Part 31

10. The act of June 29, 1906, took effect August 28, 1906. It has been operative only about twenty-eight months. During half of that period of time the country has experienced the effects of a severe commercial panic; business has been prostrated; transportation paralyzed; thousands of cars have been stored on the sidings, and hundreds of engines have been placed in the shops, awaiting the revival of business. From conditions existing today, we have a right to assume that before many months we shall be approaching normal conditions. The commission has not had sufficient time to interpret and construe the recent law and to promulgate its orders in reference to the action of the carriers under it. Many of the traffic questions involved, under the provisions of that law, are yet to be construed and put in force by orders of the commission. Is it wise, under these conditions, to begin amending that statute by introducing provisions inconsistent with the basis of the act? It has been shown that under the power conferred by that recent enactment, the commission is vested with the power to change an existing unreasonable rate and to fix for the future a reasonable rate. It has also the authority conferred upon it to award reparation to the extent of any injury resulting to a shipper, by reason of the existence of an unreasonable rate.

Attention has been called to the opinion of the commission, as expressed in its decisions, narrowing very greatly the right of the carrier to advance a rate that would meet with its approval upon hearing. The committee must assume, in considering this question, that both the shippers and traffic officials, with knowledge of the views entertained by the commission upon the question of an advance of rates, will in the one case be prompt to avail themselves of that attitude of the commission, and in the other that they will seek to so adjust their rates as to bring their schedules within the rulings of that tribunal. The committee believes the highest duty of the commission is to bring together shippers and carriers, to the end that each may see that neither can be permanently prosperous at the expense of the other. It further believes that in many instances this effort has been made by the commission, and successfully made. It cannot be accomplished by statutes causing rigidity of rates. The most sensitive spot in the great business dealings of the country is the railroad rate. This rate must be raised or lowered, not in obedience to a rigid statutory law, but in obedience to the varying conditions of trade and commerce.

The National Board of Trade, one of the most important commercial organizations in the country and one of the most influential, met in Washington on Tuesday, January 19, 1909. Two proposed resolutions were submitted to that convention. First, by the Philadelphia Press League, urging an amendment to the interstate commerce law, to permit railroads engaged in interstate traffic to enter into the making of agreements under the supervision and control of the Interstate Commerce Commission. The second proposition was submitted by the Scranton Board of Trade, embodying the provisions of the amendment offered in the committee upon the consideration of Senate bill 423, and approved in the report of the Interstate Commerce Commission as to the advance of rates.

These resolutions were referred to the committee on resolutions having charge of interstate commerce matters. That committee, through its chairman, made the following report, which was unanimously indorsed by the convention of the National Board of Trade:

"The committee on interstate commerce law respectfully reports that, in its judgment, the National Board of Trade ought not at this time to recommend any change in the laws relating to interstate commerce."

The convention was not satisfied with the passage of this resolution, but the chairmen of the several committees of that association were subsequently authorized and directed by resolution to urge the conclusions of the board in its name whenever possible.

The country is now demanding repose in its industrial upbuilding. It is not a time to experiment and to change the basis upon which the former acts to regulate commerce have been predicated. The recent law passed by Congress so greatly enlarging the authority of the commission should, before changes are sought, have the opportunity of at least a fair trial as to the value of its provisions in the regulation of interstate commerce. When trial has been given and normal conditions have been restored, any defect in the regulating statute can then, in the light of experience, be promptly remedied.

FOOTNOTE:

[J] The average rate per ton mile in 1908 was 7.54 mills.

STATISTICS OF AMERICAN RAILWAYS

FOR THE YEAR ENDING JUNE 30

1909

PREPARED BY

SLASON THOMPSON

MANAGER OF THE BUREAU OF RAILWAY NEWS AND STATISTICS

INTRODUCTION

"The function of accounts is to record facts. True accounting is nothing more, nor nothing less, than the correct statement of what in fact has taken place, and the measurement of that fact in an appropriate figure."--Prof Henry C. Adams.

To be of the highest value, statistics must be accurate, uniform and continuous.

Nothing in the nature of statistics under official authority more confusing and misleading has ever been issued from the government printing office than those portions of the Twenty-third Annual Report of the Interstate Commerce Commission for the year ending June 30, 1909, purporting to deal with the financial results of the railways of the United States for the fiscal years 1908 and 1909.

On the first page of the Report the financial results of the last two fiscal years are set down thus:

=================================================================== | Operating | Operating | | Operating | Revenues | Expenses | Taxes | Income -----+----------------+----------------+-------------+------------- 1908 | $2,461,521,345 | $1,721,327,155 | $83,775,869 | $655,418,321 1909 | 2,494,115,589 | 1,662,102,172 | 89,026,226 | 742,987,191 -----+----------------+----------------+-------------+-------------

The mileage operated in 1908 is stated as 228,164.80 and in 1909 as 233,002.67 miles.

On page 54 of the report the summary compiled from the monthly reports gives the following comparative figures for the same years:

=================================================================== | Total | Total | | | Operating | Operating | Net Revenue | Taxes | Revenues | Expenses | | 1908 | $2,421,542,004 | $1,687,144,975 | $734,397,029 | $83,775,869 1909 | 2,443,312,232 | 1,615,497,233 | 827,814,998 | 89,026,226 -----+----------------+----------------+--------------+------------

The mileage is the same as above, with the added information that the mileage operated at the end of the fiscal year 1908 was 229,952.36; and at the end of 1909, 234,182.70.

It will be observed that the taxes in both summaries are identical, but in one they are subtracted from net revenues and in the other they are not.

An insert facing page 54, giving the details of the monthly reports from which the table on that page is compiled, reveals the common source of both sets of returns and gives the key to the discrepancy between them. This is no less than the inclusion in the former of the revenues and expenses from "outside operations," which are excluded from the summary on page 54, in which the "net revenue" only from such outside source is mentioned and added to the net revenue from rail operations.

The impropriety and inaccuracy of such accounting becomes manifest when its effect is seen to vary the ratio of operating expenses to earnings from 69.67% to 69.93% in 1908, and from 66.12% to 66.64% in 1909.

On pages 64 and 65 appears another set of income figures for the year ending June 30, 1908. This is compiled from the annual reports of the carriers operating 230,494 miles of line, from which _the mileage of switching and terminal companies is excluded_. It supplies the following summary:

YEAR ENDING JUNE 30, 1908.

===========================================+================= Rail operations: | Operating revenues | $2,393,805,989 Operating expenses | 1,669,547,876 Net operating revenue | 724,258,113 Taxes | 78,673,794 Net revenue from outside operations | 5,977,268 Operating income | 651,561,587 Ratio of operating expenses to earnings | 69.72 -------------------------------------------+-----------------

As these figures are compiled from the only returns which furnish data respecting all the various phases of railway operation in the United States, they will be accepted in subsequent pages as the official returns for 1908.

The above figures are exclusive of returns from switching and terminal companies, whose earnings, according to the monthly reports in 1908, were $23,028,773; expenses, $16,383,481, and taxes, $1,245,261.

GROSSLY EXAGGERATED DIVIDENDS.

But these are venial variations compared to the deliberate misrepresentation as to dividends on page 62 of the report, where it is stated:

"The amount of dividends declared during the year was $386,879,362, being equivalent to 7.99 per cent on dividend-paying stock. For the year ending June 30, 1907, the amount of dividends declared was $308,088,627."

This statement is the more reprehensible because the inaccuracy of the reference to dividends in 1907 was exposed a year ago, and $115,550,909 of the 1908 total is proved to be fictitious by the line in the condensed income statement of the report (page 65) reading: "Dividends declared from current income, $271,388,453." It takes dividends from surplus, dividends by leased companies, and dividends from surplus of leased companies to make up that gross deception as to the dividends declared in 1908. And all these "several dividends" are only made statistically possible by including in current income $274,450,192 "other income" NOT derived from transportation.

It is impossible to overestimate the harmful popular effect of exaggerating the dividends paid by the railways by $80,693,665 in 1907 and $115,550,909 in 1908. The public mind does not stop to distinguish between dividends "declared," dividends paid out of "income" and net dividends actually paid out of net earnings of railway traffic.

This whole statistical structure of fictitious dividends has been built up in successive reports upon the false premise of including intercorporate payments on both sides of the income account. What the public is entitled to know is the disposition of the gross sum paid by it for transportation services--those services which the Act to Regulate Commerce was passed to regulate.

BEWILDERING CHANGES IN NOMENCLATURE.

Scattered through the official reports for 1908 the student is confronted with numerous changes in terminology, many of which are for the better, but nearly all impair that continuity of names and phrases which is so desirable in comparative statistics. For instance, the public has been taught, by official practice, to speak of the revenues of the railways derived from the transportation of passengers, freight, mail and express, as "Gross earnings from operation." The phrase is descriptive, definite and clear. For this the Commission has substituted "Rail operations, operating revenues." Former reports spoke of "Income from operation," which now gives place to "Net operating revenue." To this is added the "net revenue from outside operations," making a "Total net revenue," from which "Taxes accrued" are deducted, the remainder being "Operating income."

It will be perceived that this last phrase, which covers revenues from which operating expenses and taxes have been deducted and to which the net revenues from outside operations (sometimes they involve a deficit) have been added, comes perilously near the "Income from operation" of preceding reports.

The exclusion of the reports from switching and terminal companies in some instances, while they are included in others, introduces an element of perplexing uncertainty at every turn and really vitiates all comparisons with former reports.

The Commission itself seems to realize the bog into which the official statistician has plunged its accounts, when it says:

"The changes in the income account submitted in the report under consideration _are so far reaching in their results_, in a number of instances, as to impair direct or close comparison with figures for similar items in previous statistical reports."

And now it is proposed to throw all the accumulated statistics of twenty-two years out of consecutive gear by substituting the calendar for the fiscal year.

* * * * *

The writer has deemed the foregoing comments necessary to clear the atmosphere before proceeding to the introductory summary showing the salient features of the railway industry in 1909 compared with similar items in 1899 and 1889. The data for 1909 is compiled from the annual reports to this Bureau covering 221,132 miles of operated line, together with the monthly reports to the Commission of earnings and expenses of all classes of roads for that year, covering an average operated mileage of 233,002.

SUMMARY OF RAILWAY RESULTS IN 1909, 1899 AND 1889, WITH PERCENTAGES OF INCREASE FOR EACH ITEM BY DECADES.

(m = 1,000; d = decrease.)

====================================+============+============ | | Item | 1889 | 1899 | | | | ------------------------------------+------------+------------ Miles of line | 153,385| 187,534 Miles of all track | 195,958| 250,784 | | Net capitalization (m) | $7,366,745| $9,432,041 Net capitalization per mile of line | 48,021| 51,764 Net capitalization per mile of track| 37,593| 38,527 | | Gross earnings from operation (m) | 964,816| 1,313,610 Gross earnings per mile of line | 6,290| 7,005 Expenses of operation (m) | 644,706| 856,968 Expenses of operation per mile of | | line | 4,204| 4,570 Net earnings from operation (m) | 320,101| 456,642 Net earnings per mile of line (m) | 2,086| 2,435 Ratio of expenses to earnings | 66.81| 65.24 | | Receipts from freight (m) | $254,041| $291,113 Receipts from passengers (m) | 642,662| 913,737 Receipts from mail (m) | 21,901| 35,999 Receipts from express (m) | 19,778| 26,756 | | Passengers carried (m) | 472,171| 523,176 Passengers carried one mile (m) | 11,553,820| 14,591,327 Receipts per passenger per mile | | (cents) | 2.165| 1.978 | | Freight tons carried (m) | 539,639| 959,763 Freight tons carried one mile (m) | 68,727,223| 123,667,257 Receipts per ton per mile (mills) | 9.22| 7.24 | | Locomotives, number | 29,036| 36,703 Locomotives, weight (tons) | 1,161,440| 1,945,259 | | Passenger cars (number) | 24,586| 33,850 | | Freight cars, number | 829,885| 1,295,510 Freight cars, capacity (tons) | 16,597,700| 34,978,770 | | Average tons in train | 179| 243 | | Employes, number | 704,743| 928,924 Employes, compensation |$389,785,664|$522,967,896 Proportion of gross earnings | 40.40| 39.80 Proportion of operating expenses | 60.46| 61.02 | | Taxes | $27,590,394| $46,337,632 Per mile of line | 180| 247 Proportion of gross earnings | 2.86| 3.53 ------------------------------------+------------+------------

{table continued} ====================================+==============+================= | |Increase|Increase Item | 1909 | over | over | | 1889 | 1899 | | % | % ------------------------------------+--------------+--------+-------- Miles of line | 234,182| 52.7 | 24.9 Miles of all track | 340,000| 73.5 | 35.5 | | | Net capitalization (m) | $13,508,711| 83.3 | 43.2 Net capitalization per mile of line | 57,962| 20.7 | 11.9 Net capitalization per mile of track| 39,730| 5.6 | 3.1 | | | Gross earnings from operation (m) | 2,443,312| 153.2 | 86.0 Gross earnings per mile of line | 10,486| 66.7 | 49.7 Expenses of operation (m) | 1,615,497| 150.5 | 88.4 Expenses of operation per mile of | | | line | 6,933| 64.9 | 51.7 Net earnings from operation (m) | 827,814| 157.9 | 81.2 Net earnings per mile of line (m) | 3,552| 70.2 | 45.8 Ratio of expenses to earnings | 66.12| d 2.3 | 1.0 | | | Receipts from passengers (m) | $564,302| 122.1 | 93.8 Receipts from freight (m) | 1,682,919| 161.8 | 84.1 Receipts from mail (m) | 50,935| 132.6 | 41.5 Receipts from express (m) | 63,669| 221.9 | 137.9 | | | Passengers carried (m) | 880,764| 86.5 | 68.3 Passengers carried one mile (m) | 29,452,000| 154.8 | 101.8 Receipts per passenger per mile | | | (cents) | 1.916| d 11.5 | d 3.1 | | | Freight tons carried (m) | 1,486,000| 175.3 | 54.8 Freight tons carried one mile (m) | 222,900,000| 224.3 | 80.2 Receipts per ton per mile (mills) | 7.55| d 17.0 | 4.2 | | | Locomotives, number | 57,220| 97.0 | 55.9 Locomotives, weight (tons) | 4,158,000| 258.0 | 113.7 | | | Passenger cars (number) | 46,026| 87.2 | 35.9 | | | Freight cars, number | 2,113,450| 154.6 | 63.1 Freight cars, capacity (tons) | 73,126,370| 340.5 | 109.0 | | | Average tons in train | 388| 116.9 | 59.6 | | | Employes, number | 1,524,000| 116.2 | 64.0 Employes, compensation |$1,003,270,000| 157.4 | 91.8 Proportion of gross earnings | 41.00| 1.4 | 3.0 Proportion of operating expenses | 62.10| 2.7 | 1.7 | | | Taxes | $91,280,000| 230.8 | 96.9 Per mile of line | 390| 116.6 | 57.9 Proportion of gross earnings | 3.73| 30.4 | 5.6 ------------------------------------+--------------+--------+--------

There is not a line or figure of this table, with its percentages of increase, that does not testify at once to the amazing growth of American railways and to the equally amazing economical basis upon which they render incalculable services to the American people on terms that challenge the admiration of less favored peoples.

REVIEW OF THE LAST THREE CALENDAR YEARS.

Where the Twenty-second Annual Report of the Interstate Commerce Commission minimized the loss inflicted on the railways by the business depression of 1908, the Twenty-third Annual Report naturally, and by reason of the same cause, minimizes the substantial recovery of 1909. Where the former showed a loss in gross earnings of only $164,464,941 below the preceding year, when the actual result of the depression was nearly $300,000,000 ($298,457,576), the latter shows a recovery of only $21,770,228, when it was approximately $282,000,000 ($281,934,932).

The explanation of this discrepancy is, of course, the Commission's adherence to its own fiscal periods of statistics, which do not happen, in this instance, to coincide with the ebb and flow of adversity and prosperity. The true movement of railway traffic before, during and after the recent business depression is more nearly reflected in the following figures for the calendar years 1907, 1908 and 1909, compiled from the monthly returns to the Interstate Commerce Commission, divided into periods of six months:

SUMMARY OF GROSS EARNINGS OF THE RAILWAYS DURING THE CALENDAR YEARS 1907, 1908 AND 1909, BY MONTHS AND HALF-YEARLY DIVISIONS.