The Railroad Question Part 8

Another unwarrantable discrimination is that in favor of live stock and against dressed beef. While Mr. Fink, the commissioner of the Trunk Line Pool, himself admitted that the cost of carrying dressed beef from Chicago to New York was only 6-1/4 cents per 100 pounds in excess of the cost of hauling live stock, the trunk lines maintained on dressed beef a rate 75 per cent. higher than that on live cattle. The railroad companies a.s.serted that this was due to those people in the East whose living depended on the live-stock interest. The railroads have in this a.s.sumed a paternalism which would not be tolerated even in the Government. To protect the East, railroads will not permit the West to engage in new industries.

The position which the Interstate Commerce Commission has a.s.sumed in interpreting the rights of s.h.i.+ppers under the law which railroad companies are bound to respect in the preparation of their tariff sheets and cla.s.sifications cannot but be most gratifying to the people. In a decision relating to the cla.s.sification and rates for car-loads and less than car-loads, filed March 14, 1890, the commission laid down the following rules for the guidance of railroad companies:

"1. Cla.s.sification of freight for transportation purposes is in terms recognized by the act to regulate commerce, and is therefore lawful. It is also a valuable convenience both to s.h.i.+ppers and carriers.

"2. A cla.s.sification of freight designating different cla.s.ses for car-load quant.i.ties and for less than car-load quant.i.ties for transportation at a lower rate in car-loads than in less than car-loads is not in contravention of the act to regulate commerce. The circ.u.mstances and conditions of the transportation in respect to the work done by the carrier and the revenue earned are dissimilar, and may justify a reasonable difference in rate. The public interests are subserved by car-load cla.s.sification of property that, on account of the volume transported to reach markets or supply the demands of trade throughout the country, legitimately or usually moves in such quant.i.ties.

"3. Carriers are not at liberty to cla.s.sify property as a basis of transportation rates and impose charges for its carriage with exclusive regard to their own interests, but they must respect the interests of those who may have occasion to employ their services, and conform their charges to the rules of relative equality and justice which the act prescribes.

"4. Cost of service is an important element in fixing transportation charges and ent.i.tled to fair consideration, but is not alone controlling nor so applied in practice by carriers, and the value of the service to the property carried is an essential factor to be recognized in connection with other considerations. The public interests are not to be subordinated to those of carriers, and require proper regard for the value of the service in the apportionment of all charges upon traffic.

"5. A difference in rates upon car-loads and less than car-loads of the same merchandise, between the same points of carriage, so wide as to be destructive to compet.i.tion between large and small dealers, especially upon articles of general and necessary use, and which, under existing conditions of trade furnish a large volume of business to carriers, is unjust and violates the provisions and principles of the act.

"6. A difference in rate for a solid car-load of one kind of freight from one consignor to one consignee, and a carload quant.i.ty from the same point of s.h.i.+pment to the same destination, consisting of like freight or freight of like character, from more than one consignor to one consignee or from one consignor to more than one consignee, is not justified by the difference in cost of handling.

"7. Under the official cla.s.sification the articles known in trade as grocery articles are so cla.s.sified as to discriminate unjustly in rates between car-loads and less than car-loads upon many articles, and a revision of the cla.s.sification and rates to correct unjust differences and give these respective modes of s.h.i.+pment more relatively reasonable rates is necessary and is so ordered."

The efforts which the commission has made to bring about a uniform cla.s.sification throughout the country are in the right direction, while the results of its labor are not yet satisfactory.

In their fifth annual report, the Commissioners, after giving an account of their efforts and the shuffling and double-dealing of the railroad companies with them upon this matter of uniform cla.s.sification, said:

"Its conviction remains unchanged that the necessities of commerce require that the existing cla.s.sifications be consolidated, and that this result should be accomplished as speedily as may be found practicable; and it does not feel justified in asking for the further efforts of the carriers the same measure of indulgence which from time to time it has heretofore suggested should be extended to them, and which was thought to be required in the public interest.

"The commission can not but think that if legislation to that end be enacted by Congress the carriers will speedily consummate the reform already begun in this direction. It is therefore recommended that an act be pa.s.sed requiring the adoption within one year from the date of its pa.s.sage of a uniform cla.s.sification of freight by all the carriers, subject to the act to regulate commerce, and providing that if the same be not adopted within the time limited, either this commission or some other public authority be required to adopt and enforce a uniform cla.s.sification."

The present confusion which exists in the cla.s.sification and rates of the seventeen hundred railroad organizations of the country makes it difficult for the commission to do justice to all interests and localities. With the adoption of a uniform cla.s.sification it is to be hoped that in time many of the present inequalities will be adjusted, especially if an intelligent public sentiment upon the subject of railroad regulation is maintained. A prominent railroad manager in the East, whose devotion to corporate interest is only equaled by his political ambition, has recently made repeated efforts to convince the people that railroad abuses are things of the past and that, if any such abuses still linger in isolated districts, they are simply unavoidable exceptions to the rule which will soon have to yield to the general spirit of fairness and amity for which, in his opinion, the railroads have of late been distinguished. He reasons that the law has fulfilled its mission, that the railroads have reformed, and that it now behooves the people to relent and to extend to the much persecuted corporations the hand of friends.h.i.+p and good will. The postprandial eloquence of this gentleman has often suavely intimated that the repeal of the Interstate Commerce Act would be the most opportune recognition of restored confidence.

Still bolder champions of the railroad cause do not hesitate to demand the repeal of the law. It is not likely that the sophistry of railroad hirelings will triumph over the practical logic of an intelligent public. No law, be it ever so wise, can in the s.p.a.ce of a few years correct all the abuses which half a century of unbridled railroad domination has developed. Yet, since both the friends and the enemies of the law agree that it has been partially successful in its operation, it should be continued and improved to keep it in harmony with new conditions and a progressive public sentiment. It is claimed by railroad managers that the adoption of a uniform cla.s.sification will remove the only vestige of discrimination still left. This is not true, for by far the largest number of complaints that have recently been brought before the Interstate Commerce Commission charged personal and local discrimination independent of any question of cla.s.sification.

It is shown by the reports of the commission that discriminations are still practiced by various companies, that annual pa.s.ses are still illegally issued to bribe or appease men of influence, that discounts are still given to favor s.h.i.+ppers under various pretexts, that some large railroad centers still enjoy more favorable rates than smaller towns, and that the long and short haul clause of the Interstate Commerce Act is still violated by railroad companies. There are besides these scores of other devices in vogue among railroad managers to subvert the principles of the common law. No doubt discriminations are now much less frequent, and are possibly the exception where but a few years ago they were the rule, but the fact that such abuses still exist is a strong argument for the retention of the law as well as for the necessity of continued vigilance on the part of the people and those especially charged with the execution of the laws. The railroad acts of Congress and the various States ask nothing of common carriers but just and equitable treatment for all their patrons. If this is freely accorded, these laws are no burden to the railroads. If, on the other hand, there is a tendency on the part of the railroads to resort to subterfuges and evasions, the wholesome restraint of the statute is absolutely necessary for the protection of the s.h.i.+pper.

The repeal of the Interstate Commerce Law, or the adoption of such amendments as are demanded by railroad men, would be interpreted by them as an abandonment of all its principles and would inaugurate an era of unprecedented railroad oppression. History ever repeats itself.

Unchecked license will always lead to arrogance and despotism, and any power which is long permitted to defy the state will in time control it.

It is not likely that the people of the United States can be induced to demonstrate to the world that democratic government is incapable of profiting in the dear school of experience.

Our railroad legislation contains no principle that is not found in the common law. Its maxims are our birthright and will be the birthright of our children and children's children, and while railroad companies may be able in the future, as they have been in the past, to violate the law temporarily with impunity, they will never be able to prevail upon the American people to abandon the policy of railroad reform which the pa.s.sage of the Interstate Commerce Law inaugurated.

The Interstate Commerce Commissioners say in their sixth annual report:

"Whoever will read the report of the special committee of the United States Senate, commonly called the 'Cullom Committee,' will be astounded at the magnitude and extent of railroad abuses brought to light by their investigation.

Those unfamiliar with the facts made public at that time can hardly believe the outrages which were proven to exist and the manifold devices by which the most flagrant injustice was perpetrated. A single ill.u.s.tration will furnish a better reminder than extended comment.

"It appears from that report that the Standard Oil Company, in one instance at least, boldly demanded from a certain railroad that its s.h.i.+pments should be carried for 10 cents a barrel; that all other s.h.i.+ppers should be charged 35 cents a barrel on the same article, and that 25 cents of the 35 paid by such other s.h.i.+ppers should be handed over by the railroad to the Standard Oil Company, and the penalty threatened for non-compliance with this impudent extortion was a withdrawal of its entire business.

"The foregoing statements but imperfectly describe the situation which existed when the Interstate Commerce Law was enacted. In any reasonable view of the case it was too much to expect that the common and long continued abuses of railroad management could be corrected in less than half a dozen years, or that the first scheme of legislative regulation would prove adequate to that end. It would be contrary to all experience if so great and radical a reform could be thus speedily accomplished, or if the initial statute should be found sufficient to bring it about. The law was the outgrowth of an aroused and determined public sentiment, which, while united in demanding Government interference, was divided and uncertain as to the best methods of affording relief. Like all attempts in a new field of legislation, the statute was a compromise between divergent theories and conflicting interests. It was scarcely possible that it should be so complete and comprehensive at the outset as to require no alteration or amendment. Those who are familiar with the practices which obtained prior to the pa.s.sage of this law and contrast them with the methods and conditions now existing will accord to the present statute great influence in the direction of necessary reforms and a high degree of usefulness in promoting the public interest.

"Whoever will candidly examine the reports of the commission from year to year, and thus become acquainted with the work which has been done and is now going on, will have no doubt of the potential value of this enactment in correcting public sentiment, restraining injustice and enforcing the principle of reasonable charges and equal treatment.

Imperfections and weaknesses which could not be antic.i.p.ated at the time of its pa.s.sage have since been disclosed by the effort to give it effective administration. The test of experience, so far from condemning the policy of public regulation, has established its importance and intensified its necessity. The very respects in which the existing law has failed to meet public expectation point out the advantages and demonstrate the utility of Government supervision.

"Moreover, it may be fairly claimed that much greater benefits would have been realized had the statute as enacted expressed the evident purpose of those who framed it, and received a construction according to its apparent import. It is not too much to say that judicial interpretation has limited its scope and ascribed to it an intent not contemplated when it was pa.s.sed. If its supposed meaning, as understood at the time of its pa.s.sage, had been upheld by the courts, it is believed that its operation would have been much more effective and its usefulness greatly increased. So far as failure has attended the efforts to give it proper administration, that failure can be mainly attributed to differences between its apparent meaning and the judicial interpretation which some of its provisions have received; and the commission is of the opinion that if the present law could be so altered as to express clearly and beyond doubt what it was evidently intended to express at the time of its enactment, it would prove, even without other amendment, an instrumentality of the highest value in removing the evils against which it is aimed.

"The specific instances in which the statute has received judicial construction, and the limitations upon its scope and meaning which the courts have imposed, will be alluded to at greater length in another part of this report.

"It seems proper, however, to observe in this connection that the effect of these decisions in weakening the law and preventing its enforcement has been greatly exaggerated. The impression has been created in many directions that judicial construction has invalidated the essential feature of the statute and condemned the general principle which lies at its foundation. That impression cannot be too speedily corrected, for nothing has been decided which permits such an inference. On the contrary, neither the power of the national legislature to regulate the transportation of interstate commerce nor the general policy of the existing law has been questioned by any tribunal."

Probably no law in the United States has ever before been so fiercely attacked at all of its vital points as has this law. It is not strange that among the great number of National and State courts the railroad companies have found occasionally a judge ready and willing to a.s.sist them in breaking it down, but upon the whole the judiciary has been disposed to co-operate with other departments of the Government in their efforts to secure effective regulation of the transportation business.

CHAPTER VI.

STOCK AND BOND INFLATION.

The complaint is frequently heard from railroad men that our freight rates are too low, and in support of it the statement is usually made that the greater part of the railroad stocks of the United States pays dividends considerably smaller than the average interest realized by capitalists on money loaned or invested in other enterprises.

This statement may be true, and yet it is valueless as an argument for higher rates. It may be admitted that the dividends declared upon the face values of railroad stocks are quite moderate, but it is a fact too well authenticated to be contradicted that railroad securities represent to a considerable extent only fict.i.tious capital. The public concedes that liberal returns should be allowed to railroad companies on money actually invested, but it naturally objects to being taxed for the purpose of making dividends on watered stock. The evil referred to is a serious one, and has contributed much to the general demand for railroad reform. Most of the early roads of this country were built for the accommodation of local traffic. They were constructed and managed by business men upon business principles. The stock issued by the companies was in most cases paid for in full and was not unfrequently sufficient for the completion of the entire road, and no inc.u.mbrance was permitted by the owners to be placed upon the property. These enterprises as a rule proved very profitable. One of the first roads running west of Chicago will serve as an ill.u.s.tration. The Galena and Chicago Union Railroad Company paid a 10 per cent. dividend within a year after being opened to traffic, and gradually increased its dividends to 15, 20 and 22 per cent. During the first two years of the road's operation its expenses were only 38-1/2 per cent. of its earnings. During the second year the company, after paying a 15 per cent. dividend, diminished its debt nearly $60,000 and increased its surplus $11,700. In 1856 the road had a length of 232 miles, on which the gross earnings amounted to $2,315,787. This revenue exceeded the estimate made by the company's officers the year previous by $300,000. In his annual report for 1856 the president of the company said: "This result shows an _increased surplus_ of $65,000, after paying 22 per cent. in dividends and all expenses and interests chargeable to income account." The report also shows that expensive improvements, such as large permanent bridges and stone culverts, displacing as a rule wooden ones, were charged to current expenses.

The financial success of railroads soon attracted the cupidity of financial adventurers--men of great energy, but small means--whose aim was to secure the greatest possible returns with the least possible outlay of money. With the introduction of these elements into railroad circles the era of speculation commenced. Take the line just referred to. In 1852 the average number of miles operated was 62, and the year following, 90. But while the number of miles operated increased less than 50 per cent., the capital stock of the company grew from $444,193 to $1,362,559, and its debt from $60,145 to $542,287. The capitalization of the road was thereby increased from $8,000 to $21,000 per mile, and this was done for the purpose of making the capital appear adequate to its earnings. Nearly all railroads became in time the foot-b.a.l.l.s of shrewd manipulators. They were bonded before they were constructed, and often for more than the value of the completed road. Stocks at the best only represented nominal values and were given as premiums to the bondholders or promoters of the road.

But the science of stock-watering did not reach its fullest development until during the period of railroad consolidation. Fict.i.tious values were now created as often as a new consolidation took place. Watered stocks and bonds were watered again and again, until they represented little more than a purely imaginary capital upon the basis of which dividends might be declared. Take the case of the New York Central and Hudson River Railroad companies, which consolidated in 1869 with a capital of $103,110,137.31. The former of these roads was organized in 1853 by the consolidation of ten smaller roads connecting the cities of Albany and Buffalo. The capital stock of these companies amounted to $20,799,800, of which $16,852,870 was claimed to have been paid in.

Their funded debt was $2,497,526. It is impossible at this day to ascertain the original cost of all these roads, but it is certain that the above sums represent about three times the amount actually expended for their construction.

One of the roads entering into the consolidation was the Utica and Schenectady. It was 78 miles long and formed about one-fourth of the consolidated line. It had the heaviest grading and rock-cutting, was the best-equipped and undoubtedly the most expensive, in proportion to its extent, of the ten roads out of which the New York Central was created.

The original cost of this line was $2,000,000. Bonds were never issued by the company. The line was profitable from the very beginning, paid regularly ten per cent. dividends,--the limit to which railroad companies were then restricted,--and had a large surplus, which it expended mainly for improvements. No a.s.sessment was ever made on the stock beyond the $1,500,000 which was originally paid in by the shareholders and upon which they had drawn regular and liberal dividends. Taking the original cost of this line as a basis, it is but fair to presume that the entire line from Albany to Buffalo, covering a distance of 297 miles, did not cost to exceed $6,000,000. These roads, however, entered into the consolidation with a capital stock of $15,274,800 and a bonded indebtedness of $1,696,326.

Estimating the cost of the branches upon the same basis upon which we have estimated that of the main line, we shall find that the total original cost of the consolidated lines cannot have exceeded $8,000,000.

The Mohawk Valley road was put in at $2,000,000 and the Syracuse and Utica direct at $600,000, though the roads only existed on paper and did not represent any value whatever. The Schenectady and Troy road, which went into the consolidation with $650,000 stock and $90,000 bonds, had been bought for less than $100,000 two months previous to the consolidation.

It will thus be seen that already nearly one-third of the stocks and bonds of the consolidated companies was water. The consolidation agreement fixed the capital stock of the New York Central at $23,085,600 and its funded debt at $11,564,033.62, increasing the stock over $2,000,000, and the bonded debt over $9,000,000. The latter was more than quadrupled, and $8,000,000 worth of bonds were, under the name of consolidation certificates, given as a present to the stockholders of the new road. The capital stock of the New York Central grew steadily up to the time of its consolidation with the Hudson River road, when it was $28,795,000. All improvements made during this time were paid for out of its surplus earnings, with the single exception of the Athens branch, for which the company issued $2,000,000 of its stock.

The gross earnings of the New York Central in 1854 were $5,000,000, and its net earnings $2,830,000. In 1863 its gross earnings were in round numbers $10,000,000, and in 1869 they reached $15,000,000. The dividends paid during that year amounted to $4,300,000, and the interest to $894,000. In view of the fact that the bonded indebtedness of the road was from two to three million dollars more than the original cost, this dividend of 15 per cent. upon a wholly fict.i.tious capital must be regarded as an unwarranted tribute levied upon the commerce of the country. But we shall soon see that in railroad hydraulics, as well as in other branches of human industry, success stimulates to still greater energy.

The Hudson River Railroad Company was organized in 1847. It extended from New York City to East Albany and was 144 miles long. There are no data extant upon which could be based a reliable estimate of its original cost. Estimating it upon the basis of that of the Utica and Schenectady, we should have to place it somewhat below $3,000,000. While such an estimate may be too low, the amount of its funded indebtedness in 1851, which was $5,640,000, probably more than covers the amount actually expended in the construction of the road. In 1851 the capital stock of the Hudson River road was $4,000,000. In 1853 the funded debt had increased to $7,000,000, and in 1862 to $9,000,000. In 1869 the bonded indebtedness had decreased to $4,309,000, but the capital stock had grown to over $16,000,000. Between 1853 and 1869 the company increased its stock and bonded indebtedness nearly $11,000,000, while the a.s.sessments paid by its stock and bondholders during this time did not exceed $1,000,000. Improvements were made, but these were chiefly paid for out of the surplus earnings of the road. It has been shown by experts that $6,640,000 is a high estimate of the actual original cost of the Hudson River road to its stock-and bondholders, and that securities to the amount of more than $13,000,000 represented surplus earnings and water. At the time of the consolidation of the Hudson River and New York Central railroads the capital stock of the two roads had grown to $44,800,000. Under the consolidation agreement the stock was fixed at $45,000,000. The new company also a.s.sumed all the bonded and other indebtedness of both roads. If the consolidation manipulators had paused here, the capital of the new company would have been somewhat less than $60,000,000, or more than three times the cost of the property. But the road was, under existing rates, capable of earning dividends on a much larger capital, and this emergency was met by the issuance of consolidation certificates to the amount of $45,000,000. The total capital of the road was thus increased to and made to pay dividends on over $103,000,000, while the total cost of the road and its equipment, as claimed by the company in 1870, was less than $60,000,000, their estimate being based upon a.s.sumed consolidation values and the expenditures made from surplus earnings. During the same year the gross earnings of the company were $22,363,320, and their net earnings $8,295,240. In 1880 the gross earnings had increased to $33,175,913, and the net earnings to $15,326,019. The company was able to declare in that year 11.82 per cent. dividend on its $89,500,000 of fict.i.tious stock. In 1890 its gross earnings were $37,008,403, or $26,050 per mile, while its total net earnings were $12,516,273. The gross earnings have largely increased during the years 1891 and 1892. It is safe to say that $2,000,000 per annum would pay very liberal interest and dividends on the amount of money expended upon the construction of the New York Central and Hudson River Railroad from the proceeds of its bonds and stocks. By the creation of fict.i.tious values the managers of the company have attempted to impose an exorbitant tax upon the commerce and travel of the country for all time to come. The Government guarantees an inventor a monopoly only for a limited s.p.a.ce of time, upon the expiration of which his invention becomes the common property of the people; but railroad managers endeavor to collect, under the protection of our laws, an exorbitant royalty from our people forever.

The case of the New York Central and Hudson River Railroad Company is only one of the innumerable instances of stock watering in the history of American railroads. Indeed, it can be shown that stock-watering reached a still higher degree of development in the case of the Erie road. It has been demonstrated that the actual original cost to the stock-and bondholders of the New York Central Railroad Company, which was, with its branch lines, 593 miles long, did not, including the Athens branch, exceed $10,000,000. Its cost to its owners, in 1869, including the bonuses, premiums, commissions and fict.i.tious equalization values of several transfers, was reported by them to be only $37,600,000, or about $63,400 per mile. At about the same time the main stem of the Erie Railway, extending from New York to Dunkirk, a distance of 459 miles, was represented by a capital of $108,807,687, or $237,000 per mile. Considering the inferiority of this road to the New York Central, we are forced to the conclusion that nearly 85 per cent. of the capital of the road represented water, or, in other words, that the commerce of the United States was taxed to pay dividends on about $90,000,000 of watered securities. In 1863 the Erie Railroad had outstanding $11,437,500 of common stock. In 1864 this had been increased to $15,693,000, in 1868 to $37,765,000, and in 1869 to $70,000,000. Not one-tenth of this enormous increase of capital was ever expended on the property of the road. The stock was sold at from 20 to 40 cents on the dollar, and the proceeds disappeared in the hands of its managers. To what extent this freebootery was carried will probably never be known.

An idea of the rottenness of the Erie management may be had from the fact that the courts at one time ordered its president to restore to the company $9,000,000 of diverted securities, which order was complied with. Vast private fortunes were ama.s.sed by nearly all the men who directed the affairs of the road, and the mismanagement became in time so notorious that the legislature of the State of New York was appealed to, to remove the directors of the road for the protection of its stockholders, and to reduce the capital stock of the company to the amount actually paid for it. This movement failed, however, because it was opposed by the very stockholders whose interests were supposed to have suffered by directorial mismanagement. They preferred to continue to draw dividends on the face value of stocks which they had purchased at 20 cents on the dollar. The capitalization of the company has since been increased to $163,679,825, and it is by no means a secret among those familiar with railroad values that the bonded indebtedness of the Erie road represents alone many millions more than the total amount that was ever invested in the property.

The princ.i.p.al compet.i.tor for through traffic of the two companies whose financial operations we have just reviewed is the Pennsylvania Central Company. It has often been a.s.serted by the managers and friends of this company that its capital is free from water; but this is not true. In 1864 a dividend of $4,130,760 was made out of the surplus earnings of the road. This dividend was payable in capital stock and was equal to 30 per cent. of the then outstanding capital. Similar surplus dividends, each equal to 5 per cent. of the company's outstanding stock, were declared in 1867 and 1868. The people were thus taxed to pay dividends on a capitalized surplus which had been derived from excessive charges previously imposed on them. I shall not attempt here to determine whether the capital represented by the Pennsylvania Railroad Company has been honestly invested. A committee of Congress has expressed the opinion that the capitalization of its main line exceeds the amount of the actual cost of the property by more than eleven million dollars.

There is, however, a system of inflation practiced by the Pennsylvania Railroad Company which is simply a new form of bond and stock watering.

More than one-half of the capital of this company has been invested in the stocks and bonds of other corporations. In 1891 the amount so invested was $154,319,240, and the income derived from it $4,852,181.

This does not only cause the stocks and bonds of certain companies to be counted twice, but exacts a double tax from the commerce of the country, interests and dividends upon the same capital being paid both to the bond- and stockholders of the Pennsylvania Central and to the bond-and stockholders of the roads in whose securities it has made investments. The income of the company is thus swelled far beyond the amount which the traffic reports indicate. It will be seen that, to perpetuate extortionate rates, this process of manifolding securities might be continued indefinitely.

The cost to its stock-and bondholders of the Baltimore and Chicago line of the Baltimore and Ohio Railroad, which has a length of 795 miles, was estimated by the company's officers at about $57,000,000. The actual cost of this road, owing to its expensive mountain grades, was probably greater than that of any of the other through lines between the sea-coast and Chicago, but there can be no doubt that the capitalization of this road represents from one-half to one-third pure water. At the time of the completion of this road to Chicago the surplus earnings of the company, after the payment of interest and dividends, amounted to over $29,000,000. This had been charged to "profit and loss" and used in the construction of branch lines. Thus an amount equal to more than half of the reported cost of this line had at the time of its completion been returned to its owners in other railroad values.

The Select Senate Committee on Transportation Routes to the Seaboard in 1874 estimated the excess of the capital over actual cost of the Erie road, from New York to Dunkirk, at $68,807,000; that of the New York, Lake Sh.o.r.e and Michigan Southern line to Chicago at $115,188,137, and that of the Pennsylvania and Fort Wayne line to Chicago at $11,290,374.

If this estimate was correct the entire over-capitalization of these lines, on which the commerce between the West and the East was forced to pay a dividend of 8 and 10 per cent. per annum, was no less than $195,000,000. The committee a.s.sumed the actual cost of these roads to be $182,000,000, or about $78,000 per mile. They based their estimate upon the cost of the main branch of the Baltimore and Ohio, as reported by their officers, supposing it to represent the actual outlay made by its stock-and bondholders. Various revelations which have since been made to the public, as to the real cost of railway construction, justify the belief that the estimated cost of $78,000 per mile for those roads is far too high. Mr. Henry Poor, several years ago, estimated the average cost of the roads of the United States at $30,000 a mile. Making allowance on one hand for Mr. Poor's tendency to favor the railroad side of the question, and on the other hand for the more expensive grades, double tracks and better terminal facilities of these trunk lines, $50,000 per mile may be considered a fair estimate of their average cost. Upon this basis the total cost of the three lines in question would amount to $116,450,000, and the excess of their capital over actual cost would be the enormous sum of $261,000,000, or 325 per cent.

of their actual cost, and probably not less than 400 per cent. of the original cost to their stock-and bondholders. The capital of these companies has since been considerably increased, to enable their managers to increase their dividends, and with it the tax levied upon the commerce of the country.