Those of you who have studied the Senate bill will appreciate that the period of regulation is practically divided into two parts. The first part relates to what shall be done in respect to the revenues of the carriers in the restoration period. The second part relates to what shall be done about the revenues of the carrier as a permanent policy.

It is manifest that something must be done on this subject in the restoration period. The committee may recall that, when I was on the stand before, I called attention to the fact that when the railroads left private management and were committed to public control, it took 76 cents out of each dollar of their earnings to pay operating expenses and taxes. Recently, the scale of the cost of operation has so increased that a month or so ago-I do not know the figures at the present moment-it took 95 cents out of each dollar to pay operating expenses and taxes. The increase in the labor bill alone is said to be in the neighborhood of one thousand million dollars.

It is manifest that with that very much increased scale of expense if the carriers are simply handed back to their owners without any provision made for a period of restoration, by which I mean restoring the proper relationship between revenue and expenses, universal disaster will follow.

The Senate bill recognizes that fact and it provides that during this restoration period the existing guaranty shall continue, and requires that within a period of five months-one month for the filing of applications by the carriers and four months allowed to the Interstate Commerce Commission to act-there shall be a readjustment of certain rates to existing conditions, but when we come to examine that provision, we find that the machinery that is suggested relates only to interstate rates.

The CHAIRMAN. What is the section of the Cummins bill to which you have reference?

Mr. THOм. Section 5, on page 5. The provision relates only to interstate rates. There is no machinery at all in the bill for an adjustment of State rates to these conditions of increased cost. I refer now to the restoration period.

I would like for a few minutes to comment on that and its consequence, and how far it is possible to readjust the interstate rates without at the same time readjusting the intrastate rates, and how far it is fair to readjust this matter in such a way that the interstate commerce of the country, even if it could be made to do So, will bear the whole burden of this readjustment.

My proposition is, in the first place, that it is not possible to readjust the interstate rates without reference to the State rates, and if it were done on paper the interstate rates could not be colleced.

I will give you one or two illustrations just to indicate the situation: Suppose in this process of readjustment it was found by the Interstate Commerce Commission that the interstate rate on coal from the Pennsylvania mines to New York, to Wilmington, and to Baltimore ought to be increased. A most important coal movement is from the Pennsylvania mines to Philadelphia-entirely within the State of Pennsylvania-and it is manifest that there can be no readjustment of the interstate rate from the Pennsylvania mines to New York, Wilmington, or Baltimore without concurrent action in respect

to the State rate from the Pennsylvania mines to Philadelphia. The interstate traffic simply would not move if there were a marked disparity of rates; and if it did move it would not move on fair terms. The great communities of New York, Wilmington, and Baltimore, which under the commerce clause are entitled to equality of terms, would, as to coal, even if it were possible to make a different rate, be living on a higher basis than Philadelphia would be living on.

The CHAIRMAN. Have you a proposed amendment to section 5? Mr. THOм. Yes; I am coming to that in a moment, Mr. Chairman. I want to suggest a few more things about that.

You take the rate on grain from that part of the Red River Basin on the east side of the Red River, in Minnesota, the rate on that grain to the great grain markets of Minneapolis, St. Paul, and Duluth is State. The movement from the great part of that basin on the west side of the Red River is interstate. Manifestly no rate could be made on that grain moving from the west bank of the Red River to these great grain markets that would not put the farmers there at a seriout disadvantage unless the same rates or rates relatively fair applied from that part of the basin on the east of the Red River.

And, moreover, it is manifest that as a practical matter you could not have the interstate rate at a higher level.

Take the situation in respect to traffic between the eastern seaboard cities and Georgia points by rail. That rate is interstate. It is made, however, by the water carriage from the eastern ports to Savannah and the Georgia-made rate from Savannah, a Georgia port, inland; so that the Interstate Commerce Commission would find it impossible to readjust the interstate rates of the country in such a way as to properly distribute the burden, and so that the revenues of the carriers would be properly protected, without the consent of the authorities who regulate the State rates, which would control or forbid the interstate rates.

That idea is emphasized by this situation: If no provision is made on this matter, of course, there will be the contention at once, as soon as Federal control ends, that the State rates which have been suspended during Federal control are at once reinstated and come into effective operation. As I pointed out to you when I was previously testifying, that has been held to be the legal consequence by a court in Oregon. Suppose that happens, Mr. Chairman, and suppose there was no readjustment of the interstate rate, but they were left where the Director General of Railroads has put them. To illustrate what would happen, Mr. Bunn, of the Northern Pacific, who is here in the room, has had a most interesting table of figures prepared, the result of which is now before me, and which I want to lay before this committee. For distances ranging from 25 miles up to 400 miles, a comparison is made between the present rates of the Director General with what the State laws or the rates made by State commissions would be, and the result is exhibited here to show that in many cases the interstate rate would be more than double the rate of the State which might automatically reappear, and in almost all cases, without exaggeration, we may say, in a general way, that the interstate rates would be almost double. I have these papers here which I wish to put in the record.

(The papers referred to follow :)

Mr. Bunn desires me to say to the committee that these figures are made by the traffic representatives of the Federal administration and not by him.

These figures very graphically indicate the impossible situation that will arise in this period of restoration if nothing is done to readjust the State rates along with the interstate rates. But they go further, Mr. Chairman, and they also illustrate the absolute necessity, if there is to be any fair relationship in the normal period, between the burden which is borne by State traffic and by interstate traffic, of having these rates readjusted according to some harmonious principle and by one hand.

Mr. DENISON. You mean as a permanent policy after normal conditions have been restored?

Mr. THOM. Yes. I mean that, after normal conditions are restored, if it is still open to two varient authorities to distributing the burden of supporting the instrument of interstate commerce, the inequalities exhibited here indicate an impossible rate situation.

Now, Mr. Chairman, you recognize that in this bill which is pending before your committee, to a certain extent you give a supervisory authority to the Interstate Commerce Commission over State-made rates in certain instances. Our plea to you is, in the first place, that there ought to be a complete and exclusive jurisdiction in the Interstate Commerce Commission to control all the rates of interstate carriers. It will not be possible, in our judgment, to have a mere supervisory authority and escape the consequences of a timid and meticulous administration of that part of the rate structure. There will always be a reluctance on the part of a body representing the Federal Government to establish and enforce a system different from that which is favored by a State government in respect to State rates. We can not escape the conclusion, if that matter is subjected merely to a supervisory power of the Federal Government, that there will ultimately, if not at first, be a reluctant exercise of that power, and we will have a strong, adequate exercise of the power in respect to interstate rates, so far as that is possible, and a reluctant exercise of that power when it comes to overruling the conclusions of a State commission as to State rates.

We think commerce is of such importance and the success of whatever system you adopt is of such importance that it justifies a strong administration and not a reluctant administration, and therefore we earnestly hope that this committee will see that it is proper and in the public interest to regulate all the rates of an interstate carrier by one hand, and that the Federal hand.

If, for reasons which you determine are controlling, you conclude that a supervisory authority is all that you can favor, then there are certain provisions to strengthen the suggestion which has been made in this bill and in the Senate bill which we want to bring to your attention.

Mr. DENISON. I would like to ask a question, if you do not mind being interrupted, and the chairman will permit me.

Mг. THOM. Not at all.

Mr. DENISON. Mr. Thom, I have always understood that the Constitution gives the Federal Government the right to regulate interstate commerce, and if I understand your position you are asking us to regulate intrastate commerce?