ie se


The O'Fallon Railway 2 ccambeare Case

Harold Evans

Durham Makes a. Survey Alfred Hoffman

In the Pennsylvania Coal Fields Sophia H. Dulles

Home Ownership Axel Oxholm

VoL; 35 No. 4 Twenty Cents a Copy

N othing like it when you’re ina hurry

But whether it’s a quick wash-up or a more leisurely bath you will find Lava Soap unusually satisfying.

You’ lllike its rich, creamy lather, which rubs up with so little effort. You'll ap- preciate the business-like way it works itself into the pores and brings out the last traces of dirt and grease.

But, most of all, you'll delight in its refreshing mildness, for no matter how




often you use Lava it won’t hurt your skin.

All of these desirable qualities are. due to the high-grade materials from which Lava is made—pure vegetable oils blended with the finest of imported pumice.

Lava is good all the way through. Economical, too, for a cake lasts much longer than ordinary soaps.

in convenient



Official"Magazine of the American Federation of Labor WILLIAM GREEN, Editor


Editorials . ; ; ; William Green

The Right to a Uden

For Human Betterment

Two Kinds of Unemployment

Unemployment Insurance : , ; : ~ : : 403 The Slavery Convention . : ; : 405 We May Still Battle with Giants . . ; : ; 406 Primaries 407

Muscle Shoals : ; : ; , , ' : . 407

What Price Electricity in our : , : ; . Public Works and Unemployment . ; : , , 408 Down to Southern Standards . , ; ; : . ; 409 The O'Fallon Railway Recapture Case , , Harold Evans 410 In the Pennsylvania Coal Fields ; . Sophia H. Dulles 418 Durham Makes a Survey . , . . Alfred Hoffman 424 The Pan-American Conference at Havana . ; William English Walling 428 Home Ownership ; : Axel H. Oxholm 434 The Concentration of the Chokes Trade _— Hermann Schlimme 439 An Organizing Plan . , , . C. F. Grow 444 In New York Power Laundries : : 447 The Coal Miners’ Strike in Northern West Virginia Van A. Bittner 451 The Importance of the Auxiliary ; ; : Mrs. E. H. Reddington 453 School in the Nature Wood ; ; ; ; Grace Turner 455 For Local Unions ; : , , ; : ; , : : 462 Workers’ Education: Unemployment in Passaic Economic Statistics : Labor’s Share in Manufacturing Industries . : . ; 481 An Index of Labor’s Share in Production and in Consumption . : 489 Unemployment in Trade Unions. : ; ; 490 Books for Workers . : : ; , ; ; ; ; ; 491




The AMERICAN FEDERATIONIST receives manuscripts submitted for publication only on the understanding that it shall not be responsible for loss or injury thereto while in its possession or in transit. Entered at Washington, D. C., post-office as second-class matter. Accept for mailing at special rate of postage provided for in Section 1103, Act of October 3, 1917, authorized July 11, 1918.

Twenty cents a copy, $2.00 a year Apri, 1928, Votume 35, No. 4






“Saws of the standards of a century ago won’t do today; neither will the standards of a score years ago.”

Modern Manufacturing Methods Make Atkins Silver Steel Saws the Lead- ers—a provable fact attested to by leading and progres- sive saw users the world over —that’s why Atkins Saws are known as

‘‘The Finest on Earth’”’

Send a quarter or stamps for

1 carpenter’s nail apron 1 textbook on saws 1 useful souvenir

Ask your dealer for Atkins Saws Nos. 53, 65, 400, or 401, with New Improved Perfection Handle.



Canadian Factory, Hamilton, Ontario Machine Knife Factory, Lancaster, N. Y. Branches Carrying Complete Stocks in the Follow- ing Citics:

Atlanta goo ke foes

ew York City Minneapolis Portland, Ore,



for the expert tool-user

Showing the most complete line of carpenters tools in the world.

Write for Catalog No. 34-P THE STANLEY RULE & LEVEL PLANT


Benjamin Moore & Co.

Paints,Varnishes and Muresco 511 Canal Street, New York City





-{ Safes and Vaults } |


Get the Facts

that will help you to lessen expense and to make more money from your Building.

Mr. Owner, Manager and Tenant read “Putting Basements

to Work”

a compilation of facts and figures by experts

Price $1.00

Bolton Operating Corporation 116 East 19th Street New York

Buy Union Stamped Shoes

E ask all members of organized

labor to purchase shoes bearing our Union Stamp on the sole, inner- sole or lining of the shoe. We ask you not to buy any shoes unless you actually see this Union Stamp.


Affiliated with the American Federation of Labor

246 Summer Street Boston, Mass.

COLLIS LOVELY CHARLES L. BAINE General President General Secretary- Treasurer


PAPPELN Georg Fritz



VoL;35 No.4 APRIL, 1928

O great commonwealth can safely deny its citizens

the right of decision in matters that concern their

personal living. Servile groups of citizens are a menace

| to free institutions. It is therefore contrary to public

policy to permit the management of a great public utility to deny

its employees the right to belong to a trade organization of their

own choosing. The Interborough Rapid Transit Company of New

York City has carried its warfare against the union to the extent

of discharging eighty-five employees—not for inefficiency, refusal to

carry out instructions, carelessness, or any other reason connected with

the performance of work, but because they

The Right to exercised their constitutional right to join a

Join a Union labor union of their own choice. These men,

many of whom had served the company for

years, were summarily discharged in a period of great unemployment with serious consequences to themselves and their dependents.

Loss of employment is a serious thing at any time. Because wage-earners do not have ready agencies to get their stories to the public, there is not always full appreciation of what it means to live without enough food, without money for doctor’s service and under the fear of complete destitution.

To discharge men for exercising the right to decide personal matters, strikes at the very basis of human freedom. To deny work- ers constructive and constitutional avenues, tends to develop class war and revolutionary methods and bolshevism.



A corporation which pursues such an indefensible policy of perse- cution of tried and efficient employees, has no standing before the bar of public opinion and has no right to exist. It should be required to forfeit its control and management of a public utility.

For Human The sacrifices and dauntless endurance of the Betterment miners reveal the labor movement as some-

thing infinitely more than an economic strug- gle. It has ii its roots in human desire for self-respect in living—self- respect that demands a square deal in human relations and demands for those without power fairer sharing in those rewards which open opportunities to higher standards of life. Nothing but a great hu- manitarian ideal can explain the will to endure that has sustained the striking miners and their families through the cold and hunger of the past winter.

“The conditions existing in the Pittsburgh District and other coal fields in the United States are of a most serious nature and dangerous to the best interests of our citizenship,” so found the Senate Sub- Committee that recently visited the mining fields. The strike, which began nearly a year ago, has become practically civil war and has built up hostility and bitterness between groups that will handicap the industry and the communities for years. The committee’s report indicates the following causes of this bitterness: negro strike-breakers, brutality of the coal and iron police, the rule of terrorism, the injunc- tion denying miners’ civil rights, the communist activities which were encouraged by the military rule.

The committee finds the barracks for strikers and strike-break- ers likely to become health hazards and reports urgent need among the strikers.

These miners are struggling against things as they are to es- tablish the right to life with higher opportunities. Though industrial conditions render difficult decision as to the economic issues, there is not the slightest excuse for the brutality with which the strikers and their families have been treated or for the denial to them of consti- tutional rights and civil liberties. Here, as ever, the labor movement is contending for standards on a new frontier of industrial relations. It is no excuse to reiterate that the industry cannot meet the union miners’ demands for decent standards. Can any industry escape re- sponsibility for its rehabilitation when it has failed to keep pace with industrial progress? What is the industry doing to remove the condi- tions that cause industrial waste and eat up its revenues?

In the meantime the public has a responsibility to see to it that democratic institutions are maintained, and the labor sympathizers to help the striking miners. Theirs is a difficult struggle and their need is urgent.


Two Kinds of Before the public was aware of the present Unemployment unemployment, organized labor realized

that it was a serious problem. As early as July, 1927, a conference was called to discuss the problem of unem- ployment. In August of last year the Federation began gathering data on the unemployed.

In the last month of 1927 and in the beginning of 1928 unem- ployment increased greatly, as it always does at this season. Sud- denly all the newspapers are full of articles on the increase of unem- ployment and discuss various measures to relieve it.

If in the next few months unemployment decreases again, as is usually the case in the spring and summer months, discussion of unem- ployment will probably cease. Such an occurrence would show a misunderstanding of the problem and a failure to meet it with a con- structive solution.

There are two different kinds of unemployment. One is scasonal and occurs every year. In the winter there is less work on the farms, fewer houses are built, there is a general reduction in the amount of work performed. Winter unemployment ceases with the coming of spring and summer. But there is at present another kind of unemployment, untouched by seasonal changes in production and de- mand: unemployment caused by increasing productivity in industry. The worker today produces more in one hour than ever before. Total production is not increasing corresponding to increasing productivity, and therefore either fewer hours of work or fewer workers are nec- essary to produce the output required for the market.

In recent years it has been the policy of manufacturing industry to dismiss workers rather than to shorten hours of work. And this is the kernel of the unemployment problem, the chief question which manufacturers and labor have to face: should we dismiss an ever- increasing number of workers, or should we shorten hours of work? And if we have to dismiss workers, how can we find work for them? Do newly developing industries absorb the mass of workers yearly dismissed by manufacturing industries? These are the questions to be studied, these are questions which should concern government, manufacturers and labor.

Unemployment The problem of seasonal unemployment has Insurance been with us year after year. We may count on its recurrence yearly, at least in the imme- diate future. There are few trades which are not strongly affected by seasonal changes; none in which the workman may count on twelve full months’ employment. Little is heard of the human suffering which must be borne each winter because thousands of fathers can find no work to provide food


and shelter for their families. And yet this suffering goes on. This ‘year it has been brought to public attention by newspaper publicity. But another year the dull season will bring a return of the same con- ditions with like suffering unless measures are taken beforehand to meet the situation.

Stabilization of industrial production is the final answer to sea- sonal unemployment. It is possible to adjust production to the market without large additions to the labor force in rush periods and lay offs in dull seasons, and a few forward looking employers have made these adjustments with success. But a general movement toward stabiliza- tion will be needed before workingmen and women in general can hope for security of wage income. This is a matter for the serious con- sideration of employers throughout the industry.

Meanwhile the immediate needs demand attention from trade unions. Until more stable employment can be assured something must be done to protect those who suffer each year from loss of work. A number of unions have provided for this need through unemployment insurance and benefits.

In the needle trades this has been done through joint action of employers and unions. Unemployment funds have been provided to which the employer contributes a small percentage of his weekly pay roll. In the case of the Ladies’ Garment Workers, the union has con- tributed an equal sum. With the Cloth, Hat and Cap Workers, the employer alone contributes, giving 3 per cent of the pay roll. In the printing trades, local unions of the Photo Engravers, the Lithogra- phers, the Stereotypers and Electrotypers and the Printing Pressmen, and the International Union of Siderographers, maintain unemploy- ment benefit funds supported entirely by the unions through special dues from the membership. Local unions of the Bakery Workers, Brewery Workers, the Cleaners and Dyers, and the International Union of Diamond Workers also have similar systems of unemploy- ment funds for the relief of members out of work. Through these systems unemployed members receive in many cases twenty to thirty dollars a week during periods when they are without other income. This guarantee, usually costing no more than twenty-five or fifty cents a month, means not only protection against suffering in times of un- employment, but a relief from worry throughout the year.

Awakened public opinion now challenges the industrial world to a new attack on the persistent problem of seasonal unemployment. Responsibility for employment stabilization lies chiefly with manage- ment; but unemployment insurance is a concern for both unions and employers. Protection through insurance or benefits is within the reach of nearly all union members; stabilization is a larger program.

It is possible to make this year’s hardships lead to permanent advance. Let us not be satisfied with relief measures for this emergency.


The Slavery The Senate now has opportunity to make the

Convention United States a partner in world-wide action against slavery.

In spite of the long struggle to abolish slavery, this most degrad- ing form of human bondage still exists in some parts of the world. The Slavery Convention of Geneva of 1926 provides for needed action against it. Forty nations have already signed it, among them all the great powers of Europe. The United States is now invited to accede.

The abolition of slavery has involved a changing attitude toward work. In older civilizations and among primitive peoples today, much of the labor necessary to support economic life has been held in con- tempt and performed largely by slaves. Developing civilization has brought with it an increasing respect for labor, a realization of the creative quality inherent in all work and the consequent dignity of the worker. This conception is fundamental to human development; under it slavery can not exist.

The last century was a period of struggle to establish this prin- ciple of free labor. In our own country we have not forgotten the suffering it caused. In Africa, colonization brought problems of native labor. Natives were exploited by slave dealers who seized them for shipment as slaves and by colonists who forced them to work on plantations. The slave trade reached alarming proportions and colo- nizing powers were shocked to action. Through international treaties they pledged mutual effort to repress it. By the end of the century the slave trade had nearly disappeared; but other abuses still existed.

When the Temporary Slavery Commission of the League of Nations made its investigation in 1925, slave trading, slave raiding and slave markets still existed in nineteen areas in Europe, Asia and Africa. Also, more insidious forms of slavery, such as debt slayery and compulsory labor were still found in many parts of the world and to a large extent. Under such systems natives often lived in condi- tions worse than slavery.

The Geneva Convention is the first treaty which deals effectively with these problems. It is an important step forward, for it is the first international treaty to repudiate the institution of slavery itself and to condemn compulsory labor except for public purposes. If the powers seriously carry out the provisions of this convention, the peo- ples under their control will be protected against exploitations and will have a chance to develop.

It has been the established policy of the United States to join other nations in suppressing this institution which retards human prog- ress. This convention, which replaces former treaties to which we adhered, contains no provision which would bar our accession. Our own laws already provide for the enforcement of this principle on American soil. By ratifying the treaty we will continue our associa-


tion with a world-wide movement to uphold principles which have been fundamental in our own growth and prosperity.

We are concerned in this movement not only because of our interest in human welfare, but because slavery in any country is a menace to our own labor standards. The United States Supreme Court has declared that “There is no more important concern than to safeguard the freedom of labor upon which alone can enduring prosperity be based.”’ It is to be hoped that the Senate will enable us to uphold this principle in action.

We May Still Battle There are those who fear “respectability” With Giants for the labor movement, because they believe

that without its militant atmosphere Labor will become a part of “things as they are” and cease to trouble over the wrongs of the workers when it enters into cooperative relations with management. This fear is based on a misconception. Militancy is a method necessary to establish machinery for collective bargaining which employers oppose. Once the machinery of collective bargaining is set up, Labor has a much larger sphere of activity, touching many phases of work life, such as fair wages, greater production economies, industrial health, provision for industrial accidents, and securities against misfortunes. Each of these fields has its frontier of industrial problems where standards have not been worked out. The problems vitally concern Labor and Labor should take a part in solving them. Just as much virility and resourcefulness are necessary for dealing with these problems as is necessary to establish collective bargaining through demonstration of force.

To establish new rights and higher opportunities for those who formerly had no rights and bore the heavy risks of industry, is a role that is not always welcomed by those who have controlled the decisions of industry and who consequently have taken good care of their own interests. It requires real courage and purpose to challenge accepted practices. It requires discipline and study for a wage-earner to stand up in industrial conferences among technicians and highly advanced representatives of capital and management and point out that Labor represents an essential function in industry and that it is unfair that its income should be less dependable than the incomes of those who manage or supply capital.

Collective bargaining and cooperation with management open up to trade unions unlimited opportunities to bring discussion of workers’ experiences and ideas into problems and councils where they have never before got a hearing.

Cooperation opens the way to higher planes of organization for industrial work.


Primaries If a worthy President is elected in November, good candidates must be selected in the pri-

maries. This responsibility can not be delegated to party or to other political machinery. The professional politicians always take good care that their supporters vote. Recent revelations have disclosed to us the degradations to which political institutions may be reduced when corrupt politicians control. The coming primaries are oppor- tunities to free parties and offices of corrupt practices. Every man and woman entitled to vote has a responsibility for good government. Corrupt control of parties and unworthy candidates cannot exist if voters fulfill their obligations. Since the Senate committee began investigating expenditures for campaign purposes, we have had an amazing and shocking succession of revelations which have in the immediate past disclosed connections with the well nigh treasonable conduct of men in places of public confidence.

The coming primaries are the strategic opportunity for assuring a President and a Congress of high order. If one party nominates a man of high character, it is a challenge which the other party must match.

Wage-earners should be active in promoting the nomination of candidates of high character, competent to administer national affairs and above all else concerned for human welfare.

Every wage-earner is urged to remember to vote in the primary. It is as important to vote in the primary as it is to vote in the election.

Muscle After seven years’ deliberation the United Shoals States has taken action toward a definite

policy for the power construction begun at Muscle Shoals during the wartime, by authorizing the completion of the power construction work and fertilizer plants. This policy, if approved by the House, will give the nation experimental power and nitrate plants that will make it possible to have dependable meas- uring rods for judging the power service rendered by public utilities.

As the monopoly element is inherent in power service and there have been persistent statements of combinations in the power field on a large scale, it is of fundamental importance that we should have measuring rods for both standards of service and prices in order to insure fairness both to the utilities and to consumers.

The Executive Council of the American Federation of Labor at its last meeting endorsed completion and operation of the Muscle Shoals undertaking by the United States Government and we hope this policy will be speedily approved by the House of Representatives.


What Price Under this title Morris L. Cooke addressed Electricity in an open letter to the Electrical Industry, Our Home which adds to the information already given

users of power through discussion of the Senate’s proposal to investigate the industry. The power industry has made progress technically and financially. Though consumers have shared in this progress by rate decreases, Mr. Cooke submits that domestic users of electricity are still paying rates based upon conditions prevailing in the pioneer period of the industry. In those early days power companies were developing service to big patrons— the industries. Services to small patrons—domestic users—brought a return which was practically negligible to the industry. Early rates were fixed with a wide differential between domestic users and indus- trial users. But now domestic users are no longer inconsequential patrons and Mr. Cooke points out there is need for revision of bases upon which their rates are fixed.

Electricity in the home and on the farm is a great labor-saving agency and it is most important that those who need relief from heavy work should benefit through cheaper electricity as rapidly as a lower rate is possible. Mr. Cooke’s pamphlet is a timely challenge to thought and gains in interest because of the action of the United States directing an investigation of public utilities. The electrical

industry is a key industry and it is of highest importance that it render the best service possible at the lowest practical rates.

Public Works Though the winter months witnessed stead- And Unemployment __ ily increasing numbers of persons who could

not find employment, Congress has not has- tened to pass appropriations for public works that are pending. Nor have legislatures followed the suggestion made during the last period of great unemployment—to authorize undertakings and hold them in abeyance for periods of unemployment.

However, if Congress would pass the flood control bill, the army housing, naval construction and general housing legislation and would make the appropriations for this work available at once, our present problem of unemployment would be quickly relieved. Such action by Congress could be supplemented by similar action in the different states and municipalities where the expenditure of public funds is planned in making public improvements and in the construction of public works. It is especially regrettable that flood control legislation should be delayed so long. There are many flood victims still de- pendent on outside help, and the time for another spring high water again approaches. Congress ought to act quickly. The public should demand speedy action upon all legislation which provides for the


expenditure of funds in accordance with governmental plans for public improvement and public work.

In addition to providing work for those now unemployed, pro- visions should at once be made to be ready to meet constructively recurring needs. In the past we have waited for unemployment to develop before we have considered authorizing programs for public work that had to be done. There is nothing involved in the problem except better management. We need a constructive and scientific program for timing public work.

Down to Southern Some weeks ago Governor Fuller of Massa- Standards? chusetts, in his message to the Legislature,

explained that New England manufacturers could not compete with Southern manufacturers because wages are lower and hours of work longer in the South than in the North, and that, therefore, wage-earners in the North should accept longer hours of work and a wage decrease. What this wage decrease and this increase in the number of hours will mean is shown in a survey of wages in the cotton textile industry published by the National Bureau of Economic Research. It reads:

“Hourly rates of wages for either men or women are consistently lower in the South. In 1914 men’s wages in the North are 44 per cent higher than men’s wages in the South and women’s 47 per cent. By 1926 the difference is even wider; men’s wages in the North are 56 per cent greater than in the South and women’s wages more than 60 per cent. . . . The full-time work week was in 1914 nearly 10 per cent longer in the South than in the North and in 1926 nearly 11 per cent longer.”

In 1926, men in the northern textile mills earned per hour 45 cents, in the southern, 29 cents. Women in the northern mills earned per hour 37 cents, and in the South, 23 cents. Full-time hours per week in the North are 50, in the South, 56.

These are the conditions which Mr. Fuller and the manufac- turers wish to have introduced in the North. Instead of advocating an improvement of working conditions in the South they propose to the workers in the North a lowering of the better conditions down to the level of the South. Organized Labor will watch that such plans subversive to the idea of a high standard of living of the American worker will not be put into effect. We should have the support and assistance of all constructive citizens.



Counsellor-at-Law *

ACK of every important deci- sion of the Interstate Com- merce Commission or of a state

utility commission lurks the question whether our railroads and other pub- lic utilities are primarily instruments of public service or corporations for private profit. Obviously, under pri- vate ownership they can not ade- quately serve the public unless they are allowed fair profits. Nor can they in the long run continue to be profit- able unless they render some real service to the public. Just as obvi- ously, however, there comes a point where profits and service clash— where the interests of the public and of the stockholder come into conflict. Which then is to be put first? In the case of the railroads the question is vital, for our transportation system is as essential to our national life as veins and arteries are to our bodies.

Soon after the United States en- tered the World War it became evi- dent that our railways under private ownership and operation were break- ing down. On December 28, 1917, the Federal Government assumed control, and for the first time in our history the railroads were operated for the primary purpose of public service in an effort to meet the na- tional emergency. Profits became a secondary consideration. Under Fed- eral control our railway carriers

*Mr. Evans was a former member of the Pennsylvania Public Service Commission, and special counsel for it before the Interstate Com- merce Commission in the Lake Cargo Coal Rate case.

were welded into a single unit. For the first time, in spite of all the short- comings of Federal management, we glimpsed the vision of a coordinated transportation system operated pri- marily for the public welfare. Fed- eral control ended on March 1, 1920, but the vision remained. The Trans- portation Act of 1920 did much besides restoring private control. It inaugurated a new era of railroad regulation in which the public interest was emphasized as never before.’ Among other things it provided for the consolidation of the railroads into a limited number of systems under the direction of the Interstate Com- merce Commission; prohibited the construction or abandonment of any line unless found by the Commission to be required by public convenience and necessity, and called for the re- capture of excess income.

Section 15a of the Interstate Com- merce Act,® with which we are pri- marily concerned, requires the Com- mission (1) to establish such rates that carriers as a whole or in groups

* Transportation Act, February 28, 1920, Chap. 91, $418, 41 Stats. at Large 456. The following quotations show the emphasis. Sec. 402, pp. 476, 477, to “best promote the service in the interest of the public and the commerce of the people,” to “best meet the emergency and serve the public interest”; Sec. 407, p. 482, “that the public interest will be promoted”; Sec. 422, p. 488, to “give due consideration to . . . the transportation needs of the country, and the necessity of enlarging (transportation) facilities in order to provide the people of the United States with adequate transportation” ; p. 491, to enable the railroads “properly to meet the transportation needs of the public.”

* Transportation Act of 1920, Sec. 422.



fixed by the Commission will “under honest, efficient and economical man- agement” earn a fair return upon the value of their property used in trans- portation, (2) periodically to fix the rate of “fair return” giving due con- sideration “to the transportation needs of the country and the necessity (under honest, efficient and economi- cal management of existing transpor- tation facilities) of enlarging such facilities in order to provide the peo- ple of the United States with ade- quate transportation,” and (3) to fix the value of the carriers’ property from time to time. Section 15a

frankly recognizes the impossibility of establishing uniform rates upon competitive traffic which will give the railroads as a whole a fair return without at the same time giving the stronger roads an excessive return,

and declares that any carrier receiv- ing a return of more than 6 per cent shall place one-half of the excess in a reserve fund and pay over the other half to the Commission to be admin- istered by it as a general railroad contingent fund. These are known as the “recapture clauses.”

The reserve fund held by the rail- road can be used for the payment of rent, interest and dividends to the extent that its operating income in any subsequent year is less than 6 per cent. When the fund has been built up to § per cent of the value of the railroad’s property the excess can be used for any lawful purpose.

The general railroad contingent fund is to be used by the Commission as a revolving fund “in furtherance of the public interest in railway trans- portation,” either by making loans to carriers for capital expenditures or by purchasing transportation equip-


ment and facilities and leasing them to carriers.

The recapture clauses have been passed upon by the Supreme Court only once. They were upheld unani- mously. Chief Justice Taft, speak- ing for the Court, said, ““The combi- nation of uniform rates with the re- capture clauses is necessary to the better development of the country’s interstate transportation system as Congress has planned it. The con- trol of the excess profit due to the level of the whole body of rates is the heart of the plan.” *

The O'Fallon Railway case is the first where the Commission has val- ued a railroad for recapture pur- poses, determined its income in excess of 6 per cent, and ordered one-half of such excess to be paid to the Com- mission and the remaining one-half placed by the railroad in a reserve fund.?

The road is small, operating only nine miles of main line and twelve miles of yard track and sidings. The amounts recaptured were also small, the excess earnings averaging less than $120,000 per year. But the im- portance of the case is enormous as it furnishes the pattern on which mil- lions of dollars of excess income of the more prosperous railroads may be recaptured. Ultimately it may re- sult in a determination by the Su- preme Court of the basis on which the railroads are to be valued.

The report of the Commission is written by Commissioner Meyer, speaking for himself and three oth-

* Dayton-Goose Creek Ry. Co. vs. U. S., 263 U. S. 456, 68 L. ed. 388.

* Excess income of St. Louis and O’Fallon Ry. Co., 124 I. C. C. 3.


ers." Commissioner Eastman wrote a concurring opinion in which Com- missioner McManamy joined. Four commissioners dissented.”

The O'Fallon Railway was incor- porated in 1896, but its accounting records for the next twelve years were missing. It therefore was im- possible to determine the original cost of the property. The Commis- sion rejected the carrier’s contention that the cost of reproducing the property at current prices less accrued depreciation should be the determin- ing factor in fixing value. Instead they took the property as it existed June 30, 1919, and applied to it 1914 unit prices as representing the fair average costs of construction during the preceding twenty years. To this was added the amount by which the actual cost of items installed between 1914 and 1919 exceeded the esti- mated 1914 reproduction cost of such items. Accrued depreciation was then deducted. To this was added an allowance for working capital and the present value of land, based on the current market value of adjacent lands. The values found by the Com- mission compared with those claimed by the carrier are as follows:

Found Claimed by Commission by Carrier

$856,065 $2,295,000 875,360 1,738,000 7983.... 978,874 1,641,000 ae 978,246 1,818,000

The Commission then found that after some reductions in operating expenses the excess income of the railway over 6 per cent was as fol- lows:

Year 1920.... I92I....

* Commissioners Lewis, Campbell and Esch. * Commissioners Hall, Aitchison, Taylor and Woodlock.


$106,755 130,205 106,391 110,409

Of these amounts the railway was ordered to place one-half in its re- serve fund and to pay over the re. maining half to the Commission.

The Commission emphasizes the enormous importance of the case. Commissioner Meyer stated: “There is here presented, in reality, a great national problem affecting public policy and welfare in a most pro- found way. In essence it is presented as clearly as it could be in the case of a railroad involving hundreds of millions of investment. In impor- tant aspects it is a problem which has never before been presented to either a commission or a court. We must carefully review the significance to the Nation of the decision which we make in this case in its bearings on the relation between all the railroads and all the people of the United States. It may well be that the valua- tion of railroads on a national scale requires the beginning of a new chap- ter in valuation.” *

Stress is laid on the basic aim of the Transportation Act of 1920. “Fundamentally the aim of the laws which we administer is the mainte- nance of an adequate national system of railway transportation, capable of providing the best possible service to the public at the lowest cost consist- ent with full justice to the private owners.” *

As a test of confiscation the Com- mission proposes to take the ability of the carriers to attract capital. “Confiscation is a taking of property

7124 I. C. C. 26-27.


without just compensation. It is idle to contend that treatment of pri- vate property which attracts and en- courages further capital ventures can be confiscatory. Furthermore, public regulation of railroads which is to any considerable degree more liberal to the private owners than is neces- sary to maintain good credit under reasonably prudent, economical, and efficient management can not be justi- fied.”* To this end stability of in- come is essential. This in turn in- volves stability of the rate base.

As pointed out by the Commission, were the reproduction theory at cur- rent prices adopted the value of all railroad property used for transpor- tation purposes in the United States, starting with a base of eighteen bil- lion dollars in 1919, and assuming a static property, would have increased

in 1920 to nearly forty-one and a half billions, dropped in 1921 to a little over thirty-five billions, dropped still

further in 1922 to a little over twenty-eight and a quarter billions, and increased in 1923 to over thirty- one and a quarter billions. In other words, the potential transportation burden upon the people of the coun- try would have more than doubled from 1919 to 1920. Correspond- ingly the railroad property con- structed from 1920 to 1926, amount- ing to about four billion dollars, would, owing to the subsequent de- cline in prices, have shrunk to about three billions.

Pointing out that the carriers have been and are able to attract capital, that there has been a great increase in the total market value of their se- curities since 1920, and that they are


"124 1. C. C. 30.


in general in better credit and finan- cial condition and rendering better service than ever before, the Commis- sion reaches the conclusion that they certainly are not suffering confis- cation.

Not the least significant point made by Commissioner Meyer is his re- minder that confiscation depends as much upon the rate of allowed return as upon the rate base. The real ques- tion is the amount of the allowed rev- enue, and it is immaterial whether the rate is low and the rate base high or vice versa. Five per cent on three millions is the same as 74% per cent on two millions. The Act fixes 542 per cent as the rate of fair return for the first two years upon the aggregate value of the railway property of the carriers as a whole or in such rate