Published by Harvard University Books, periodicals, and manuscript to be addressed, EDITORS of QUARTERLY JOURNAL OF ECONOMICS, Cambridge, Mass. Business letters to be addressed, HARVARD UNIVERSITY PRESS, Randall Hall, Cambridge, Mass. Subscription, $3.00 a year. CONTENTS FOR FEBRUARY, 1919 I. PRICE-FIXING AS SEEN BY A PRICE-FIXER II. THE BURDEN OF WAR AND FUTURE GENERATIONS IV. THE TAXATION OF LUXURIES AND THE RATE OF F. W. Taussig A. C. Pigoz H. J. Davenport A. F. McGoun Louis B. Wehle T. N. Carver NOTES AND MEMORANDA: International Trade and Prices CONTENTS FOR MAY, 1919 I. THE RELATIONS OF RECENT PSYCHOLOGICAL DEVELOP- J. E. Norton Z. Clark Dickinson John H. Williams Henry H. Farquhar II. LATIN AMERICAN FOREIGN EXCHANGE AND INTER- III. POSITIVE CONTRIBUTIONS OF SCIENTIFIC MANAGEMENT [Entered as Second-class Mail Matter. Acceptance for mailing at special postage rate provided for by Sedies 1103, Act of October 3, 1917, authorized on July 31, 1918.] HR THE QUARTERLY JOURNAL OF ECONOMICS AUGUST, 1919 FEDERAL OPERATION OF RAILROADS SUMMARY Reasons why the roads were taken over by the government, 577. The contract, 582. — Federal operation, 587. — Labor conditions, 602. -Rate increases, 606. — Capital expenditures and the revolving fund, 609. Relation of the railroad administration to existing regulating agencies, 611. — The future, 617. ON December 26, 1917, the President of the United States issued a proclamation taking possession of the railroads of the country, under the powers granted by the Army Appropriation Act of August 29, 1916. As a preliminary to this profoundly significant step, there were many months of strenuous railroad history. In April the Railroads' War Board had assumed direction of the railroads, under a resolution signed by nearly seven hundred executives, in which the signatories pledged themselves during the war to coördinate their operations in a continental railway system, "merging during such period all their merely individual and competitive activities in the effort to produce a maximum of national transportation efficiency." As the resolution indicated, they desired to be of the greatest service possible in the struggle upon which the country was about to enter. But they had another object, frankly expressed by more than one executive; they proposed to demonstrate to the country that a coöperative organization of private railroad corporations could so successfully meet the situation that government interference with operation would be unnecessary. Their failure to effect this demonstration was due to many causes. Probably the most potent of these finds its source in the fundamentally competitive atmosphere in which the railroads have always operated. While in many respects actual competition between individual carriers had reduced itself to matters of service alone, yet our entire body of legislation has been constructed on the competitive theory, and we have forbidden railroads to make agreements that would in any way relieve them from the consequences of this principle. When railroads serving the same termini are not permitted under the Interstate Commerce Act to enter into any agreement for the division of earnings, it was not only natural but justifiable that a carrier should resist attempts on the part of the Railroads' War Board to divert traffic to less congested routes. Only an exaggerated patriotism would induce a corporation without compensation to hand its traffic over to a rival. Other conflicts of a similar sort between the competitive and the coöperative principle blocked the attainment of complete success. Again the railroads were facing a serious financial problem. They had for some years previously been appealing for higher rates, with indifferent success. They were now faced with an unprecedented traffic, and consequently a need for extensions and betterments as well as for generous maintenance, all to be met at rapidly increasing prices of materials. Looming on the horizon were the demands of labor for increases in wages to meet the steadily increasing cost of living. Increases in rates might have been granted by the Interstate Commerce Commission similar to those later imposed by the Federal Railroad Administration, but aside from the delays involved in the necessary legal procedure — the opposition of shippers, the protracted hearings, the time required for a considered opinion by the Commission — there were the endless difficulties involved in the relations with state commissions. Moreover, altho some of the increasing expense of operation might have been met by such increases in rates, the additional income would have gone but a little way toward obtaining the additional facilities and the plant extensions required. And there was little likelihood of securing capital directly. For it is very doubtful whether their income accounts would have so improved in appearance as to attract investors, in the face of the patriotic appeals for the contribution of all private savings to the winning of the war. Neither was there assurance that even if capital could be lured into the railroad industry, the needed facilities could be obtained. Steel and other materials were being "rationed" and cars and locomotives were going abroad for more direct and immediate war service. On the operating side, there were serious difficulties that lent weight to the argument for government management. Traffic in the eastern section of the country was unprecedented, including the food and munitions going abroad, the raw materials and coal for the manufacturing section, building materials to supply government contracts, and all the varied and unusual demands created by the war emergency. This traffic was originating in and passing through the most congested section of the country, and that for export was routed without restraint to the usual outlets, because as yet coöperation with shipping had not proceeded far |