Increase in tax base Employees and employers will, as of July 1, 1954, pay taxes under the Railroad Retirement Tax Act on employee earnings up to $350 a month instead of $300. The tax rate remains unchanged. It has been estimated that the railroads' share of the additional retirement tax will be increased by about $28 million a year. The increased cost to the carriers because of changes in the unemployment and sickness benefit rates will amount to approximately $25 million a year. All of the amendments to the Tax Act and the Unemployment Insurance Act became effective under the new law as of July 1, 1954. At the time of its passage by the Senate, both houses of Congress adopted Senate Concurrent Resolution 108, which effected additional amendments to 7840 in order to bring the language of the Omnibus Tax bill previously passed by Congress in line with the changes being made by enactment of H.R. 7840. BOOK REVIEWS Economics of Transportation By D. Philip Locklin. Published by Richard D. Irwin, Inc., 1818 Ridge Road, Homewood, Illinois. Irwin Series in Economics, 916 pp, $8.65. The author is Professor of Economics at the University of Illinois and this is the fourth edition of his authoritative textbook. This work is so well known among practitioners before the Interstate Commerce Commission that this review of its fourth edition will be confined to the author's statement (in the book's preface) of what has been accomplished and the changes which have been made: "The first edition of Economics of Transportation appeared in 1935; the first revision in 1938; and the third edition in 1947. The course of events in this dynamic and everchanging segment of the economy makes another revision of the book necessary if it is to serve its greatest usefulness. "After considering various plans for changing the organization of the book, it was decided to retain essentially the organization of the earlier editions, and thereby preserve the characteristics that have come to be associated with the book, rather than to produce a different book under the title of the old. Yet, within this original framework, the text has been completely revised and extensively rewritten; recent developments have been incorporated, and factual material has been brought up to date throughout. In revising, particular attention has been paid to the comments from the users of the previous editions in an effort to improve the text for classroom use. "A new chapter has been added early in the volume to provide an over-all look at the transportation system, to indicate the relative importance of the various modes of transport, and to note significant differences in their organization and call attention to differences in their development in point of time. A chapter on highways and highway finance has been added. The material on highway transport and air transport, and their regulation, has been expanded somewhat because of new developments in those fields. The material relating to transport co-ordination and intercarrier relations has been expanded also. In order to make room for new material without unduly lengthening the volume, an effort has been made to condense other portions of the volume and, at the same time, to take note of new developments, additional legislation, and significant developments in regulatory policy. There has also been a simplification of the treatment of some subjects and the elimination of some detail. "The emphasis on the economic aspects of transportation which characterized the earlier editions has been continued in this edition. Purely descriptive material has been held to a minimum in order to permit discussion of those aspects of transportation which involve questions of public policy. On these questions the author has not hesitated to state his own conclusions, but he has not felt obliged to render judgment on all issues raised." Professor Locklin has made an important contribution in bringing his book up-to-date. Changes in the field of transportation are taking place so rapidly-fundamental changes at that-that we envisage a requirement for another revision and up-dating within a relatively short period of time. Trends and Cycles in Capital Formation by United States By Melville J. Ulmer. Published by National Bureau of Economic This is primarily a study of capital requirements of railroads in relation to volume of business handled, as well as a historical survey of capital expansion and financing. To put these two factors on a comparable basis, both are adjusted to the basis of 1929 equivalents. The investment figures, which do not include land and rights but include working capital and inventories, are adjusted to the 1929 level by use of construction and wholesale price indices. The business volume, referred to as "output," reflects for each year, or group of years, the approximate gross revenue at 1929 averages per ton-mile and per passenger mile. The figures, particularly for periods prior to 1912, are based to a considerable extent upon estimates. Table No. 1 (page 11) shows that in the decade 1870-1879 the railroad proportion of total invested capital in the United States amounted to 20.4 percent. In the 1940-1949 decade the corresponding ratio was 2.1 percent. Chart No. 1 (page 14) shows that railroad investment (stated in 1929 dollars) reached its peak of about $24 billions in the early thirties and has declined since that date to about 222 billions at January 1, 1951. Chart No. 5 shows that railroad "output" (in 1929 dollars) reached a peak of nearly $11 billions in World War II, and dropped to slightly under $9 billions in the post-war period. Chart No. 6 shows that the ratio of invested capital to "output" amounted to approximately fifteen in 1882, gradually dropping to 3.7 in 1917. During the thirties the capital-output ratio mounted to about 6.0 and has since dropped to 2.5. Chapter No. 4 beginning on page 37 deals with the sources of railroad investment funds. It shows that between 1880 and 1907 capital expenditures were financed almost entirely by stocks and bonds. Since that time, more and more of capital requirements have been provided through earnings. The observation is made (at page 49), however, that railroads issued nearly $5 billions of bonds, including equipment trusts, between January 1, 1941 and December 31, 1949. However, during that period they actually extinguished more debt than was incurred. A significant observation is in the following paragraph, quoted from pages 48 and 49: "This broad shift in favor of internal financing is a manifestation of the trend toward increasing caution which has accounted for a similar change in financing patterns in many other industries. Internal financing bears no accounting charges and leaves actual obligation to creditors or equity shareholders-unchanged. In the case of the railroads, however, there were also specific factors at work. Thus depreciation accounting had been used by the railroads more sparingly than by most other industries; only since 1943 have depreciation charges been made for road as well as for equipment. This shift alone accounted for a considerable portion of the rise in the relative importance of internal financing. Second, in an industry in which the average life of capital is about fifty years, the sharp price rise of the 1940's had an especially significant influence upon the funds required for replacement. Even if full depreciation charges (based on original cost) had been made throughout the period, they would have fallen far short of the amounts needed for keeping the stock of capital intact. Financing replacements from undistributed profits under these circumstances is one way of correcting for the limitations of conventional accounting methods during periods of sharp price rises. Third, since World War I the growth of the railroads has been increasingly limited, and ultimately halted, by competitive transportation. The darkened prospect or at least greater uncertainty-of the future long-term trend of railroad traffic provided further grounds for reluctance to enlarge obligations, either to holders of bonds or equities. Finally, though more study in this area is needed to justify conclusions, it is possible that the structure of corporate and personal income taxes is a factor which has encouraged corporate industry in general to reinvest a larger proportion of its profits." Another significant conclusion which may be drawn is that railroad investment, in terms of a stable dollar, has reached its peak, and that in the future the financial health of the industry will depend, to a large extent, on its ability to retain its fair share of the traffic, thereby making maximum utilization of its fixed plant. A Several references are made in the study to a forthcoming "Monograph on capital formation and financing by public utilities." footnote (page 52) indicates that the "Monograph will embrace capital formation and financing not only by the railroads but by other utilities and transportation industries as well." This monograph might be of even greater interest than the present study. Rail Transportation BY JOHN F. DONELAN, Editor FORMAL MATTERS Southern Governors Rate Case The Interstate Commerce Commission has issued its further order in Docket 27746-State of Alabama et al v. The New York Central Railroad Company et al., extending the effective date of its order of June 7, 1954 to November 17, 1954. All Commodities Rates - Eastern Territory Division 2 of the I. C. C. has released its report in Docket 31006— Eastern Central Motor Carriers Association, Inc. v. The Akron, Canton & Youngstown Railroad Company, et al., in which it found that rates on "all commodities" when in mixed carloads between points in Central Territory and Trunk Line and New England Territories not to be unjust, unreasonable or otherwise unlawful. The respondent rail carriers were ordered, however, to cease and desist on or before November 15, 1954 and thereafter abstain from maintaining rates on this class of traffic that are subject to any tariff rule, provision, or practice, which authorizes the inclusion of any freight in the mixed carloads at rates or charges lower than the "all-commodity" rates. Transcontinental Divisions Proceeding The I. C. C. has accepted for filing Answer which included cross complaints filed on behalf of the defendants in Docket 31503-The Akron, Canton & Youngstown Railroad Company, et al. v. The Atchison Topeka and Santa Fe Railway Company, et al, the proceeding by which the Eastern carriers seek upward adjustment of their divisions in transcontinental movements. In the Sub No. 1 proceeding to Docket 31503-The Ahnapee and Western Railway Company et al. v. Abilene & Southern Railway Company et al., the Commission permitted amendments to be filed by complainants by which the Elgin, Joliet and Eastern Railway Company was named an additional party complainant; the Louisiana Midland Railway Company and the Wichita Falls & Southern Railroad Company were dismissed as complainants; EJ&E was dismissed as a defendant and the following were named as additional defendants: Beech Mountain Railroad Company, Craig Mountain Railway Company, Hoosac Tunnel and Wilmington Railroad Company, Louisiana Midland Railway Company, |