Under the provisions of the United States shipping act the great merchant marine we are constructing is to be under Government control for a period of five years from the conclusion of the European

If our splendid merchant fleet, built with the money of the people of the United States at a cost of more than $1,000,000,000, is to be used successfully in their interest, it must be operated in effective coordination with the great railroad system of the United States. They must work together harmoniously and reciprocally. During this great period of world development, involving the vital welfare of the American people, it seems to me peculiarly wise that the period of Federal control of railroad transportation shall be made concurrent with that of Government ship control. Then we shall have a great transportation system on land and sea furnishing the reliable, effective service which will protect the interests of the American people and carry them forward upon a career of prosperity and success unequaled in any previous period in their history.

The CHAIRMAN. Your idea is, Mr. Secretary, in the reforms which you have outlined here, that in the 21 months you could not have the cooperation of the railroads and their employees, knowing that within 21 months they would revert, but you would have it if had five years in which to put your plan into operation?

Director General MCADOO. My feeling about it, is this: With a short tenure, and its termination rapidly approaching, the effect upon the morale of the railroad organizations-I mean officers and employees alike--would be unfortunate. Let us take the case of the officers alone. Nearly all of them who are now operating railroads under Federal control, have been federalized; that is, they have been transferred to the Federal organization. We have a Federal manager, for instance, for the Federal property, instead of a general manager under the corporate agency. We have under them superintendents and other supervisory officers.

Now, with respect to the higher officers, particularly, questions are constantly arising, and of necessity must arise, between the corporation and Federal authority. It may be impossible for the corporation and the Federal authority to agree-questions about improvements, questions about revisions of line, questions about operation, questions about equipment purchases. In all such cases the nearer you approach the termination of Federal control, the more difficult it is going to be for that officer to make his decisions. I am not casting any aspersion upon those officers, because they have shown the finest possible disposition as well as great patriotism and loyaltyI am only speaking of human nature. When those controversies arise and the officers know that they must soon go back to corporate control, and serve corporations again, you are putting them in a very difficult position to pass upon such matters. Naturally Federal control of railroads during the short period will not be so effective as it would be in the longer period and the officers were not confronted with the possibility of an early return to corporate management.

Now, let us take the employees. They are kept in a good deal of a ferment when there are impending changes of authority. I know that when the Government took over the railroads there was very considerable ferment among employees from one end of the land to the other; dissatisfaction with condiitons. A great deal of feeling existed.

When the Government took the roads there was for a time a very serious pause; the men did not know just what the situation was. They did not know just where their allegiance lay, and until those things were straightened out and it was finally made evident that the Federal authority was in control, the morale of the railroad organizations throughout the country was at a very low ebb. Since then the situation has been very much improved. The longer Federal control has existed the more men have come to realize that there is a central authority, and that authority is going to remain for a reasonable period of time, at least as long as war lasted. There was no definiteness about the termination of control and they went forward without any hesitation or question.

I think that with 21 months as the limit of time after peace has returned, and with the agitation of the railroad question during that period (because discussions are bound to follow), and with a political campaign impending, I think it is very likely that there will be a very large impairment of the morale of officers and men who are operating these railroads, and my opinion-it may not be worth any more than anybody else's opinion; I simply put it forward for what it may be worth is that during that period there will be a very marked impairment of the morale of officers and men, with corresponding inefficiency in railroad administration and in operation. I think that is inevitable. It is merely human nature, and I intend no reflection upon them when I say that.

Now let me say one thing more in answer to the question; that is the question of cooperation between corporations and the Government. I think it is a very serious one. During the period of the war the corporations have cooperated much more willingly-as far as they have cooperated-under the stimulus, of course, of patriotism and war conditions. I think they are disposed to raise as many questions as they can during Federal control in peace time. In so short a period as 21 months I think their opposition will be very marked with respect to essential improvements which require time for completion and large expenditure, and also with reference to equipment. Those questions are arising now, and I think the effect will be that, in the absence of agreement with the corporations, essential work will not be carried forward during the short period of 21 months, or else if the Government should proceed to execute that work for account of the corporations, it will do so with the necessity of financing it and then having a lawsuit probably at the end of Federal control to secure reimbursement of the Federal Treasury for the outlays.

I think with the five-year period, for instance, a program of improvement could be entered upon, and I think we would more likely be able to get agreements (with respect to many of these improvements the more exigent ones) with the corporations and also with respect to the best methods of financing them. There should be sufficient time to carry those improvements forward to completion. Many of them could not possibly be completed in the 21-months period, and that would apply particularly to the terminals, as I have already stated, and also to extensions or branches that might be built, and which it might be very desirable to build for the development of the country. I think there would be a period of hesitation, or an arrestment of development during so brief a period as 21

months, when the whole question was under discussion and when a state of ferment would be produced because no one. would know what the solution was going to be.

Now. with five years control: I think that after two years or three years, we would have had under peace conditions such a test and demonstration of the value of unified control and direction, effectively asserted in the common interest as to make it possible for the Congress to take up legislation for a permanent solution, so that you would get your legislation before the end of the five-year period. I think the test under peace conditions. and with adequate time to make it. would be of very great value.

The CHAIRMAN. What in your opinion would be the change of attitude of the owners and operators of these railroads under peace conditions from that which obtained under war conditions? Under war conditions you had the patriotic cooperation of all parties interested for certain specific national objects. Under a 5 or 10-year period-just say it was limited, knowing that certain conditions were being worked out looking to a modification of the Federal relations of the roads, what effect would their attitude have on the Government operation of the roads during peace conditions as compared with war conditions?

Director General McADOO. I do not think you will have as much cooperation under peace conditions, especially if the period of control is short. Everyone would be striving for a solution during that time, and those who had a selfish interest to serve would interpose every possible objection or obstacle to successful Federal administration if that would further their own plans. This would keep the whole business in a state of uncertainty and agitation. But they could not do that with respect to the five-year period because the time is too long. Certain things would have to go along any way in that case and I think it would give a period of composure and would take the subject out of the realm of discussions, which are so necessary to a successful test.

Senator WATSON. Just one question on that line, if you please. Have you said, and is it your policy, that if the five-year plan is not adopted, because of the reasons you have stated here, to cast the roads back at once?

Director General MCADOO. I have no policy about that, Senator. Senator WATSON. You have not?

Director General MCADOO. I have no right to determine the policy. My conviction is very strong that the roads ought to be turned back as promptly as possible if the time is not extended. That is my conviction as to the wise course to pursue. The disadvantages of attempting to operate them for a shorter period, and the evils that would result therefrom, would be far greater than if we turned the railroads back to private control as soon as it is possible to do.

Senator WATSON. Of course, this is a short session of Congress, and the appropriation bills have to be taken up, and legislation on this subject is almost impossible. If there be no extra session, Congress will not convene again until December, 1919. it will be impossible, of course, to legislate in the meantime, so that your 21 months would probably be taken up anyway, would it not, before legislation could be enacted, or nearly so?

Director General McADOO. It would seem to me possible to pass at this session of the Congress a simple amendment extending the period of Federal control for five years. For a permanent solution, it may be impossible to get legislation even within 21 months, because the Congress may not meet, as you suggest, until December, 1919, and the remaining time might be insufficient. What we need is to extend the period for five years, so that we could have an opportunity to deal with it in a period of calm and with deliberation. I feel again

The CHAIRMAN (interposing). What effectDirector General McADOO. I feel again that what has been accomplished, even under war conditions, is of such infinite value to the public that we ought to carry the experiment still farther, in order to realize still more the benefits that will come from this unified operation. Certainly none of us should be afraid of the result of a fair and intelligent test. The American people are, it seems to me, entitled to that, and it also seems to me that none of us should fear knowledge. The more knowledge we get the greater progress we can make toward a solution of the difficulty. The net earning power of the railroads will have a vital bearing on some of the plans for a permanent solution of the problem, and the true earning power of the railroads can not be ascertained unless there is a reasonable test under peace conditions.

The CHAIRMAN. What effect would the reforms that you have indicated in your presentment here have upon the return of the railroads to private ownership when you have spent this money? would take a large expenditure of money to bring about the reforms, say, for instance, at Cincinnati that you called attention to, and at New York, where you have spent large capital in development, and bringing about this condition that you suggest now at the end of the five-year period for the return to the private owner, would not that in itself affect the ultimate solution, whether that was successful or whether it was not?

Director General McADOO. Do you mean the mere fact that money had been spent?

The CHAIRMAN. No; the mere fact that you have brought about the condition that they are operating under now; would the fact of the return of the railroads to private ownership work out any other solution? Say that you had been operating for five years under your suggested plan; if it did not work out satisfactorily, then you would have a condition like the one that you have now. You would have to find some other solution which would cause a loss of time and a loss of money, to go back to whatever solution you did find, if yours was not satisfactory.

Director General McADoo. I should think, Senator, that Congress would not wait until the end of five years before it began formulating legislation. I think after probably two or three years of test it could go forward and find a permanent solution of the difficulty. That is my feeling about it.

As to the expenditures that would have to be made during the five-year period, it would be possible, certainly more feasible, to secure agreements with the corporations, not only as to the character of improvements but as to the method of financing them, because some of those improvements could be deferred 21 months without

serious hurt to the public interests, but they could not be deferred for a five-year period without serious injury to the public interest. Therefore, with a five-year period the corporations would have to come to an understanding with the Government as to what ought to be done. But if a comprehensive plan for these terminal improvements could be agreed upon with the corporations, then the powers of the Government, the power of unifying and controlling these terminals in the common interest can be exercised and will result in producing very great efficiencies and economies, much greater than would be possible under diversified control. Many improvements. could, and would undoubtedly go forward, and be completed within five years, and the public would get the benefit of them, and they would have a very decided effect, I think, in reducing the cost of transportation.

The CHAIRMAN. Have you any reason to believe that you would have the cooperation of the railroad corporations in working out. these reforms made under great expense?

Director General McADOO. I can not say, Senator. I think you will have more cooperation under the five-year test period than you would have under the 21 months, especially if you were trying to find a solution of it in the 21 months. In all of these great problems one must reckon, I think, constantly with the play of self-interest, and I am speaking of that from the standpoint merely of human nature that is, selfish interest of individuals and the competitive interest of these corporations. Now, if it is not to their interest to go along with the Federal Government under the 21-month period, if it is more in their interest to make Federal control during the 21 months a failure than a success, you would not get their cooperation. That is human nature. You have to reckon with that.

On the other hand, the public interest is not selfish interest. The public interest is the common interest, and therefore as long as we stick to the public interest and are doing the things which are for the common benefit, the selfish interest will have to give way, if we simply keep the command of the situation. With a five-year control we would have ample opportunity to make a proper demonstration, and I think that period would be sufficiently long to make it to the interest of the corporation, to the interest of the security holder, as well as to the interest of the mass of the people to bring about the necessary cooperation. Congress having determined upon a five-year test, everyone would feel that the question was settled for that time and would get down to business again and make the best of it, and we would get the best out of it. I think you would have a very satisfactory operation of the railroads during that time, and I think there would be a very much greater disposition to cooperate all around.

Senator POINDEXTER. Have you made any definite estimate, Mr. McAdoo, of what it would cost to construct the nesessary physical facilities for instance, bridges and tracks and other things at Cincinnati, so as to enable the proper coordination of the business of those various roads and its prompt dispatch in that particular region? Director General MCADOO. Yes, sir. It will cost about $45,000,000, on the basis of present prices, for freight terminals and track arrangements and facilities, and it would cost about $25,000,000 more for the necessary passenger facilities. It is rather an extraordinary fact, gentlemen, that the railroads have frequently united on a passenger