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THE GALAXY.

THE ENGLISH PEERAGE.

Successive governments give as large a share of patronage to the peers and baronets, and their kinsfolk, as they reasonably can; while the Premier is only too glad to select men of rank as his colleagues in the Cabinet, if they are only possessed of decent abilities, and will work--for a minister must be a hard worker in these days. Thus, Mr. Gladstone's administration, the first which was ever designated as "Radical," contained a large proportion of the aristocratic element in its ranks, though it was even made a charge against Mr. Gladstone by conservative and pseudo-liberal papers, that he unjustly deprived the peerage of its due representation in the Cabinet.

As a matter of fact, when the Cabinet resigned it consisted of sixteen members. Of these, eight were peers or sons of peers. Of the remaining thirty-six Parliamentary members of the administration, fourteen were peers or sons of peers. Mr. Disraeli's Cabinet numbers but twelve ministers. Of these six are peers, another is heir presumptive to a dukedom; while an eighth is a baronet; and of the remaining members of the administration, nineteen out of thirty-eight are peers, baronets, or sons of peers. In the army and navy, in the diplomatic service, the peerage equally secures its full share of prizes; and even in the legal profession it is far from being a disadvantage to a young barrister that his name figures in the pages of Burke. In the Church a large proportion of the best livings are held by members of the same privileged class, and even the Stock Exchange lately showed itself eager to confer such honors as were in its gift on a duke's son, who had been courageous enough to "go into trade."

The British aristocracy is still, therefore, "a fact," if a favorite term of Mr. Carlyle's may be permitted in such a connexion, as it probably may, for the author of "The French Revolution" has himself been one of the latest eulogists of the governing families of England, and perhaps a few notes on the origin and history of some of the principal houses may not be unacceptable to American readers.

Rentals of leased properties, all United States railways, for the same year 3,881,409

Plainly, the Postmaster-General's proposal is equivalent to an assertion that the railways would make a fair profit if they were enabled to collect the sum of 5,585,568 in addition to their operating expenses and taxes, but the figures given by the Interstate Commerce Commission show that this would be less than one-third of the sum necessary to meet interest charges which must be paid in order to prevent foreclosures of mortgages and, if bond interest could be ignored, is much less than the rentals that must be paid if the existing systems are not to be broken up. And, of course, it would allow nothing whatever for legitimate demands upon income for dividends, permanent improvements or surplus.

It is unnecessary to dwell upon the consequences of such a theory of "compensation" to railroad credit and to the public interest in efficient transportation service, to say nothing of the consequences to owners of railroad stock and bonds. Such a theory is not a theory of compensation--it is a theory of oppression and of destruction.

The fact that the Postmaster-General has found it necessary to justify his attack upon the present basis of railway mail pay by a theory so unprecedented and so unwarranted in principle and in law, raises a strong presumption against all his opinions and conclusions upon this subject.

It cannot be too strongly emphasized that the railway mail pay at present is insufficient to pay even its proper share of operating cost and taxes and does not produce any return upon the property. This will be demonstrated by any fair inquiry, as will now be shown. Reports submitted to the Postmaster-General by railways operating 2,411 mail routes, with a total length of 178,710 miles, showed that their gross receipts, per car-foot mile, from services rendered on passenger trains during November, 1909, were as follows:

From mail 3.23 mills From other services 4.35 mills

Thus it appears that the space on passenger trains required for the mails is proportionately less than three-quarters as productive as that devoted to passengers, express, milk, excess baggage, etc., etc. As it is the general belief of railway managers, whose conclusion in this respect has rarely if ever been challenged, that the passenger train services, as a whole, do not produce revenues sufficient to meet their fair proportion of the operating costs and the necessary return upon investment, and therefore are not reasonably compensatory, it is evident that the mail service, the pay for which is more than twenty-five per cent. below the average for the other services rendered on the same trains, must bring in much less than reasonable compensation. Certainly railroad revenues as a whole could not be reduced twenty-five per cent. without destroying all return upon the property. If so, it must be true that there can be no compensation in a rate of mail pay that is twenty-five per cent. less than the rate of pay for passenger traffic which, as above shown, is relatively unprofitable.

No merely statistical comparison can, however, reveal the whole story for the railways are required to furnish many incidental facilities and to perform many additional services for the Post Office Department, which render the mail service exceptionally arduous and costly. These extra services include calling for and delivering mails at a large proportion of the post offices located at railway towns; supplying rooms, with light, heat and water, in railway stations for the use of the mail clerks; placing cars, duly lighted and heated, on station tracks for advance distribution, often many hours before the departure of trains; carrying officers and agents of the Post Office Department as passengers but without compensation to the extent of more than 50,000,000 passenger miles annually , etc., etc. Extracts from the "Postal Laws and Regulations" defining and demanding these services are given in Appendix A. No one can examine this appendix and not be convinced that the mail service is the most exacting among all those rendered by American railways.

The fairness of railway mail pay can also be tested by apportioning operating expenses between passenger and freight traffic, and then making a secondary apportionment of the passenger expenses between mail and other kinds of traffic carried on passenger trains. This method involves charging directly to each kind of traffic all expenses pertaining exclusively thereto, and the apportionment, on some fair basis, of those expenses which are common to more than one kind of traffic.

In accordance with the request of the Postmaster-General, the railways estimated the cost of conducting the mail service in the manner just explained and reported the results to the Postmaster-General. After first charging to each service the expenses wholly due to it they apportioned the common expenses between the passenger and freight services, following the method most generally employed for that purpose, namely the apportionment of these expenses in the proportions of the revenue train mileage of each service. Having estimated, in this way, the operating expenses attributable to passenger trains, the railways assigned to the mails the portion of this aggregate indicated by the proportion of the total passenger train space required for the mails. Using this method, 186 railways, operating 2,370 mail routes, with a total length of 176,716 miles, ascertained and reported that for November, 1909, the operating expenses , for conducting the mail service were ,009,184. The Postmaster-General states , that all the railways represented in the foregoing, and enough others to increase the mileage represented to 194,978 miles, were paid for the same month only ,607,773.13. It thus appears that the pay was far below the operating expenses, without making any allowance for taxes or for a return upon the fair value of the property employed.

While different methods are in use for ascertaining the cost of passenger train service and the results produced by such methods may show considerable variation, yet the mail pay is so far below reasonable compensation, from the standpoint of the cost of the service and a return upon the value of the property, that no method can be reasonably urged which would not demonstrate the non-compensatory character of the present mail pay. This is illustrated by the method which the Postmaster-General himself employed, as the character of that method is such that it necessarily produces the very lowest estimate of cost for the passenger train service.

The Postmaster-General, by his method of apportionment arrived at a cost of ,676,503.75

But this must be increased , by 800,802.00

And also on account of his refusal to assign expenses directly incurred in the mail service 401,126.00

Total, according to the Postmaster-General's method of apportioning costs between passenger and freight traffic ,878,431.75

Thus even the Postmaster-General's method of apportioning costs between freight and passenger traffic produces an operating cost in excess of the total pay received by the railways, leaving nothing whatever for return upon the fair value of the property or necessary but non-income producing improvements.

There is no allowance, in any of these estimates of cost, for the large volume of free transportation supplied to officers and agents of the Post Office Department, when not in charge of mail, although this amounts to over 50,000,000 passenger miles annually and, at the low average rate of two cents per mile, would cost the Post Office Department more than ,000,000 per year.

Moreover, as will presently be shown all the figures here discussed are for the month of November, a month which, because of the abnormally low ratio of passenger traffic to freight traffic, substantially understates the cost of the passenger train services, when figures derived from it are applied to an entire year.

It thus becomes evident that any inquiry which takes into consideration the necessary elements of the situation will demonstrate that railway mail pay is too low. It is only by ignoring essential elements of the service and of expense and the fundamental element of a return on the value of the property that any argument to the contrary can be constructed.

Thus the mail traffic does not pay its operating cost. That traffic is a substantial percentage of the total public service performed by the railroads. It should contribute a substantial proportion to the taxes which the railroads have to pay and to the return on railroad property which its owners are entitled to receive. Clearly no fair method can be devised which will fail to show that the existing mail pay is far below a fairly compensatory basis. Certainly this condition ought not to be intensified by adding the injustice of still further reductions. On the contrary, the unjust reductions of recent years should be corrected for the future, and the railroads should be relieved from the strikingly unjust methods by which they are at present deprived of anything approaching fair compensation.

Detailed reference will now be made to the methods and controlling effect of the Postmaster-General's apportionment of passenger train space between the mails and the other services rendered on passenger trains. Such an apportionment was a necessary step in the calculations reported in Document No. 105. Having obtained certain estimates of the cost of the passenger train services, considered together, by methods, producing the lowest results, the next step shown in Document No. 105 was to apportion a part of this cost to the mail service. The accepted method for such an apportionment is to distribute the total cost in proportion to the train space required by each of the respective services. The Postmaster-General obtained from the railways statements which he might have used in applying this method and these statements showed that 9.32 per cent. of the total space in passenger trains was required by the mails, but, instead of using the data showing this fact, he substituted figures of his own which reduced the space credited to the mail service to 7.16 per cent. of the total. The total of passenger train costs which the Postmaster-General estimated should be apportioned among passengers, express and mail, on the basis of space occupied, was ,074,172. He therefore assigned to the mail service 7.16 per cent. of the last-named sum or ,654,510.69. If, however, he had used the proportion of space, 9.32 per cent., resulting from the reports he had obtained from the railways, the amount apportioned as cost of the mail service for the month would have been 0,802 greater. Multiplying this by twelve gives an increase in the estimated annual cost of over ,600,000.

Thus the Postmaster-General arrived at his declaration that the railways were getting an excess profit of ,000,000 by means of two fundamental errors, omitting for the present reference to any other errors. He understated the annual mail expenses and taxes of the railways by at least ,600,000, and he ignored entirely the necessary return on the value of railroad property.

This examination of his methods shows that the determination of space was of primary and controlling importance and that the changes in space allotment have destroyed the value of his deductions. These changes were due to his refusal to assign to the mail service the working space and temporarily unoccupied space on trains, which were necessary to the mail service and to his actually assigning much of this space to the passenger service rendered on the same trains.

It is scarcely necessary to note that all kinds of traffic require "working space" in addition to the space actually occupied by the traffic itself, and that this is especially true of the mail traffic, or that where there is a preponderating movement of a certain traffic in one direction there must be some empty space on account of that traffic, sometimes called "dead" space, in trains moving in the direction of lighter traffic. Thus passenger cars must have aisles, vestibules and platforms, and postal cars must have a great deal of space in which to sort the mails while, for mail carried in baggage cars, there must be space in which to reach the pouches and to receive and deliver them through the doors. A through train must also have the full capacity required for the maximum traffic of any kind likely to seek accommodation on any part of its journey, although during much of each trip the actual traffic may be considerably below this limit. The Postmaster-General, however, refused to credit the mail service with much of the space thus required by the Department although his figures for the other passenger train services allowed fully for all such space required by them. In fact in many cases such space, actually required by the mails and so reported by the railways, was taken from the total mail space and, without reason, assigned to the passenger service. These modifications of the data correctly reported, not susceptible of justification upon any sound transportation principle, were carried so far that the tabulations of the Post Office Department, which are stated for railway mail routes having a total length of 194,977.55 miles show only 926,164,459 "car-foot miles" made in the mail service, although certain railways, included therein, and having railway mail routes aggregating only 178,709.96 miles, had correctly reported mail space equivalent to 1,153,110,245 "car-foot miles." Thus, although the Department's figures cover 8.3 per cent. more mileage, its reductions of space resulted in assigning to this greater mileage about one-quarter less mail space. At the same time the Department actually increased the space assigned to the other passenger train services, its figures showing 12,014,065,506 car-foot miles in these services for 194,977.55 miles of mail routes which must be compared with 11,222,478,739 car-foot miles reported by the railways for 178,709.96 mail-route miles.

This treatment of the controlling figures as to space, supplementing the other errors of method and omissions of fact, which have been or will be cited, was amply sufficient to turn a real loss into an apparent profit.

As a part of the investigation reported in Document No. 105 the Postmaster-General obtained from the railways statements showing the amounts expended by them for the station and terminal services required by his Department and the amount of free transportation furnished on his requisition for officers and agents of the postal service when not in charge of mail. These data were not used and, as no adequate allowance was made in any other way for these expenses, the omission unjustly reduced the estimates of the cost to the railways of their postal services. The Postmaster-General's explanation of this omission implies that it was partially offset by the assignment as cost of mail service of its proportion, on the space basis, of all the station and terminal expenses of the passenger train services but these special mail expenses are disproportionately heavy and the amount so assigned was far too low. The expenses for station and terminal services especially incurred for the mails, during November, 1909, and reported to the Postmaster-General, for ninety-two per cent. of the mileage covered by Document No. 105 aggregated 1,136.00, as follows:

Amount of wages paid to messengers and porters employed exclusively in handling mails ,980.84

Portion properly chargeable to mail service, pro-rated on basis of actual time employed, of wages paid to station employees a part of whose time is employed in handling mails 198,927.01

Amount expended for maintenance of horses and wagons and for ferriage, etc., in connection with mail service 5,640.98

Rental value, plus average monthly cost of light and heat, of room or rooms set apart for the exclusive use of the mail service 37,258.93

Rental value of tracks occupied daily for advance distribution of the mail 47,029.12

Average monthly cost of light and heat for postal cars placed daily for advance distribution of mail 18,400.57

All the foregoing data were reported to the Postmaster-General in response to his request but he made no use of these items, an omission manifestly to the serious disadvantage of the railways and having the effect of unduly reducing his estimates of the cost of the mail service.

Similarly, the Postmaster-General omitted to use the data he had obtained from the railways showing the volume of free passenger transportation, already referred to, supplied to the officers and agents of the Post Office Department and his estimates contain no recognition of the cost of this service although its extent should be a matter of record in the Department as it is furnished only on its requisition. The space in passenger coaches occupied by these representatives of the Post Office Department, traveling free, was not assigned to the mail service but was treated as passenger space.

All the Postmaster-General's calculations, reported in Document No. 105, and by him relied upon therein, and elsewhere, to substantiate his attack upon existing railway mail pay, depend solely upon data for the single month of November, in the year 1909. It is obvious, therefore, that the validity of his conclusions, if all the rest of his processes were accurate and his deductions otherwise sound, would depend upon whether November is sufficiently typical of the railway year to be safely used as the sole basis for conclusions applicable to a whole year. The truth is, however, that November is not a typical or average month and that all of its deviations from the averages of the year are such as greatly to favor the result which the Postmaster-General was seeking.

It may well be doubted whether the railway year contains any month that can properly be regarded as typical of the whole period but if it does, the month of November, with four Sundays, two holidays and only twenty-four working days, is certainly not such a month. The Interstate Commerce Commission publishes the monthly aggregates of railway receipts and these official data conclusively prove that November, 1909, was the one month for which the data were most strongly favorable to finding, by the Postmaster-General's method, an abnormally low apparent cost for the passenger train services and, consequently, for the mail service.

It is a month in which substantially Winter conditions prevail in a large part of the country and, on this account, one during which much of the ordinary work of maintenance of way and structures must be suspended. Such work occasions a large fraction of the yearly expenses of all railways and these expenses pertain in a relatively large proportion to the passenger services because the higher speed of passenger trains results in greater relative wear and tear upon road-bed and structures than that caused by the slower trains of the freight service and the requirements of safety to passengers carried at high speed impose more costly standards of maintenance than would otherwise be necessary. Consequently a month in which these maintenance expenses are necessarily below the yearly average cannot typify the full annual cost of the passenger train services. Figures showing the facts are contained in Appendix B.

It is, of course, understood that the respective expenses of the passenger and freight services must move upward and downward with the fluctuations in the volume of each sort of traffic. No month can furnish a reliable basis for estimating the proportion of the total expenses that is caused by the passenger service unless during that month the volume of passenger traffic bears a normal relation to the volume of freight traffic. But in November, 1909, as will appear from official figures for each month in the year contained in Appendix C, passenger traffic, as measured by receipts therefrom, was much below the average month of the year while freight traffic was far above the average. The November receipts from passengers amounted to only 21.5 per cent. of total receipts, the lowest relation shown for any month in the year. Of course, under these conditions passenger expenses were curtailed and freight expenses relatively enhanced. Certainly the use of data resulting from these abnormal relations could not possibly produce results fairly typical of a normal period, that is of a whole year. The results so obtained must have diminished the apparent cost of the passenger train services below the true cost, by just as much as the figures for November were below the average figures of the year.

These considerations fully establish the truth that, if every other feature of Document No. 105 were absolutely beyond criticism, the fact that it rests wholly upon estimates based upon data for the single month of November would render its conclusions illusory, misleading and seriously prejudicial to the railways.

The Congressional Joint Commission to Investigate the Postal Service, which reported on January 14, 1901, is authority for the fact that, at that time, railway mail pay was not excessive. Senator William B. Allison, of Iowa; Senator Edward S. Wolcott, of Colorado; Senator Thomas S. Martin, of Virginia; Representative Eugene F. Loud, of California; Representative W. H. Moody, of Massachusetts, and Representative T. C. Catchings, of Mississippi, six of the eight members of the Commission, then united in the following:

"Upon a careful consideration of all the evidence and the statements and arguments submitted, and in view of all the services rendered by the railways, we are of the opinion that 'the prices now paid to the railroad companies for the transportation of the mails' are not excessive, and recommend that no reduction thereof be made at this time." Fifty-second Congress, Second Session, Senate Document No. 89, pp. 19, 22, 25, 29.

Since the Commission reported, the volume of the American mails, the revenue of the American postal service and its demands upon the railways for services and facilities have greatly increased. The costs of supplying railway transportation have also greatly increased. The necessary cost of railway property per unit of service has increased, and in consequence the amount required as a reasonable return thereon, on account of higher wages and prices, the higher standards of service demanded and the higher value of the real estate required for extended and necessary terminal plants. Operating expenses have grown by reason of repeated advances in rates of wages paid to employees of every grade and increased prices of materials and supplies. Taxes have increased with the rapidly augmenting exactions of State and local governments and the imposition of an entirely new Federal corporation tax. Yet during this period of rapidly advancing railway expenses, and in spite of the fact that at its commencement the railway mail pay was not excessive, the rates of payment for railway mail services have been subjected to repeated and drastic decreases accomplished both by legislative action and by administrative orders. These reductions have so much more than offset the rather doubtful advantages which the railways might be assumed to have obtained from the increased volume of mail traffic that in 1912 they find their mail service more unprofitable than ever before. The following table shows the facts:

Average railway mail Fiscal Total railway pay per 0.00 of Year mail pay postal receipts.

The foregoing shows that the Post Office Department expended for railway transportation, in 1901, .18 in order to earn 0.00 in gross and that by 1911 this expenditure had been reduced 37.8 per cent. to .26.

This notable reduction was the consequence of the operation of the law fixing mail pay under which the average payment per unit of service decreases as the volume of mail increases; of the Acts of Congress of March 2, 1907, and May 12, 1910, and of administrative changes effected by the Post Office Department which, without decreasing the services required of the railways or enabling those services to be rendered at any lower cost, greatly reduced the payment therefor. Chief among these administrative changes was the Postmaster-General's order known as the "Divisor" order radically lowering the basis for calculating the annual payments for transportation. No official estimate of the reduction in the aggregate annual payment produced by the operation of the law fixing the scheme of payment has been made but from time to time the Department has published estimates of the reductions otherwise effected. None of these estimates is now up to date, and to make them comparable with the present volume of mail substantial increases would be necessary, but they are given below as representing an amount substantially less than the lowest possible statement of the total present annual reduction.

Cause of reduction Amount of annual reduction.

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