d when it shall be found necessary or desirable, possession, control, or operation may be taken of all or any part of such street railway systems, including subways and tunnels; and by subsequent order and proclamation possession, control, and operation in whole or in part may also be relinquished to the owners thereof of any part of the railroad systems or rail and water systems, possession and control of which are hereby assumed.

The director shall, as soon as may be after having assumed such possession and control, enter upon negotiations with the several companies looking to agreements for just and reasonable compensation for the possession, use, and control of their respective properties on the basis of an annual guaranteed compensation above accruing depreciation and the maintenance of their properties equivalent, as nearly as may be, to the average of the net operating income thereof for the three-year period ending June 30, 1917, the results of such negotiations to be reported to me for such action as may be appropriate and lawful. But nothing herein contained, expressed, or implied, or hereafter done or suffered hereunder, shall be deemed in any way to impair the rights of the stockholders, bondholders, creditors, and other persons having interests in said systems of transportation or in the profits thereof to receive just and adequate compensation for the use and control and operation of their property hereby assumed.

Regular dividends hitherto declared and maturing interest upon bonds, debentures, and other obligations may be paid in due course; and such regular dividends and interest may continue to be paid until and unless the said director shall from time to time otherwise by general or special orders determine; and, subject to the approval of the director, the various carriers may agree upon and arrange for the renewal and extension of maturing obligations. Except with the prior written assent of said director, no attachment by mesne process or on execution shall be levied on or against any of the property used by any of said transportation systems in the conduct of their business as common carriers; but suits may be brought by and against said carriers and judgments rendered as hitherto until and except so far as said director may, by general or special orders, otherwise determine.

From and after 12 o'clock on said 28th day of December, 1917, all transportation systems included in this order and proclamation shall conclus:vely be deemed within the possession and control of said director without further act or notice. But for the purpose of accounting said possession and control shall date from 12 o'clock midnight on December 31, 1917.

In witness whereof I have hereunto set my hand and caused the seal of the United States to be affixed.

Done by the President, through Newton D. Baker, Secretary of War, in the District of Columbia, this 26th day of December, in the year of our Lord one thousand nine hundred and seventeen, and of the independence of the United States the one hundred and forty-second.

By the President:

WOODROW WILSON.

ROBERT LANSING,

Secretary of State.

NEWTON D. BAKER,
Secretary of War.

STATEMENT OF THE PRESIDENT.

I have exercised the powers over the transportation systems of the country which were granted me by the act of Congress of last August because it has become imperatively necessary for me to do so. 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 a simplified method of coordination which have not proved possible under private management and control. The 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; have done it with patriotic zeal and with great ability; but there were difficulties that they could neither escape nor neutralize. Complete unity of administration in the present circumstances in volves 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 and 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 Government itself will thereby gain an immense increase of efficiency in the conduct of the war and of the innumerable activities upon which its successful conduct depends.

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 railways need not then interfere with the borrowings of the Government, and they themselves can be conducted at a greater 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 definite guarantees be given: First, of course, that the railway properties will be maintained during the period of Federal control in as good repair and as complete equipment as when taken over by the Government; and, second, that the roads shall receive a net operating income equal in each case to the average net income of the three years preceding June 30, 1917; and I am entirely confident that the Congress will be disposed in this case, as in others, to see that justice is done and full security assured to the owners and creditors of the great systems which the Government must now use under its own direction or else suffer serious embarrassment.

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 Hon. 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.

The Government of the United States is the only great Government now engaged in the war which has not already assumed control of this sort. It was thought to be in the spirit of American institutions to attempt to do everything that was necessary through private management, and if zeal and ability and patriotic motive could have accomplished the necessary unification of administration it would certainly have been accomplished; but no zeal or ability could overcome insuperable obstacles, and I have deemed it my duty to recognize that fact in all candor, now that it is demonstrated, and to use without reserve the great authority reposed in me. A great national necessity dictated the action, and I was therefore not at liberty to abstain from it.

WOODROW WILSON.

The CHAIRMAN. The committee will come to order. The railroad executives were notified to be here this morning, and I take it as the matter of compensation is the question at issue, I think it would be well, as that question is involved in the first section of the bill—I will say to the committee that we are considering now the first section of the bill, which is exactly the same purport as we are considering under the resolution.

Mr. Thom, I believe, is to be heard.

STATEMENT OF MR. ALFRED P. THOM.

Mr. THOм. Mr. Chairman and gentlemen of the committee, I understood there were two subjects before your committee, one the Cummins resolution, and the other the bill which has been introduced in Congress and referred to this committee. I understood that the hearings on the two would be merged into one, and the first subject, concerning which we were prepared to put our views historically on the record, was the matter which has been testified about under the Cummins resolution.

The CHAIRMAN. As the Chairman understands it, the first section of the bill is precisely of the same nature of the question that we were

discussing under the Cummins resolution, and the testimony given by the Interstate Commerce Commission in reference to compensation.

Mr. THOM. Yes. Now, as to what had been accomplished by the railroads themselves, a record is being made here, and we have two representatives of what was the Railroads' War Board, who have prepared themselves to put upon the record the facts about what has been done. We realize that is not now a matter of vital interest so far as legislation is concerned, but we thought it would be well to have the record complete on that subject, and if it is not objectionable to the committee I should like to have Mr. Kruttschnitt and Mr. Rea-Mr. Kruttschnitt speaking for the railways throughout the country and Mr. Rea for the eastern roads-put the facts on the record.

Senator ROBINSON. If I may so express myself, I think at this time we ought to give consideration to the conditions of this bill which the committee and the country is interested in. I think the information you would present in the connection you have referred to is very valuable and desirable, but for my part I would rather hear something else first. If you are prepared to go on and present this bill, or the issues involved in it, I would be very glad to hear from

you.

Senator UNDERWOOD. While you are on the stand. I should like to ask you one question. This bill pending before the committee seeks in a tentative way to fix compensation, which I understand and believe can be done by an agreement. But do you contend, or is there any contention, that the Congress or the Executive has any power to fix compensation for the taking of private property if there is not an agreement between the parties?

Mг. THOм. Under existing legislation?

Senator UNDERWOOD. Can Congress fix what is the compensation if they take private property for public use?

Mr. THOM. No, except by agreement.

Senator UNDERWOOD. So, in the last analysis, the question of value, if there is not a voluntary agreement, must go to the courts or a quasi-judicial tribunal?

Mг. THOм. Yes; and that is referred to, as I understand, in section 3 of this bill.

Senator UNDERWOOD. Then the question of what ought to be compensation is not so very vital in this legislation, because if the parties can not agree it must go to the courts in the end?

Mr. THOм. It is vital in this way, Senator. Here are securities that are practically the foundation of the financial structure of this country; there is not a bank, national, State, or otherwise, whose financial standing does not rest to a large extent upon the value of railroad securities. The same thing is true of surety companies, and the same thing is true of every business and every benevolent institution. These securities lie at the very base of our whole financial structure. Now, if there is going to be a long period of uncertainty as to them, we must necessarily face a great financial disturbance in the country, and the resources of the country, in a financial way, for the use of the war, would be tremendously impaired. As a consequence, it is very desirable to have a quick method of settling what

the future status of these securities may be, and it is also very important to have a basis on which there can be an agreement without going to the courts.

Senator ROBINSON. Do you think that Congress can fix the basis? Mr. THOм. No, I do not; but Congress can authorize the President to agree upon a basis, and if the railroads agree also upon that basis, that will eliminate those where there is an agreement.

Senator ROBINSON. But here is the proposition: In the Monongahela navigation case, Judge Brewer held that Congress could neither fix compensation nor fix the basis of compensation for the taking of private property.

Mr. THOм. That is the law.

Senator ROBINSON. If that is true, of course I agree with what you say about the great importance of an early decision of this matter for the country outside of the railroads themselves, but I do not see any reason why we should take time or assume to do something we have no constitutional right to do, and I do not see how we can authorize the President to fix some quick method of reaching a conclusion. We can authorize some tribunal, some quick method of reaching a verdict, if the parties can not get together; but when we have done that, that is as far as Congress can go. The question of the value of these securities we can not fix; we have no power to fix. Is that not true?

Mr. THOм. That is undoubtedly true. Congress has no power under the express decisions of the Supreme Court to fix arbitrarily a basis for the taking over of any private property. That is a matter protected by the Constitution, and must in case of dispute be determined by the established tribunal. Congress can, however, do this. Congress can confer that upon any governmental representative, such as the President; can confer upon him an unlimited power to make an agreement, or it can confer a limited power to make an agreement, and it can provide in cases where there is no agreement for methods by which the matter can be tried out in accordance with the established precedent.

Senator ROBINSON. If it is a judicial trial?

Mr. THOм. If it is a judicial trial. Now, as I understand the bill which you gentlemen have before you, in section 1 there is an authority given to the President to make an agreement with these carriers within a prescribed limit. Then section 3 comes along and says, that if no agreement is made under section 1, then reasonable compensation may be ascertained under section 3. So it seems to me that the questions before you gentlemen are these: Do you consider that it is an important thing that this matter should be settled by agreement rather than by litigation? If you answer that question in the affirmative then the next question is: Where is it wise to repose the discretion to make the agreement, and what is the extent of the discretion which should be reposed?

If you answer, as doubtless you will do, that it is wise to confer the discretion upon the President, then the question which you will have to consider is whether that shall be an unlimited discretion or whether it shall be a discretion to make an agreement on lines which Congress shall mark out. That is one of the questions which I understand arise under section 1.

Then in order to have a system that is constitutionally valid, you have got to deal with the cases where no agreement is possible, and there you must establish a tribunal which will measure up to the requirements of due process, and which will have the authority to inquire and determine what just compensation is. Those are the principles, it seems to me, which control this matter.

Senator ROBINSON. Mr. Thom, if you do not object, in your initial stating of this case, I shall like to ask you a question. I have not reached any definite conclusion myself, but I have some doubts, and I should like to have you clear them up if you can. How far are the officers and the directors of a railroad corporation able to commit. their corporation to an agreement as to the value or just compensation for the taking over of the properties? In other words, if the directors of the Southern Railway agree with the President of the United States that a certain fixed sum is just compensation for the taking of that property, how far is that binding on the real owners or stockholders of the road?

Mг. THOм. That is a very serious and a very large question, Senator. that you are asking. Ordinarily the dividing line between the power of the directors and the power of the stockholders is between the things that are vital and the things that are nonvital to the corporation. Everything in the way of management is within the power of the executives and of the boards of directors. When you go into the region of the change in the scope of the business, then it becomes the stockholders' question. When you go into the question of a disposal of the assets of the company, so that its original purpose can not be carried out, it becomes a stockholders' question, and you can readily understand that in a novel situation such as this a great many delicate questions will arise. In the first place here is the war power. Here is the thing done to save the Nation's life. Now, how far is that to be classed with those functions of a corporation which are vital and which the stockholders would have a right to declare?

Senator POMERENE. If I may interrupt, does that not address itself rather to the power to take over and not to the power to determine the compensation?

Mr. THOм. I was coming to that view. Now, then, of course it is clear that the war power may be exercised in the way of taking over these enterprises. When it comes to committing the corporation itself to the terms, it seems to me that the safe thing to do is to have the stockholders ultimately pass upon it.

Senator UNDERWOOD. To enter into an agreement?

Mr. THOM. To enter into an agreement. It seems to me that is the safe thing to do, but of course we are dealing with new subjects; we are dealing with matters somewhat in the twilight zone; and it is impossible for anybody to be dogmatic about a thing of that sort, and I do not hesitate to say that in a tremendous and a vital change in the way of carrying out the corporate purposes of this kind, and in a matter so far-reaching as to determine where the whole manner and usage of these properties are to rest it would be safe to have the stockholders pass upon it.

Senator POMERENE. Following up Senator Underwood's question a little further. Is not this the fact, that the power of your board of directors depends largely upon the provisions of the statutes of