served. This does not necessarily mean a regional division of railroads into groups of uniform size. In fact, this would be undesirable if as a result it eliminated all competition in service, a valuable incentive in private operation. Rather should it create large systems, constructed to meet traffic and commercial requirements of the different sections of the country, with consolidation carried far enough to do away with wasteful competition over inadequate and roundabout routes.

2. These federally constituted corporations should be organized with a capitalization based as nearly as possible upon actual value. The government should guarantee a minimum return to the railroads upon their property employed in the public service, and should permit a somewhat higher return. Any excess earnings beyond this legal maximum should be distributed among the government, the railroads, and the employees. The government's share should be applied to meeting the guaranty on roads that have failed to earn it. This guaranty would be expected to restore the credit of the railroads and enable them to raise the necessary capital for extensions and improvements. Permission to take for their own benefit earnings in excess of the guaranty should furnish the necessary incentive to efficient operation.

3. All security issues should require the previous authority of the Interstate Commerce Commission, which should pass upon the proposed use of the funds and oversee their expenditure. This provision, together with the government guaranty of earnings, would go far to eliminate the evils of banker interference in railroad management. The banker will still have his function, but his strangle hold will be released, and he will be deprived of the pastime, occasionally indulged in, of wrecking railroad properties for the benefit of himself and his friends.

4. All rate-making power, state and interstate, should be placed under the authority of the Interstate Commerce Commission, the commission to have power not only to review rates on complaint, but as now to take the initiative in an investigation leading to a revision of rates. There should be left to the states all police powers relating to the control of operation within their borders, but the transportation industry has become so essentially national in character that state interference with rate-making is now hampering in its effects and largely unnecessary. In this connection, it is suggested that the period of suspension of rates now possessed by the commission is unreasonably long when all factors are considered and might well be shortened. Provision could be made for extension of the time of suspension when protracted hearings covering schedules of rates for wide areas were involved. The commission should have power to prescribe minimum as well as maximum rates and to determine the relation of rates.

5. A statutory rule of rate-making, such as that suggested by the Association of Railway Executives, should be adopted by Congress as a guide to the Commission. It should declare that rates should not only be reasonable and nondiscriminating, but adequate to provide a safe and satisfactory service, to ensure adequate wages to employees, and to provide a level of earnings that would protect the investment and attract the new capital needed in the public interest. This rule is a natural accompaniment to the government guarantee of a minimum return. The two should go hand in hand. Altho many insist that the power of the Commission is sufficient under existing law to meet all the requirements of this proposed rule, there is evidence in decisions of the Commission that at least certain members of that body are inclined to limit their purview to the question

whether proposed rates are reasonable or not, and are disposed to hold that the general financial condition of the carriers is a matter beyond their jurisdiction.

I am not one of those who believe that all the financial troubles of the railroads are to be laid at the door of the Commission. In fact, I believe that regulation by the Commission has been of a very decided net advantage. Yet greater generosity on its part might well be encouraged. The credit situation of the railroads is the resultant of many causes, the relative importance of which it would be difficult to estimate. The variety, extent and conflict of state regulation has been an important factor. The persistence of Congress in maintaining and strengthening all laws for the preservation of the competitive principle has been a hampering influence. The exhaustion of the more attractive forms of railroad investment, such as first lien bonds, and the increasing attractiveness and stability of other forms of investment have diverted capital funds. There is the often conscienceless and even criminal character of banker management, which has wrecked particular properties, and placed all railroad securities under suspicion. Railroad officials and directors could have done much to offset this influence, had they been free to denounce these instances of financial jugglery, to show that they were isolated and exceptional cases, and that the large proportion of railroad finance was handled on a sound and honest basis. Instead, they have injured their own credit by constantly insisting that they had none. Finally, there is the disparity between income and expense, which has had its origin not in the perversity of the Interstate Commerce Commission, but in the general upward movement of prices, a movement that has affected everything the railroad buys, including labor, but has left untouched the prices at which the railroads' own product is sold.

6. The jurisdiction of the Interstate Commerce Commission should be extended to give it greater power over construction and service. The roads, being federally incorporated, should be permitted to make extensions only after the issuance by the Commission of a certificate of public convenience. Power should rest with the Commission to develop greater coöperation in the use of terminals, in the pooling of equipment, and in the elimination of unnecessarily long hauls. With them should reside the power to approve pooling and traffic agreements, if they seemed desirable from the public standpoint, altho the plan of consolidation here suggested would probably render such agreements to a large degree unnecessary.

7. Provision should be made, through the creation of a wage board, for the orderly settlement of wage controversies that cannot be adjusted on the individual railroads, and the law should forbid any interruption of commerce or any organized preparation therefor, during the period of investigation and report. Such a board should not be constituted after the fashion of an arbitration board, with one member representing the public, who inevitably becomes an umpire between contending factions, and who by the very necessities of the case is incompetent to pass upon the complicated issues involved. Such a board should be constituted equally of employers and employees, and their decisions should be the outcome of friendly and thoro discussion.

8. Finally, it should be clearly recognized by railroad men as well as by Congress that we are legislating for a public service, that the public interest is not to be considered merely as coequal in importance with the interests of private capital invested in the undertaking, but that it is a predominant interest. This period through which we have just passed was not a test of

government operation. However, the American people, in turning the roads back to their owners have not finally disposed of the question. Rather are they putting private operation on trial. Unless the owners and managers of these properties fully recognize the obligations that again rest upon them, and develop a passion for public service that subordinates to it every other consideration, the demand for nationalization is bound to revive.

FRANK HAIGH DIXON.

DARTMOUTH COLLEGE.

May 19, 1919.