facts in some way or other than from a casual and informal inspection and letter writing.

Senator KELLOGG. May I make one suggestion before the chairman leaves? The point I had in asking Mr. Meyer about these interlocking directors between continuous lines of railroad was this: Chairman Clark is right. The act does not prohibit interlocking directors, but it prohibits dealings between companies, although they are subsidiaries. in transportation lines, except in certain conditions, but the railroad act of 1920 does prohibit common directors except by consent of the commission.

Commissioner CLARK. Yes.

Senator KELLOGG. And leaves it entirely to the commission to regulate that. Now, the point I wish the commission would consider carefully is this: Take a concrete case. I cited the Pennsylvania Railroad. You can take any railroad which has long lines of railroad. In some States the continuous line is owned by separate corporations. Now, assume the Pennsylvania owns all the stock of the Pittsburgh, Fort Wayne & Chicago Railroad to Chicago. It is to its interest to own this stock, but assume it wants to make ten million dollars worth of improvements on the Pittsburgh, Fort Wayne & Chicago Railroad and desires to take the stock of the Pittsburgh, Fort Wayne & Chicago itself and sell its own securities in the market. Is it not in the interests of good financing of a continuous line of transportation that it should be permitted to do that and own all of that stock itself, instead of selling it in the market, and sell its own stock in the market subject to all the limitations contained in section 10?

Commissioner CLARK. In my judgment it is, because if for no other reason the retention by the parent company of all the stock of the subsidiary makes possible a consolidation in accordance with the purposes of the transportation act, free from a great many complications that might arise through insubordinate minority stockholders who wanted to make trouble. I think that is a good policy. I believe firmly in the principles of the transportation act in regard to the consolidation of these properties. I believe they can be more economically operated and furnish a better public service.

If we have a few large systems of railroads they can be more readily regulated than a multitude of small independent lines struggling for existence, and I think just such situations as you describe are in the public interest, assuming they are carried out in the proper way. I see no reason why, as Mr. Commissioner Meyer has pointed out, if the parent company buys supplies or materials in large quantities and in turn sells them to its subsidiaries, it should not sell them to the subsidiary at the same price it sells them to itself. Senator KELLOGG. That is true. There is no reason why it should not, but you would not say that that subsidiary every time it. wanted to get any supplies must be compelled to buy from an outside party.

Commissioner CLARK. No; I do not think that ought to be so. Senator KELLOGG. But under section 10, as it now exists, that is required?

Commissioner CLARK. Yes, sir; they would have to ask for bids. Senator KELLOGG. Suppose the parent company competes in buying its supplies and then they are turned over to the subsidiary company; the object of section 10 is complied with, is it not?

Commissioner CLARK. I doubt if it would be, Senator, as long as they maintained separate legal entities. I think that the transaction between the parent company and the subsidiary would come within the prohibitions of section 10.

Senator KELLOGG. But you do not think they ought to be compelled to go out and compete in the open market?

Commissioner CLARK. No; I think it is a good business proposition to let the parent company buy in such quantities and supply the subsidiary at the same price it buys or sells to itself; that is,

at cost.

It is in the interest of the public that the subsidiaries should have the benefit of that economy. I do not see any reason why the parent company should get the advantage of buying in large quantities, and presumably at a lower price, and then turn itself into a profit-making dealer in distributing those supplies among its subsidiaries.

Senator KELLOGG. I do not either.

The CHAIRMAN. How long, Mr. Chairman, do you think it would take you to prepare yourself in such shape as to come back here and give us the information we have asked?

Commissioner CLARK. I think that would depend somewhat on how early the committee desired it. We are pretty busy, but if we could have until some time next week, I think we could do it.

The CHAIRMAN. Could you come back here Monday? That is four days, Wednesday, Thursday, Friday, and Saturday.

Senator KELLOGG. I have the cable hearings Monday and Tuesday.

Commissioner CLARK. I think it would be much better if we could have a little more time, and it certainly would be better with our engagements that some of us must keep, if we could have until Wednesday.

The CHAIRMAN. Very well; we will ask the commissioners to be back here Wednesday morning at 10 o'clock, if there is no objection, in this room.

Mr. Thom, are you ready to go on to-morrow morning at 10 o'clock? Mr. THOм. Any time; yes, sir.

The CHAIRMAN. We have changed our hour of meeting from 10.30 to 10, and we would like to have you here to-morrow morning at 10 o'clock.

Mr. THOм. Might I ask, Mr. Chairman, that when our statement is made here that a copy of it be furnished the Interstate Commerce Commission so that they may consider it in the interval?

The CHAIRMAN. I think that can be done. I think the reporter can make that copy for them.

Senator STANLEY. Mr. Commissioner, as I understand you, under the transportation act of 1920 these roads are operated, in a measure, on a cost-plus profit basis by the railroads?

Commissioner CLARK. These repairs

Senator STANLEY. The roads themselves are operated. The Goviernment provides for a certain profit over and above the cost of operation.

Commissioner CLARK. Yes.

Senator STANLEY. That is, in a measure, a cost-plus profit basis for the railroads?

Commissioner CLARK. Yes, sir; in a sense.

Senator STANLEY. And in that event, if the cost to which the railroads are put is not regulated goes beyond the regulations of the Interstate Commerce Commission in guaranteeing an efficient and economic management-there would be no way of ascertaining just what the profits were?"

Commissioner Clark. You could ascertain what the profits were. Senator STANLEY. But you would have no control of them?

Commissioner CLARK. You would have no control of them. Under the principles of the transportation act, the amount which the carrier may earn as recognized as reasonable by that act, is after the operating expenses and other costs have been paid. Now, necessarily, if there is waste or extravagance or any other questionable thing in connection with the expenditures, it makes the cost so much higher and the net so much lower and rather directly comes back to the rate-paying public, so that the public interest demands that they should be honestly and efficiently managed and there should be a wholesome restraint against anything that would accrue to the profit of the carriers and be a burden on the public.

Senator STANLEY. Can you exercise that restraint with section 10 of the Clayton Act suspended or repealed?

Commissioner CLARK. I think with that section under suspense or repealed, and no other provision substituted for it, that to some extent our ability to regulate that would be impaired.

Senator STANLEY. Would you care to state to what extent?

Commissioner CLARK. I can not state to what extent because section 10, as I pointed out, applies only in instances where the parties to the transaction have common directors, officers, or agents in the transaction. If there were extravagance-or, to use an uglier word—even if there were graft, section 10 of the Clayton Act will not reach it unless there is that interlocking relationship between the directors of the two parties.

Senator KELLOGG. But you have power under the transportation act to regulate that.

Commissioner CLARK. Yes, sir; we have power to regulate and determine on the elimination of unreasonable charges made to operating expenses.

Senator STANLEY. When you return, Mr. Chairman, I would suggest, if it can be done without inconvenience to you, that you also elaborate that very question-to what extent the commission has control now over the extravagance or improper purchase of supplies from companies not related, and to what extent the repeal of section 10 of the Clayton Act governing the operation of railroads with related companies will affect the general public in the economical operation of the railroads.

Commissioner Clark. I will undertake that, although I think it will be impossible to state it in figures.

Senator STANLEY. I do not care so much about the figures as a general suggestion from the commission.

The CHAIRMAN. Very well, we will adjourn until to-morrow morning at 10 o'clock.

(Whereupon at 11.50 a. m. the committee adjourned until tomorrow, Thursday, January 6, 1921, at 10 o'clock a. m.)

AMENDING SECTION 10 OF CLAYTON ACT.

THURSDAY, JANUARY 6, 1921.

UNITED STATES SENATE,

INTERSTATE COMMERCE COMMITTEE,

Washington, D. C.

The subcommittee met at 10 o'clock a. m., pursuant to adjournment, Senator Charles E. Townsend (chairman) presiding.

Present: Senators Poindexter, Kellogg, Smith of South Carolina, and Stanley.

The CHAIRMAN. Mr. Thom, you understand what is before this subcommittee. You were here on yesterday and heard the two members of the Interstate Commerce Commission make their statements. The committee would now like to hear from you as to the necessity of an amendment, if you feel that one exists, to section 10 of the Clayton Act, and we would like to have you give us your reasons in such form as we can see their practical effect.

STATEMENT OF MR. ALFRED P. THOM, GENERAL COUNSEL, RAILWAY EXECUTIVES ASSOCIATION.

Mr. THOм. Mr. Chairman, may I, as a preliminary to the consideration of the question of amendments, make a brief historical statement as to the attempts which have been made to have this matter dealt with in a legislative way during the last few years. I would like to do that in view of the suggestion that there has been some improper or unnecessary delay with respect to this matter.

Ever since this section 10 of the Clayton Act was passed the railroads, having subsequent to its passage made a study of it, and having found its unhappy consequences, have been attempting to have it amended. You will recall that Section 10 of the Clayton Act is a part of the legislation of the country which did not come under the supervision of the committees of Congress having to do with Interstate Commerce. That matter emanated from and was always considered by the Judiciary Committee. So that we were constantly handicapped by the fact that we could not come to a committee which had made special study of the transportation problems and was aware of the complications surrounding the management of transportation companies. Nevertheless, we did go before the Judiciary Committees and tried to obtain extension of the effective date of this section for the purpose of asking Congress to consider an amendment. The amendment was prepared and was presented, but it came at a time when the whole time of Congress was devoted to, first, the complications growing out of the carrying on of the European war, before we entered it, and, subsequently, to the conduct of the

war, and Congress never thought that it could give time to the consideration of this subject, although we were insistently there asking that it be done.

Senator KELLOGG. Was there not another reason. The railroads were in the hands of the Government?

Mr. THOм. I am coming to that, Senator.

Senator KELLOGG. Excuse me. I will withdraw that.

Mr. THOм. That was before they went into the hands of the Government. Subsequently, the railroads went into the hands of the Government. There was no pressing problem then, because the purchases were made by the Government and were not made by the railroads. As soon as it appeared that the railroads were to be taken from the hands of the Government and returned to the hands of their owners, we made application to have the matter dealt with as a part of the transportation act and presented an amendment to the committees. In the view of the committees and I can not in any sense criticize that conclusion-but in the view of the committees there were problems more pressing to be dealt with in that act, and they did not care to take on another question.

The CHAIRMAN. Was that the amendment offered by Senator Kellogg or Senator Frelinghuysen?

Mr. THOм. It was offered in committee, and I think Senator Kellogg offered it, although I am not sure.

Senator KELLOGG. No; it was sent up.

Mr. THOм. I have not got to that yet. It was sent up.

Senator KELLOGG. I will explain that matter. That amendment was sent to the chairman and to myself, and perhaps others, for consideration, and as I recollect, the chairman felt as though he did not want to take on any more questions in the railroad bill, and was going to take it up after the railroad bill was passed, and then it was known that he went home and was taken sick and did not come back, and it was late in the session, and we were pressed with legislation, just before the close of Congress, and as I recollect, the bill was sent to the Interstate Commerce Commission at that time or rather the amendment.

Mr. THOм. The answer came back to me-when I asked this committee and the committee in the House-the answer came back to me from this committee or from the members of it when we asked them to consider this question, that they would prefer to deal with this subject as an independent measure and not complicate their already great problem of dealing with the transportation act by adding this to it, and I was requested to prepare an amendment in some modified form so that it might be presented. I did prepare that amendment and I sent it to Senator Kellogg, and Senator Kellogg sent it to the Interstate Commerce Commission. That was during the last session

Senator KELLOGG. That was in May, I think.

Mr. THOм. Asking their opinion of it.

Senator KELLOGG. Senator Cummins asked me to send it to the commission.

Mr. THOм. I never had any talk, I think, with the chairman of the Interstate Commerce Commission on the subject, but being at one time before division 4 of the Interstate Commerce Commission I asked about this measure that had been sent there and none of those