Chapter III - Government War Control of Sugar

CHAPTER III GOVERNMENT WAR CONTROL OF SUGAR HERE again the net benefits of war control may fairly be called doubtful. Take sugar control, for instance. Before the war Great Britain, Canada, and the United States used over six million tons of sugar an nually, of which 85 per cent. came from Germany, Russia, France, Java, and Cuba, in sl!ips. Then the submarines got in their deadly work, till, in 1915 and 1916, there were practically no ships. Russia and Germany could export nothing, and the French beet~ sugar industry was right in the heart of the devas tated region. Java had a lot of sugar all through the war, but could not deliver it for lack of ships. Cuba, Porto Rico, Hawaii, and the United States be came the main sources of available supply. They jumped their output from 4,4°0,000, pre-war aver age, to 6, I 15,547 tons for crop of 1919-1920. Before we got into the war, England, France, and Italy had long ago established food control; and to prevent putting up raw sugar prices on each other, had pooled their buying in the hands of the British Royal Commission on Sugar Supply. This last, competing with our refiners, had bid up the price of Cuban raw sugar (our own main source of supply) from $3.55 in 1914 to $6.17 per 100 pounds in 1916.

When we declared war on Germany, we, too, passed a Food Control Law, in August, 1917, and Mr/. Hoover was made administrator. He at once set up a [47 ] Too Much Government-Too Much Taxation United States Sugar Board; prohibited trading in sugar futures on the exchanges; and stopped exports of sugar, except to the Allies. Then, to head off combination of the Cuban sugar planters to put up raw sugar prices still further, he joined the Allied nations in setting up an "International Sugar Committee" of five members; representing the British, French, and Italian governments, the Ameri can Sugar Refiners, and the U. S. Food Administra tion. He then got the Attorney General to assure him that under the circumstances a combination of the American Refiners to keep prices down was not a breach of the Sherman Law; and he got the refiners, as patriots, to reduce the price of refined sugar to $7.25, and to refuse to pay for raw cane sugar more than $6.90, New York. Then he went after the American beet-sugar men and got them to make equivalent prices. Finally, he fixed the differential between raw sugar and refined at $1.3°, as against that of 80 cents reported to me as enjoyed by the Sugar Trust in 1912; and the International Sugar Committee made a deal with a Cuban Sugar Com mission, appointed by that government, to buy the entire 1917-1918 crop at $4.60 f. o. b. north side Cuban ports, for fair division among the four nations represented by the Committee. Thus all govern ments, planters, and refiners were tied up tight, and the way was clear to hold wholesale· selling prices down to an agreed figure of $7.25 f.o.b. New York.

By next year all costs had gone up, and the 1919 Cuban crop was bought at $5.60 f.o.b. north side Cuban ports; while the selling price for refined was made $9.00 f.o.b. New York. In all this the voluntary patriotic aid of the great American sugar refiners and wholesalers who pulled together with the Government, and also of the whole [ 48 ] Government War Control of Sugar American people, who cut down their own daily use of sugar to help the Allies to a better supply, made it possible to accomplish a very extraordinary thing, viz., in the face of a world shortage in production for 1919 of about 2,000,000 tons, nearly one eighth of an average crop, the U. S. Sugar· Board succeeded in getting for this country one quarter of the world crop as compared with its usual share of one fifth. The wholesale price of refined sugar' was held down to an average of $8.80 New York; which was cheaper than in any country in the world but Denmark. Joshua Bernhardt, statistician of the U.S. Sugar Board, says that under free market conditions price probably would have averaged $15.00 per 100 pounds from January, 1918, to October, 1919 (the whole period of government control); and he figures out a saving to our citizens of $7.00 per capita, say $750,000,000.

At the same time the producers and refiners made handsome profits, while, as already noted, American, and more yet Cuban, output was immensely stimu. lated. This same Bernhardt, chief statistician of the American Sugar Board, and proud of its work, ends his book ("Government Control of the Sugar Indus try in the U. S."-Macmillan, 1920) with the follow ing paragraph: Government control of the sugar industry and trade in the war period and in the year of reconstruction which fol lowed, is an interesting example of wholesome and effec tive cooperation between business, the general public, and a government organization, functioning in a period of na tional stress and world upheaval. In order that the ex periences and-information derived in the period' of control might not be lost to the general public, the Directors of the U. S. Sugar Equalization Board have authorized the publication of this book.

Too Much Government-Too Much Taxatton So far, so good. "The devil was sick, the devil a monk would be; the devil was well, the devil a monk was he." As long as the war lasted, and the trade was patriotic, and the world was content to pay any old price for sugar, all was lovely, as Mr. Bernhardt says-writing, I imagine, just before the smash came in 1920. Now for the other side-the aftermath. Let me quote at length from the highest possible authority upon the sugar business as it is-not as Congress thinks it ought to be-I refer to the An nual Reports for 1920 and 1921 of President Babst of the so-called "Sugar Trust," the great American Sugar Refining Company. In the 1920 Report he says: In the United States sugar industry 1920 will always be remembered as the year of attempted government de control. Our annual reports since 1915 give an account, year by year, of the various steps of control. We venture now a statement of the larger aspects of government con trol, and of attempted de-control, in the hope of lessening somewhat the general bewilderment on the subject.

For some years prior to the Great War the various sugar producing fields found their markets with almost fixed regularity. Deficiencies were met by exportable margins from remoter fields without marked price fluctuations. Experience had worked out the world's supply and demand within comparatively narrow limits. Continental Europe produced almost half of the world's sugar. The United States field was self-contained. Upon the outbreak of the Great War these fixed rela tionships were immediately overturned. Locked within the battle lines was about a third of the world's normal production. The European Allies held almost no sugar producing territory. The necessity for conserving ship ping, and the price-stimulating effect of competitive bidding for the diminished supplies, led to government control of sugar in the United Kingdom as early as 1914, to [5° ] Government War Control of Sugar inter-allied European control in 1916, and finally to inter national control in 1917; to which last the United States, Canada, and Cuba also became parties. These steps rapidly led to government control in practically all the countries of the world, which in some form largely con tinues. To retrace these steps is quite as important in its economic and commercial bearing as was the coming of the control itself. Whether or not the methods of de-control in anyone country prove to be sound is of importance to the entire world.

The Armistice on November 1I, 1918, found sugar a rationed staple in most countries, notwithstanding the great achievement of Cuba and of other producers in in creasing production. CQntrol, therefore, continued as before. On June 10, 1919, however, France suddenly, and without any accumulations of stocks, de-controlled sugar for domestic purposes. The result was a scramble in the world's market with little regard to prices, which later found its unhappy counterpart, on an enlarged scale, in the de-control experience of the United States in 1920, attempted under similar conditions. Such was the general situation when, on July 29, 1919, the Cuban producers, through their government, offered to renew again their contract for the sale of their entire crop for international division. While your Company rec ognized from the first that our Government's programme involved an unusual economic experiment, yet the CQ operation of the sugar industry with the Food Administra tion had succeeded for two years in providing the public with sugar at a price below its world's parity. Therefore your Company again offered on August 6, 1919, in answer to an inquiry from the Government, to continue to conduct its business under government control for the year 1920, if the Government so desired. No definite official action in reply was taken by our Government on which we could rely until January 2, 1920.

Meanwhile the sudden de-control in France greatly strengthened. the price of sugar in the world's market, and a flood of export orders for refined sugar came from Too Much Government-Too Much Taxation Europe to the United States. Our Government having made no decision, the Cuban producers withdrew their offer on September 22, already having entered into "toll" contracts with many refiners to secure this European business. Under a "toll" contract the refiner accepts raw sugar and delivers refined sugar and receives a charge or "toll" for the refining. Almost immediately bills were introduced in our Con gress directing a continuation of sugar control. A total of 37 bills were introduced in our Congress and 2 bills in the Cuban Congress relating to sugar and sugar control, as shown in the recapitulation appended to this report. N at urally these bills kept the industry in great uncertainty.

Meanwhile, the active foreign demand absorbed through "toll" contracts a large part of the sugar produced in the early months of the new Cuban crop. Finally, on Decem ber 22, 1919, Congress in the McNary Bill enacted, That the President is authorized to continue the Uni ted States Sugar Equalization Board . . . to adopt and carry out until December 3I, 1920, plans and methods of securing, if found necessary for the public good, an ade quate supply and an equitable distribution of sugar at a fair and reasonable price to the people of the United States! The President signed the bill on December 3I, 1919, but on January 2, 1920, announcement was made that" It is doubtful whether it will be practicable or wise for the President to exercise the powers conferred." It was fur ther announced that the .President would continue as directed by Congress to control the industry by licenses under the provisions of the Lever Act. So de-control and control were both attempted, at a time when the country was bare of supplies. As pointed out in our last Annual Report, the Government through the McNary and Lever Acts continued its responsibility for supply, price, and dis tribution of sugar throughout the year 1920.

Between July 29, 19 19, and January 2, 1920, during the time of indecision, raw sugar prices had almost doubled. The foreign demand was stated by the Cuban producers to [ 52 ] 'Government War Control of Sugar have absorbed 25 per cent. of the new crop, or about 1,000,000 tons, before grinding started on the island. In view of the fact that the shelves of our :country were bare, your Company did not accept export business or make "toll" contracts, holding its capacity for domestic distri bution in the ordinary way. This course, while under taken in the interest of the public, caused us the loss of a large volume of business, for early deliveries from produc ing countries were delayed by strikes, and those coming forward were applied largely 011 "toll" contracts. As a result both of the long period of uncertainty and of the continuance of the war-time Lever Act, "toll" con.. tracts were extended to domestic business also and at a time when demand exceeded supply. Ordinarily the re finer and producer oppose. each other as buyer and seller and the result is a m,arket price turned into profit or loss.

Under the Lever Act, however, the refiner was controlled and the foreign producer was uncontrolled. By means of paying a "toll" to the refiner, out of which came all the refiner's profit under the Lever Act, the producer had charge of the refined-sugar market at a time when the de mand vastly exceeded the supply. Prices mounted and distribution became demoralized. The sugar shortages of the previous three years, the indecision and uncertainty as to the Government's course, the pressure for exports, a flood of reports, legislation, prophecies and strikes, engendered a spirit of hysteria in the domestic trade. We annex a chronology of these events and of their publicity which will serve to recall this agitated period. The public demanded sugar in any form, at any price, in any quantity, and for any delivery. Householders, retail and wholesale merchants, manufac turers, .speculators and many interlopers, excited by the repeated predictions of higher prices, entered upon a mad scramble for sugar. Probably no one event exercised a more powerful influence in creating this panic of buying than the news of a partial crop failure in Cuba. Sugar statisticians repeatedly reduced their crop estimates until by May the difference between the highest original I 53 ] Too Much Government-Too Much Taxation estimate and the lowest reduced estimate represented a loss of almost 1,000,000 tons.

With a known world sugar shortage and the large sales to Europe of Cuban sugar this partial failure of the Cuban crop made the outlook for sugar supplies for the United States most unfavorable. It became a question of price and of credits. The American people were eager to outbid the world for sugar. "Human nature," a prominent New Englander has said, "is so weak that the vast majority of people who in a large section of the country were deprived of sugar, said in their unthinking way that they would rather have paid a higher price and had some sugar." "Get us sugar" was the substance of thousands of pleas and of the urgings of government officials. Seemingly this was the view of the entire public, and in April a de mand arose, regardless of price, beyond any possibility of apparent supply from our ordinary sources. As the largest merchandising unit in the refining industry this Company was faced with the duty to :£ind and to sup ply its customers with a reasonable amount of sugar, based on their former purchases. Accordingly, we and other refiners bought sugar outside our ordinary sources of sup ply but at prices substantially lower than prevailing Cuban prices, and as much as 5 cents and 10 cents a pound lower than the subsequent asking price of the Cuban planters' pool. On May 24 we began to offer these purchases to our customers at a uniform net price of 22.06 cents per pound for the refined product in the months corresponding to the arrival of the sugar. The price gave us a reasonable mar gin over cost and was I! cents to 3! cents a pound lower than the prevailing competitive refined prices for similar deliveries. So the public and manufacturers were as sured of a better supply, which was then in doubt, and at prices below the prevailing market for prompt and for future deliveries.

Our customers eagerly took our tenders of sugar. In most instances it was necessary for us at this time to ac cept orders for less sugar than the customer desired. By their contracts with us the trade impliedly agreed to keep [ 54 ] Government War Control of Sugar open the channels of distribution for their purchases from us. However, contrary to all precedent, and without the possibility of knowledge as to the amount of purchases made, tlole trade also went to South America, Europe, the West Indies, and'the Far East to purchase consumption sugars on their own account for arrival during the last six months of the year. The world was scoured for sugar, and it was found. The great demand and high prices acted as a magnet. Sugar which had disappeared from the world's statistics, and sup posedly was consumed, found its way to the warehouses of manufacturers and jobbers even from the interior of China.

Sugar began to pour into the United States from nearly 50 countries. In the single month of July alone 587,000 tons of sugar reached United States ports. The refiners have adequate facilities for distributing re fined sugar according to trade requirements, and through years of experience understand the needs of the trade and of the country. Ordinarily the trade buys from the re finers. This year, under the excitement of attempted de control, this policy was departed from by the manufac turing and grocery trade, who purchased direct from the foreign producer beyond all possible needs of the country. The total amount of these direct consumption sugars purchased by the trade is estimated as high as 700,000 tons, and about two thirds came to the Atlantic ports. This direct consumption sugar included 250,000 tons from Java, 35,000 tons from Europe, 30,000 tons from Canada, 45,000 tons from Argentina, 35,000 tons from Central America, 25,000 tons from Mexico, and 85,000 tons from Brazil, Peru and the West Indies, as well as large quanti ties from Japan, China, British India, and washed sugars from St. Croix, Porto Rico and Cuba and many other foreign countries.

These vast commitments by the trade, entirely aside from their commitments through the refiners, could not have been foreseen. No machinery is available for re cording them. In fact, in many instances they were con cealed. These direct purchases by the trade were at [ 55 ] Too Much Government-Too Much Taxation prices often higher than the equivalent of your Company's selling price of 22.05 cents net for refined sugar. Many of these sugars were found on arrival to be unfit for household or canning. use. Part were of dark color in the nature of raw sugar. Some must be sent to refiners to be cleaned and purified by the refining process. Most of the pur chases were under confirmed letters of credit, and payment became a most difficult problem, resulting in attempted resales, which hastened the collapse of prices. Under the pressure of these sales the market weakened, and in August broke into the most violent price decline ever recorded in sugar.

As great as was the buying panic, so was now the hysteria of cancellation and of repudiation of contracts. The trade became so demoralized that on August 24 your Company withdrew from the market and devoted its facili ties to completing the business already on its books. Not until the writing of this report, more than a month after the close of the year, were figures available of total imports for the entire country, showi.ng the unprecedented figure of 4,460,166 tons of sugar imported in 1920, as com pared with 3,976,331 tons in 1919 and 3,115,143 tons in 1918. Making adjustment of stocks, of exports, and of the in creased crop of domestic beet and of Louisiana cane sugar, there was in the National Sugar Bowl for domestic con sumption, in round figures, probably 775,000 tons, or 4,957,779 barrels, or 1,735,222,000 pounds more sugar in 1920 than in 1919. It is significant that the surplus in the National Sugar Bowl is nearly the same as the purchases by the trade of imported direct consumption sugars.

Making the comparison with 1918, there was probably 1,075,000 tons, or 6,880,000 barrels, or 2,400,000,000 pounds more refined sugar in 1920 than 1918. Stated in another way, the increased amount of sugar for domestic consumption in the National Sugar Bowl in 1920 over 1919 was sufficient to last the people of the United States 70 days, or from Labor Day until almost Thanks giving, had we been dependent upon that supply alone.

Government Wat' Control of Sugar The increase in 1920 over 1918 was sufficient to last 98 days, or from Labor Day until almost Christmas. Stated in money, the value of the sugar imports alone, as revealed by figures of the United States Customs De partment, was $347,643,887 in 1918, $522,259,538 in 1919, and $1,294,632,866 in 1920. These figures do not include the domestic beet and Louisiana cane sugars, customs duty, cost of refining, cost of distribution, freight charges, nor many other attendant costs, probably bringing the total cost to the American people of all sugar consumed in 1920 to more than $1,5°0,000,000, at wholesale prices. The stockholders will understand the conservative course followed by your Com pany in view of this largely increased supply of sugar in the United States in 1920, when it is recalled, for reasons already given, that our own tonnage was less than usual.

Ample justification is again afforded for the comment of the United States Tariff Commission under recent date, that your Company "cannot be said to occupy a mono poly position in control of supply and prices," nor, we might add, of responsibility either directly or indirectly for the results of the attempted de-control of sugar. As a result of attempted de-control, we have had famine and plenty, prices ranging from 4t cents to 24! cents for duty-paid raw sugar, and from 7! cents to 27! cents re finers' list price for refined sugar, with financial wreckage from producers to grocers, not only in the United States but in Cuba, in Canada, and in many foreign countries. More serious still, attempted de-control on an empty shelf, and the resultant panic of prices, may profoundly affect all United States producing fields, including Cuba. How violent were the fluctuations in raw sugar prices in 1920 will be understood when it is stated that an investiga tion of the prices of over one hundred years, including the years of the Mexican and Civil wars, \fails to reveal a change in anyone year one half so great as the fluctuation of 19.875 cents per pound of last year. Even in 1914, the year of the sudden outbreak of the Great War, the fluctua tion was only 3.625 cents, while from 1900 to 1910 the [ 57] Too Much Government-Too Much Taxation greatest fluctuation was in the year 1905 and that with only a variation of 1.815 cents per pound-less than one tenth of the fluctuation of the de-control year of 1920.

In the year 1920 the people of the United States paid the highest prices ever recorded, amounting to many un necessary hundred millions of dollars in the attempted de control by our Government of a world staple, for two years held below its world's parity, without the caution of ac cumulating stocks or of taking any other preparatory measure for the transition . .The volume of refining operations was the smallest in the history of the Company. We were unable to overcome the handicaps growing out of the long period of uncertainty and indecision as to whether there would be government control or de-control. Strikes and importation of direct consumption sugar also caused a loss of volume. More over, the continuance of the Lever Act not only affected our volume by providing a field for the "toll" contract, but also affected our earnings by reason of the uncertainty which prevailed and still prevails, as to whether cost or replacement value may be used in determining prices.

How de-control conditions interfered with our refining operations will be seen from the following table: Brooklyn Refinery . Jersey City Refinery . Boston Refinery . Philadelphia Refinery . Chalmette Refinery . Started Jan. I Mar. 17 Jan. 16 Jan. 21 Jan. 20 Mar. 9 Closed Nov. 17 Sept. 4 Nov. 17 Nov. 17 Feb. 13 Oct. 5 Melting Days 265 173 253 229 200 The total business of the Company, including all its operations, sugar, syrup, molasses, cooperage, tim her, lumber, tank cars, tank steamer, and railroads, was over $35°,000,000. It was the high prices, notwithstanding the reduced volume of our tonnage, which resulted in this large figure. On this large business we secured an operat ing profit of only $1,802,437, a return of about! cent on each dollar of sales, or less than llf of a cent (one mill) on [ 58 ] Government War Control of Sugar each pound of refined sugar sold. The operating profit continues to be one of the narrowest in the manufacturing field, and for 1920 was wholly inadequate. It was arrived at after setting aside at cost all raw sugar necessary to ful fill our outstanding contracts with the trade, but after an adjustment to market prices of our unsold inventory.

(From 1921 Annual Report) The events of 1921 are merely a continuance of those of 1920, all incident to the disastrous attempt by our Govern ment to de-control a world staple, for two years held below its world's parity, without the caution of accumulating stocks or of taking any other preparatory measure for the transition. While the financial effect on the refiners and producers of the United States field, both beet and cane, has been most disastrous, yet the abject distress of Cuba has been the outstanding feature of the year. Cuba had to bear not only the burden of its ordinary crop, but of its stimulated production. So violent was Cuba's reaction that most of its own banks were carried away. In the stress of its financial needs it, too, undertook the risk of sugar control. It should be set down, however, to the credit of the Cuban sugar industry that even in its great national financial distress the necessary consent of 70 per cent. of Cuban production was obtained with the very greatest difficulty.

The Cuban sugar industry, like others, had learned the peril of government control. However, in February, 1921, the Cuban Sugar Finance Committee was formed by the Republic of Cuba with large powers. Created to "obtain the necessary credits for the realization of the crop," it suc ceeded too well. By bringing about a recovery of prices during February and March, the producers were encour aged to such an extent that the usual crop of nearly 4,000,000 tons was produced. Cuba's difficulties were not overcome notwithstanding a most skillful de-control on Decem ber 3I st, last. We are setting down these facts of control and of de-con[ 59] Too Much Government-Too Much Taxation trol in the United States and in Cuba, not in the spirit of complaint, by reason of their effect on the business of your Company, but rather to point out the inevitable drift of government control and the futility of any effort to set aside economic law. The success of the earlier efforts of sugar control during the war was due to its international character, and especially to the help of internationally controlled shipping. It was no guide, and certainly was no precedent, to encourage any of the efforts which have been made since the Armistice, all of which have failed so griev ously, whether in the United States, Cuba, or elsewhere.

For these experiments of government control and of de-control the people of the United States and of the world have paid hundreds of millions of dollars. The magni ficent sugar industry of the United States field, including the producers and refiners, both beet and cane, whether of continental United States, the Philippines, Hawaii, Porto Rico, or of Cuba, has paid almost with its life. United States investments, in the hands of hundreds of thousands of people, amounting to several billions of dol lars, have been put in jeopardy. The United States sugar industry, the greatest of its kind in the world, ranking in importance with steel, railroads, and farm products, was de-controlled by legislative fiat and executive order, with out proper regard to elementary economic laws. Is it not time for the public, who must in the end pay the bill on every pound of sugar they buy, to insist that the sugar industry be given a rest from any further control or experiments of any kind, of any name, of any device, and be given an opportunity to recover its position under its own direction and administration? In any event, whoever undertakes to introduce further artificial measures in the present complicated position of the sugar industry, does so at great risk and under grave responsibility to the entire people of the United States.

The refiner stands between the producer and the con sumer and usually bears the burden of the consumer's complaints, but he will assume no responsibility for the high prices which will come with any artificial crop curtail[60 ] Government War Control of Sugar ment or other experiments. The people of the United States understand that the Government stepped into the sugar situation during the war, but certainly they will be unwilling to pay the price of any further experiments, or of any efforts to exploit the disaster of de-control to the ad vantage of any section of the industry. The law of supply and demand is inexorable in itself, and before it all people, whether governments or individ uals, whether legislators or consumers, still must yield. Since the Armistice little progress has been made in re viving the sugar industry within the European war area, so .there still is little exportable surplus. The world's supplies and demands remain in about the same proportion as during the war.

The United States sugar industry as a great world factor is an incident and accident of the Spanish War. We went to war to save Cuba and by accident got the Philippines. Porto Rico was an incident. The so-called United States field may be described as comprising the beet and cane sugar of the United States, the cane sugar of Hawaii, Porto Rico, the Philippines, Santo Domingo, Hayti, the Virgin Islands, and, by reason of the Reciprocity Treaty and of our investments, the cane sugar of Cuha. The total production of the United States field in the year 1898 at the close of the Spanish War is set forth in the following table: United States Beet . Louisiana and Texas Cane . Hawaii . Porto Rico : .. Philippines . Santo Domingo and Hayti . Virgin Islands . Cuba . Tons 41,000 310,000 225,000 54,000 15°,000 4 8,000 13,000 315,000 1,15 6,000 At the outbreak of the European War in 1914 there had been the large development shown by the following table of production for 1913: [ 61 1 Too Much Government-· Too Much Taxation Tons United States Beet. . . . . . . . . . . . . . . . . . . ... . . . 624,000 Louisiana and Texas Cane. . . . . . . . . . . . . . . . .. 153,000 Hawaii. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 488,000 Porto Rico. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350,000 Philippines. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155,000 Santo Domingo and Hayti. . . . . . . . . . . . . . . . . . 84,000 Virgin Islands. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 Cuba 2,428,000 4,288,000 What with devastation, neglect, and the substitution of other crops, the sugar output of Europe is now 2,000,000 tons less than in pre-war days. The Old World's loss has been the New World's gain.

In contrast with the foregoing tables, the one below gives the production for that field in the year 1921, which shows an increase since the outbreak of the war of over 2,000,000 long tons, most of which has been in Cuba: United States Beet . Louisiana and Texas Cane . Hawaii . Porto Rico . Philippines . Santo Domingo and Hayti . Virgin Islands . Cuba . Tons 969,000 157,000 508,000 437,000 252,000 191,000 4,000 3,936,000 6,454,000 The United States and Cuban fields are sufficient to meet for some years all the needs of the United States and of Europe. It would have been a wise provision if some commitments, aside from informal assurances, had been secured by Washington before it inaugurated its war programme of stimulation of sugar production in the United States field. The initiative of producers and refiners and the investment of hundreds of millions of American capital have made possible in Cuba and the United States a vast increase in the production of a food staple of pre-eminent world im portance. The world needs this sugar. The United States has the excess capacity to refine at least a million tons for export. Not another brick need be laid.

[62 ] Government War Control of Sugar There is bound to be a race for foreign markets. Will the ultimate prize go to Cuba and the United States, or will it go elsewhere? The answer must be made by the industry itself. It had the pioneer courage to invest hundreds of millions in production. Without doubt it will have the courage, vision, and sustained patience to find and to hold foreign markets. In the foregoing quotations we have the pros and cons of government control stated by experts on both sides, after a huge experiment on the broadest scale and under most exceptionally favorable conditions. Mr. Bernhardt says the United States was 750,millions better off at the end of 1919, after two years' control. But Mr. Babst says we were "many unnecessary hun dredmillions" worse off at the end of I 920, because of government methods of de-control. At the end of 1921, he says, theyear has largely increased the disaster of 1920; and he begs hard to be spared control in the future.

No man can read Mr. Bernhardt's book, or Mr. Babst's Reports, without being dazed by the size and complexity of the problem of control of a great world trade; or without being struck with the absolute im possibility to the best minds, both in the trade and in the Government Commissions, of sizing up the world market situation, and foreseeing its course. Pro fessor Taussig seems to have made the best guess as to the impending avalanche of sugar-though perhaps not the best as to means of breaking its fall. While my own opinion is as worthless as the next man's, two things seem to me to stand clearly forth. 1st. That the increased Cuban and United States production, which so greatly helped out during 1915-16-17, certainly would have come just the same under an open market price of above $7.00 per 100, [ 63 ] Too Much Government-Too Much Taxation north side ports, as it did under a controlled price of but $4.60 to $5.60. There would certainly have been just as much sugar and just as many vessels afloat (though perhaps not carrying sugar), if commerce had had its free way. For sugar was practically a war necessity. And we, the richest of the nations, would have got our full share. Retail prices might have been far higher during the war, but I guess would have dropped far quicker after the Armistice had released the Java supply; and while there must have come a reaction in the sugar trade, it would probably have been no worse than in most trades and not nearly so ghastly as it was. Thank heaven, the emergency has passed; but should it recur, the success of government control in sugar as a war measure is not so clear as to warrant trying it again.

2nd. That the experts of the Commissions and the wisest merchants in the trade were utterly unable to forecast its course; yet Congress was perfectly ready at all times to "butt in," ignorantly. No less than 37 bills as to sugar and sugar control were introduced in 1919; one of them, as it happened, by my own Congressman; an able and estimable local lawyer before going to Congress-but surely at least as ignorant as I myself of the vast and complex com merce in sugar-one in which so many thousands of producers and brokers had spent their lives, yet could not forecast it in 1920. If those Congressmen evolved those 37 bills out of their own inner conscious ness, for the good of the country generally, the odds are 100 to I that they did not know in the least what they were going about. If, on the other hand, they were prepared and handed to the Congressmen by particular constituents for introduction, the chances are 100 to I that those constituents planned a private dip into the United States sugar bowl.

[64 ] Government War Control of Sugar One or the other is almost sure to be the case, when Congress steps in to limit the free action of any law of trade, in any way whatever. Limitation neces sarily means pinching opportunity for some and swelling it for others; so at once both parties are either forced, or tempted, to bring pressure on Con gress for selfish ends. Right there is the fundamental vice of all meddling of government in business I Before leaving this chapter, a few figures will show why Mr. Babst is so bitter against that vice. As I showed in my 1912 book, the "Sugar Trust" had bought out competitors in vain, over and over again; but it had quit combining and gone in for open com~ petition years before; and had become in that way a solid earner and dividend payer of from 7 to 9 per cent. on its shares. Now see what happened to it because of government control and de-control: It had started the year 1914 with a surplus of $18,229,425 accumulated from fornier years. It paid dividends of from 7 to 9 per cent. right along on both preferred and common shares from 1914 until 1920, out of earnings or surplus, as the case might be; but that surplus lost or gained, meantime, as follows: 11,074,935 $ 7,15~hf9°Surplus remaining end 1921 [ 65 ] 1913 Surplus brought forward $18,229,425 Loss Gain 1914 Free market $ 1,198,631 1915 Do 701,992 1916 Do $2,019,909 1917 Do 1,912,815 1918 Government control 1,121,9°6 1919 Do 1,768,7°6 1920 De-control & Smash 10,686,280 1921 Do 5,311,368 Total loss $17,898,271 Total gain Net loss Too Much Government-Too Much Taxation So the Sugar Company had to borrow $30,000,000 on mortgage bonds to tide over the smash. No wonder Mr. Babst felt bitter!

If·meantime the people had benefited at the cost of the Trust, the demagogues in Congress could point with pride to that achievement. But, alas, there was no old-time cheap sugar till the Government let the open markets drop on the United States trade, in 1920. Even when it finally did so, could there be a better example of the total incapacity of such a body as Congress-and other legislatures are no wiser-to deal intelligently with such a kaleidoscopic trade, than the stupid, dilatory vacillation, of a thoroughly dazed bunch of politicians, that ensued? They were not so much to blame for going wrong, where the wisest experts in the trade could not see the way aright. But, now that the thing is over, it seems clear enough to me, at least, that they never should have monkeyed with that particular buzz-saw at all; but should have let prices run their natural course, during the war and after it.

Government War Control of Wheat. During the ten years before the World War, from 1904 to 1913 in clusive, our United States farmers had sowed every year an average of nearly 47 million acrestowheat; had raised an average of 710 million bushels; and had ex ported an average of 98 million bushels (rising at times to around 150 millions) at an average farm price of 84! cents a bushel. When the war came and Russian and Rumanian wheat supply was barred by the fighting lines, while Argentine and Egyptian wheat was cut off by the German submarines-as with sugar, so with wheat, the United States became the most available source of supply. Prices, acreage sown, and production jumped about under war stimulus, farm-labor short age, and the weather, as per the following tabulation: [66 ] Government War Control of Sugar Farm price Acreage Bushels Exports (cents) (millions) (millions) (millions) 1914 98.6 53·5 891 332 1915 91.9 60·5 1026 243 1916 160·3 52.3 636 204 1917 200.8 45.1 637 134 1918 2 04.2 . 59.2 921 287 1919 215.1 72.3 (bad crop) 934 220 1920 144·3 57.2 787 293 (Authority, U. S. Statistical Abstract, 1920, and Chicago Board of Trade for Exports from 1920 crop in 1921) As soon as the United States went into the World War, Congress passed a Food Control Act, and Mr.

Hoover was made Food Commissioner as aforesaid. He promptly organized the Wheat Corporation, with $100,000,000 capital furnished by the Government, to act with the Allied Governments to buy and sell the American wheat crop, in so large a way as to block speculation and profiteering in the wheat markets of this country. Here, as in control of sugar, he called in the loyal voluntary aid of the great ex changes and their members, the leading buyers, ship pers, and millers of the United States; at the same time starting a popular educational campaign for saving wheat, by substituting corn and other meal for wheat flour. Furthermore, he stimulated the grQwing of wheat in the United States by guaranteeing to buy all wheat grown by the farmers at the very high price of $2.00 per bushel, for the seasons of 1918 and 1919. The result was an enormous increase in acreage sown, especially. in 1919; though largely offset by a very bad crop that year.

This, with the voluntary use of substitutes for wheat by millions of American housewives, permitted heavy exports to Europe, at prices Europe could pay. Without Mr. Hoover's powerful intervention and government guarantees, it is hard to say what might have been the course of the price of wheat. Govern[ 67] Too Much Government-Too Much Taxation mental shipping control came in, of course, with wheat as with sugar. Let us admit, for the moment, that the price of wheat was stabilized in the world market, and that there was no speculative "profiteer ing'" on a great scale during government control. But what happened afterward? Precisely the same violent deflation that happened to other commodities came upon farm products in 1920. With over-abundant shipping and conse quent release of the Argentine and other surplus ac c:umulations of wheat during the war, along with the fall in all European exchanges, the values of wheat melted away like the traditional snowball in hell; although the empty granaries of Europe took liberally of the 1920 crop. By 1921 the American farmer was in dire need; precisely because the abnormal support of the' Government was ruthlessly withdrawn just when he had got in the habit of depending on it.. Under the stimulus of patriotism, of helping the Allies in the World War, and most of all under government guarantee of ,an almost fantastic price for two years, the farmer had sown huge acreage to wheat; he had bid up in competition with manufacturers the wages of farm labor three to one; he had often bought land at double price per acre; and was paying for every thing he had to buy in the same proportion. For three years he had made money; but no one warned him to save and put his profits in the bank against the day of deflation. When it came, sudden and swift, with the restoration of world crop-selling and the poverty of world crop-buying, he woke up to find out that he could not get for his 1921 crop anywhere near what it had cost to raise.

True enough, he was in much the same boat as everybody else-especially the great manufacturers, who hClrd reaped enormous war profits. (Not~ the t68 ] Government War Control of Sugar utter demoralization and huge shrinkages of profits suffered by the great corporations in 192I, almost without exception, as tabulated at the end of this chapter.) But such an experience was new to the farmer, though familiar enough to manufacturers; and he straightway thought everyone, the railways, the elevators, the speculators, the retailers, the bank ers, were robbing him; while his pet demagogues, Townley and LaFollette, did not wait a minute to tell him that an all-powerful but all-foolish Congress at Washington was the easy gang to scare stiff with the farmer vote, until it should rob Wall Street in turn for his benefit. Yet the farmer was hit no whit harder than the rest of us. The average price of wheat of 1919, $2.15 per bushel, dropped to $1.44 in 1920, or 33 per cent.; while Bradstreet's Index Num ber of wholesale prices ~n 106 leading commodities fell during 1920 from 20.869 to 13.626, or 35 per cent.

Unfortunately, the average price of wheat of 1916, namely $1.60 per bushel, being under "control" had risen. by 1919 to but $2.15, only 34 per cent.; while Bradstreet's Index Number of the commodities rose from an average of 11.824 in 1916 to 18.664 in 1919, or nearly 58 per cent. In other words, the farmer suffered almost the same deflation as· all the rest of us on the price of wheat; but government control had previously robbed him of 58 less 34, or 24 per cent. of the inflation by which all· the rest 'of us benefited! No wonder the poor fellow was caught short of cash; and no wonder that he squealed to Congress! As I write (June 10, 1922) Mr. Hoover is en deavoring to control prices of coal-not by law, but l by voluntary cooperation among producers and re tailers-according to a fixed maximum suggested by himself. The instant result, even before consum .. [ 69] Too Much Government-Too Much Taxation mation of the voluntary agreement by all the parties concerned, is an advance of retail prices in the open market; and a double squeal from some of the re tailers, and from President Lewis, of the Coal Miners' Union-the retailers complaining that they can't take it out of the public; and the Unions roaring that nevertheless they and the producers must! A very pretty mess; beautifully illustrating how impossible it is for any "control" but that of the law of supply and demand, to satisfy anybody, for any length of time. I have the warmest admiration for Mr.

Hoover's magnificent ability and world services; and the greatest hesitation in setting my ignorant opinion against the vast knowledge at his command; yet I cannot for the life of me see that the results, as actually recorded, of his control of wheat and sugar, should lead us all to expect anything better from his present attempt artificially to control the price of coal. He seems to contemplate a more or less temporary stabilization, at a price high enough to stimulate non-union mine production; which nat urally brings a howl from the union mine-workers. By the time control comes to an end (when the effect of the strike ends) heaven only knows what tor rents of coal will flood the market, from abroad and at home, and sweep away any price-dam set up to hold them. The coal operators are experienced busi ness men, and should not be caught as were the farmers; but so were the sugar manufacturers ex perienced men-yet see what happened to them when government control ended.

Perhaps Mr. Hoover counts on the voluntary cooperation of the coal trade as more flexible and intelligent than Congressional "control"; as indeed it should be. Let us hope for the best-and end this chapter with a "Scotch verdict"-namely, that the [7° ] GovernmentWar Controlof Sugar success of sugar and wheat control during the Great War is "not proven." (Note.) To show that the sugar magnates were not the only business no more able than the farmers to es cape the disaster of world inflation and deflation of prices, I append the following table, already referred to above. RISE AND FALL OF CORPORATE PROFITS, 1912-1921 (Net earnings-millions) Ameri-DuPont Ana-Standard Swift & u. S. InterYear can Powder conda Oil-N.]. Co. Steel national Sugar Copper Paper 1912 7·439 6.87 2 15.851 35.108 8.250 77.075 3.238 1913 3·995 5·347 11.333 45·692 9.250 104.537 2.984 1914 5.277 5.603 9. 198 31.458 9·45° 45·6II 3.089 1915 6. 185 57.841 17.680 60·777 14.087 96.997 3.122 1916 13·455 82.013 51.780 70.792 20.465 293.000 7.466 1917 14.191 49· II3 34.860 81.4 16 34.650 243.875 12·932 1918 12.552 47.221 21.479 57.9 19 21,157 157·794-8.195 ,19 19 15.251 27.725 6.380 77.986 13.870 97· IIO 7. 171 1920 6.405 28.058 5.035 164.461 5.170 129. 167 21.239 1921 0·9°3 5.562 (13·953) 33.846 (7.812) 55.210 1,114 Loss Loss The same tale of. violent inflation and deflation of sales and profits is told by the published annual re ports of many hundreds of great corporations. There is substantially no exception, even though foresight led many captains of industry to lay aside part of the huge profits of the years of inflation, to provide for shrinkage in the years of deflation sure to come.

Just so Moses, in the Old Testament days, laid aside reserves of corn during seven fat crop years, to take care of the Egyptians during the seven lean years that ensued. But neither Moses nor our modern captains of industry could prevent lean years and deflation. If [ 71 ] Too Much Government-Too Much Taxation the latter, the wisest men in their respective trades, are yet not wise enough for such prevention, what utter folly is it for four or five hundred Congressmen, half-baked-no, one hundredth part baked-econo mists, to attempt to stem the mighty ebb and flow of world commerce and values. Government War Control of the Railroads. I now come to the largest, longest-winded, and most convincing failure of government interference with big business-the slow starvation of the railroads by the Interstate Commerce Commission and the Federal Railroad Administration. For nearly forty years we have attempted, with the best intentions, to regulate, by general rulings of a centralized political commission, the countless millions of daily transac tions of the vast railroad systems of this great coun try in such a way that justice should he done by arbitral authority to every road, every shipper, and every community. But what is justice, and who shall determine it, in the vast welter of different and constantly changing conditions, commodities, values, prices; of clashing regional interests, local and gener al, natural and artificial, that swamp every effort to establish general rules, and everlastingly contradict each other in specific cases?

The impossibility of answering this basic question is over and over again evidenced by the army of workers, and the millions of money, for forty years worse than wasted in and about the work of the I. C. C. Tons and tons of contradictory expert reports, files and transcripts of testimony, cumber its offices at Washington. Thousands on thousands of pages of railroad valuations, accepted or disputed, bewilder the mentality of its poor devils of rate-makers, who are ground between the upper and nether millstones of low freights for the farmer, the manufacturer, and [ 72 ] Government War Control of Sugar the miner, high wages for the workers, and just re turn for the investor~between Boston and Baltimore exporters, between Chicago and Kansas City job bers and packers, or Eastern and Western coal operat ors and steel makers. Who, of all the disgruntled claimants that appear before the Commission, is satisfied? What class or section is content? How do the common people, the small shippers, the masses who are the peculiar care of the politicians-how do they benefit by reason of the I. C. C.?

If, for a few moments, we can shut our ears tight to the clamor of the Farmers' "Non-Partisan League, the Railway Brotherhoods, the A. F. L. and the One Big Union; of the Soft Coal Strikers, and the Hard Coal Knockers; of Gompers, LaFollette, Lewis, Jett Lauck, and their vociferous company; and open our eyes wide to the great, big, simple, ugly facts that stick out at us from the pages of official documents-such as the "Statistical Abstract of the U. S." for 1920 and the I. C. C.Reports-we can get a sort of air plane view of the whole huge subject; enabling plain average citizens, like you and me, to size the situa tion up broadly, without much possibility of error. Railroading in the United States dates back a little before 1830. In that year 73 miles of railroad were in operation. Population was then 13 millions. By 1886, when the Interstate Commerce Commission was created, population had grown to 57 millions, say more than four-fold, but the railroad mileage had grown to 136,338, or nearly six thousand-fold! Even during the terrific· financial strain of the Civil War, far harder on this country than that of the recent World War, and despite the paralysis of deflation which followed; with an unsound currency system and repeated panics-despite the wrecking of the Southern systems during the war-the railways of r73 ] Too Much Government-Too Much Taxation the United States rose continuously to every demand.

They had no trouble in financing and building exten sions, nor in providing adequate equipment and good service. The Government was not obliged to take them over, or carry them during the Civil War. It is true that some of them were aided by grants of wild lands, and some by subscriptions for stock, paid by local or national bond issues; but for the most part the roads took care of themselves; grew like forest fires; competed fiercely with each other, and gave always better service at lower cost; so long as, but no longer than, the heavy hand of Government was kept off them. Doubtless, Vanderbilt and Gould did some stock watering; Scott, Garrett, and Plant made fortunes, big for those days, though not now. The railroad presidents sometimes, though not very often, were somewhat arrogant; and by and by our dema gogues found that elections could be won just by promising to humble the railway magnates and bleed the railway treasuries. For more' than 30 years, commencing with the I. C. C. law in 1886, Congress has kept on, year by year, fettering the railroads, or their owners, more tightly; always ostensibly for the protection of the "People."

Well, what of it? Have the people gained? Are rates lower? Is service better? Not at all! I suppose everybody knows the reason-it was simply that for twenty-five years the roads had become the plaything of politics. Not only the Interstate Commerce Commission at Washington, but State Commissions at most of the State capitols, took away from them their old-time power to make rates that the traffic could comfortably bear; taxes and burdens were piled upon them, issues of securi ties and mergers were rigidly controlled; ownership of coal and connecting trolley and steamship lines [ 74] Government War Control of Sugar was taken away. Meantime, the labor-unions were encouraged by the Government to constantly grow ing centralization of control and monopoly of rail way work, to shortening of hours and limiting of duty done; against constantly rising payrolls. Long be fore the Great War, railroad .net earnings had fallen in consequence until railroad stocks and bonds no longer greatly attracted the investor. The great banks and bond-houses no longer cared to finance the railways, knowing that the public would not take off their hands new issues of railway insecurities. Mean time, a thousand industrial companies grew like weeds. Henry Ford, for instance, made the most unparalleled "killing" in the history of business; such as Vanderbilt and Gould would have called fantastic. Rockefeller and Carnegie, Schwab and Frick, Armour and Weyerhauser, and the rubber and copper men, piled up their multimillions. By and by came the war; and Bethlehem, DuPont, and other "war brides" danced gaily forth. Everybody "profiteered" except the railroad men; who, poor devils, under worse and worse conditions, moved greater and greater loads of men and goods.

Next came the Adamson Law, as final back breaker-with impossible retroactive advance of wage rates; yet for long months the roads were held fast, without authority to raise charges for freight and passenger service. Last of all came Wilson and ·McAdoo to take over and operate the railways, on the pretext-perhaps true enough so long as the Government should continue to throttle them, but no longer-that their vitality and emergency re source (so conspicuous during the Civil War, when Lincoln and Stanton left them alone) was exhausted -so that they could not carry the war load. Of course there was much searching of hearts [75 ] Too Much Government-Too Much Taxation among the railroad men, many of whom protested bitterly, as they had been protesting for years, at least as far back as the date of James J. Hill's cele brated statement of the railway situation in Decem.ber, 1912: every word of which had been confirmed by the event again and again meantime. I am not a railroad man. I know as little of railroading as any ordinarily well-informed business man should know, and hold no commission for eulogizing them-but I can not help taking, off my hat to those great railway executives who laid aside their personal griefs and opinions, and turned to with one accord to help that devastating Administration to win the war 1 But that, as Kipling says, is another story.

The melancholy effects of Federal Railroad Ad ministration are too fresh in mind to need presentation here. Wages were raised with enthusiasm, and tar iffs decidedly later, but without enthusiasm. Trains were laid off and slowed down, sleeping and dining and express and postal service was cut and delayed, passenger and freight speed lowered; and a net operating revenue, or profit,of 1,185 million dollars for 1917 was changed almost instanter to a loss of 349 millions for 1919 and 1,039 millions for 1920. (Statistical Abstract, 1920.) The naturally resulting reaction of public opinion against government owner ship and operation was so marked by 1920 that al though McAdoo wanted to retain the roads for an other term of years, a Democratic Congress dared not risk the issue in a Presidential year; and the roads were turned back to their owners, burdened with a labor situation that only now (July 4, 1922) is coming to a showdown (and a possible and welcome end) of the rottenness of the trading between Labor and Politics.

Consideringthe railroadsituationby itself, at the [ 76 ] Government War Control of Sugar outbreak of the war-and not how it came about with the uncertainties that clouded the future, no patriotic man would too severely criticise President Wilson, either for taking over the roads,' or for his handling of them during 1918-1919. He might easily have acted from sincere conviction of vital necessity, and not for possible political advantage though no such necessity was apparent for taking over the telephones, telegraphs and cables soon afterward; nor earlier when he first put the United States into the shipping business, while he "kept us out of the war." The existing railroad situation was neither unforeseen, accidental, nor created under vital neces sity.' It was the effect of deliberately "playing politics" for many years with the nation's greatest single industry, by successive administrations; par ticularly the President's own.

In saying this I intentionally sidestep the enor mous mass of argument and statistics involved in tortuous discussion of railroad rates; of competition; of regulation, state and national; of "twilight zones" and intrastate traffic; to say nothing of railway wages, "collective bargaining," "the right to strike," "peaceful picketing," overtime and craft rules, costs of living, and all the rest. If a man once gets into that quicksand or swamp of collectivism and regula tion-Heaven help him-there is nothing for it but to go on floundering deeper and deeper in the bottom less quagmire, until his name is Liquid Mud~ Let me invite him then to stay well out on dry, solid ground, where ordinary folks like you and me can set sure foot; for there is such solid ground, and an old, familiar pathway over it. From 1830 to 1890 the railroads were practically unfettered by the Government, free to develop along natural business lines. The railway system and"

[ 77 ] Too Much Government-Too Much Taxation service of the United States became the greatest, best, and cheapest in the world. In 1800 it cost $100 a ton to haul freight by wagon from Buffalo to New York, say 500 miles, or 20 cents per ton per mile. When the Erie Canal opened in 1826, the cost of the same haul fell to $5 per ton, or I cent per ton per mile. Those figures were equivalent to $2.7° for a bushel of wheat by wagon, and I3! cents by canal for the entire distance. The earliest railroad freight rates reported by Poor were 1.72 cents per ton per mile in 1873, I. I 5 in 1878, and 1.02 in 1879, but by 1890 they averaged on all kinds of freight over the whole United States .93 of I cent per ton per mile. By IgOO-Up to which date the I. C. C. had done little to affect rates freights had fallen to .72 of I cent per ton per mile, and swung around .75 of I cent until 1917, when they reached.72 of I cent again; advancing under Federal control to .850f I cent in 1918 and .97 of I cent in 1919. To put the result of government meddling in a nutshell, railroad rates fell automatically and continuously until the I. C. C. got in its deadly work ..

Since then they have stopped falling and have sub stantially advanced. It is idle to conjecture what might have happened to service and equipment if there had been no I. C. C. from 1900 to 1919. What did happen, we can see plainly enough. Railroad rates were held back, while train-operating cost mounted steadily beyond that of most commodities, over threefold. (Statis tical Abstract, 1920-Table 233.) Railroad earning power was thus destroyed-though business con stantly grew. Most roads could not keep up their existing plant, and pay interest and dividends; much less sell new securities, or enlarge equipment and terminals to keep up with growing traffic. t78 ] Government War Control of Sugar Here is the record kept by the Department of Commerce (Statistical Abstract, 1920.) Capitaliza tion before 1903 not given: Year Railway Capital Dividends & Inter-Income Yield est Paid Per Cent.

19°3 J 2,600,000,000 481 ,000,000 3.8 2 19°4-13,200,000,000 520,000,000 3·94 19°5 13,800,000,000 549,000,000 3.98 1906 14,600,000,000 595,000,000 4.08 19°7 16,100,000,000 65 2,000,000 4·°5 1908 16,800,000,000 759,000,000 4·52 19°9 17,5 00,000,000 7 04,000,000 4.02 1910 18.400,000,000 8°5,000,000 4·38 19 II 19,200,000,000 87 1,000,000 4·54 19 12 19,800,000,000 829,000,000 4. 19 19 13 19,800,000,000 802,000,000 4·°5 1914 20,200,000,000 892,000,000 4.4 2 19 15 21,100,000,000 793,000,000 3·76 1916 21,100,000,000 81 7,000,000 3. 87 19 17 21,200,000,000 7 85,000,000 3.70 19 18 20,7 8 5,000,000 73 6,000,000 3·54 The railroads were held down by the Government to returns of 4.54 to 3.54 per cent. from 1903 to 1918. Then came the climax of government mishandling, ,vhen the Wilson Administration took over the roads, January I, 1918, and held them for 26 months. The Class I roads (those with operating revenues over $1,000,000 per annum) showed the following conse quences of buying the labor-vote at the expense of the railways: (J. Krutschnitt-Railroad Efficiency, Past and Present, 1922) Year 1917 1918 19 19 1920 1921 Net R'way ReI. percentage Op' g Income Op' g Inc. Payrolls Earned 934,000,000 100 100 5. 26 639,000,000 68·4 150·3 3·51 455,000,000 48.7 163.4 2.46 62,000,000 6.6 212.6 0.32 Jan. & Feb. only 8,214.542 deficit.

[79 ] COLLEGE Too Much Government-Too Much Taxation Fortunately for the railroad stock and bondholders, they were guaranteed during operation by the Govern ment the same return as lately received under pri vate control. To pay that guarantee ran the Government behind in its 26 months of railroading, according to Senator Cummins, $I,800,000,00o-thus transform ing in so brief a time a profit of roughly $2,560,000 a day into a loss of $2,280,000 a day! Of course, Gompers and the United Mine Work ers (who would like to nationalize the railways and keep up the merry game of high wages and high taxes) will say the war was to blame for the frightful loss. But how did it happen that during the Civil War, under just as great a strain, with like rising prices and wages, the railroads not only lost no money, but grew and prospered mightily? They were free then to raise rates as well as wages, and in general to "fit the punishment to the crime "-that's all. And they did it without calling on the Government for a penny.

The whole bonded debt of the United States in inherited from four years of the Civil War was $2,7°0,000,000. That inherited from 26 months of this single ghastly demagogic blunder of United States Railway Mal-Administration was two thirds as much-$I,800,ooo,ooo! A .further costly inheritance from the latter is the present labor situation, to be discussed else where. A great deal is said just now by all sorts of politi cians, labor-leaders, pink socialists, and collectivists, to the effect that extravagance and bad management for the last few years had brought the railroads down to present starvation of their labor and their stock holders; but, as is customary with those fluent gentry, they carefully avoid citing the records. We can do so, however, as follows: [ 8o] Government War Control of Sugar (Department of Commerce, Statistical Abstract, 1920. Table 232.) Passengers carried 1 mile per mile of line, 1890 75,75 1; 1918-183,3°5 Tons of freight carried 1 mile per mile of line, 189°493,638: 1918-1,738,3°5 Average journey per passenger, 1890-24.06 miles; 1918-39.33 miles.

Average passengers per train, 1890-41; 1918-76. Average haul per ton of freight, 1890-122.21; 1918 175.81 miles. To translate these figures into simple words, the railroads in 1918 carried two and one half times as many passengers per mile of road, more than one and one half times as far: and three and one half times as many tons of freight per mile of road, one and four tenths times as far; as against a drop from 5.16 per cent. in interest and dividends paid to railroad owners on capital of 1890 to 3.51 per cent. earned (not paid) in 1918, and but 0.32 per cent. earned in 1920. (See Krutschnitt article.) Such huge in crease of service rendered with such fearful decrease of reward makes talk of bad management as absurd as it is dishonest. So-called "economists," like Jett Lauck, seem to me to be not even skilled liars as the most cursory examination will convince the reader. I have no interest whatever in railroads or railroad men; but once more I must take off my hat to the great railroad executives of this country for the splendid patience and courage with which they have carried an increasing burden in spite of decreas ing revenue, oppression and abuse from press, labor, the politicians, and alas, the public. It is high time to treat them better I Why wonder, then, that the last thirty years of enormous expansion have not built up the , [ 81 ] Too Much Government-Too Much Taxation American railroads as they did the oil and steel concerns, the packers, the motor-car works, the electric-power-and-light companies, the explosive and fertilizer works, and a thousand others? Why complain that the great, old, long-established rail roads did not, as they did during the Civil War, show themselves more than the peer of any or all our other capitalistic forces? Everybody knows the reason.

It was for no other cause under heaven than that the Government of the United States had for over twenty years weighed down and throttled its own railways. Every other kind of big business, of free business, prospered beyond belief during those same years; Standard Oil, U. S. Steel, Ford, General Mo tors, Armours, General Electric, Bell Telephone, and their competitors, big and bigger, grew and gained marvelously. When the war came, they" arose like giants refreshed with wine," as the Bible says, and mightily supplied the Allies with the sinews of battle. When we went into it, these great producers were the very mainstays of our wonderful military power, without whom we could not possibly have done what we did. No, once more, let me say, there was nothing the matter with America; or with Wall Street, or with the railroad managers. The deadly blight of govern ment interference with natural economic law is the only cause in sight for past and present unsatisfac tory railway finance and operation.

Unless it is done away with, the roads, which have been and ought now to be the greatest of all factors in our national development, will continue to cramp our prosperity and bedevil our politics, until we cast Government clean out of them, and reverse the miracle of Christ and the herd of swine. You [ 82 ] Government War Control of Sugar will remember that there was a man possessed of many devils, which, when cast out, entered into the swine; and that the latter forthwith ran violently down a steep place into the sea and perished. So it is with the railways possessed by the devils of gov ernment. The only way to keep them out of deep water is to cast out the devils. The New York Com mercial, first among the journals of. the great me tropolis, has recently come out for the repeal of the Sherman Law; and the country owes its courageous publisher a debt of gratitude therefor. If but the Interstate Commerce Law and the Transportation Act (and, while about it, the Clayton Act and Federal Trade Commission Act) were also to be re pealed, and the roads (and other enterprises) were left free to attract money and energy into their work as of old, with the certainty of reward to the investor, proportioned to the service rendered-how railroad ing and business generally would hum and boom for the next few years in the U. S. A! We could certainly set a lot of new marks for the world to jump at.

As the best demonstration of the disastrous effect of government meddling with railway' rates and ex penditures, I reproduce a diagram from Barron's Weekly, published by C. W. Barron, owner of the Wall Street Journal, the Boston News Bureau, and the Philadelphia News Bureau.' Mr. Barron is recognized as one of the first financial authorities and economists in the United States. This chart shows the fluctuation in the volume of transactions in rail way and industrial stocks from 1895 to 1921 . In '95, which was at the height of the craze for flotation of industrial or trust securities upon the New York Stock Exchange, transactions in such stocks were a little less than half of the entire volume of the busi[ 83 ] Too Much Government-Too Much Taxation ness of the Exchange and the railways a little more than half. But by 1922 the sales of railway stocks had shrunk to less than one fifth and those of industrial stocks had risen to more than four fifths of the total.

In short, the. American investor has been starved, frozen, and scared out of operating in the securities of the greatest railway system on the face of the earth. What possible gain has the American people made thereby? To-day's papers (October 17, 1922) note the ap plication of the Southern Pacific Co., filed with the Interstate Commerce Commission under the provi sions of the recent Transportation Act, seeking authority to acquire control of the Central Pacific Railway Co. The reader will recall that the Supreme Court of the United States recently decided the suit commenced by the Wilson Administration in 1914, for the divorce of the Central Pacific and the Southern Pacific Railway systems, against the railway com panies, and ordered the dissolution carried into effect. Meantime, under the Transportation Act, provision has been made for regional consolidations of railway systems all over the country, in direct opposition to the spirit of the Sherman Law and the original In terstate Commerce Law. The application says the dissolution would create "in place of the present unified system, each part designed to operate with every other part, two systems, neither of which was constructed as a separate system and neither of which could give the public the satisfactory and efficient service which is being rendered by the existing single system. By reason of the foregoing, applicant alleges that the public service now rendered by these lines will be greatly impaired; and the cost thereof will be greatly enhanced unless the applicant is per mitted to acquire lawful control of the lines of the [ 84] 00 V"1 ! I s; ~ ! ~ .... ! § §~I"'I~=""N~'= &oft = ~ ==~ .... 0/0% e:::tl .... .... .... ! _ ! ii ~ 'il ~ =... ~ 1922:s ~i e') ~ ~ CJ') ~ 100 - ... ... ... ... ... 100 N. Y. STOCK EXCHANGE 90 TRANSACTIONS IN PERCENTAGE 80 ..,.... , .... 6' 'I 80 80 - a INDU.STRIALS ,.....:.......I-AIT 70 .-'"" 70 A/ ...... " 'II!

I'<Il :-... eo 60..... .T . II - " ...... I 80 60 ~ ... , .. I' 40 40 -- -# ?\ '" ~ ... , I 30 30 'a. ~ 20 20 '.......... "'"RAILROADS .... ....... "10 10 m.: .-.. ! ! 8 S ~ COW; ! Lri ! ! j~ I ~ .... ~.5! ~;= ~ CO; i :s." m- ·1 .... :~ :1,.Ill)oo......... >,-v . = I~ C> .... 5 it_ "1j!.C"C~ ~~"UCIIIII 00 = ~ .~ eft ~ ~, ~-~ ...'2c .......... ozo!""t .... -... .... .~ _r ... .... .... ... .... ..... P1 C6pYriPtbytti "'.IONES A co. .,ZZ This chart shows vividly the growing unpopularity of railroad shares with the capitalist public, under the throttling hand of regulation by government, and their drift of investment toward the unregulated industrial shares. The mul timillionaires have used the machinery of the Stock Exchange to unload their holdings upon the small investors. In consequence, the stronger roads show a great increase in the number of small shareholders, and decrease in large hold ings. This should popularize them in the long run, but makes it harder for them to get in new capital, for extensions, etc.~ meantime. (Quoted by kind Permission/rom "Barron's Weekly.") Too Much Government-Too Much Taxation carrier to the extent and by the means proposed herein."

We shall see what the Interstate Commerce Com mission does with this application. It is cited here merely as one more illustration of the kind of bru tum fulmen of which government is so fond. ( 86] CHAPTER IV GOVERNMENT ATTITUDE TOWARD LABOR PERHAPS the worst of all government inter ferences with industry, in immediate and remote consequences, has been its relations with Organized Labor. As I write (July 20, 1922) we are fighting for coal and transportation, the very breath of civilized life, against the hard knot drawn tight by Organized Labor around the throat of the coal and railway trades; which needs quick,sharp, and decisive cutting by the sword of law. The game of labor-organization is very old, simple, raw, and always the same, viz., Find a hundred, or a thousand, or ten thousand men, quietly at work for one employer, every man of whom individually has deliberately accepted stated work at stated wages, presumably as the best job in sight; and has kept it contentedly, ofttimes for years, without paying union dues. Send a well-paid and fluent organizer to tell those men that they have "grievances"; that their employer is rich; that they work too long and hard, and do not get pay enough. Promise them less work, more pay, their own way, if they will join a few unions and pay dues. When enough are per suaded, then "organize," and call a strike. Throw a picket line about the job, and keep labor and ma terial away from it; by force, if necessary! Call sympathetic strikes, and tie up other concerns, to in[ 87 ] Too Much Government-Too Much Taxation crease the pressure. Tie up whole industries; cut off transportation, coal, water, food, the necessaries of life, without mercy, from whole cities, states, the nation. The people are the goats anyway, and must pay the bill, or go without. Eventually nationalize all industry and "organize" the nation!