result of the rate level set, and not, as is the total figure, a cause. Only when and if consolidation builds up the earnings of present “weak" systems, and "waters" the earnings of strong systems ("so that these systems can employ uniform rates in the movement of competitive traffic, and under efficient management, earn substantially the same rate of return upon the value of their respective railway properties") will the differential element in railroad net earnings tend to disappear. In the interim, the Transportation act proposes that the public shall take a share of the earnings above a minimum, 6 per cent of the "value."

The commission, then, must seek to apply the value formula as a rule of rate making. It must establish reasonable rates, that, applied to a carrier's traffic as a whole, do not result in net earnings "so unreasonably low" as to be confiscatory. The act seems to seek a program which might be interpreted as meeting the vague requirements of the dicta of Justice Harlan:

What the company is entitled to ask is a fair return upon the value of that which it employs for the public convenience. On the other hand, what the public is entitled to demand is that no more be exacted from it for the use of a public highway than the services rendered by it are reasonably worth.7 But will a formula using "aggregate value" serve to meet the requirements of the confiscation doctrine set up by the Supreme Court?

4 Transportation Act of 1920, sec. 407, amending section 5 of the Interstate Commerce act.

5 One half of the excess over this 6 per cent, which, in the present state of the act, is a standard, regardless of any action of the commission in subsequently establishing a fair rate of return above or below this figure, the act leaves with the carrier. The company half of the excess must be retained as a reserve, until the accumulation equals 5 per cent of the value of the property. Only for the purpose of paying interest, dividends, or rentals may a carrier draw on this reserve, and then only to the extent that its net railway operating income for any year is less than a sum equal to 6 per cent of the property value. Thereafter the carrier may use its half for “any lawful purpose." Presumably, though on this subject the act is silent, if reinvested in plant, as, for example, if spent for double tracking, enlarging tunnels, or eliminating curvature, the amounts so "put back into the property" will receive recognition in the value figure. The other half of any excess above 6 per cent the carrier will pay into a "revolving fund," the property of the United States administered by the commission. This "general railroad contingent fund" will be loaned to carriers for new capital expenditures or for refunding maturing obligations, or will be expended for equipment and facilities to be leased subsequently to the railroads.

6 The phrase "so unreasonably low" first appears in the supplemental Smyth v. Ames case, 171 U. S. 361, 364-5.

7 Smyth v. Ames, 169 U. S. 466, 546.

Who can say? For even if the Interstate Commerce Commission declares that it finds schedules carry reasonable individual rates, the Supreme Court may declare such individual rates confiscatory, as was done with the state-made rates in the North Dakota coal case. Or schedules as a whole, not "so unreasonably low" as to be declared confiscatory for some railroads, may be declared confiscatory for a "weak" line in the same territory. The Minnesota rates which were permitted to go into effect on the Great Northern and Northern Pacific were condemned for use by the Minneapolis and St. Louis.9

Thus two distinct tasks bearing upon the valuation problem are placed with the commission by the Transportation act of 1920. One, that of fixing the rate of return, need cause no present concern: 51⁄26 per cent is provided for two years. But the other, that of finding "value," demands immediate attention. A figure of value, however determined, is prerequisite to the application of the "fair return on value" doctrine. But the Transportation act does not define value, nor does it either suggest or dictate how value shall be determined. In this respect there is no advance over the vague requirements of the Valuation act. "Aggregate value" and not "fair value" is the phrase now used; there is no reference to the "cost values" and "values and other elements of value" referred to in the earlier statute. Gratuitous admonitions of a general character the new act does contain. The commission is directed to give "due consideration to all the elements of value recognized by the law of the land for rate-making purposes," and it is adjured to give to the property investment account "only that consideration which under such law it is entitled to in establishing values for rate-making purposes." And there is specific language that, when value has been "finally" ascertained under the provisions of the Valuation act of 1913, "the value so ascertained shall be deemed by the Commission to be the value . . . for the purpose of determining . . . aggregate value." Whatever uncertainty there may have been concerning the intention of Congress in passing the Valuation act, there need be no present doubt; the commission must proceed to the task of fixing "final value." The figure of aggregate value, the commission will determine "from time to time and as often as may be necessary." In the calculation of the rate levels for 1920-1922, the act contemplates that the commission will utilize its investigations under the Valuation act "in so far as deemed by it available."

That these investigations can be of great present assistance one 8 Northern Pacific Ry. Co. v. North Dakota, 236 U. S. 585.

9 Minnesota Rate Cases, 230 U. S. 352.

must be very skeptical, and skeptical for two reasons. In the first place the investigations have not proceeded far enough, even upon the hypotheses used, to have a volume of comparable data in shape to meet the situation which the commission must face as the guarantee period of six months after March 1, 1920, approaches an end. And, in the second place, the commission is still seeking a theory of “value," and its preliminary hypotheses are uncertain. In one very important particular, indeed, the "valuation" of land as it may be affected by the "present cost" of condemning land, the commission has been but recently overruled by the Supreme Court.10 It seems probable that in the fixing of rates for 1920-1922, the commission must fall back upon the carrier investment accounts, as in 1914, 1915, and 1917.11 HOMER B. VANDERBLUE.

Northwestern University.

The counsel of the President's Conference Committee submitted a brief, under date of December 10, 1919, to the Interstate Commerce Commission In re the Question of Value for Purposes under the Act to Regulate Commerce of the Owned or Used Common Carrier Property of a Railroad (Philadelphia, Secretary of the President's Conference Committee, pp. 257).

This committee has also published Arguments on "Value" presented to the Interstate Commerce Commission early in January, 1920, dealing with the valuation of various railroads under consideration.

House Report No. 456 (66 Cong., 1 Sess.) deals with the Return of Railroads to Private Ownership (Washington, Nov. 10, 1919, pp. 46).

The Interstate Commerce Commission has published the Ninth Annual Report of the Statistics of Express Companies in the United States, for 1918 (Washington, 1920, pp. 25).

The following public utility reports have been received:

Reports of the Board of Public Utility Commissioners of New Jersey, vol. VI, 1919 (Trenton, pp. 861).

10 The United States, ex rel. Kansas City Southern v. I. C. C., March 8, 1920. For an extended analysis of the commission's valuation hypotheses, etc., see the writer's "Railroad Valuation by the Interstate Commerce Commission," reprinted from the Quarterly Journal of Economics, November, 1919; February, 1920.

11 Five Per Cent Case, 31 I. C. C. 350, 32 I. C. C. 325; 1915, Western Advance Case, 35 I. C. C. 497; Fifteen Per Cent Case, 45 I. C. C. 303.

Statistics of Public Utilities of New Jersey, 1918 (pp. 37). Report of the Public Service Commission of Maryland for the year 1919 (Trenton, pp. 564).

The Street Railway Commission of Massachusetts appointed in 1919 to make an investigation and study of the street railway situation in that state has issued its report (Boston, 1919, pp. 165).

The Advisory Committee on Policies and Platform of the Republican National Committee has prepared a Questionnaire on the Railway Problem (19 West 44th St., New York, pp. 4).

The Guaranty Trust Company has printed the Transportation Act of February 28, 1920 (New York, pp. 112).

The Bureau of Railway News and Statistics has issued its sixteenth compilation of Railway Statistics of the United States, for 1918, the compilation being prepared by Slason Thompson (Chicago, pp. 148).

Labor

REPORT OF THE SECOND INDUSTRIAL CONFERENCE CALLED BY THE PRESIDENT. Soon after the First Industrial Conference held in Washington during October was disrupted by the Labor Group leaving the Conference, plans were set on foot for the holding of another, and a Second Industrial Conference was convened by the President on December 1, 1919. A final report of this conference was issued on March 6, 1920. This report falls into four divisions: the introduction, prevention of disputes, plan for adjustment of disputes, and other problems affecting the employment relationship.

1. Introduction. There are several significant points made in the introduction. A joint organization of management and employees is regarded as a proper means for preventing misunderstanding and for securing coöperative effort, both of which are so essential to industrial peace. It is urged upon employers that they should realize their responsibility to know the men in their employ at least as intimately as they know the materials which go into their product. The employees, on their part, have the right and the duty to secure a knowledge of the industry, of its processes and its policies.

The basis of organization should be the plant itself. "Industrial problems vary not only with each industry but in each establishment. Therefore, the strategic place to begin battle with misunderstanding is within the industrial plant itself. Primarily the settlement must come from the bottom, not from the top” (p. 7).

The general principle which the conference recognizes is called "employee representation." "Joint organization of management and employees where undertaken with sincerity and good will has a record of success." Such employee representation, however, to be successful must be secured through an organization joined voluntarily by employer and employee. "It is not a field for legislation, because the form which employee representation should take may vary in every plant." In so far as the government enters into the settlement of disputes, its function should be limited strictly to stimulation of cooperation between employer and employee.

2. Prevention of disputes. As a means of preventing disputes, or at least preventing their arriving at a crisis such as a strike or a lockout, the conference advocates most strongly the principle of employee representation. After calling attention to the well known fact that there has been a loss of personal contact between employers and employees in modern industry, the report goes on to say that, in the place of the old personal contact relationship, there may be substituted today some form of democratic representation. For the contentment of employees there is need of an established channel of expression and an opportunity for responsible consultation on matters which concern them. What specific form employee representation should take is left to the individual establishment.

The application of the principle of employee representation is not restricted to any kind of shop. It has been found to operate successfully where there are union agreements in organized shops; it has been workable in non-union shops, and also in shops where union and nonunion men work together. The result is, therefore, that where there are no union agreements, employee representation affords an agency of collective bargaining and coöperation. In plants where there are union agreements, a further means of coöperation within the plant is added to the union trade agreements. There is no fundamental reason why any form of employee representation should displace trade unions or any other kind of employee organization. Any machinery of this type, organized and administered in a sincere spirit on both sides, will not necessarily be confined to subjects involving conflicting interests or disputes. Much good may be secured through such a means for a better coöperation in the whole problem of production.

3. Plan for adjustment of disputes. Where the joint organization of management and employees within the plant or industry fails to reach a collective agreement, the conference suggests as a second step towards settlement a definite plan for the adjustment of disputes.