The Railroad Builders Part 3

After reaching his destination Gould became so ill that he could not return to New York, though he managed to go to the Capitol in a driving snowstorm. Here he became rapidly convalescent, as did also many members of the Legislature. Members, indeed, who had been too sick or too feeble to attend the legislative sessions during this cold winter suddenly found their health returning and flocked to Albany on the fastest trains. Gould stayed in Albany until April, and by this time a remarkable change had come over the mentality of a majority of the legislators. On the 13th of April a bill was presented in the Senate which met the approval of the Erie interests and which Judge Barnard afterwards designated as a bill for legalizing counterfeit money. This bill, which was pa.s.sed after due debate, legalized the issues of Erie bonds and stocks which had been put out by Drew; it provided for the guaranty of the bonds of connecting roads as desired by Drew; and it forbade all possible contracts for consolidation or division of receipts between the Erie and the Vanderbilt roads, a provision also desired by Drew. In fact it was the same bill in different form that had been voted down so decisively a short time before.

But the real tug of war was to get the bill through the lower House.

Fabulous stories were told of money which would be expended and the market quotations for votes never soared so high. Then, at the critical moment, Vanderbilt surrendered, made a secret deal with his foe, and withdrew his opposition to the bill. The anger of the disappointed grafters and vote-sellers knew no bounds, and they immediately set to work pa.s.sing other bills which they felt would annoy or injure Vanderbilt, with the hope that he would still be induced to give them what they regarded as their rightful spoils.

The details of this settlement between Drew and Vanderbilt were not announced until some months afterward. By the terms agreed on Vanderbilt was relieved of 50,000 shares of Erie stock at 70, payable partly in cash and partly in bonds guaranteed by the Erie, and received $1,000,000 in cash for an option given the Erie Railroad to purchase his remaining 50,000 shares at 70 within four months, besides about $430,000 to compensate his friends who had worked so heroically for him. This total sum of nearly $5,000,000 no doubt represented part of the "slush fund"

which Drew expected that the company would have to give up to the venal legislators, and it was therefore no hards.h.i.+p to hand it over to Vanderbilt instead.

As a part of the general settlement the Boston interests were relieved of their $5,000,000 of largely worthless bonds of the Boston, Hartford and Erie Railroad, for which they received $4,000,000 of Erie securities. Thus in all about $9,000,000 in cash or securities was drawn out of the Erie treasury in final settlement of this great stock market manipulation. And this does not include the pickings of Gould and Fisk and the smaller fry, of which there is no official record. But that these gentlemen did not go empty-handed there is not the shadow of a doubt!

The sensational stock-market deal between the Drew and Vanderbilt interests was but a truce, however, and did not settle the troubles of the Erie. Jay Gould was now becoming a dominating factor and in October of 1868 was chosen president. The various stock-market struggles that ensued from the ascendency of Jay Gould to the receivers.h.i.+p of the Erie in 1875 is a long and intricate tale. Suffice it to say that the events were generally similar to those already recounted--stock-market corners, over-issues of bonds and stocks, injunctions, court orders, arrests, legislative bribes. Less than a week after his election Jay Gould frankly announced that the company had just issued $10,000,000 of convertible bonds and that a third of these had already been converted into stock. He further announced that the company now had $60,000,000 of common stock outstanding, whereas the public had understood that it was only $45,000,000.

During the few years that followed, the poor Erie was systematically looted. Millions were wasted in New York real-estate speculation, and the company's money was used in the erection of the Grand Opera House on Twenty-third Street, to which the executive offices of the Erie Railroad were moved. Finally the new ring, comprising as leading spirits Jay Gould and James Fisk, Jr., eliminated Daniel Drew and left him high and dry without a cent, through a new stock corner. About this time the road was financially on its last legs, and Jay Gould was appointed receiver.

This started further litigation which dragged on for several years until, in 1874, Gould was turned out by General Daniel E. Sickles in combination with the English shareholders. The new interests, when they finally got control, elected an entirely new management and made H. J.

Jewett, a practical railroad man, president. But the Erie was already bankrupt, and not much could be done toward saving the situation. In May, 1875, the road confessed inability to meet its obligations, and Jewett was appointed receiver.

It was three years from the date of the receivers.h.i.+p before the Erie property was taken out of the hands of the courts. In April, 1878, a new company, the New York, Lake Erie and Western Railroad, took over the property; Jewett was elected its president, and a new chapter in the history of the property began.

Had the reorganization of the Erie been drastic enough, the road might not so soon have fallen into financial difficulties again, for it owned valuable coal lands in Eastern Pennsylvania and rapidly increased its earnings in this region. Moreover the extension of the system westward should have increased its earning capacity. Up to this time the Erie had no Chicago connection and was at an obvious disadvantage compared with its compet.i.tors. It improved this situation in 1881 by acquiring the New York, Pennsylvania and Ohio, and the franchise of the Chicago and Atlantic Railway. Two years later it obtained control of the Cincinnati, Hamilton and Dayton and found itself in a position in which it could compete for through traffic with the Pennsylvania and the New York Central.

But in carrying through these extensive plans, the Erie again became involved in financial difficulties; the sensational Grant and Ward failure in Wall Street in 1884 was a severe blow to the company's credit, as this firm was at that time doing important financing for the Erie. The English security holders stepped to the front again, demanded President Jewett's resignation, and elected John King in his stead.

In 1885 and 1886 a financial readjustment took place, but the company continued to carry the bulk of the heavy load of obligations which had been created during the years of the Drew and Gould managements. It was surely an evidence of the inherent worth of the property that during the half dozen or more years following, the Erie succeeded in struggling along in the face of all its financial and other handicaps and at the same time showed substantial growth in the volume of its business. The company was kept above water until 1893 without again appealing to the courts; but by that time the indebtedness had once more mounted, and in July of that year Erie receivers were appointed for the fourth time in its history.

The name of Pierpont Morgan is closely identified with the story of the railroad during this latest reorganization period. Morgan's firm came to the front in 1894, with the powerful backing of the large English interests, and proposed a plan which involved heavy sacrifices by many of the security holders but which was designed to insure the permanent future of the property. The plan was vigorously opposed, however, by Edward H. Harriman, August Belmont, and other powerful interests, and it was not until August, 1896, that a final compromise was effected and a reorganization was carried through. But at last the Erie was taken out of receivers.h.i.+p, and an entirely new company, intelligently designed and having ample working capital for future development, was formed with E.

B. Thomas at its head. This new president, like Daniel Willard of the Baltimore and Ohio and many of the modern railroad leaders, was a practical railroad man who had worked up from the ranks and who had no large financial interest or banking connections to divert his attention from the real business of management. Under Thomas, who remained at the head of affairs from 1896 to 1900, the Erie made substantial progress.

The system was solidified and its territory was more uniformly and systematically developed. In 1898, the Erie secured control of the New York, Susquehanna and Western system, gaining thereby an important branch to Wilkesbarre; and in 1901 it purchased jointly with the Lehigh Valley Railroad the stock of the Pennsylvania Coal Company of which the Erie later became sole owner. The real achievement of the Thomas administration was the development of the property as a heavy carrier of anthracite coal. On the financial side during this period the credit of the House of Morgan, intelligent administration, and modern methods did much to improve the reputation of the Erie and enable it to live down its bad inheritance.

In 1901 Frederick D. Underwood succeeded Thomas. Like his predecessor, Underwood represented the modern type of railroad president--a hard-working, eminently practical big business manager of great executive talent. Underwood's idea was to make the Erie a great freight-carrying system by developing its tonnage and its freight capacity in every way possible. Consequently he favored opening up the property more extensively in the soft coal fields of Ohio and Indiana, reconstructing roadbeds, laying extra tracks, and eliminating grades and curves.

The history of the Erie Railroad ever since 1901 has been a record of progress. During these years the system has been practically rebuilt.

It now has a double track from New York to Chicago; it has extensive mileage in the soft coal regions of Ohio and Indiana, and its soft coal tonnage today far overtops its tonnage of anthracite coal; its train load averages far higher than that of the New York Central or of any other Eastern trunk lines except the Pennsylvania; its steep grades throughout New York State have been for the most part eliminated, and many short cuts for freight traffic have been built.

In carrying through these extensive developments in fifteen years the Erie has spent hundreds of millions of dollars. More money indeed has been used legitimately for improvement and development since the reorganization of 1896 than during the previous sixty years of its existence. Of course this outlay has meant that the Erie has had to create new mortgages and borrow many millions; but a large part of the expenditure for improvement has come directly from earnings. The Underwood administration has been conservative in paying dividends and the stockholders grumble. But the Erie is at last coming into its own.

Instead of being a speculative football and a hopelessly bankrupt road, as it was for nearly forty years, it is now in the forefront of the great trunk lines of the eastern section of the United States. It is no longer, what it was called for many years, the "scarlet woman of Wall Street," but is a respectable member of the American railroad family.

CHAPTER V. CROSSING THE APPALACHIAN RANGE

The story of the Baltimore and Ohio Railroad takes us back more than ninety years. When the scheme for the construction of a railroad from Baltimore to the waters of the Ohio River first began to take form, the United States had barely emerged from the Revolutionary period. Many of the famous men of that great day were still living. John Adams and Thomas Jefferson had been dead only a year; Madison and Monroe had recently retired from public life; John Quincy Adams held the office of President, and the "reign" of Andrew Jackson had not yet begun.

At this time steam navigation on the rivers was only in its beginnings, but no one could doubt that it would come into general use. Two decades had pa.s.sed since the Clermont had been launched on the Hudson by Robert Fulton, and steamboats were now carrying cargoes successfully against the swift currents up the Mississippi from New Orleans and were threatening the extinction of the aggressive flatboat traffic. Great strides had also been made in the construction of turnpike roads. The famous National Pike from c.u.mberland to Vandalia, Illinois, had been in large part completed and had done much for the opening up of the Western territory.

Ca.n.a.l building was likewise an extensive development of this period. The idea of connecting the waters of the Chesapeake with those of the Ohio had been broached by George Was.h.i.+ngton before the Revolution, and he had also prophesied the union of the Hudson and Lake Erie by ca.n.a.l. He believed that a country of such great geographical extent as the United States could not be held together except by close commercial bonds.

The opening of the Erie Ca.n.a.l to New York in 1825 stimulated other cities on the Atlantic seaboard to put themselves into closer commercial touch with the West. This was especially true of the city of Baltimore.

A ca.n.a.l connecting Chesapeake Bay and the Ohio River was advocated to protect the trade of Baltimore and the South from the compet.i.tion of New York and the East which would inevitably result from the construction of the Erie Ca.n.a.l and the Public Works of Pennsylvania. But discouragements in plenty frustrated the plan. The cost was believed to be excessive and the engineering difficulties were said to be almost insuperable. George Bernard, a French engineer, was of the opinion that the high elevations and scarcity of water along the route would prevent such a ca.n.a.l from having much practical value. For these reasons Baltimore believed that its position as a center for the rapidly developing Western trade was slowly but surely slipping away.

This was the situation that led to the building of the Baltimore and Ohio Railroad. Two men--Philip E. Thomas and George Brown--were the pioneers in this great undertaking. They spent the year 1826 investigating railway enterprises in England, which were at that time being tested in a comprehensive fas.h.i.+on as commercial ventures. Their investigation completed, they held a meeting on February 12, 1827, including about twenty-five citizens, most of whom were Baltimore merchants or bankers, "to take into consideration the best means of restoring to the city of Baltimore that portion of the western trade which has lately been diverted from it by the introduction of steam navigation and by other causes." The outcome was an application to the Maryland Legislature for a charter for a company to be known as "The Baltimore and Ohio Railroad Company" having the right to build and operate a railroad from the city of Baltimore to the Ohio River. The formal organization took place on April 24, 1827, with Philip E. Thomas as president and George Brown as treasurer. The capital of the proposed company was fixed at five million dollars.

The construction of the railroad began on July 4, 1828. The venerable Charles Carroll of Carrollton, then more than ninety years old and the only surviving signer of the Declaration of Independence of fifty-two years before, said on this occasion, as he laid the first stone: "I consider this among the most important acts of my life, second only to my signing the Declaration of Independence." His vision was indeed prophetic.

It was determined that the first section of road constructed should extend to Ellicott's Mills, twelve miles distant, but, owing to delays in obtaining capital, the actual laying of the rails was not begun until the fall of 1829, and this first section was not opened for traffic until May 22, 1830. At first, experiments were made with sails for propelling the cars, but it was soon found that a more effective source of power was supplied by mules and horses. The Flying Dutchman, one of the cars devised to furnish motive power, provided for the horse or mule a treadmill which would revolve the wheels and make the distance of twelve miles in about an hour and a quarter. Steam locomotives at this time were in their infancy and, until the opening of the Liverpool and Manchester Railroad in this same year, they had attained a speed of only six miles an hour. Horses and mules, and even sail cars, made more rapid progress than did the earliest locomotive. In spite of these crude and primitive facilities for transportation, however, the traffic on the new railroad was of large volume from the beginning, and the company could not handle the amount of merchandise offered for transport in the first months.

Construction was now rapidly pushed ahead, and by 1832 the whole line had been opened to Point of Rocks, with a branch to Frederick, Maryland, making seventy-two miles in all. In 1831, steam locomotives were tested, and one of them, the York, was found capable of conveying fifteen tons at the rate of fifteen miles an hour on level portions of the road. This achievement was regarded as a great triumph, and in 1832 the directors of the road called attention to "the great increase in velocity" that had been obtained in this way.

From this time forward the expansion of the railroad proceeded with a certainty born of success. A branch was built to Was.h.i.+ngton and the main line was extended to Harper's Ferry. Beyond this point construction was slow because financial difficulties stood in the way, and it was not until after the panic of 1837 that further aggressive building began.

But by 1842 the line was completed to c.u.mberland, Maryland, and by 1853, to Wheeling. Meanwhile, the branch from c.u.mberland to Parkersburg, Virginia, was built. The road now comprised a total system of more than five hundred miles and reached two points of importance on the Ohio River, one northward near the Pennsylvania-Ohio state line and one southward in the direction of Cincinnati. The Parkersburg extension was of great importance because it opened a through route to St. Louis, by means of the Cincinnati and Marietta Railroad--which was at this time completed from Cincinnati to Belpre, Ohio, opposite Parkersburg--and the Ohio and Mississippi, which extended more than three hundred miles from St. Louis to Cincinnati.

Times were not the best, however, and, although much traffic was developed, the immense cost of the extensions heavily burdened the Baltimore and Ohio Company, while the panic of 1857 seriously embarra.s.sed its credit. Soon after this panic and before the company had begun to recover from its effects, John W. Garrett, one of the large stockholders in the road and son of a Baltimore banker, was elected to its presidency, and a new chapter in the history of the Baltimore and Ohio began. Almost immediately following Garrett's election, a remarkable change became apparent. Losses were turned into gains; deficits were converted into surpluses; and soon Garrett had gained the reputation of being the most remarkable and efficient railroad manager in the world. He seemed to be almost an Aladdin of railroad management for, even when he could not show increases in amount of business done, he reported greater profits by showing lower expenses. In those days the railroads did not furnish detailed reports of business to the stockholders or to the public. At the annual meetings it was customary for a president or the directors simply to announce, either orally or in a brief printed statement, the amount of gross business and profits for the year. No such thing as a balance sheet or detailed financial statement saw the light of day--practically everything was taken by the stockholders on faith. And great was their faith. When, therefore, Garrett announced large increases in profits in years when most railroads were standing still or were incurring losses, he was implicitly believed.

Under Garrett's management a new era of expansion almost immediately began; work was started on the long delayed branch to Pittsburgh and plans were laid for establis.h.i.+ng a line of steams.h.i.+ps from Baltimore to the leading European ports. But the Civil War, which bore heavily on the Baltimore and Ohio, interfered with these ambitious schemes. Early in 1861 the Confederates took possession of a large part of the line east of c.u.mberland; in the next four years important sections of the road were repeatedly destroyed and rebuilt, as they pa.s.sed into the hands of the Federal or Confederate troops. The company, however, managed to get through without default in its securities, and, when peace was restored in 1865, the Baltimore and Ohio resumed its policy of aggressive expansion.

Before very long the road, with its connections constructed or purchased, reached the cities of Pittsburgh, Sandusky, and Chicago, and further strengthened its connections with Cincinnati and St. Louis. It acquired steamboats, grain elevators, and docks; it constructed hotels as mountain summer resorts; it built dry docks in Baltimore; and finally it proceeded to organize and operate an express company, a telegraph company, and a sleeping-car company. To carry out these ambitious plans the capital stock and debt were of course increased again and again, and in the course of these operations a large part of the new securities issued was sold to English investors. Notwithstanding these great increases in liabilities, the company continued to report large surpluses and to pay large dividends, generally ten per cent annually.

In fact, this liberal rate was, with brief exceptions, paid right through the Civil War period, in spite of the fact that large parts of the line were frequently destroyed and traffic was often at a standstill. With such prosperity under such conditions Garrett's reputation as a railroad manager naturally suffered no eclipse.

In the course of the Civil War, as already noted, through traffic routes from New York to Chicago had been established, and in the succeeding years the consolidations of the great competing systems into trunk lines had taken place. The struggle of the Baltimore and Ohio for its share of Western business led to fierce rivalry with the Pennsylvania. This compet.i.tion became so severe and intense that, in 1874, the Pennsylvania road refused to carry the Baltimore and Ohio cars over its line to New York on any terms whatever. Since this was the only way in which the Baltimore and Ohio could reach New York, the situation was a serious one. Garrett retaliated by making destructive reductions in pa.s.senger rates from Was.h.i.+ngton and Baltimore to Western points. The cuts were soon made on other roads and affected both freight and pa.s.sengers. All the lines became involved. Pa.s.senger fares from Chicago to Baltimore and Was.h.i.+ngton were reduced from nineteen dollars to nine dollars, and those to New York and Boston from twenty-two to fifteen dollars. Still the fight continued, and before the end of 1875 it was possible to travel from Chicago to New York first cla.s.s for twelve dollars and to s.h.i.+p grain to New York for as low a rate as twelve cents.

Despite the fact that compet.i.tion had cut earnings almost to the point of extinction, the Baltimore and Ohio continued to report surprisingly good profits. The company borrowed additional funds from time to time but continued to pay the liberal ten per cent dividend until 1877, when it somewhat reduced the rate. These dividend payments indicated, however, a prosperity that was only apparent, and they did not greatly deceive the bankers, for the credit of the Baltimore and Ohio weakened from day to day. The fact is that the reports of operations inspired little public confidence; to the fa.r.s.eeing, there were danger signals ahead. Nevertheless the ten per cent dividends were resumed in 1879 and continued at this rate without interruption until 1886.

On the death of John W. Garrett in 1884, his son Robert, who succeeded him as president, continued the same policy of compet.i.tion and aggression. With the object of gaining an entrance into Philadelphia and through that gateway of reaching New York, he started work on a branch from Baltimore to Philadelphia to meet, at the northern boundary of Maryland, the Baltimore and Philadelphia Railroad--a line which independent interests were then building through Delaware with the intention of obtaining an entrance into Philadelphia. The Pennsylvania interests strongly opposed Garrett's new project and many years before had gone so far, in their determination to block the Baltimore and Ohio from acquiring control of the Philadelphia, Wilmington and Baltimore Railroad, as to purchase that road themselves. Despite this opposition the Baltimore and Ohio went forward with their plans and secured an entry into Philadelphia by acquiring control of the Schuylkill East Side Railway, which was a short terminal road of great strategic value.

North of Philadelphia the company arranged a traffic contract with the Philadelphia and Reading, whose lines extended to Bound Brook, New Jersey, and also with the Central Railroad of New Jersey beyond Bound Brook to Jersey City. Afterward, by purchasing the Staten Island Rapid Transit Company the Baltimore and Ohio acquired extensive terminals at tidewater on Staten Island and constructed a connection in New Jersey with the New Jersey Central. Thus, after many years of struggle and at heavy cost, the Baltimore and Ohio finally secured an entry into the New York district independently of the Pennsylvania Railroad.

Both freight and pa.s.senger charges, however, were still maintained at an unprofitable rate, and, after the death of John W. Garrett, the credit of the Baltimore and Ohio continued to decline. Dividends were gradually reduced and by 1888 were omitted entirely. As is usually the case, the cessation of dividends awakened the sleeping stockholders. They began an investigation to ascertain the whereabouts of that remarkable surplus which had been reported from year to year and which, according to official report, had shown a constant growth.

This investigation disclosed a startling state of affairs. Instead of a surplus, the company had been piling up deficits year after year, had been borrowing money right and left on onerous terms, had been charging up millions of dollars of expenses to capital accounts--and as a matter of fact, instead of making money, it had for the most part been losing it. Now the company urgently needed cash, and the only way it could obtain that essential commodity was by selling its express, telegraph, and sleeping-car business.

During the entire administration of John W. Garrett, extending over more than two decades, current expenditures of enormous amounts which should have been deducted from the income had been credited to the surplus; many millions which would never be returned had been advanced to subsidiary lines, or had been spent, and therefore should have been put down in the books as losses. When these facts became public, the capital stock of the Baltimore and Ohio, which for generations had been looked upon as one of the most secure of railroad investments, dropped to almost nothing, and the most strenuous financial efforts were required to keep the company out of bankruptcy.

These disclosures, towards the end of 1887, ended the first period of active Garrett management in the Baltimore and Ohio. The directors then turned to New York bankers for the cash that was needed to put the affairs of the company on a sound basis. Samuel Spencer, who afterward became a partner in the banking house of J. P. Morgan and Company, was elected president and active manager. He introduced radical reforms, entirely revolutionized the organization, and adopted modern methods. He wrote off the books a large amount of the much vaunted "surplus" and he took important steps toward the general improvement of the property.

Had the new interests been allowed to continue their efforts unmolested, the history of the Baltimore and Ohio in the next decade might have been very different. But the original controlling interests, the Garrett family, still held the balance of power. As the bad bookkeeping and other irregularities of the past naturally reflected on the Garretts, it was their interest to suppress further investigation as far as possible; and their antagonistic att.i.tude toward the policy adopted by the new Spencer management was seen in the annual election of directors in November, 1888. Only five of the members of the board were reelected, President Spencer was ousted, and Charles J. Mayer was elected in his place.

This second change in management sidetracked the plans for radical reform, and little improvement resulted either in earning power or in financial condition. The company had fallen upon evil days. The net profits did not increase, and eight years after 1888 they were smaller than in that year, while the debt and interest charges constantly grew. Despite these ominous facts, dividends were paid regularly on the preferred stock and in 1891 they were resumed on the common stock. In the latter year a twenty per cent dividend was declared "to compensate shareholders for expenditures in betterments and improvements in the physical condition of the property," while at the same time the directors decided to raise five million dollars of new capital for expenditures which would be necessary to handle the increased traffic created by the World's Fair at Chicago.

The traffic problem continued to be a thorn in the flesh and until 1893 freight rates were constantly being cut. The opening of the Baltimore and Ohio connection to New York had brought keener compet.i.tion from the Pennsylvania Railroad and had made deep inroads into the Baltimore and Ohio revenues. Such conditions made even the Garrett interests feel that something should be done, and in 1890 a "community of interest" scheme was proposed. To control the stock of the Baltimore and Ohio Railroad, Edward R. Bacon in New York, acting harmoniously with the Garrett family, formed a syndicate of capitalists representing the Richmond Terminal system, the Philadelphia and Reading Railroad, the Northern Pacific Railroad, and other properties. The ultimate plan, which proved too visionary, was to consolidate under one control a vast network of lines extending all over the continent.

The syndicate had made little progress toward rehabilitation when the panic of 1893 occurred. In this year and the next the earnings of the Baltimore and Ohio fell off rapidly and the dividend was reduced.

Nevertheless, as late as January, 1895, the directors insisted that financially the company was in better condition than for several years and that on the whole it was in a stronger position than at any time since 1880. But in this same year it became necessary to stop all dividend payments; the company began to have difficulties in securing ready money; and before the close of the year the situation seemed hopeless. Early in 1896 Mayer tendered his resignation, and John K.

Cowan succeeded him. The new president did his utmost to obtain money to meet the current needs, but he was unsuccessful. A receivers.h.i.+p and reorganization seemed absolutely necessary, and in February, 1896, the receivers.h.i.+p was announced.

With the property now in the hands of the courts, the opportunity at last came to make real the reforms which had been proposed and begun nearly a decade earlier under the wise but quickly terminated administration of Samuel Spencer. A thorough housecleaning was now carried through without interference or interruption. A reorganization committee was formed, with whom were deposited the Garrett shares as well as those of the Morgan and New York and Philadelphia interests. A full investigation of past management disclosed that the records for the interim extending from the brief Morgan control under Spencer to the receivers.h.i.+p contained the same kind of irregularities and errors of policy that had prevailed under the earlier Garrett management.

Statements of profits had been swelled by arbitrary entries in the books and nearly six million dollars which had not been earned had been paid out in dividends. Furthermore the company had endorsed the notes of certain subsidiary roads to the extent of over five million dollars, and had made no record whatever of this action for the stockholders.

As in the case of numerous other railroads, the financial breakdown of the Baltimore and Ohio Railroad was primarily due to a bad or reckless financial policy, for there was nothing inherently insecure in the railroad property itself. During all the years of the Garrett regime, the company had shared in the general growth and expansion of industry, wealth, and population within its territory. It had been progressive in matters of expansion and had built up its system to meet the needs of modern times. Its trackage and equipment compared favorably with similar systems, and most of its extensions and branches had been wisely planned and had proved profitable. The operating management of the railroad was generally good and it usually secured its proportion of what business was to be obtained. But the steady increase in its debts over a number of years, its extravagance in dividend payments, and its painful efforts to keep down its operating expenses had so weakened the property that, when the hard times of 1893 to 1896 arrived, it was in no position to weather the storm. The only wonder is that the management succeeded in keeping the system intact and apparently solvent so long as it did.

The receivers.h.i.+p at once adopted a vigorous policy of improvement.