Mr. JOHNSON. I believe there is an important advantage to be gained and that the national progress and prosperity will be encouraged by having competition among the different railroads for efficiency and economy unrestricted by central boards.

The CHAIRMAN. One of the reasons for standardization of locomotives was that it would be so much easier for repair shops to maintain reserve parts, and they would not have to keep such a large stock on hand, because, being standardized, they would be ready for any emergency; and it would also avoid delay in making such repairs.

Mr. JOHNSON. Locomotives rarely go off the division where they are used, and I might remark that standardization was accomplished or undertaken by the Government at a time when the need was most imperative for additional motive power and the working out of standardization required several months of preliminary work and then those locomotives were placed on railroads which were entirely without the necessary repair parts to maintain them, whereas had locomotives of their own standards been furnished them, all those repair parts would have been present in their repair shop.

The CHAIRMAN. Are you of the opinion that the state of the art as to train control has reached such a stage that roads should be required to install such systems?

Mr. JOHNSON. By train control, you mean

The CHAIRMAN (interposing). Automatic signals to control the operation of the train, automatic stops and so on.

Mr. JOHNSON. I do not think I am an expert in that line, Mr. Esch.

The CHAIRMAN. I knew you had had large experience in various lines of railroad invention; that is all.

Mr. SIMS. Mr. Johnson, I would like to ask you some questions. About what is the life of a locomotive in line of service; that is, from the time it is put on new until finally it has to be put in the scrapheap, and its salvage value obtained.

Mr. JOHNSON. About 25 years.

Mr. SIMS. About what is the percentage cost of keeping that locomotive in repair during that time? I mean, if a locomotive costs $40,000, about what would be the percentage on the investment of that $40,000 to keep it in repair until the time for it to be permanently retired from line service?

Mr. JOHNSON. I can not answer that question, Mr. Sims, offhand. Mr. SIMS. I do not mean with absolute mathematical exactness, but about what? Suppose it has been operated 25 years, about what percentage of its original cost has to be applied to its upkeep during that time so that it can usefully perform transportation service? Mr. JOHNSON. The maintenance, of course, is usually computed in cents per mile run. I can not answer your question.

Mr. SIMs. Have you never had that up?

Mr. JOHNSON. Not in that form, sir.

Mr. SIMS. Perhaps you know some form that will give me the information I am trying to get, as to the average cost of the maintenance of an engine that costs at the beginning $10,000 or $20,000, or any other amount, used in line service, so as to exclude yard engines and engines of special type or pattern.

Mr. JOHNSON. Of course, my experience has been in building locomotives and not in operating repair shops. I would rather not go on record as stating that, although I can place my hand on the information ea sily.

Mr. SIMS. I supposed if any man in the country could answer that question, the ex-president of the Baldwin Locomotive Works

could.

Mr. WINS LOW. What do you mean by that question, judge?
Mr. SIMS. Just what I said.

Mr. WINSLOW. I know, but even so what do you mean?

Mr. SIMs. I want to know the cost of an engine from the time it goes on the road until it goes off.

Mr. WINSLOW. You do not mean depreciation.

Mr. SIMS. I mean whatever they have to do to that engine to keep it in service until the time arrives for it to be scrapped, and you say that 25 years is the average life.

Mr. JOHNSON. Twenty-five years, yes.

Mr. SIMS. I do not mean in so many dollars, but about what does it cost or about what is the percentage of cost incurred in repairs and keeping it in active service?

Mr. JOHNSON. It varies on different roads and under different conditions for different classes of service. It varies at different times in the life of a locomotive. There are the ordinary light repairs which are given in a roundhouse, and there are heavy repairs which are given about every three years in the main shops. When those heavy repairs are made, there are generally added some improvements to the locomotive itself. Those are generally computed or reduced to so many cents per mile run; so much per mileage. Mr. SIMS. About what is the salvage value of a locomotive when it is retired from active line service?

Mr. JOHNSON. The salvage value of a locomotive when it is actually retired, of course, depends upon the value or price of scrap. In the old days it used to amount to perhaps $250; that is, putting all the labor necessary to cut it out and prepare it for the scrap market. Under present conditions, I should suppose you ought to realize $1.000 for the heavier locomotive.

Mr. SIMs. Judge Lovett gave us a very interesting statement with reference to replacements, and if I recall his statement, in substance, it was, that where there is a locomotive purchased brand-new, it was charged to capital account at $40,000, if that is what it cost, and at the end of the time or when you had to replace it with an entirely new one you would charge up to capital account the new one costing $40,000 and credit it with the value of the locomotive that is being retired, and his insistence was, and I think there was pretty good show of reason in it, that this additional capitalization by way of replacement ought to be permitted to be taken care of by way of earnings or rates during the life of the engine or structure or whatever it applies to, and I wanted to see if you, as a practical man, who has been making engines all your life, or nearly all your life, could give us any information at all upon this subject which would be reliable so that we could have some idea as to what rates we would have to have to take care of such a matter during the operation of the locomotive.

Mr. JOHNSON. During the 25 years the depreciation should, of course, include the entire value of the locomotive less its scrap value when you are through with it, and in addition the cost of maintenance would include all the repairs put upon it. That is necessarily an operating cost. It is not a capital cost at all, whether it is a railroad or manufacturing business, the absolescence, the depreciation and the discarding of machinery is necessarily an operating cost and must be carred by the rates received or the profits derived from the business.

Mr. SIMS. But I understood from Judge Lovett that in the purchase of equipment of that kind at any time it was charged to capital account.

Mr. WINSLOW. Mr. Johnson, the explanation is perfectly simple, but if you have not followed the intricacies of railroad bookkeeping you would not know this point. They do not depreciate their property as they go along and charge it to operation or set aside a fund for depreciation. They simply put the original purchase price into the capital account. Then when they buy a new engine, for instance, to take the place of the old one, they take the excess value of the new one over the old one and add it to the capital account and then credit the account for just so much scrap. That is why they run it. They have no depreciation like you do.

Mr. JOHNSON. That is a mistake.

Mr. WINSLOW. Of course, it is a mistake. It is absolutely wrong and misleading to anybody and there is no basis of comparison between two roads as to the extravagance of operations nor can they measure the upkeep of property.

Mr. JOHNSON. The way manufacturers handle that is when they buy a new tool they charge the cost of that new tool to capital. If it replaces another tool, the other tool is credited to capital account and charged into operating expenses at its full original value, not its scrap value, and in that way you get out of your capital account what was once put in there, but which is no longer an asset in the account. Mr. WINSLOW. What you lose by grinding off that tool goes to operating?

Mr. JOHNSON. The whole value of the tool is charged off and goes to operating, as well as all the maintenance of that tool.

Mr. WINSLOW. They do not do it that way in railroad bookkeeping. Mr. SIMS. If I understood Judge Lovett correctly, they charge the new engine to capital and credit it with the charge for the engine it took the place of, originally carried on the books, and to that credit should be added whatever was realized in the way of salvage for the engine at that time. My own personal idea was that all equipment should be amortized during its life; that the capital charge incurred for equipment should not be carried forward any further than during the use of that equipment. In other words, it ought to be amortized in its own use and you ought not to be continually adding to capital account every time you buy a piece of new machinery.

Mr. JOHNSON. There is no doubt about that.

Mr. SIMS. That was my own personal view about it, but I did not know exactly how that would bear on the question of increased rates, if the railroads were permitted to keep on pyramiding the capital account, as seems to be the case.

Mr. JOHNSON. I think it is not a matter of very great consequence whether that is done annually at a certain percentage of the original value of the equipment or whether it is done when the equipment is withdrawn from service, because there are so many of these transactions taking place all the time that they all average up and it is very much more convenient to do it by one bookkeeping entry when the locomotive is scrapped than it is to be taking it off in percentages year after year. That is what you have reference to, I think.

Mr. COOPER. Mr. Johnson, do you not think the cost of maintaining a locomotive depends entirely upon the conditions to which that locomotive is put?

Mr. JOHNSON. Necessarily.

Mr. COOPER. And the conditions to which locomtives are put are not the same all over the country. You can not standardize that.

Mr. JOHNSON. No; you can not standardize that. The cost of repairing and maintaining locomotives varies largely on different lines.

Mr. COOPER. You give a general overhauling to locomotives in shops?

Mr. JOHNSON. Yes.

Mr. COOPER. Do you not find that the locomotives that are used on the great ore-carrying railroads, where they haul enormous loads, that they go into the shop for repairs and general overhauling sooner than those on roads that do not haul such heavy tonnage?

Mr. JOHNSON. Yes.

Mr. COOPER. When Mr. Sims was asking you those questions that thought came to my mind-that the cost of maintaining the locomotives depends entirely upon the conditions to which they are put, and you can not standardize such conditions.

Mr. JOHNSON. The cost of maintenance will vary on different divisions of the same road. One level division will have one rate and a high-grade division will have another rate.

Mr. COOPER. Of late years you have been building powerful locomotives, superheaters, and big powerful engines which they did not have some years ago, and of course they haul greatly increased tonnage over the roads. To what extent does the life of these large, powerful locomotives compare with the smaller locomotives that were used by the railroads 15 or 20 years ago?

Mr. JOHNSON. I think they would naturally have a shorter life. Mr. COOPER. That is what I was inclined to believe also.

Mr. JOHNSON. They are much more expensive to maintain. The cost of maintenance is enormously greater and the appliances necessary to handle their repairs are costly, and the natural tendency of the railroad management is to keep them on their feet just as long as they can run them, whereas the lighter locomotives formerly in use were easy to repair and the repairs were made punctually and economically.

Mr. COOPER. You are now manufacturing some locomotives that carry over 200 pounds steam pressure.

Mr. JOHNSON. Yes, sir; 200 pounds has come to be the standard for the United States.

Mr. COOPER. Naturally, a locomotive carrying 200 pounds steam pressure would get more vibration and more shaking up than a locomotive that was in use some years ago carrying 135 or 150 pounds.

Mr. JOHNSON. Yes, sir.

The CHAIRMAN. The committee thanks you, Mr. Johnson, for your thoughtful address.

COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,

HOUSE OF REPRESENTATIVES,
Wednesday, August 27, 1919.

The committee met at 10 o'clock a. m., Hon. John J. Esch (Chairman) presiding.

The CHAIRMAN. Through the courtesy of Mr. Bledsoe, who has the right of way this morning, he is willing to yield for about 30 minutes in order that we may hear Messrs. Field and Lingo, of the Illinois District Traffic League, who are very anxious to leave on a noon train.

STATEMENT OF MR. R. M. FIELD, PRESIDENT OF THE ILLINOIS DISTRICT TRAFFIC LEAGUE, PEORIA, ILL.

Mr. FIELD. Mr. Chairman, we will be as brief as possible. I have here a set of resolutions passed by the Illinois District Traffic League on the general subject.

The CHAIRMAN. How many members are there in that league; how extensive is it?

Mr. FIELD. We have about 10,000 altogether. Our membership is composed of commercial organizations and individual shippers also; and when I say 10,000 I take into consideration the membership of the commercial organizations who are members of the league. For example, the Chicago Association of Commerce is a member of the league. That brings in its own membership as subsidiary, and the Peoria Association of Commerce and different others throughout the district are members, so that we have over 10,000 shippers directly associated with the affairs of the league.

I do not think it is necessary for me to take up your time in reading these resolutions in detail.

The CHAIRMAN. They may be incorporated in your hearing. (The resolutions referred to follow:)

AUGUST 20, 1919.

At a meeting of the executive committee of the Illinois District Traffic League, held in the city of Chicago, on Tuesday, August 19, 1919, the following resolution was unanimously adopted:

Resolved, That the Illinois District Traffic League hereby expresses its unqualified disapproval of the so-called Plumb plan as embodied in House bill 8157, providing for the purchase of the railroad properties by the Federal Government and the turning over of the operation of same to a board of management composed of 15 members, 5 to be selected from the classified employees, 5 from the official employees, and 5 to be appointed by the President of the United States. By which plan of management it is manifest that the control of this operating board would rest with the employees.

We believe such a plan would create a condition contrary to the interests of the people of the United States as a whole and destructive of that individualisın so dear to the American people; and that it would not help, but create a most dangerous political power placed in the hands of one single group of citizens. This plan is not a capital and labor partnership, but provides the elimination of capital altogether as an active force in industry, being in a word Socialism as the antithesis of capital, and even going further than this, the plan is