The trains must go through and on time. The time of freight movements has been cut down about two thirds. A car on a siding is not just a car on a siding. It is a great big question mark. Someone has to know why it is there. It used to take 8 or 9 days to get freight through to Philadelphia or New York; now it takes three and a half days. The organization is serving.
All sorts of explanations are put forward, of why a deficit was turned into a surplus» (Ch. 16. “The Railroads”).
If one looks at how quick freight is shipped from «A» to «B» in terms of the railroad’s performance then under Ford’s management it increased more than twofold, let alone the number of employees, which was reduced by more than one and a half. Though Ford does not quote any numbers concerning freight turnover we must assume that the demand for transportation in that area at the rates valid at that moment was fully met by the railroad.
It could seem to be a fine example to use in a campaign for free-market capitalism… if one forgets about the chaos that reigned at that same railway along with free-market capitalism before its acquisition by «Ford Motors».
In the last quarter of the 19th century — first quarter of the 20th century a net of railroads covered the USA. They were a country of an immaculately clear liberal market economy whereby state officials did not interfere with private businesses both on the level of states (region) and the state union (federal level). Such a state of affairs is one of the ideals modern Russian liberals seek to make a reality in Russia. They explain the fact that the average man does not sense a tangible result of the economic reforms, which they have been carrying out since 1991 by saying that this free-market system has not been introduced.
But it follows from what Ford says about business management on the Detroit-Toledo-Ironton railroad before it was acquired by «Ford Motors» that even in presumably ideal conditions the market mechanism does not guarantee the quality of services provided. It likely does not always encourage the owner to run a business on the self-repaying basis providing profits to shareholders who have invested into the business. This means that the issue of free purchase and sale does not determine the reasons of success or failure in business including their financial representation.
In this particular case explaining the railroad’s success under Ford’s management by saying that there was a change in market opportunities and «the deficit was replaced by profits» means naming the effect instead of the cause. Before the acquisition by «Ford Motors» the railroad was unprofitable not because there were no market opportunities. It became profitable after its acquisition not in the least because market conditions became favorable. Ford says the following about the abject state in which the Detroit-Toledo-Ironton railroad was before its acquisition by «Ford Motors»:
«Nothing in this country furnishes a better example of how a business may be turned from its function of service than do the railroads. We have a railroad problem, and much learned thought and discussion have been devoted to the solution of that problem. Everyone is dissatisfied with the railways. The public is dissatisfied because both the passenger and freight rates are too high. The railroad employees are dissatisfied because they say their wages are too low and their hours too long. The owners of the railways are dissatisfied because it is claimed that no adequate return is realized upon the money invested. All of the contacts of a properly managed undertaking ought to be satisfactory. If the public, the employees, and the owners do not find themselves better off because of the undertaking, then there must be something very wrong indeed with the manner in which the undertaking is carried through.
I am entirely without any disposition to pose as a railroad authority. There may be railroad authorities, but if the service <to people of society> as rendered by the American railroad to-day is the result of accumulated railway knowledge, then I cannot say that my respect for the usefulness of that knowledge is at all profound. I have not the slightest doubt in the world that the active managers of the railways, the men who really do the work, are entirely capable of conducting the railways of the country to the satisfaction of every one, and I have equally no doubt that these active managers have, by force of a chain of circumstances, all but ceased to manage. And right there is the source of most of the trouble. The men who know railroading have not been allowed <by the system which has formed> to manage railroads.
(…) The guiding hand of the railway has been, not the railroad man, but the banker[21]. When railroad credit was high, more money was to be made out of floating bond issues and speculating in the securities than out of service to the public. A very small fraction of the money earned by the railways has gone back into the rehabilitation of the properties. When by skilled management the net revenue became large enough to pay a considerable dividend upon the stock, then that dividend was used first by the speculators on the inside and controlling the railroad fiscal policy to boom the stock and unload their holdings, and then to float a bond issue on the strength of the credit gained through the earnings. When the earnings dropped or were artificially depressed, then the speculators bought back the stock and in the course of time staged another advance and unloading. There is scarcely a railroad in the United States that has not been through one or more receiverships, due to the fact that the financial interests piled on load after load of securities until the structures grew top-heavy and fell over. Then they got in on the receiverships, made money at the expense of gullible security holders, and started the same old pyramiding game all over again.
The natural ally of the usurer is the lawyer. Such games as have been played on the railroads have needed expert legal advice. Lawyers, like bankers[22], know absolutely nothing about business. They imagine that a business is properly conducted if it keeps within the law or if the law can be altered or interpreted to suit the purpose in hand. They live on rules. The bankers took finance out of the hands of the managers. They put in lawyers to see that the railroads violated the law only in legal fashion, and thus grew up immense legal departments. Instead of operating under the rules of common sense and according to circumstances, every railroad had to operate on the advice of counsel. Rules spread through every part of the organization. Then came the avalanche of state and federal regulations, until today we find the railways hog-tied in a mass of rules and regulations. With the lawyers and the financiers <i.e. usurious bankers and stock exchange speculators> on the inside and various state commissions on the outside, the railway manager has little chance. That is the trouble with the railways. Business cannot be conducted by law <as well as from the outside, i.e. without understanding their essence what is very typical of most state officials as well as of usurious bankers and stock exchange speculators>» (The very beginning of Ch. 16. “The Railroads”).
«Too many railroads are run, not from the offices of practical men, but from banking offices <i.e. to usurious institutions and their lawyers>, and the principles of procedure, the whole outlook, are financial — not transportation, but financial. There has been a breakdown <of the railroad industry> simply because more attention has been paid to railroads as factors in the stock market[23] than as servants of the people. Outworn ideas have been retained, development <technical and organizational> has been practically stopped, and railroad men with vision have not been set free to grow.