So that, if Mr. Lewis's estimate were accurate, and remembering that the
operating expenses of the express companies in 1917 represented one-half
of the total charges made by the express companies for transportation, a
reduction of 20% in the express rates should accompany the acquisition
of the express companies by the Government, other things being equal.
But other things are not equal. Lower rates mean increased business; and
in an agency which has developed the field at its disposal so
inadequately as have the express companies, each additional unit of
business can be handled at a lower cost and hence at a greater profit
than each previous unit. This consideration was the primary one advanced
by the Interstate Commerce Commission in ordering 16% reduction in the
express rates in 1914. So that, the lower amount of profit per parcel
being counterbalanced by a greater number of parcels, the economy in a
Government postal express should be represented by a lowering of express
rates anywhere from 25% to 35% of the present rates.
But up to this point our calculations have assumed that under a
Government postal express the railroads would continue to obtain their
50% of the charges on each package transported by express. This method
of calculating the return due to the railroad is certainly ingenious in
its simplicity and lack of scientific basis, but it is just as certainly
unfair to the shipper of parcels by express. Let us consider, for
example, two shipments of similar articles under similar conditions--one
from New York City to Yonkers, New York, a distance of some 20 miles;
the other from New York City to San Francisco, a distance of more than
3,000 miles. In each case, the express companies collect the parcel and
deliver it to the railroad in New York City; and collect the parcel from
the railroad and deliver it to the consignee, in the first case in
Yonkers; and in the second case in San Francisco. In both cases, the
services rendered by the express companies are about identical, aside
from the different lengths of time during which space and protection in
express cars must be afforded. But the services rendered by the railroad
companies are far different in the two cases. In the first case, the
parcel is carried for less than an hour; in the second place, for some
days. Obviously, the share of the railroad in the entire service
rendered in transporting the parcels is less in the first case than in
the second, but in each case it gets the same share of the total express
charge--namely, 50%.
Such a system in its very nature must thwart any attempt to make express
rates reflect the value of express service. For, of course, the rates
actually fixed endeavor to do justice to both the express companies and
the railroads in each case considered above. In the first case, the rate
must be high enough so that 50% of it will not be too glaringly little
for the express companies to retain for their _relatively_ more
important and more costly service of collecting a parcel in New York
and delivering it in Yonkers. In the second case, the rate must be high
enough so that 50% of it will not be too glaringly little to turn over
to the railroad for their _relatively_ more important and more costly
service of carrying the parcel across the continent. The railroad
directors and express company directors cannot be expected to have
reached a fair compromise after fighting for their own interests when
the contracts were originally made, for, as has been seen, their
interests are largely identical. It would seem, then, that only the
shipper sending a parcel several hundred miles is charged a fee
commensurate with the value of the service rendered him. It would seem
that shippers sending parcels shorter distances must be charged too much
and that shippers sending parcels longer distances must be charged too
little. A glance at parcel post rates proves the validity of this
surmise, for parcel post rates are lower than express rates for shorter
distances and higher for longer distances. Under the present system of
competition between the parcel post and the express companies, the
nature of the contracts between the express companies and the railroads
compels express rates which unfairly discriminate against the express
companies at the shorter distances and unfairly discriminate against the
parcel-post at the longer distances.
* * * * *
However, there is no evidence in all this that the express rates as
actually levied may not strike a just and equitable average between the
rates too low and the rates too high. Let us therefore compare for a
moment the railroad costs of the express traffic with the railroad costs
of the Postal System. It has been seen that in 1917 the express
companies paid the railroads for transporting some 280,000,000 parcels
the sum of $113,535,059. In the fiscal year ending June 30, 1917, the
Post Office Department paid railroads and other transportation lines for
services in transporting _all postal matter_, including almost
1,120,000,000 parcels, the sum of $63,358,997. (The basis for
remuneration to the railroads for transporting postal matter is the size
and the weight of the matter transported.) Of course, it must be
remembered that for the postal service the railroads furnished the cars.
It must be remembered also that the parcels of the express companies
averaged heavier weights and travelled longer average distances than the
parcels of the parcel-post. Nevertheless, the enormous discrepancy
between the two figures cannot be thus entirely explained away. Some of
the discrepancy, and obviously a considerable part of it, can be traced
only to an unjustifiably high return paid the railroads by the express
companies. (Note 4.)
Moreover, the amount thus obtained by the railroads in 1917 from its
express traffic was equivalent to about 3-1/2% of the total railroad
revenues, although it represented 50% of the total express revenue.
Accordingly, even a radical slashing of express rates, with its
resulting beneficial stimulation to the express service of the country,
could hardly disturb the well-being of the railroads to any serious
extent.
Again, the various functions performed by the express companies as
subsidiary to the express business proper are on the whole paralleled by
similar functions of the Government or other agencies. Money orders,
both domestic and international, are issued by the Post Office
Department, and in 1917 were issued to the extent of $854,963,806 as
against $145,934,982 of the express companies. Telegraph and cable
transfers are readily issuable by the telegraph companies themselves.
Similarly, the travelers' cheques issued by the express companies could
without difficulty and with no less convenience be issued by our large
banking institutions performing that service.
* * * * *
It is therefore respectfully submitted that any comprehensive
consideration of the express service field in the United States can
point only in one direction--toward the consolidation of the express
service of the United States with the Postal System of the United
States, under the control and management of the Post Office Department.
_METHODS OF ESTABLISHING A GOVERNMENT POSTAL EXPRESS_
Many studies advocating Government ownership and management of public
utilities find it necessary to hitch their program to one definite mode
of procedure. In the case of the express service, however, no such
necessity exists. Several modes of procedure are open, and if one of
them seems preferable, none of them is impossible, inadequate or
inefficient. The most desirable method now available of substituting a
Government postal express for our express companies would seem to be a
legal and constitutional confiscation of their property and rights, with
adequate compensation. The adequacy of the compensation would naturally
entail much discussion--on the one side would stand those insisting that
the Government pay for only the contemporaneous value of the physical
property taken over; and on the other side would stand those insisting
that the contracts with the railroads, good will, and other intangible
assets of the express companies possess true value despite their
intangible nature and should accordingly be purchased. Supporting the
first group would be the policy of the present Government which, as we
shall see, has placed the capital of the express combination temporarily
handling the express business of the country at $30,000,000, or
approximately the value of the actual physical property represented by
that combination. Supporting the second group is the Interstate Commerce
Commission, through its representative, Franklin K. Lane, in its 1912
decision in the matter of the express rates.
A third method presents itself, but its adoption could be considered
only as deplorable, even as reprehensible--namely, purchase of the
express companies at their paper valuation. As we have seen, the
capitalization of the express companies bears no relation to the value
of their property, and chiefly represents, not money invested, but
profits accumulated. As a matter of fact, the Supreme Court of the
United States some years ago decided that capitalized excess profits may
not be used as a basis of computing fair rates of dividends upon capital
as against the state. Possibly Congress might find it wise to settle the
whole problem in any bill providing for Government acquisition by
abiding in the judgment of the Interstate Commerce Commission, leaving
the Government or the express companies, or both, the right to appeal to
the Supreme Court if dissatisfied.
The express service would represent too unimportant and too different an
activity from railroad freight service to be efficiently handled now by
the railroads. And mere regulation, as has been seen, affords no
solution, for the profits and the equipment represent but an
infinitesimal part of the operating expenses.
At this point, the Socialist or the socialist or the person who falls
loosely into the category of "radical" or perhaps even the merely
"liberal" advocate of the public ownership of public utilities will
doubtless exclaim: "But why compensate at all? Isn't it bad enough to
have so long permitted a group of entrepreneurs to grow rich by
exploiting for their own gain a field which all experience outside the
confines of North America proves a field of public endeavor? Why add
insult to injury by actually paying them for rendering unto the people
the things which belong to the people? Why shall not the Government
establish its own express service, as it established the parcel-post,
and leave the express companies, so long unchallenged in their
activities, to meet Government competition as best they may? If they can
meet it, well and good--if they can't, the essentially parasitic nature
of their business is proved beyond cavil."
Very good, gentlemen; and if he may be permitted a personal reference,
the writer of these lines is in perfect accord with you. The rates of
the private express companies under your plan would still be under the
control of the Interstate Commerce Commission, and accordingly these
private agencies would be unable to compete unfairly with the new
Government service by establishing along any of the more popular routes
rates far below the cost of the service, in order to cripple the
Government service along these routes and hence in its entirety.
Moreover, there is every probability that the legislative grant to the
Government of a monopoly of the express service of the United States
would be upheld by the courts, for a good case could be made out for the
essential nature of the express business as a part of the mail business
in which the Government has been granted a monopoly. Indeed, monopoly
was originally granted the Government mail service to prevent the
competition which the Wells-Fargo Company soon after its organization
was conducting in the business of carrying letters.
But, gentlemen, what are the chances that a sufficient number of your
fellow-countrymen can be brought into accord with you--not merely in
their intellectual convictions, but in convictions, intellectual and
emotional, so strong that they can be transmuted into a sufficient
number of votes in the ballot box to make our lawmakers at Washington
give heed--at least in the immediate future? For the problem of the
express companies will come up for adjudication, temporary or
long-enduring, within some months, or at least within a year or two.
Obviously, the present status of the express companies, as described
below, will end soon after the war. And Government ownership of the
express service, as has been indicated, is so infinitely more
advantageous than private ownership, that if Government ownership can be
obtained only by your (and my) method, and if we divide our ranks by
refusing to support any other method short of one vicious in both
principle and practice, the country may return once more to the private
express company method. As has been indicated, the whole problem
concerns scarcely ten or twenty millions of dollars in a business whose
operations amount to more than two hundred millions; and whatever method
be adopted, it can hardly effect a difference of 5% one way or another
in express rates. If the question were one similar to the Government
ownership of railroads, it would indeed be worth delay to obtain a
comprehensively adequate method of taking them over by the Government,
for marked differences in rates would then result. But the differences
in express rates involved in different methods of purchasing the
companies would hardly recompense for the delay involved in the postal
service's mastery of a new technique, in its assimilation of details
which can be mastered only through experience, in tedious litigation, in
political wirepulling and manipulation, and in determination of
constitutionality, all of which features will accompany the
establishment of a new Government postal express independent of the
present express companies.
For, by the time that the dissolution of the American Railway Express
Company (see below) will come up for final decision, new equipment and
the materials for new equipment will still be scarce, very scarce, and
very costly in the United States. It would be unfairly prejudicial to an
infant Government postal express service if it were hampered by scarcity
or high cost of equipment. Indeed, in the long run, in an industrial
situation which for many months after peace will be unsettled as a
result of the war, it might even be more economical to purchase the
express companies outright. And if once the express service is released
to its former owners, the difficulty of prying it loose again will
involve far greater loss than the loss in adopting even the least
justifiable method of consolidating it in the Postal Service.
_THE PRESENT STATUS OF EXPRESS COMPANIES_
As the United States more and more radically altered its industrial
processes to correlate them with the needs impressed upon the national
life by the Great War, the express companies more and more plainly gave
evidence of membership in that group of public utilities which could not
unaided weather the storm. Not so soon as in the case of the railways,
but not any considerable length of time afterwards, Government
intervention became the _sine qua non_ of a continuation of the express
business of the United States on an efficient plane. On May 28, 1918,
the United States Railroad Administration made public an arrangement
with the express companies by which the express service of the country
has since been conducted up to the time of writing. Of that arrangement,
the salient features follow:
1. A new express company, known as the American Railway Express Company,
was organized by the Adams, American, Southern and Wells-Fargo Express
Companies.
2. The new company is capitalized only to the extent of the actual
property and cash represented in its formation and activities--namely,
$30,000,000, and capital stock has been issued for that amount and
further stock will be sold at par.
3. With the American Railway Express Company the Railroad Administration
made a contract for conducting the express business on all carriers
included in the Railroad Administration.
4. Under that contract, the Railroad Administration receives 51-1/4% of
the operating revenues.
5. The 49-3/4% remaining to the express companies must cover the
operating expenses, taxes, profits and a dividend of 5% on the stock of
the American Railway Express Company.
6. In any profits remaining, the first 2% is divided equally between the
Railroad Administration and the American Railway Express Company; of the
next 3%, the former receives two-thirds and the latter one-third; of all
further profits, the former receives three-fourths and the latter
one-fourth.
7. The amount of the express rates charged and control over the
character of service supplied are vested in the Director-General of
Railroads.
Subsequent changes in the arrangement of May 28, 1918, have been as
follows:
8. In July, 1918, the Interstate Commerce Commission approved an
increase of 10% in express rates, all of which was absorbed, however,
according to both the Interstate Commerce Commission and the Director
General of Railroads, in wage increases effective July 1, 1918.
9. On September 13, 1918, the Director General of Railroads requested of
the Interstate Commerce Commission an opinion concerning a contemplated
absolute increase in the express rates on each package, irrespective of
weight and distance travelled. The proposed increase would be equivalent
to possibly 9% on all traffic; but again, according to the Director
General of Railroads, it would cover only increased wages. The
Commission was asked only if the proposed increase would net the sum
needed, and replied on October 22, 1918, in the affirmative. However,
the Commission significantly called attention to the possibility of
increasing express revenues by lowering the percentage on all express
charges received by the railroads.
10. On November 18, 1918, President Wilson issued a proclamation
specifically taking, through Secretary of War Baker, possession,
control, operation and utilization of the American Railway Express
Company, in order to make the Government's control over that agency
indisputably clear. The powers assumed by the Government were delegated
to the Director General of Railroads to be utilized according to the
prior contract made between him and the American Railway Express
Company.
11. On January 1, 1919, an increase of about 9% in express rates went
into effect, making a total increase since the United States entered the
European War of about 19%, this representing the only increase in
express rates since the reduction of 16% ordered in 1912 and effective
in 1914, and representing also a smaller increase in rates than was
found necessary by the railroads in their freight traffic.