HE year 1917 promises to be one of the greatest significance in relation

to the future of the railroads of the United States. At the suggestion of President Wilson, the whole question of railroad regulation has been put under investigation by a joint committee of the Senate and the House of Representatives. The committee will also look into the question of government ownership. By the time this article is printed, the investigation should be well under way. In addition, the so-called eight-hour law, which is virtually a minimum-wage law for certain classes of railroad-workers, is to be tried. out for six months under a special commission.

The railroad problem is one of the most urgent and serious problems confronting the nation to-day. According to President Wilson, it "lies at the very foundation of our efficiency as a people." In reality it is not one problem, but many. On their solution depends in large measure our whole commercial future. In case of war our efficiency in railroad transportation is likely to sway the balance between victory and defeat. It is a primary factor in preparedness.

Any discussion of the Adamson law would be futile at this time, when the trial period under its provisions is already under way. A much more important matter is the investigation into the whole subject of railroad regulation. It is apparent that radical changes must be made in the present system. As it is, the railroads are not keeping abreast of our commercial advancement. We have no national railroad policy.

It is over ten years since President Roosevelt whirled his big stick and his party reluctantly passed a railroad-regu

lation law, considerably amended through the vigorous opposition of the railroads. The proponents of the law intimated that it brought in the golden age of railroading. The railroads were to flourish like the green bay-tree, the shippers' troubles were to be taken care of, scandalous financial malpractices were to end. Unfortunately, none of these predictions has been fulfilled. Instead of the golden age, we have had a very dark age indeed.

THE trouble is that the Hepburn law precipitated a veritable orgy of regulation. In addition to the Interstate Commerce Commission, over forty state commissions have put their fingers into the railroad. pie, to say nothing of direct action by state legislatures and the courts. Everything about railroads has been regulated by the States, from issues of bonds and stocks down to locomotive-bells and windowscreens and cuspidors. A railroad passing through twelve States has to submit to twelve different and often contradictory kinds of state regulation, in addition to the mandates of the national commission. In the last five years nearly five hundred laws affecting railroad operation have been passed by the States and the nation. About ten times that number have been introduced in the various legislatures. During the preceding five years the number of new railroad statutes ran into the thousands.

The result has been waste, confusion, and virtual stagnation in railroad development. In the year ending June 30, 1916, despite general business expansion and prosperity, only 719 miles of railroad were constructed in the United States. This is less than any year since 1848, with the exception of the first year of the Civil

War. In the decade ending with 1907, before the era of state regulation set in, our new railroad construction averaged annually nearly 5000 miles.

Over forty thousand miles of our railroads, representing about a sixth of the total mileage and a total capitalization of two and a quarter billion dollars, are represented by bankrupt roads in the hands of receivers. Freight congestion, due to lack of facilities, has reached a point where it is a distinct menace to both producer and consumer. As this is written, the price of coal has just jumped fifty per cent. in New York, primarily because of railroad congestion. According to wellinformed railroad men, the transportation problem now seriously affects not only the banker, the investor, and the shipper, but the welfare of every citizen.

According to information gathered by the Interstate Commerce Commission Committee on Interstate and Foreign Commerce of the House of Representatives, it will require an expenditure of from five to fifteen billion dollars to supply the railroads of the country with sidetracks, warehouses, terminal facilities, and the other equipments and improvements necessary to handle the transportation business of the country in the near future. To raise such a sum under present conditions seems to railroad men like an Arabian Nights dream. For four years one of the biggest banking houses in New England has been consistently advising its clients against investing in any railroad securities whatsoever. Many New York bankers have pursued a similar course.

Before our transportation needs can be met, railroad credit must be built up to such a point that stocks can be issued instead of bonds, that the public will be willing to invest in railroad securities as partners rather than as creditors. Under present conditions this is impossible. Since January 1, 1916, in a period when our national wealth has increased to an unprecedented degree and capital seeking investment has been available as never before in our history, not a single share of new railroad capital stock has been listed

on the New York Stock-Exchange. Many state charters forbid the railroads to sell stock under par. At the present writing the common stock of only a dozen American railroads is being dealt in on the New York Stock-Exchange above par.

A little over a decade ago the railroads were fighting hard against national regulation. To-day their attitude shows a complete reversal. Virtually every railroad manager in the country recognizes that regulation has come to stay. They are reconciled to it, and they are advocating more thorough national control. In fact, they go far beyond the measures proposed by the advocates of the Hepburn statute, now the basis of our national railroad law, which was considered radical ten years ago. "The people want regulation," say railroad managers. "Let's help make it efficient."

Railroad managers are substantially agreed upon the following program to end the present railroad muddle:

Federal incorporation of all interstate carriers.

Federal supervision and regulation exclusively for all carriers of interstate commerce, this supervision to include federal regulation of all securities.

Increasing the size of the Interstate Commerce Commission and dividing it regionally, so that regional bodies, as under the Federal Reserve Board, will conduct investigations on the ground in the different traffic districts and present their findings to the central body at Washington, which need review only exceptions to such findings.

Distributing the functions of the commission so that the same body does not act as judge, jury, and prosecutor.

AT the root of railroad inefficiency lies the present system of forty-nine varieties of regulation. Until radical steps are taken to remedy this grotesque policy, our railroads will remain in an unhealthy condition, and the taint of their ill health will be felt through all the channels of industry. We cannot have a constructive national railroad policy until we abolish

state lines in transportation, as we have in every other business and throughout our social life generally. Before the Union was formed the various States conducted an active commercial war against one another by means of tariff duties, embargoes, etc. Under state regulation the States still carry on industrial warfare through the railroads. In railroad matters, after nearly a hundred and thirty years of union, we are still a nation of independent, squabbling colonies.

A curious light was thrown on this condition in connection with the Shreveport rate case. Texas, in order to keep Louisiana merchants from competing in its markets, had fixed a number of rates within the State applying between points of production and jobbing centers and markets in the direction of the Louisiana line. These rates were substantially lower than the interstate rates from Shreveport, Louisiana, to the same Texas points of consumption. The United States Supreme Court sustained the Interstate Commerce Commission in raising the Texas rates so that Louisiana business men could get a square deal.

Thereafter Senator Shepard of Texas introduced a bill in the Senate to abolish the doctrine of the Shreveport case. In a hearing on this bill it developed that while Louisiana was protesting against rate discrimination on the part of Texas, the city of Natchez, in Mississippi, was making a similar protest against the action of Louisiana in fixing rates which excluded the business men of Natchez from the Louisiana markets. Moreover, one of those who appeared in favor of the bill was Judge Prentice, chairman of the Virginia railroad commission, which was at that time complaining that the state rate-fixers in North Carolina had discriminated against Virginia cities.

In short, an appalling condition of interstate warfare was revealed that was hurting business generally and killing railroad development.

Nineteen States have laws regulating the issue of securities of all railroads doing business in the State. The first stock

and-bond law was passed in Wisconsin. At first the Wisconsin law imposed a fee of a dollar a thousand on all new capitalization. This was changed to a nominal fee to cover the expenses of the state commission in properly passing on applications. Illinois adopted a law based on the Wisconsin statute, but retaining the dollar-a-thousand fee. Missouri, meanwhile. adopted a sliding scale ranging from a dollar down.

In 1914 and 1915 the St. Paul Company, a Wisconsin railroad corporation. had to pay out in such fees to the State of Illinois $125,000. On a single issue of thirty million dollars, to be spent principally in improvements in other States, the company was forced to pay $30,000 to Illinois and $10,500 to Missouri. the twelve States through which the St. Paul road runs had laws similar to Illinois, the road would have had to pay $1,500,000 in two years for the privilege of making necessary improvements and extensions.

If

In 1914 the New York Central Company consolidated the securities of all its lines, a rearrangement involving $300.000,000. Before effecting this consolidation the road was compelled to pay a fee of $300,000 to the State of Illinois, under the dollar-a-thousand law, though no new capital was involved in the matter, and of the 3700 miles of New York Central lines only 141 miles lie within Illinois. But the exaction did not stop there. As soon as the new arrangement went into effect, the Central was ordered to pay, under a law passed in 1913, an additional sum of $250,000 for all stock securities authorized. The railroad sought an injunction against this double tax, and the matter is still in litigation. Virtually the levy is a tax of $3900 a mile on the Central's line in Illinois.

In addition to the amount assessed in Illinois, the Central was compelled to pay $300,000 each to Ohio and Indiana, in connection with the reorganization, and $150,000 to Michigan. Its little adventure in rearranging its securities cost the railroad upward of a million dollars