April 



1019 



HARDWOOD RECORD 



19 



Purchasing Policy of Railroads 



THE OPENING SESSION OF THE NATIONAL LUM 

 THE CONGUESS HOTEL, CHICAGO. WAS THE SCENE 

 MENT AND DISCUSSION OF THE POLICY AND PUR 

 MATTER OF PURCHASES AND PRICES. THE CRUX 

 D. IIINBS, DIRECTOR GENERAL OF RAILROADS. LA 

 ^L\STER PROBLEMS CONFRONTIN(i THE RAILROADS. 

 ASKED, BY LEADING LUMBERMEN. SOME OF WHO 

 POLICIES. A SUMMARY OF MR. IIINES' ADDRESS A 

 SIGN WHICH FOLLOWED ARE GIVE»J HEREWITH 



BER MANUFACTURERS' ASSOCIATION, APRIL 16, IN 

 OF AN INTERESTING AND INSTRUCTIVE STATE- 

 POSES OF THE RAILROAD ADMINISTRATION IN THE 

 OF THE QUESTION WAS REACHED WHEN WALKER 

 ID BEFORE THE MEETING HIS CONCEPTION OF THE 

 AND REPLIES WERE MADE, AND QUESTIONS WERE 

 M DIFFERED FROM THE DIRECTOR IN CERTAIN 

 ND A VERBATIM REPORT OF THE VITAL DISCUS- 



The word liad goue out some days before tlie meeting, through 

 the press, that Director General Hines had discouraged the idea 

 of buying large supplies of steel at this time, under the belief that 

 prices agreed upon were not low enough. It was believed that a 

 hold-off policy with regard to steel meant a hold-off policy with 

 regard to most commodities, lumber included. It meant further, 

 that if railroads should refuse to buy, other purchasers would re- 

 fuse, and stagnation would result in most lines of business. It 

 was, therefore, with deep interest that the lumbermen listened to 

 what the director of railroads had to say on the subject. 

 Parading a Specter 



Mr. Hines dwelt at some length upon the jjolicy which lie had in 

 mind, and which he desired to work out, of getting the railroads 

 back to the service they were giving before the war. He then 

 proceeded: 



I want to say a few words about the policy of the railroad adminis- 

 tration as to purchases of materials and supplies. A spectre has been 

 created and to a considerable extent paraded around the country that the 

 railroad administration is intent upon using its power to purchase with a 

 crushing effect upon industry, to beat industry down to a price below the 

 cost of production and thereby either destroy the industry or force it to 

 put up the costs on all the rest of the public. 



It is true in that case, as It generally is in a case of a grossly exag- 

 gerated argument, that it proves too much. When one comes to analyze 

 it, it would he difBcult to imagine that any intelligent person directing 

 the railroad policy of the country would want to commit industrial suicide 

 either by destroying the industries of the country or by putting up the 

 prices to the general public 'so as to slow down the amount of business 

 they will do. 



I don't think the argument, a« it has beeu urged In a great many dif- 

 ferent ways, really calls for much time to discuss it or even deny it, be- 

 cause on its face it is ridiculous, but in passing, I want to mention the 

 fact that that general theory has been persistently imraded time and 

 again, and as a rule, it seems to be identified with a desire on the part of 

 some industry to continue to get under peace time.s an abnormal price 

 similar to that which was enjoyed during the war when we all know that 

 many industries enjoyed profits which were far beyond what they really 

 needed or ought to have and which were really the source of injury to 

 the rest of the public. 



Broadly speaking, the poliiy of the railroad administration is that 

 the fffficers of each railroad will continue to make their purchases just 

 as they did before the war and on the same general basis, with, however, 

 ^^ome limitations, to prevent the exercise, of undue pressure for a consider- 

 ably lower price. 



The railroad administration has no desire whatever to get commodi- 

 ties at prices less than cost, or at prices that remove all hope of profit. 

 The railroad administration couhl get no ultimate advantage by pursuing 

 such a short-sighted policy. It has no such desire nor has it a desire to 

 bring about prices for it.self which are below the prices of other pur- 

 chasers of commodities in substantial volume. It does not want to be 

 the beneficiary of special treatment which will result in putting a burden 

 on the rest of the public. 



It is trying to handle this purchasing matter in a reasonable, business- 

 like way, largely through the methods which are employed under private 

 management and with an effort to prevent any concentration of the pur- 

 chasing power hy the government into one single agency, in such a way 

 as to be a disturbing or oppressive factor in the conduct of the purchases 

 for the railroads. 



lNDt'STKl.\L B0.\RD BL.VMKD 



I want to say a few words about the matter of sti'cl prices. Of course 

 you have seen more or less about it, but I thought .von would be interested 

 to get at first hand my impres^sion on that subject. The disagreement 

 about that matter has grown out of a disagreement as to what was 

 originally intended in the creation of this industrial hoard of the Depart- 

 ment of Commerce. 



My view of that matter was at the outset, and has been ever since, that 



the purpose for which that board was formed and the function which It 

 might be able to exercise with great value, was to endeavor to bring pro- 

 ducers of certain basic commodities, and the important purchasing agencies 

 of the government, together on a price so low that the government pur- 

 chasing agencies would feel justified in buying freely, and the railroad 

 administration, of course, was the principal purchasing agency of the 

 government. 



The thought underlying that arrangement was that if there would be 

 such a definite reduction in prices, with respect to some basic commodi- 

 ties, and steel, particularly, was in mind at the time, whereby the reduc- 

 tion would itself carry the conviction that it was a low price, and as low 

 a price as could be reasonably hoped for, that when the railroad adminis- 

 tration would be justified in going in and buying freely, even beyond its 

 immediate needs, so as to give its testimony to the country that it is its 

 honest judgment that it was such a low price as to justify active buying 

 on a large scale, and it was believed that it that was done, it would encour- 

 age buying generally and stimulate a resumption of business activity. 



Through the doubt as to the development of a committee of the in- 

 dustrial board views, or through a misconception of views on its part, it 

 seems it did not succeed, as to steel, in carrying out that view. On the 

 contrary, the matter seems to have developed along this line ; that there 

 was no hope of getting what could be regarded as a rock bottom price 

 for steel ; that the steel people were not willing to start on any such 

 basis : and if that were so, a different policy must be adopted, simply of 

 telling the public that it bad better buy at this high price, because the 

 committee had satisfied itself that a really low price would not be obtain- 

 able. In other words, what I understood, and what I am perfectly satis- 

 fied to stand on, on the record about the matter, is that the purpose was 

 to stabilize the price through bringing about a price so low as to carry 

 its own pr^Kif that it was one that would not be reduced. 



But what has. been done, is to try to stabilize prices through an effort 

 to make the public believe that there is no hope of getting a low price, 

 and forcing purchasers by an assurance that it has got to buy at a high 

 price. 



iNDiniSEMEXT OF PLAN NOT JUSTIFIED 



In my judgment, I was not justified, from the standpoint of the rail- 

 road administration, or from the standpoint of the American public, in 

 giving the railroad administration's endorsement to that plan. I was 

 not willing to say to the public of the United States that these high prices 

 which have been indicated must be adhered to throughout the calendar 

 year of 1919. I felt that to do that would be to start the activities after 

 the war on an unreasonably high basis, and that not only the railroad 

 administration as the purchaser of steel articles, but every manufacturer 

 and business man in this country, and every consumer in this country, 

 who has to purchase steel articles would be hampered, not only for the 

 time being, but for a long time in the future, by any such official endorse- 

 ment of prices that seem to be unduly high, and any such official assur- 

 ance that the public would have to buy at those prices, because it could 

 expect no lower prices. 



The industrial boanl made a further mistake in this matter. It was 

 supposed to be appointed to mediate between the purchasing agencies 

 of the government and the producers of these basic commodities and 

 simply to bring about by voluntary action, prices at which there could 

 be a free resumption of buying on a large scale by the government 

 agencies ; that through this development of its ideas it assumed that its 

 purpose was to indicate a price to the country, a nation-wide price ; and 

 its announcement with respect to steel was that the general public must 

 not expect to buy at a lower price than these high prices, thus sanctioned, 

 during the rest of this calendar year. . 



So, from every standpoint, there was a fundamental difference of con- 

 ception as to what was authorized and as to what was In the public inter- 

 ests, and I felt that I must take the responsibility either of giving the 

 official endorsement of the United States Railroad .Administration to high 

 prices and again leading the public to think that it must buy at those 

 prices, depriving the public of any effective argument to get lower prices, 

 or I had to take the responsibility of disagreeing with the industrial 

 board. 



It was a grave responsibility that confronted me, and I was perfectly 

 satisfied after careful consideration and after repeated investigation of 

 the subject by my advisors, with the industrial board, and with the repre- 



