On Dec. 4, 1932, the Wisconsin Central Railway declared bankruptcy. Despite a $5 million emergency advance from the federal Reconstruction Finance Corporation, the company was poised to default on $44 million in bonds.
It was the ninth railroad to seek reorganization since 1929, and its troubles were symptomatic of a once-mighty industry that had failed to adapt to a changing economy, and now faced a crisis as the Great Depression deepened.
Railroads had been in decline for decades. President Woodrow Wilson temporarily nationalized them during World War I to deal with catastrophic shipping errors. In 1920, the Transportation Act restored private ownership and charged the Interstate Commerce Commission with planning efficient consolidations, efforts that fell flat.
When the Depression hit, the railroads' traffic and revenue diminished as competition from the trucking industry -- which benefited from government funds for building and maintaining free roads -- increased. Facing high fixed costs and mandatory interest payments on bonded debt, railroad managers slashed expenses and made destructive rate cuts in a desperate attempt to square their accounts.
In 1932, with the industry's woes intensifying, the government once again stepped in.
President Franklin D. Roosevelt had called for national railway planning in a campaign speech, arguing that “in the post war era of political drift and private mastery, we have too often fumbled rather than grappled with the railroad problem." Now was the time to address it. "Every great economic interest in the nation requires the continuous efficient operation of the railroads," he said.
In September, a coalition of banks and insurance companies, holding half of the $11 billion in outstanding U.S. railway bonds, convened a National Transportation Committee to propose legislation to address the industry's problems. It was chaired by former President Calvin Coolidge and included investor Bernard Baruch and former New York Governor Alfred E. Smith.
In November, the "rail board" heard proposals for a radical revision of transportation laws, ranging from regulating trucking companies and the rates they set to charging all motor vehicles for their respective shares of highway costs. Others suggested buying unprofitable railway lines and transforming them into highways or integrating New England and Southern freight lines into a national grid.
By early December, rumor had it that the board was planning to pool railroad facilities, coordinate all transportation agencies and make other ambitious changes. Its members also "vigorously condemned" railroad executives "for not sooner having recognized that they were no longer a monopoly," the Wall Street Journal reported.
Quoting a Midwestern manufacturer, who noted that regional clients all demanded truck delivery, the paper warned that railways "would never get this business back from the competing transportation providers."
Railway managers proposed additional wage cuts, not structural reforms. But William Atterbury, the Pennsylvania Railroad’s president, took a broader view. A graduate of Yale University who had moved from railroad-shop work into management, Atterbury argued that coordination and innovation could restore profit.
Coordination would come through controlling competition and eliminating waste, he argued. Innovation meant finding new ways to integrate the railroads into a modern transportation system; the Pennsylvania Railroad, for example, had started long-hauling detachable truck bodies, which were then re-bolted to frames for final deliveries.
Ideas were bubbling at the rail board’s second round of hearings on Dec. 7, but how long would it take for the policy logjams of the past decade to be dislodged?
(Philip Scranton is a Board of Governors professor of the history of industry and technology at Rutgers University, Camden, and the editor-in-chief of Enterprise and Society. He writes "This Week in the Great Depression" for the Echoes blog. The opinions expressed are his own.)
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Philip Scranton at email@example.com