U.S. Government Seizes Railroads

United States 1917-1920

Synopsis

The nation's railroads were under government control during World War I. Some 360,000 miles of track and more than two million workers were directed by the United States Railroad Administration (USRA) from 26 December 1917 until the passing of the Transportation Act of 1920 on 28 February 1920. The act, also known as the Cummins-Esch Law, remanded operation of the railroads to private control on 1 March 1920. Railroads benefited from regulatory control, functioned efficiently, and prospered from construction and infrastructure improvements. Additionally, the government guaranteed a six-month profit after the transfer and agreed to dispense more than $530 million in federal funds to the railroads. The act was President Woodrow Wilson's final victory for comprehensive federal railroad regulation, which he implemented to lend stability and rationale to the industry. Further, the act permitted railroads joint use of facilities and allowed traffic agreements between railroads that previously had been illegal under the Sherman Antitrust Act (1890) and the Clayton Act (1914).

Timeline

• 1898: United States defeats Spain in the three-month Spanish American War. As a result, Cuba gains it independence, and the United States purchases Puerto Rico and the Philippines from Spain for $20 million.
• 1903: Russia's Social Democratic Party splits into two factions: the moderate Mensheviks and the hard-line Bolsheviks. Despite their names, which in Russian mean "minority" and "majority," respectively, Mensheviks actually outnumber Bolsheviks.
• 1908: Ford Motor Company introduces the Model T.
• 1911: Revolution in Mexico, begun the year before, continues with the replacement of the corrupt Porfirio Diaz, president since 1877, by Francisco Madero.
• 1914: On 28 June in the town of Sarajevo, then part of the Austro-Hungarian Empire, Serbian nationalist Gavrilo Princip assassinates Austrian Archduke Francis Ferdinand and wife Sophie. In the weeks that follow, Austria declares war on Serbia, and Germany on Russia and France, while Great Britain responds by declaring war on Germany. By the beginning of August, the lines are drawn, with the Allies (Great Britain, France, Russia, Belgium, Serbia, Montenegro, and Japan) against the Central Powers (Germany, Austria-Hungary, and Turkey).
• 1916: Battles of Verdun and the Somme on the Western Front. The latter sees the first use of tanks, by the British.
• 1918: The Second Battle of the Marne in July and August is the last major conflict on the Western Front. In November, Kaiser Wilhelm II abdicates, bringing an end to the war.
• 1919: Formation of the Third International (Comintern), whereby the Bolshevik government of Russia establishes its control over communist movements worldwide.
• 1920: In the United States, the U.S. Department of Justice launches a campaign to track down and deport communists, anarchists, and other radicals, as well as those suspecting of being left-leaning revolutionaries. Raids are also used for the purpose of rooting out and deporting illegal aliens.
• 1922: Inspired by the Bolsheviks' example of imposing revolution by means of a coup, Benito Mussolini leads his blackshirts in an October "March on Rome" and forms a new fascist government.
• 1926: Britain paralyzed by the general strike.
• 1930: Collectivization of Soviet agriculture begins, and with it one of the greatest crimes of the twentieth century. In the next years, as Soviet operatives force peasants to give up their lands, millions will die either by direct action, manmade famine, or forced labor. Overseas, however, and particularly among intellectuals and artists of the West, Soviet collectivization and industrialization are regarded as models of progress for the world.

Event and Its Context

Prior to World War I, railroads were largely unregulated and in disrepair. The increasing costs of expansion, maintenance, materials, and labor burdened rail carriers at a time when small profits prevented them from reinvesting capital into the industry. Rail carriers could not increase rates to improve their profits because the Interstate Commerce Commission (ICC) tightly controlled passenger and freight rates. The need for government subsidy of the industry arose when profits significantly dropped between 1911 and 1913. Rail companies anticipated a general rate increase, though the ICC, which attempted to keep rail transportation costs comparable with the shipping industry, successfully repelled it. Although the newly stimulated war economy brought temporary prosperity in 1915 and 1916 via increased freight business, the effects were short-term.

Railroads' War Board

Wartime control of railroads by governments was both immediate and a standard procedure among America's European enemies. Slow to intervene in operations, the U.S. government delayed involvement in the matter until several months into the war. However, to address the wartime operations of the rail transportation industry, railroad presidents converged on Washington five days after President Woodrow Wilson's declaration of war. They formed a five-member executive committee known as the Railroads' War Board (RWB). The five members were Howard Elliott of the New York, New Haven and Hartford Railroad; Hale Holden, president of the Chicago, Burlington and Quincy Railroad; Julius Kruttschnitt of the Southern Pacific Company; Samuel Rea, president of the Pennsylvania Railroad; and Fairfax Harrison, president of Southern Railway. There were two ex-officio members, E. E. Clark of the ICC and Daniel Willard of the Council of National Defense. The General Committee was divided into six geographic regions and also included several subcommittees: Commission on Car Service, Military Equipment Standards, Military Transportation Accounting, Military Passenger Tariffs, Military Freight Tariffs, Materials and Supplies, and Express Transportation. Responsible for synchronizing federal and private resources to combat the industry's escalating costs and fight the war on the home front, their efforts proved largely ineffective for several reasons.

The RWB's cooperative efforts at cannibalizing each other's railways and rationing the use of the railroads failed, although it was initially successful on a small scale. The two objectives that the RWB worked to realize were resolving the national boxcar shortage and alleviating rail congestion by prioritizing rail traffic. Boxcars that had clogged eastern terminals were redistributed among the railways. Empty cars were removed from surplus and incorporated into lines experiencing shortages, and dilapidated cars were scrapped for metal. Passenger service on the eastern seaboard was interrupted when the RWB appropriated locomotives and passenger cars for wartime use. The redistribution measures targeted specific locations for short-term solutions. The RWB addressed the prioritization of rail traffic by jointly using terminals and rails, which violated the Sherman Antitrust Act. Overall, the railway infrastructure could not bear the added traffic on its meager terminal, passing, and double tracks.

The RWB faced additional problems in 1916 including the threat of a general strike and an exceptionally harsh winter. Wages for skilled rail workers failed to remain competitive with those of similarly skilled jobs in other industries. Trainmen left the railroads for higher pay or often were conscripted into the military, thus causing many railways to operate with skeleton crews and imperiling efficient operation. Manpower shortages were estimated as high as 25 percent on some lines. Labor unions and railroad management could not come to terms on increased wages for railroad employees.

Army Appropriation Act of 1916

Wilson avoided a general railroad strike in September 1916 by passing the Adamson Act, which shortened the workday from 10 hours to eight hours with no reduction in pay for trainmen and enginemen. A major victory for labor unions and workers, management perceived the act as a threat to capitalism. Additionally, Wilson sanctioned the restructuring and extension of the ICC. Wilson and the ICC disagreed over the terms of the Adamson Act. Under the guise of neutrality due to the upcoming election, Wilson appointed General George W. Goethals and two other men to the ICC to study the effect of the eight-hour day upon rail workers and recommend changes to him and to Congress. In their report to Congress in December 1916, the committee demanded that the ICC be strengthened and requested the authority to assume control of the railroads in the event of war. Congress granted their request with the Army Appropriation Act of 1916, which granted the president the right to assume control of private railroads during war. Besides railroads, the act authorized government control of coast-wise steamship lines, inland waterways, and telephone and telegraph companies. All were seized in the interest of national security and all parties abided compensatory agreements. The ICC expanded and the federal government formally took control of the nation's railroads in August 1917. The ICC formed regional groups that would address new problems that were anticipated as a result of the change.

The winter of 1916-1917 dealt another blow to the RWB's plans for wartime mobilization. Steam engines could not be kept operable in the inadequate facilities that most railroads had not maintained or expanded during the lean years prior to the war. Most roundhouses and engine shops could not accommodate the locomotives, which had increased in size to accommodate the new longer and heavier trains. Further, the Justice Department began an investigation of the RWB for antitrust violations.

William McAdoo and the U.S. Railroad Administration

When management proved deficient and failed to effect improvements in the performance of the nation's rail transportation, President Wilson requested that Congress grant authority for setting of railroad rates to the newly formed United States Railroad Administration (USRA). The Federal Railroad Control Act that was passed by Congress March 1918 legalized this move. The act limited the ICC's association with the USRA to a reviewing capacity and mandated that governance be returned to the companies no later than 21 months after the end of the war. William Gibbs McAdoo was appointed director general of the USRA. McAdoo, who was Wilson's son-in-law, was also secretary of the treasury. The USRA comprised several divisions: Division of Finance and Purchasing, Division of Operation, Division of Traffic, Division of Labor, Division of Public Service and Accounting, Division of Capital Expenditures, and Division of Inland Waterways. Like the RWB, the USRA divided the railroads by geographic region. The three divisions were Eastern, Western, and Southern. The Eastern Division was subdivided 1 June 1918 into the Allegheny Region and the Pocahontas Region. The directors appointed to each region were presidents of primary railway systems. The USRA developed a permit system that ensured prioritization of war industry freight.

Antitrust and antipooling laws were suspended so as to bring control of the railroads under the government. The USRA's immunity to these laws allowed the organization to distribute traffic along the shortest routes, impose traffic priorities to federal and private shippers, raise rates, and raise wages to persuade workers to remain in their jobs. The USRA created seven major regions in which federal officers were partnered with private executives.

McAdoo called for railroad managers to streamline operations. He required that redundant services be discontinued, especially passenger service, which drained wartime traffic of efficiency. Those cutbacks released additional locomotives for freight service and lightened rail traffic.

McAdoo created a Railroad Wage Commission to investigate wages and recommend changes. He proposed an increase in wages in January 1918, and the commission agreed. Congress granted him the authorization to raise wages in May. McAdoo made the increase retroactive to 1 January 1918. Although the Adamson Act of 1916 shortened the work day and maintained wages, trainmen and enginemen were the only railway workers that the Act covered. All railway workers benefited from McAdoo's wage increase. Though the workday remained lengthy, railway workers were finally being paid time and a half for more than eight hours of work. Better compensation attracted new workers who eagerly filled more than 100,000 slots that railroads were required to fill in response to McAdoo's provisions. With permission implicit in the Federal Control Act, the USRA inflated rates by 25 percent to fulfill the promise of improved wages.

Though pleased by McAdoo's responsiveness to their demands, rail workers continually clamored for higher wages. To address concerns of the workers, McAdoo created a Division of Labor, composed equally of management and union members, which was to watch over working conditions. Three Railway Boards of Adjustment were responsible for representing those in the operating crafts, shop crafts, and other allied employees. Number One included engineers, firemen, trainmen and conductor; they were the operating crafts. Number Two included machinists, boilermakers, blacksmiths, electricians, sheet metal workers, and carmen; the shop crafts. Number Three included clerks, telegraphers, switchmen, and maintenance-of-way workers. The USRA further appeased workers by following the Division of Labor's suggestion that rail workers should be entitled to trade union membership. Once the government recognized the survival of the trade unions and cemented their position between the workers and railroad management, labor organizations gained power and affirmed their influence on the industry.

The War Ends

The USRA formed a Division of Capital Expenditures to solicit capital improvements for urgent projects. Funding of requests depended on whether the project served the war effort. The division set priorities for improvements and determined that roundhouses and shops were the most important, with improvements to passing and yard tracks, signals, and fuel stations following closely. The USRA was initially responsible for financing the projects, but railroads often paid for improvements from their own revenue. Just as the effects of the USRA's policies were being felt along the nation's railways, the war ended in November 1918. Labor unions lobbied for nationalization of railroads because workers had greatly benefited from government intervention and regulation of wages and working conditions. McAdoo, whose dual position as director general of the USRA and secretary of the treasury afforded him a strategic political position during the war, was prepared to extend the federal control for five years. Congress debated the matter for 16 months, but ultimately returned control of the railroads to private ownership. McAdoo resigned his position in January 1918, and his assistant Walker D. Hines assumed command of the USRA. Somber upon McAdoo's resignation, workers believed that nationalization of the railroads would ensure wage increases, further benefits, and regulated working conditions.

Although the railroads were under government control, ownership of individual systems had remained in the private sector. Critics of this arrangement accused Wilson of promoting a socialist agenda. Wilson realized the importance of the rail transportation industry to the growth of the country and supported the development of a strong national rail infrastructure prior to World War I. He advocated strongly for the railroads and relied upon the initiatives of railroad leaders because other matters consumed the objectives of his administration.

Railroad owners claimed that the government returned the railroads with a deficit and complained that making national agreements with labor unions had undermined their autonomy in setting wages. USRA's maintenance of the railroads had proven insufficient as well. Under Hines's administration, the USRA spent modest amounts on railroad improvements. Hines was unwilling to increase categorically the value of the railroads. He was frugal with government expenditures and slowed maintenance to a minimum so that railroads saw no increase in value while under the control of the USRA. The government was not obligated to improve the value of the railroads but did compensate owners for deferred maintenance after figures were calculated. Revenues generated during the war covered expenses for that duration but they fell short by some $642 million from what Congress had guaranteed to private owners.

Although McAdoo had ingratiated himself with labor organizations because of his advocacy of higher wages for workers, Hines bore the brunt of railroad owners' wrath because he institutionalized the gains that workers had made during the war. Once the war ended, other private industries retracted benefits that workers had gained during the labor shortages. Hines brokered national agreements between labor unions and railroad companies and managed to give workers a small increase. Hines's strategies contributed to the difficulty of the transition from federal to private control. Struggling with rigid work rules for decades afterward, railroad management fared poorly when technological change came to the industry and render those rules obsolete. Charged with dismantling the USRA, Hines was diverted from his responsibilities by a rash of unauthorized strikes. Workers demanded increased wages to offset the cost of living that had increased following the war. Focusing its resources on pacifying striking laborers, the USRA was regarded as unnecessary after the passage of the Transportation Act of 1920.

Key Players

Elliott, Howard: President of Northern Pacific Railroad as of23 October 1903. A graduate of Harvard College, Elliott began his work in the railroad industry by carrying a chain with a surveying corps. He was responsible for moving the general manager's headquarters from St. Joseph to St. Louis. Elliott was a director of the St. Louis World's Fair. He became vice president of the Great Burlington System headquartered in Chicago.

Hines, Walker Downer (1870-1934): Born in Kentucky, Hines studied law at the University of Virginia and worked in the law offices of the Louisville and Nashville Railroad. He was assistant director of the United States Railroad Administration (USRA, 1917-1919) then succeeded William McAdoo as director general. Hines resigned from the position on 15 May 1920.

Holden, Hale (1869-1940): Born in Missouri and of English descent, Holden was a lawyer and the youngest executive of any rail system. He was president of Chicago, Burlington and Quincy and a spokesman for the industry during the strike that was averted by the passage of the Adamson Act.He was a member of the Railroads War Board, and McA-doo invited him to head the USRA. Though Holden declined, he served two months in an advisory capacity to the director general. He was a vice president and director of the American Railway Association (1919-1924).

McAdoo, William Gibbs (1863-1941): Born in Georgia, McAdoo was a lawyer, political leader, and secretary of the treasury. He actively promoted Woodrow Wilson for the presidency in 1912 and was given a cabinet post. The Federal Reserve System was begun during McAdoo's administration of the Department of the Treasury, and he was its first chairman. He also managed the financing of American participation in World War I and served as director general of railroads during the period of government operation during World War I (1917-1919).

See also: Clayton Antitrust Act.

Bibliography

Books

Davis, Colin. "United States Railroad Administration." InThe U. S. in the First World War: An Encyclopedia, edited by Anne Cipraino Venzon. New York: Garland Publishing, 1995.

Hines, Walker D. War History of the American Railroads.New Haven, CT: Yale University Press, 1928.

Kolk, Gabriel. Railroads and Regulation, 1877-1916.Princeton, NJ: Princeton University Press, 1965.

Thompson, Gregory L. "Railroad Transportation Services."In The U. S. in the First World War: An Encyclopedia, edited by Anne Cipraino Venzon. New York: Garland Publishing, 1995.

Additional Resources

Books

Cunningham, William J. American Railroads: Government Control and Reconstruction Policies. Chicago: Shaw, 1922.

Godfrey, Aaron A. Government Operation of the Railroads:Its Necessity, Success and Consequences, 1918-1920.Austin, TX: San Felipe Press, 1974.

Kerr, K. Austin. American Railroad Politics, 1914-1920.Pittsburgh, PA: University of Pittsburgh Press, 1969.

Meyer, Balthasar Henry. Railway Legislation in the UnitedStates. New York: Arno Press, 1973.

Saunders, Richard. The Railroad Mergers and the Coming of Conrail. Westport, CT: Greenwood Press, 1978.

Summers, Harrison Boyd, and Robert E. Summers (compilers). The Railroad Problem: With Reference to Government Ownership. New York: H. W. Wilson Company, 1939.

—Rebecca Tolley-Stokes