Mr. HASTINGS. I do not think there is any question about that; I do not think even railroad men deny that. I think they concede there would be a tremendous increase in the volume of travel.

However, I started to say that this principle is practiced, and has been practiced for a hundred years.

Senator REED. Senator, you came to talk with me about that; the other day; and just for the information of the chairman, I want to say for the record what I said to you: Happening to have served in the Post Office Department for a good many years, and also happening to have been in charge of the first investigation ever made of the costs of carrying mail, even when the Interstate Commerce Commission said it could not be done, I have had some experience with this matter, as applied to the handling of mail. At that time there was a congressional resolution directing the Postmaster General to make such a study, and I happened to be chief of the division, and had to make it. That in effect was a direction to me to go ahead and do it, even if the Interstate Commerce Commission said it could not be done and that is what they told me, because that was the first place I turned to, for help.

We did make that investigation; that was in 1910.

Senator BONE. What was that?

Senator REED. With respect to the cost of carrying the mails on the railroads. Now, there is only one class of mail matter carried in which distance is not considered as a factor in determining the postage rate. That is first-class matter.

Mr. HASTINGS. That is right.

Senator REED. The reason for that is that the rate on first-class matter is so high as to give the Government adequate income. The figure I have in mind is now an old figure and might not apply just at this time; but we used to figure that we collected about 80 cents a pound on first-class matter. In other words, at that time we had a 2-cent postage rate, with a maximum of an ounce for 2 cents, but you still paid the 2 cents if you had only a sheet of paper in an envelope with a total weight of a fraction of an ounce. If it would be of any value, I judge that we could obtain similar information, now, from the Post Office Department, on the basis of the present 3-cent postage rate. I fancy that the revenue per pound is higher; but the old rate I have in mind, if my recollection is correct, was about 80 cents a pound.

Now, the chief factors applying to the handling of first-class postal matter-in other words, letters are the collection, the initial postoffice service, the distribution en route, and the delivery. The transportation cost of first-class matter is a negligible factor-so negligible that the Government will carry a letter from here to the most remote part of the United States for 3 cents, or charging 3 cents if it goes outside of the post-office district in which it is mailed. But there the cost of the transportation is the smallest factor in the whole thingso small as to be negligible.

Senator BONE. Yes; I suspect that is the case, certainly.

Mr. HASTINGS. Yes.

Senator REED. However, as applied to parcel post, there the Post Office Department does consider distance as a factor in making its rates. It considers distance as a factor in making rates on second

class matter. I happen to be a newspaper publisher, on a small scale, and I have to pay more for long-distance hauls than I do for short hauls; and this is a factor.

Senator BONE. Well, you have bulk material there, and the weight factor and the bulk factor must be considered.

Senator REED. That is right. So that with respect to Senator Hastings' statement that this principle was discovered 100 years ago, as applied to postal matter, I think that should be limited to its application to that part of postal matter in which the cost of transportation is a negligible factor and, therefore, the distance it is carried is not important.

Mr. HASTINGS. Apropos of that remark, Senator, it is generally conceded by railroad authorities that 60 percent of railroad operating costs are fixed costs: About 61 percent are fixed costs, and only 39 percent are variable; and of your variable costs, very few relate to distance.

Senator REED. I have no objection, Mr. Chairman, to having an investigation made of anything that is of any public interest; and this is a question of public interest.

Senator BONE. I feel the same way; and, of course, we are not passing legislation here nor necessarily passing judgment on it.

Senator REED. If the committee would agree with me to reduce that sum to $10,000-which I think would be adequate at least to make a start, by the Interstate Commerce Commission-I would vote in favor of reporting the joint resolution for the investigation.

Senator BONE. Well, this is not an appropriation; it is a mere authorization, here; and to become real instead of fanciful, it would have to be included in the appropriation bill as an item approved by the Bureau of the Budget. However, I do not know to what extent, if any, the Interstate Commerce Commission has given any thought to this matter. Possibly they have dealt with it, and I suspect that you may have had the matter presented to them in time past. Mr. HASTINGS. I have.

Senator REED. Well, out of some experience with cost analysis, as relates to mail matter, I might go ahead and say that not only was I in charge of the first investigation, back in 1909 and 1910-investigating the cost of carrying the mail-which did undertake to set up the various factors of cost; and that was a crude study, because it was a primary study, at the time, and we had to blaze the way; at that time the Interstate Commerce Commission did not even undertake to make a separation of railroad expenses, as between freight and passenger traffic. They do make such a separation now, and make it rather completely-whether accurately or not, I should not want to say; but at least they have a system of accounts that undertakes to make separation.

However, when I was brought down here from Kansas to take charge of that division and found that mandate of Congress and that congressional order staring me in the face, in the first place, I went to the Interstate Commerce Commission, but was informed that it could not be done, because they had tried it. I told them that was no answer to me; that I had orders to make it. We went ahead and made it.

After that, while I was still in the Post Office Department, I made some cost studies relating to the handling of mails-studies that, so

far as I know, are still used as a base for determining the costs over in the Post Office Department.

Senator BONE. Senator Reed, do you know whether the Interstate Commerce Commission is now fully equipped to supply all the necessary information covering the figures that Mr. Hastings has suggested here? They must have a tremendous amount of information of the most detailed character.

Senator REED. Mr. Chairman, out of the experience I have had with this matter, I want immediately to disclaim any possible title as an authority or an expert; but I have had some experience with this sort of thing. I do not think any investigation that anybody would make would have any value unless a fairly important railroad could be induced to make the investigation by putting in the rates that Senator Hastings suggests.

Mr. HASTINGS. That is right.

Senator BONE. You think the only determining factor, then, would be the application of the principle of trial and error?

Senator REED. That is correct. The Interstate Commerce Commission can take all this information which it has at its disposal-and it has a tremendous amount-and apply any method of analysis, and formulate any kind of a theory that it wants; but I do not think the theory is worth anything unless you can induce an important railroad actually to put these rates into effect and to determine from actual experience what the effect is.

Senator BONE. Let us search our own minds for a moment and speculate a little: Suppose we could say to the Union Pacific and the Northwestern, as applied, let us say, to the one route out of Chicago to the coast: "We will agree to stand behind you and save you whole from what you can show to be legitimate losses on any transactions of this kind; we will try this: Do we not, if we try it out, immediately find ourselves confronted with the situation that people naturally, out of the novelty of the thing, might be tempted to ride; if they were going east, from Santa Fe and Los Angeles, they would take the Union Pacific, and you would have no fair comparison there or any solid bench mark?'

Suppose I were in Los Angeles and found that there was a $10 rate to New York. Well, I would not take the Santa Fe-the Chief. I would take the Union Pacific, of course.

Unless you take all the railroads, would you have anything like a fair test?

Senator REED. I think so.

Senator BONE. Well, I certainly would not ride the Santa Fe if I could ride for $10 or $12.50 on the Union Pacific.

Senator REED. Mr. Chairman, I do not think you are getting to the heart of the question. Undoubtedly, the traffic would flow to the railroad which made the cheaper rate.

Senator BONE. That is right.

Senator REED. The point would be whether or not the railroad making the cheaper rate would find that such a rate provided sufficient, through the collection of enough revenues, to pay its expenses.

Senator BONE. That is true; but would not that abnormally inflate the traffic over that railroad for the time being, and thus create a situation which would not be a true picture?

Senator REED. That might be.

Senator BONE. If you applied it to all of them, then you would equalize the flow of traffic, and would show whatever stimulus this sort of rate would mean to the railroads.

If they could try it out, I should not have any objection. Probably they all would have heart failure at the thought of trying something like that; but if there were some way, for the moment, of trying it out in some fashion, where we could try it out with one of the railroads and put the others "on ice," the idea, however revolutionary, does not frighten me, if it would work. I suppose the railroads do not care what kind of a rate structure they have, so long as it makes them some money.

Mr. HASTINGS. The present one is not doing that.

Senator BONE. It probably is not, since so many of them are in the hands of receivers. However, is that due to methods of operation or is it due to the depressed economic conditions?

Mr. HASTINGS. The whole railroad problem is due to a rate structure, and nothing else.

Senator BONE. What would you say about other forms of business that are in the doldrums now?

Mr. HASTINGS. The economic effect of the rate structure affects them also.

Senator BONE. The whole economic system?

Mr. HASTINGS. The whole economic system is built around your railroad structure, absolutely. It performs the same service to the body politic that the heart does to the human body, absolutely.

Apropos of the suggestion you make about protecting the railroads against any loss, the plan provides that a corporation be organized to administer it and to indemnify the railroads for the differential between the passenger fare prescribed and fixed by the Commission and the fare for such transportation as such carriers would have received under the rate or fare last fixed and filed by such carriers

Senator BONE. Your theory is to try it on all the railroads?

Mr. HASTINGS. You cannot try it out on one; that is impractical; it cannot be done.

Senator BONE. It seems that way to me. You would have all the weight on one end of the teeter-totter.

Mr. HASTINGS. It would not determine anything if you did it in that way. The railroads cannot lose under this plan. The railroads cannot be hurt by this, and I am at a complete loss to understand their opposition to it. The present rate structure has not produced the proper results, and yet the railroads persist in their stupid policy of always increasing rates in order to get increased revenues, when history shows that every time they have increased rates they have decreased revenues. There is no exception to that over an extended period. In 1887 when the Interstate Commerce Commission began the passenger fares were 2 cents a mile, and they continued at that rate. Travel increased at about 5 percent a year up until 1914, and then there was a decline. In 1914 the western roads increased their rates from 2 to 214 and 212 cents a mile, and it cost them $50,000,000 the first year they did that. The wartime period was an abnormal period; but in 1921 the railroads grossed $1,300,000,000 from passenger service, and they increased the rates to 3.6 cents a mile, and immediately the decline set in.

Senator REED. Well, now, let us be a little bit more accurate than that.

Mr. HASTINGS. I want to be perfectly accurate, Senator. Senator REED. The highest gross revenues that the railroads ever had were in 1920 when they were charging 3.6 cents a mile.

Mr. HASTINGS. No, sir. I beg to disagree with you, Senator. In 1920 the rate was not 3.6 cents a mile. That rate became effective in 1921.

Senator REED. I beg your pardon.

Mr. CLEVELAND. August 26, 1920, they went up to 3.6 cents a mile. Senator REED. I had forgotten the date. My recollection was that the largest gross passenger revenue that the railroads have ever had was in 1920; but that is just from memory.

Mr. HASTINGS. 1920 is correct.

Senator REED. Let me say, further, Mr. Chairman-and this is perhaps a discussion which should take place in a meeting of the committee, but, as you have stated, there are some members of the committee who are not present, and they might read the record. Occasionally members of committees do. It is very well known that I have frequently differed with the railroads as to various rate policies, more especially their passenger-rate policies, and I have not hesitated to tell them so when I did not agree with them. In 1922 the Interstate Commerce Commission investigated all rates-freight and passenger. I was chairman of the Kansas Public Utilities Commission at that time and represented all the State commissions in the presentation of the passenger-fare portion of that Nation-wide rate investigation, and I made some analyses then and stated, with the authority of the State commissions, that while the railroads could probably justify a 3.6-cent-a-mile passenger fare, allocating the costs, it was my opinion that if they undertook to maintain passenger fares, particularly coach fares, at that rate they would lose their local business, because the automobile had come into the picture as a competitor, and that while it might be a matter of dispute-remember, this was 17 years ago-whether or not one could operate a low-cost automobile, such as the Ford was in those days, at 3.6 cents a mile, there was not any question in the world that if there were two people going some place at the same time they could operate the automobile for less than 7.2 cents a mile, and you could take any kind of an automobile and operate it for less than 14.4 cents a mile, which would be the railroad fare for four people, if you happened to have four people traveling in the same direction and to the same destination, at the same time.

That is a matter of record. Nine years afterward the Commission intimated to me that in another general investigation they desired to have discussed the question of how to handle the division of railroad investments between freight service, which was remunerative, relatively, at least, and passenger service, which was unremunerative, relatively, at least; and I went back to that old record of 9 years before to see whether or not my recollection of what I had said 9 years before was correct. Bear in mind that another 10 years, approximately, have passed since this happened, and I am not as accurate as to what I said in the first instance.

Senator BONE. The railroads had to take a terrific beating at the hands of the private automobile industry because people drove auto