical value, or about 11 per cent on the stock market value...
...It staggers the imagination...
...The physical valuation of the railroads, under the La Follette amendment, will not be completed for several years, and will never be furnished, if the railroads can prevent it by court injunctions and long drawn out suits...
...Almost everybody now knows what happened to credit, because this occurred right under their eyes and the local bankers as a rule told the folks just how the big fellows had sent the word down through the Federal Reserve System that it was time to deflate...
...This means that, taking this group of roads as a whole, their stock, with a par value of $463,000,000 represents nothing but water...
...These roads have outstanding bonds, stock and current indebtedness aggregating $1,460,000,000, but the Commission's engineers have found that the actual physical value of the property is only $950,000,000...
...I guess this "Big Business" figured that, sitting upon the front seat in between those government officials that were doing the driving, he wouldn't get hurt...
...400,000,000 of Water WHETHER we use the results of the Com- mission's physical valuation or the value fixed by the investors of Wall Street makes little difference for present purposes...
...This is only 66 per cent of the value which they claim for ratemaking purposes, and only a little more than the face value of their bonds —$930,000,000...
...This may sound a bit fanciful at first, but if you will think it over, you will find it a pretty accurate picture of just what really happened...
...And there were other helpers...
...At the instance of Senator Kellogg, who acted as spokesman for the railroads, the Committee declined to hear testimony from the chiefs of the fonr railroad brotherhoods who were present or from W. G. McAdoo or Walker D. Hines, the former Director-General of Railroads...
...The Interstate Commerce Commission has found, after exhaustive investigation, that during this six morths guarantee period the Pennsylvania alone expended unjustly and without reason more than $3,000,000 for one item of locomotive repairs...
...which every commercial booster was shouting at the top of his voice, and prophets of prosperity like Charlie Schwab were predicting the greatest boom in history...
...He said, "She was running along fine, making about sixty miles an hour, I guess, when I saw that fat fellow on the front seat, the one they call "Big Business," reach down and grab the hand brake and jam her on so quick he locked both driving wheels and she skidded into the ditch and turned upside down...
...It is quite true that the popular will to destroy monopolies and preserve the competitive system had never actually been carried out...
...Even with the present wage schedules the railroads are left in a position where they are obtaining revenues for which few precedents can be found...
...As soon as they saw this everybody began to understand just what had happened and to remember that they too had seen the brakes slapped on these driving wheels, just as the little man said...
...They also found a little later that the whole story was a fake, because Europe hadn't stopped buying, but actually bought more wheat during the latter part of 1920 and the early part of 1921 than ever before in history...
...G. BESTER...
...Every important feature of the so-called Cummins-Esch Law is to be found in the testimony of T. De Witt Cuyler, chairman of the Association of Railway Executives, and spokesman for the New York banking group...
...Nobody knows how the Commission arrived at this excessive figure...
...The Senate Committee refused to hear any witness opposed to the grab...
...C. E. CHAMBERS, "Superintendent Motive Power and Equipment...
...Guarantee Slaughtered Business THE only question connected with this guar- antee is whether the rates can be fixed high enough to yield the excessive profits that have been guaranteed to the roads without killing railroad traffic...
...On its face, Section 422 of the Cummins-Esch Law is innocent enough...
...J. D. A. Morrow, Vice-President of the National Coal Association, testified before the Interstate Commerce Commission than only 49 1/2 cents of each dollar paid for coal by the manufacturer goes to the operator to pay the total cost of mining, while 51 1/2 cents goes to pay freight rates...
...But this is the smallest part of the cost of the Cummins-Esch Law to the people of the United States...
...These principles were well known and theroughly established...
...Please have the locomotive companies thoroughly understand that time is the essence of this entire matter, for reasons above indicated...
...Illinois Central, 14.38...
...How Six Per Cent Equals Fifteen Per Cent THE "aggregate value" joker is a big one, but it is not the only one in Section 422...
...tl is true that the Interstate Commerce Commission has recently ordered a reduction of freight rates, which the railroads have widely advertised as a 10 per cent reduction, whereas in reality it will amount to less than 6 per cent of operating revenues...
...Death Blow to State Railroad Commissions ONE of the fundamental bases of the American Constitution was the control by state governments of affairs inside state lines...
...But a lot of the people didn't understand yet just what happened to the railroads or what this had to do with their prosperity...
...This means that the balance for the stocks may be much more than 6 per cent and still be no more than 6 per cent on property value...
...It is true that they had succeeded in having |he federal courts put a curb on the powers of the state commissions, as in the Shreveport rase, bat they had never been able to induce Congress or any other elected legislative body to restrict, much less destroy, the authority of these state commissions, created by the people and answerable directly to them...
...As a result of this waste, extravagance and graft the railroads managed to create a huge deficit of $216,029, 657, which was paid them out of the V. S. Treasury in addition to the profits guarantee of $183,750,000 (greater than half the yearly rate because of heavy traffic from March to September...
...Baltimore and Ohio, 11.25...
...and I hope that you will have this work pushed to the very limit in the matter of early completion, so that we may have their bills within the shortest possible time—certainly before September 1, at which time the guaranteed period expires...
...Returns to Roads Fifteen Percent Instead of Six Percent By BASIL M. MANLY Director, People's Legislative Service (Published by Courtesy of Minnesota Star) TWO years ago this autumn American agriculture and a large section of American business were wrecked in a disaster almost without a parallel in the annals of commerce and industry of the United States...
...But there was a vast difference be v en paying even this exorbitant rate as a rental, when the government had full control of the roads and could determine the expenditures, and paying it out of the U. S. Treas y as a guarantee to private managers...
...No Congress nor other elected body had ever dared to arouse the people's anger by repealing the anti-monopoly laws or exempting the railroads from their operation...
...If space permitted it would be easy to put Cuyler's proposals and the final Cummins-Esch Law in parallel columns and show that they are identical in every important feature...
...W. G. McAdoo in his testimony before the Senate Committee showed that the excessive expenditures for maintenance of way and equipment during the six months guarantee period amounted to $402,758,163...
...Excessive railroad charges have produced a spread between the price of what the farmer sells and what the farmer pays so great that he has been pauperized...
...Louis commission agent, and received in return a bill of $1.47 due the agent...
...Demobilization was completed at last, the great steel and coal strikes which had torn the country to pieces, were over, American industry was settling down on an even keel after passing through the financial whirlpools of the past winter, labor efficiency was rapidly increasing, the fields were green with bumper crops, everybody was bending to work in response to the slogan, "Produce...
...To illustrate his point, Gibson prints a long table showing railroads which under the Cummins-Esch Law would be permitted to pay big dividends to their stockholders...
...He was in the line of communication between Cuyler and the Committee at every stage of the fight...
...They figured that when a financial machine ran out of power because Europe or somebody else stopped buying it would slow down the same way...
...He was right...
...That had already been accomplished...
...It merely provides that the Commission shall so fix rates that the carriers as a whole will "earn an aggregate net railway operating income equal, as nearly as may be, to a fair return upon the aggregate value of the railway property...
...The people realized that if actual operating control of national transportation ever became concentrated in the hands of one or even a few great railroad companies the very existence of popular government would be threatened and the whole country would be at the mercy of the railroad magnates...
...Assembled around him as chief spokesman was the greatest crowd of lobbyists ever seen in Washington...
...It effectively destroys the judicial rate-making powers which the Interstate Commerce Commission had hitherto exercised, and converts that body into a mere piece of machinery for the creation and preservation of railroad profits...
...There was no competition worthy of mention, and the control of the roads had long ago passed into the hands of a small group of all-powerful financiers...
...No guarantee of private profits without government control" had been a cardinal principle of American government...
...This is the price which the shrewdest investors of the country consider the securities of the roads actually to be worth in the open market...
...The real motive lies in the huge banking and promotion profits that are to be made out of the merging of the railroads of the country into a few enormous systems...
...Chief among these was the Honorable Frank B. Kellogg— the famous "Trust Buster," who busted the Standard Oil Trust so hard that they made a billion dollars out of the fake dissolution...
...The disaster all came out of a clear sky as far as the ordinary man can see...
...This stupendous concentration movement, of which the majority of the American people have never heard, can be stopped in only one way—by repealing the Cummins-Esch Law, which authorizes it...
...That the Commission has been generous in fixing the physical value of these roads is apparent if we consider what the investors of the country consider the securities of the railroads to be worth...
...But in the panic to restore the roads to private operatien, these principles were forgotten and the ailreads were permitted to write into the law anything they wanted...
...Chesapeake and Ohio, 12.40...
...A banker can make more money out of the merging of two roads than they can earn by hauling freight and passengers in a dozen years...
...Kellogg was a member of the Senate Interstate Commerce Committee which had charge of the bill, and it was he who always knew exactly what the railroads wanted and saw that they got it...
...Bad as they were, they night now be forgotten as a part of the colossal governmental extravagance and waste of the taxpayers' money which followed the close of the war...
...Why, they even called it a guarantee to the farmer when the government, during the war, reduced the price of wheat from $3.20 a bushel to $2.00 and made the farmer take this fixed price whether he liked it or not...
...These were the temporary features of the Cummins-Esch law...
...The experience of 1920 and 1921 indicates that they cannot, and that the railroads in their greed have strangled the goose that the Cummins-Esch Law created to lay their golden eggs...
...It is one of the deep, dark secrets of government...
...This is so great that it staggers the imagination, but we will understand what it means when we see that for each of the 21,000,000 American families it amounts to $305...
...Producers simply could not afford to ship their products when the freight rates became as great or greater than the goods were worth...
...By this they mean simply that the United States Government does not guarantee to pay the railroad profits out of the Federal Treasury...
...Colorado and Southern, 11.43...
...It gives the railroads a perpetual license, through the Interstate Commerce Commission, to tax American shippers and consumers to provide excessive profits for the railroads...
...Blinded by false railroad propaganda, the Senate and House threw to the winds every economic and political principle that had in the past guided the development and regulation of American transportation and voted like sheep for a bill which had been drafted by the great financial interests that control the railroad...
...The Railroad Investment NEVERTHELESS, enough of the physical valuation of the roads has been completed to show the absolute worthlessness of the property investment account as a basis for determining aggregate value...
...He declared, as quoted in the New York Times: "1 again say that more than 90 per cent of the outbound tonnage of food commodities which goes to the retailers of the country is moved in less than carload quantities and this traffic has borne unconscionable increases since the period just preceding the war...
...All power is now concentrated in the Interstate Commerce Commission, the members of which are appointed by the President for long terms and are not responsible to the popular will...
...Abolishing the Anti-Trust Law for Railroads...
...Applying these averages to the $6,779,000,000 of stock and the $9,773,000,000 of bonds outstanding in the hands of the public gives a total market value of all outstanding securities of $10,600,000,000...
...The farmer has been hit harder thay any other clas3 in the community by the Cummins-Esch Law, because it gets him going and coming...
...When the passengers woke up—the farmers, industrial workers and small business men—they asked what had happened...
...They knew that when an automobile ran out of gas, it didn't wreck itself in the ditch but just slowed down, easy like, and stayed in the middle of the road...
...The railroads, however, saw their great opportunity and wrote into the Cummins-Esch provisions by which the state commissions were undermined and are rapidly being destroyed...
...But those members of Congress who voted for the Cummins-Esch Law not only removed the railroads from the restriction of the antitrust laws, but went further and gave their sanction to the merging of the competing lines...
...This view is confirmed by the following letter written by the President of the Central Railroad of New Jersey: NEW YORK, April 1,192a "Mr...
...Mr...
...On March 8, 1922, Henry W. Bickle, counsel for all the carriers of the Eastern district, testified: "Commissioner Atchison: Have you con-sidered what we shall do in case it is impossible to make rates that will give the roads six per cent...
...His books go into the hands of bankers, investment brokers and other men of great wealth...
...The Wall Street Journal said editorially at the time that the Capitol corridors were so crowded with 57 varieties of railroad lobbyists that they trod on each other's toes...
...None of these antitrust laws exempted railroads, but on the contrary were drawn with the specific purpose of maintaining transportation so far at least as service was concerned...
...And this was after super-generously permitting the railroads to postpone payment for 10 years of the larger part of their indebtedness to the government incurred under governmental control...
...So it was...
...If you doubt that it would, just introduce a bill to this effect in Congress and listen to the howl that would go up from every subsidized newspaper in the United States and from the standpat politicians who put the Cummins-Esch Law over...
...Some day, unless the Cummins-Esch Law is speedily repealed, the American people are going to wake up and find that all the railroads of the country have been merged into a few enormous systems and that they have been saddled with hundreds of millions of underwriters' commissions, lawyers' fees, bankers' profits and insiders' grafts that will all have to be paid by the American people in higher freight and passenger rates...
...Under this principle control of intra-state commerce had always been regarded by the people as a matter over which the Federal government had no jurisdiction...
...rate, $905,000,G00 a year, was the rate had previously been denounced by Senate cum ins as at least $200,000,000 in excess of a fair rental and so high that "it shocked moral sense of mankind...
...The other joker is the one that appears to fix five per cent as the maximum rate which can be earned by the roads, and appears to provide that any surplus above this rate must be divided with the government...
...On February 17, 1922, J. W. Herscher, President of the National Wholesale Grocers' Association, in his address to the annual convention, held excessive freight rates responsible for high food prices which retail consumers were paying while farmers were bankrupt...
...Bickle: We consider that the law requires the Commission to fix the rates so that the earnings shall be either six per cent or as near that as may be...
...There were dozens of witnesses representing farm organizations, business organizations and labor organizations, who presented carefully considered plans for the solution of the American railway problem, but they didn't count when it came to drafting the law...
...The Commission, in its generosity, gave the railroads the full six per cent for the first two years, but has recently reduced the rate to 5 3/4 per cent...
...Atchison could pay 14.89 per cent on common...
...But the permanent features of the law which will continue to impose heavy burdens upon the American people and their commerce as long as it remains on the statute books are with us every day...
...This all looks innocent enough, but it is like the fraudulent receipts that the confidence men used to get the farmers to sign in the good old days, which loked like a subscription to a farm paper, but turned out to be a mortgage on the farm...
...Make Every Possible Expense THESE figures indicate that the railroad managements improved their opportunity to make every possible expenditure on their properties at the expense of the Treasury...
...No wonder...
...How Cummins-Esch Law Destroyed...
...Union Pacific, 12.73...
...In plain language this is nothing but robbery of the United States Treasury for the enrichment of the stockholders of these corporations...
...Suppose that the farm bloc in Congress last year had passed a law directing the Secretary of Agriculture to arbitrarily fix the prices of all agricultural products each year so as to yield six per cent on the aggregate value of all farm property in the United States...
...On either basis it is obvious that the aggregate value upon which the railroads claim rates to yield a fixed profit are from seven to ten billion dollars in excess of any fair value...
...On January 4, 1922, the average market value of all railroad stocks was 46 cents on the dollar, and the average market value of all bonds was only 77 cents on the dollar...
...See what happened...
...It merely guarantees that the Interstate Commerce Commission shall levy taxes upon shippers and consumers to pay those profits...
...Honest John" Sherman, who drew the original anti-trust law, must have turned over in his grave when this section of the bill was adopted...
...It may be said that this was exactly the rate of rental paid the railroad during government control...
...Private Loan Rule Violated ANOTHER cardinal principle of government which was violated in the Cummins-Esch Law was that there should be no long term loans to private corporations...
...It is quite true that the members of Congress who passed the law were too careful of their political lives to give this government board power to enforce its decrees, but the insiders like Kellogg, knew that when the time came the courts would enforce them against labor, but not against the railroads, by taking advantage of the discriminations which the arbitrary injunctive process makes possible...
...So strong were the influences behind this huge grab that President Harding sent a special message to Congress demanding its immediate passage...
...The investigation is still proceeding and nobody yet knows the total amount wasted in such extravagant repairs to locomotives and cars...
...The total increase in all transportation costs on this enormous tonnage averages 200 to 300 per cent...
...It is as hard to understand as Secretary Mcllon's bookkeeping, by which when the farmers or soldiers apply for relief there is always a huge Treasury deficit, but when there is a proposal to grant a railroad subsidy or a ship subsidy, there is always plenty of money in the Treasury...
...He does not write from the point of view of the farmer or the railroad worker...
...Gibson is a recognized authority in financial circles...
...Lehigh Valley, 17.61...
...If the whole truth were known, this railroad law—the "Crime of 1920" —would be called the Cuyler-Kellogg Act, because it was these two, more than Esch and Cummins, who really shaped it and forced it through...
...The chief counsel for the railroad interests telegraphed this good news to his corporations immediately after the bill passed...
...Some are still buried under the wreckage while others are just regaining enough consciousness to ask what hit them...
...Even this was not enough to satisfy the railroads, for before many months had passed they were back demanding $500,-000,000 from the Federal Treasury...
...For thirty years the railroads had been fighting to destroy these state ratemaking bodies...
...The railroad owners with this guarantee behind them plunged into a ri of extravagance, waste and graft and squandered the money of American taxpayers like drunken sailors...
...But it should not be understood from this that Cuyler put the bill through Congress single-handed By no means...
...This principle bad been established as a result of the government's experience in lendings to the Pacific Railroads, which not only squandered the public funds in shameless graft, but refused to pay interest or principal and debauched Congress on a wholesale scale in order to secure cancellation when final payment came due...
...ANOTHER deep-rooted policy of the Am-erican people had been the prohibition of combinations of competing corporations...
...Pennsylvania, 11.36...
...Do you remember what a wonderful year 3920 seemed to be...
...produce...
...A railroad expert in the New York Times Annalist for May 29, 1922 declares: "Even with the decreases recently ordered the rates which the railroads retain are greatly in advance of the rates which the management of any of the carriers would have hoped for at this time prior to the changes in the economic fabric of the nation incident to the world war...
...Would this be a guarantee to the farmers...
...It directs the Commission to fix the rate which shall be a fair return upon aggregate property value, and provides that during the two years ending March 1, 1922 this "fair return" shall be 5 1/2 per cent plus a discretionary one-half of one per cent...
...Everybody was on the boom wagon and it Was flying down the road at sixty miles an hour, kicking up such a cloud of gold dust as the world never saw...
...Before the end of this administration Harding will have had the appointment of a majority of its eleven members...
...The property investment account has been de-nounced by the Interstate Commerce Commission and every responsible expert authority as fraudulent and worthless, but it is the only existing basis for attempting to determine railroad property values...
...New York Central, 12.54...
...Nevertheless, the Cummins-Esch Law provided a revolving fund of $300,000,000 to be loaned to the railroads...
...He has already named four, including John J. Esch, a "lame duck," overwhelmingly defeated by his constituents in Wisconsin for the part he played in the enactment of the Esch-Cum-mins Law...
...These huge sums in loans and guarantees, it should be remembered, were bestowed upon the railroads at the very time when the farmers and small business men were vainly asking not for cash, but for credit to enable them to save their properties from bankruptcy and for closure...
...Under them the railroads had prospered, while the people had received ever-improving service...
...Moreover, Cuyler and other railroad representatives "sat in" while the bill was being drafted and were consulted even about minor amendments...
...Destroying Collective Bargaining THE American people, realizing the over- whelming power of the great railroad corporations as compared with the weakness of the individual railroad employee, had always looked sympathetically upon collective bargaining upon the railroads and had in every possible way encouraged the fixing of wages and working conditions by joint agreements between the railroad workers and the managements But the Cummins-Esch Law, by abandoning this great principle and substituting the fixing of wages and working conditions by government decree, struck a vital blow at the whole system of collective bargaining...
...When they looked a little closer, they found that one of these driving wheels, that made the whole American commercial machine go, was named "Credit," and the other was named "Transportation...
...FOR more than thirty years the American people had been building up a code of fundamental principles in the regulation of public utilities, slowly and against the continuous and bitter opposition of the railroad magnates...
...The Republican steamroller was lined up to put it through...
...Just how this "joker" enables the railroads to earn enormous profits on their stock—both legitimate and water—is revealed in Thomas Gibson's book, "Forecast of Business, Financial and Security Market Conditions and Prospects, 1922...
...It was through the state railroad commissions in Iowa, Wisconsin and other progressive states that the first steps had been taken to provide reasonable rates, abolish rebates and compel adequate service...
...The list might be extended but the foregoing will suffice to demonstrate that the attorneys for the railroad companies knew what they were doing when they wrote the Cummins-Esch law...
...The true total is more than $1,550,000,000...
...produce...
...Esch-Cummins Law THEY found the little man was telling the truth...
...Think of the hundreds of millions that have been made in the past by the Morgans, the Hills, the Har-rimans, and the Reeds by merging a comparatively few roads, and then contemplate the huge profits that can be squeezed out of the reorganization and consolidation of all the roads in the country with their twenty billions of stocks and bonds...
...The calf brought $2.56, but the transportatiort charges were $3.53 and the agent's commission was 50 cents...
...Nothing much," they were told, "Europe stopped buying and the machine run out of gas...
...IN SPITE of all the facts that have been brought out above, the propagandists for the railroads still insist that the Cummins-Esch Law does not guarantee railroad profits...
...Are Railroad Profits Guaranteed...
...But in this bill one of its first provisions was an absolute guarantee of the profits of the railroa at the rate of the three most prosperous yea during the first six months of their return to p a e owners...
...To find the motive for these mergers, however, we must look below the surface...
...The railroads claim that, under the Cummins-Esch Law, the aggregate value of their properties, on which they should have rates fixed to guarantee 5 3/4 or 6 per cent, should be $20,-950,000,000...
...This sounded good, but it didn't fool anybody...
...He is a lawyer...
...He holds this enormously powerful position only because he has been put there by the Morgan-Rockefeller-Kuhn-Loeb banking group...
...He had able assistance...
...To the innocent bystander this looks like railroad earnings are limited to six per cent, but looks are deceiving, as the farmer said when he saw the magician pull rabbits and cabbages out of the lame stove-pipe hat...
...He declared that the increase on commodities in less than carload lots had in many cases been even greater...
...In this connection, it should be stated that the roads own and hold in their treasuries $4,339,000,000 of the stocks and bonds that have been issued, but it is obvious that these should not be included in estimating the total value, because the purchase of out-Standing stocks and bonds would carry with it the ownership of these treasury securities...
...At the time the Cummins-Esch Law was under consideration, Director General of Railroads Walker D. Hines, a very conservative railroad authority, estimated that every increase in freight rates was multiplied by middlemen and retailers at least five times and added to the prices which were charged the ultimate consumer...
...For all practical purposes, Cuyler was the only witness...
...They ordered locomotives and cars repaired in outside shops in which their directors were interested at from three to six times the legitimate cost of such repairs, although their own shops were idle or operating with greatly reduced forces...
...But this does not prevent the roads earning 10, 12, or any other per cent on the stocks before such division begins...
...Even the spokesmen for the railroads admit that the total reduction in revenues below the maximum which they ever earned will be only $450,000,000, whereas the roads have been granted by the Railroad Labor Board reductions in their payrolls am, ounting to more than a billion dollars...
...But this was not the people's fault...
...He didn't even get a scratch...
...He cited the increase in the rate on refined sugar in carload lots from New York to Ohio river points from 16 1-4 cents in 1914 to 50 cents in 1922...
...Here is what Gibson has to say on the 6 per cent clause: "Many people arc confused by the term '6 per cent on property value,' assuming that no more than 6 per cent can be earned for the stocks without dividing the surplus with the government...
...The Sherman and Clayton Anti-Trust Laws and many similar state statutes registered the determination of the American voters that monopolies should be prohibited and that private enterprise should be stimulated by the preser vation of competition...
...They are not for the purpose of destroying competition or creating monopolistic control of the roads...
...If the roads upon which the Commission has finished its physical valuation was a fair sample, and there is every reason to believe they are, the actual physical value of this railroad property would be only 66 per cent of this amount, or $13,820,000,000...
...The official reports of the Treasury Department show that the Senator erred only in understanding the actual amount...
...President and General Mnaager...
...Prosperity THIRTY-ONE months have passed since Congress enacted the Cummins-Esch Railroad Law—officially known as the "Transportation Act of 1920...
...To understand just how much of a guarantee this really is, let us forget about railroads for a moment and think about fanners...
...Let us also consider the testimony of the railroads' own spokesman...
...That is because bond interest does not average 4 1/2 per cent (4.38 per cent) and many preferred stocks pay dividends of less than 6 per cent...
...When they went over and investigated the wrecked machine they found the brakes set on both driving wheels, just as he said...
...It reduces the farm value of his products and makes him pay more for what he buys from the cities...
...Cuyler is that while he is chairman of the Railway Executives Association, he is not a railway executive and never has been...
...With these facts before it, the Interstate Commerce Commission, when it came to fix the value of the roads for ratemaking purposes, did not dare to swallow whole the property investment accounts of the roads, in spite of the enormous pressure that was brought to bear by the railroads and big financiers___ Instead, by a mysterious process which the Commission has persistently refused to divulge, it decided that the aggregate value of the roads for rate-making purposes should be $18,900,000,000, or about a billion less than the roads were claiming, but from five to eight billions in excess of either their market value or their probable physical value...
...The big "joker" in the Cumminis-Esch Law is the two words, "aggregate value...
...Now the important thing to note about Mr...
...These excessive freight rates are a sufficient explanation of the fact that the farmer's dollar now has less than 70 per cent of the purchasing power of 1913...
...The Perpetual Railroad Rate Guarantee THE greatest iniquity in the Cummins-Esch Law, and the most startling departure from fundamental American principles, is to be found in Section 422, which authorizes and directs that freight and passenger rates shall be fixed so as to yield exorbitant profits to the railroads upon all their inflated bonds and watered stock...
...When we sum up these various items, we find that the total cost of the Cummins-Esch Law to the American people has been in the neighborhood of $6,400,000,000...
...The railroad lobbyists knew, and the leaders of Congress knew, when this bill was being passed, that the only existing basis for determining the "aggregate value" of the roads was the so-called property investment account of the carriers...
Vol. 14 • October 1922 • No. 10
