Mr. MONTAGUE. That is inseparable from the problem?
Commissioner ANDERSON. Yes.

Mr. RAYBURN. Do you not think, Mr. Anderson, in order that we be entirely fair with ourselves and the railroads, and that is all we want to do, that if you take a road for the year, say, 1915, which was rather a lean year-everybody else has got a little of the war profits, their business has been increased a little, that in all probability the railroads ought to be allowed to share in that?

Commissioner ANDERSON. I think that is a fair factor, and I think there is another thing you want to take into account. There has been increased capital investment of this carrier, and if you go back to 1913 and 1914 and take that return you will be taking a return on less capital invested, and if you undertake to figure accurately on the amount of capital invested year by year you get a tremendously complicated statistical factor, and that you want to avoid. It must be made something simple and workable and understandable in order to be good, in my view.

Mr. BARKLEY. Is it reasonable to assume, if the Government had not taken over the railroads and the war had continued, would their profit have been still larger than allowed in this bill?

Commissioner ANDERSON. I do not know any more dangerous business than prophesy.

Mr. BARKLEY. Well, based upon the history of the last two years. I will say.

Commissioner ANDERSON. It depends upon how you put up your rates. Cost of fuel at the present time is appalling. The labor cost is increasing, not only because of certain proper increases of wages. but because the congestion of roads is such that labor is, without its fault in many instances, very ineffective. You have got a very complicated problem there, and one I might discuss before you for two hours and I do not believe we would be much further, valuation to rates and rates to valuation; it is a vicious circle. It has been run by a great many people and a great many railroad attorneys have been around that circle, until it seems to me they have gone crazy with the dizziness which results. I might go around at the same rate. If the Interstate Commerce Commission took a book of rates-as it came out in the 15 per cent rate case, somebody said, "The sky is the limit."

Mr. DEWALT. Is it not true that the railroads increased rates $15,000,000, approximately speaking, and the cost for fuel of the railroads in this country has increased $150,000,000, approximately?

Commissioner ANDERSON. The figures I had in mind the other day, but I have forgotten them now. I can not verify that without turning to those sheets, but that does not appall me in their size; I have got accustomed to large figures.

Mr. MONTAGUE. The cost of steel and equipment has increased?. Commissioner ANDERSON. Approximately 100 per cent; and that is one reason why the roads should be taken over and put under Federal control, so that every practicable transportation facility now shall be utilized, and avoid any unnecessary duplication at the present prices. That is a very important consideration leading up to the assumption of control by the President.

Mr. DOREMUS. If you had followed the English plan and adopted the year last preceding the war-last preceding our entrance into the

war-as the basis of the earnings, the result would have been more advantageous to the railroads than the plan you did adopt; is that not true?

Commissioner ANDERSON. No; take the year 1913.

Mr. DOREMUS. No; the year last preceding our entrance into the

war.

Commissioner ANDERSON. Oh yes; take the calendar year 1916, it is about $100,000,000 higher than the result now achieved, ignoring for the moment the Federal taxes-pretty close to $100,000,000 under. In other words, putting 1915 in with 1916 and 1917 cuts down the average about $100,000,000 below what 1916 would be, taking June 30 instead of the calendar years. That is substantially or approximately an accurate answer.

Mr. EscH. But taking a three-year period, as you did in this bill, it is possible to conceive the bill would then apply to a railroad that might have been bankrupt in 1915, that might hardly have regained its equilibrium in 1916, and was just barely getting on its legs in 1917. That would make a low average return for three years. I suppose under your bill the guaranty would be to raise that?

Commissioner ANDERSON. The guaranty would not be applicable to that. The trading power under section 1 is limited to the basis stated; but you will observe, and I repeat myself, that it is a power and not a mandate, and comes under sections 6 and 7, but what your mind is obviously turning to is an exceptional case.

Mr. Escн. All right.

Commissioner ANDERSON. Then I pass to section 2. There are certain railroads taken--for instance, a railroad which was not com pleted until the year 1915, or for some reason did not have any kind of normal operating income, net revenue, in 1915, or perhaps 1916that are not traded on the basis there stated. Conceivably, there were some that had no larger revenues for certain artificial reasons and that the President ought not to apply that standard. I can not say about that. That should be left to be dealt with when you get the figures in detail of the various carriers. It is probably true, as I stated, that that standard applied to ninety-odd per cent of the carriers would be a perfectly fair and just standard, and that the carriers would trade with the President on it.

Now, as to the exceptional cases, section 2 provides, "That if no such agreement is made" -and it might not be made because it ought not be made, and might not be made because the carriers were not reasonable and would not make it in either event-" and the President may pay, or cause to be paid, to any carrier while under Federal control an amount not exceeding ninety per centum of such standard return, remitting such carrier to its legal rights in the Court of Claims for any balance claimed; and any amount thereafter found due above the amount paid shall bear interest at the rate of six per centum per annum; and any excess amount paid hereunder shall be recoverable by the United States, with interest at the rate of six per centum per annum."

That goes, gentlemen, upon the theory that it is desirable to stabilize the security market, and if a corporation is in the hands of some cantankerous directors, or if it has good ground to say it falls out of the principles contained in section 1, they ought not be kept out of all income pending the determination of their just rights. It is

not in the public interest that they should be kept out of all income pending their just rights, and therefore as a rough matter we said, "Let the President at least have power to see that they get up to at least 90 per cent of what their standard income would figure, which we say, roughly, would be adequate to take care of all outstanding bonds and prevent all hardship to security holders of those roads." It is then stated very simply that "the amount paid shall bear interest at the rate of 6 per cent per annum," and if perchance the payment should overpay any of those carriers the amount that is determined in section 3, that may be recoverable at the same rate.

Section 3 indicates a method which we think will be adequate to take care of the cases which are not settled under section 1. Instead of having them go direct to the Court of Claims, it is provided that they shall first be referred to auditors, and that the Interstate Commerce Commission and their force shall be eligible to appointment as auditors, but without increased compensation, the idea being you would probably appoint a board of three auditors-very likely one member of the commission, and somebody from the valuation and statistical staff-who would hear that case. They can make a report, precisely as in an ordinary court proceeding, and the President is then authorized to settle with the carrier on an amount not greater than that provided in the report of the auditors. If they do not care to settle-if the report is deemed improper either by the President or by the carriers-then they may go, as they have the constitutional right under the due process clause-to the Court of Claims, where the auditors' report is prima facie evidence, leaving either the Government or the carrier to seek to upset it. It is our belief that the machinery provided under section 3 will take care of all the cases that are not settled under section 1, and that almost none of them will ever be found in the Court of Claims; but if we should be found wrong in that view, the answer is, they have the constitutional right, under the due process clause, to go to the court, and we think we have done the best we could to prevent any claims for compensation for a substantial part of these properties being involved in court litigation and overburdening the tribunals of justice.

Mr. BARKLEY. What effect will the operation of section 3 have upon the provision authorizing the President to pay 90 per cent of the standard return and then fight the rest of it out in the Court of Claims?

Commissioner ANDERSON. They will get 6 per cent on any balance there recovered.

Mr. BARKLEY. Is it your intention or idea that no road would take a case to the Court of Claims until this auditing board would pass upon it?

Commissioner ANDERSON. Before the auditors' proceeding gets into court-and it is prima facié when it gets there it is provided that after the auditors' report the President may settle with the carrier in a sum not exceeding the auditors' report.

Mr. BARKLEY. Can the President pay in this 90 per cent referred to in this section 2 independently of the investigation of this board of auditors?

Commissioner ANDERSON. Yes; he can pay the standard return figured on the basis of section 1.

Section 4 provides: "That the return of any carrier shall be increased by an amount reckoned at a rate per centum to be fixed by the President upon the cost of any additions and improvements made while under Federal control, with the approval of the President, to the property of any carrier and paid for by such carrier from its own capital or surplus," which you will see referred to later in the act, "and by an amount equal to the rate accruing to the United States upon any advances made to such carrier for the cost of such additions and improvements as provided in section 6 hereof."

The bill contemplates that additions and improvements of the property, some of them good for peace purposes and general improvements, others only available for war purposes, may be ordered by the President during the war. That if the capital or surplus of the carrier itself goes into those improvements, that the President may allow a rate of return upon that capital adequate, of course, so that it should be an object to the boards of directors to agree that it could be paid for out of corporation capital instead of being advanced by the United States. But if the United States, as provided for in section 6, makes advances to the carrier for the purpose of an addition, for instance, of a track, a shipping track, or a track to a cantonment, then the return to the carrier should be increased only by the amount which is charged by the Government to the carrier for the advances made by the Federal Government, so that one hand would just wash the other.

Section 5 is intended to prevent any manipulation of the stock market.

It provides: "That no carrier while under Federal control shall, without the prior approval of the President, declare or pay any dividend in excess of its regular rate of dividends during the threeyears ending June thirtieth, nineteen hundred and seventeen: Provided, however, That such carriers as have paid no regular dividends or no dividends during said period, may, with the prior approval of the President, pay dividends at such rate as the President may determine."

It is contemplated that the standard return will be adequate to pay standard, regular dividends, and that it is desirable for the stabilization of the security market that those standard dividends or regular dividends should be paid. It is conceivable, if the purchasing power of money goes down, that it may be desirable that a regular dividend, for instance, the New York Central's 5 per cent, should be increased to 6 per cent; therefore we put in there the words "with the prior approval of the President."

Mr. BARKLEY. You mean by "regular," the same rate from year to year?

Commissioner ANDERSON. That word "regular" may be possibly in the field of ambiguity, but I think it is generally understood. The regular rate of the Pennsylvania now is 6 per cent, of the New York Central 5 per cent. If there be a dividend which falls into a category that you might say was neither regular nor irregular, it is expected it will be put up to the President before they pay it.

Mr. BARKLEY. In other words, if a railway last year declared a 6 per cent dividend, the year before a 5 per cent dividend, and the year before a 41 per cent dividend, it could not be construed to have a regular rate?

Commissioner ANDERSON. That might be true.

Mr. BARKLEY. In that case the President would have the authority to prevent the increase over the last rate declared; I mean, would the road have the right to increase only the last rate they declared without the President's consent?

Commissioner ANDERSON. No, sir; they would not.

Mr. BARKLEY. Are you sure that is made clear in this language? Commissioner ANDERSON. I think no road could safely pay, under section 5, anything that was not plainly a dividend, without getting the prior approval of the President.

Mr. DEWALT. Referring again to section 4 for a moment, line 6, and the phrase "with the approval of the President to the property of any carrier." in regard to additions and improvements made, you construe that to mean with the approval of the President first obtained or subsequently made?

Commissioner ANDERSON. I should say as drawn it would cover

either.

Mr. DEWALT. Well, to a lawyer's mind, that would lead possibly to an ambiguity. Would it not be better to say "first obtained or subsequently made"? I am merely throwing out the suggestion.

Commissioner ANDERSON. It is a very pertinent question. Of course that raises the question as to whether you want to take such rather minute control over the ordinary additions and betterments that a carrier would make as to say they shall not improve a station to the extent of $1,000 without getting the prior consent, or whether you want to leave them in general control with the expectation that anything that is of magnitude or unusual would first be put up to the Federal control.

Mr. DEWALT. The danger in my mind is this: I do not say that it would arise, but human nature is human nature. The danger in my mind is that some railroad companies might go on and make very extensive betterments, improvements, and additions, and if they relied upon the subsequent approval of the President, then they would have been used, and that would put them in as a charge here, and in that way decrease their net revenues and increase their operating expenses and take from their surplus account in that way, whereas if they were obliged to have the prior approval of the President there would be a check on that very thing.

Commissioner ANDERSON. I do not think there is any practical danger of their proceeding in large matters without it being known to Federal control, for I happen to know inquiries already have gone to the chief carriers asking what matters are now under way, or in contemplation, in order that the Government may have adequate and early data as to prospective capital demands. So that I can hardly conceive that a sane board of directors, acting in good faith, would undertake to involve the Government in large matters of that kind. Mr. DEWALT. But do you think it of sufficient importance to give us your opinion later on as to whether that wording should be "with prior approval or subsequent "?

Commissioner ANDERSON. I think that should be given careful consideration to see whether that is likely to involve too minute control, or whether it is necessary to make effective Federal control.

Mr. DEWALT. I beg your pardon for interrupting you.