I took that matter up with the Association of American Railroads, and it then seemed that there might be an opportunity for such sales. The Chinese railroads had use for equipment such as would not be desirable for use on American railroads in hauling passenger traffic, particularly. The idea was to take some of this equipment which was practically ready for the scrapheap, so far as our railroads were concerned, and have it reconditioned and sold to the Chinese railroads. Of course that particular opportunity would not be open at the present time, I assume; and what happened to this one I cannot say. I got it up to a certain point; and what happened to it after that I do not know, and perhaps Mr. Pelley can tell you.

Senator ADAMS. We are dealing here with American railroads.

Mr. EASTMAN. I think the sticking point was in regard to the payment for the equipment.

With respect to subparagraph (d), I think I have heard some comment which indicated that it did have in mind that sort of thing—the purchase of equipment which is no longer useful on our railroads, and the sale to railroads in other countries which may have the desire to buy equipment of that character.

Senator ADAMS. Of course it goes even beyond that, to include the scrapping of the same for lease or resale.

Mr. EASTMAN. Yes.

Senator ADAMS. That does not do much to rehabilitate a railroad. Mr. EASTMAN. No. Well, I am not well informed in regard to just why that is desired.

In regard to this entire section 8, the question which is presented is that if you assume there is need for legislation for the further promotion of these acquisitions of railroad equipment, with the use of Government funds, is this section 8 adequate for the purpose, and also does go further than is necessary and desirable?

it

I think it is adequate, but I do believe that in certain respects it is unnecessarily and perhaps dangerously broad. In paragraph (a) you will note the words "To prepare plans and designs for the construction, rebuilding, or repair of railroad equipment."

Senator TOWNSEND. What page is that?

Mr. EASTMAN. That is page 12.

Senator ADAMS. Page 12, line 7.

Mr. EASTMAN. The designing of railroad equipment, of course, is a very technical matter, requiring men of great experience in such matters; and the Reconstruction Finance Corporation, I take it, is not at present equipped for any such thing, and would have to add materially to its staff before it would become equipped for such a purpose.

Furthermore, apparently there would be power in the Reconstruction Finance Corporation to buy equipment without any prior commitment on the part of a railroad that it is prepared to contract for and use that equipment. It seems to me that the bill should be so amended that the Reconstruction Finance Corporation will not be permitted to buy equipment except upon railroad specifications, and not upon specifications which it prepares itself, and only in the event that there is a firm commitment for the use of that equipment, by the railroad.

Senator TOWNSEND. Do you think that should be approved by your Commission?

Mr. EASTMAN. I do not think it is necessary. We are perfectly willing to have that in, if you think that is an additional safeguard; but the Reconstruction Finance Corporation is fairly well equipped, and has a railroad department at the present time.

Senator TOWNSEND. Mr. Jones indicated that he wanted other matters referred to you.

Mr. EASTMAN. We are not seeking that authority.

The CHAIRMAN. I think you should do it, whether the law required it or not.

Mr. EASTMAN. I am quite willing that we should have it.

I think there is special danger in giving the Government the r ght to go ahead and buy equipment on its own designs and without commitments, because of the rapidity with which improvements in railroad equipment are now being developed. Obsolescence is likely to be a much greater factor than in the past. Things are changing much more rapidly; and a locomotive or passenger car or freight car of particular design might in 5 years become out of date.

Senator TOWNSEND. Yes.

The CHAIRMAN. Another thought I had is this: I rather interpreted (a) to mean to provide standard plans. Now, you cannot have the same sort of plans and designs for each railroad, can you? Is there not an individuality about railroads, too?

Mr. EASTMAN. Of course that is one of the great questions, and one of the questions on which I have not been in entire agreement with the railroads. I think they can go much further in the direction of standardization than they have gone. I concede that they have to have different types for different purposes; but they have gone entirely too far in individuality, to such an extent that their locomotives and cars are in many cases almost custom-made. In other words, the equipment Company is a builder on a cost-plus basis, instead of being a manufacturer of equipment in which it gets the benefit of something like mass production.

I think there has been too much exercise of individuality with respect to much railroad equipment. However, that is a disputed point, on which I know my railroad friends do not entirely agree with

me.

Senator TOWNSEND. But it all has had a tendency to improve the type of equipment?

Mr. EASTMAN. Do you mean all that individuality?

Senator TOWNSEND. Yes; because you are talking about different models, and whichever is the best will survive.

The CHAIRMAN. Yes; competition.

Mr. EASTMAN. Well, my own opinion is that they have gone too far in that direction, and that they probably waste money in that way. The CHAIRMAN. Perhaps so. I thought it might be helpful competition, in competing to provide the best and most comfortable facilities for their passengers. You cannot standardize that, can you? Mr. EASTMAN. Well, you could to a certain extent; and if you could ever get these streamlined cars made in the same way that automobiles are made, you would tremendously reduce their price.

Senator GLASS. Mr. Commissioner, what is exactly the meaning of subsection (d) on page 11?

Mr. EASTMAN. Is that page 11 or page 12?

Senator GLASS. Page 11.

Mr. EASTMAN. That deals with a subject which I am not undertaking to discuss.

Senator ADAMS. Senator Glass, you have the same thing in subsection (f), at the top of page 13.

Senator TOBEY. Senator Barkley gave a definition of that the other morning.

Mr. EASTMAN. On page 13 I notice that there is a similar provision with respect to railroad equipment. I do not know why there is need for separate corporations in the States.

Senator MALONEY. I do not think much of that provision.

Mr. EASTMAN. That is all I have to say, Mr. Chairman, I believe. Senator TAFT. Mr. Eastman, another provision of this bill gives the Federal Government power to maintain and operate highway improvements, at least gives power to set up a complete Federal system of highways, which is in the nature of superhighways across the country. What effect would that have on the business of the railroads?

Mr. EASTMAN. If you charge tolls for them, the railroads might be no worse off than they are now, with the highways which now exist, on which no tolls are charged. The railroads are getting plenty of competition from those highways; and I should not think they would be any worse off with highways on which the user bad to pay tolls.

Mr. TAFT. Mr. MacDonald seemed to doubt the feasibility of the toll road. What do you think of the effect of free roads of that character on railroad traffic? What do you think the effect would be? Mr. EASTMAN. I think the more and better roads you have, the more competition by trucks and busses is facilitated. I think that goes without saying.

The CHAIRMAN. You are not making an argument against good roads?

Mr. EASTMAN. No, indeed. I do not claim to be an expert on roads, anyhow.

Senator TOWNSEND. Will you be able to comply with my request, to furnish that information about the white-leaded engines and freight cars?

Mr. EASTMAN. I shall do that.

I got this note; my secretary, who was here, called up our Bureau of Finance, and reports that since December 1, 1938, six applications for authority to issue equipment trust certificates have been approved, involving $13,000,000, and it is understood that the Missouri Pacific and Southern Pacific will shortly file requests for authority to issue about $10,000,000 of such certificates.

Senator TOWNSEND. But they did not give you the rates?
Mr. EASTMAN. No. I shall get that, if it is desired.

The CHAIRMAN. Are there any other questions of Mr. Eastman? Mr. EASTMAN. Mr. Pelley tells me that on July 1, 1939, there were stored, in good order, 2,999 locomotives and 200,010 freight cars in good order.

(The following statement was submitted by Mr. Eastman to be included in the record.)

STATEMENT OF J. J PELLEY, PRESIDENT, ASSOCIATION OF AMERICAN RAILROADS, WASHINGTON, D. C.

The CHAIRMAN. Please give the reporter your full name for the record.

Mr. PELLEY. My name is J. J. Pelley. I am president of the Association of American Railroads, located in Washington.

Mr. Chairman, I appear here at my own request to talk only about the railroad provisions of this bill, and particularly section 8, and, incidentally, to give the committee any information that I might be able to give them in connection with the railroad equipment proposal. We have thought that section 8 should be stricken out of the bill. That would probably require some revision of paragraph 3 of section. 4, on page 12.

We may have a wrong conception of what is intended here, but section 8 means to us that the Government intends to embark on a program of buying equipment and leasing it to the railroads; and that is not the way to do it, in our opinion.

The easy way and the most effective way of carrying out the purposes of this bill-and we are sympathetic with that is simply to put the money within reach of the railroads and let them come and get it. Senator ADAMS. You would not make them take it?

Mr. PELLEY. No. Let them buy their own equipment. Senator TOWNSEND. Has not Mr. Jones endeavored to do that? Mr. PELLEY. Mr. Jones has done that to a considerable extent. I remind you of the fact that the Congress, in 1933, I think it was, set aside some $200,000,000 for the purpose of buying railroad equipment, and most of that money was used.

As I understand this bill, the purpose is to stimulate the purchase of railroad equipment. In order to do that I am sure you are going to have to make the terms different from what they have been. Senator TOWNSEND. Mr. Jones has full authority to do that. Mr. PELLEY. Well, I think he has.

Senator TOWNSEND. Under the present law?

Mr. PELLEY. I would say, Senator Townsend, that my impression is as a layman, that he has; but I am not lawyer enough to pass on that.

But as an illustration of what happened with reference to the $200,000,000, the railroads came and got the money and Mr. Jones charged them 4 percent. He took their equipment trust notes and sold all of them, except about $5,000,000 to the public at a premium of about three and a half million dollars. So he was getting 4 percent for his money and then sold these equipment trust notes at a very nice profit. That is all right. The railroads were satisfied with that. We are not complaining about that. There was a time when a 4 percent equipment trust note was regarded as pretty good.

Senator TAFT. Is it not true that at the time those loans were made you had to pay high rates of interest, and that then the market improved so that the notes went up in value?

Mr. PELLEY. Exactly so.

Senator TAFT. He might have given them back to you.

Mr. PELLEY. I make no complaint about what has been done, but I do point out that conditions have so changed that I do not believe you are going to stimulate the purchase of equipment as you would