basis to arbitration, but would compromise by leaving the question of pay for overtime to an investigating board. The managers asserted that even this would involve them in such an enormous expenditure that they could not acquiesce. This phase of the controversy can be best illustrated by the table below. Ten hours now constitute a day's work, and a man is paid pro rata for overtime. The men demanded that eight hours should constitute a day's work, and that a man should be paid time and a half, or price and a half, as it is called, for overtime. The men point out, with considerable reason, that the effect of this demand for price and a half for overtime would be to reduce their hours of labor. Under the pro rata system of paying for overtime there is no inducement to the railway employers to reduce the working hours of the individual. If A is paid $4 for eight hours, he would be paid pro rata $8 for sixteen hours' work. But at price and a half he would receive $10 for sixteen hours. It would therefore be the policy of the railways to hire two men at $4 each to do the sixteen hours' labor. Thus more men would have jobs at less cost to the railways in money, and less cost to the men in exhausting hours and conditions of labor. The President proposed that eight hours a day should constitute a day's work, and that the men should be paid pro rata for overtime, leaving the question of time and a half, or price and a half, to arbitration.

PRESENT BASIS OF PAY

If A is paid $4 per day for 10 hours' work,

For 12 hours he gets $4 plus 2 hours overtime pro rata, or 40c. per hour, which equals $4.80.

THE MEN'S DEMANDS

A must be paid his $4 for 8 hours' work, and "price and a half" for overtime.

For 12 hours he would get $4 plus 4 hours overtime at 75c. per hour, which equals $7.00.

THE PRESIDENT'S PROPOSAL

A would be paid $4 for 8 hours and pro rata for overtime, leaving "price and a half to arbitration.

For 12 hours he would get $4 plus 4 hours overtime at 50c. per hour, which equals $6.00.

On his failure to persuade both parties to accept his proposal, the President called

29

Congress together in joint session on the afternoon of August 29, and addressed to this joint session a special personal Message, announcing that his mediation had failed, that he had no means of compelling the railways and railway managers to refrain from war, and that he desired power so to compel them. He recommended to Congress six proposals, all to be enacted by statute, as follows:

1. A reorganization and enlargement of the Inter-State Commerce Commission, to give it more power and make it more efficient.

2. The creation of eight hours as the legal day of labor for all railway wage-earners engaged in the operation of trains in interState transportation.

3. The creation through appointment by the President of a small body to observe the operation of this eight-hour law, and to report its actual financial and social effects to Congress for subsequent Congressional action.

4. An explicit statement by Congress that it will approve the consideration by the InterState Commerce Commission of an increase of freight rates, if such an increase is proved to be necessary to pay the additional cost of an eight-hour day.

5. A law establishing compulsory arbitration in industrial disputes, and forbidding strikes or lockouts until the dispute has been submitted to arbitration under such a law.

6. A law empowering the President, in case of military necessity, to take control of railway' property and railway workmen, and operate the railways by drafting the railway workmen into the military service of the United States.

The latter proposal was doubtless suggested by the experience of France in its great railway strike in which Minister Briand ordered the trainmen to run the trains as soldiers of the Republic under martial law. The necessity for the suggestion at this time, the President says, is found in the fact that "almost the entire military force of the Nation is stationed upon the Mexican border to guard our territory against hostile raids. This military must, of course, be furnished with supplies and be promptly transported to any other part of the country should need arise."

It is hardly necessary to add that as we go to press these suggestions apparently meet with the complete approval of neither Congress nor the railway unions nor the railway employers. Such suggestions almost never

do satisfy all parties. The grounds for the President's course of action in this controversy are clearly set forth in the following extract from his special Message to Congress : I unhesitatingly offered the friendly services of the Administration to the railway managers to see to it that justice was done the railroads in the outcome. I felt warranted in assuring them that no obstacle of law would be suffered to stand in the way of their increasing their revenues to meet the expenses resulting from the change so far as the development of their business and of their administrative efficiency did not prove adequate to meet them. The public and the representatives of the public, I felt justified in assuring them, were disposed to nothing but justice in such cases and were willing to serve those who served them.

The representatives of the brotherhoods accepted the plan, but the representatives of the railroads declined to accept it. In the face of what I cannot but regard as the practical certainty that they will be ultimately obliged to accept the eight-hour day by the concerted action of organized labor, backed by the favorable judgment of society, the representatives of the railway management have felt justified in declining a peaceful settlement which would engage all the forces of justice, public and private, on their side to take care of the event. They fear the hostile influence of shippers, who would be opposed to an increase of freight rates (for which, however, of course, the public itself would pay); they apparently feel no confidence that the Inter-State Commerce Commission could withstand the objections that would be made. They do not care to rely upon the friendly assurances of the Congress or the President. They have thought it best that they should be forced to yield, if they must yield, not by counsel, but by the suffering of the country. While my conferences with them were in progress, and when to all outward appearance those conferences had come to a standstill, the representatives of the brotherhoods suddenly acted and set the strike for September 4.

The railway managers based their decision to reject my counsel in this matter upon their conviction that they must at any cost to themselves or to the country stand firm for the principle of arbitration which the men had rejected. I based my counsel upon the indisputable fact that

there was no means of obtaining arbitration. The law supplied none; earnest efforts at mediation had failed to influence the men in the least. To stand firm for the principle of arbitration and yet not get arbitration seemed to me futile, and something more than futile, because it involved incalculable distress to the country and consequences in some respects worse than those of war, and that in the midst of peace..

I yield to no man in firm adherence, alike of conviction and of purpose, to the principle of arbitration in industrial disputes; but matters have come to a sudden crisis in this particular dispute and the country had been caught unprovided with any practicable means of enforcing that conviction in practice (by whose fault we will not now stop to inquire). A situation had to be met whose elements and fixed conditions were indisputable. The practical and patriotic course to pursue, as it seemed to me, was to secure immediate peace by conceding the one thing in the demands of the men which society itself and any arbitrators who represented public sentiment were most likely to approve, and immediately lay the foundations for securing arbitration with regard to everything else involved. The event has confirmed that judgment.

I was seeking to compose the present in order to safeguard the future; for I wished an atmosphere of peace and friendly co-operation in which to take counsel with the representatives of the Nation with regard to the best means for providing, so far as it might prove possible to provide, against the recurrence of such unhappy situations in the future-the best and most practicable means of securing calm and fair arbitration of all industrial disputes in the days to come. This is assuredly the best way of vindicating a principle, namely, having failed to make certain of its observance in the present, to make certain of its observance in the future.

We are not among those who ascribe to the President political motives in the position and action which he has taken in this grave crisis. His special Message to Congress is dignified, strong, and discloses an earnest desire on his part to avoid the arbitrament of industrial war. Whatever may be said of the practical wisdom of certain features of his plan, its spirit and general purpose should receive the support of the country.

F

OR three decades the largest transportation interest of California, the Southern Pacific, controlled as a chattel the Railroad Commission which had been created solely for its own regulation. An aroused public sentiment had established this Commission in the Constitution of 1879 to write the epitaph of railway rule. But all it wrote was the feeble record of its own subserviency.

It is told that one of its early members, rebuked for his frequent calls at the office of the Southern Pacific, replied, indignantly, “And where else, please, should one go to regulate the railway?"

To be sure, where else?

"The State had invoked an inalienable right," said Andrew Furuseth, the sailorstatesman-" the right to abdicate."

Then came the spectacular campaign of Hiram W. Johnson and his election as Governor in 1910 upon his emphatic and epigrammatic promise to "kick William F. Herrin and the Southern Pacific out of the government of the State." And after election he proceeded so to do with full vigor of foot and fist.

A railway that could rule could also serve, and the Governor set about to do some longneglected regulating.

Naturally it was assumed by those most intimately concerned that this would take the form of bitter retaliation. To their surprise, however, the Governor conceived and put into execution a policy of benevolent supervision which rested upon the premise that regulation could be made beneficial alike to the corporations and the people.

Strangely enough, he had been in office. but two years when his administration, in consonance with this belief, used the same energies that had thrown the Southern Pacific out of the politics of the State, to preserve, in the public interest, that same Southern Pacific from dismemberment and consequent commercial ruin.

I This article should be read in connection with that on railway regulation by Mr. Blewett Lee, of the Illinois Central Railroad, which appeared in The Outlook of last week.

It required a statesmanlike discernment to distinguish the lines of political and economic cleavage. But this is one of the attributes which has given the present régime in California its peculiar appeal both to radical and conservative.

The Governor revitalized the regulative law; gave it, in the parlance of the moment, "a set of full-grown teeth," and extended its scope to all forms of public utilities-railway, gas, water, telegraph, telephone, electric light and power, steamships, warehouses, wharfs, and pipe lines-a variety to which the abundance of companionship brought a sufficient solace.

The measure of the Commission's authority was fixed indelibly beyond the power of the courts to impair. Its membership was enlarged from three to five and its personnel rejuvenated. with the impress of youth and vision, scholarship and ceaseless energy.

At the head of the new board was John M. Eshleman,1 a young and intensely energetic attorney of brilliant mentality, who had a few years before attracted attention for his attainments in philosophy and classical literature at the State University. Associated with him were Max Thelen, also a youthful and scholarly attorney, from the staff of the Western Pacific Railway, who had been a class medalist at the University of California; Edwin O. Edgerton, a lawyer in his middle thirties, distinguished for incisiveness of mind and breadth of vision, an authority on municipal affairs; Alexander Gordon, a veteran farmer and banker, a postgraduate in the school of experience; and Colonel H. D. Loveland, a well-known business man and dissenting member of a previous commission.

Mr. Eshleman subsequently was elevated to the Lieutenant-Governorship and his place filled by the appointment of Frank R. Devlin, a former Superior Judge, a progressive leader of the Legislature, and a widely known attorney.

It required but one incident to persuade

Mr. Eshleman, who had been the guiding spirit of the Commission's work, died af Indio, California, on February 28, 1916.

the railway interests to an acquiescence in the new order. The Commission had issued one of its first findings, reducing certain rates on the Southern Pacific. The president of the company called upon the Commission, stated that the ruling could not be obeyed, and that the equities might be satisfied by the arrest of one of his station agents.

"Why the station agent?" he was asked. "Why not the president of the company?"

That was all, but the reduced rates went into effect that night.

Governor Johnson had imparted but one word of admonition to his new board.

"Regulate with a firm hand," said he, "but always remember that California welcomes and protects legitimate industry.”

The Commission found itself with sudden authority over twelve hundred public service corporations, great and small, ranging from the transcontinental carriers to a mountain railway which had been presented to a widow in payment for damages for the loss of her husband.

The Commission has, through five years of service, given to the State of California a system of corporation regulation which has appealed keenly to the public mind and has been received with general satisfaction by the corporations themselves.

It founded its doctrine upon the conception that the public interest goes primarily to the prices it must pay and the quality of service it receives in return for its outlay. All that contributed to high quality of service at low cost was desirable. Conversely, all that militated against this end was declared undesirable.

To attain the highest quality of service at the lowest reasonable cost, the California Commission has refused to encourage the ruthlessly competitive conditions of public utility enterprise, but has somewhat naïvely brought about a situation that gives all of the benefits that accrue from competition without its disadvantages. This has developed a business philosophy that has been termed "regulated monopoly with potential competition."

The California Commission has announced the policy that all existing utilities will be protected against competition in their present fields of operation as long as they accord to the public a complete, adequate, and satisfactory service at rates as low as could reasonably be offered by any prospective competitor. The complete service and low

rates must be given voluntarily, immediately, continuously, and uninterruptedly, as a prerequisite to this protection by the State, under the threat of competition.

The moment this policy was proclaimed electric-lighting rates throughout the State of California fell without further order from an average of nine cents and ten cents per kilowatt hour to an average of seven cents. Measured in dollars and cents, this one act returned to the people of the State twice the expense of the Commission during the whole of Governor Johnson's term.

The State had but a few months before been treated to the spectacle of a pitiless warfare between the Northern California Power Company and the Sacramento Valley Power Company. In the endeavor of each to break its competitor's back, prices were cut until power was actually distributed free of cost. The delight of the patrons at this unwonted benevolence and tender regard for their welfare was cut short by a truce between the two belligerents under which prices were restored, not to their former levels, but to heights sufficient to enable both companies to exact from the patrons what each had lost during the competitive struggle, with a comfortable margin besides.

This situation had come to a climax just before the California Railroad Board assumed jurisdiction, and offered a striking and effective illustration of the disastrous possibilities of enforced competition carried to its natural limits.

The Commission instantly issued a warning against rate wars in the public utility service.

In one of the earlier cases it came as a distinct shock to the State when the Board, in a clear-cut decision, barred the Oro Electric Corporation from Stockton. The city was already served adequately and reasonably by the Western States Gas and Electric Company. The Commission held that fruitless duplication would bring eventual injury alike to the old company, the new company, and the customers of both.

Early misgivings yielded to a very general and popular acceptance of the new view. "Economic fallacy" became a pet State phrase for wasteful competition.

"Potential competition" has been no coldstorage theory. When the Newport Beach Company could not or would not give the high standard of service and the low rates to which the Commission believed the people of southern California entitled, the Commission