ought to know enough before they make complaint, to create a suspicion in their minds, and then, after complaint is filed, if they accord full notice and a full hearing is given, everybody can come before the Interstate Commerce Commission and present his case. The truth of the matter is that these people have gone ahead in violation, not of the letter of the law, but of the spirit of the law, and consolidated those companies. I am speaking now of the PennRoad Co., which is owned by the officers of the Pennsylvania Railroad, and of the Van Sweringen interests. As I have said, they have gone out and consolidated those properties, in fact, in absolute violation of the transportation act of 1920. However, there is no law to prevent them from doing it, because the holding company has never been the subject of legislation. In this bill, we make the holding company a common carrier under the conditions described in the bill, so that in future, when they refinance, they must come under the 20a provision of the transportation act. When they refinance it, or purchase new securities, they will have to come under the provisions of section 20a of the act, which gives the Interstate Commerce Commission the right to supervise their bookkeeping and accounting. Mr. BANKHEAD. I was especially interested in your reference to the operation of the so-called holding company. What did your investigation develop as to their general nature or character? Are they chartered by State laws. Mr. RAYBURN. Yes; they are chartered. Mr. BANKHEAD. How far do their ramifications go into the investment field? Do they invest in trust funds? Mr. RAYBURN. Yes. We were authorized to investigate holding companies in the railroads, but there is no question but that the holding companies' operations are vaster in other fields, and at this session of Congress we were given the right to investigate the ownership of utilities through holding companies. We are going into the operations of holding companies in the utilities field. Mr. BANKHEAD. What I had definitely in mind was the holding companies that operate in the railroad field. These holding companies that you investigated operate purely as holders of railroad stocks? Mr. RAYBURN. Yes. Mr. BANKHEAD. Were they also holders of other securities? Mr. RAYBURN. We were only interested in their investments in railroad stocks. Mr. O'CONNOR. Some of them have investments in other securities. Some are real investment concerns. Mr. RAYBURN. The Penn-Road Co. and the Allegheny Co. were formed for the purpose of bringing together railroad securities. They owned some other stock. Mr. PURNELL. Several of your committee have signed a minority report, have they not? Mr. RAYBURN. Yes; Messrs. Wyant, Beck, Cooper, and Igoe have signed a minority report. They are for the revision of section 15-a. Messrs. Hoch, Burtness, Nelson, Robinson, and Garber have filed a majority report on section 15-a. They are for the first part of the bill, or they are for the holding company provision in the bill, but they want an amendment as to the recapture provision. Mr. PURNELL. The former chairman of the Committee on Interstate and Foreign Commerce, Mr. Parker, Mr. Beck, and other members of the committee are present, and before the hearings are closed I would like to have statements from them. The CHAIRMAN. It was understood that the opponents would have an opportunity to present their views. Mr. GARRETT. Did your investigations show that these holding companies that owned a majority of the stock in railroads actually controlled the operations of the railroads themselves? Mr. RAYBURN. Mr. Garrett, in reference to this holding company investigation, I am sorry I do not have maps here. I hope I will have an opportunity to argue this question fully on the floor of the House. Through the device of holding companies, it was developed that they controlled railroads in which they did not own 5 per cent of the stock. Mr. GARRETT. Did these holding companies pay their officers out of the revenues of the railroads or out of funds of the holding companies? Mr. RAYBURN. I presume they were paid out of revenues of holding companies. The officers are usually the same. For instance, the officers of the Penn-Road Co. are the officers of the Pennsylvania Railroad Co., or they are practically the same. The officers of the Allegheny Co. and the officers of the Van Sweringen railroad interests are the same. O. P. and M. J. Van Sweringen are the heads. Mr. GARRETT. From what source do the holding companies derive their revenues? Mr. RAYBURN. From their investments in stocks and from buying and selling. They have played some very high games, as I hope to have the privilege of demonstrating to the House. One holding company will own another holding company, and the other holding company would own a number of railroad securities. This holding company would own another holding company, and the other holding company will own a part of the stock of a railroad. Then that railroad may own another holding company which may in turn own another railroad. In other words, in the acquisition of some one railroad property, they would probably organize a dozen holding companies. Mr. SABATH. It would be the same group. Mr. RAYBURN. Yes; O. P. and M. J. Van Sweringen would be at the head of the group on the one hand, and the Penn-Road Co. on the other. Mr. GARRETT. If a holding company does not own 5 per cent of the stock of the railroad company, what excuse is there for its existence so far as that railroad is concerned? Mr. RAYBURN. They handled it through the device of various holding companies of various railroads in which they have acquired stock. A holding company may own less than 5 per cent of the railroad. stock and yet control the railroad. Mr. BANKHEAD. It has been my opinion for a long time that one of the unfavorable factors in the present condition of the railroads is the unfair bus and truck competition they must meet. What is the status of that matter at the present time? Mr. RAYBURN. We passed a bill in the Seventy-first Congress, but the Senate took no action on it. Senator Couzens has been holding hearings on this matter, and my thought was that we could pass a bus and truck bill through the House. However, I thought there was no use in making a gesture if the Senate was not going to act. I understand they have a bill reported out. Their hearings have been completed, and we are hoping that the bill will go through the Senate. If so, we can take it up during this session of Congress. Section 15 (a) was a controversial part of the transportation act. It has been before the country now for 12 years, and we have brought forward a bill to revise it. I would say that the revision of section 15 (a) had the support of every witness who appeared before our committee, including the Interstate Commerce Commission, the State commissions, and the shippers as represented by the legislative counsel of the Industrial Traffic League. It had the support of labor and some other groups. Mr. GARRETT. What reasons did the labor group present for their position? Mr. RAYBURN. They thought the railroad would be relieved of this cloud that is hanging over them, and that they could operate better. They thought they could probably better serve the public; that it would strengthen their financial position so they might not have shake-ups, receiverships, and so forth. Mr. GARRETT. You mean road labor organizations. Mr. RAYBURN. Yes. Mr. GARRETT. The trainmen, conductors, and so forth. Mr. RAYBURN. Yes. As I say, this has been à controverted question for 10 years. All of our committee were for some parts of the bill. Some of them were for three-fourths of the bill. I would like for this committee to give us the opportunity to try our case out before the House of Representatives and let the House say what it pleases. Our duty will then have been done. Whatever the House does about it will be perfectly satisfactory. The CHAIRMAN. We have only 10 minutes remaining. Mr. BANKHEAD. Of course, the opponents of this measure should have a reasonable opportunity to be heard, and I think that probably 10 minutes' time would be inadequate. I suggest, if it meets the approval of the committee, that we convene for a further hearing to-morrow morning. Mr. RAYBURN. I have taken all of the time to-day, and the exchairman of the committee, who has been living with this subject for a number of years, should have a full opportunity to be heard. Mr. Pou. We will resume the hearings on this matter to-morrow morning at 10.30 o'clock. (Thereupon the committee went into executive session.) TO AMEND SECTIONS 5, 15A, AND 19A OF THE INTERSTATE COMMERCE ACT SATURDAY, MAY 14, 1932 HOUSE OF REPRESENTATIVES, The committee met at 10.30 a. m., Hon. Edward W. Pou (chairman) presiding. The CHAIRMAN. We will resume the hearings on the bill H. R. 11677, reported by the Interstate Commerce Committee, to amend sections 5, 15(a), and 19(a) of the interstate commerce act, as amended, and for other purposes. We have heard the proponents of the bill, and I believe this morning was to be devoted largely to the opponents of this proposed legislation. Mr. Beck, we will be pleased to hear from you now. STATEMENT OF HON. JAMES M. BECK, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF PENNSYLVANIA, AND A MEMBER OF THE COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE Mr. BECK. Mr. Chairman and gentlemen of the committee, this proposed bill was originally in the form of two separate bills, one referring to the repeal of the recapture clause of the transportation act, and the other referring to enlarged powers of the Interstate Commerce Commission in the matter of controlling investments by persons or corporations in carriers. It seems to me that they should have remained two separate bills, because they deal with unrelated subjects, and because the merits or demerits of either one might prejudice the consideration of the merits or demerits of the other. protested against the consolidation of the bills in the committee, but the bill was reported in this form by a small majority. Let me say, in this connection, that in my experience on the Interstate and Foreign Commerce Committee, no bill has been considered with greater care or in a fairer spirit than this one. That has never been questioned by any member of the Interstate Commerce Committee. Before discussing the merits of this legislation, I wish to stress one of the main points that I want to direct the attention of the committee to, namely, the inexpediency of presenting at this session of Congress this very sweeping piece of proposed legislation. Now, gentlemen, in the time that I shall address the committee, I want simply to explain the nature of the holding company provisions of this bill, which, I believe, some of the committee may not have wholly apprehended. In my judgment, this holding company provision is one of the most sweeping ones in respect of property rights and one of the most revolutionary suggestions that has been brought before the Interstate Commerce Committee, or certainly, in my time. Mr. BANKHEAD. I have given some consideration to the minority report, and it seems that your objection is not to the repeal of section 15 (a), but to the combination of these two subjects in one bill. Mr. BECK. That is what I said in the beginning, Mr. Bankhead, before you came in. Mr. BANKHEAD. I am sorry I was not here at the beginning of your statement. Mr. BECK. The committee by a majority decision has simply consolidated the two bills. While I may be quite mistaken in any motive that I may impute, it seems to me that the attempt was to drive through the holding company bill, or to cure its demerits, by combining it with the possible merits of the provision repealing the recapture clause; and I will say in conclusion, if I have the time, that, notwithstanding our complete concurrence in the recapture provision, which we have regarded as a constructive piece of legislation, yet, there are to our minds many reasons why at this session of Congress it may be dangerous to bring such a piece of legislation up for consideration. It may be inexpedient to bring that legislation up at this time because of the widespread misconstruction that might be placed upon it in the country. Now, I want to tell you, in my judgment, what this holding company provision does. I shall not attempt to argue its merits at length, but I shall try to extract from the minority report my reasons for the belief that Congress is incompetent, under the Constitution, to pass any such legislation. Now, this provision in section 2 provides for the consolidation of interstate carriers, and I omit the prior part of the provision because to that there is no objection. Section 2 contains this provision: It shall be lawful with the approval and authorization of the commission— I am skipping down now to this provision for a corporation which is not a carrier to acquire control of two or more carriers through ownership of their stock or for a corporation which is not a carrier and which has control of one or more carriers to acquire control of another carrier through ownership of its stock. Now please bear in mind that there is no suggestion here of the question of competing carriers. That is a very important point, because if a railroad investor or if a corporation cares to buy and hold the stock in a New England railroad company and then simultaneously, because the investment appeals to him, buys shares of stock in a railroad company on the Pacific coast, he is within this provision, although there can not be, in the nature of the case, any possible obstruction of the free flow of commerce. Now, if an individual or corporation acquires a substantial amount of stock in two railroads between which no competition in the nature of the case is possible, they come within this provision. Then it provides that any corporation, referring to these holding corporations, which seeks authority to acquire an interest in more than one carrier, if noncompetitive, shall apply to the commission for per |