Evening star. [volume] (Washington, D.C.) 1854-1972, 1923-07-13
Rail Income Explained
Law Does Not Guarantee Earn
ings, Says Writer.
To the Editor Of The Starr

To the Editor Of The Start
was much interested In the special
article which appeared In the issue
| OF The Star for Sunday, July 8. writ
ten by John Edwin Nevin, and
printed under the heading of "Specter
of U. s. Control Stampedes Rail
Heads" Your special writer's on rail-
road topics are always so accurate In
their statements of fact with respect
to the railway industry, and have
always found them so fair and Impair
tial In their dealings with railway
| matters. that I feel emboldened to
bring to your attention an inaccurate
statement in this special article by
Mr.. Nevin. The first sentence In the
fourth paragraph reads in part as
follows: Repeal of the Esch- Cum
| minis act. which guarantees railroad
! earnings" etc.
1t Is common Misrepresentation
that the sch-Cummins act does in
fact guarantee railway earnings. That
such is not the fact can easily be
| ascertained by reference to the
| transportation act itself. section 15-A
of which provides that freight and
passenger rates shall be SO fixed by
the Interstate Commerce Commission
as to provide for the railways, AS
I nearly as may be-" q fair return on
the value of their properties. The
| amount required as a fair return on
| such value is not, however, guaran
teed to the railways.
If they do not earn that amount.
they, and not the government, stand
the loss: IL they earn more than s
per cent on their value, they are re-
cess over 6 to the government Treas
ury. That there has in fact been no
guarantee of railroad earnings since
the act was passed is indicated by the
| fact that in 1920 the rate of return
| on railway valuation was only one
third of l per cent: in 1921 1t was
3.31 per cent: in 1922 1t was only Ala
per cent. Yet during this period. the
so-called flair return" was per cent.
down to March 1. 1922. and since that
! at p per cent.
Clearly there can have been no
guarantee of railroad earnings when
the railroads were falling so far be-
| proof of this matter. If any were
| needed. may be found in recent
speech made by Senator Albert B.
Cummins. one of the joint authors
| of the law, made before the state
| legislature of Iowa, at Des Moines. on
April II. 1923. In this speech occur
| the following passages:
II have never heard 1t alleged that
| 512 per centum upon capital was
| more than a fair return under the
conditions which existed in 1920 and
| for two years thereafter, and pause
only to observe with respect TO this
proviso that IT is not in any possible
sense guarantee. I shall speak
presently on that part of our system
OF government which deals with a
| fair return. I repeat that neither in
| words nor in effect is this proviso
| guarantee.
The net operating income of all
| the railroads in the United States for
the year 1920 was about one-half OF
/ / per cent upon the value of the
property rendering the service. as
| fixed by the Interstate Commerce Com
1 mission; in 1921 1t had advanced to
little more than per cent. and IN
/ 1922 1t had advanced still further to
| about per cent. 1t has never been
| claimed by any one, however much
given to misrepresentation. that the
! government is in any wise respon-
! sible to the railroads for the differ
ence between these net incomes and
! the fair return as fixed In this pro-
/ viso or as subsequently fixed by the
| Interstate Commerce Commission
Very truly yours.
JULIUS H. PARMELEE, Director
Bureau Of Railway Economics.