Part III.-INVESTIGATIONS INTO VARIOUS ECONOMIC PROBLEMS IN PURSUANCE OF THE ORGANIC ACT. Under the provisions of the organic act the department has from time to time made investigation and study of various important economic problems confronting the country. The reorganization of the departmental staff and the cooperation of the business community in advancing information have contributed to make the undertaking of such investigations possible. Railway Consolidation. The past year's experience of the department in its relations to transportation has shown even more emphatically than ever before the necessity for the consolidation of the railways into larger systems under private ownership, the principles of which were established in the transportation act of 1920. The difficulties of reorganizing the rate structure so as to secure simplification and to give relief in primary products-agricultural, coal, etc.-by a fairer burden upon finished and LCL goods are almost insuperable until the different systems are possessed of more diversified traffic and until the weaker roads have been absorbed. The necessity to establish railway credit and finance on a broader foundation than sole reliance upon the issue of mortgage securities; the necessity of provision for common utilization of terminal and other facilities; the impossibility of providing adequate rolling stock and particularly specialized cars so long as the burden falls solely upon the strong roads; the difficulties of more definite control of car service to meet seasonal demands and routing; the insuperable problems of equalization in car interchange; the slow progress in standardization and maintenance of equipment-all point to the imminent desirability of early progress with consolidations, if we are to have a transportation system adequate to the necessities of the country and containing in itself the strength for annual increase. The policy of control of rates is fixed by National and State legislation. This policy superseded the theory that reason through competitive action. The idea of protection against excessive rates through the maintenance of competition is now dead. We should therefore secure the largest possible benefits from consolidation into larger systems by securing consolidation in such fashion as will protect and advance public interest. The urgent importance of the early consummation of consolidation warrants consideration of methods to expedite it. Under the present provisions for wholly voluntary action subject to the Interstate Commerce Commission, many consolidations are likely to be long delayed. The difficulties of negotiation between the members of the groups that will be established by the Interstate Commerce Commission; the complications arising from varying priorities of securities affecting the determination of terms of purchase by one railway line of the property of another; the unwillingness of some lines to acquire or to sell others; the questions of individuality; the difficulties of establishing by negotiation the relative value of one property to another; the necessity of holding capitalization within the limits of the actual property values; the complexities and conflicts of State regulation and laws-all these problems would find a great measure of solution if the consolidated systems were allowed Federal incorporation and if after a lapse of some appropriate period for voluntary action the Interstate Commerce Commission were given authority to create definite organization committees for each system including representation from the public and from the component roads. It should be the duty of such committees to develop and perfect a plan of consolidation either through the exchange of securities of the consolidated systems directly with the security holders of the component roads or by some other method. I believe that under such auspices the security holders would be willing voluntarily to make such an exchange. If a minority should refuse, it would be entirely feasible to invoke condemnation and purchase of their securities for the consolidated systems at an established fair value. Such a method would permit the determination of the relative value of the different railways considering both the physical properties and the often lower total of their securities, and due account could be taken of future as well as present conditions. The ownership of some roads or terminals jointly by two or more consolidated systems could be provided for, as there are cases where such a solution would be most advisable in creating more efficient transportation. The public interest could be safeguarded by limiting the total capitalization of consolidated systems to an amount not exceeding the physical value of the rail ways as determined by the Interstate Commerce Commission under the transportation act as of June 30, 1914, plus actual capital expenditures and deducting abandonments and depreciation since that date. The total capitalization of many of the consolidated railways would probably be less than the Interstate Commerce Commission physical valuation and certainly less than their present nominal capital. An approach to the problem through such organization committees is in accord with common business practice, and if it were made possible it should result in greatly expediting consolidations and in their perfection on terms soundly protective of public interest and with an equitable adjustment of relative values between the component roads. Invisible Items in International Trade. The increasing importance of the so-called "invisible" items in American trade has rendered it necessary to have some competent estimate as to their volume. Therefore, the department undertook an exhaustive investigation covering the calendar year 1922. Our international balance sheet is not made up alone of the values of our imports and exports of merchandise and precious metals, which are capable of determination statistically month by month. For the last two decades the volume of those transactions which, for lack of a better term, are referred to as "invisible" exports and imports, has become of steadily increasing importance. These items, embracing the movement of capital, and the movement of current items, such as interest. remittances of emigrants, tourist expenditure abroad, ocean freights, and so on, have now come to be of such a volume as to entirely dominate what is known as the "favorable" or "unfavorable" trade balance from merchandising account. For instance, for 1922 there was due us from foreign countries, from the excess of our exports over our imports of merchandise, an amount of $754,000,000. However, when we take into account such "current invisible" items as the movement of interest, remittances to emigrants, tourist expenditure, ocean freights, etc., we find that our citizens have sent to or spent in foreign countries a net. balance on these accounts of about $425,000,000 more than we received on such accounts, and thus the balance due us is reduced to about $329,000,000. As affecting this sum we have received about $246,000,000 net gold and silver imports, and in addition there has been the invisible movement of loans and credits. Thus the net balance on the year's business due to us is reduced to about $83,000,000. We had, however, large capital operations during the year. We have exported capital in the shape of purchases of foreign securities, etc., over and above the imports of capital of the same character to the net amount of about $669,000,000 during the year 1922. The only evident explanation is that this sum (except for $83,000,000) represents the funding of open obligations previously due to us. A full comprehension of the invisible items and their approximate value is not only of profound importance in assessing our international balance sheet, but no sound conclusion can be made concerning the effect of foreign trade movements upon our credit structure, or upon the ability of foreign countries to purchase our commodities or to pay their debts, or upon exchange rates, or upon the movement of gold, or the ultimate trend of price levels compared with those of other nations, without some comprehension of our full balance sheet, including the invisible items. In this undertaking the department has had the full cooperation of the principal banks, merchant houses, shipping companies, statistical services of the Treasury, and other Government agencies. It has had the advantage of the individual judgment of many institutions and prominent men as to the weight to be attached to the data obtained. From the nature of things these movements can not be recorded statistically, so that the process is necessarily one of estimation. The fact must be emphasized that such items are merely estimates, with a varying degree of accuracy. Many of them are subject to wide variation in judgment, and the result may be in error 150 million dollars either way, although the tendency is for over and under estimates on opposite sides of the balance sheet to neutralize each other. The following table is a short summary of the results arrived at, broader details of which are given in the full report of the investigation: ESTIMATED INTERNATIONAL BALANCE OF PAYMENTS, 1922. [In millions of dollars.] CURRENT ITEMS. Inward or credit movements (exports): Invisible items Governmental receipts from foreign nations---- 170 Visible items (goods)-Exports of merchandise_-_. Total____ 227 71 468 3, 867 4,335 Immigrants' remittances and European relief. 400 Visible items (goods)-Imports of merchandise_---. Total____ Net favorable balance_-_ 300 GOLD AND SILVER MOVEMENT. Visible items (specie): Exports of silver__. Exports of gold___. Imports of silver.. Imports of gold.......... Net imports (specie). CAPITAL MOVEMENT. 893 3, 113 4, 006 329 American securities formerly held abroad sold to 34 997 669 Balance A distinction is made above in the "invisible" items for purposes of discussion between "current items" and "capital movement" of somewhat the same character as that made between capital and revenue expenditures and receipts in business operations. The items under the heading "current items" are likely to be more or less constant over long periods, whereas specie and capital movements are likely to fluctuate widely from year to year according to business conditions and the balances "current items." It is obvious that there are wide changes in progress in international balance sheet for the year 1923 as compared |