Library of Congress

By Michael A . Martorelli

In the opening months of 2024 , communities in Alabama , Georgia , New York , Nevada , Pennsylvania and Wisconsin became the latest to deal with the impact of a serious freight train derailment . Despite a continuing rash of such incidents , there has not been any serious proposal for a government takeover of the nation ’ s freight railroads . But that does not mean it could not happen . Indeed , it did happen — in December 1917 , when the private operators of the country ’ s railroads proved incapable of adapting that transportation system to handle the surge of traffic related to United States involvement in World War I . The story of that 26-month interruption in

The Railroads ’ War Board , 1918 . the control of what was then the nation ’ s largest industry is one worth revisiting as regulators and legislators try to come to grips with the unnerving string of serious freight accidents .

The country ’ s freight railroad system entered the 20th century in a position of financial strength and business dominance . However , many elements of society believed it owed its position to a series of abusive techniques the companies had long been practicing . From 1906 to 1913 , a series of judicial decisions and legislative actions strengthened the ability of the Interstate Commerce Commission ( ICC ) to deal with the industry ’ s most anti-competitive activities . That agency did recognize the railroad operators ’ right to earn a fair rate of return on their capital investments . However , it tended to grant rate increases that were smaller than requested and only after extensive deliberation and delay . Throughout the period , most state legislatures were also enforcing various regulations of rate structures , operating practices , safety requirements and financial policies . By early 1914 , the railroad industry and its regulators appeared to have reached a sense of effective ( but not perfect ) equilibrium in balancing the public character of the industry with the private rights of its owners .

The ICC granted minimal ( and delayed ) rate increases in different geographic regions from mid-1913 to mid-1914 . Nevertheless , the railroad industry suffered along with the rest of the industrial economy in the recession that hit the country upon the outbreak of fighting in Europe . Companies found it harder to cover increasing labor expenses and make the necessary investments to repair or replace rolling stock and trackage . Industry income decreased by 11 %. Most companies ’ lower profitability levels made it more difficult to raise new capital and service their existing debt structure .

The industry ’ s financial picture

34 FINANCIAL HISTORY | Spring 2024 | www . MoAF . org