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The CHAIRMAN. Does this section to which I referred involve practically the whole matter that is before us? If it would not interfere with the process you have in mind, I should like to have you explain to the committee why it was that the Government saw fit to take control.

Commissioner ANDERSON. Mr. Chairman, I should suppose that I would speak with meager authority on that point. The ultimate decision, of course, was with the President. But I may perhaps fairly state some considerations which were present in my mind, and which I brought directly and indirectly to the attention of others who had a larger official responsibility than I.

Possibly some of the Senators may recall that over a year ago when I was United States district attorney at Boston, and long before we anticipated being in war, prices were going skyward; and that I was asked by the Attorney General to assist in coordinating investigations into the high prices being made in the Department of Justice by the various United States attorneys under the wholly inadequate Sherman Act. In 1916, I became aware that our transportation facilities, particularly with reference to coal, were proving, as then used, utterly inadequate; and caused attention to be directed in the Department of Justice-I am not sure whether I brought it to the President's attention or not to that point. But things went from bad to worse. I went on the Interstate Commerce Commission on the 15th of October, 1917. Two or three days later, the representatives of the railroads applied for what was called a reopening of the Fifteen Per Cent case. It was ruled that the case was still open, and it was set down for speedy hearing.

In discussion, particularly by Mr. Vanderlip and one or two others who were called by the Commission's own motion, there was brought out (what previously had been running through my mind) and that was that rate increases bore no sensible relation to the pending and prospective needs of the country. It was, in substance, stated I think by Mr. Rea, here present, that if the railroads had good credit (it being claimed that they did not have good credit) that they ought not to offer their securities on the investment market in competition with the offerings of Government bonds. It was admitted, in effect, that if they had not only good credit but money in their treasury, they could not get engines and cars for the suggested needed added facilities without priority orders which would encroach at once upon the domain of war preparations for our allies. It was admitted further if they had both money and priority orders, they could not get engines and cars and steel, etc., for the purpose of equipping roads to do the work which ought to be done in the next six months and perhaps a year, under the war conditions. It, therefore, appeared rather clearly that the raising of rates to give more revenue and to give more credit, bore little or no relation to the war needs of the country for additional transportation service.

That directed attention to the distinction between transportation facilities and transportation service. I made such inquiries as I was able, and I received intelligent information, and, as I thought, sound information, to the effect that the transportation facilities of the country, if coordinated and unified, were probably nearly if not quite adequate to render the transportation service now needed; at least, to render much larger transportation services than were being ren

dered so long as the transportation companies were under separate private ownerships, and in charge of executives bound by law and their fiduciary relationships to serve the interests of the separate groups of security holders. It seems to me that the so-called War Board erred in their declaration of April that they were going to administer the railroads as "continental systems"; that the law prohibited them from administering the railroad systems as a "continental system." Their declaration indicated that they undertook an impossible task and an unlawful undertaking.

Senator GORE. You mean not impossible in the nature of things but impossible from the fact that

Commissioner ANDERSON. Impossible if they represented, as they did, separate groups of security holders, bound to seek business and profits for those separate groups of security holders. They could not ignore their lawful and natural obligations to their security holders, to use the facilities of the railroads for the war needs of the country. It was a legally impossible situation, as I viewed it.

I drew various memoranda indicating those views. These, perhaps, had some effect in solidifying and formulating a sentiment to the effect that we must do at the end of six or eight months-what England did within a week, I think, of the time of her declaration of war, viz., say that the railroads of the Nation must be run by the Nation when we are at war-whatever may be the sound policy in times of peace-as to the actual or assumed value of individual, competitive management.

Lest I be misunderstood, I want to say that I am a firm believer in the Sherman Act, and in competition, as applied to industrial undertakings.

The CHAIRMAN. May I ask right there, because I want to get the point clear that Senator Gore suggested-it is your opinion, even if we had suspended the laws that restrict the roads in their operation and give them what might be termed in common parlance a free hand, the duty of the different officials representing these groups, representing, as you said a moment ago, the security holders, that that, in itself, would have made a perfect mobilization and interchange that was necessary in order to bring about the results we must have, an impossibility?

Commissioner ANDERSON. Within a short length of time; yes. But I had another consideration in mind, and those of us who considered this question then had it in mind. Congress had, in August, 1916, in anticipation of war stress, granted power to the Executive. It was true that Congress was shortly coming in; but it seemed also true that as Congress had already granted a very large power in anticipation of possible war needs, that it was not consistent for those of us having more directly to do with the transportation interests and for the Executive to wait for Congress to do something more, if there was a demonstrated need of immediate action under the power which seemed already granted in ample measure. It seemed, therefore, that the responsibility had already been vested to that extent by Congress in the Executive. After most careful consideration of the construction which must of necessity be put upon the comparatively short act of August, 1916, I came to the conclusion that there was no escape from the Executive's taking the full responsibility of weather conditions, under separate corporation con

trol, with such unification as had been undertaken by the War Board (which they had in good faith, and with some results, carried out) or leaving the country to suffer such disasters as might accrue from the utter inadequacy of the transportation service.

Those were the views, not as formulated by the President-because I do not know how the President would have formulated them—but you asked me the reasons which led to the proclamation. I have now stated the way it lay in my mind and the way the discussions were formulated between myself and others with whom I had to do, and perhaps the substance of various memoranda which I prepared and which were considered by others. But what I have said, after all, is an individual and, in no other sense, an official view. It comes, to sum it all up, to this: The conclusion was that Congress had already enacted law in contemplation of the emergency_which had arisen, and that it was, therefore, the plain duty of the Executive and of those of us who had directly to do with the transportation interests in their national aspect, to use the power already granted, to make the best use of it we could; and then to come to Congress for such supplementation of power or modification of power as Congress should think wise under the then circumstances. That is the gist of the early situation, Mr. Chairman.

Shall I pass now to the consideration of the bill?
The CHAIRMAN. If you please.

Commissioner ANDERSON. Needless to say, in considering what legislation would properly supplement the Federal control assumed under the act of 1916, very many measures were contemplated which we had to reject as being utterly unworkable. There was serious discussion as to whether the act of August, 1916, which authorized the President to take possession and control and to utilize all or any part of the systems of transportation, did not in and of itself import power to agree with the owners of the properties thus taken over for national control, as to the just measure of compensation.

The Reeside case, in the Court of Claims, lends a very considerable support to that view. If the emergency had come during a long vacation of Congress and if the public interest had plainly demanded that there should be an immediate agreement, there would have been good ground for the President's undertaking to agree under the granted power-to make a just and reasonable payment to the owners, whose property was thus taken for public use, as being necessarily involved in the grant of power to take possession and control and utilize that property.

That Reeside case was a case which arose out of Gen. Fremont's action in the southwestern district in the Civil War. He wanted a lot of horses and sent out an agent to buy the horses, agreeing to pay him a commission for purchasing them at a price, I think, not to exceed $130 each. The horses were purchased, and later a case arose in the Court of Claims on the theory that the price was too much. As I recall it, the Secretary of War appointed a commission, or some official body, which so reported. The sellers of the horses brought suit on the vouchers issued when the horses were purchased. The Court of Claims held, in substance, that, having power to buy horses for the public, there was necessarily a power to fix a perfectly honest and conscionable price for the horses, and that the price fixed at that time, in the exercise of that war power, must stand, there

being no suggestion that it was not honest and not within the realm of reason, even though a commission afterwards said a somewhat lower price should have been paid. The court declined to allow the 21 per cent commission, because the Government having already provided certain agencies in the Quartermaster General's Department, through which the general in the field should make his purchases of supplies, he had no authority to go out and employ a different agency and pay that agency an additional compensation. That case, I think, is the chief authority, if your committee should be interested, in the question of implied power.

Senator GORE. In what report is that?

Commissioner ANDERSON. The second volume of Court of Claims reports, page 1. It is the first case. But it seemed to me unnecessary to suggest that the President should exercise a power which is open to any reasonable doubt under the act of August, 1916, when Congress was just about to come in. Consequently, attention was directed as to what was a fair basis to suggest to Congress for compensation. I had figures made up on a period of five years and have them here. I think it comes out something like $780,000,000. The details, I apprehend, would not interest the committee at the present moment.

It seemed to me that, in view of the fact that the property investment had undoubtedly been increasing, although we could not say what the property investments were, although the investment accounts on the books of the carriers are not to be taken as showing the original investment or the reproduction cost, or as being uniform, under any accepted and well-defined terms

Senator KELLOGG. During the last 10 years, the commission's regulations control what the books shall show as to addition and betterments in the capital account, do they not?

Commissioner ANDERSON. I am not competent to answer that dogmatically. During the last 10 years the accounts have been kept much more uniformly than before.

Senator KELLOGG. Did not the commission absolutely lay down the rule for keeping the accounts so as to show exactly what the betterments, additions and improvements are capitalized for, and what they cost, so that the commission may know exactly how much has been added to the property each year, during the last 10 years, or about 10 years I have forgotten exactly?


Commissioner ANDERSON. I do not believe it goes to that extent, but I should not be willing to say flatly "no" to that question. I think that Commissioner Meyer would give you more intelligent and authoritative information as to whether that is true or not. member, I have been there only three months, and while I know something about the machinery there, there is a lot of that machinery that I do not know much about. But it is a question that you might well think that a commissioner should be able to answer; and if I had been there three years instead of three months I should not expect to file a caveat.

It is undoubtedly true that, in the past 10 years, the carriers' accounts have been kept in a much more authoritative manner than formerly, but it is not true that the property accounts bear in the aggregate, or in the case of a great many of the carriers, any very accurate relation either to original cost, to reproduction cost, or to

any other theory of cost. I will give you an illustration of what came out the other day. I went up to New England on the application of practically all the New England railroads for an increase in addition to the Fifteen Per Cent Case, and heard it. Among other roads that came in, was the New Haven Railroad. Much discussion arose as to what the return-i. e., the rate of net earning— had been on the carrier part of the New Haven Railroad. The bureau of economics, whose figures you have here, had divided its accounts so as to show it made last year 6 per cent out of its carrier operations and I think about 1 per cent-I do not care to state with dogmatic accuracy as to the figures, but something like that, on its noncarrier properties. The vice president in charge of accounts said the bureau had not charged up enough of the property as carrier property. Thereupon I made some inquiry as to their carrier property. I found that in a period of some years they had been buying up railroad properties and consolidating them with their own property, and they had charged into the property account, not the property account of the absorbed branch line, but the cost of the stock of the absorbed branch line; so that that was a property account based on investment in stock, in substantial part. It happened, in some instances, that the cost of the stock was closely approximate to the property account of the absorbed constituent carrier and in others that there was a wide difference. Out of some transactions of that kind, they made a lot of money, comparing the cost of the stock with the original cost of the absorbed line. In other cases, where the absorbed line was a good earner, they lost a great deal of money if you compare their purchase price with the cost of the original line.

But the point is, "I was unable to get out of the New Haven accounts any figures which the representatives of the railroads agreed stated anything that anybody would say was a property account for the New Haven Railroad. That recent experience was one reason I was cautious in making the answer I did make, Senator Kellogg, because I think some of those transactions occurred within the 10year period.

Senator KELLOGG. I am not sure as to 10 years, but I think the commission did make that regulation.

The CHAIRMAN. May I make this suggestion to the committee, that Mr. Anderson be allowed to make his explanation of the bill and then, at the conclusion of his remarks on it, any questions that have suggested themselves in the course of his remarks, the members of the committee may ask. It would preserve the continuity of his explanation so that one reading it will not be deflected by questions that have been asked?

Senator KELLOGG. I have no objection to that.

Commissioner ANDERSON. I thank the chairman for the suggestion that there will be a continuity in my remarks if I am not interrupted, but I repeat, that I am perfectly willing to be interrupted, because I have no set remarks.

The CHAIRMAN. I think the committee would be very glad to have a consecutive statement in reference to the bill in its different sections.

Commissioner ANDERSON. Taking up, then, section 1, it was manifest that it was highly desirable that some sound, just, easily avail

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