Merging Lines: American Railroads, 1900-1970 (review)

Richard Saunders views American railways in the first seven decades of the twentieth century as being in retreat, with declines in mileage and labor force, major changes in freight traffic, and growing deficits in passenger service. As he reviews the industry through two world wars, a long depression, and many changes in technology, he fully proves his thesis that it had its full share of problems. After World War II, many of the nation's railways came to believe that mergers would help solve these problems.

Early in the century, the United States Supreme Court had ruled against two major mergers. In 1904 it defeated rival efforts of James J. Hill (supported by J. P. Morgan) and E. H. Harriman to control the Northern Securities Empire, consisting of the Great Northern, the Northern Pacific, and the Burlington. Then, in 1913, the same court ordered that Harriman's merger of the Union Pacific and the Southern Pacific be dissolved. Between 1910 and 1914, the Interstate Commerce Commission refused to approve modest freight rate hikes sought (and needed) by the nation's railways. When wartime traffic began to climb in 1916, many lines were caught short of needed equipment. With America in the war in 1917, rail traffic increased even more, and the severe winter of 1917-18 caused a major shortage of freight cars and the clogging of eastern freight yards. Federal control of the entire system followed.

In 1920, after more than two years of control by the United States Railroad Administration, some voices were raised urging the government to buy the system. The Transportation Act of 1920 did not go that far, but it did provide for greater regulation of freight rates along with the promise of a "fair rate of return" on investment. It also called for a general consolidation of the nation's lines into not more than twenty-five operating companies. This was not compulsory, however, and few lines were inclined to merge or consolidate. During the 1920s the rail industry's rate of return was slightly above 4 percent, but in the depression 1930s it averaged just over 2 percent. In 1938 about 30 percent of the nation's railways were either bankrupt or in receivership. Two events of the prewar decade, the introduction of the DC-3 in 1936 and the completion of the Pennsylvania Turnpike in 1940, did not bode well for future rail passenger traffic.

As war came again to Europe in 1939, America's railways were determined to avoid falling under federal control a second time. By 1944, freight ton-miles had more than tripled from what they had been in 1932, and passenger miles had climbed sixfold. The industry paid off nearly two billion dollars of funded debt, celebrating its prosperity by sponsoring the popular Chicago Railroad Fair in 1948 and 1949 and by introducing new diesel-powered streamlined passenger trains. But the good times did not last. By 1957 commercial passenger traffic was divided quite equally—rail 31 percent, bus 32 percent, and air 35 percent—but travel by private automobile was four or five times the total of rail, bus, and air. In 1959, when Fortune listed the "Top Fifty Transportation Companies," American Airlines had a 14 percent rate of return; Greyhound Bus, 17 percent; and Consolidated Freightways, 8 percent. The figure for all American railways was 2.7 percent.

With such a low rate of return, it was not surprising that many companies were looking for mergers. In 1957, the Nashville, Chattanooga and St. Louis had merged with the Louisville and Nashville and the St. Louis-San Francisco gained control of the Central of Georgia. Two years later, the Norfolk and Western merged with a smaller coal road, the Virginian. The Interstate Commerce Commission approved the merger of the Erie and the Delaware, Lackawanna and Western in 1960. In 1962, the Chesapeake and Ohio gained...