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allowed the New York Life's money to for an abatement of public interest than be used in various questionable stock op- for those who are striving to keep it at a erations had not been probed beyond the point where it can be employed to reguattention given them by the Armstrong late and to punish. The Armstrong committee. Meantime New York Life committee has given to all policy-holders agents the country over were being told a wonderful opportunity to exercise an proxies are business,” and the “big-"effective voice” in the management of ness, bigness, bigness” cry was stilled the companies by decreeing a general for a few weeks that the shout of “prox- election of all trustees for the 15th of next ies, proxies, proxies” might be heard the November. The policy-holders of the louder by the policy-holders and the New York and Mutual Life Insurance public.

Companies may be sure that if they fail

to profit by it, the companies will make By the report of the Armstrong com- no similar mistake. mittee to the Legislature on February To the other features of the committee's 22d, the proxy campaigns of both the report a more extended discussion ought New York Life and Mutual Life Insur- to be given than is possible within the ance Companies have now been halted scope of this article. Its comprehensivein view of the virtual certainty that a ness, and the grasp that its framers have special act will be passed postponing all demonstrated of their subject is suffiinsurance elections until November 15th ciently attested by the fact that the “Big and canceling all existing proxies. But Three " companies, against which parthis is only a postponement, and it will be ticularly it is directed, have been utterly a credulous policy-holder who believes unable to find a basis for a general oppothat because the companies are not now sition that they themselves believe will to seek proxies before September 15th, be of the slightest avail before the Legisthey will be any the less ready to avail lature. Instead, they have been filling themselves of the entire agency organiza- such newspaper space as they can obtain tions that were turned to the work during by wails of the injustice that the report the first two months of this year, or to will do their agents, and of the impossipush without diminution of vigor the bility of writing under its provisions anycampaigns for the tickets they may name thing like the volume of business that on July 15th. Of course the policy- they have been putting on their books holders, either individually or in the or- each year under the old régime. ganizations now made possible by the It may not be amiss, therefore, to concompulsory publication of the policy- sider here very briefly this single feature holders' lists five months prior to elections, of the Armstrong committee's report to will have an even, or, perhaps, more than see if it has not a fundamental bearing an even chance, inasmuch as they do not upon the question raised at the outset as have to nominate until a month after the to the final disposition of the assets of the companies name their tickets. Thus “Big Three.” It is apparent, of course, policy-holders will have opportunity to that whatever restrictions the great comprofit by whatever criticism the admin- panies may be placed under as regards istration nominees arouse; but that will new business will not diminish existing not elect their own candidates if they do assets unless by the very gradual process not see to it that their nominations are following a decision to stop writing new effectively supported, and it is all too well insurance entirely. The Equitable, Muknown to need emphasis here that delays tual, and New York Life, therefore, are of five or seven months in bringing about all left to be dealt with as investing instia crisis in a great public movement are as tutions having upwards of a billion and a rule more favorable to those who hope a quarter of dollars belonging to nearly two millions of policy-holders the world when investment expenses have been deover. The Armstrong committee, in its ducted. The committee would amend prohibition of stock and collateral trust the reserve law so as to allow the combond investments and of syndicate opera- panies to utilize these mortality savings, tions of all kinds and in its demand that on the theory that in reckoning for the there be an annual accounting by which first five years of a policy, the per cent. of even existing deferred dividend policy- mortality is so far below the average for holders may see what the companies are later years that the full reserve is not reearning on the funds held in trust, has quired. attempted to meet this situation as best The reasoning at this point may be it may, and, judging from the complaint gone into with some detail, because of the of the companies against prohibition of very common device employed by the stock and collateral trust bond investment, larger companies to confuse the layman it has done a pretty good job. But the who seeks to question the expense of getdiscussion of these things may be left for ting new business. The argument of the another writing. The fundamental part companies has been something like this: of the report, as meeting the problem of All business particularly the deferred the future, is that which has to do with dividend kind-contributes to the surplus, the limitation of new business and the since the borrowings necessary to make prohibition of the deferred dividends. up the excess of first year's expenses over

Remembering now the way in which first year's loadings are paid back out of bigness appeals to the financier who wants renewals in later years; the surplus (in a life insurance company for a club, it theory) belongs to the policy-holders; requires no great degree of imagination to therefore all business contributes to the picture what the new school of life insur- funds belonging to the policy-holders. ance philanthropists think of the Arm- The argument was very plausible, like strong committee's basic proposition that many other insurance arguments, but it there is a point beyond which life insur- had one fundamental trouble. The propance companies ought not to be allowed osition that the surplus belonged to the to grow, and that the “Big Three ” have policy-holders was like that advanced to passed this point long ago. The most the small boy to whom an affectionate irritating thing about the committee's aunt at Christmas gave a beautiful vase. performance is that it has not attempted His parents put the vase on a high mantlespecial legislation which might be attack- piece and told the boy that it was his but ed on constitutional or other grounds, he could n't have it. It may not be carrybut has taken up the simplest of all eco- ing the parallel too far to say that under nomic propositions. This is that in any the old régime, Section 56 of the Insurlife insurance company managed in the ance Law, which the Armstrong committe interest of its policy-holders, business would now repeal, was the mantlepiece. which is put on the books by borrowing What the companies have failed absofrom surplus earnings in any year which lutely to do has been to distinguish in otherwise would be distributable to policy- their heart to heart talks with policyholders already in the company, is not holders between general surplus, being business that is worth having. “Let the the difference between general liabilities new business pay for itself,” is what the and assets; net surplus, being that part Armstrong committee recommends, and of the general surplus over and above the to this end it proposes that the cost of sum held as applicable to existing deferred writing it shall be limited to that part of dividend policies, and annual surplus, the first premiums applicable to expenses, being that part of the premiums collected which is known as the loading, plus the from policy-holders in excess of the amount mortality gains of the first five years, required for the reserve and for all the expenses of the company. What the And what is to be the result ? If reArmstrong committee has done has been form, genuine reform, is impossible from to point out that the general surplus, or the inside, how can it be brought about net surplus, as the case may be, is ap- from without? By such legislation as is proached through the annual surplus, now proposed ? Yes, partly, but there is and that in a mutual company, while a a variety of corporation lawyers of great reasonable net surplus should be main- ability who have built up their social statained against unforseen contingencies tion and their fortunes pari passu by devisof the business, the balance of the unused ing means whereby laws intended to proportion of the premiums ought to be paid tect the people may be circumvented. And back to the policy-holders from whom it the greatest of these is Elihu Root. So has been collected, not as a distribution we may conclude that laws will not do it of largesses by the beneficent managers, alone. Is it to be by litigation ? Yes, but as the refund of an overcharge for a perhaps, but with a District Attorney commodity which the policy-holders have who has slumbered peacefully through the right to get at its net cost.

twelve months of the worst revelations Whether this repayment shall be made of corporate corruption that the country annually or at the expiration of a period has ever seen, the people of New York of years, is a detail; the committee has county have not reason for overmuch declared for the annual distribution on hope from that quarter. Is it, then, to the ground that the policy-holders have be through a policy-holders' movement ? nothing to gain and disingenuous man- Perhaps so, yet the best intended camagements everything, by the other method. paigns of this character have been brought That does not affect the fundamental to naught through failure of the public proposition that business which in any officials to act or through failure of the year is put on the books by borrowing courts to extend their protection. from that year's surplus otherwise dis- Yet legislators and prosecutors and tributable to existing policy-holders, is judges are all creatures of the people and written at their cost, regardless of whether their sworn servants--in theory, at least, it eventually contributes to the general It remains, therefore, for the people the surplus of the company, if on a deferred country over to say whether it shall be dividend basis, or to the net surplus, if so in practice, and the series of explosions deferred dividends are prohibited. And that have uprooted in the past twelve the excess cost is just as much an unneces- months the old life-insurance ring, sary expense as an extra $50,000 a year thought to be so firmly intrenched that put on a President's salary by a finance even the powers of Wall street would not committee that goes on a you tickle me openly attack it, furnishes an impressive and I'll tickle you " basis.

lesson of what an outraged public opinion But all this reasoning of the Armstrong can do when it undertakes to compel committee means a system of insurance attention of those who have long defied it. in which the size of a company is merely Mr. Ryan has some appreciation of this an incident and subject to certain eco- when he inveigled an ex-President of the nomic limitations; and the size of surplus, United States to become the figurehead or amount of assets depends, of course, of his scheme for running the Equitable. upon the value of business carried. As Henry H. Rogers and George F. Baker a matter of theory, therefore, as well as and William Rockefeller and James Stillof concrete conclusion, the new school of man, with all their armies and campinsurance philanthropists have reason to followers seem to be thus far quite lackmake such outcry as they may be able ing in similar keenness of perception. against Armstrong committee's


March 1, 1906. New York, N. Y.


Author of The City for the People, The World's Best Books, The Story of New Zealand.

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N THE early railway charters, both is not treated fairly. If a public board

in England and America, the rates should make the rates, the railroads might to be charged were carefully prescribed not be treated fairly. There is some by legislative authority, just as was the justification for this view in the history case with the turnpike companies that of the decisions of the Commission, preceded the railroads. In England though not nearly so much as the railroad and in many of our states maximum rates attorneys allege. But it is clear that have been fixed by law for many years. somebody must make the rates. And it The principle of regulation is thoroughly is equally clear that there is no system of settled in our law; the right and the need rate-making that will do perfect justice. for it are clearly manifest. The only I know of no railway minister or traffic questions relate to the extent of the regu- manager in Europe or America who even lation and the methods to be adopted. dreams he knows of any method of rate

The President and his supporters be- making that will do justice all round lieve the best way is to enlarge the powers under present industrial conditions. The of the Interstate Commerce Commission post-office principle may ultimately be so that it may fix a reasonable rate, or at applied to diffuse the burden of distance least a maximum rate in place of one over the whole community, but it is not found, upon complaint and hearing, to practicable at present. If then a certain be unjust, unreasonable, or discrimina- amount of injustice is unavoidable, and we tory. They claim that the railways do must choose between injustice to a small not deal justly; take all they can get; group of stockholders, or to eighty mildiscriminate unfairly between persons lions of people, which alternative shall and places, etc., and that experience has we accept? If there is no way to solve abundantly shown that they cannot be this problem that will not work injustice trusted to make rates without strict con- somewhere, shall it be to the little group trol. The railroads say that it would of profit-makers or to the great public, not be fair to put the control of rates in a the people of the United States ? government board; that no such board Besides this quantitative comparison could understand the special conditions there is a qualitative comparison that it in all parts of the country which enter still more weighty. Such injustice as so largely into rate-making; that the may be done to the railways is merely a power to make rates is the essence of matter of diminished dividends on stocks, ownership in the case of railroads, and a very large part of which is water, while to transfer that power to a public board the false rates and unfair discriminations is practically to take the roads for public made by the railway managers not only use without compensation; that railway affect property interests many times managers have as much right to fix the greater than railway stocks, but deny price of the transportation they have to equal opportunity and undermine morals, offer for sale as the storekeeper or manu- manhood, government, civilization, and facturer has to fix the price of the goods progress,-values far higher than any he offers in the market.

financial items whatever. Moreover, it Both parties appear to be perfectly is not unlikely that a board constituted correct in their fundamental positions. somewhat differently from the present If the railroads make the rates, the public one might eliminate most of the errors

of the Interstate Commission as well as stituted to enforce the orders of the Comthose of the railway managements. mission and 34 of these were finally adWhat are the causes at work in the case ? judicated.” The Commission claims The reason the Commission has made that 8 cases of excessive rates and unjust some injurious rulings is that they lack discrimination have been decided in its the thorough acquaintance with traffic favor, while President Willcox says that conditions that the railway managers the courts have sustained the Commispossess. And the reason the railway sion on the merits in only 3 cases.

Mr. managers make rates that are contrary H. T. Newcomb who appeared before to public policy, is that they are more or the Senate Committee as the representaless influenced by motives that are an

tive of several railroads gives a table tagonistic to the public interest. The showing that in the circuit courts the Commission is disinterested; it has no Commission has been sustained 7 times wish or personal interest leading to un- and reversed 24 times, the circuit court fairness either to the railroads or the pub- of appeals has sustained the Commission lic; its motive is right, but its knowledge 41 times and reversed it 113 times and is imperfect. The railway traffic-man- the United States Supreme Court has agers, on the other hand, have a more partly sustained the Commission in one perfect understanding of the transporta- case and reversed it in 15. tion business, but their interest is not On the facts as they stand we find: altogether in harmony with justice and First, that about of the Commission's the public good. Is it not possible to decisions have been right on the railroad's create a board that shall have the thor- own showing. They only claim 32 reough knowledge of first-class railway versals out of 170 orders--nearly all the experts, together with the high motives rest have been accepted by the railroads and unmixed interests of an honorable or enforced upon them by the courts. public commission or court, and so re- Second, the reversals have been based move the chief causes that have worked on questions of law in respect to which injustice in the past **

the courts disagreed among themselves. The railroads say: "About 93 per Third, the points in respect to which the cent. of the decisions of the Commission Commission has been overruled are very which have been passed upon by the few. The decisions have gone in bunchcourts have been held to be erroneous.”+ For instance, while the Alabama

This statement gives too strong an im- Midland long-and-short-haul case was pression of the capacity of the Commis- pending in the courts a number of other sion for mistakes. About 3,726 informal long-haul cases were decided by the Comcomplaints have been made to the Com- mission and when after several years the mission, nearly all of which, perhaps Supreme Court gave final judgment, a 3,400, have been disposed of by corre- whole block of the Commission's rulings spondence or some mild form of arbitra- on this point were discredited and subtion; very many have been settled satis- sequent reversals were simply repetitions factorily, some have been abandoned involving no new error. So the question and some have crystallized into formal of power to fix rates covers a cluster of complaints. The total number of formal cases all thrown down in reality by one complaints has been 854. “From 1887 ruling. And these two questions repreto October, 1904, the Commission render- sent nearly the whole difference between ed 297 decisions; some 43 suits were in the courts and the Commission. The 15

*See pages 66-68 of The President's Railroad reversals in the Supreme Court do not Policy, Ginn & Company, Boston.

mean 15 errors even in respect to legal | David Willcox, President of the Delaware and

points but only a very

few errors, Hudson Railroad; Hearings Senate Committee on


any. Interstate Commerce, 1905, page 3,644.

Fourth, the higher court reversed the


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