It is evident that some progress is being made upon this question, as Mr. Walker admits that "the fortunes which have been made are seen to have been the result of dealings in stocks and in t.i.tles, the consequences of which, if involving wrong, are rightly charged against the lax legislation which has made such operations possible." "Every person seeking for the services of a common carrier is ent.i.tled to know that he is charged no more than his neighbor who obtains the same service under the same conditions." "The theory that any unjust discrimination or unjust preference or advantage in respect to individuals, communities or descriptions of traffic must be suppressed by the State, has become firmly lodged in legislation." This improvement in the sentiment of railroad men is gratifying.

This gentleman, as has already been stated, was for several years a member of the Interstate Commerce Commission, a board created by Congress for the special purpose of enforcing the law which he so unreservedly condemns. No doubt Mr. Walker performed the duties of his office as he understood them; but if he held then the views which he holds now, his work must have been a hindrance rather than a help to the commission.

Among financial journals, so many of which are devoted to the support of vicious and demoralizing methods, and are ever ready to defend whatever is bad in corporation management, it is refreshing to find occasionally one that exposes abuses and favors the earning of legitimate dividends, and it is a pleasure to quote the following from the June number, 1892, of the _Banker's Magazine_:

"There are two widely differing theories concerning the management of railroads in this country; one theory is that profits should be acquired from fluctuations in the stock, and the other is that the profits should be acquired in the old-fashioned way, by performing a useful service and receiving a reward therefor, to be divided among the stockholders in the way of a dividend. These two theories are so different in their practical operation that they give rise to the most diverse consequences. Of course, many railroads are not dividend-earning, and with these the profits to the managers and those who are allied with them must come from stock fluctuations and from whatever sucking arrangements can be devised whereby their vitality or sustenance can be acquired by the favored few who are in control. Unfortunately, there are many railroads in this condition, the history of which is too well known to require description. Once in control, the way is easy to retain it and to make money by a thousand devices which ingenious and unscrupulous managers are constantly planning and putting into operation.

"The consequences of the other theory are as different, both to the corporate property and to the public, as can be imagined. When a railroad is properly managed and earning dividends, a policy of development is adopted, having for its end the natural expansion of the property in harmony with the growth of the country, the needs of business and the desires of the people. The fruits of such a policy may not be apparent at once, but they inevitably come, and, when they are reaped, are enjoyed and appreciated by all. Only by such a policy can our roads ever become great, commanding the confidence of the people, and fulfilling their highest uses; in short, only by such a policy can a railroad be brought to a high degree of perfection.

"The difference is clearly seen by contrasting a road of this character with one that is run by the Wall Street method for stock-jobbing purposes. By this method dividends are not regarded as of so much consequence to investors as an instrument or argument for affecting the value of the stock. In other words, if a dividend is earned and paid at all, it is chiefly as an instrument or agency for stock-jobbing purposes, and not because the road is managed primarily for this purpose. Furthermore, dividends, too often, are disregarded altogether, as well as any policy of permanent improvement or of general development. The cardinal idea always is, how can the road be maintained and manipulated so as to cause the largest variations in the stock and the most money for the managers?

"Too many managers, as is well known, have made great sums for themselves and built additions long in advance of their means, and have seriously crippled their corporations by so doing. But they have made fortunes for themselves. What the great majority of mankind consider is the immediate present, and not the future.

"It is undoubtedly a hard thing for those who are conducting their corporations in an honest and able manner, for the benefit of their owners, to keep still while their enemies are pounding them and glorifying those who are managing their corporations for personal and corrupt ends; but all cheap and false practices must finally lead to disaster. We hear a great deal of this kind of thing nowadays. One of the evil effects of speculation and newspaper reading is, that people have got in the way of not thinking much for themselves; of regarding as truth whatever is printed, and of not opening their eyes wide enough to discover the shallowness of the reasonings and falsehoods that are put forth at the behests of speculators, or of those who are managing corporations for speculative purposes. The American people have had an amazing experience in losses from following advice thus plentifully and freely given; nevertheless, there seem to be persons left who are willing to listen and fall into the old ways and be trapped, as so many others have been in the past. There is a considerable cla.s.s, having means and nothing to do, who perhaps might just as well lose their money in poker, railroad or grain speculation as in any other way, for this furnishes about the only source of amus.e.m.e.nt to them; but, after all, there is no reason why railroads should be managed so exclusively for the amus.e.m.e.nt of this cla.s.s. The time is coming, and probably is not far off, when they will get enough of it; and railroad investors will conclude that dividends for themselves are better than profits for speculators; and when they do, all stock-jobbing managers will be consigned to the limbo which is their proper destination."

This magazine is edited by Mr. Albert S. Bolles, author of several excellent financial works. We are much indebted to him for the sound banking system which we now have, and which has contributed so largely to the unexampled prosperity which this country has enjoyed for the last thirty years.

Our national banking system ill.u.s.trates well how service able the corporation may be to a people when its use is restricted by wholesome laws to the performance of its proper functions.

The old United States Bank was organized for practically the same purposes as our present national banks, but for lack of proper restrictions its use was soon perverted to ign.o.ble purposes. The bank managers showed so much partiality in the distribution of their favors and accommodations, and meddled in politics to such an extent, that the people became disgusted with it, and a renewal of its charter was refused.

Mr. Clay clearly saw how dangerous a great money power might become to our country, and, in opposing the extension of the bank's charter, said:

"The power to charter companies is one of the most exalted attributes of sovereignty. In the exercise of this gigantic power we have seen an East India Company created, which is in itself a sovereignty, which has subverted empires and set up new dynasties, and has not only made war, but war against its legitimate sovereign! Under the influence of this power we have seen rise a South Sea Company, and a Mississippi Company, that distracted and convulsed all Europe, and menaced a total overthrow of all credit and confidence, and universal bankruptcy."

Can we afford to ignore the lessons of history?

Mr. Henry Clews makes some spicy and pertinent observations on railroad men's methods in an article which recently appeared in the _Railway Age_. Mr. Clews seems to have but little confidence in the average railroad director. He advises stockholders to exercise constant vigilance and defensive conservatism, "lest they become the instruments by which unscrupulous and crafty directors work out schemes that are in reality nothing but frauds or robbery." And then he adds:

"In estimating corporate acts we must never forget that, while the best of men will bear watching as to their individual dealings with others, they need to be doubly watched when they sit around a corporation board and vote as to transactions in respect of which none of them can be called to personal account. Temptations attack with enormous force when the gains are prospectively great and the risk of penalty inappreciable or non-existent."

Mr. Clews also tells us how roads are wrecked by their boards of directors. "In one case," he says, "the stock of a leading railway, which in 1880 sold at 174, in 1884 sold at 22-1/2, and in 1885 at 22.

This vast shrinkage of value was not owing to panic or to stringency of money, nor did it arise from a diminution of traffic on the original line; but it was because consolidation had been pushed to an extreme by the directors of the corporation, so much so that the entire system yielded no dividends; a fleet and useful animal had been loaded down with dead wood and rubbish till he could scarcely crawl; barren acres had been added to an originally fruitful farm until the whole estate could hardly pay taxes; a ma.s.s of rotten apples had been thrown into the measure with sound fruit, and buyers refused the whole as a mere heap of corruption. And it was generally believed that the men who perpetrated this mischief under the names of 'construction,' 'requisite consolidation,' 'absorption of necessary branches,' etc., had made a great deal of money by it and had not made it honestly. But it was all done pursuant to legal forms and by boards of directors, so that the defrauded stockholders were without remedy."

Mr. Clews then gives us a more detailed account of the way in which branch roads are built and absorbed, viz.:

"Given a useful, well constructed, dividend-paying road, a body of people with some capital and political influence, aided by some of the directors of this prosperous line; construct a branch road to some outside point; the more important such point the better, but that is of small consequence. The road gets itself built; it is bonded for more than it cost, and it cost twice as much as it ought, since the constructors were all together in the ring and have favored each other. Then the capital stock is fixed at so much, and this is mostly distributed among the constructors. The road then, swelled to a fict.i.tious price of three or four to one, and not worth anything to start with, is ripe for absorption and consolidation. Its directors and those of the main line meet, confer and vote the measure through. They all profit by it, more or less, but their profits are enormously in excess of the trifling losses due to the shrinkage of values of the shares of the main line. A director of the main line may perhaps lose $20,000 on a thousand shares, but what is this when compared to a gain of hundreds of thousands in his holdings of the branch road, whose liabilities are a.s.sumed by his victimized corporation? And such a director would not be equal to the demands of his covetousness if he had not sold thousands of shares short, in antic.i.p.ation of the fall which the transactions of himself and his a.s.sociates were inevitably bound to produce."

Mr. Clews concludes his article with the following pa.s.sage:

"The profits realized on the speculative constructions are enormous and have const.i.tuted the chief source of the phenomenal fortunes piled up by our railroad millionaires within the last twenty years. It is no exaggeration to characterize these transactions as direct frauds upon the public. They may not be such in a sense recognized by the law, for legislation has strangely neglected to provide against their perpetration; but morally they are nothing less, for they are essentially deceptive and unjust, and involve an oppressive taxation of the public at large for the benefit of a few individuals who have given no equivalent for what they get. The result of this system is that, on the average, the railroads of the country are capitalized at probably fully 50 per cent. in excess of their actual cost. The managers of the roads claim the right to earn dividends upon this fict.i.tious capital, and it is their constant effort to accomplish that object. So far as they succeed they exercise an utterly unjust taxation upon the public by exacting a compensation in excess of a fair return upon the capital actually invested. This unjust exaction amounts to a direct charge and burden on the trade of the country which limits the ability of the American producer and merchant to compete with those of foreign nations and checks the development of our vast natural resources. In a country of 'magnificent distances' like ours the cost of transportation is one of the foremost factors affecting the capacity for progress; and the artificial enhancement of freight and pa.s.senger rates due to this false capitalization has been a far more serious bar to our material development than public opinion has yet realized.

The hundreds of millions of wealth so suddenly acc.u.mulated by our railroad monarchs is the measure of this iniquitous taxation, this perverted distribution of wealth. This creation of a powerful aristocracy of wealth, which originated in a diseased system of finance, must ultimately become a source of very serious social and political disorder. The descendants of the mushroom millionaires of the present generation will consolidate into a broad and almost omnipotent money power, whose sympathies and influence will conflict with our political inst.i.tutions at every point of contact. They will exercise a vast control over the larger organizations and movements of capital; monopolies will seek protection under their wing, and by the ascendancy which wealth always confers they will steadily broaden their grasp upon the legislation, the banking and commerce of the nation."

These are strong words, but they come from a man whose thirty years'

experience in Wall Street enables him to speak intelligently upon this subject and who certainly cannot be accused of being prejudiced against railroad men or corporate investments. In a recent number of his _Weekly Financial Review_ Mr. Clews said of the railroad stock market:

"Judgment pa.s.ses for little in estimating the future of many securities, for the market is almost wholly under the control of comparatively few persons, whose operations must inevitably influence the value of thousands of millions of stocks and bonds. Never in the history of Wall Street was the value of such an enormous aggregation of securities so absolutely under the control of so small a circle as at this time. Such a state of affairs cannot be considered satisfactory; hence not only is speculation likely to be unhealthily stimulated, but the future of these combinations gives birth to a variety of uncertainties which, while they may elevate prices, will certainly not add to their stability."

If the silly claim of railroad men, that Western people do not invest in railroad securities on account of their unprofitableness, needed any answer, the above words would furnish it.

The May, 1893, number of the _North American Review_ contains an article ent.i.tled "A Railway Party in Politics," by Mr. H. P. Robinson, editor of the _Railway Age_. Mr. Robinson belongs to that cla.s.s of reformers who can see but one side of a question, and only a short-sighted view of that. He is as zealous as a new convert, and is expert, in the ward politician's way, in defense of the worst abuses practiced by railway men. He says:

"That the right to 'regulate' the railways, which is vested in the State, has now been carried in the West to a point not only beyond the bounds of justice, but beyond its const.i.tutional limits, and that it would soon be impossible for any railway company in the West to keep out of bankruptcy unless some vigorous and concerted action were taken to arouse public opinion, and to compel a modification of the present policy.

"It is easy to see how much strength such a party, if formed, would possess. According to the reports of the Interstate Commerce Commission there were in the immediate employ of the railways of the United States a year and a half ago 749,301 men, all or nearly all voters, which number has now, it may be a.s.sumed, been increased to about 800,000.

There are, in addition, about one million and a quarter shareholders in the railway properties of the country; and in other trades and industries immediately dependent upon the railways for their support there are estimated to be engaged, as princ.i.p.als or employes, over one million voters more. These three cla.s.ses united would give at once a ma.s.sed voting strength of some three millions of voters. There are also, in the smaller towns especially, and at points where railway shops are located, all over the country, a number of persons, small tradesmen, boarding-house keepers, etc., who are dependent for their livelihood on the patronage of railway employes, and whose vote could unquestionably be cast in harmony with any concerted employes' movement.

Moreover, unlike most new parties, this party would be at no loss for the sinews of war or for the means of organization.

The men whom it would include form even now almost a disciplined army. With them co-operation is already a habit.

While the financial backing and the commercial and physical strength of which the party would find itself possessed from its birth would be practically unlimited....

"For the present it seems to them better to believe that the people--those people who are not railway men--are acting now only in ignorance, and that as soon as they see the truth they will, by their own instinctive sense of justice, re-mould their opinions and their policy without political coercion.

"At the same time there has already come into existence in some of the Western States a movement which has its significance and its practical influence. This is what is called the Railway Employes' Club movement. It started in Minnesota, at a small meeting of railway employes held in Minneapolis in 1888. From that meeting the movement grew, and made a certain feeble effort, not entirely unsuccessful, to influence the State election in the fall of that year. By the State election of 1890 the movement had grown and was better organized, and the Employes' Club did exercise considerable influence in the election of certain of the State officers and certain members of the State legislature in that year.

"From Minnesota the movement spread to Iowa, and there is no contradiction of the fact that the railway employes' vote was one of the strongest forces in the State election of the fall of 1891. It also overflowed into Kansas, Nebraska, Missouri and Texas. Had the election of last November been normal it is probable that the effect of the Railway Employes' Club vote would have been as visible in two or three of those States then as it had been in Iowa in the preceding year. But in the deluge which occurred all trace of the smaller streams and currents was obliterated. Had the members of the clubs not taken the precaution to do considerable work in the local nominating conventions of both parties they would be compelled to confess that their campaign of 1892 was a failure....

"So far the clubs have admitted and will admit of no negotiations with the State committees of other parties.

They hold their own meetings and decide for themselves that such and such a candidate is inimical to their interests as railway employes, and such and such a man is their friend.

Then they go to the polls and vote--voting in the main their normal party ticket, scratching only a man here and a man there, their attention being chiefly centered upon members of the boards of railroad commissioners and of the State legislatures.

"In Minnesota in 1890 their weight was thrown chiefly in favor of Republicans. In Iowa in 1891 it was given to Democrats. In all States the men whom they oppose are those who have made themselves conspicuous as 'Granger' and anti-railway politicians. The keynote of the movement and the one plank in the platform of the clubs is that the extreme anti-railroad legislation of late years has reduced the earnings of the companies to a point at which they are unable any longer to keep full forces on their payrolls or to pay such wages as they should, and that by this legislation the railway employes are necessarily the immediate sufferers....

"A railway party is therefore already in existence.... And moreover, though accidentally only, it is working forcibly in behalf of railway interests as a whole....

"Meanwhile Mr. A. F. Walker, the chairman of the Joint Committee of the Trunk Line and Central Traffic a.s.sociations, prophesies that if things go on as they are going now, before long 'the managers of the railways will be chiefly receivers.' In the year 1891 receivers were appointed for twenty-six companies in the United States, representing $84,479,000 of capital, and twenty-one companies, with 3,223 miles of road, with a capitalization of $186,000,000, were sold under foreclosure.

"It is doubtful whether the result which Mr. Walker foretells would be regarded as a calamity by the 'uninformed public opinion of the West.' That Minnesota railroad commissioner was quite sure of the public applause before he made his cla.s.sic declaration that he proposed to 'shake the railroads over h.e.l.l' before he had done with them, and the Governor of Iowa, who announced that he did not care if 'every d--d railroad in the State went into bankruptcy'

before the expiration of his term of office, knew that the sentiment would have the sympathies of his const.i.tuents.

This att.i.tude of the Western mind is, of course, largely explained by the fact that the people of the West do not as a rule own railway securities. In two States (the only two in the West in which, so far as I am aware, the figures have been compiled) out of 27,645 stockholders in the lines within the State borders only 359 are residents of the States. If the other 27,286 were also residents of these States (that is to say, if 27,286 of the present residents were also stockholders in the railways), it is probable that the ferocity of the public opinion in these States against railways would be materially modified."

It is evident that Mr. Robinson has not been as successful in organizing small tradesmen, boarding-house keepers, employes and shareholders into a new party as he contemplated, notwithstanding "it was at no loss for the sinews of war."

He attempts to show that this movement originated with the employes, but it is too well known that the employes who organized the movement were under pay of the railroad companies and received their instructions from the railroad managers. The statement which Mr. Robinson attributes to the Governor of Iowa undoubtedly originated in the mind of one who is laboring to modify the ferocity of "the uninformed public opinion of the West." No Governor of Iowa ever made any such statement, nor ever entertained any such sentiment. It is a sheer fabrication.

There are a number of standard text-books of law which are indispensable to the student of railroad questions desiring to go back to first principles. Only a few of them can be mentioned here.

I. F. Redfield, in his "Law of Railways," says concerning the necessity for railroad supervision:

"Railways being a species of highway, and in practice monopolizing the entire traffic, both of travel and transportation, in the country, it is just and necessary and indispensable to the public security that a strict legislative control over the subject should be constantly exercised."

Regarding the original character of the railway as a common highway, Redfield says:

"The Railways Clauses Consolidation Act provides, in detail, for the use of railways by all persons who may choose to put carriages thereon, upon the payment of the tolls demandable, subject to the provisions of the statute and the regulations of the company. The view originally taken of railways in England evidently was to treat them as a common highway, open to all who might choose to put carriages thereon. But in practice it is found necessary for the safety of the traffic that it should be exclusively under the control of the company, and hence no use is, in fact, made of the railway by others."

As to the questionable financial expedients so frequently resorted to in building American railways, this author says:

"This is not the place, nor are we disposed, to read a homily upon the wisdom of legislative grants, or the moralities of moneyed speculations in stocks on the exchange or elsewhere. But it would seem that legislation upon this subject should be conducted with sufficient deliberation and firmness so as not to invest such incorporations with such unlimited powers as to operate as a net to catch the unwary, or as a gulf in which to bury out of sight the most disastrous results to private fortunes, which has justly rendered American investments, taken as a whole, a reproach wherever the name has traveled."

The opinion is expressed in this work that under certain circ.u.mstances railroad securities should be aided by State credit, and is supported by the following argument: