up both applications on the ground that this proposal may not coincide with the plan which the commission is making for the consolidation of all roads into various systems.

Another important application in regard to the capitalization of surplus was made to the commission in 1920 and has been left undecided. The Chicago, Burlington, & Quincy has outstanding 110,839,100 par value of stock of which 107,611,600 is deposited as collateral for an issue of joint bonds of the Great Northern and the Northern Pacific with a face value of double the par value of the Burlington stock. These per cent bonds become due in 1921. The Burlington has been paying regular dividends of S per cent on its stock (just sufficient to meet the interest on the 4 per cent bonds under which it is deposited) and occasional extra dividends and has put back into the property very large surpluses. The proposal of the company is to issue additional stock against this surplus.

The question presented to the commission is interesting. The Transportation Act specifically provides that even where surpluses are earned by successful competition against other roads charging the same rates-that is rates fixed by the commission itself—this surplus above 6 per cent must be divided with the government. This applies however to surpluses under rates which by the new law are required to be high enough to yield at least 51⁄2 per cent on the aggregate value of railroad property. The surpluses of the Lackawanna and the Burlington were earned in a period when there was no guarantee of minimum net earnings of all railroads except such as may be found in the Constitution.

As provided for in the Transportation Act the railroad companies made an application, on May 1, to the Interstate Commerce Commission for an increase in freight rates. It was estimated by the companies that an increase of 28 per cent in freight rates in Eastern territory and of 23.4 per cent in western territory would be necessary to yield in the aggregate 5 per cent on the investment in their property. Before the hearing had gone far various classes of railroad labor appealed to the Labor Board for increase in wages. The two hearings went on simultaneously, but before different government commissions. It was necessary however for the Interstate Commerce Commission to make some estimate of what the new wage scale would be because to arrive at a figure for net income gross income must be adjusted to a presupposed expense. What actually happened was that there was some unofficial 'consultation between the two Commissions and the Railroad Labor Board made its award on July 20 and the Interstate Commerce Commission made its award on July 29.

WAGE AWARD. The United States Railroad Labor Board awarded the various classes of employees a flat increase in wages averaging 21 per cent above the wages then being paid and adding $586,340,336 to the annual pay rolls of the railroad companies making no allowance for increased rates of overtime. Clerks got an increase of 25 per cent, maintenance of way employes 25 per cent, mechanics and shop labor 195% per cent, station agents and telegraphers 23 per cent, and enginemen and trainmen, each 23 per cent. In making the award it was said that, "the board has endeavored to fix such wages as will provide a decent living and secure for the children of the wage earners opportunity for

education, and yet to remember that no class of Americans should receive preferred treatment and that the great mass of the people must ultimately pay a great part of the increased cost of operation entailed by the increase in wages determined herein."

The different labor unions representing railroad employees generally accepted the award, but it is of importance in the history of labor legislation to make a note of the fact that although the responsible leaders of the unions had agreed to await the decision of the Wage Board there were serious strikes of railroad employees while the hearings were going on. These strikes were called "outlaw" strikes by the labor leaders and it was claimed that they were without the sanction of the unions and were engaged in by members of the unions in defiance of their leaders. The argument, however, was continuously used before the Wage Board by the labor leaders -while these outlaw strikes were in progressthat unless the Wage Board granted the demands of the unions the leaders would no longer be able to control the action of the membership. The outlaw strikes started with the switchmen in Chicago, but spread to other classes of employees and pretty well all over the country. They died out in time, but so far as is known no punishment was imposed on the "outlaws" by the labor unions.

In the last four months of 1920 the supply of railroad labor for the first time since 1915 exceeded the demand' and some reduction in forces was made possible by a falling off in freight busi

ness.

THE RATE ADVANCE. The Interstate Commerce Commission on July 29 granted a general increase in freight and passenger rates. The increase in passenger rates was 20 per cent above the 3 cents a mile fixed during government operations. To this there was added a surcharge of a cent a mile for passengers riding in Pullman cars. The surcharge goes to the railroad company not to the Pullman Company.

The eastern roads were allowed an increase of 40 per cent in freight rates, the western roads east of the Colorado common points were given an increase of 35 per cent, the Mountain-Pacific roads were given an increase of 25 per cent and the southern roads were given an increase of 25 per cent. Both freight and passenger rate increases were to apply to both interstate and intrastate business, but some states were still withholding increased rates on intrastate business up to the end of 1920

In making the award the Interstate Commerce Commission took as its tenative value of all the roads $18,900,000,000, which is less by $1,700,000,000 than the total of the property investment accounts of the railroads. The par or face value of all outstanding railroad securities roughly corresponds to the total of the property investment accounts so that the Commission tentatively accepted a valuation for the railroads lower by some 8 per cent than the face value of outstanding securities, but very far above the market value of the aggregate of these securities. The net operating income which the Commission found to be fair under 1920 wage and traffic conditions was $1,134,000,000 per year. The Commission was unanimous as to the increases, but Commissioners Eastman and Woolley objected to the method of arriving at the decision.

RAILWAYS

EARNINGS AND EXPENSES. Julius H. Parmelee of the Bureau of Economics, writing in the Railway Age, says that in 1920 the American railways had, "the greatest traffic in railway his tory; the greatest operating revenues; the greatest operating expenses; the greatest wage aggregate; the greatest taxes, and the smallest net operating income in more than 30 years." The total operating revenues of all United States railroads, excluding the small companies that have less than $1,000,000 a year each in rev. enues, is estimated at $6,230,000,000. This compares with $5,184,000,000 total revenues in 1919 and is an increase of 20.2 per cent over that year. Freight revenue in 1920 amounted to $4,291,000,000, an increase over the previous year of 20.6 per cent. Passenger revenue amounted to $1,317,000,000, an increase of 11.8 per cent. Mails, express, and miscellaneous revenue amounted to $622,000,000 an increase of 38.5 per cent. The total freight traffic handled in 1920 was the equivalent of moving 448 billion tons one mile. This compares with 395 billion tons moved one mile in 1919, an increase of 13.4 per cent. The passenger business was the equivalent of carrying over 46 billion passengers one mile. This was about the same, or possibly a little less, than the passenger business of 1919. The figures for mail, express, etc., are not completed on a ton or pound basis so that the volume of business cannot accurately be compared with that of previous years. It will be noted that in both freight and passenger business a considerable part of the increase in revenues was due to increased rates and this was true also of revenue from mails. The increased freight and passenger rates in effect for four months in the year raised the total earnings from passengers and freight, but not to the extent that had been predicted during the rate case discussion partly because there was a falling off in all classes of freight and passenger business. Besides granting an increase in rates paid by shippers and travelers the Interstate Commerce Commission awarded the railroads an increase in the compensation which the government pays for carrying the mails. This increase was made retroactive for 1920.

Operating expenses of the roads earning more than $1,000,000 a year amounted in total to $5,750,000,000, an increase of $1,330,000,000, or 30.1 per cent over 1919. The award of the Labor Board was retroactive to May 1, thus making eight months of increased wages. Fuel costs were considerably higher in 1920 than in 1919 and railway material costs were higher.

MAINTENANCE OF WAY. Two years of operation by the government-one of them under war conditions-had left the roads in bad shape physically. During 1918 the government had been unable to get all the rails that were needed and in 1919 labor was so scarce that even the rails which were bought were laid only at excessive cost. Furthermore, the standard which was made theoretically uniform for all roads was much lower than that in use in actual practice by the so-called strong roads that is, such roads as the Atchison, Topeka & Santa Fe, Pennsylvania, etc. Even in the first nine months of 1920 track labor was very scarce and demanded high wages. The railroad managers could not or thought they could not, raise the regular wage scale for track labor to the level of that for the same class of labor in other industries.

For instance the railroads in the Pittsburgh district were offering between 30 and 40 cents an hour for section men while the steel mills were paying 65 cents an hour. In Iowa the farmers were paying $90 a month and board for labor and the railroads were offering 31 cents an hour or less than half the equivalent of what the farmer was offering. Where, as in the southwest, the roads use Mexican labor for track work, they were able to hold their forces because Mexicans do not as a rule make good farm hands. In other parts of the country, especially in the East, the experiment of contracting out maintenance of way work was tried. Whether this was a cheaper way of getting the work done is open to question, but it had two points at least to recommend it to railroad managers, it maintained on the railroad payroll the existing spread between skilled and unskilled labor wage scales and it nominally maintained a rate of about 30 cents an hour for railroad track labor which would be sufficient to attract labor when unemployment became general.

THE EQUIPMENT SITUATION. During the 26 months of government operation the rule which requires a car which is off the line of the railroad which owns it to be loaded for movement only in the direction of the home line was suspended and all cars were treated as common property of all roads. This had the effect of completely scattering all cars. For instance, let us take the case of the Pennsylvania R. R. steel open top coal car loaded with anthracite for domestic use in New Orleans. When the car was unloaded at destination it would have been held at New Orleans until a load was obtained north bound, or at least in the general direction of the Pennsylvania, or else it would have been hauled empty to the nearest point on the Pennsylvania under the car rules in effect before government operation. Treating this car as common property, however, the government would have loaded it with any freight that could be shipped in such a car and sent it possibly out to Arizona, over the Southern Pacific. It might then have gotten into mine run service at the copper mines. Under normal conditions the eastern roads, which have a large number of cars especially adapted to their own business, keep 80 per cent of their cars on their own lines and have other companies cars on their line to the number about equal to the 20 per cent of cars owned, but away from the home line. Under government operation this was just reversed and the proportion of owned cars on home lines to total cars owned fell as low as 10 per cent.

No railroad wants to repair the cars owned by other companies and this was especially true under government operation, because the officers of each road were very anxious to make a good showing on holding down expenses. One road making repairs to a foreign car could not bill the cost to the road owning the car even when the repair was necessitated by a defect in the car-as it could under private operation-and, therefore, had to charge the entire cost to its own expenses. The result was that all equipment was allowed to deteriorate to a greater extent than ever before in the history of the railroads.

When business resumed normal proportions and even in some industries something of the nature of a boom took place there was a severe

shortage of freight cars. This was partly because so many cars were unfit to run. There arose a demand that the government lend the railroad companies money to buy a large quantity of new equipment, both locomotives and cars. A majority of the railroad executives joined in this demand, notwithstanding the fact that the price asked by builders of equipment was two and one-half times the pre-war price in the case of locomotives and three times the prewar price in the case of freight cars. The temptation to use unsound economic reasoning is strong. If a railroad repairs a car that is in bad shape the cost must be charged to expenses. Assume the cost is $800 and there are 1000 cars that need repairs, then the railroad manager must face the fact that he adds to his expenses $800,000, which is the same as subtracting this amount from the net income available to meet interest charges. On the other hand, if the company buys 1000 new cars with money borrowed from the government, there is no charge to expenses, the shipper is better satisfied, the unanalytical stockholder is satisfied, and the equipment manufacturer is delighted. On the other hand, there is a condition under which new equipment must be bought to meet the just demands of shippers. The majority of the railroad executives thought that that condition had been reached in March, 1920. The minority led by L. F. Loree, president of the Delaware & Hudson, thought that the car shortage could be almost entirely overcome by the repair of the cars already owned, as a matter of fact, business fell off so much in the last three months of 1920 that the programme of the majority was not fully carried out.

The price of locomotives and of steel freight cars is roughly proportionate to the weight. Thus, a locomotive weighing 320,000 pounds cost $80,000 in 1920 whereas the average price in 1910-1914 was about $30,000. The total number of locomotives ordered in 1920 by United States railroads according to the figures compiled by the Railway Age, was 1771 and by industrial companies 227, and by Canadian roads 189, and by foreign countries 718; a total of 2905. This compares with total orders in 1919 of 1170 and in 1918 of 4888. The total number of locomotives built in the United States in 1920 was 3439.

The total number of passenger cars ordered by United States railroads, the Pullman, and other companies, was 1781, and by Canadian roads 275, and by foreign countries 38; a total of 2094. The total in 1919 was 782 and for 1918 it was 157. In the 10 years before the war it varied from 3000 to 4000 per year.

The United States railroads ordered 52,294 freight cars, private car companies and industrial companies 31,913, Canada 12,406, and foreign countries 9056; a total of 105,669 ordered from American and Canadian builders in 1920. In 1919 the total was 163,185.

NEW CONSTRUCTION. There was 314 miles of new first track built in the United States in 1920. In addition there was 91 miles of second track, less than two miles of third track, and less than eight miles of fourth or other track built. In Canada there was 306 miles of new first track and 32 miles of second track built. The mileage of new first track was less than half as great as that of 1919 which was the lowest figure heretofore reached since a record of

railroad construction had begun to be kept. The new lines built in 1920 were all short extensions from half a mile to 10 miles in length, most of them to new mines. The mileage of lines abandoned in the United States was 535, and in Canada 35.

RECEIVERSHIP AND FORECLOSURE SALES. There were 10 short roads with a total mileage of 541 miles that were placed in the hands of receivers. There were seven short roads with a total mileage of 380 sold under foreclosure. The Denver & Rio Grande was ordered sold and a sale took place on November 20, but had not been confirmed up to January, 1921.

RAILWAYS, ELECTRIC. No new work in the electrification of steam railways was undertaken during the year. The completion of the Pacific Coast extension of the Chicago, Milwaukee and St. Paul Railway to Seattle, Washington, gave that line a total of 651 miles of track operated by electric locomotives. These engines, one design of which was illustrated in the 1919 YEAR BOOK, were giving highly satisfactory service over the steep grades of the St. Paul's mountain divisions. The regenerative braking apparatus, by which the momentum of the train while descending grades was employed to check its speed, functioned so perfectly that the air brakes were not used in controlling the train. This result was accomplished by such an arrangement of the armature and field connections of the motors that the latter were converted into generators and a large part of the energy thus developed in them was restored to the line as an electro-motive force opposed to that from the power station.

In Europe, the St. Gotthard railway between Lucerne, Switzerland, and Chiasso, Italy, was operated by alternating current electric locomotives, energy being supplied from an overhead conductor at 15,000 volts to the single-phase motors of the locomotives. In Australia, the system of suburban tramways radiating from the city of Melbourne was practically completed during the year and a large and increasing passenger traffic was successfully handled. In France, the Midi Railway extended the use of multiple unit electric trains on part of its system, and from Italy it was reported that extensive plans were under consideration that would soon entirely replace steam locomotives with electrics in that country.

Electric railways, both street and interburban were going through a difficult period of their existence. Labor and material costs were rising. and while the increased fares urgently asked for by the companies were granted in many lo calities, the relief so obtained was insufficient to strengthen their credit to the point where funds could be borrowed on terms enabling extensions or even necessary betterments to be made. In New York City, the surface lines as well as the elevated and subway roads continued their fight for an increased fare and were backed by a moderately expressed public sentiment, but the Board of Estimate and the State Legislature stoutly opposed all efforts looking to the improvement of their financial condition. At the close of the year, the Interborough Rapid Transit Co., operating subway and elevated lines experienced great difficulty in making arrangements to pay interest due on its obligations. These lines. during the year ending Dec. 31, 1920, carried 1,006,331,698 passengers, of whom 625,521,692