Evening star., 1933-02-15

making on "fair return" on value was
probably originally intended by the
courts as protection against confisca-
ton in individual cases, but 1t had be-
come a rule governing the general level
Of rates, rule which the committee
thought should now be abandoned.
Cites Interest Bearing Debt.
Nobody ever thinks of saying that
the cost of bricks and mortar in an in
dustrial plant should determine what it
shall charge for its products. If 1t can
keep its costs low enough to earn a
profit on what its product is worth to
the public in competition with other
products, then it is worth from 10 to 20
times what 1t can earn. If it cannot
do that 1t is as apt to be a liability as
an asset. In this sense, the present rail-
road rule puts the cart before the
horse"
The committee pointed to the un-
Wieldy proportion Of interest-bearing
debt in railroad capitalization as a
cause contributing to the present crisis
We distinctly do not believe that past
mistakes as represented by present un-
wieldy debt structures should be sal
vaged by increased rates. The present
debt structure must be revised and writ
ten of. But, as to the future, we do
think that rate-making should look to
the retirement Of new debt incurred for
purchase of productive facilities during
their lives and out Of returns from their
use
rates, the committee launched into a
consideration of what the roads should
do to help themselves, and found that
managements had been lax in this
respect.
they have not done to improve their
condition without any Government help
at ALL They should be promptly freed
of all unnecessary restrictions on the
doing of 1t. 1t has been estimated that
less than 20 per cent increase in
traffic would put most of them on an
earning basis. In view Of the narrowness
Of this morgin Of loss and of the very
great savings possible in railroad op-
Grafton. we regard their outlook as far
from hopeless"
The committee found that a Every
moderate movement on the upward
business spiral would dissipate much OF
the seeming cloud on the solvency of
many railroads.
Economies Are Advised.
THE committee is not proceeding on
conjectureS Of unwarranted optimism,
but 1t does seem that, If the margin
Of loss Is as scant as this, 1t is narrow
enough to invite some robust action in
railroad administration to improve
earnings statements-not by increased
traffic or Government Intervention
but by economies and improvements
in operation, and perhaps by a reduc-
ton in rates to attract more business.
That has been the universal action in
sister. industries and that is the view
Of some of the leading authorities in
railroad management.
Against this view it is urged that
railroads have been prevented by stat
utes and regulations from acting freely
or that, where they have been per-
mitted to act. restrictions legally i'm
posed upon them as railroads have ex-
tended to them in new fields. While
we believe that this argument is too
much emphasized, we have found some
substance to this complaint.
Resort to Government as an alterna-
tive to self-help is to be deplored. The
early transport pioneers did not 60 to
Washington to have their ferries and
steamboats, protected against rails. They
developed the rail service and became
controlling figures in the new field.
We think 1t Is quite clear that the rail-
roads have been distinctly remiss Is
not getting the most out of the new
methods"
Regarding wasteful duplication of
service, the committee said the public
is familiar with crack passenger trains
shutting back and forth across the
country empty or nearly so and per-
haps, also with the explanation that
this is necessary to retain the competi-
tive reputation for service'-in other
words, for sales promotion or adver-
tising.
Evidence OF Waste Found.
Railroads have insisted on separate
terminals in metropolitan areas for
purely competitive advantage The re-
sulting multiplicity has imposed high
costs, poor service, and great waste.
We think there are thousands Of
miles OF trackage and many other IA
cilitieS, both in terminals and else
where, which serve no necessary pur-
pose and which do not now earn and
never can. Circuity in haulage
to keep traffic on the rails of a single
system entails great waste for which
the committee can find no sufficient
excuse.
Until the railroads are willing, by
cooperation, to eliminate this kind of
waste, it is difficult to share their ap-
prehension of competiting methods"
The committee said 1t should be re-
called that 'in railroads-almost alone
among sister industries-rates renal In
at boomtime levels. Adjustment to
new economic horizons lags."
The committee did not spare Gov
ernment regulation of rail in its gen.
eral criticism Of the conduct of trans
portation. "A cogent railroad argument
ic To tLn OF AIak L.