The Expanded and Annotated My Life and Work

I am entirely without any disposition to pose as a railroad authority. There 
may be railroad authorities, but if the service 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 rail-
ways, 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 to manage railroads.
In a previous chapter on finance were set forth the dangers attendant upon 
the indiscriminate borrowing of money. It is inevitable that any one who can 
borrow freely to cover errors of management will borrow rather than correct 
the errors. Our railway managers have been practically forced to borrow, for 
since the very inception of the railways they have not been free agents. The 
guiding hand of the railway has been, not the railroad man, but the banker. 
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 con-
trolling 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 finan-
cial interests piled on load after load of securities until the structures grew 

---

The Railroads  •  205
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 banker is the lawyer. Such games as have been 
played on the railroads have needed expert legal advice. Lawyers, like bank-
ers, 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 to-day we find the railways 
hog-tied in a mass of rules and regulations. With the lawyers and the finan-
ciers 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.
We have had the opportunity of demonstrating to ourselves what a free-
dom from the banker-legal mortmain means, in our experience with the 
Detroit, Toledo & Ironton Railway. We bought the railway because its right 
of way interfered with some of our improvements on the River Rouge. We did 
not buy it as an investment, or as an adjunct to our industries, or because 
of its strategic position. The extraordinarily good situation of the railway 
seems to have become universally apparent only since we bought it. That, 
however, is beside the point. We bought the railway because it interfered with 
our plans. Then we had to do something with it. The only thing to do was to 
run it as a productive enterprise, applying to it exactly the same principles as 
are applied in every department of our industries. We have as yet made no 
special efforts of any kind and the railway has not been set up as a demon-
stration of how every railway should be run. It is true that applying the rule 
of maximum service at minimum cost has caused the income of the road to 
exceed the outgo—which, for that road, represents a most unusual condi-
tion. It has been represented that the changes we have made—and remember 
they have been made simply as part of the day’s work—are peculiarly revo-
lutionary and quite without application to railway management in general. 
Personally, it would seem to me that our little line does not differ much from 
the big lines. In our own work we have always found that, if our principles 
were right, the area over which they were applied did not matter. The prin-
ciples that we use in the big Highland Park plant seem to work equally well 
in every plant that we establish. It has never made any difference with us 

---

206  •  The Expanded and Annotated My Life and Work
whether we multiplied what we were doing by five or five hundred. Size is 
only a matter of the multiplication table, anyway.
The Detroit, Toledo & Ironton Railway was organized some twenty-odd 
years ago and has been reorganized every few years since then. The last reor-
ganization was in 1914. The war and the federal control of the railways inter-
rupted the cycle of reorganization. The road owns 343 miles of track, has 52 
miles of branches, and 45 miles of trackage rights over other roads. It goes 
from Detroit almost due south to Ironton on the Ohio River, thus tapping the 
West Virginia coal deposits. It crosses most of the large trunk lines and it is 
a road which, from a general business standpoint, ought to pay. It has paid. 
It seems to have paid the bankers. In 1913 the net capitalization per mile of 
road was $105,000. In the next receivership this was cut down to $47,000 per 
mile. I do not know how much money in all has been raised on the strength of 
the road. I do know that in the reorganization of 1914 the bondholders were 
assessed and forced to turn into the treasury nearly five million dollars—
which is the amount that we paid for the entire road. We paid sixty cents on 
the dollar for the outstanding mortgage bonds, although the ruling price just 
before the time of purchase was between thirty and forty cents on the dollar. 
We paid a dollar a share for the common stock and five dollars a share for the 
preferred stock—which seemed to be a fair price considering that no interest 
had ever been paid upon the bonds and a dividend on the stock was a most 
remote possibility. The rolling stock of the road consisted of about seventy 
locomotives, twenty-seven passenger cars, and around twenty-eight hundred 
freight cars. All of the rolling stock was in extremely bad condition and a good