Many officials were unwilling to certify by oath to the correctness of their returns. With the increasing size of the roads, it became more and more difficult to secure promptness. The annual Statistics of Railways had almost to await the pleasure of the carriers in filing their statements. And vitally important information was often withheld. In the case of the Lake Shore road, for example, which for years had charged all its improvements to operating expenses, it positively declined to state what portion of those improvements were permanent additions to the property, properly chargeable to capital account, and what were in the nature of renewals and repairs. And the Supreme Court had found no authority in the law to compel the furnishing of this information.[620] With the growth of extended systems of railroads, characterized by the most involved methods of inter-corporate accounting, the need of precise data became ever more imperative. Something more was evidently necessary than a mere expression by Congress of an opinion favorable to publicity. The mandatory provisions added in 1906 to the Twentieth Section are, therefore, vital, not only in themselves; they are essential to the administrative enforcement of nearly every other part of the regulative law. A determined effort was made in 1908 to defeat the purpose of this clause by restricting appropriations for carrying it into effect.[621] But it emerged unscathed—thanks to President Roosevelt—and stands today as one of the best features of the new statute.
One may readily distinguish no less than five distinct and important special services to be rendered by full publicity of accounts. The earliest to be fully appreciated was its serviceableness in securing equality of treatment of all shippers. In the good old freebooters' days, rebates were probably openly entered as such on the books. But with the need of concealment, they came to be covered up in all sorts of ways; oftentimes under such guises, as in the notable Atchison case, in such manner that not even the directors knew what they meant. With full standardization of accounts, such abuses may readily be detected and the offenders traced and punished. In the second place, open standardization of the books makes strongly for more efficient and honest operation.[622] The comparative method in statistics may be readily applied; so that the president of a railroad may have at command a complete statement of operations in detail, which is comparable not only with his own results in preceding years but with other roads similarly circumstanced. The haphazard and unscientific methods of operation in the British Isles are largely a resultant of the absence of any logical and uniform system of public accounts.[623]
Detailed cost keeping in the management of great systems of inter-related railroads, being absolutely essential to efficiency, makes also for honesty in operation. Such gross frauds as developed upon the Illinois Central in 1910, variously estimated to have cost the road from $2,500,000 to $5,000,000 through overcharges for equipment repairs, might readily enough have been detected under an efficient and honest management. This instance immediately suggests a third advantage of full publicity of accounts, namely the protection of investors. Flagrant manipulation of maintenance accounts, "skinning" or "fattening" roads in the interest of inside speculators, has always been dependent upon secrecy. Assurance of a stable market for railroad securities, based upon entire frankness as to the degree to which these properties are being kept whole or improved, is one of the prime advantages which may be expected to flow from such governmental prescription of accounts. And general public confidence in railway investments cannot conceivably be better encouraged than by such publicity. In no other detail than this, does the Act to Regulate Commerce more directly benefit the general body of stockholders in railroads, as well as the corporations themselves.
The three foregoing advantages of publicity had been long appreciated. These recent changes introduced in the Federal law brought two others into special prominence. One is the newly assumed responsibility by the government in the matter of rate making. The other is its intervention in cases of dispute between the carriers and their employees. In both cases it is imperative that there should be available data for a just determination of the issues at stake. There must be assurance that every essential feature of the situation is fully and fairly set forth upon the books. Otherwise, as in disputed rate cases, every fact as to cost of service,—a primary basis of measurement,—is vitiated. Absurd and misleading calculations may be presented in evidence, which greatly hamper the government in deciding the case.[624] And now with the projected physical valuation of properties as an element in rate making, all of the factors of maintenance, betterment and depreciation, of joint facilities, rentals and sinking funds must be taken into account. In labor disputes, the same considerations apply.[625] Under the requirements of the Erdman Act, every mediation,—and the need for it is more frequent every year,—calls for critical analysis by the chairman of the Commission and the Federal commissioner of labor of the statements from both sides as to the reasonableness of the action to be taken respecting wages or conditions of employment.[626] The notable arbitration in 1912 is the most important instance as yet. Having all of these services in mind, it seems likely that the accounting provisions added to the law in 1906 will be second to none in bringing about the elimination of existing evils, and in standardizing and improving operation, finance and traffic practice.
Under the new law monthly and special as well as annual reports, might be required under oath; with appropriate penalties of fine and imprisonment for delay or mis-statement. All accounts must be kept according to forms, general and detailed, prescribed by the Interstate Commerce Commission. Such rules applied of course to all carriers subject to the law, such as express and sleeping-car companies, pipe lines and even water carriers where operated in connection with railroads. Moreover, the Commission was to have access to the books at all times. For this purpose, it might employ special examiners.[627] In other words, the system employed for years in connection with the regulation of national banks, was now extended to the interstate carriers. An additional safeguard was provided in the clause which made it unlawful to keep any other accounts books or memoranda than those approved; with the same penalties for violation. In brief, the policy was now perfectly definite. Carriers were rendered public service companies in every sense of the word. Mere indefinite publicity was replaced by specific regulation. This policy was not only clearly written in the law; but the Commission in promulgating its orders relative to accounting, laid upon every officer concerned, full personal responsibility for the statements rendered. Minor officials, made scapegoats for chief offenders, were no longer to be tolerated. The relation between agent and principal was clearly defined. It was assumed that so far as accounts were concerned, such officials were representatives of the Commission in carrying out the law. A new principle was introduced in the regulation of carriers which could not fail to be productive of great good. In this respect the Hepburn amendments granted all that the most ardent advocates of publicity demanded.[628]
A summary view of this important legislation,—in form merely an amendment of the original law of 1887, but in reality constituting an entirely new departure,—may now be had. The gains for effective regulation were considerable. Among them may be noted its enlarged field, the separation of transportation from other businesses, elimination of the iniquitous railroad passes, control over joint rates and pro-rating, the expedition of judicial procedure, full publicity of accounts, enhancement of the dignity and compensation of the Commission, and, most important of all, the grant in so many words of administrative rate-making power. The carriers—and the administration also—failed to obtain the much-desired repeal of the prohibition of pooling. On the other hand, as against these gains for reform should be set the following concessions to the railroads. Rate-making control was still subject to broad court review. No one as yet knew what this might bring forth. Maximum rates only might be prescribed. And much as to the proper relativity of rates, involved both in matters of freight classification and of enforcement of the long and short haul clause, was left untouched. Rate advances were still possible without determination of their reasonableness in advance. Suspension of orders pending judicial review, still remained. There was as yet no control over physical operation, such as furnishing cars, although switches might be ordered. Many of the states had long since undertaken this work. And the great body of independent carriers on our inland waters were still left beyond the reach of the Federal law. In the main, the administration had won a notable victory, although at some considerable cost. The principle of effective regulation of public-service carriers had been, indeed, vigorously affirmed in no mistakable terms. But the task was not yet completed. Many details of law were needed to "Clinch the Roosevelt policies." Nevertheless, it was probably better that a brief experience with the new law, both among the people and in the courts, should precede further legislation. Great reforms should not be too suddenly effected, else reaction is certain to take place. For the time being a positive step forward had been taken.
FOOTNOTES:
[585] Exhaustively described in volume II.
[586] Chapter XII, supra, and chap. XVIII, infra.