Part 17

The saving to the railroads from reduction in car mileage that would be possible if it were not obliged to furnish traveling postoffices, but could use the space occupied by racks and other postoffice features by loading additional mail in cars, would be many times the revenue allowed by the railway postal cars.

To illustrate: The car mileage of postal cars (changing apartment cars to full cars on basis of length) is 232,180,000 per annum; the ton mileage of mail 484,683,135, or 2.09 tons per car. From figures obtained from the Postoffice Department, average car weights shown on page 59, table "EE," special mail weighing of 1907, it is ascertained that storage mail cars, which, of course, contain no postoffice features, carry an average of 7.04 tons of mail. At this rate the whole mail business could be carried by the movement of 68,844,000 car miles, or 163,336,000 less than actually employed, due to the postoffice features. The total railway postal car pay is only $4,567,366, or only 2.8 cents per additional car mile, whilst the operating expenses chargeable to running these 163,336,000 car miles, of 70 per cent. of the total movement, amount to $67,000,000.

But for the postoffice feature, the combined weight of an entire route could many times be handled in a single car such as is used for express instead of several heavy and expensive postoffice cars, whilst often extra cars for storage mail must be added, for which no extra pay is allowed, the cost of running these storage cars also not being included in the computation of cost of service, as no accurate statistics of their number or car mileage are available.

In addition to the furnishing of storage cars, although many R. P. O. routes are paid for on a basis of 40 foot cars, it is not economical for the railroads to construct such cars which are not interchangeable with other equipment and which would have to be thrown aside if through growth of traffic larger cars are afterwards required. As a result, full 60-foot R. P. O. cars have for years been furnished on many 40 and 50-foot routes, the railroad getting no credit for this, whilst on many other routes R. P. O. cars have been run in advance of the fixing of R. P. O. pay for them.

On a number of routes postal car pay has been allowed for running full cars in one direction only, classing such routes as half-lines. This obliges the railroads to move the car in the opposite direction without pay, the small additional compensation of less than 4 cents per mile run received in one direction being entirely inadequate to compensate the road for the empty haul--to say nothing of allowing anything for moving it in direction for which pay is received. To illustrate: The Union Pacific Railroad in one case between Council Bluffs, Iowa, and Ogden, Utah, 1,003 miles, receives no pay for handling east-bound a 60-foot mail car, which is paid for west-bound only, six mail cars being required on this line. The R. P. O. pay per car mile, including movement in both directions, is only 2.24 cents, or about what would be received for transporting a single passenger, although a standard passenger coach has a capacity for 70 passengers.

In connection with the railway postoffice, an item not often considered is the value of transportation furnished clerks in the railway mail and compartment cars. Figuring this at 2 cents per mile, which is about the lowest passenger fare, the total value of this transportation for clerks in railway postoffice cars would be $8,600,000 per annum, or $4,000,000 more than the railroads receive for the handling of these cars, and the value of transportation in the case of apartment cars would be $4,000,000 per annum additional. In addition to this, a large amount of free transportation is required annually by the Postoffice Department for inspectors and other officers of the Department.

The Postoffice Department issues annually about six hundred traveling commissions to postoffice inspectors and other postal officials, and requires railroad companies to honor such commissions for free transportation on all trains on all lines on which mails are carried. In some cases these commissions are issued to Government officials whose official duties are in no way connected with the transportation of mails on railroads. The railroads have no control whatever over the issuance of these commissions and can not even secure from the Postoffice Department a list of them, the Department holding that the list is confidential. These commissions are frequently used for personal travel in violation of the rulings of the Interstate Commerce Commission. In brief, the Postoffice Department in effect arbitrarily issued about six hundred annual passes over every mail carrying railroad in the United States, which is equivalent to about 200,000 annual passes.

POSTAL DEFICIT.

In investigating the subject of railway mail pay, we have been struck very forcibly with changes which have taken place in the revenues and expenditures of the Postoffice Department since 1899, when this subject was last reviewed. Although postal operations still show a deficit, it is a fact that its revenues have increased in a remarkable degree, and the deficit is certainly not due to the amounts paid to the railroads for hauling mail, as these payments are relatively far less now than formerly. Revenues of the Postoffice Department have grown from $102,000,000 in 1900 to over $191,000,000 in 1908, or 87 per cent., this increase in revenue in eight years being as great as the entire increase in the previous thirty-five years.

But in this same period of eight years there was an increase of $100,600,000, or 93 per cent., in Postoffice Department expenditures, of which only $10,900,000, or 11 per cent., was paid to the railroads, $33,935,000, or 34 per cent., going to Rural Free Delivery, $25,000,000, or 25 per cent., to postmasters and their clerks, and the balance to other items.

The following statement shows for the year 1895 and for the years 1899 to 1908, inclusive, postal revenue and postal expenditures divided between amounts paid the railroads, cost of rural delivery and other expenditures:

REVENUE. EXPENDITURES.

Paid Rural Year. Railroads. Delivery. Other. Total.

1895 $ 70,983,000 $31,189,000(a) $ -- $57,637,000 $ 88,826,000(a) 1899 95,021,000 35,775,000 150,000 65,607,000 101,632,000 1900 102,355,000 37,315,000 420,000 70,005,000 107,740,000 1901 111,631,000 38,161,000 1,778,000 75,616,000 115,555,000 1902 121,848,000 39,519,000 3,998,000 81,269,000 124,786,000 1903 134,224,000 41,377,000 8,102,000 89,305,000 138,784,000 1904 143,583,000 43,971,000 12,682,000 95,709,000 152,362,000 1905 152,827,000 45,482,000 20,824,000 101,093,000 167,399,000 1906 167,933,000 46,953,000 24,774,000 106,543,000 178,270,000 1907 183,585,000 49,831,000 26,643,000 113,754,000 190,238,000 1908 191,479,000 48,155,000 34,355,000 125,842,000 208,352,000

(a) Includes $1,646,741 accrued in favor of Pacific Railroads in 1895, but not charged to postal expenditures.

The railroads are themselves large contributors to the revenues of the Postoffice Department. It is ascertained that nine roads, covering 27,500 miles, pay annually $261,000 for postage stamps, or at the rate of $2,000,000 for the entire railroad mileage of the country.

The next statement shows clearly that the ratio of expenses to receipts of the Postoffice Department would in 1908 have been but 91 per cent. and no deficit but for the expenditures made for Rural Free Delivery, the amount paid the railroads being now only 25 per cent. of the total revenue as compared with 41 per cent. in 1895.

RATIO OF EXPENSES OF POSTOFFICE DEPARTMENT TO POSTAL REVENUES 1895-1908.

Percentage Percentage Percentage of Postal Rev. Paid to Paid to Year. Paid to R'ys. Rural Free Del. Other Expenses. Total.

1895 41 0 75 116 1899 38 0 69 107 1900 36 0 69 105 1901 34 1 69 104 1902 32 3 67 102 1903 31 6 66 103 1904 31 9 66 106 1905 30 14 66 110 1906 28 15 63 106 1907 27 15 62 104 1908 25 18 66 109

In order to avoid a deficit, attention has been concentrated on this 25 per cent. of the postal expenditure, which we contend is at least not an unfair compensation to the railroads for services rendered. Though the proportion of the total revenue going to the railroads has fallen one-third in ten years, the deficit still remains, and is it reasonable to suppose that any reduction in railway mail pay would not be speedily absorbed in other directions? On the contrary, ought not efforts be concentrated to bring within reasonable figures the other expenses of the Department, which now absorb 84 per cent. of its revenue as compared with only 69 per cent. in 1900--despite an actual growth in postal revenue in the same time of $89,000,000, or 87 per cent.?

It will be noted from these figures that a reduction of 10 per cent. in the ratio of railway mail pay to total revenue can be entirely wiped out by an increase of only 3 per cent. in other postal expenses, whilst a retrenchment of 10 per cent. in the latter would have put the Department almost on a paying basis, notwithstanding the heavy cost of Rural Free Delivery. From 1895 to 1908 actual totals show that the railroads' pay has increased 54 per cent. for handling 114 per cent. more mail tonnage, whilst in the same period other expenses of the Postoffice Department have grown 178 per cent., revenues increasing 149 per cent.

Increased mail business means a direct increase in postal revenue, as postage remains the same regardless of tonnage, but carrying this increased business on the part of the railroads means less proportionate revenue to them according to volume of tonnage, so that the proportion of the postal revenue they now receive is very much less than formerly. Labor, material, and the price of everything sold in commerce have advanced materially, as we all know, in the past seven or eight years; railway mail pay being practically the only thing that has decreased in the face of conditions that should have raised it.

As a large increase in mail tonnage means to the Postoffice Department about an equal increase in revenue with a decreased payment per ton to the railroads through lower rates, the avoidance of a deficit would seem not a difficult matter if other postal expenses were kept at least within sufficient control, so they would not increase faster than the increase in volume of mail handled.

The Postoffice Department enjoys this peculiar advantage of receiving with the growth of the country an increase in revenue directly in proportion to the increase in business handled. In disbursing this revenue, it must pay less to the railroads in proportion to the density of business, thus retaining to apply on other expenses a larger net revenue year by year. It is reasonable to suppose that the cost of many branches of the Department should not increase in the same ratio as tonnage of mail (for example, that expenses of individual postoffices and administrative and general expenses should not grow in this proportion). Yet, regardless of these favorable influences, expenditures in other directions have absorbed the great net revenues after paying the railroads, and it is in these directions that the cause of the postal deficit must be looked for.

The growth of these expenditures, which since 1900 has been much faster than the rise in mail tonnage, is shown in the following comparison of 1908 with 1898:

1908. 1898. Increase. Pct. Ton mileage of mails handled by railroads 484,683,135 272,714,017 211,969,118 78 Postal revenues $191,478,663 $89,012,619 $102,466,044 115 Less paid to railroads 48,155,379 34,379,227 13,776,152 40 Net applicable to other expenditures 143,323,284 54,633,392 88,689,892 162 Other expenditures 160,196,507 63,654,297 96,542,210 152 Deficit 16,873,223 9,020,905 7,852,318 87 Per ton of mail handled by railroads (cents)-- Postal revenues 39.5 32.6 +6.9 Paid to railroads 9.9 12.6 -2.7 ---- ---- ---- Net applicable to other items 29.6 20.0 +9.6 Other expenditures 33.1 23.3 +9.4 ---- ---- ---- Deficit 3.5 3.3 +0.2

Note.--The increase in gross postal revenue per unit of mail handled by railroads is no doubt due to increase in city mail not handled by railroads.

Chicago, Ill., March 1, 1909.

THE DIMINISHED PURCHASING POWER OF RAILWAY EARNINGS

BY C. C. MCCAIN.

Chairman of the Trunk Line Association, New York, 1909; Formerly Auditor Interstate Commerce Commission.

INTRODUCTION.

The ten years or more which have elapsed since the resumption of industrial activity that began some time in 1897 have been characterized by changes in rates of wages for substantially all kinds of labor, and in the prices of most commodities which amount to a profound and material alteration in the value of money. Wages of railway labor, prices of railway materials and supplies and prices of commodities carried by railways and of those produced by the purchasers of railway transportation have rapidly increased. This is equivalent to a decrease in the value of the money in which railway charges are paid _for the appreciation of commodities is the depreciation of money_. Commodities cannot have generally augmented value without money having diminished value. Railway rates have not been adjusted to this diminished value of money. The involuntary and unsolicited reduction in railway rates has gone so far as seriously to threaten the stability of railway wages and that of the whole railway industry. Some adjustment through compensatory advances in money rates (_i. e._, nominal rates) is, therefore, absolutely necessary. The extent of the changes which have taken place, their relation to the problem of railway rates and the adjustments which they have made necessary are set forth in the following pages.

TYPICAL UNCHANGED RATES.

A fifteen-ton car-load of fourth class freight carried all-rail between Chicago and New York at any time during the year 1897 would have brought the railways transporting it $105.00 in gross receipts.

There has been no change in the class-rates between Chicago and New York since 1897 and the same quantity of freight, classified in the same way, produces the same gross receipts now that it did in 1897.[E]

The rates between Chicago and New York, as is very well known, are the basis of all rates in the region north of the James, Potomac and Ohio Rivers, and east of the Mississippi River and of a large proportion of the rates applicable to traffic originating or destined to any point in that region. Without a change in rates between Chicago and New York there could have been, during the continuance of the system of rate adjustment that has been in force since long prior to the year 1897, no general change in the rates based upon those in force between those cities.

WAGES OF RAILWAY EMPLOYEES.

More than forty per cent. of the gross receipts of the railways of the United States are expended in the payment of employees, the sums annually paid out for that purpose since 1897 being as follows:

Amount paid to Year. employees.

1897 $465,601,581 1898 495,055,618 1899 522,967,896 1900 577,264,841 1901 610,713,701 1902 676,028,592 1903 (a)776,321,415 1904 817,598,810 1905 839,944,680 1906 (a)927,801,653 1907 1,072,386,427 --------------- Total $7,781,685,214

(a) Includes $19,000,000 estimated for Chicago, Milwaukee & St. Paul in 1903 and $27,000,000 for the Southern Pacific in 1906.

It is a matter of common knowledge and of frequent comment that a given sum of money will now buy very much less in labor or commodities than it would in 1897. The change has been gradual but substantially continuous and the aggregate result has been enormous. The consequence of this change has worked great hardship to those whose incomes have not been adjusted to the changed purchasing power of money but fortunately the rates of wages of nearly all workmen and the prices of practically all products of labor expended upon farms or in factories or otherwise have been raised sufficiently to more or less completely offset it. The principal sufferers are those salaried employees whose salaries have not been readjusted and those whose incomes are received under contracts covering long periods of time or are derived from the marketing of commodities or services at prices more or less effectively controlled by custom or statute. Many of the owners of railway bonds are in the second class and all interstate railways are, as to the disposal of their services, in the third class.

As already noted, the gross revenue derivable by the railways from the transportation of a carload consisting of fifteen tons of fourth class freight between Chicago and New York is the same now that it was in 1897--_i. e._, $105.00. But $105.00 is worth much less to any railway now than it was in 1897 for money is worth at any time what it will buy at that time. The reports of the Interstate Commerce Commission show the following increases in rates of average daily wages paid to railway employees:

Wages per day. Class of Employees. ------------------------- Increase, 1897. 1907. per cent.

Station agents $1.73 $2.05 18.50 Other stationmen 1.62 1.78 9.88 Enginemen 3.65 4.30 17.81 Firemen 2.05 2.54 23.90 Conductors 3.07 3.69 20.20 Other trainmen 1.90 2.54 33.68 Machinists 2.23 2.87 28.70 Carpenters 2.01 2.40 19.40 Other shopmen 1.71 2.06 20.47 Section foreman 1.70 1.90 11.76 Other trackmen 1.16 1.46 25.86 Switchmen, flagmen and watchmen 1.72 1.87 8.72 Telegraph operators and despatchers 1.90 2.26 18.95 Employees, account floating equipment 1.86 2.27 22.04 All other employees and laborers 1.64 1.92 17.07

The foregoing affords a means of ascertaining the real value of $105.00 of railway gross receipts in 1897 and 1907 and the decrease from the earlier to the later year. The following table shows the number of days labor of each of the different classes of railway labor which $105.00 would buy in each of the years indicated:

Number of days labor purchasable for $105.00. Class of Employees. ------------------------ Decrease, 1897. 1907. per cent.

Station agents 60.7 51.2 15.65 Other station men 64.8 59.0 8.95 Enginemen 28.8 24.4 15.28 Firemen 51.2 41.3 19.34 Conductors 34.2 28.5 16.67 Other trainmen 55.3 41.3 25.32 Machinists 47.1 36.6 22.29 Carpenters 52.2 43.8 16.09 Other shopmen 61.4 51.0 16.94 Section 61.8 55.3 10.52 Other trackmen 90.5 71.9 20.55 Switchmen, flagmen and watchmen 61.0 56.1 8.03 Telegraph operators and despatchers 55.3 46.5 15.91 Employees, account floating equipment 56.5 46.3 18.05 All other employees and laborers 64.0 54.7 14.53 ---- ---- ----- Average -- -- 16.27

The foregoing shows that on the average the gross railway receipts derived from the service assumed as the basis of the calculation would purchase 16.27 per cent. less of the necessary services of railway employees, in 1907 than in 1897 and what is true of the receipts from this service is true of every dollar received by a railway--that is, no railway dollar will pay for more than eighty-four per cent., on the average, as much railway labor as it would in 1897.

The change in railway rates necessary fully to offset this decrease in the value of the money in which rates are paid would amount to an apparent advance of 19.43 per cent, of the money rates now in force.

COST OF FUEL FOR LOCOMOTIVES.

Next to labor the principal single item of expense incurred in the operation of the railways of the United States is for the fuel used in their locomotives. The expenditures for this purpose now constitute about eleven per cent. of the cost of operation and since 1897 have been as follows:

Cost of fuel Year. for locomotives.

1897 $65,044,670 1898 72,469,777 1899 77,187,344 1900 90,593,965 1901 104,926,568 1902 120,074,192 1903 146,509,031 1904 158,948,886 1905 156,429,245 1906 170,499,133 1907 200,261,975 -------------- Total $1,362,944,786

Thus, from 1897 to 1907, the cost of fuel for locomotives, in spite of the economies in its use partially suggested by the contemporaneous increase in the train-load of freight from 204.62 to 357.35 tons, or 74.64 per cent., increased 207.88 per cent., while passenger traffic increased but 126.15 per cent. and freight traffic by 148.69 per cent. Thus while there was one dollar spent for locomotive fuel in 1897 for each $17.25 of gross railway receipts the ratio had declined by 1907 to one dollar for locomotive fuel for each $12.93 of gross receipts--a difference which must plainly be productive of profound changes in the proportion of gross receipts remaining after the payment of necessary operating expenses. The average prices of coal, per ton of 2,000 pounds, at the mines, in the several states, in the years 1897 and 1907, as given by the United States Geological Survey, were as follows:

Price per ton. ----------------------------- Increase, State. 1897. 1907. per cent.