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forgiven to the railroads, it is exactly the same, that $363,000,000, as if it would be used for the purchase of coal lands, so far as the treasury is concerned.
Dr. DUNCAN. Not, of course, sir, if you had to raise the rates to get it. The Wabash Railroad, Seaboard Air Line, Florida East Coast, were all in there. How could they pay it?
Mr. Vinson. See if I am correct in this: They raised the rates when this recapture clause in section 15 (a) of the Transportation Act went in, and a very small amount of money was paid into the Treasury of the United States, yet they collected the increased rates from the shippers of the country and kept the money. Is that not substantially correct?
Dr. DUNCAN. No, sir; it was quite different.
What I want to point out is that this bill transfers wholly to the consumer, including the railroads, from the industry itself where it belongs, this important responsibility of management and of labor leaders with respect to the employees.
Now personally it seems to me that if such a reserve is to be set up for buying up these coal lands, then I shall come back to exactly what Congressman Vinson has been talking about: If you are going to set up a reserve to purchase those coal lands, then there is a fairer and more equitable way to do it. First, assume this problem belongs to the industry, as I believe to be true; then the source of the funds for such reserve should evolve from within the industry. It has been shown here that the methods of price fixing, as provided for in this bill, a weighted average of production cost, will give certain operations an excessive profit. This is due to the fact that the costs vary widely, certainly 100 percent within the district. These excess profits, protected by this law with a penalty, should serve as the source of this reserve fund, and if you will tax the excess profits to be derived from the provisions of price fixing in this bill you will have the proper source of funds for buying up the coal lands which should be purchased.
Mr. HILL. You have the privilege of extending your remarks, Doctor, in the record, if you desire. We thank you very much for your appearance.
Dr. DUNCAN. Thank you.
(Dr. Duncan subsequently filed the following extension of his remarks:)
I take advantage of the permission granted me by the chairman of the subcommittee to extend remarks in the record presenting the position of the railroads of the country as a whole toward H, R. 8479.
We are opposed to the bill as written because it includes railroad captive mines; because the railroads, as consumers of coal, are unprotected in the bill; because the provisions for price fixing do not protect the public interest in an industry said to be affected with a public interest; because the theory of regulation as provided for in this bill is inconsistent with the regulation of an industry affected with a public interest; because the railroads believe that the proposed legislation will be detrimental to the coal industry and detrimental to the railroads; because it will reduce bituminous coal moving over the rails and will stimulate substitutes; because the burden is placed upon the consumers, including the rail carriers, for building up bituminous-coal reserves to rehabilitate the industry and purchase coal lands; because section 12 of the bill takes power away from the Interstate Commerce Commission and grants it to the Bituminous Coal Commission for issuing certificates of convenience and necessity with respect to railroad extensions and sidings to coal mines; because section 18 authorizes a Government body to become an active partisan in rate matters before the Inter. state Commerce Commission.
1. We object to the bill because it includes railroad captive mines.
(a) In 1924 the railroads owned and operated 105 such mines and produced 27,000,000 tons of coal.
(b) The railroads have captive mines because the cost of fuel is an important item, representing 642 percent of operating expenses. The railroads have a constant, discriminating demand for coal for various uses, must be continuously assured of an adequate supply of the right kind of coal, and do not require the preparation generally given to commercial coal.
(c) Control is proposed in this bill to transfer these captive mines, which are a plant facility of a public utility, to a commission wholly independent of, wholly unacquainted with, and without any responsibility for continuous and adequate transportation service by rail.
(d) Captive mines are also subject to the coercive tax, the object of which is to compel submission to jurisdiction of the Bituminous Coal Commission.
(e) The Interstate Commerce Act has not been extended to cover such plant facilities even as logging roads or mine tracks, and certainly an independent commission should not control a plant facility such as a captive mine.
(f) We desire, therefore, that railroad captive mines be eliminated from the bill.
2. The railroads as consumers of coal are unprotected in the bill.
(a) Class I railroads consumed 84,000,000 tons of coal in 1934, representing approximately 25 percent of total bituminous-coal consumption.
(b) The provisions of this bill will interfere with the exercise of flexible judgment of trained and experienced coal-purchasing agents.
(c) It applies regulations to a commodity now essential to efficient railroad operation, which are not applied to any other commodity purchased by the railroads.
3. The whole philosophy of the bill is centered in price-fixing provisions and machinery to make them effective and does not provide protection to the consum
(a) It gives monopolistic powers into the hands of an industry, free from antitrust laws, to force upon the consuming public, including the railroads, selfdetermined prices.
(1) The proposed coal commission is at the start self-interested, designedly: at a ratio of 4 out of 9 members.
(2) The mere provision that the other five members “shall have no financial interest in the mining, transportation or sale of coal, oil, or gas” is a flimsy protection to the consuming public.
(3) Financial interest can be put on or off at will.
(4) Persuading of 1 out of 5 additional members of the commission is enough for a majority.
(5) Qualifications for membership of the coal commission should be patterned after qualifications required in the Interstate Commerce Act for membership on the Interstate Commerce Commission.
(b) District boards that provide a basic duty for price determination are designedly chosen by and from within the industry itself and, therefore, selfinterest naturally predominates.
(c) Price-fixing provisions will undertake to freeze forever or to raise a minimum price per area, per kind, per quality of coal.
(d) There is no incentive left for efficiency and economy of operation in the coal industry.
(e) The obvious intention is to raise the prices of coal to consumers by a grant of power to an industry said to be affected with the public interest and to defend and protect it against the consumer.
(f) It is in the mind of at least certain frank proponents that under the provisions of this bill there shall ever hereafter be a seller's market for bituminous coal (cf. Stenbugler, hearings before Senate subcommittee, pp. 61-62).
(g) The long-established principle of regulating an industry affected with the public interest is “an owner of property devoted to a use in which the public has an interest (i. e., affected with public interest), in effect, grants the public an interest and must, to the extent of that interest, submit to control by the public" (Mann v. Illinois, 94 U. S. 113).
(h) The public referred to must mean the consuming public and extent of public interest covers prices.
(1) There are only certain vague phrases like "the minimum prices * shall have due regard to the interests of consuming public” (p. 12, 11; 9, 12–13) of "when, in the public interest, the commission deems it necessary to establish
maximum prices for coal” (p. 16 (c)), with the exception of a single, sole, stark section of only eight lines-section 17, page 39.
(j) There are provided here no standards, no tests, no safeguards, no method by which the consuming public may have a full and fair hearing before the coal commission.
(k) Bill provides with meticulous care for details within the industry but there is only a single afterthought for the consumer, and the emphasis should be just the reverse.
(1) Such proposed regulation for an industry like the railroads would undoubtedly be opposed by all shippers, including the shippers of coal.
(m) Full provision should be made for public protection, both in selection of personnel for the commission and in method for presentation of consumer interest and for full publicity with respect to costs in the coal industry.
4. As carriers of coal the railroads believe the proposed legislation will be detrimental to the coal industry itself and will reduce the tonnage carried by rail.
(a) Coal tonnage represents 34.1 percent of total freight tonnage carried by rail and 19.7 percent of total freight revenues.
(6) These figures demonstrate the substantial interest of rail carriers in the welfare of an industry which they want revived and prosperous, with increasing tonnage moving by rail.
(c) Coal industry, like rail carriers, is not a monopoly, but has effective substitutes.
(d) Railroads have found that when they alone are regulated while their competitors are free, the result is a loss of business and they believe the coal industry will experience the same results.
(e) Increase of prices of coal under the provisions of this bill is demonstrated and this will stimulate the use of substitutes.
(1) Stimulation of substitutes will reduce bituminous coal output and reduce rail tonnage.
5. The rail carriers are opposed to the provisions for setting up a bituminous coal reserve.
(a) The coal lands purchased are to be controlled as to operation by the selfinterested coal commission.
(6) Funds for purchase of coal lands are derived from a tax on the sale price of coal, including railroad captive mines.
(c) We object to the principle of such a tax, just as we object as producers to a coercive tax for compelling compliance with the code.
(d) Provisions of the bill designedly enable producers to pass the tax for a reserve fund on to the consumers above costs and profits.
(e) The consuming public, including the railroads, will be compelled to provide for unemployment and rehabilitation of this industry, in addition to assuring costs and a profit.
() More than one-fourth of this burden would have to be borne by rail carriers, who, themselves, have an important unemployment problem to meet and who are not financially able to make such contribution.
(g) Such additional costs of coal to consumers would further stimulate the use of competitive substitutes.
(h) It would tend to aggravate, rather than correct, wasteful mining in connection with price-fixing provisions.
(i) It would further increase railroad operating costs by millions of dollars annually.
(j) It apparently has for its purpose the validating of investments in coal properties, whether made wisely or unwisely.
(k) It transfers wholly to the consuming public, away from the industry itself where it belongs, the important responsibility of management and labor leaders with respect to employees.
(l) If such reserve is to be set up, then it should be derived from excess profits, protected by this law under penalty.
6. The railroads earnestly object to section 12 of this bill, which gives to the Bituminous Coal Commission authority to grant or withhold certificates of convenience and necessity with respect to railroad facilities leading to coal mines.
(a) This is an invasion of the field of regulation now occupied by the Interstate Commerce Commission.
(6) Other commodities than coal would move over such a track and thus the Bituminous Coal Commission would be in control of the transportation of commodities other than coal.
(c) Full, complete, and detailed investigation by Interstate Commerce Commission, an experienced and nonpartisan (so far as any special industrial interest is concerned) body is required to be made before certificates are issued.
(d) The coal industry to have unimpeded right to appear and produce facts.
(e) Regulation of transportation in the public interest is a task of the Commission and no part of this duty should be taken from it.
) Provision is confin solely to the railroad facilities and disregards trucks and waterways which handle millions of tons of coal.
(g) There can be no valid reason why this power should be taken from Interstate Commerce Commission and given to such an independent body as herein provided for.
(h) This provision should be eliminated.
7. We contend that section 18 of this bill, which authorizes the Bituminous Coal Commission to become an active partisan before the Interstate Commerce Commission with respect to rates, should be eliminated.
(a) The Interstate Commerce Commission should be permitted, of course, complete access to data accumulated by the Coal Commission for its information.
(6) No Government body should be authorized to become an active partisan in a question such as rates present.
(c) It is unfair and inequitable so far as rail carriers are concerned to have the influence of a Government body, self interested as this one is, to appear as an active partisan before the Commission.
(d) This section should be eliminated from the bill.
There is this further consideration that grows out of the long years of experience by railroads under iron-clad regulation:
The regulation of an industry does not secure stability within that industry or provide anything other than a strait-jacket and thus prevent a fair opportunity by competitive methods to retain traffic or secure the return of legitimate, economical and desirable business that has been lost unless and until corresponding regulation is applied to effective substitutes.
The very existence of effective competitive substitutes here, oil, gas, hydroelectric power, and anthracite, demonstrates a lack of actual monopoly. Railroads have faced such effective competitors. The bituminous coal industry might well take warning from this experience of the railroads. It is inevitable that the plan provided for in this bill to give the bituminous-coal industry monopolistic powers under the guise of regulation, will prove a bitter disappointment, unless and until they are in themselves and are administered in the public interest. Even then there will be the same disappointing result unless and until corresponding
regulations are effectively applied to competitive substitutes.
We believe this bill as written is unfair, unjust, and will not work in the public interest.
Mr. Hill. I want to say that the witnesses who follow must be considered briefly. The committee is under the necessity of hurrying along with this bill, and we are going to be compelled to limit the time from now on. You may shape your statements with that in view. The committee will now adjourn until 10 tomorrow morning.
(Whereupon, at 5:30 p. m. an adjournment was taken until tomorrow morning at 10 o'clock, Thursday, June 27, 1935.)