PART 16. RETURN OF RAILROADS TO PRIVATE OWNERSHIP. COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, HOUSE OF REPRESENTATIVES, The committee met at 10 o'clock a. m., Hon. John J. Esch (chairman) presiding. The CHAIRMAN. The committee will be glad to hear Commissioner Clark. ADDITIONAL STATEMENT OF MR. EDGAR E. CLARK, MEMBER INTERSTATE COMMERCE COMMISSION. Mr. CLARK. Mr. Chairman, I was asked to try to keep in touch with the hearings as they proceeded, with the idea of appearing before the committee as the concluding witness, and I have undertaken to do so. You gentleman realize probably better than anybody else that it is a voluminous record and that there is a great deal of what is practically duplication in the suggestions that have been made. There is a field for endless discussion which I do not think it advisable to enter upon. I have undertaken to pick out some points, to correct some statements that are inaccurate, based upon misunderstanding or misinformation, of course; and have attempted to pick out those proposed amendments to the act which seem to me desirable to touch upon. I do not want to go into the matter to any unnecessary or tiresome length, and it will not embarrass me at all to be interrupted at any time, or when I have completed the suggestions that I have in mind to make I will be very glad to attempt to answer any inquiries that members may desire to propound. One subject that has had very wide discussion, and that is the most important from the railroad side, I assume, is that commonly called railroad credit. Mr. Thom suggested that during the days when I was on the stand at the opening of the hearings I did not mention the subject of railroad credit, except upon cross-examination, and then suggested that the railroads were largely responsible for their present situation. I presume that the differences of view as to responsibilitiy for the present situation will never be brought into agreement. According to the statements of some, all that is necessary to restore railroad credit would apparently be to repeal the act to regulate commerce. But the facts are that regulation of rates by the commission has not operated to reduce the revenues of the 152894-19-VOL 3- -27 2857 carriers. The vice president of one of the Washington banks recently stated in a newspaper article that the seat of the trouble was the accounting regulations prescribed by the commission, and apparently his criticism of those regulations was that they did not adequately provide for depreciation charges. The one point in connection with the establishment of the commission's accounting regulations which was most strongly and bitterly resisted by the railroad companies was the requirement that they set up depreciation accounts with regard to their equipment. We did not prescribe the percentage to be applied. We did not have reliable data upon which to intelligently determine what percentage should be applied. We simply required that each road should set up a depreciation account as to its rolling stock, applying thereto its experiences. In complying with this requirement the carriers set up depreciation accounts based upon charges which varied all the way from one-half of 1 per cent to 6 per cent. We have not prescribed depreciation charges as to fixed properties, because determination of the proper amount on a given railroad, to say nothing of a group of railroads or all of the railroads, requires most exhaustive study and is the subject of widely varying views on the part of different students of the question. We are pursuing that study and hope eventually to have adequate regulations which will insure appropriate and proper charges for depreciation. Certainly there was no practice among the carriers of charging any depreciation even on rolling stock until it was required by the commission. I did not begin my statement before the committee with a discussion of the subject of railroad credit. I appeared on behalf of an administrative tribunal, possessing only delegated powers and charged with administration of certain acts of Congress. We have never thought that it was our mission to outline the public policy. The chairman of the committee stated at the opening that the hearing was on bill H. R. 4378, which was the only bill that had been referred to the committee. He said that other plans had been announced and that I should feel at liberty to discuss them. I said that I preferred not to attempt to analyze any of those plans in advance of an analysis of them being presented by their proponents and contented myself in the main with a discussion of the bill which was the subject of the hearings. The plan of the executives of the railroads is not in harmony with plans proposed by railroad security owners. It is opposed in parts at least by executives of roads apparently not represented by Mr. Thom. Much has been said about restoring railroad credit. I confess that I do not yet definitely understand just what is meant by that phrase. I have observed throughout my life that some individuals, some firms, some corporations, some municipalities, some States, and some gov ernments have good, sound credit; others have rather doubtful credit, and others have practically no credit at all. Certainly it can not be proposed that the Congress shall by legislative fiat provide that all railroads shall have a standard and uniform basis of credit. If it will be of interest to the committee I can insert figures showing the average rate of dividends declared on dividend-yielding stock of the railroads of the country for the fiscal years ended June 30, 1892, to June 30, 1916, and for the calendar years 1916 and 1917, the operating income, the ratio of income to book cost, and the corporate surplus accumulations for each year from 1910. The reason for these figures being made for years ended June 30 up to and including 1916 and for the calendar years 1916 and 1917 is that in 1916 the fiscal year was changed from June 30 to the calendar year, and in order to complete the line of statistics as well as possible we required reports for the fiscal year ended June 30, 1916, and also for the calendar year 1916. I can insert figures showing the total railway capital stock outstanding 1908-1917, excluding switching and terminal companies, giving also the percentage ratio of net income to stock. I can insert figures showing the relation between the balance of net income, after the deduction of all dividends and sinking fund charges charged to income of class 1, steam railroads, from 1912 to 1917. I can insert figures showing the railway operating income compared with total railway capital and book investment, as shown by the books of class 1, 2, and 3 railroads from 1908 to 1917. I can insert figures showing the operating revenues, income from operation, and average income per mile of line for the fiscal years 1912, 1913, and 1914, and for the calendar years 1916, 1917, and 1918. The CHAIRMAN. I think the committee would be glad to have you insert them. Mr. CLARK. I will do so. (The tables submitted by Mr. Clark are as follows:) Mr. CLARK. These figures are offered to show, as we think they do show, that the trend of return, whether it be on the dividend paying stocks, or based on the ratio of earnings to capital outstanding, or on the ratio of income to cost of property, taking the carriers' own book investment cost, has been upward, since the commission began to regulate rates, and not downward, and we think that these figures completely disprove the statements that have been so freely made that overregulation and reductions in rates have brought about financial disaster to the carriers. The CHAIRMAN. I think Mr. Thom, in his testimony before the Senate committee in February last, made some criticism about the figures that were then introduced by the commission, possibly by yourself, in that the figures seemed to include returns on nonoperating properties. Mr. CLARK. The figures I am now offering are based on the operating income, and that is compared with the book investment cost of the properties, and with the capitalization of the companies. As a matter of interest, in the light of some discussions that have been had and a good many comments that have been made, I looked up the figures showing the railway operating income for the first six months of each year from 1912 to 1919, excluding the switching and terminal companies. The CHAIRMAN. Class 1 roads? Mr. CLARK. Yes; excluding switching and terminal companies; the idea being to ascertain what was the relationship over a period of years between the results from operation of the first 6 months of the year as compared with the results for the full 12 months, and these figures show that without exception up to and including 1918, the latest year for which we have full figures, the operating income for the 12 months was greater than that indicated by the experiences of the first 6 months. In other words, in each year the final result for the year showed that the operating income was more than twice the operating income of the first six months. So that you can not always judge what the results of the year are going to be by the results of the first 6 months. I entirely disagree with Mr. Thom's expressed opinion that regulation of the railroads has brought on chaos and that the United States Government and the State governments through repressive and corrective regulation have been the stumbling block to railroad prosperity. Mr. Forney Johnston, advisory counsel for the National Association of Owners of Railroad Securities, in a letter of July 28, 1919, to Mr. S. Davies Warfield, president of that association, which was published in pamphlet form and widely circulated, says that the proposals for remedial legislation presented by that association are designed to meet two stubborn conditions which have broken down railroad credit. The first of these he says is the practice of the Interstate Commerce Commission to make rates in every instance based on the routes or combinations of routes showing lowest competitive cost and to disclaim any responsibility for the result of rates in the aggregate. This statement is erroneous, unwarranted, and plainly contradicted by the official reports of the commission. In our report appearing at 9 I. C. C., 382, decided April 1, 1903, the |