History of the World War

by Jr. Francis A. March; Richard J. Beamish

The declaration of war by the United States made the situation very much worse. Not only did the railroads have to handle the freight destined for the Allies, but there was a very large addition to the passenger movement on account of the thousands of men that were being sent to the various training camps, and the immense masses of supplies that had to be sent to these camps. This included not only the ordinary supplies to the men but thousands of carloads of lumber. Moreover, all over the country mills and factories were now being handed over to the government for war work; and to them, too, great quantities of raw material had to be sent, and the finished product removed to its destination.

A vigorous endeavor to meet the new difficulties was instituted by the railroads themselves. They themselves named a war board, which was to co-operate with the government and which was to have absolute authority. But this arrangement soon proved unsatisfactory. Each government official would do his best to obtain preference for what his department required, and to obtain that preference a system of priority tags was established which became a great abuse. The result was that priority freight soon began to crowd out the freight which the railroads could handle according to their own discretion, thus seriously interfering with business all over the country.

Naturally, the railroad executives and the government authorities studied the question with the greatest care, but they could not reach an understanding among themselves, nor with the Administration. At last the President settled the matter by announcing his decision to have the government take over complete control of the roads. The President derived his power from an Act of Congress dated August 29, 1916, which reads as follows:

The President in time of war is empowered, through the Secretary of War, to take possession and assume control of any system or systems of transportation, or any part thereof, and to utilize the same to the exclusion, as far as may be necessary, of all other traffic thereon, for the transfer or transportation of troops, war material and equipment, or for such other purposes connected with the emergency as may be needful or desirable.

The proclamation went into effect on December 28, 1917, and the President declared that it applied to "each and every system of transportation and the appurtenances thereof, located, wholly or in part, within the boundaries of the Continental United States, and consisting of railroads and owned or controlled systems of coastwise and inland transportation, engaged in general transportation, whether operated by steam, or by electric power, including also terminals, terminal companies, and terminal associations, sleeping and parlor cars, private cars, and private car lines, elevators, warehouses, telegraph and telephone lines, and all other equipment and appurtenances commonly used upon or operated as a part of such rail or combined rail and water systems of transportation…. That the possession, control, operation, and utilization of such transportation systems shall be exercised by and through William G. McAdoo, who is hereby appointed, and designated Director General of Railroads. Said Director may perform the duties imposed upon him so long and to such an extent as he shall determine through the boards of directors, receivers, officers and employees, of said system of transportation." President Wilson issued an explanation with this proclamation in which he said:

This is a war of resources no less than of men, perhaps even more than of men, and it is necessary for the complete mobilization of our resources that the transportation systems of the country should be organized and employed under a single authority and to simplify methods for coordination which have not proved possible under private management and control. A committee of railway executives who have been cooperating with the government in this all-important matter, have done the utmost that it was possible for them to do, but there were differences that they could neither escape nor neutralize. Complete unity of administration in the present circumstances involves upon occasion, and at many points, a serious dislocation of earnings, and the committee was, of course, without power or authority to rearrange charges or effect proper compensations in adjustments of earnings. Several roads which were willingly and with admirable public spirit accepting the orders of the committee, have already suffered from these circumstances, and should not be required to suffer further. In mere fairness to them, the full authority of the government must be substituted. The public interest must be first served, and in addition the financial interests of the government, and the financial interests of the railways, must be brought under a common direction. The financial operations of the railway need not, then, interfere with the borrowings of the government, and they themselves can be conducted at a great advantage. Investors in railway securities may rest assured that their rights and interests will be as scrupulously looked after by the government as they could be by the directors of the several railway systems. Immediately upon the reassembling of Congress I shall recommend that these different guarantees be given. The Secretary of War and I are agreed that, all the circumstances being taken into consideration, the best results can be obtained under the immediate executive direction of the Honorable William G. McAdoo, whose practical experience peculiarly fits him for the service, and whose authority as Secretary of the Treasury will enable him to coordinate, as no other man could, the many financial interests which will be involved, and which might, unless systematically directed, suffer very embarrassing entanglements.

President Wilson's proclamation stirred up great excitement on the stock market. Speculators rushed to buy back railroad stocks which they had previously sold short, and the market value of such stocks was raised more than three hundred and fifty million dollars as a result. The Federal Government's assumption of control of the railroads was generally recognized as the proper act under existing circumstances, and the guarantee of pre-war earnings made them a good investment.

The railroad system in the United States consists of 260,000 miles of railroad, owned by 441 distinct corporations, with about 650,000 shareholders. It employs 1,600,000 men and represents a property investment of $17,500,000,000. The outstanding capital in round numbers is $16,000,000,000, $9,000,000,000 of which is represented by a funded debt. The rolling stock comprises 61,000 locomotives, 2,250,000 freight cars, 52,000 passenger cars and 95,000 service cars. All this was now under the charge of William G. McAdoo. On January 4, 1918, President Wilson explained his plan to Congress, and recommended legislation to put the new system of control into effect, and to guarantee to the holders of railroad stocks and bonds a net annual income equal to the average net income for the three years ending June 30, 1917.

The wise recommendations of President Wilson were at once approved by Congress; provision was made for guaranteeing the railroads the income which he recommended, and for financing the roads. The railroads' war board was abolished and Mr. McAdoo appointed an advisory board to assist him. This board consisted of John Skelton Williams, Controller of the Currency; Hale Holden, President of the Chicago, Burlington and Quincy Railroad; Henry Walters, Chairman of the Board of Directors of the Atlantic Coast Line; Edward Chambers, Vice-President of the Santa Fe Railroad and head of the transportation division of the United States Food Administration; Walter D. Hines, Chairman of the Executive Committee of the Santa Fe. Specific duties were assigned to the various members of this committee. Mr. Williams was to deal with the financial problem; Mr. Holden to assume direction of committees and sub-committees, and other phases of the work were allotted to other members. Mr. Walter D. Hines was made assistant to the Director General.

Mr. McAdoo's first order was to pool all terminals, ports, locomotives, rolling stock and other transportation facilities. Another order had as its object to end the congestion of traffic in New York City and Chicago. It gave all lines entering these centers equal rights in trackage and water terminal facilities. This wiped out the identity of the great Pennsylvania Terminal Station in New York, and gave all railroads the use of the Pennsylvania tubes under the Hudson River.