PEACE THROUGH GROWTH: POLITICAL RESPONSE to CLASS CONFLICT in INTERWAR AMERICA, 1919-1923 a Thesis Submitted to Kent State Unive

PEACE THROUGH GROWTH: POLITICAL RESPONSE TO CLASS CONFLICT IN

INTERWAR AMERICA, 1919-1923

A thesis submitted

To Kent State University in partial

Fulfillment of the requirements for the

Degree of Master of Arts

Alex John Fleet

August, 2018

Except for previously published materials Thesis written by

Alex Fleet

B. A., Kent State University, 2014

M. A., Kent State University, 2018

Approved by

Kenneth J. Bindas______, Advisor

Brian M. Hayashi______, Chair, Department of History

James L. Blank______, Dean, College of Arts and Sciences TABLE OF CONTENTS

TABLE OF CONTENTS ...... iii

ACKNOWLEDGEMENTS ...... iv

INTRODUCTION ...... 1

CHAPTER ONE ...... 14

CHAPTER TWO ...... 37

CHAPTER THREE ...... 65

CONCLUSION ...... 89

BIBLIOGRAPHY ...... 93

iii

ACKNOWLEDGEMENTS

I would like to thank Dr. Clarence Wunderlin for all his advice and support in the development of my research, as well as his work in acclimating me with the work of previous historians and political theorists. I also owe a great debt to Dr. Kenneth J. Bindas for all his help in overseeing the completion of my thesis and his work in helping me to further develop my thesis. I would also like to thank Drs. David C. Hammack and Elaine Frantz for their input and advice on improving the analysis and organization presented in my thesis.

I would also like to thank my mother, Cindy Fleet, and my father, Randy Fleet, for their support and encouragement in the times I found myself most frustrated and confused with my research.

INTRODUCTION

By the end of the 1910s, labor unrest threatened to tear apart the United States. Workers’ dissatisfaction towards capital and the state increased dramatically due to the country’s preparation for World War I, and by 1919 American workers went on an explosive series of strikes across the nation. Workers were upset due to a myriad of factors, but most notably, they were frustrated with the re-privatization of many industries that the government had taken control of for the war effort, such as the railroad industry. In addition, the closing of the National

War Labor Board signified, in many ways, that the state planned to surrender its wartime role as negotiator for workers’ rights. With living standards stagnating, and the perception that labor relations would degrade to their dismal prewar state, workers across the nation rose up in revolt.

In September, approximately half of all steelworkers across the country went on strike in protest against working conditions, unstable employment, lack of representation in the workplace, and many other issues. The striking workers, organized by the American Federation of Labor, would endure until January of the next year. Steel workers across Colorado, Illinois,

Ohio, Pennsylvania, and New York abandoned the steel mills, numbering over 300,000 at their peak. At the same time, miners across the country began striking and engaging in violence against both the state and against private guards. The striking workers would engage in some of the bloodiest struggles between workers and armed forces in American history. At the same time,

1 roughly 400,000 coal miners went on strike, demanding better hour-wage packages. Workers were not simply resisting the established order, they were actively fighting against it.1

America’s leading bureaucrats and business owners feared the angry reactions of the working class. Many feared that the revolution that had occurred in Russia in 1917 might happen in the US. Both the government and private citizens attacked the striking workers, and the turmoil of this year would lead to the destructive Red Scare of 1919. At the same time, American bureaucrats and employers both recognized that change was needed, and that a violent order could not hold society together. They would need to create a new industrial order that American workers would accept. During this period, state actors restructured the ways that the government interacted both with labor disputes and with economic behavior to create a much larger regulatory apparatus than had existed prior. They declared that the postwar economy’s chaos was the direct result of profiteering and inefficiency in the private economy, and used those conditions to legitimize intervention.2

This climate of economic uncertainty and labor militancy provided the perfect climate for state actors to construct a new federal program for regulating the nation’s railroads. While both

President Wilson and Congress agreed to return railroads to their pre-war owners, they developed a new system of oversight that enabled the federal government to control virtually all of the major activities that these private companies could undergo. In essence, federal control of the nation’s railroads did not end in the 1920s but continued on, albeit in a less direct manner.

1 Philip S. Foner, History of the Labor Movement in the United States, vol. 8 Postwar Struggles, 1918-1920 (New York: International Publishers, 1988), 141-169. 2 Ibid., 20-24.

Regulations to the nation’s railroad carriers were nothing new. The first set of regulations were established by Congress in 1887 with the passing of the Interstate Commerce Act, which established the Interstate Commerce Commission (ICC) The act required railroad companies to set reasonable rates for both passenger and freight travel, and the ICC would hear any disputes over rates. The federal government’s power over the railroad industry expanded further in 1906 as Congress passed the Hepburn Act. The Hepburn Act expanded the ICC’s power over rate setting. Now, Commission would set reasonable rates itself, rather than wait for disputes to reach it. The ICC’s regulatory power over railroads expanded in 1913 with the passing of the Valuation

Act. This Act required the ICC to valuate all property and holdings of railroad carriers. The value of this capital would then be used in determining what would constitute reasonable passenger and freight rates.3

With the arrival of World War I, the federal government nationalized the nation’s railway systems with the Railway Control Act. Although the act stipulated that companies whose property had been seized would receive payments from the federal government to accommodate for nationalization and a guarantee for the return of rail systems to private hands following the closure of the war, the federal government had complete control over the activities of the nation’s railway systems.4

3 U.S. Congress, House, An Act to Regulate Commerce, 49th Congress, 2nd sess.; U.S. Congress, House, An Act to amend an Act entitled “An Act to regulate commerce” approved February fourth, eighteen hundred and eighty- seven, and all Acts amendatory thereof, and to enlarge the powers of the Interstate Commerce Commission, 59th Congress, 1st sess., H.R. 12987; U.S. Congress, House, An Act to create a commerce court, and to amend the Act entitled “An Act to regulate commerce,” approved February fourth, eighteen hundred and eighty-seven, as heretofore amended, and for other purposes, 61st Congress, 2nd sess., H. R. 17536; U.S. Congress, House, The Valuation Act of 1913, 62nd Congress, 3rd sess., H.R. 22593. 4U.S. Congress, Senate, An Act to provide for the operation of transportation systems while under Federal control, for the just compensation of their owners, and for other purposes, 65th Congress, 2nd sess., S. 3752.

The Transportation Act of 1920 gave far more power to the ICC than these previous laws and focused on giving the Commission power over more activities than simply rate-setting.

Railroad carriers were now required to seek ICC approval for any expansion of existing lines; the abandonment of currently-operated branches; the purchase of other railroad companies; or even the issuance of bonds, loans, or securities;. The Transportation Act also set maximum rates of profit that railroad carriers were allowed to accrue. This law asserted that, while the state would fulfill its promise to restore private ownership of the railroad industry, it would still control almost all of the sector’s behavior.5

Historians have examined American industrial relations post- World War I through the lenses of both business and labor history, as well as by examining the history of federal institutions that changed following the war. Some have examined the changes in the relationship between workers and capitalists to the crash, as is the case in Lizabeth Cohen’s Making A New

Deal: Industrial Workers in Chicago, 1919-1939 (1999). In this work, she highlights the efforts of businesses to restore workers’ confidence in capitalism through various benefits programs throughout the 1920s, invigorating a new patron-client relationship between employer and employee. Similarly, Joseph A. McCartin, in Labor’s Great War: The Struggle for Industrial

Democracy and the Origins of Modern American Labor Relations, 1912-1921 (1997), examines the way that postwar businesses developed human rights departments and corporate unions as a means of quelling worker frustrations over lack of workplace representation. This work fits in with more recent analysis of state activity and its effects in the 1920s, such as John Huibregtse

5 Congress, House, An Act to provide for the termination of Federal control of railroads and systems of transportation; to provide for the settlement of disputes between carriers and their employees; to further amend an Act entitled “an Act to regulate commerce,” approved February 4, 1887, as amended, and for other purposes, 66th Congress, 2nd sess., H.R. 10453.

4 work in American Railroad Labor and the Genesis of the New Deal,1919-1935 (2010), which examines the effects of the Transportation Act on worker rights and labor activism. Huibregtse looks at the deep unpopularity of the Railroad Labor Board, created by the Transportation Act, and notes how it spurred a renewed strength in the labor movement, giving unions a new goal in reshaping the state’s involvement in labor disputes.6

Business historians similarly grappled with changes in industrial relations and conditions between pre- and postwar eras. Alfred D. Chandler, Jr. examines the growth of industries, particularly railroads, metal production, and textiles in his book, The Visible Hand: The

Managerial Revolution in American Business (1977). He notes the continual increases to production throughout the late Nineteenth and early Twentieth Centuries, and investigates the ways that these increases to production led to changes in the relationship between workers, business owners, and an emerging managerial class. The new structures of business led to a new relationship in industry, where workers no longer interacted directly with the capitalists who employed them, but with an intermediary, managerial class. At the same time, conglomeration of industry led to greater division within the workplace. New divisions, such as sales and marketing, inventory, transportation, and other departments within the workplace became more rigidly divided from one another. These changes to the relationship between workers and business owners degraded the effectiveness of worker organization, and stagnated union growth in industry. In America By Design: Science, Technology, and the Rise of Corporate Capitalism

(1977), David F. Noble investigates changes to education, invention, and managerial structures

6 Lizabeth Cohen, Making a New Deal: Industrial Workers in Chicago, 1919-1939 (New York: Cambridge University Press, 1999); Joseph A. Mccartin, Labor’s Great War: The Struggle for Industrial Democracy and the Origins of Modern American Labor Relations, 1912-1921 (Chapel Hill, North Carolina: University of North Carolina Press, 1997); John Huibregtse, American Railroad Labor and the Genesis of the New Deal, 1919-1935 (Gainesville, Florida: University Press of Florida, 2010).

5 throughout the Nineteenth and Twentieth Centuries. According to Noble, government and business sponsors spurred a growth in practical science education throughout the second half of the Nineteenth Century, leading to a growing pool of scientists and engineers within the workforce. At the end of the 1800s, court decisions on the meaning of property and new laws regarding patent rights gave business expansive control over the inventions their employees devised. While Noble comes to similar conclusions about the changing nature of interaction between workers and management, Noble ties the shift more specifically to the changing nature of industrial work. Maury Klein, in his two volume work on the Union Pacific company, notes the effects of the Transportation Act of 1920 on the railroad industry. Klein observes how the newfound power of the ICC meant that companies such as Union Pacific attempted to gain the

Commission’s favor at the expense of their competitors and customers, so that the Commission would set rates advantageous for extracting additional money from companies who needed to use railroads for shipping freight.7

More than any of the other categories, histories of the state during the 1920s acknowledge the presence of the ICC in industrial relations and economic behavior, although their assessments of its effectiveness are mixed. In 1937, the Department of Statistics released its own history of the ICC, detailing many of the activities the Commission involved itself in from its founding up to the reports’ publication, including a great deal on the Commission’s activities during the 1920s. Although the Department of Statistics’ history provides a thorough account of the railroad industry’s activities, it refrains from providing evaluations of the Commission’s

7 Alfred D. Chandler, Jr., The Visible Hand: The Managerial Revolution in American Business (Cambridge, Massachusetts: Harvard University Press, 1977); David F. Noble, America by Design: Science, Technology, and the Rise of Corporate Capitalism (New York: Alfred A. Knopf, 1977); Maury Klein, Union Pacific, vol. 2, The Rebirth, 1894-1969 (New York: Doubleday, 1989).

6 activities following the passing of the Transportation Act. Later, in 1976, Ari and Olive

Hoogenboom wrote A History of the ICC: From Panacea to Palliative (1976), in which they detail the history of the ICC’s growth in power and its subsequent decline following World War

II and the complete ascendance of automobiles as the primary form of transportation in America.

They declared that while the Transportation Act of 1920 gave the ICC greater power to regulate the destructive habits of the railroad industry, the Commission failed to thoroughly check management’s organizational and financial decisions.8

What these histories fail to do is not only examine the extent to which the ICC’s power increased during this period, but also the ways that federal bureaucrats legitimized their activities. In doing so, one can see the ways in which executive officials and legislators worked to create a climate justifying massive new interventions in private business behavior. In emphasizing the chaotic economic conditions of the post-World War I period, policy makers established a discussion on economic recovery that centered discussion on the necessity of state intervention in economic affairs.

Business and political histories have done a better job to emphasize the new relationship between industry and government during the 1920s as opposed to the prewar period, but they largely ignore the context of the development of this change. They avoid examining how it was that the federal government could convince private industry to give up so much power to the state during the 1920s, to the extent that large railroad companies would have to seek approval for almost all of their activities. This thesis attempts to address these gaps by focusing on the discussion created by state officials beginning in 1919 to legitimize a continued federal oversight

8 Bureau of Transport Economics and Statistics, Interstate Commerce Commission and Activities, 1887-1937 (Washington, D.C.: U.S. Government Printing Office, 1937); Ari Arthur Hoogenboom, A history of the ICC : from Panacea to Palliative (New York: Norton, 1976).

7 and control of economic activities, as well as how state officials aimed to preserve a sense of legitimacy for their actions in the years following their attainment of greater power.

In some ways, this research parallels the work of new institutional scholars, who have attempted to analyze the effort of the state to legitimize its interaction and regulation of society.

Meg Jacobs, William J. Novak, and Julian E. Zelizer analyzed efforts to establish political legitimacy throughout American history during the Nineteenth and Twentieth Century in their work, The Democratic Experiment: New Directions in American Political History (2009). They particularly focus on the ways that state actors legitimized the growth of state power in the face of an American cultural aversion towards centralized political power. Brian Balogh, in The

Associational State: American Governance in the Twentieth Century (2015), examines, from the end of the Nineteenth Century to the 1950s, the ways in which American governments, particularly at the local level, worked with private companies to develop infrastructure projects that would otherwise be difficult to fund, as well as to gain information about the American citizenry that would otherwise be difficult to obtain.9

In many ways, the research presented here parallels that of Richard White in Railroaded:

The Transcontinentals and the Making of Modern America (2011). White examined the relationship between labor, private carriers, and the federal government in the development of the Transcontinental Railroads during the second half of the Nineteenth Century. White contends that the development of these railroad systems was chaotic, inefficient, and generally a series of failures. State intervention in the railroad industry sometimes stabilized crises, but was often corrupt and federal bureaucrats and legislators entered into crooked deals with one another.

9 Meg Jacobs and William J. Novak and Julian E. Zelizer, eds., The Democratic Experiment: New Directions in American Political History (Princeton: Princeton University Press, 2009); Brian Balogh, The Associational State: American Governance in the Twentieth Century (Philadelphia: University of Pennsylvania Press, 2015).

Similarly, this study shows the American economy at the end of World War I in a period of chaos, and federal officials as an intervening force attempting to provide stability, but also entering into a mutually beneficial agreement with capital at the expense of workers. Similarly, the analysis here parallels the arguments of Patrick D. Reagan’s book, Designing a New

America: The Origins of New Deal Planning, 1890-1943 (1999), which focuses on the work of various members of President Woodrow Wilson’s wartime boards and their efforts in the postwar period to maintain semblances of federal control over aspects of economic decision- making. While Reagan focuses less on the actual policies that emerged during this period and more on individuals working at think-tanks, he brings to light the fact that American elites recognized a need for greater federal intervention in economic affairs, and that many were working to make that a reality.10

This research focuses on both the establishment of a narrative that justified new state interventions in industrial relations as well as the development of a new relationship between business and the state at the start of the 1920s. As such the methodology for this thesis focuses on analyzing the rhetoric and language of historic actors involved, as well as interpreting laws and decisions handed down by federal institutions.

This thesis focuses on three main categories of sources. The first group are the three conferences that took place between 1919 and 1921. The first two aimed specifically to identify problems facing the working class. These two National Industrial Conferences, which took place at the tail end of 1919, attempted to identify issues facing the working class, solutions to those problems, and effective strategies for mediating unrest between workers and management. The

10 Richard White, Railroaded: The Transcontinentals and the Making of Modern America (New York: W. W. Norton and Company, 2011); Patrick D. Reagan, Designing a New America: The Origins of New Deal Planning, 1890-1943 (Amherst, Massachusetts: University of Massachusetts Press, 1999).

9 third, the President’s Conference on Unemployment of 1921, worked to find ways that the state could improve employment and working conditions. These conferences help to show how other politicians, such as Herbert Hoover and William Wilson, took part in the effort to revise the state’s regulatory structures. These conferences are also important because attendees were not exclusively politicians. American labor leaders, entrepreneurs, and scholars all provided input at these conferences, enabling state actors to better see the conditions of unruly workers.

The next series of sources this paper focuses on is the legislation submitted to Congress between 1919 and 1920, particularly for the goals of restructuring the American economy for postwar America and for dealing with labor conflict. The first pieces of legislation in this study are the various bills submitted by Representative Esch and Senator Cummins to Congress. This series of sources include the Transportation Act itself. Investigating these bills is important to see how ideas contained within them reflect previous discussions held by politicians in the Hines-

Wilson letters and the National Industrial Conferences. These bills are significant because of their efforts to involve the federal government more directly in both the mediation of labor disputes and in oversight of financial behavior in the private sector.

The final category of sources for this thesis are the finance dockets of the ICC throughout the between 1922 and 1923. As the ICC obtained the responsibility of regulating bond and asset sales, as well as regulating mergers and acquisitions, an investigation into the requests that the

ICC both approved and denied will provide further insight into the ways that the ICC endeavored to stimulate business confidence during the 1920s. Over 5,500 dockets were submitted by railroad companies throughout this decade. Although a significant amount of these were simply reports of pre-1920 financial activity, there remain a significant number of requests for permission to expand into unoccupied rail lines, sell bonds and assets, obtain loans, and many

10 other activities. This study analyzes the approved requests and the language the ICC used to justify particular approvals. Through this, they demonstrate how the federal government acted on the strategy it had developed since the end of 1919. At the same time, these sources help to demonstrate how corporations began to learn what outcomes the ICC wanted, and how corporations began to appeal to the ICC’s goals in corporate requests.

The first chapter explains how state actors such as the Secretary of Labor, William B.

Wilson, the Secretary of the Interior, Franklin K. Lane, and former US Food Aid Administrator,

Herbert Hoover, used the climate of insecurity of 1919 to develop a claim for the necessity of federal intervention in both labor relations and economic conditions. They claimed that the excesses of private industry had led to the nation’s current chaos.

In September, President Wilson invited labors of organized labor, prominent businessmen, and various philanthropists and journalists to attend the nation’s first National

Industrial Conference with the goal of establishing a new industrial order. Two months later,

President Wilson called for a second Conference. At both of these conferences, federal officials worked to establish the state as the answer to the problems facing America. The core issues of the economy, and subsequently of industrial relations, was that profiteering and inefficient economic practices had led to stagnating living conditions, unemployment, and a myriad of other social issues.

This first chapter highlights how federal officials not only established a discussion that presented state intervention as a solution for adjusting labor disputes, but also for addressing other economic inefficiencies, such as workplace safety, insufficient housing, unstable work hours, and many other issues. By the end of the two National Industrial Conferences, the executive bureaucrats running these conferences had constructed a narrative that a myriad of

11 economic insufficiencies and profiteering had led the nation to the brink of chaos, and that it was the right of the federal government to intervene and set society on the proper course.

The second chapter details the transformation of this new justification for continued federal presence in the economy into actual legislation. It focuses on the communication between

President Wilson’s administration and prominent legislators, specifically Representative John

Jacob Esch and Senator Albert Baird Cummins. It details the transformation of initial attempts to regulate railroad activities into the final Transportation Act of 1920. Finally, it explains the new powers that this act gave to the federal government through the ICC, as well as the benefits the new legislation accorded to private railroads.

The final chapter explores how federal officials attempted to use their new powers to handle the country’s postwar economic uncertainties. Legitimacy for the Transportation Act’s creation hinged upon the underlying claim that the federal government could establish economic stability through developing more efficient practices, and therefore the ICC, as the Act’s primary enforcer, had to use its powers in particular fashions.

The Transportation Act came to fruition as President Wilson’s administration was coming to a close, and as President Warren G. Harding came to office, he worked with one of the men who helped establish the justification for new regulations, Herbert Hoover, to create strategies for handling America’s unemployment problems. He also appointed one of the

Transportation Act’s primary constructors, John Esch, to become one of the ICC’s head

Comissioners. Thus, while Harding himself may or may not have had different economic visions than President Wilson, he left railroad regulation in the many of the same hands that had been working on the project during the previous administration.

This final chapter begins by detailing the strategies developed by the Harding

Administration at the 1921 President’s Conference on Unemployment, and continues by investigating how the prescriptions of that conference manifested in the rulings of the ICC throughout the early 1920s. The investigations of the ICC’s rulings herein end at 1923, which marked the point at which the railroad industry appeared to have recovered from the conditions of postwar recession.

The creation and enforcement of the Transportation Act of 1920 provides valuable insight into the building of legitimacy for greater power of the federal government over the everyday activities of both the American economy and labor relations. Utilizing the climate of instability following the close of World War I, state officials claimed that economic inefficiency had led to the country’s chaotic conditions, and that the federal government needed to step in to provide order and efficiency to the economy and to labor relations. Once the state gained its powers over the railroad industry, it had to determine that it was at least somewhat capable of fulfilling its promises to restore order to society. The attempt at order that federal officials attempted to create with the Transportation Act was in many ways an old story. The state promised to combat unions on behalf of capital, ensuring greater potential for employers to exploit their labor pool. At the same time, the law also demonstrates a reordering of the relationship between industry and the state in terms of regulation. The state would take over certain responsibilities in maintaining the stability of the railroad industry, such as decisions on whether to abandon or expand rail lines, and would expect railroad executives to carry out the important daily activities that were necessary for smooth operation of railroads.

CHAPTER ONE

Near the end of July, 1919, Director General of the United States Railroad

Administration, Walker Down Hines wrote to President Woodrow Wilson to warn the President of both the growing financial instability of the railroad system and of growing unrest among the many railroad workers. “The wages of railroad shopmen,” Hines commented, “are substantially below the wages paid similar classes of employes [sic] in the Navy Yards, Arsenals and

Shipyards, and in many industrial enterprises in the principal cities of the country.. and that the cost of living has been, and is, steadily rising.” Hines noted that while the Railroad

Administration could promise to increase wages for these disadvantaged workers, it could not raise shipping and passenger rates, which lay in the hands of the Interstate Commerce

Commission. Hines noted the extreme cost these wage increases would have on the Railroad

Administration’s budget, stating, “viewing it as a whole, every increase of one cent per hour means an increase of $50,000,000 per year in operating expenses for straight time with a substantial addition for necessary overtime. An increase of 12 per hour as asked for by the shop employes [sic] would, if applied to all employes [sic], mean (including necessary overtime) an increase of probably $800,000,000 per year in operating expenses.” These drastic costs to the federal government, Hines plainly observed, could not possibly be handled. He urged President

Wilson to communicate the situation to Congress so as to devise legislation that could act on

14 wage problems unilaterally and require rate-making bodies (i.e., the ICC) to adjust shipping and passenger rates to accommodate the new wage-levels.11

It would quickly become clear, however, that the unrest among railroad workers was not isolated. In the Summer, coal miners began a series of wildcat strikes across the Midwest, with

25,000 miners striking in one Illinois district alone. At the end of September, steelworkers would follow as 275,000 workers left their workplaces on the first day of the strike. A week later, the strike gained another 90,000 followers. As these workers began to strike en masse across the country, President Wilson acknowledged that the country needed to reach consensus on future labor relations.12

Woodrow Wilson ordered the convention of the first National Industrial Conference to be held from October 6 through 23 in 1919. Concerned about the countrywide turmoil on the part of labor towards employers and the government, he and other executive officials wanted to identify the points of tension between labor and capital, as well as to develop strategies going forward to ameliorate those animosities. His letter to attendees made clear the serious nature of the time,

“the wastages of war have seriously interfered with the natural course of our industrial and economic development. The nervous tensions of our people has not yet been relaxed to normal.

The necessity of devising at once methods by which we can speedily recover from this condition and obviate the wastefulness caused by the continued interruption of many of our important industrial enterprises by strikes and lockouts emphasizes the need for a meeting of minds in a

11 Walker Downer Hines to Woodrow Wilson, July 31, 1919 in The Papers of Woodrow Wilson, eds., Arthur S. Link, David W. Hirst, John E. Little, Frederick Aandahl, Manfred F. Boemeke, Denise Thompson, Phyllis Marchand, and Margaret D. Link,, vol. 62, July 26 – September 3, 1919 (Princeton, New Jersey: Princeton University Press, 1990) 72-77. 12 Philip S. Foner, History of the Labor Movement in the United States, vol. 8, Postwar Struggles, 1918-1920 (New York: International Publishers, 1988), 141-169.

15 conference such as I have suggested.” He invited representatives from many different political, social, and economic factions across the nation to take part in a dialogue that would help establish precedent for a new political order going forward. Among the various sectors of

America represented at this conference included the United States Chamber of Commerce,

Farmers’ Organizations, Organized Labor, Womens’ Rights organizations, Railroad

Brotherhoods, the National Industrial Conference, Railroad Managers, and other prominent members of the General Public. 13

Haggai Hurvitz provides one of the earliest historical analyses of the National Industrial

Conference. He claims that the conference was comparable more to a peace conference between warring factions than any prior industrial commission. In his analysis of the ideological conflict within the Conference, Hurvitz claims that the union plan at the first National Industrial

Conference represented a call to guarantee workers’ right to organize and even a challenge to the morality of property rights. In contrast, the business delegation’s demands called for the complete destruction of labor unions through the use of shop councils and business unions.

Hurvitz concludes that the differences between labor and management at the first Industrial

Conference had always been irreconcilable, and the Conference’s contentious end was only to be expected. Nonetheless, he sees the Conference as the starting point for the development of two competing ideologies that would end with labor’s triumph with the passing of the Wagner Act.14

Philip S. Foner provides a similar analysis as Hurvitz, but emphasizes that the failure of the National Industrial Conference was the result of the employers group aggressively insisting

13 US Department of Labor, Proceedings of the First Industrial Conference (Called by The President), October 6 to 23, 1919 (Washington, D.C.: Government Printing Office, 1920), 283. 14 Haggai Hurvitz, “Ideology and Industrial Conflict: President Wilson’s First Industrial Conference of October 1919,” Labor History 18, no. 4 (Fall 1977): 502-524.

16 they would not work with unions and that the future industrial order must be built with open shop policies. According to Foner, the combativeness of the employers group not only led to the end of the first Industrial Conference, it intensified the conflict between labor and capital.15

This Conference was not an original idea on the part of the Wilson administration. Daniel

T. Rodgers notes in, Atlantic Crossings: Social Politics in a Progressive Age, that similar activities occurring in England inspired President Wilson’s efforts at peace. Progressive politicians looked to Britain for solutions to many problems affecting American society, from child welfare measures to public welfare insurance. When labor and management clashed following the close of the war, American business advocacy groups looked at British unions to gain an understanding of how the situation might develop at home. Larry G. Gerber emphasizes this point further in his essay comparing Canadian and US Industrial Conferences, both of which, he observes, were inspired by the London National Industrial Conference of 1919. In Gerber’s assessment, the unsuccessful nature of the first Industrial Conference was representative of the growing weakness of organized labor in the United States.16

While these scholars provide interesting perspectives on the conflict between labor and management at these conferences, they fail to consider that the executive bureaucrats officiating the Conference may have had their own agenda at heart. Stanley Shapiro notes that both the war effort and the emergence of new socialist programs in Russia and England altered the views of liberal reformists, who increasingly viewed the pre-war order as outdated and began to advocate for new forms of state control over industry. Rodgers also notes this phenomenon, pointing to

15 Foner, 7-10. 16 Daniel T. Rodgers, Atlantic Crossings: Social Politics in a Progressive Age (Cambridge, Massachusetts: Harvard University Press, 1998); Larry G. Gerber, “The United States and Canadian National Industrial Conferences of 1919: A Comparative Analysis,” Labor History 32, no. 1 (Winter 1991):42-65.

17 calls from social workers, church groups, and civic reformers to preserve wartime projects such as the public employment service, war housing projects, the War Industries Board, and more.

This chapter demonstrates how federal executive officials worked to turn those desires for greater governmental control over economic activity into a reality. It shows how they used the conditions of economic instability and the need to reestablish order between workers and management as justification for advocating federal intervention in a myriad of issues.17

At the first National Industrial Conference in September, 1919, executive officials met with labor leaders, business owners, and other prominent figures to establish a consensus on a new industrial order. The Conference hosted attendees from a variety of different interest groups; representatives for the interests of women, the Chamber of Commerce, Farmers’ organizations, investment bankers, organized labor, railroad workers and managers, employers, and

“representatives of the public” were all in attendance.18 Using this conference, executive officials used the mutual concerns of all attendees to develop a new sense of legitimacy for direct federal intervention in the American economy.19

In his opening address to the Conference, Labor Secretary William B. Wilson expressed concern about both the inefficiency of industrial conditions and the profiteering efforts of employers that reproduced those conditions.

There are but two ways by which the general standard of living of the wageworkers can be improved: One is by increased productivity, making more material available for wages; the other is by taking the means of increased compensation out of the profits of the employer. If wages are increased and profits remain the same, the burden is passed on

17 Stanley Shapiro, “The Great War and Reform: Liberals and Labor, 1917-1919,” Labor History 12, no. 3 (Summer 1971): 323-344; Rodgers, 302. 18 Representatives of the Public meaning journalists and philanthropists. While this group consisted mostly of wealthy entrepreneurs, it curiously contained some very prominent socialists, such as John Spargo and Charles Edward Russell 19 Ibid., 5-7.

to the consuming public in the form of an increased cost of living, and comes back in that form to the wageworker himself. No portion of improved living standards can come out of the profits of the employers unless there is profiteering.20 Secretary Wilson more specifically pointed to the need for combatting industrial inefficiency.

For that reason we are all interested in the maintenance of industrial peace, but there can be no permanent industrial peace that is not based upon industrial justice. Just as international wrongs may accumulate to the point where war is necessary to bring relief, so industrial wrongs may make industrial conflict preferable to the further endurance of the wrongs imposed. Nor is it sufficient that either side to an industrial controversy should be the sole judge of what constitutes justice. The means must exist by which all men may know that justice has been secured. An imaginary wrong has all the force and effect of reality until it is shown that it is only imaginary. We have found ways of regulating all the other relations of mankind. Surely human intelligence can devise some acceptable method of adjusting the relationship between employer and employee.21 These statements would provide the foundation for a discussion among attendees of the conference that would serve to legitimize state intervention in the economy and in labor relations. Going forward, the discussion surrounding the problems of profiteering and industrial inefficiency would serve to shape the boundaries of the state’s intervention in the economy.

Rather than challenge the accusation that employer profiteering had impeded economic growth or the need for regulatory intervention in industrial conditions, attendees debated the nature of government regulation. Through these conversations, two consistent themes emerged.

First, the major groups all recognized, whether explicitly or implicitly, the need for government regulation of profiteering. Second, most in attendance acknowledged the need for a third party mediator between labor and capital. In light of these two trends, state actors needed to build a case for greater involvement in private business practices.

Not long after delivering his opening speech, Secretary Wilson proposed a new federal commission that could intervene in private industry to handle labor disputes. This commission

20 Ibid., 8. 21 Ibid., 8-9.

19 would consist of an equal number of representatives from management and labor, and would deliver legally-binding decisions on labor disputes brought before it. His initial portrayal of the cases this board would discuss was initially vague, but attendees of the conference would affirm the need for such a board at various points, and even insert their own suggestions for what such a board might do.22

In particular, attendees within the public group displayed the greatest support for government intervention in industrial affairs. Journalist Charles Edward Russell submitted recommendations for expansive government intervention, citing an English anti-profiteering act submitted before Parliament as a potential framework for government-centered combatting of profiteering. The excerpts he introduced aimed to develop a Board of Trade that would investigate the prices and costs for all stages of the production of goods, as well as the profit that companies accrued during each of these stages. The Board of Trade would have the power to investigate instances of profiteering and either dismiss the case or, “declare the price which would yield a reasonable price; and require the seller to repay to the complainant any amount paid by the complainant in excess of such price.”23

Profiteering was not the only concern that representatives of the public wanted the government to address. Particularly in the realm of strikes, members such as Louis Titus and

George R. James used the discussion on strikes to promote the banning of such activities as much as possible. To do so, Titus submitted a resolution calling for the banning of strikes unless the majority of workers vote to do so, an activity that would be the duty of the Department of

Labor. He justified this restriction, along with its new power to executive officials, by stating,

22 Ibid., 55-56. 23 Ibid., 54-55.

“whereas many strikes have been called in the various industries of the country which have resulted in great detriment to both labor and capital as well as to the detriment of the general public; and whereas the general public, whether rightly or wrongly, believe that many of such strikes were called by a small minority representing the radical portion of the workers and were not approved by the majority of the workers involved, and would not have been called had the question of calling such strikes been submitted to a general vote of such workers.” James then submitted his own resolution expanding on the effort to reduce strikes, calling for not just the banning of strikes by government employees, but banning them from affiliating with “any organization which uses the strike as a means of enforcing demands.”24

Not all representatives of the public agreed with the statements of Titus and James. John

Spargo introduced his own proposal, wherein he also called for federal intervention into labor disputes, but to punish employers who refused to negotiate with labor unions. He challenged the previous proposals, saying, “whenever any group of employees desire to present their claims, demands, or complaints through representatives of their union or unions, refusal to recognize or deal with such representatives of the union or unions of the workers should be a penal offense.”

Likewise, he fought against James’ assertion that the federal government should ban union membership among its employees. He stated, “We believe that Congress should enact the necessary legislation to make this principle immediately applicable to every department of the

National Government and its services, except the Army and Navy; to every industrial corporation or concern depending upon any license, patent, or franchise issued by the Federal Government, or doing any interstate business or producing goods which enter into interstate commerce.”25

24 Ibid., 90-91. 25 Ibid., 91-92.

In this same statement, Spargo supported the model of federal labor dispute intervention previously proposed by Secretary Wilson. Spargo saw this board as particularly important for punishing employers for discriminating against union workers and preventing them from doing so as much as possible. He affirmed the importance of this board by saying, “some competent authority, composed equally of representatives of employers and employees, should be created with full powers to examine and determine immediately every allegation of such unlawful discrimination properly laid before it.”26

Other members of the public group of the conference viewed it as necessary for regulation of wage-setting, as well. Henry S. Dennison, President of the Taylor Society, proposed a measure to index the cost of various goods and services for the automatic adjustment of wages throughout the country’s many industries. He advocated, “in the opinion of the conference the basic principle of wages should be this, that they should first be equitable under existing conditions, and that, without imposing any necessity or occasion for strikes to obtain that end, they should automatically, on the foundation of an agreed-upon index number of prices, follow changes in the cost of living.” He further explained what, as hew saw, as necessary components for determining wages, saying, “in determining what is an equitable wage there should be taken into consideration the profits of the industry concerned, the requirements

(scientifically ascertained) for normal and wholesome life, with a reasonable margin to be added for comfort.”27

Other attendees, representing both labor and employers, also utilized the framework of economic inefficiency provided by Secretary Wilson in order to advance their own interests. The

26 Ibid., 91. 27 Ibid., 80-81.

22 employers group, in submitting its statement on workplace relations, implicitly acknowledged the Secretary’s criticism of private industry.

Sound industrial development must have as its foundation productive efficiency and high productive efficiency requires not only energy, loyalty, and intelligence on the part of management and men but sincere cooperation in the employment relation based upon mutual confidence and sympathy… The requisite efficiency in production can not be secured unless there is effective cooperation between employer and employee such as is only possible where, with a full understanding of each other’s point of view, management and men meet upon a common ground of principle and in a spirit of cooperation based upon good understanding and a recognition of what is fair and right between the two.28 Although the employers’ group’s statement advocated for a voluntarist relationship between employers and employees, its remarks still acknowledged the criticisms directed at its members from the Labor Secretary. Furthermore, the group’s statement did not challenge the arguments for government oversight and regulation of profiteering. The testimony continued onward to even acknowledge the need for combatting profiteering, stating, “there should be no intentional restriction of productive effort or output by either employer or the employee to create an artificial scarcity of the product or of labor in order to increase prices or wages, nor should there be any waste of the productive capacity of industry through the employment of unnecessary labor or inefficient management.” Importantly, however, the statement gave no answer for actually combatting profiteering or inefficiency that could combat the state-centric answers given by attendees such as Russell.29

At the same time, the employers’ group did attempt to use the discussion surrounding industrial efficiency to protect some of their power. While they acknowledged the importance of mending the country’s unemployment problems following World War I, the groups’ statement

28 Ibid., 80. 29 Ibid., 80-81.

23 proclaimed this to be the responsibility of management, rather than allow for government interference. The statement read, “each establishment should study carefully the causes of unemployment, and individually and in cooperation with other establishments in the same and other industries, should endeavor to determine and to maintain conditions and business methods which will result in the greatest possible stability in the employment relations.” The proposal that businesses should collaborate with one another to produce a greater climate of employability was bold, and failed to manifest in any meaningful proposal at the conference, but it does show the efforts of business owners to push back against the narrative that the state should direct economic activity.30

In addition, their statement also attempted to maintain management’s control over the setting of wages. It began with an assertion that wages need to be determined mostly by “the law of supply and demand”, attempting to preempt any calls for major adjustment to the wages of employees. At the same time, their statement recognized the need for wages to improve, so as to assuage the tensions among workers. Unlike their previous statements, this passage pointed to ways that different industries had begun to address the problem of stagnant wages. They stated,

“many plans are now under consideration for adding to the fixed wage of the worker such, for example, as bonus payments, profit sharing, and stock ownership. All such plans should be carefully studied in each establishment. It may well be that in many instances the employer and the employee could work out an arrangement of such a character to their mutual advantage.” In this case, the employers pointed to a number of methods that, they claimed, demonstrated the effectiveness of voluntarism in repairing industrial inefficiency. However, the final sentence

30 Ibid., 81.

24 implicitly acknowledges that tensions over wages might not necessarily be solvable by these plans, giving an avenue for federal bureaucrats to justify regulation.31

The labor group, in contrast, favored greater regulation on the behavior of employers and industry. In their list of recommendations for the handling of industrial relations, labor representatives requested many demands of the state that they had been requesting for years prior. They sought the limiting of work hours to 8 per day, the establishment of a minimum wage, and the abolition of child labor. They, much like Spargo from the public representatives, affirmed the need for a federal board to mediate disputes between labor and capital. The proposal read,

To this end there should be established by agreement between the organized workers and associated employers in each industry a national conference board consisting of an equal number of representatives of employers and workers, having due regard to the various sections of the industry and the various classes of workmen engaged, to have for its object the consideration of all subjects affecting the progress and well-being of the trade, to promote efficiency of production from the viewpoint of those engaged in the industry, and to protect life and limb, as well as safeguard and promote the rights of all concerned within industry.32 The labor representatives envisioned a far more expansive role for these labor boards than other groups, combining it with the anti-profiteering proposal of Russell. This version of the board would not only ensure that the rights of workers were to be upheld, it would also investigate any subject which might impede the expansion of the American economy.

By the end of the conference, attendees were still bitterly divided on the rights of labor to collectively bargain, as well as to what extent workers had the right to strike when employers did not sufficiently meet their demands. Nonetheless, both sides agreed, when implicitly or

31 Ibid., 81. 32 Ibid., 58-59.

25 explicitly, that government intervention in industrial relations was necessary for the establishment of a new order. The concept of a labor adjustment board was met with wide praise and attendees suggested a myriad of roles for it to fulfill. Thus began a path to legitimacy for a new industrial order that would place ever more control over industry in the hands of the executive branch of the federal government.

While ultimately, the negotiations of the first National Industrial Conference would end in a stalemate, President Wilson called for a second conference to establish a concrete set of policy recommendations for solving industrial disputes going forward. This conference, convened on December 19, 1919 and then later reconvened on January 12, 2020, put forward its recommendation with the stated goal to, “adjust disputes in general industry by conference, conciliation, inquiry and arbitration.”33

Chairing this conference was Secretary of Labor, William B. Wilson, with its co-chair,

Herbert Hoover. This conference was much smaller, with only 17 executive secretaries, most of whom were state or federal bureaucrats, to contribute to the policies and recommendations that went into the Conference’s final report. This conference thus represents executive bureaucrats taking more direct control over the dialogue on resolving the industrial crisis. At the same time, the conference’s recommendations drew on the work and opinions of the attendees of the previous conference, showing how they used the opinions and suggestions of both labor and capital to justify increased state power over the conditions of American industry.34

33 US Department of Labor, Report of Industrial Conference Called by The President (Washington D.C.: Government Printing Office, 1920), 5. 34 Ibid., 51.

Once again, the conference pointed to the problems of industrial inefficiency and stagnating living standards as the causes for the problems between labor and capital.

The causes of industrial unrest are many. Among others, they include the rise in the cost of living, unrestrained speculation, spectacular instances of excessive profits, excessive accumulation and misuse of wealth, inequality in readjustments of wage schedules, release of ideas and emotions by the war, social revolutionary ideas imported from Europe, the belief that free speech is restricted, the intermittency of employment, fear of unemployment, excessive hours of work in certain industries, lack of adequate housing, unnecessarily high infant mortality in industrial centers, loss of personal contact in large industrial units and the culmination of a growing belief on the part of both employers and employees that a readjustment is necessary to a wholesome continuity of their united effort.35 This introduction, which declares the universal acknowledgement of a necessary readjustment, served as a proclamation to its audience that the state interventions the conference proposed were both legitimate and desired by the people. The second conference’s diagnostic of America’s labor problems went further than the previous one. Whereas Secretary Wilson, at the first

Conference, declared that labor problems were the result of the effects of war, the second

Conference declared that, “for the most part causes of unrest are not the result of the war; they have been accentuated by it.”36

In this introduction, the Conference reaffirmed the right of the state to intervene in class disputes in order to stabilize society that most groups in the previous Conference had conceded with little to no struggle. They stated that, “it is idle wholly to deny the existence of conflicting interests between employers and employees. But there are wide areas of activity in which their interests coincide. It is the part of statesmanship to organize identity of interest where it exists in order to reduce the area of conflict.”37

35 Ibid., 5. 36 Ibid., 6. 37 Ibid., 10.

This conference established a more detailed version of the board hypothesized at the first, which emphasized more the prevention of disputes rather than simply mediating them. Their recommendation stated that “employee representation must not be considered solely as a device for settling grievances. It can find success only if it also embodies cooperation in the problem of production. Whatever subjects the representatives come to feel as having a relation to their work, and their effectiveness as members of the plant, may come within the field of committee consideration.” This broad language served to expand the field of problems and complaints that the representative board, which this Conference would promote, could address. Topics for adjustment could not only be issues of insufficient wages or overlong work hours, they could even be issues of inefficient production or profiteering.38

The conference’s final report was quick to assert a broad popularity for its recommendations, and that the policies it suggested were in line with the interests of both labor and capital. In the introduction, the Report immediately states that, “it [the Conference] has received a vast amount of helpful comment from individuals and organizations in all parts of the country and it has also had the assistance of leading representatives of capital and labor, speaking for large numbers of employers and employees, who have come before it in frank consultation.” proclaimed that its plan found wide support from both representatives of management and labor that saw it. They proudly proclaimed, “the conference has had the benefit of testimony from both employers and employees who have had experience of the results of employee representation.

An enthusiasm has been shown which comes from a sincere feeling of substantial progress in the development of human relations.”39

38 Ibid., 11. 39 Ibid., 5, 12.

The proposal recognized the importance for employee representation in shops. In the recommendations the committee provided, it emphasized that, “employees need an established channel of expression and an opportunity for responsible consultation on matters which affect them in their relations with their employers and their work.” The proposal went further to state the goals of that representation, by proclaiming that, “Employee representation will not only enable them better to advance their own interests, but will make them more definitively conscious of their own contribution, and their own responsibilities.”40

At the same time, the conferences recommendation challenged the ability of organized labor to handle the task of creating an improved industrial order themselves, stating, “the development and maintenance of right relations between employer and employee require more than mere organization. Intelligent and wise administration is needed of all those problems of production that directly touch the employee.” In the Conference’s view, a wise third party, the state, was necessary to direct the mediation of the dispute. It emphasized this view further by claiming that, “employee representation offers no royal road to industrial peace. No employer should suppose that merely by installing some system of shop representation he can be assured, without continued effort, of harmony and increased production.”41

The Conference called for the establishment of three new state institutions to mediate and regulate behavior in the private sector: a National Industrial Board, Regional Adjustment

Conferences, and Boards of Inquiry. The National Industrial Board recommended in this

Conference’s report would consist of nine members appointed by the President with the Senate’s confirmation. Three were to be representatives of the employees, three were to be representatives

40 Ibid., 9. 41 Ibid.,

29 of “general interest”, and three more were to be representatives “who shall be specially qualified by reason and knowledge or experience with economic and general questions.” The Regional

Adjustment Conferences would consist of chairmen appointed by the President, and, in the case of a local or regional dispute, the chairman could request an equal number of representatives from both labor and management to resolve the dispute under the guidance of the chairman. If parties to the dispute in question refused to submit their complaint to the Regional Adjustment

Conference, the Adjustment chairman could establish a Board of Inquiry that would call upon two employers and two employees.42

While the Regional Adjustment Conference’s role was fairly voluntarist, the two accompanying boards had more coercive power in deciding industrial conditions. Boards of

Inquiry, which could be called by the Regional Adjustment Chairman in the event that a particular dispute was not brought before the Adjustment Conference, were to have the power to subpoena witnesses, examine them under oath, require production of texts that would explain industrial conditions, and issue testimonies and recommendations to the Secretaries of Labor and

Commerce. Decisions made by the National Industrial Board would provide no voice for local employer and employee groups, as the representatives overseeing their case would be those appointed by the President.43

While the role of these boards appeared to be one of simply mediation on disputes, the decisions made at them was to carry weight. The board recommended that, “whenever an agreement is reached through a Regional Adjustment Conference, or the National Industrial

Board, or an umpire, it shall have the full force and effect of a trade agreement, which the parties

42 Ibid., 13-15. 43 Ibid., 19

30 to the dispute are bound to carry out.” Further, while participation with the Regional Adjustment

Conference appeared to be simply voluntary on the part of employers and employees, the far more coercive power of the Regional Inquiry Board would serve as a persuading force for agreeing to work with the Adjustment Conference.44

The Conference offered a detailed plan for mediating labor disputes, but it also pointed to a myriad of issues that afflicted both industry and the general American workforce that contributed to both the tension between labor and capital and the stagnation of American industrial output. The second half of the Conference’s proposals advocated for a number of changes to industrial conditions that, its attendees argued, were central to the current climate of animosity between labor and capital. The issues it claimed were responsible for the tensions between classes also show what kind of issues the Commission thought were appropriate for the

Adjustment Board to address. Their report called attention to the long work days of employees, the employment of children in industry, the terrible conditions of housing, insufficient wages, profiteering, and rapid inflation. In discussing these problems, the Conference sometimes openly advocated for state intervention in regulating and resolving these dilemmas, but as this list of recommendations was for the purpose of shaping future legislation, the involved bureaucrats seemingly did not feel it necessary to always openly advocate for state regulations. By moving the discussion of industrial efficiency beyond the resolution and prevention of labor disputes, this second National Industrial Conference pushed to expand the window for state intervention in the economy beyond the initial points of concession made at the first.

44 Ibid., 21

In its address on work hours, the Conference pointed to detriment of overly long workdays on the health of employees. They stated that, “work, which is repetitive, monotonous and conducted under the confining indoor conditions of even the best industrial plant, especially where the plant is located at a distance from the homes of the workers, makes much more exacting physical and nervous demands.” They then recommended that, “If the inevitable conditions of modern industry do not offer variety and continuing interest, the worker should have hours short enough for more recreation, and for greater contact with his fellowmen outside of working hours.” Furthermore, the conference pointed to the inefficiency of long workdays for production, highlighting that, “studies which have already been made in some industries indicate that long hours do not in general result in maximum production. The Conference believes that some industries are now operating, in part at least, on hours schedules which are above the standard of maximum productivity, and which in any case do not allow employees proper opportunity for rest and recreation.” The Conference’s assertion that the current conditions of the workday created a climate of inefficiency served to reassert the legitimacy of its prescriptions, as the basis for the intial discussion of these conferences was on the combatting of the inefficiencies causing class strife.45

In the same vein, the Conference used its authority on addressing economic inefficiency to attack the use of child labor. It declared, “the Federal Government has already recognized the unsoundness in the economic use of the nation’s resources of permitting the entrance of young children into industry.” More specifically they highlighted the effects of this practice on the

45 Ibid., 32-33.

32 nation as a whole, saying, “Such a practice results in the progressive degeneration of the race and tends to impair the human resources of the country on which the coming generation must rely.”46

Housing conditions presented another avenue for the state actors of the Conference to demand power. They proclaimed that, “it is unnecessary to point out the intimate relation which exists between efficient production and the conditions of life to which a man or woman returns at the close of a day’s work. When the employees of industry and commerce return to families who are housed in dwellings that are crowded, unsanitary, inconvenient, and unlovely, these men and women suffer in health and well-being, and consequently are unable to render that effective productive effort which the nation needs.” They further highlighted that, while factories and industrial sectors rapidly expanded as a result of the war, no similar expansion of housing followed. While they claimed that ultimate responsibility for housing rested on local communities, the policy makers of the Conference encouraged state governments to actively intervene in these situations, stating, “the states should likewise initiate systematic inquiries into the subject, including the extension of proper building and housing codes, already successfully applied in many localities. The studies of the Federal Government in this field should be continued and emphasized.” In cases such as housing, where government institutions had already begun regulating private practices, the Conference members used their justifying force to push for further intervention.47

In its address of wages, the Conference once again relied on its power in attacking force of inefficiency to distribute ever more power to state regulators. They asserted that, “when the wages of any group fall below this standard [one adequate to maintain the employee and his

46 Ibid., 34-35. 47 Ibid., 36-37.

33 family in reasonable comfort] for any length of time, the situation becomes dangerous to the well-being of the state.” At the same time, the Conference made clear that it would not make demands of only employers, but expected also workers to increase their own productivity. They clarified this point by stating, “the nation is interested in the welfare of its citizens not only from the point of view of wages, but from the not unrelated one of productivity.” Thus, while these bureaucrats made an offer of intervening on behalf of workers for better wages, workers would have to increase their own productivity in return.48

Similarly, the Conference’s recommendations cited inflation as one of the many issues the state needed to confront. They observed that, “a prolific cause of unrest is the disturbance of economic equilibrium through the rapid increase in cost of living.” In describing the history of this issue, the bureaucrats noted, “increase in production during the past five years has not been at all commensurate with the expansion of currency and credits through war finance. Inflation during the past year moreover has proceeded at an increased rate, in the face of reduced production.” The federal government, the Conference members asserted, needed to strictly regulate financial behavior from banks. They asserted, “inflation must be dealt with through the wise restriction of credits by the banks, by increased production and by saving and economy in consumption. If these forces were brought into play, speculation and profiteering would recede and the cost of living decrease.” By once again tying these new proposals for regulation to profiteering, the Conference tied them to the legitimizing discussion that federal bureaucrats had built throughout both National Industrial Conferences.49

48 Ibid., 37. 49 Ibid., 40.

To be sure, in prefacing their list of issues facing the American economy and the working class, the policy proposal informs readers that its proposals are not an attack on capitalism, and that, despite recommending government intervention in the economy, these bureaucrats held the systems of private property and market economy as vital to the freedoms and virtues of the country. They noted that,

it may aid in comprehending the work of the Conference to recall that the present condition of freedom has come about not so much from positive laws as from the removal of restrictions which the laws impose upon the rights and the freedom of men. The Conference confesses that in the prosecution of its work it has been animated by a profound conviction that this freedom that has been wrought out after many centuries of struggle should be preserved.50 In the context of recommending several state-led restrictions on market behavior, this preface might seem contradictory. Yet in this period of industrial crisis, the rise of Bolshevism in

Russia, and the state’s recent suppression of socialist movements such as the Industrial Workers of the World and the Socialist Party of America, it seems less surprising that state officials would worry about the potential for opponents of these new regulations to declare these proposals anti- capitalist. With that concern in mind, it is less surprising that Conference members might wish to deter any challenges to their advocacy for a greater government role in determining business behavior.

While these two conferences did not themselves produce legislation, they helped to create a climate of legitimacy for government intervention in industrial conditions, as well as to provide a solid plan for the creation of new institutions, as well as the modification of old ones, to resolve the crises of American industry. This plan would reduce the existing autonomy of both capital and labor, and simultaneously increase the power of the state in setting terms of industrial

50 29-30

35 behavior. Where the first Conference built the case for state intervention into labor relations, the second Conference did the work of expanding that legitimacy into specific issues facing the economy and attempted to preemptively justify the federal government’s intervention into those issues by placing them within the framework of industrial inefficiency.

The impact of these Conferences on federal policy would be seen most clearly soon after, with the passage of the Transportation Act of 1920. The Transportation Act would establish a labor board with many parallels to the National Industrial Board recommended by the second

Industrial Conference, but would also provide the Interstate Commerce Commission (ICC), far more regulatory power over railroads than it had previously had in the name of combatting profiteering and stabilizing the railroad industry. It is this act that demonstrates most clearly how executive officials worked with federal legislators to implement new interventions in industrial relations.

CHAPTER TWO

The discussion among labor, executive bureaucrats, and management throughout 1919 were not the only efforts made to deal with the crises and instability of postwar America. As executive officials attempted to create a dialogue that would justify state interventions in the economy, President Wilson and his cabinet worked with legislators to create legislation that would turn a positive public sentiment into actual power. The process of creating this legislation shows both how Congress’ work to create more regulatory power for the federal government not only shifted to reflect the work of executive bureaucrats in establishing a framework for legitimizing state intervention, but also how those legislators inserted their own efforts to legitimize new state control over industry.

The fruits of their labor, the Transportation Act of 1920, established a substantially new relationship between the state, industry, and labor throughout the 1920s. It established a series of new restrictions on the practices of the railroad industry as well as set up a new labor board to handle disputes between labor and management. The law represented both new control over economic activity on the part of the federal government, as well as a compromise between the state and capital. The law allowed for self-regulation on the part of railroad companies in some cases, while requiring strict adherence to authorization procedures in others. As a reward for complying with the interests of the state, the government would use its new labor board to undermine the interests of organized labor.

In July, 1919, US Railroad Administration Secretary Walker Down Hines expressed concerns to President Wilson about the state of the country’s nationally-owned railroad system and expressed the desire to change the system of ownership so as to ameliorate the negative conditions afflicting the project. He warned that, “both problems [of setting rates and wages] are of the most urgent character. As to wage increases, the shop crafts, numbering nearly 500,000 employes [sic], are in a pronounced state of ferment and there are prospects of serious strikes at a very early date.” Secretary Hines noted that while he did not have any specific policies to recommend to the President regarding the improvement of immediate conditions, he claimed that, “there is no prospect for absolute Government ownership and operation.”51

Hines expressed concerns about, what he saw, as two extremes on the issue of railroad relations going forward. On the one hand there was the Plumb plan which threatened to fully nationalize the nation’s railroads and possibly jeopardize support from businesses who feared the potential precedent such an act would set. On the other hand, Hines expressed concerns that many Congressmen wanted to return to the prewar relationship between the state and railroads, in which the ICC mainly set rates for railroad carriers to charge and oversaw any cases where a carrier was charged with price discrimination.52

The Plumb plan which Hines mentioned was an act brought before the House of

Representatives by Representative Thetus Sims and devised by labor lawyer Glenn E. Plumb, which aimed to extend federal control of the nation’s railway systems. The plan called for the permanent nationalization of all lines, cars, and equipment the United States had seized during

51 Walker Downer Hines to Woodrow Wilson, July 9, 1919, in The Papers of Woodrow Wilson, eds., Arthur S. Link, David W. Hirst, John E. Little, Frederick Aandahl, Manfred F. Boemeke, Denise Thompson, Phyllis Marchand, and Margaret D. Link, vol. 61, June 18 – July 25, 1919 (Princeton, New Jersey: Princeton University Press, 1989), 413- 414. 52 Ibid., 414.

38 the war effort, as well as the establishment of a Railways Board of Appraisement to ascertain the amount of money that each company should be compensated by the United States government as a result of nationalization. At the same time, the Plumb plan called for the establishment of a

National Railways Operating Corporation, consisting of fifteen directors, who would divide

America’s railway system into a series of districts and oversee the conditions of each district.

These conditions included “the rates, fares, tolls, dues, and charges to be charged under the direction of the Interstate Commerce Commission,” as well as, “the salaries, wages, and remuneration and conditions of employment of persons employed on or in connection with any undertaking of which possession had been taken.” It also included, “the working or discontinuance of the working of the undertaking or any part thereof, including directions as to keeping open of any station.”53

The Plumb plan demonstrates the program that Secretary Hines, as well as President

Wilson, wanted to create. Although executive officials would be quite happy to surrender ownership of railroad lines, they refused to entirely surrender the ability to manage those lines themselves. By giving the state the ability to regulate rates, wages, operating conditions of lines, and other powers, the Plumb plan avoided any return to pre-war conditions for the country’s railroads, and promised continued federal oversight of the industry’s behavior. The Plumb plan

53 66th Congress, “A Bill Authorizing the acquisition by the United States of private interests in railroads and transportation properties, and for payment of just compensation therefor, and providing the means for determining such compensation; creating a corporation for public service, with authority to operate the properties so acquired, and authorizing a lease to such corporation of such properties when so acquired, and for other purposes,” in The Transportation Act 1920, Its Sources, History, and Text, Together with its Amendments to the Interstate Commerce Act, ed. Roger Mac Veagh (New York: Henry Holt and Company, 1923), 529-539.

39 failed to go any further through the legislative process, largely as a result of pro-business opposition.54

In providing a rough sketch of the order he saw as necessary for the maintenance of

America’s railroads, Hines described what he saw as the ideal relationship between private ownership and public management.

I think that either now or a few years later we must come to a plan which will remove these fears of exploitation and which will attract the necessary new capital. Broadly, I think this can be accomplished through the compulsory consolidation of the railroads into a few large systems to be managed by Boards of Directors upon which the Government and Labor, in addition to the stockholders, will be adequately represented, with a statutory requirement insuring an adequate earning capacity but providing for a division of the excess profits with the Government or Labor or both.55 He advised the President that there existed in Congress supporters for establishing a new industrial order that gave greater presence to the state. Hines firmly praised Senator Albert B.

Cummins, who he saw as one of the most prominent members of Congress working towards creating a compromise between voices calling for a return to prewar conditions and those advocating for nationalization. While he observed that Representative John Jacob Esch,

Chairman of the House Committee on Interstate and Foreign Commerce did not, “so far appear to perceive the necessity for really fundamental changes,” he acknowledged the importance of

Esch in crafting legislation for improving industrial conditions.56

Even before the end of the war, the state’s power over the economy had grown tremendously. As Samuel DeCanio observes in Democracy and the Origins of the American

Regulatory State, the Civil War and Industrialization had led to massive changes in the federal

54 Philip S. Foner, History of the Labor Movement in the United States, vol. 8, Postwar Struggles, 1918-1920 (New York: International Publishers, 1988), 16-20. 55 Walker Downer Hines to Woodrow Wilson., 414. 56 Ibid., 414-415.

40 government’s control over monetary behavior in the United States. The National Bank Act allowed for the Treasury Department to establish a system of nationally chartered banks that could compete with private finance. The federal government had also replaced earlier systems of bank notes issued privately by different banking institutions with a universal greenback system.

Being able to issue loans and issue currency now enabled the federal government to more tightly control the volume of currency in circulation, and therefore have more control on the inflation and deflation of the nation’s money.57

In Making the Modern American Fiscal State: Law, Politics, and the Rise of Progressive

Taxation, 1877-1929, Ajay K. Mehrotra observes similar transformations in the state’s ability to collect taxes between the end of the Civil War to the Great Depression. The tax system of the late Nineteenth Century was mostly confined to excise and customs taxes, which themselves mostly generated income through the taxing of alcohol and tobacco. By the beginning of the first

World War, the nation’s tax system was already starting to expand with the establishment of the federal income tax in 1913.58

The state’s power over private industry and labor had also grown, if in some ways only nominally, leading up to the war. The Sherman Antitrust Act of 1890 allowed the state to restrict the development of trusts and monopolies, although its use for this purpose was not often utilized. The state did occasionally employ the Act when it felt necessary, such as the cases of

United States v. Trans-Missouri Freight Association and United States v. Joint Traffic

Association, declaring in both cases that railroad carriers had violated the framework the state

57 Samuel DeCanio, Democracy and the Origins of the American Regulatory State (New Haven, Massachusetts: Yale University Press, 2015). 58 Ajay K. Mahrotra, Making the Modern American Fiscal State: Law, Politics, and the Rise of Progressive Taxation, 1877-1929 (Cambridge, Massachusetts: Cambridge University Press, 2013).

41 had set for appropriate economic behavior. The Sherman Act’s other use, to restrict the behavior of labor unions, proved to be very effective as Melvyn Dubofsky writes in The State and Labor in Modern America. As early as 1893, courts began using the Sherman Act to limit the ability of labor unions to restrict trade as a result of strikes or to organize boycotts against anti-union businesses.59

Near the end of the month, Secretary Hines communicated concerns about railroad employee frustrations and the problems of government control of railroad operations, which he saw as worsening. The government, Hines contended, could not afford to continue paying wages, especially if those wages were to increase, in addition to already existing expenditures on the part of the federal government. He warned, “the government is already incurring a deficit at the rate of several hundred million dollars per year in operating the railroads, because the increase in transportation rates has been proportionately less than the increases in wages already granted and the increases in prices which have taken place.” Wilson forwarded the letter to senators John

Esch and Albert Cummins, and all four men worked to construct legislation that would address growing frustration among transportation workers. Esch and Cummins would both submit their own bills to Congress, and general deliberations began among the legislature.60

Historians typically agree that, prior to the passing of the Transportation Act, the ICC’s behavior, and that of the federal government in general, was largely oppositional to the railroad industry and to reform prior to the first World War. Among the most famous critics of the ICC’s activities during the early Twentieth Century is Albro Martin. In Enterprise Denied: Origins of

59 Dubofsky, 24-25. 60 John Jacob Esch to Woodrow Wilson, August 2, 1919, in The Papers of Woodrow Wilson., vol. 62, July 26 – September 3, 1919 (Princeton, New Jersey: Princeton University Press, 1990), 117; Albert Baird Cummins to Woodrow Wilson, August 2, 1919, in Ibid., 117.

42 the Decline of American Railroads, 1887-1917, Martin claims that federal railroad policy from the passing of the Hepburn and Mann-Elkins Acts worked to prevent the industry’s growth.

Restrictions on rate-setting prevented the railroads from growing to match the public’s needs and hampered the innovative spirit of the industry’s management.61

K. Austin Kerr’s work, American Railroad Politics, 1914-1920, analyzes the decisions made by the Commission throughout the early Twentieth Century and the relationship between those rulings and the interests of both shippers and carriers. The ICC refused most of the major appeals that railroad companies made to the Commission from the passing of the Hepburn Act to the beginning of federal control in 1917. While Martin treated the hostility of the ICC and other federal officials as the result of “archaic” antirailway sentiments, Kerr notes that the

Commission’s rulings largely arose out of competition between both railroad and shipping interest groups over the favor of the Commission.62

Ari and Olive Hoogenboom, in A History of the ICC: From Panacea to Palliative, observed that the Commission had consistently ignored inflation and refused to allow rate increases. It also completely accepted “value of service” rates which often had little, if any, relationship to the actual cost of services that railroads provided. The job of the Commission to ensure low transportation rates and to prevent excessive consolidation of railroad companies and services meant that carriers struggled to meet the country’s needs for transportation. The nation had been facing transportation inadequacies for years prior to America’s entry into World War I, and the ICC served as little more than a barricade for solutions. The war’s exacerbation of transportation problems made many in Congress realize that the Commission required reforms.

61 Albro Martin, Enterprise Denied: Origins of the Decline of American Railroads, 1897-1917 (New York: Columbia University Press, 1971). 62 K. Austin Kerr, American Railroad Politics, 1914-1920 (Pittsburgh: University of Pittsburgh Press, 1968)

The newly established US Railroad Administration bypassed the ICC in running the nation’s railroad systems, and its handling of transportation problems forced both Congress and the ICC to recognize the need for a new regulatory strategy in the postwar period.63

In a November draft of Wilson’s State of the Union address, the President prepared to announce the re-privatization of railroads and the distribution of reparations for companies who faced loss over the wartime nationalization project. The communications between the President and Secretary Hines throughout the previous months made clear the insurmountable costs that government control of railway systems would impose in both the short and long term, and

President Wilson had accepted the advice of the Railroad Administration Director. Re- privatization was necessary for the industry’s conditions to improve.64

Representative Esch and Senator Cummins both submitted bills to their respective branches of the legislature to establish a new industrial relationship going forward. Both of their works demonstrate an effort to produce a similar industrial order as the one within the Plumb plan, both by reprivatizing the nationally-owned rail lines and by withholding various powers over industry. The first of these bills, introduced by Cummins at the end of August, 1919, looked dramatically different from the final legislation of the Transportation Act. This bill, unlike the

Plumb plan, first called for the reprivatization of all nationalized rail lines and the compensation to all rail carriers for their losses during the war effort. Cummins’ plan likewise called for federal division of rail lines into various districts where the state could set rates for passenger and freight transport, but instead of creating a new agency, the Cummins bill set these responsibilities on the

63 Ari and Olive Hoogenboom, A History of the ICC: From Panacea to Palliative (New York: W. W. and Norton Company, 1976) 64 Woodrow Wilson, “A Draft of an Annual Message,” in Ibid., vol. 64, November 6, 1919 – February 27, 1920 (Princeton, New Jersey: Princeton University Press, 1991), 73.

44 shoulders of the preexisting Interstate Commerce Commission (ICC) which already had regulatory powers over railroad behavior.65

Cummins’ bill demonstrates a compromise between the calls for nationalization that existed within the Plumb plan and the voices that advocated for the return to prewar industrial relations. Cummins’ plan directly aimed to limit the amount of profit that any company could accrue from operation in any given year, and required any carriers who made profit beyond that point to submit their excess earnings to the ICC. The law proposed that carriers profit margins be restricted to a an amount determined by the value of a carrier’s property. Any amount of profit made above this amount in a given year was to be surrendered to the ICC by the end of the first quarter of the succeeding year. This proposal, in combination with the efforts of executive bureaucrats at the first National Industrial Conference several months later, helped to place the blame of industrial instability at the feet of corporate profiteering. 66

In November Esch would submit his own bill to handle the crises affecting industrial conditions. This bill not only reflected the goals of the President and his cabinet in retaining control over the railroad industry, it also reflected the dialogue that had occurred only two weeks prior. This act would serve as the actual framework for the final Transportation Act of 1920 from the organization of legislative acts to the ways that it attempted to justify state intervention in the affairs of railroad activities. Almost all of Esch’s changes to railroad regulations remained in the final Transportation Act, suggesting widespread agreement between members of Congress on

Esch’s suggested course for remedying the problems of the railroad industry. As such, this piece

65 66th Congress, “A Bill further to regulate commerce among the States and with foreign nations and to amend an Act entitled “An Act to regulate commerce,” approved February 4, 1887, as amended,” in Mac Veagh, 539-565. 66 Ibid., 542

45 of legislation further elucidates the methods that state officials worked to legitimize their attempts to make new avenues for federal presence in economic activities.

The bill proposed two institutions for the resolution of any disputes between employers and employees throughout the country’s railroad industry. The first was the Railway Labor

Adjustment Board, which consisted of two groups: a group consisting of one member of each union and a group representing carriers, express companies, and sleeping car companies. If this board were to fail in reaching a consensus on a particular decision, it would cede the case to the second proposed institution.67 The second institution, known as the Railway Labor Board of

Appeals, which not only served as a precursor to the final Railroad Labor Board of the

Transportation Act, but also reflected Congress’ observation of the Industrial Conferences, and the tuning of legislation to reflect the dialogue on state intervention that was occurring around them. This board was to consist of three separate divisions of representatives.

(a) Three members representing the unions, one to be appointed by the President of the United States from each of three sets of six nominees offered by the group of employee members of the Adjustment Board; (b) Three members representing the carriers, one to be appointed by the President of the United States from each of three sets of six nominees offered by the group of employer members of the Adjustment Board; and (c) Three members representing the public, one to be appointed by the President of the United States. The appointments of the public representatives shall be so made that each of the following elements of the public shall be represented by one such appointee— agricultural interests, commercial interests, and unorganized labor.68 This division of representation within this first draft of the labor board thoroughly reflected that discussed at the National Industrial Conference, which promoted equal representation between

67 Congress, House, “A Bill to provide for the termination of Federal control of railroads and systems of transportation; to provide for the settlement of disputes between carriers and their employees; to further amend an Act entitled ”An Act to regulate commerce,” approved February 4, 1887, as amended, and for other purposes,” in Ibid., 605-607. 68 Ibid., 607.

46 labor and management, as well as that of groups whose interests lay adjacent to any particular dispute. The purpose of this board was to oversee any dispute brought before it either by an adjustment board or by the President, to reach a consensus of no less than five sixths on the matter, and to deliver a binding resolution to all involved parties.69

This bill also attached the new regulatory powers of the federal government to preexisting legislation While previous bills proposed new regulations on the railroad industry and labor relations, whether through existing institutions such as the ICC or through new boards and commissions, this bill claimed new regulatory powers over industry through the already existing Interstate Commerce Act of 1887. By doing so, Esch and others could argue that their regulations were not just in line with the popular support of both employers and employees across the nation, they could make the claim that these powers had an established precedence within the American legal system.70

The Interstate Commerce Act, which created the ICC and established the first regulatory framework for interstate railroads, provided several powers which would be necessary for a more powerful state institution to control economic activities. First, it gave the ICC not only the ability to investigate any decisions or activities from private rail carriers it deemed necessary for the fulfillment of its regulatory duties.

That the Commission hereby created shall have authority to inquire into the management of the business of all common carriers subject to the provisions of this act, and shall keep itself informed as to the manner and method in which the same is conducted, and shall have the right to obtain from such common carriers full and complete information necessary to enable the Commission to perform the duties and carry out the objects for which it was created; and for the purposes of this act the Commission shall have power to require the attendance and testimony of witnesses and the production of all books, papers, tariffs, contracts, agreements, and documents relating to any matter under investigation,

69 Ibid., 608. 70 Ibid., 611.

and to that end may invoke the aid of any court of the United States in requiring the attendance and testimony of witnesses and the production of books, papers, and documents under the provisions of this section.71 By establishing conditions wherein a federal institution could require information outside of an immediate judicial case, the Commerce Act provided a powerful starting point for any legislation that would enable those same institutions to regulate the behavior of private industry. Being able to see the conditions of industry directly, the ICC would, at least in theory, understand best how to mediate those conditions to maximize industrial efficiency.

It also provided several conditions for the ICC to assert its authority over private business decisions even before the passing of the Transportation Act. First, the ICC had the authority to issue injunctions against any companies engaging in rate discrimination.

That if any common carrier subject to the provisions of this act shall, directly or indirectly, by any special rate, rebate, drawback, or other device, charge, demand, collect, or receive from any person or persons a greater or less compensation for any service rendered, or to be rendered, in the transportation of passengers or property, subject to the provisions of this act, than it charges, demands, collects, or receives from any other person or persons for doing for him or them a like and contemporaneous service in the transportation of a like kind of traffic under substantially similar circumstances and conditions, such common carrier shall be deemed guilty of unjust discrimination, which is hereby prohibited and declared to be unlawful.72 Second, the Act prohibited carriers from pooling together their freights or earnings.

That it shall be unlawful for any common carrier subject to the provisions of this act to enter into any contract, agreement, or combination with any other common carrier or carriers for the pooling of freights of different and competing railroads, or to divide between them the aggregate or net proceeds of the earnings of such railroads, or any portion thereof; and in any case of an agreement for the pooling of freights as aforesaid, each day of its continuance shall be deemed a separate offence.73

71 Congress, House, An Act to Regulate Commerce, 49th Cong., 2nd sess., (February 4, 1887), 383. 72 Ibid., 382 73 Ibid., 382

The regulations enabled the federal government, through the ICC, to directly control the behaviors of private businesses to ensure, what its creators felt was, a fairer competitive market.

They would later provide, for Representative Esch, a starting point for even greater regulations on the behavior of rail carriers.

Other amendments had been made to the Interstate Commerce Act in the past, most notably including the Hepburn Act of 1906, which enabled the Commission to set maximum rates for both passenger and freight transport, and the Mann-Elkins Act of 1910, which prohibited carriers from purchasing competing lanes and made illegal the practice of charging passengers more for short trips than long ones.74

At the same time, the Commerce Act allowed for exceptions to be made to these restrictions. By appealing to the ICC and demonstrating a need for an exception to some of these restrictions in order to do business, companies could obtain permission in the case that the

Commission viewed such an exemption necessary. The law allowed for companies to apply for exemptions to restrictions such as proscriptions against long haul-short haul price discriminations. By enabling exceptions to the legal restrictions of the Commerce Act, Congress created conditions that would encourage companies to willingly present information to the ICC so as to actively gain favors from the federal government.75

In building off of the Commerce Act, Esch’s legislation extended the preexisting abilities of the ICC to obtain information about the conditions of industry, increased the restrictions on

74 Congress, House, The Hepburn Act of 1906, 59th Congress, 1st sess., H.R. 12987; Congress, House, The Mann- Elkins Act of 1910, 61st Congress, 2nd sess., H. R. 17536 Congress, House, The Valuation Act of 1913, 62nd Congress, 3rd sess., H.R. 22593. 75 Ibid., 382.

49 carriers’ ability to perform actions independently, and strengthened the forces encouraging businesses to bring information about industrial conditions to the ICC. This act restricted companies from building new rail lines or abandoned existing ones without the express permission of the ICC.76

Esch’s proposed legislation also contained several obligations for rail carriers. First, it required carriers to be responsible for the establishment of reasonable rates and regulations over industry.

It shall be the duty of every common carrier subject to this Act engaged in the transportation of passengers or property to provide and furnish such transportation upon reasonable request thereof, and to establish through routes and just and reasonable rates, fares, and charges applicable thereto, and to provide reasonable facilities for operating through routes and to make reasonable rules and regulations with respect to the operation of through routes, and providing for reasonable compensation to those entitled thereto; and in case of joint rates, fares, or charges, to establish just and reasonable decisions thereof as between the carriers subject to this Act participating therein which shall not unduly prefer or prejudice any of such participating carriers.77 In contrast to the more suffocating nature of ICC regulations on railroad carriers before the war, the Transportation Act gave the industry the ability to participate in setting the terms of its regulation. Congress was even preparing to allow carriers greater control over the setting of their own rates, which had previously been tightly regulated by the state.

Esch’s bill also required carriers to ensure among themselves that they operated with an adequate amount of cars for traffic. In this passage, the first mentions of punishment for failure to comply emerge.

It shall also be the duty of every carrier by railroad to make just and reasonable distribution of cars for transportation of coal among coal mines served by it, whether located upon its line or lines or customarily dependent upon it for car supply. During any period when the supply of cars available for such service does not equal the requirements

76 “A Bill to provide for the termination of Federal control of railroads,” 614-615. 77 Ibid., 612

of such mines it shall be the duty of the carrier to maintain and supply just and reasonable ratings of such mines and to count each and every car furnished to or used by any such mine for transportation of coal against the mine. Failure or refusal so to do shall be unlawful, and in respect of each car not so counted shall be deemed a separate offense, and the carrier, receiver, or operating trustee so failing or refusing shall forfeit to the United States the sum of $100 for each offense, which may be recovered in a civil action brought by the United States.78 While these passages state that the tasks of car distribution and property classification were to be the duties of railroad carriers, the role of observing carrier activity to punish companies who failed to fulfill their duties remained unnamed. Thus, the existence of these passages as amendments to the preexisting Interstate Commerce Act is vital to understanding their nature. As the Commerce Act’s central goal was the establishment of the ICC and granting it both regulatory powers and the ability to penalize companies who failed to comply with its rulings, the amendments created by Esch in this bill implicitly relied upon the ICC to see to it that corporations held to their responsibilities, and punished them for failure to comply. At the same time, the act provided the ICC little oversight potential to ensure that private companies actually performed their duties.

The passages declaring car distribution and property classification to be the responsibilities of carriers demonstrate a reversal of the anti-carrier attitudes of the government during the prewar period. The Esch bill promised carriers greater input in the regulations issued by the ICC. Congress, like the rest of the state, saw the instability of the postwar period and the

Esch bill served to court the interests of carriers to reestablish order.

While Esch’s bill provided far more leeway to private companies in setting the terms of industrial conditions than previous bills it did provide the ICC coercive measures to threaten companies that acted in inefficient manners. In areas where the ICC deemed transportation

78 Ibid., 613.

51 conditions to be particularly inefficient, Esch’s act would have allowed for the ICC to take direct control of any and all railroad powers for a temporary period.79

Following the passage of Esch’s bill in the House, the Senate made several major amendments to the bill, effectively recreating it without any of Esch’s submissions that reflected the 1919 discussion. These amendments replaced both the Railway Labor Adjustment Board and the Railway Board of Labor Appeals, replacing them with a Transportation Board, which would both resolve any disputes between labor and management as well as authorize permission for any of the industrial regulations put forward in the initial Esch bill. Unlike the boards proposed by

Esch, this senate plan did not require any set amount of representation from labor or capital. All five of its representatives would be appointed by the President, regardless of their position within the economy. 80

At the end of February, 1920, Senator Cummins submitted a new amendment from the

Interstate Commerce Committee to replace the initial Senate revision of Esch’s legislation. This amendment, in combination with the House’s adjustments, would become the Transportation Act itself. The new amendments to Esch’s initial bill fell more in line with the initial house bill, but granted far more regulatory power to the state both in terms of mediating labor disputes as well as in terms of regulating the behavior of private rail carriers. With these final changes to the Esch bill, the Transportation Act was finished and a new relationship between the state and the railroad industry was about to begin.

79 Ibid., 614. 80 66th Congress “An Act to provide for the termination of Federal control of railroads and systems of transportation; to provide for the settlement of disputes between carriers and their employees; to further amend an Act entitled “An Act to regulate commerce,” approved February 4, 1887, as amended, and for other purposes”, in Ibid., 656-692.

The Transportation Act, also known as the Esch-Cummins Act, set new boundaries for the state’s interaction with the railroad industry. It limited the activities that railroads could engage in without federal authority and established a new board for mediating labor disputes, but also retained the calls for self-regulation that were in the Esch bill. Thus, the final Transportation

Act created a framework where the state set a general trajectory for the railroad industry, trusted management to reach the goals set by the state’s plans, and the federal governments new labor mediation boards would deal with any dissent from labor.

According to Kerr, the Transportation Act served as an effective compromise between the interests of both railroad carriers and shippers. He claims that the Act was an effort on the part of Congress to avoid creating universal solutions to the many complex problems that faced the railroad industry as well as to avoid potentially sparking opposition from either shipping or carrying interests. Congress deliberately created a law providing wide interpretive powers to the

ICC so as to relegate the job of directing the industry to a separate department.81

Ari and Olive Hoogenboom, in contrast, claim that the Transportation Act reflected the interests of shippers more so than carriers. They also note that the Transportation Act dramatically changed the responsibilities of the ICC with regard to the railroad industry. In the prewar period, the job of the Commission was to keep passenger and freight rates down and ensure competition between companies. Now, the tasks of the Commission were to ensure that the needs of shippers, the public, and carriers were fulfilled.82

The Act reprivatized railroad lines which had been nationalized for the war effort. It also provided for compensation to carriers for revenue lost during the war effort, and allowed for

81 Kerr, 204-205, 222-227. 82 Hoogenboom, 94-97.

53 carriers to temporarily apply to the ICC to receive additional loans to help finance operations.

The Act called upon Commission to measure company profits per month between 1914 and 1917 and compare them to the profits made by the federal government during the war, the difference of which the federal government would credit to the companies who had their property confiscated. 83

The Act established boards for handling disputes between labor and capital. First, it established systems of Adjustment Boards – boards established voluntarily between employers and employees to oversee labor disputes. It also created the Railroad Labor Board, which consisted of nine commissioners, whose composition mirrored that of the previous Industrial

Conferences. The board consisted of three labor representatives, three representatives of capital, and three members of the public. The duty of this board was to “hear, and as soon as practicable and with due diligence decide, any dispute involving grievances, rules, or working conditions, in respect to which any Adjustment Board certifies to the Labor Board that in its opinion the

Adjustment Board has failed or will fail to reach a decision within a reasonable time, or in respect to which the Labor Board determines that any Adjustment Board has failed or is not using due diligences in its consideration thereof.”84

While the Labor Board’s relationship to industry was largely voluntary, the Act gave the

Labor Board some ability to impose itself on disputes in workplaces where adjustment boards had not been established. The Labor Board had the ability to intervene in workplace disputes where adjustment boards did not exist under three circumstances. First, the Labor Board could intervene “upon the application of the chief executive of any carrier or organization of

83 United States, Transportation Act 1920 (Washington, D.C.: Printing Office, 1920), 1-9. 84 Ibid., 15-16.

54 employees or subordinate officials whose members are directly interested in the dispute.” A second way for the Board to intervene in workplace disputes rested “upon a written petition signed by not less than 100 unorganized employees or subordinate officials directly interested in the dispute.” Finally, the Board could intervene in a workplace dispute where “upon the Labor

Board’s own motion if it is of the opinion that the dispute is likely substantially to interrupt commerce.”85

The Railroad Labor Board was by no means developed to advance the cause of workers against managerial abuse. Rather, this particular section of the legislation was intended to, if possible, eliminate interruptions in the operation of railroads through state intervention. The act first and foremost called upon workers and management to both work with all possible effort to resolve any conflict without strikes or shutdowns. The state’s role in mediating labor disputes was intended to prevent these discussions from breaking down.

It shall be the duty of all carriers and their officers, employees, and agents to exert every reasonable effort and adopt every available means to avoid any interruption to the operation of any carrier growing out of any dispute between the carrier and the employees or subordinate officials thereof. All such disputes shall be considered and, if possible, decided in conference between representatives designated and authorized so to confer by the carriers, or the employees or subordinate officials thereof, directly interested in the dispute. In any dispute is not decided in such conference, it shall be referred by the parties thereto to the board which under the provisions of this title is authorized to hear and decide such dispute.86 This section, in describing when employers and employees are to take their grievances to the

Railroad Labor Board, importantly does not emphasize any need for the appeasement of workers, but rather focuses on the maintenance of order and avoiding any potential interruption of

85 Ibid., 17. 86 Ibid., 15.

55 industrial operation. The point of this new act was to ensure that rail lines remained in operation at all costs.

The act further aimed to diminish the power of existing unions and employer organizations to the benefit of state bureaucrats by banning such organizations from having a presence on the new labor board, stating, “any member of the Labor Board who during his term of office is an active member or in the employ of or holds any office in any organization of employees or subordinate officials, or any carrier, or owns any stock or bond thereof, or is pecuniarily interested therein, shall at once become ineligible for further membership upon the

Labor Board.” 87

Efforts on the part of the federal government to combat unions were nothing new by this point, but nonetheless demonstrate the effort of state actors to accumulate power in industrial disputes at the expense of both capital and organized labor. Courts had frequently issued injunctions against union activity citing legislation such as the Sherman Act, for example.

However, the Railroad Labor Board took these anti-union strategies in a new direction by preemptively undermining labor’s negotiating ability, rather than simply respond to strikes and boycotts as they happened.88

In its ability to mediate disputes between workers and employers, the labor board had several coercive powers that enabled the state to better see the conditions of industry that might have otherwise been invisible. In deciding whether the wages and salaries of laborers were reasonable, the labor board was to factor in a myriad of conditions, including the wages that workers were being paid in other industries for similar work, whether the wages for work were

87 Ibid., 16. 88 Dubofsky, 24-25.

56 sufficient to meet local costs of living, how dangerous the form of work was, how much training was required to perform the job in question, the regularity of employment in the profession, inequalities in wages or treatment between different groups of employees, and the history of wage orders that had already been decreed by the labor board.89

These various requirements, and the ability of the labor board to forcibly obtain information regarding these economic factors, would provide many insights into the micro-level activity occurring in the economy. The board could compel testimony or the collection and presentation of data from anyone it desired, including books, documents, testimonies, and any other information it desired on a particular matter, extending the investigatory powers of the ICC to the Labor Board.

Importantly, however, the Act also gave the state newfound control over private rail carriers’ decisions. After establishing the Railroad Labor Board, the Act provided several amendments to the preexisting Interstate Commerce Act, which had previously set the framework for railroad regulations through the Interstate Commerce Commission. It established a0.

new, mutually-beneficial relationship between the state and the railroad industry. The railroad industry would work to keep lines running efficiently and the state would ensure that unions did not interfere with the process of accumulating profit.

First, the new legislation prevented railroad carriers from constructing new lines, expanding into new lines, or abandoned operated lines without the permission of the ICC. The

89 Ibid., 17.

57 act established that permission could only be granted under the condition that abandonment or extension be ‘in public interest’.

After ninety days after this paragraph takes effect no carrier by railroad subject to this Act shall undertake the extension of its line of railroad, or the construction of a new line of railroad, or shall acquire or operate any line of railroad, or extension thereof, or shall engage in transportation under this Act over or by means of such additional or extended line of railroad, unless and until there shall first have been obtained from the Commission a certificate that the present or future public convenience and necessity require or will of such additional or extended line of railroad, and no carrier by railroad subject to this Act shall abandon all or any portion of a line of railroad, or the operation thereof, unless and until there shall first have been obtained from the Commission a certificate that the present or future public convenience and necessity permit of such abandonment.90 Importantly, the Act never defined terms such as ‘public convenience’, ‘public interest’, or

‘public necessity’. By doing so, the Act granted the ICC significant power in interpreting the meaning of these terms, and by extension what activities it would permit and which ones it would deny.

The Cummins amendment, meanwhile inserted new pieces of regulation to the

Transportation Act, setting a limit on the amount of earning that a railroad carrier was allowed to accrue per year. Any earnings beyond six percent of a line’s value would be extracted by the ICC for a railroad contingency fund, an act which could only be overturned with the permission of the

Commission itself.

If, under the provisions of this section, any carrier receives for any year a net railway operating income in excess of 6 per centum of the value of the railway property held for and used by it in the services of transportation, one-half of such excess shall be placed in a reserve fund established and maintained by such carrier, and the remaining one-half thereof shall, within the first four months allowing the close of the period for which such computation is made, be recoverable by and paid to the Commission for the purpose of establishing and maintaining a general railroad contingency fund as hereinafter described… The Commission shall prescribe rules and regulations for the determination and recovery of the excess income payable to it under this section, and many require such security and

90 Ibid., 24.

prescribe such reasonable terms and conditions in connection therewith as it may find necessary.91 This passage not only demonstrates a concern that carriers may attempt to engage in profiteering as the state accused many other industries of doing, it also harkens back to the initial claim to legitimacy that began the project of developing a plan for state adjustment of industrial conditions.

It also provided the ICC with the ability to control the financial behavior of railroad carriers. The regulations provided in the Transportation Act now required railroad carriers to seek approval for not only all issuance of stocks and bonds, but for any material the ICC considered to be a form of indebtedness.

From and after one hundred and twenty days after this section takes effect it shall be unlawful for any carrier to issue any share of capital stock or any bond or other evidence of interest in or indebtedness of the carrier (hereinafter in this section collectively termed ‘securities’) or to assume any obligation or liability as lessor, lessee, guarantor, indorser, surety, or otherwise, in respect of the securities of any other person, natural or artificial, even though permitted by the authority creating the carrier corporation, unless and until, and then only to the extent that, upon application by the carrier, and after investigation by the Commission of the purposes and uses of the proposed issue and the proceeds thereof, or of the proposed assumption of obligation or liability in respect of the securities of any other person, natural or artificial, the Commission by order authorizes such issue or assumption.92 The reasoning that Congress expected the ICC to use in its deliberation once again harkened back to the justification that federal officials had used in their declaration for the necessity of federal intervention throughout the two National Industrial Conferences: that of corrected inefficiency. The Commission was only to issue an order in favor of a request if it met two criteria. The first stated that the request was to be, “”for some lawful object within its corporate purposes, and compatible with the public interest, which is necessary or appropriate for or

91 Ibid., 37. 92 Ibid., 43.

59 consistent with the proper performance by the carrier of service to the public as a common carrier, and which will not impair its ability to perform that service.” The second stated that the request must be, “reasonably necessary and appropriate for such purpose.”93

The ICC’s new powers over finance, rail line expansion, and abandonment meant that the

ICC could control the general direction of the industry. If the Commission felt that the nation needed more expansive railroads, the Commission could adjust its rulings to encourage such behavior on the part of carriers. If the Commission felt companies needed to further develop their existing branches with newer material, cars, and machinery, the Commission could adjust its rulings on financial requests to ensure that carriers did so, while ruling against abandonments or expansion as it saw fit.

In cases of emergency, the Transportation Act provided the ICC the ability to directly control American rail system. In cases where the Commission felt that current rail systems in a given area were short on equipment, congested with traffic, or suffered from “other emergency requiring immediate action”, the Commission had the ability to issue a number of coercive actions to remedy the situation. First, the ICC had the right to waive all rules and regulations in an area where they felt it would be appropriate. As the Act explains that, if necessary, the

Commission could suspend all privately set rules and regulations and set their own requirements for any given area under federal jurisdiction. Second, the ICC could choose to take over lines where the Commission felt direct oversight was necessary.94

To make just and reasonable directions with respect to car service without regard to the ownership as between carriers of locomotives, cars, and other vehicles during such emergency as in its opinion will best promote the service in the interest of the public and the commerce of the people, upon such terms of compensation as between the carriers as

93 Ibid., 43. 94 Ibid., 23.

they may agree upon, or, in the event of their disagreement, as the Commission may after subsequent hearing find to be just and reasonable.95 This rather drastic power, the ability to effectively nationalize rail lines in the case of an emergency, served as a warning to carriers to operate efficiently. The Commission had other options it could use beyond these two. It could also require companies to operate lines in common or jointly if it felt the situation was necessary. Finally, the ICC had the ability to require companies give priority to transporting goods and services across their lines if the Commission felt necessary. These four powers not only provided a powerful warning to railroad carriers to ensure efficient operation of their lines, but also set out a strong initiative for the ICC to actively observe and manage the relationships between carriers, as well as the relationships between carriers and industry.96

The act also expanded the restrictions that the ICC could grant companies exemption from. The Commerce Act only allowed companies to seek permission to set separate rates for long and short hauls. Under the new order, companies could now receive permission from the

ICC to pool loads and profit between one another, furthering the potential for carriers to generate profit through lightening operating costs.97

Finally, the Transportation Act aimed to centralize control of the country’s interstate railroad system. While the restrictions of the Commerce Act aimed to combat monopolization, the Transportation Act called for a gradual consolidation of rail systems. While the law itself stressed the importance of maintaining healthy market competition, it claimed that this consolidation was necessary to ensure that traffic moved at an efficient rate and so that

95 Ibid., 23. 96 Ibid., 23. 97 Ibid., 27-28.

61 companies could be ensured consistent rates of profit under competent management. As a corollary to this decision, the ICC was given the final say as to the right of interstate rail carriers to consolidate with one another.98

Whenever two or more carriers propose a consolidation under this section, they shall present their application therefor to the Commission, and thereupon the Commission shall notify the Governor of each state in which any part of the properties sought to be consolidated is situated and the carriers involved in the proposed consolidation, of the time and place for a public hearing. If after such hearing the Commission finds that the public interest will be promoted by the consolidation and that the conditions of this section have been or will be fulfilled, it may enter an order approving and authorizing such consolidation, with such modifications and upon such terms and conditions as it may prescribe, and thereupon such consolidation may be effected, in accordance with such order, if all the carriers involved assent thereto, the law of any State or the decision or order of any State authority to the contrary notwithstanding.99 With these restrictions in mind, as well as the stated goal of deliberately working to consolidate rail lines to create a more uniform set of rates and practices, the Transportation Act becomes understandable not only as a temporary effort to restrict potentially destructive habits on the part of the railroad industry, but to create a future railroad industry that would be more easily regulated by the federal government.

In order for the ICC to determine what direction to take with regard to the general trajectory of the railroad industry, the Commission would need to understand the conditions of industry and commerce adjacent to the railroad carriers that the Commission oversaw. Without knowledge of details such as whether company inventories were reaching market at reasonable rates, there could be little way to determine whether current policies were working. As such, the

Commission would need to extract as much detail as possible using the cases it now presided over, rewarding companies who complied and punishing those who did not. By building these

98 Ibid., 28. 99 Ibid., 29.

62 new regulatory powers on top of the preexisting framework of the Interstate Commerce Act, the ability to obtain this information was already there.

The Transportation Act of 1920 took the narrative for legitimizing government intervention in industrial relations and expanded it to encompass far more power than the initial dispute mediation that parties had previously accepted. The narrative crafted over the previous year building up to this point had tied those disputes to many of the economic conditions facing the country, and now Congress had enabled the state to do something about them. At the same time, legislators who had worked directly with the Wilson administration made their own contributions to ensure that these new federal controls on the economy would stand against any resistance from either labor or capital. While the law provided many new restrictions on rail carriers, it also provided just as many opportunities for companies to escape said regulations by providing information about their local conditions to the ICC. The new law even enabled companies to escape previous restrictions should they provide the Commission with sufficient information about their local conditions.

At the same time, the law served as a compromise between the interests of business and the state. The state required railroad carriers to cede far more control of industry wide decisions to the ICC and pressured companies to acquiesce to the state’s goals for industrial organization, but offered new tools in the form of the Railroad Labor Board to keep the power of unions away from the negotiating table. The ICC shifted from an institution largely in opposition to the growth and consolidation of railroad companies to a director of the broad behavior of the railroad industry while giving carriers the ability to administer themselves in day to day activities. The

ICC would set the general course for the industry’s direction, and carriers would see to the everyday functions of transportation.

CHAPTER THREE

Through the Industrial Conferences and the writing of the Transportation Act, the federal government had justified new interventions in economic activity and labor relations. They had established a new relationship with railroad carriers that offered support against unions and stable profits in exchange for the industry’s acquiescence to the state’s goals. The Transportation

Act gave the ICC the ability to control companies’ finances, expansions, and abandonments, allowing the Commission an enormous amount of control over the direction that the railroad industry could take in the 1920s. The justification of the Transportation Act hinged on the claim that federal bureaucrats would be able to establish order and efficiency over the chaotic

American economy. The state now needed to prove that this was true. America once again went into recession near the end of 1920, and the government needed to find ways it could solve the crisis. Using their new powers to guide the railroad industry along certain paths, the ICC directed railroads along the path of mass purchasing to help stimulate adjacent industries such as steel and coal to produce not only jobs in the railroad sector, but also in those other industries. Railroad carriers who went along with this strategy found both little resistance from the Commission and potential rewards in the form of the ability to accrue greater profit from their rail lines. The decisions of the ICC during the early years of the 1920s thus represent not only an attempt by the state to solve the country’s economic problems, they also demonstrate how the federal government would handle its new relationship with the railroad industry.

The first arm of the Transportation Act strategy, the newly developed Railroad Labor

Board, was notoriously unsympathetic to the interests of railroad workers, as various historians have noted. Melvyn Dubofsky highlights that the decisions of the Labor Board were particularly one-sided. He points out that, in both 1921 and 1922, the Labor Board issued two wage cuts against railroad workers. The members of the Board representing management and the public tended to organize together to oppose union demands. In addition, President Harding’s appointments to the Board’s labor representatives tended to be opponents of organized labor.100

John Huibregtse, in American Railroad Labor and the Genesis of the New Deal, 1919-

1935, noted how the new Labor Board in its opposition to organized labor inadvertently spurred activity from the American Federation of Labor throughout the 1920s. Organized labor particularly opposed the voluntary aspects of the new Labor Board, the tendency of the board to side with railroads against workers and to seek injunctions against workers for failing to obey rulings, and the structure of representation on the Labor Board which set low-level managers within the same representation bloc as laborers. The Railroad Labor Board, Huibregtse observed, ultimately ruled in a lopsided fashion against labor and occasionally its rulings sparked unrest among workers. In 1922, the AFL called for nationwide strike involving over 400,000 rail workers. The AFL also used dissatisfaction with the Labor Board to encourage workers to pressure their representatives to abolish the new Labor Board and build a more union-friendly government mediator to replace it.101

100 Melvyn Dubofsky, The State and Labor in Modern America (Chapel Hill, North Carolina: The University of North Carolina Press, 1994), 92-93. 101 John R. Huibregtse, American Railroad Labor and the Genesis of the New Deal, 1919-1935 (Miami: University of Florida Press, 2010).

Within the context of the business-state agreement that the Transportation Act represented, the bias of the Railroad Labor Board against workers is unsurprising. The goal of the Transportation Act was to achieve economic stability within the Railroad industry at any means necessary. So long as state officials believed that worker dissatisfaction did not threaten industrial stability, they likely would not have considered addressing workers’ concerns to be a priority in contrast to stimulating industrial growth to produce jobs.

Scholars studying the effects of the ICC, the other arm of the Transportation Act, have found the institution produced varying results during the 1920s. Economists Giovanni Federico and Paul Sharp examined the effects of ICC decisions throughout the 1920s on the agriculture industry. Focusing on the effects of the transportation rates set by the Commission following the

Transportation Act’s passing, Federico and Sharp noted how the ICC’s decisions tended to disintegrate agriculture from more distant markets. In previous decades, the prices differences for crops between rural and urban areas began to decrease, especially in the case of wheat. With changes in freight rates set by the ICC starting in 1920, this phenomenon began to reverse, suggesting that the new rates had become too expensive for many farmers to transport their goods beyond the initial growing area. The Commissions effects, they contend, were monumentally damaging to the country’s agricultural industry.102

Also studying the behavior of the ICC, R. Neil Southern and Robert Cosenza examined the Commission’s decisions on rail line abandonment from the passing of the Transportation Act to the end of the institution. Southern and Cosenza’s analysis of the ICC’s decision making process for the abandonment of lines led them to suggest several priorities on the Commission’s

102 Giovanni Federico and Paul Sharp, “The Cost of Railroad Regulation: The Disintegration of American Agricultural Markets in the Interwar Period,” The Economic History Review 66, no.4 (2013): 1017-1038.

67 part for approving requests. The Commission looked to see whether the carrier in question had suffered notable loss of profit in operating a line, whether there was an absence of industry or resources to necessitate the operation of a line, whether there was any alternate mode of transport available in the area, whether the traffic going through the line was sufficient, whether the community desired to see the line remain open, and whether traffic in the area would pick up in the future. The ICC’s decisions on abandonments consistently slowed down the abandonment of rail lines, both during the 1920s and in the decades leading up to the Commission’s dissolution.103

These scholars have largely failed to contextualize the behavior of the ICC within both the context of the post- World War I recession, and the understanding of contemporary policy analysis. In 1921, President Warren G. Harding called for a special conference aimed at dealing with the country’s high unemployment as a result of the postwar recession. Moderated by

Herbert Hoover, the conference called on various experts to craft recommendations for an economic strategy to recover the economy. Of particular concerns for attendees to this conference was the railroad industry. Hoover appointed Julius H. Parmelee, director of the

Bureau of Railway Economics, to report on the conditions of the railroad industry and the greater industrial possibilities that lay in railroad expansion. Railway operators presented a number of unique potentials in combating unstable employment, long hours, and the difficulties of encouraging general industrial expansion. Parmelee noted that, “according to the latest government study of the national wealth of the United States, the value of the physical property of the steam engine-based railway industry was about one-tenth of the total wealth of the

103 R. Neil Southern and Robert Cosenza, “Regulation of Rail Line Abandonments: A Perspective of the Policies of the Interstate Commerce Commission and the Surface Transportation Board,” Journal of Transportation Law, Logistics & Policy 78, no. 4 (2011): 255-270.

68 country. The railway industry represents the largest, most valuable, and most important concentrated industry in the United States.”104

According to the statistics and figures presented at this conference, developing railroads lead to direct improvement in employment. Employment in the railroad industry, they noted, had particular value, as it was both relatively stable and provided consistent working hours.

Furthermore, in the material railways purchased, they employed an even greater number of people. Altogether, Parmelee found that the railroad industry employed 4 million Americans—2 million directly and 2 million more through purchase and storage of supplies— approximately ten percent of Americans employed in 1920.105

The conference revealed that railroad development had greater implications for the economy than previously imagined. Railroad carriers served as not just employers but mass purchasers of equipment, machinery, and other finished products. By 1921, the railroad industry owned 23,429 locomotives, 21,371 passenger train cars, 1,006,020 freight train cars, and 101 company service cars. These were sparse numbers for a country the size of the United States, according to Parmelee, but if the ICC could encourage carriers to purchase more finished products, the government could indirectly stimulate other industries, particularly steel.106

The Committee concluded that stimulating railroads would improve both the economy and would help solve the previously identified problems affecting workers. They suggested that railroad companies needed to purchase material even more liberally during this period of

104 National Bureau of Economic Research, Business Cycles and Unemployment: Report and Recommendations of a Committee of The President’s Conference on Unemployment (New York: McGraw-Hill Book Company, Inc., 1923).201 105 Ibid., 206. 106 Ibid., 207, 220-221.

69 recession. Maintenance work would not be an effective long-term solution to economic stagnation, as that work was seasonal and generally small scale. Stimulating the purchase of equipment would lead directly to stimulation of the steel industry. As Parmelee summarized,

“railway orders for equipment, for example, will mean business for locomotive and car companies, which in turn will spell orders for steel companies, for machine and implement manufacturers, for lumber men, and so on back to the producers of raw material. Railway orders create business activity, and activity provides employment.”107

But, Parmelee also noted that there was a significant problem with simply relying on railway companies to purchase America out of its recession. As earnings decrease on the part of railroad companies, they are forced to begin exiting the equipment market due to a lack of funds.

A recovery plan utilizing the potential purchasing power of railroads would therefore need to find ways to both deal with the loss in income on the part of railroad companies and find ways to encourage steady purchase of industrial goods. Because of this, Parmelee highlighted the importance of using the ICC to produce conditions that would make railroad’s more willing to purchase material, especially with regard to credit.

As to improvements, orders for new equipment, and new construction, the prime question is that of adequate and continuous credit. This credit depends in part on the state of current railway earnings, but it rests basically on the history of each railway company, which in turn is a composite of many factors, some dependent on the efficiency and foresight of management, some on the psychology of the current business situation, and many on the result of conditions beyond railway control. These conditions are the policy of public regulation—the control of rates by the Interstate Commerce Commission, of wages, rules and working conditions by the Railroad Labor Board, and of many other features of railway operation by state and local authorities—the state of business in general, the concentration or decentralization of industry, shifts in the currents of traffic, and many others.108

107 Ibid., 221. 108 Ibid., 229.

For railroad companies to have the ability to purchase new material, it would be necessary for regulations to a more favorable environment for companies.

With this strategy in mind, the decision of the ICC to uphold rates that stood to favor railroad companies at the expense of some other industries such as agriculture makes more sense.

While the rates set by the ICC in the 1920s may have been unfavorable for industries such as agriculture which still depended largely on railroad transport, the advantage they gave to the railroad companies, at least in theory, would help the economy recover through the railroad industry’s subsequent purchase of goods. However the ICC now had more than the power to set rates. The Transportation Act granted the Commission powers to regulate any requests for loans, expansion of lines, or even the abandonment of railroad branches. The Commission would aggressively use these powers to encourage the purchase of industrial goods and to invest long term into projects, as well as to gain insight into the conditions of local industries.

Once the Transportation Act’s first regulatory measures took effect ninety days after its signing on March 1, 1920, the ICC immediately began to hear cases from railroad carriers.

Among the cases brought before the ICC, three particular forms demonstrate the new power of the federal government to intervene in the economy: cases for the issuance of bonds and securities, cases for the construction of new railroad lines, and cases for the abandonment of currently operated lines. These three categories were among the most common types that were brought before the ICC by companies during this period of the federal government’s new regulatory powers. They not only demonstrate the ability of the ICC to shape economic conditions, it also shows the goals of the ICC in asserting its newfound power over business behavior, as well as its goals in accruing as much information as possible about the inner workings of industry.

Cases where the ICC reviewed requests to issues bonds and securities are particularly noteworthy in their demonstration of the ICC’s permissiveness. Over a hundred cases were brought before the Commission, and the overwhelming majority were granted with no imposed conditions. Furthermore, although the ICC had the authority to revise the terms of loan agreements if it saw such an activity as necessary, the Commission rarely if ever did so. The

Commission’s permissiveness in cases of financial requests, in contrasts to all other categories of cases brought before it, suggests a recognition of the policy recommendations of contemporary institutes. The ICC recognized the importance of railroad companies not only as a mode of transport but also as a purchaser of finished goods.

Despite the near universally approving nature of the ICC in regard to decisions on loan requests, these cases provide some understanding as to the goals and desires of the ICC in relation to the railroad industry. Most importantly, all of the ICC’s decisions on financial matters emphasized the purchases that companies intended to make. Most of these decisions made a point of making an itemized list of equipment or resources that a company intended to acquire with their new finances, demonstrating their desire to see railroad operators spend money in adjacent industries that could put unemployed Americans to work. In the case of a request to issue securities in September, 1922 from the St. Louis- San Francisco Railway Company, the

ICC’s decision specified not just the equipment the company would buy, but the specifications and purpose of that equipment. The Commission noted that the company would purchase 15

“heavy mountain-type passenger locomotives,” 35 “heavy Mikado freight locomotives,” 6

“boosters (to equip 3 of the passenger and 3 of the freight engines),” 1,500 “55-ton, all steel, self-clearing hopper coal cars,” 1,200 “40-ton, single-sheathed, steel underframe and superstructure box cars,” and 300 “steel underframe [sic] stock cars.” While not all of the

Commission’s decisions would be so thorough in their description of equipment to be purchased, the emphasis that the ICC’s rulings placed on the particular equipment to be purchased signifies the importance that consumption had in the minds of its commissioners.109

The questionnaire that the ICC required carriers to file as part of any loan or securities issuance request further reveals the information that the Commission desired to obtain from companies who approached it. The questionnaire required companies to detail their full financial information, including all outstanding debts and credits. Furthermore, their questionnaire required companies to, “state accurately and in detail the transportation needs which respondent would be unable to meet and what service for the public it could not perform if the requested loan were not granted.” The wording of this inquiry suggests that companies needed to demonstrate that their loans were necessary for the operation of already existing services rather than further improvements, but the universal permissiveness of the Commission’s decisions on loan applications suggests that the Commission merely wanted companies to detail their existing inadequacies for recording. Similarly, the Commission also called upon companies applying for loans to “Give character and volume of traffic, present and prospective, and any other information not specifically called for herein, bearing upon the necessity for the loan and the applicant’s ability to repay the same when due.”110

In cases where companies applied for loans directly from the United States government, the ICC required companies to explain not only the full amount of the loan and the time period for it to be repaid, but also how the company would back their loan to the government to ensure

109 US Interstate Commerce Commission, “Report of the Commission,” in Finance Docket No. 2578 (Washington, D. C.: Bureau of Dockets, Oct. 10, 1922), 2. 110 US Interstate Commerce Commission, “Return to Questionnaire,” in Finance Docket No. 1717 (Washington, D. C.: Bureau of Dockets, December 21, 1921), 1-10.

73 security. The Commission required companies to detail any potential alternate source for loans or funding. If the company in question was unable to secure funding from a different source other than the federal government, the Commission expected the company to explain fully the attempts that said company had made to secure funding before approaching the government and why those efforts were unsuccessful. These inquiries would do more than inform the ICC about the money the particular company would need to finance current projects, they would also help inform the Commission about the relationship between companies and financial institutions.

Despite railroad companies bringing over a hundred cases to the ICC regarding the issuance of loans and securities, the Commission rarely denied a request. One such case of denial was the application of the St. Louis-San Francisco Railway Company to issue lien bonds in

1922, the company requested authority from the ICC to issue $11,453,000 in bonds for the exchange of prior lien bonds, as well as for the reimbursement of previous equipment purchases.

The ICC approved the St. Louis- San Francisco Railway Company’s request to issues

$10,932,000 in prior lien mortgages, but denied the company’s request to issue $521,000 for reimbursement related to the purchase of equipment notes, loans issued for the purchase of machinery. The ICC’s denial of the St. Louis-San Francisco Railway’s request for $521,000 for reimbursements helps to explain a number of goals on the part of the Commission. First, these bonds were intended to reimburse purchases that the company had already made out of pocket before their application to the ICC. As is more readily apparent in the decisions of the ICC in cases of rail line expansion and abandonment, the ICC had little sympathy for companies who chose to act without the blessing of the Commission. In addition, the St. Louis- San Francisco

Railway Company refused to disclose to the ICC the particular equipment that the company had purchased in their out of pocket transaction. Considering the emphasis that the ICC placed on

74 detailing the equipment to be purchased in some of its other rulings, this omission would have been particularly egregious.111

The cases brought before the ICC on the construction of new railroad lines, in contrast to those on the issuance of stocks and bonds, demonstrate many of the goals of the ICC going forward. Particularly, they highlight the ICC’s goals of obtaining as much information as possible regarding local economic conditions, as well as to be the first stop for any carrier in making business decisions. In addition, these cases demonstrate how the ICC intended to encourage both the purchase of material and the long term development of lines, in contrast to earlier eras of mass construction of new lines.

The questionnaire that the Commission required companies to file for any requests related to line expansion was even more detail-intensive than those related to loans. The questionnaire required companies to explain thoroughly how many counties a new line would serve, the population of each county for a new line, the primary industries of each county, whether the new line would connect with other common carriers and which ones, the topography of the general area, and the effects the new line would have in generating further industry. The questionnaire also asked about many of the details regarding financing, equipping, and maintaining the new line. The Commission wished to know what funding the particular company had available for the new line, as well as any plans the company might have for acquiring additional funds through loans or other financing measures. The Commission wanted to know the estimated flow of material through the new line, the estimated operating costs, the expected revenue, the expected start and completion dates for construction. The questionnaire even asked

111 US Interstate Commerce Commission, “Report of the Commission,” in Finance Docket No. 2311 (Washington, D.C.: Bureau of Dockets, April 29, 1922), 2, 4.

75 for seemingly mundane details such as the number of main line tracks, the weight of rail used, grade of rail, and even the type of locomotion to be used on the new line. The questions asked reveal that not only was the ICC concerned about gaining information on local economic conditions, the Commission wanted to learn what material and equipment companies intended to purchase in their furnishing of new lines.112

The cases of both the Carbon County Railway Company and Utah Central Railroad provide insight into the priorities of the ICC’s decisions on line construction. Both companies submitted requests to the ICC to allow for the construction of lines through Carbon County,

Utah, and both also sought permission to retain earnings beyond the standard 5.5% mandated by the Transportation Act. The ICC granted this request in the case of Utah Central, yet denied it in the case of Carbon County Railway. When examining the evidence both companies submitted to the ICC, the different degrees of information provided by both companies, correlated with the different rulings both companies received, reveals much about the strategy of the ICC in this period. In its assertion of newfound authority over railroad carriers, the ICC demanded as much information about local conditions as possible, whether they be of local industries, of local infrastructure, or of company financial conditions.

In Utah Central’s response to the ICC’s questionnaire regarding the construction of a new rail line, the line provided a number of detailed estimates as to the company’s investment in this new line as well as estimated output. During the first year, Utah Central claimed that it would spend approximately $492,000 on equipment, which would increase by $587,000 throughout the following five years. Utah Central provided a detailed analysis of the surrounding geography of

112 US Interstate Commerce Commission, “Return to Questionnaire,” in Finance Docket No. 2506 (Washington, D. C.: Bureau of Dockets, March 2, 1923), 1-14.

76 their proposed line, as well as a thorough analysis of each industry it expected its line to serve.

Utah Central pointed out in their response that the railroad would allow for the opening of several mines along an approximately 31 mile tributary of Huntington Canyon, would provide lumber companies the ability to exploit over 24,000,000 feet of timber in both the Canyon and nearby Manti National Forest, and would provide a method of transporting agricultural products and dairy from the farms of Huntington valley. Their new line would not be an extension of an existing branch, but would be an entirely new project.113

In contrast, the Carbon County Railway provided only an estimate of the initial cost to construct their line and provided no information to suggest that the project would be a sustained investment. In answering the Commission’s questionnaire, Carbon County Railway explicitly stated, “no increase to road account [during the first five years after completion of the line]

Increase in equipment will consist of increased rental on cars when tonnage reaches 700,000 tons of coal per annum.” With the ICC’s repeated encouragement for companies to spend money on equipment, the fact that the company’s main equipment cost over the next several years would only be to rent equipment was likely not an encouraging sign. More importantly, as the ICC noted in its final ruling, Carbon County Railway did not provide an account of its expected operating costs until the year 1928, over five years after the line’s construction would have received authority from the ICC.114

Gross revenues are estimated by the applicant at $31,400 for the year 1923, increasing to $106,000 for 1927. For 1928 and thereafter the annual gross revenue is estimated at $147,000, and the total annual charges against income at $115,475. No estimate of

113 US Interstate Commerce Commission, “Return to Questionnaire,” in Ibid., 3, 5-7, 9-11. 114 US Interstate Commerce Commission, “Report of the Commission,” in Finance Docket No. 3505 (Washington, D. C.: Bureau of Dockets, January 23, 1923), 2.

operating expenses prior to 1928 is submitted. The matters of record indicate that the earnings should be sufficient to yield a fair return on the construction cost.115 The ICC’s statement implied that, in the absence of any estimate of operational costs, the

Commission would assume that said costs were insignificant, heavily hampering any case for the rail carrier to claim that they needed to increase sources of revenue. More significantly, it demonstrates the ICC’s desire to observe and record all profit-making possible, which was in line with the initial justification of the Transportation Act’s creation.

Another reason why the ICC may have denied Carbon County Railway the ability to retain excess earnings was the fact the carrier had applied for authority to construct their new line in October, 1922, a month after the company had already begun the preliminary work of construction. As could be seen in the case of St. Louis-San Francisco Railway, requests brought before the ICC related to independent business decisions made before approaching the

Commission were granted much less leeway than cases where the business was careful to first seek out the Commission’s favor. These two cases, however, are only an example of the

Commission’s desires to have first say in any business activities.

While the ICC did not openly state the reason for their denial of excess earnings retainment in the Carbon County Railway case, they were far more open about their reasoning in other cases. In July, 1922, the Virginian Railway Company applied to the ICC to request permission to lease and operate a line of one of its subsidiary companies, the Virginian and

Western Railway company. The line had already begun operation between April and May, 1920.

The ICC’s ruling in this case explicitly cited the construction date as reason for the denial of excess earning retainment for Virginian Railway. They ruled that, “The applicant also requests

115 Ibid., 2.

78 permission to retain the excess earnings where it is proposed to partake the construction and operation of a new line of railroad. No such case is presented by this record. The construction of the railroad of the Western company was begun prior to the effective date of paragraph (18) of section 1. The request for permission to retain excess earnings will therefore be denied.” Such a statement provides a look into the mindset of the ICC in its rulings on cases. By taking any initiative in business activities without the blessing of the federal government, companies effectively sabotaged any potential leeway they might otherwise receive from heavy regulations.

Retainment of excess earnings, therefore, served to reward companies that conformed to the

ICC’s rules. Furthermore, the argument that both executive bureaucrats and legislators had made to justify the passing of the Transportation Act was that state intervention was necessary to curb the inefficiencies of industry. The ICC, as the enforcer of federal policy in the railroad industry, thus had to act in a way that justified the federal government’s new oversight of the railroad industry.116

If the cases where the ICC refused to permit companies to retain excess earnings demonstrate a desire to extract information from railroad carriers, the examples where the

Commission denied any permission to construct a new line at all emphasize that fact even further. The Shreveport and Northeastern Railway company of Louisiana requested permission to construct a line of railroad to the parishes of Webster and Claiborne in February, 1922. Once, again, the ruling of the Commission on Shreveport and Northeastern’s application noted that the company had already begun construction on the line, observing that, “applicant states that it has expended on the partially $111,184, and it estimates that the work remaining to be done will cost

116 US Interstate Commerce Commission, “Report of the Commission,” in Finance Docket No. 2305 (Washington, D. C.: Bureau of Dockets, August 12, 1922), 3.

$91,400.” However, the company provided little information to the Commission as to the details of the project outside of the construction costs. Most egregiously, the company refused to elaborate to the Commission the estimated volume of traffic for the new line, the estimated expenses, or estimated revenue. With this in mind, the Commission, despite noting the potential of the region for future economic development that might accelerate with sufficient railroad access, refused to permit Shreveport and Northeastern authority to construct their new line.117

The facts presented are not sufficient to enable us to form a reasonably accurate judgement of the possibilities of the proposed line or to indicate a reasonable prospect of success for the enterprise. The possibilities of development of the oil fields in this region are indicated by the development in adjacent areas, but there is nothing in the record to show that the proposed line will be of advantage to the development of that industry at the present time. Neither are we advised of the extent to which lumber operations are being carried on in the territory affected nor the extent to which such operations are dependent for transportation facilities upon the construction of the proposed railroad. In the absence of definite information in these respects, it can not be said with any reasonable degree of certainty that the line would be self-sustaining.118 This passage reveals much more about the extent to which the ICC demanded information from railroad companies than any excerpt from a ruling where the ICC granted permission to a company. The information the Commission expected to acquire from railroad carriers was not simply that of the degree to which a project was profitable, or whether allowing a company to retain excess earnings would result in profiteering. The ICC wanted information about all industries adjacent to local transportation. In effect, the ICC’s rulings on the construction of new rail lines were an effort to gain intimate knowledge of private business activity that might otherwise be difficult to obtain during this period.

117 US Interstate Commerce Commission, “Report of the Commission,” in Finance Docket No. 2018 (Washington, D. C.: Bureau of Dockets, May 4, 1922), 3. 118 Ibid., 3-4.

Cases of railroad abandonment highlight the desire of the ICC to obtain information about local conditions just as much as those of construction, particularly in the case of parallel methods of goods transportation. I. E. Quastler demonstrated that railway abandonment in

California, during the 1920s, while noticeable, was fairly slow. In California, companies abandoned approximately 241 miles between 1920 and 1932, or roughly 20 miles per year.. The total amount of rail owned by companies across the entire decreased from 252,845 miles in 1920 to 249,052 miles in 1930, or approximately 379 miles a year. That so little land was abandoned over time, especially during periods of recession such as the early 1920s suggests some restrictive force limiting carriers from abandoning many of the less developed regions of

America.119

Although Southern and Cosenza observed some of the objectives for the ICC in ascertaining abandonment cases, their analysis missed several important features of the

Commission’s judgement that are important for understanding how the federal government attempted to mediate crises during the early 1920s. The ICC was particularly hesitant to allow companies to abandon rail lines during the most intense period of the 1921 recession, which can be seen most clearly in the case of Pere Marquette Railway Company’s application to the ICC in

June 1922 to abandon its White Branch- Big Rapids branch going through approximately 20 miles of Michigan. Pere Marquette Railway insisted that this branch was particularly unprofitable for the company to operate, stating that the revenue they had generated from operating between January 1, 1919 to June 30, 1921 was only $73,952.25 while operating expenses for the same period totaled to $131,039.34, resulting in a deficit of $66,584.29 after

119 I. E. Quastler, “The Areal Distribution of Railroad Abandonments in California since 1920,” California Geographer 11 (1970): 34-42; William T. Hogan, Economic History of the Iron and Steel Industry in the United States, vol. 3 (Washington, D.C.: Lexington Books, 1971),

81 taxes. However, the ICC criticized these claims, pointing to the conditions of both railroad ownership and general economic prosperity during this period.

It may be said further, in criticism of the case made by the applicant, that a record based primarily upon the period from January 1, 1919, to June 30, 1921, is intrinsically weak because of the abnormal conditions then prevailing. It embraces 14 months of federal control and the difficult transition period following federal control, the unusual character of which was recognized by decree in many provisions of the transportation act, 1920. Increases in rates effective in August, 1920, covered only 10 of the months. The wage level and the price level of materials and shipment have receded materially since 1920. The depression in business which commenced in the latter part of 1920 is a matter of common knowledge and the record shows to some extent the effect which it had upon the movement of freight over the branch.120 Notably, the Commission also challenged the right of the Pere Marquette Railway to earn profit against the interest of the local population, stating that, “The carrier’s business balance must be considered as an entirety and the company cannot claim the right to earn a net profit from every section into which its road might be divided.” The ruling against Pere Marquette in this request reveals several features about the decision-making process of the ICC during the early 1920s.

First, the Commission would not consider lost revenue during federal control to be of relevance during requests to abandon lines. Second, the recession in business leading to part of Pere

Marquette’ lost revenue were special circumstances that the company could not assume to place long term burdens on the railroad. The ICC would not allow companies to abandon service in the wake of sudden hardships, thereby protecting the flow of products and material from worsening further, as well as pacifying workers who had faced hardship as a result of the postwar economy.121

120 US Interstate Commerce Commission, “Report of the Commission,” in Finance Docket No. 1703 (Washington, D.C.: Bureau of Dockets, July 28, 1922), 4. 121 Ibid., 3.

In the cases of Chicago, Peoria and St. Louis Railroad and Dayton, Toledo and Chicago

Railway, the ICC used the applications of both companies as an opportunity to gain greater understanding of the transportation conditions of local regions. The Dayton company, in its request to abandon its existing interstate and foreign commerce business, pointed not only to the hypercompetitive nature of railroad service throughout the region it served, but to the growing existence of parallel methods for transporting goods. The Commission noted that, “The line of the Dayton company is intersected by other steam railroads at seven points.. it is also paralleled by hard surfaced highways on which truck and bus lines are operated. The territory traversed is served by a number of interurban railroads.” Noting further the sustained, albeit unsuccessful, efforts of the Dayton company to find a new carrier to acquire and operate the line, the ICC ultimately ruled in favor of the Dayton company, allowing the abandonment of the line. This case also demonstrates an effort on the part of the ICC to obtain information about the condition of the country’s infrastructure. In its ruling, the Commission made a point to highlight the condition of the lines and bridges in the area that the Dayton Company had brought forward as evidence.122

The record shows that this road is in poor physical condition. Substantially 90 per cent of the track is laid with 56 and 60-pound rail, which has been in continuous use for about 40 years. About 30 per cent of the road is without ballast and it is stated that some of the bridges are unsafe. The Public Utilities Commission of Ohio, after an inspection of the line, ordered 80 miles of lain track train track relaid with good 70-pound rail.123 Similarly, the Chicago company’s case demonstrated the high degree of redundant rail systems in its area. The Commission noted from the Chicago company’s testimony that, “There are 17 trunk line railroads which connect directly with this line and seven others which connect

122 US Interstate Commerce Commission, “Report of the Commission,” in Finance Docket No. 2589 (Washington, D. C.: Bureau of Dockets, December 26, 1922), 2. 123 Ibid., 2.

83 via the Terminal Railroad at East St. Louis. The Vice President of the Chicago Company testified that those portions of the line from Pekin to Manito, 11.9miles; Petersburg to Waverly,

45.2 miles, Grafton to East St. Louis, 35.4 miles, as well as some industry tracks at competitive points, might be acquired and operated by connecting lines or industries.” Once again, the ICC’s report highlighted its desire to observe information about local infrastructure. They repeated the

Chicago company’s testimony that, “of 1701 freight cars owned, 840 are in bad order, and 20 out of a total of 51 locomotives are out of service, awaiting heavy repairs. It appears that for a number of years the Chicago Company has been unable to devote sufficient sums to maintenance. As a result the road and equipment are in poor physical condition.” An ability to see not only conditions about the conditions of line congestion but of infrastructure condition would be essential for the ICC’s ability to address line efficiency going forward.124

Likewise, in the cases where the Commission felt they were not being supplied with sufficient data, or especially if they felt that such data was presented misleadingly, the ICC was far less likely to cooperate with the company in question. Such was the case with the Pere

Marquette Railway company, who submitted a request to the ICC in June of 1922 to abandon a line of railroad connected to Ionia, Kent, and Barry Counties in Michigan. The data submitted by the company to the Commission stated that the company’s costs of operation and maintenance had been increasing, but no explanation for these changes was provided by Pere Marquette.

No explanation is given of the extraordinary difference between maintenance as charged in 1919 and 1920 and as shown in 1921 and estimated for the future. Presumable if arises from the failure to include in the latter items a proportionate charge for common to line expenses including, probably, a charge for maintenance of equipment… Nor is explanation given for the discrepancy between the $11,035.78 and $13,122.81 charged to the branch as expense of “operation” in 1919 and 1920, respectively, when the

124 US Interstate Commerce Commission, “Report of the Commission,” in Finance Docket No. 2703 (Washington, D.C.: Bureau of Dockets, March 19, 1923), 2.

branch was operated with full service and the estimate of $14,935.08 covering practically the same item for the future with reduced train service… The years 1919, 1920, and 1921 were abnormal in many respects, and in view of the wide variation in costs shown, further proof in support of the estimates given would have been desirable.125 It is important to note that, while the Commission was careful to consider public opinion in deciding the abandonment cases brought before it, and would occasionally rule against a company’s request if it felt that a line’s lack of profitability was insufficient justification in the face of public necessity, the Commission did not always respond in favor to public demands. In both the cases of the Toledo and Chicago Railway and the Chicago, Peoria and St. Louis

Railway, the ICC authorized line abandonment despite, as the Commission noted, a multitude of public submissions requesting the ICC deny the request. These rulings from the Commission were centered far more around the gathering of data regarding the country’s economy and an effort to shape its’ conditions in ways the Commissioner’s felt necessary. As the Commission noted in its ruling on Pere Marquette’s case, “On the other hand the people who are interested in the continued operation of this branch, especially those protestants who are dependent upon it, must realize that they have a duty to perform and that the future of this branch rests largely in their hands. The mere desire to have a railroad is not enough. There must exist the will to cooperate in its operation and the ability to support it adequately.” For the Commission, the economic project they were part of was not for the benefit of any one segment of society.126

The ICC’s direct impact on the American economy through its various decisions on expansion, abandonment, and purchases is hard to determine entirely, but the amount of freight moved by the railroad increased throughout the 1920s, in spite of the industry’s growing

125 US Interstate Commerce Commission, “Report of the Commission,” in Finance Docket No. 1707(Washington, D. C.: Bureau of Dockets, July 21, 1922), 3-4. 126 Ibid., 4.

85 competition from the emerging trucking industry. While the amount of freight moved by the railroad industry decreased between 1920 and 1921, going from 413.7 billion to 309.5 billion revenue-ton miles respectively, by 1929 the railroad industry was moving freight measuring

450.2 billion revenue-ton miles. That the industry recovered from such a massive drop and continued to grow while under the direction of the ICC suggests that the Commission’s guidance played at least some role in the industry’s rebound.127

Under the increased regulation of the ICC, other aspects of the railroad industry began to recover as well. The amount of locomotives produced decreased from 3,672 in 1920 to 1,823 in

1921; but by 1923 the number produced went up to 3,785. The number of freight cars produced in 1920 and 1921 were 75,435 and 55,853 respectively. By 1923 those numbers increased to

178,166, and the industry would consume approximately another 100,000 for the next three years. 1923 and 1924 would see the peak of railroad steel consumption, and the amount of product purchased by the industry in these two years surpassed any other years before; a phenomenon which perfectly reflects the federal strategy devised at President Harding’s 1921 conference of stimulating the economy through the mass purchase of material. Despite the ever decreasing ownership of roads, rail line operation consistently increased throughout the 1920s as companies began to operate roads in common. By 1930, track mileage would reach a new high of 429,883 miles. Under the direction of the ICC, the railroad industry remained the single largest consumer of steel throughout the 1920s, despite the impact of the recession and growing competition.128

127 Hogan, 994. 128 Ibid., 995-999.

The information gathered by the ICC throughout the cases brought before it not only included information about the state of the railroad industry, but all industries adjacent to it. In an

America still heavily dependent on railroads for the transportation of goods and people, these inquiries provided a powerful tool for the federal government to investigate even the tiniest details about the American economy, and for a country facing a crippling recession such information would be necessary if the state was to intervene to help adjust the dysfunctions affecting the nation. At the same time, the ICC did not restrict its work merely to gathering information. The Commission worked to ensure that railroad transportation did not leave areas affected by recession until alternative transportation methods arrived to accommodate industry and population. Moreover, the ICC helped to create an environment particularly conducive to the development of railroad equipment and technology. While the automobile industry grew to become a serious competitor for steel purchase during the 1920s, railroads would nonetheless become even more dependent on steel purchases during this time than ever before.

When executive officials met with workers and business owners in 1919, they began a process of justifying federal intervention in both the economy and labor relations to stabilize the country’s hectic conditions. Their justifications, along with their work with Legislators, produced a new relationship between the state and business which allowed for direct federal intervention in the decision-making processes of the railroad carriers while leaving certain tasks up to the carriers themselves. The federal government had established itself as an indirect leader of economic reconstruction in the railroad industry through its ability to control finances, expansion, and retraction on the part of companies. When recession hit the country at the beginning of the 1920s, the government had to demonstrate that this role of leadership was well deserved. While carriers had some measure of autonomy, they were still expected to follow the

87 expectations and direction of the federal government through the ICC. Failure to do so would result in unfavorable decisions from the Commission, while willingness to contribute to the federal strategy might bring rewards such as greater profit, favorable rulings, and the undermining of labor unions. The handling of the 1921 recession, with the ICC’s rewards to compliant companies and resistance to rebellious ones, provides insight into the relationship between the federal government and railroads in the postwar period. Both worked together to mold the railroad industry into a stable and profitable sector that would serve as a pillar for greater economic stability.

CONCLUSION

In many ways, the 1920s represented a return to prewar industrial relations. The state resumed its antagonistic role towards organized labor and management appealed to courts and the president for help during disputes. The Railroad Labor Board in particular delivered a series of rulings that harmed railroad workers. In both 1921 and 1922, the RLB issued wage cuts for all railroad workers and consistently ruled against strikes such as the railroad strike of July, 1922.

Businesses, emboldened by the state’s intervention in labor disputes, intensified their antiunion practices. Management continued their practice of “yellow dog contracts” which required workers to agree not to join unions while under employment, as well as set up company unions and Human Resource departments to undercut trade union efforts at collective bargaining.

Business antiunion practices were most evident in the “American Plan” meeting of 1921, wherein various business owners and managers collaborated to prevent the establishment of closed shop workplaces and to renounce any negotiations with union officials.129

At the same time, the relationship between state and industry did change during this period, especially in the railroad industry. The Transportation Act in particular demonstrates that federal officials were beginning to shed their opposition to monopolization and the centralization of economic power among large firms. The Act’s call for the ICC to establish a plan for the consolidation of railroad carriers into a small number of companies highlights a reversal of the political beliefs that spawned acts such as the Sherman and Clayton Antitrust Acts.

129 Dubofsky, 92-93.

This new arrangement would not last long. Pressure from the AFL and labor rights activists would eventually lead to the passing of the Railway Labor Act in 1926, providing greater rights to labor in both negotiating terms with employers, as well as in protesting business activity through strikes and boycotts. The Transportation Act may have helped the railroad industry recover from the immediate postwar decline it suffered, but it failed to pacify organized labor, who clearly identified the law as an attack against their ability to collectively bargain.

Despite the efforts of reformists, few other industries would see the same reordering that the railroad industry underwent in the postwar period. Presidents Harding, Coolidge, and Hoover largely avoided federal intervention in business affairs throughout their stay in office and only occasionally acquiesced to calls for economic intervention.130

The Transportation Act represents an early example of efforts to stabilize the American economy in response to postwar disaster through federal regulation, but as the American economy recovered on its own from the 1921 recession, federal bureaucrats largely ignored the need for federal intervention in business activities to ensure economic stability. Until the

Franklin Delano Roosevelt’s New Deal, the state would largely stick to a noninterventionist policy with regards to the economy. The Transportation Act demonstrates however that this voluntarist view of economics was slowly going out of fashion. Various legislators and executive bureaucrats carried the attitude behind the Transportation Act to various other sectors of the economy. In the agriculture industry debate raged between legislators who favored government purchase and distribution of wheat, such as Charles L. McNary and Gilbert N. Haugen, and members of the Coolidge administration who favored the ideas of Herbert Hoover to promote

130 Huibregtse, 65-77.

90 greater industrial efficiency through the creation of the Federal Farm Board. The triumph of the

Federal Farm Board, despite its short life, demonstrates one last success for federal reformists.131

The Transportation Act still served as a precursor to the vast changes in the relationship between state and business that occurred during the 1930s under President Roosevelt.

Roosevelt’s National Industrial Recovery Act not only continued the practice of federal intervention in the activities of private enterprise, but intensified it by encouraging the cartelization of new industries such as oil. Much like the Transportation Act, the NIRA called upon private management to set their own industrial codes of conduct, although now required federal authorization before any company could implement its rules. It also furthered the price- setting policy of the Transportation Act to all industries in the country, allowing the President to deny companies the right to cut prices in any instance where he found the activity to be harmful towards the larger economy. Finally, the NIRA mirrored the reversal of antitrust policy seen in the Transportation Act. Any company policy endorsed by the President also had exemption from any antitrust legislation. Monopolies, under the milieu of the NIRA, were less of a concern than the possibility that any particular industry might operate in a way that could harm the nation’s needs as a whole.132

At the same time, the NIRA represented an order explicitly supportive of organized labor.

Prohibiting yellow dog contracts, guaranteeing the right to collectively bargain, and encouraging the establishment of better working conditions, the NIRA demonstrates changes that had occurred within the intellectual zeitgeist of America’s political elite between the end of World

131 Coolidge, Calvin, “Coolidge’s Veto of the McNary-Haugen Bill (May, 1928),” Academic Search Complete, EBSCOhost, accessed July 30, 2018, 4771. 132 U.S. Congress, House, An Act to encourage national industrial recovery, to foster fair competition, and to provide for the construction of certain useful publics and for other purposes, 73rd Congress, 1st sess., H.R. 5755.

War I and the Great Depression. These changes to the relationship between state and labor in legislation themselves arose from the revitalization of organized labor’s political activism that emerged in response to the anti-union amendments of the Transportation Act. All the major provisions of the Transportation Act ultimately helped set in motion the political discussions that would culminate in America’s social democratic turn during the 1930s and onward. It demonstrated the first instances of a new economic order between the state, industry, and labor, that would serve as the basis for dispute and for building new strategies for economic stability in the United States.

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