THE CONSEQUENT REDUCTION IN RATES
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 3½% 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 51¼% of the operating revenues.
5. The 49¾% 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.