ADJUSTMENT OF LABOR'S DEMANDS DURING FEDERAL CONTROL OF RAILROAD OPERATION BY GLENN E. PLUMB LEGAL STATUS OF RAILROAD PROPERTIES Railroads are public highways, so declared by the various state constitutions, and so held by the Supreme Court from the beginning of railroad history. They are in the nature of things public highways to be used in a particular manner, but highways devoted exclusively to public use, and over which the public have an indefeasible right of transportation. Under the terms and conditions prescribed by law the operation of railroads as public highways is purely a function of government, the exercise of which has been delegated by the various states to the corporations which they have created for that particular exclusive purpose. All of the property which railroad corporations have been permitted to acquire under the terms of their charters is held subject to the perpetual right of passage retained by the public. Public highways are matters purely of public concern, in which no private property interest can exist, except such interests as have been conferred by legislative enactment. The extent of these private interests must be determined from the terms of the grants under which they have their existence. All interests in public highways, which are not included within the grant which the legislature has made, remain in the public. All of the functions which railroad corporations exercise under their charters are delegated governmental functions. There are naturally three separate and distinct interests in railroad properties: the interests of labor, the interests of capital, and the interests which the public have retained in this property which has been acquired solely for public use. Labor's interests are inherent, not based on grant or legislative enactment, save for those rights which are protected by remedial legislation. Labor has the right to demand, and the public interests require that it shall obtain, sufficient remuneration to attract men of the required intelligence to offer their employment in the service, and to provide sufficient inducement to retain these men in the public service. The interests of capital are protected by contract and based on legislative and charter grants. Under such grants capital is entitled to receive a fair return for its use in the public service, and this fair return must be so construed as to afford sufficient inducement to attract capital to the public service and to retain it permanently in that service. The public interest requires that the tax levied in the shape of tolls and charges shall produce an amount sufficient to satisfy the interest of labor and provide the agreed returns on capital, in addition to protecting the integrity of the investment through proper maintenance and renewal charges. The public interest is entitled to protection against the imposition of tolls and charges in excess of the rates necessary to produce an income which shall satisfy the requirements of labor and of capital. EXTENT OF LABOR'S INTERESTS IN RAILROAD PROPERTIES I wish to outline, briefly, the extent of labor's interests in railroad properties: first, as to the number of citizens directly affected by such interests; and second, the amount and importance of the financial interests involved. There are approximately 1,700,000 men employed in railroad operation within the United States. Allowing three dependents to each worker, 6,800,000 are directly dependent upon railroad operation for their livelihood. This is about one-sixteenth of the population of the continental United States. This proportion of the total population is therefore more directly interested in the solution of railway problems than the rest of the entire citizenry of the country. The public paid in wages and salary to the 1,700,000 men who operated these railways, in the year 1916, the sum of $1,500,000,000. For the use of capital in the same year there was paid, in dividends and interest, the sum of $827,000,000. The owners of the money which was devoted to railway service of the public have capitalized their investment at $21,000,000,000. If the return paid to labor were capitalized on the same basis, it would represent a labor investment of upwards of $37,000,000,000. This actual labor investment is nearly double the amount for which the actual money investment has been capitalized. The capitalization of the money investment, however, does not actually represent the number of dollars employed in the public service, but represents merely the par value of the securities which have been issued against an actual investment of dollars which is very much less in amount than that which the face or par value of the securities purports to represent. The number of dollars actually employed in the service of the public in railroad operation, and entitled by reason of that service to receive a return in interest or dividends, corresponds, in principle, to the number of men employed in this service, and entitled to receive compensation in the form of wages or salaries. It is just as much a fraud against the public to pad the dollar payroll in such a manner as to require an increased exercise of the state's delegated power of taxation, in order to pay a return on such a padded capital payroll, as it would be to pad the wage payroll. In the present situation there is no padding of payrolls for the advantage of labor. No fictitious names appear on such payrolls. No amounts are paid out for services which are not actually rendered. The number of men employed, the hours, days, or months of their service, are definitely ascertained. The amounts which they receive for the services actually rendered are known with great certainty. The public are not defrauded by the payment of wages for fictitious employes who render no service. It is not so with capital. We do not know the number of dollars actually invested and which at this time are employed in the service of the public. We only know that the capital payroll purports to represent $21,000,000,000, which are alleged to be serving the public, but it is admitted that $4,000,000,000 of this amount is duplicate capitalization, and it is also admitted that the remaining $17,000,000,000 of securities do not in all cases represent the actual number of dollars devoted to the public service, as in the Alton case. Its capitalization is $121,000,000, yet Mr. Harriman admitted, when on the stand before the Interstate Commerce Commission, that $60,000,000 of these securities outstanding did not represent a single dollar of property or investment. The most conservative defender of railroad securities will not attempt to defend the Alton capitalization, and it is severely condemned by railroad financiers themselves, but it is so condemned only because the facts in the case have become established. The record is known, and while not all railroads have practiced the same frauds, to the same extent, few railroads are free from this taint in their financiering; and many railroads equal, or exceed, in the extent of the frauds which they have perpetrated, the known facts in the Alton case. Labor is capital. The engineer who commands and is paid a wage of $1,200 per year performs a service exactly equivalent in importance to the public as does the investment of $20,000 for which the public pays a return of 6 per cent per year. The capital investment and the labor investment are identical in worth and importance. The one is entitled to as much protection as the other. Neither is entitled to any advantage or privilege denied to the other, but so long as a capital investment of $20,000 is permitted to masquerade as an investment of twice that amount, and to receive for its services a double wage, by means of fictitious bookkeeping, capital does receive an advantage which is denied to labor, and that advantage must represent a corresponding loss or burden which either labor, the public, or both, must bear. Heretofore when labor has approached capital as its employer and asked for a betterment of working conditions, or an increase in the compensation to be paid for its services, capital has always replied: The rates which we may charge the public for the use of our property are fixed by law. We cannot increase our returns without legislative enactment. The net returns now secured under existing rates are not sufficient to give us a reasonable return upon the amount for which we have capitalized our investment, therefore, we cannot increase your wages, unless you can procure for us a corresponding increase in rates. These rates, and any increase thereof, must be borne directly by the public, so that the labor organizations, in seeking to obtain better wage conditions, have always been placed in direct opposition to the public interests. It has always been made to appear that the laborer, through his organization, was seeking to obtain a benefit for himself at the expense of the public. Whenever capital has consented to increase the wages of labor it has immediately sought to secure an increase in rates, upon the ground that more money was needed to meet the increased operating expenses, and that as the net returns were not sufficient to pay reasonable dividends on the number of dollars then expressed as being in the public service, the increased cost of wages must be met by an increased rate of charges. The carriers have been strenuously contending that all of the profits which they can make under rates fixed by law are the exclusive property of the owners of the money invested in the enterprise; that the amount of such net profits represents the value of their properties; and that they are entitled to capitalize the value so determined. They further contend that they are entitled to establish such rates as will protect the value so determined. If this be true, then the greater their net receipts, the greater the value of the interest which they claim in such properties. Any value which accrues to them by reason of a rate increase would be a property right, protected by the Constitution, and could not be diminished by an increase in wages made by direction of the government, without depriving them of the value of their so-called property right The evil of the situation lies in the uncertainty as to the extent of the private interest which belongs to the owners of the dollars invested in such properties. If that interest were ascertained and made definite, the evils of the old system of railroad operation would be very greatly corrected. There must be a determination of the actual number of dollars invested in such properties. We must know how many dollars are employed in the public service, and what reasonable return they are entitled to receive. When these facts are judicially ascertained, then we can limit the taxing power so that no more than the necessary amounts of money shall be provided. If more is provided we can require that the excess, which the public has paid, shall be devoted to the public use in such manner as not to increase private interests. If such excess be expended in betterments or additions to property, then the value of these betterments or additions is a part of the value of the public interest. It is not to be added to the value of the private interest. If it be just, such excess earnings can be applied to increase wages without increasing rates or diminishing rates without lessening wages. WHAT ARE THE EXACT RIGHTS OF CAPITAL IN RAILROAD PROPERTIES? The railroad labor organizations have determined that in the interest of labor the exact rights of capital in railroad properties must be definitely ascertained. These organizations believe that this is also in the interest of the public, and this must be done whether the railroads are to be operated under governmental con |