Rate Raise v. Wage Whack

Having taken testimony on and deliberated for four months over Ex Parte 103, the petition of all Class 1 railroads for a blanket freight rate increase of 15%, Chairman Ezra Brainerd Jr. of the Interstate Commerce Commission and his ten colleagues last week handed down a dilemma. Even before they were made public the commission's long-awaited findings caused confusion. Someone got a look at the first page of the report, was led to believe the commission had granted, at least in part, what the roads had asked for. A telephone call from Washington sent rail shares bounding up on the New York Stock Exchange. When the whole story was revealed next morning, railroad securities responded with a dispirited slump.

Frankly mystified, railroaders pored over the Ex Parte 103 decision. Denied outright was the 15% increase. Offered instead were:

1. An increase of $3 a car, regardless of distance of shipment, on coal, certain ores, stone, gravel, posts, lumber, box wood, furnace slag.

2. A similar $6 per car increase on crude phosphate rock, sulphur, pig & scrap iron, stone, crude oil, asphalt.

3. An upping of 1-c- per 100 Ib. was suggested for: cottonseed meal & cake, certain agricultural products, dried fruits, oranges, lemons, melons, resin, turpentine, refined fuel and road oils, cement, brick, lime, ice, fertilizers.

4. An increase of 2-c- per 100 Ib. would be permitted on shipments of all other commodities, except noted exemptions, including freight of less than carload lots.

Notably exempt from increases were: all kinds of grains, rice, flour, meal, hay, alfalfa, straw, cotton, fresh fruits not mentioned above, potatoes, peas, beans, flaxseed, sugar beets, horses, cattle, sheep, goats, hogs, logs, fuel wood, railroad ties, excelsior, sawdust. No increases would be permitted on any carload to exceed by 10% the present maximum rates.

So far, pondered railroadmen, not bad. But the next stipulation of the Commission loosed a pandemonium of amazement. The revenue from these increases which would be effective until March 31, 1933-- estimated between $100,000,000 and $125,000,000--must be pooled by the roads themselves to meet the fixed charges on bonds of lines which cannot possibly meet them this year. The machinery to handle this task the Commission blithely left for the roads themselves to devise. The roads were given until Dec. 1 to accept or reject the Commission's offer. William Zebina Ripley, professor of political economy at Harvard & onetime member of the I. C. C., surveyed the decision, found it to his liking. The Commission, by denying the horizontal increase (which might diverge more freight from the roads than the benefits would compensate for), felt that the lines "had been saved from the consequences of a mistake." Professor Ripley foresaw "a distinct betterment of outlook for the future." Others thought otherwise. Liberal Walter Lippmann colyumed in the New York Herald Tribune: "The Commission has evidently tried to select particular commodities, which either have not fallen in price as much as others or are so bulky and necessary that they have to be carried on railroads anyway. From the shippers of these selected goods it hopes to extract about $125,000,000. . . . The proposal is a kind of emergency tax aimed at those who cannot escape it."

Railroad executives, aware that Southern and Western roads would need most of the help the pool might afford, were inclined to feel that asking one company's stockholders to pay another company's bond interest was unfair, if not downright illegal.* They went to Atlantic City to discuss the matter further at the Association of Railway Executives meeting.

Instigator of the I. C. C. decision is Charles Delahunt Mahaffie, 47. Serving his first year on the Commission, he plotted the pool plan. When the McNamara brothers were accused of dynamiting the Los Angeles Times building in 1910, Commissioner Mahaffie was a struggling young lawyer with no clients. He caught the eye of Clarence Darrow, who has saved many a rascal's neck, was hired as Lawyer Darrow's assistant for $20 a day. Princeton made Struggler Mahaffie an instructor in jurisprudence. Woodrow Wilson made him solicitor to the Department of the Interior. Warren Gamaliel Harding made him attorney to the U. S. Railroad Administration. Then he became director of the I. C. C.'s finance bureau. At Kingfisher College (Okla.), when he was graduated in 1905, he was a stout footballer. A Rhodes scholarship and St. John's College, Oxford, brushed up his rough spots. Last week he was happy to receive the approval of President Hoover, many a politician, many a shipper.

Well does Commissioner Mahaffie realize the gravity of the roads' plight, as serious a matter to savings banks and trust funds as to railroads. In 1928 (latest figure) the nation's wealth was estimated at $360,000,000,000. Of this, about $22,000,000,000 represented the people's investment in railroads. Because most of the carriers' securities have long and regularly earned the one-and-one-half times their fixed charges (interest on bonds) required by law in New York State for securities held by mutual savings banks and trust funds, such institutions (including insurance companies) have gradually acquired over 80% of all U. S. railroad bonds. Unless a miracle occurs this year, many of these institutions will be compelled to dispose of their railroad holdings. A general collapse of all railroad securities would be inevitable.

How can the roads keep their heads above water? Railroad costs consist of taxes, interest on bonds, supplies and labor. Taxes and interest are fixed. Supplies have already been cut to the bone. The only thing left to cut is wages. With little faith in the I. C. C. plan, the roads' executives looked, last week, in the direction of Labor.

Labor. Commissioner Mahaffie also knows that many a railroadman hoped that the 15% rate increase would not be granted, but that by public appeal the nation and its legislators would be awakened to the carriers' grievous condition. If it were shown that rates could not be upped, that costs could not be reduced, then the public might realize that only one remedy remained: wage reduction. Ex Parte 103 was to many an official less a plea than a strategem.

Against any cut in rail wages is aligned Labor's strongest force. Steel, copper, textile & other great industries could-- and did--cut wages (TIME, Oct. 5) without any great outcry from Labor. But railroad workers are most strongly organized. Their 21 unions contain 1,300,000 members, many affiliated with the American Federation of Labor, others (including the potent Big Four Railroad Brotherhoods--410,000 engineers, firemen, trainmen, conductors) not so affiliated. In times of trouble the railroad unions work together, as in 1916 when they got the Adamson Act and the eight-hour day. Three weeks ago at the A. F. of L. convention in Vancouver these unions demanded a six-hour day to bring back to work some of the 250,000 workers laid off in the past year, and President William Green promised the movement the Federation's "full political & economic strength" (TIME, Oct. 19). Any suggestions of wage cuts heretofore have been answered by the railroad unions with a loud and emphatic "No!"

As the railroad problem was being publicly debated last week, railroad officials began to talk about asking the unions to accept voluntary cuts. If this were not successful the roads would serve a 30-day notice that their labor contracts were unsatisfactory. Then, if Labor resisted, a battle might be fought right up to the White House door, might last a year or more.

*Roads whose quarterly reports indicate that they will not make their fixed charges for 1931: Bessemer & Lake Erie; Buffalo, Rochester & Pittsburgh; Chicago & Eastern Illinois; Chicago, Indianapolis & Louisville; Chicago, Milwaukee, St. Paul & Pacific; Chicago, St. Paul, Minneapolis & Omaha; Colorado & Southern; Elgin, Joliet & Eastern; Illinois Central; Minneapolis, St. Paul & Sault Ste. Marie; Mobile & Ohio; Pere Marquette; St. Louis Southwestern; Southern; Wabash; Western Pacific.

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