CHAPTER XV.

A NEW AND FALSE PRINCIPLE IN HYDRAULICS — WATERED STOCK ITS UNLAWFUL PROFITS THE SOURCE OF EXTORTIONATE

WE

TARIFFS THE "FAST DISPATCH" SWINDLE.

E have attempted to show some of the oppressions of the present railroad system upon the agricultural interests of the country, and, at the close of our last chapter, were treating of freights, warehouse charges, etc. Closely connected with these latter charges is another abusive and fraudulent practice, which threatens not only to still further oppress the people, but also to more closely combine the power now so rapidly and surely destroying our republic. I refer to what is known as "Dispatch Companies." To fully understand the object and effect of these companies, it will be necessary to look a little further into the management of railroads, and the method adopted in their balance sheets for showing the cost of their construction, the amounts of paid-up capital, and their total indebtedness. These balance sheets do not present the truth in any instance, and have not that purpose, being only an exhibit that will apparently justify the many extortions and deceptions practiced by these corporations. The actual cost of constructing and stocking the roads is not given; instead we have the cost as represented by the stock and bonds issued and watered. For a clear understanding of this book-keeping, let us examine the cost of some of the roads as the same is given to the public, and compare it with the actual cost as shown by other evidence. The "Central Pacific" will do for one illustration.

The Central Pacific is eight hundred and eighty-one miles in length. The cost of the road as given is $120,432,717, or $136,700 per mile. The actual cost per mile, taking the whole length of the road into consideration, was less than one-half the

amount reported. This information we get through reliable channels, and is undoubtedly correct. The evidence induces the belief that the cost was less than $50,000 per mile, and less that $50,000,000 for the whole road. The company report a capital stock of $54,283,190, and a funded debt of $82,208,000. They also report the liabilities of the road at $136,491,190, being more than $80,000,000 above the actual cost, and $16,000,000 more than the reported cost. The stock of this company was watered to so great an extent, that to pay the interest on the funded debt, and declare a dividend on the stock, and pay operating expenses, and other contingencies, the road must earn at least fifty per cent. per annum. Or to put in plain language, the company must defraud the public in unjust and extortionate charges.

The "Sioux City & Pacific" is the pet road of Massachusetts and Iowa congressmen. The cost of this road per mile, as shown by the report of the company, is $34,547. This cost is represented by paid-up capital-$2,067,600, and first mortgage bonds $1,629,000. The road is one hundred and seven miles long. The actual cost of this road was less than $30,000 per mile. This company received $16,000 per mile, government subsidy bonds, amounting in the aggregate to $1,712,000, which does not appear in the report. Aside from these government bonds, the reported cost of the road shows that the stock has been watered.

The Chicago, Rock Island & Pacific railroad company has, from Chicago to Davenport, one hundred and eighty-four miles of road, and in Iowa three hundred and sixty miles, making five hundred and forty-four miles in all. The total cost as reported is $28,496,999, or the sum of $52,384 per mile. The actual cost of the Illinois portion, as shown from official reports, did not amount to $30,000 per niile, and the Iowa extension cost still less, but including the bridge at Davenport, the cost will approximate to $30,000 per mile, making the total actual cost $15,320,000, showing that the stock of this road has been watered to the amount of $13,000,000. The Iowa portion of this road received a grant of five hundred and fifty thousand acres of land, and aid by county and citv sub

scriptions amounting at least to $500,000, that do not appear in the published statement.

The Iowa Falls & Sioux City road is under the special care of congressmen. It has one hundred and eighty-four miles of road but no rolling stock. The total cost as given is $7,585,000, or $41,222 per mile, while the actual cost was about $31,000. The stock was watered to the amount of $1,800,000. and this, too, after having received a grant of land to the amount of one million two hundred and twenty-six thousand four hundred and six acres.

We might continue this list, but think we have referred to a sufficient number for our purpose. It will be seen, and is now pretty well understood, that the cost of railroads as reported by the companies, is not their actual cost, but includes large amounts that are pure fictions-an increase of the capital stock, no part of which is used or needed in the construction of the road, stock that is not even paid up, but is distributed among stochholders in proportion to the amount of bona fide stock each one holds in the company. The capital stock of the company, and bonds issued by it, are supposed to represent the cost of the company's road, rolling stock, etc. But few roads in this country fail to earn large dividends on this actual cost, and but for the custom of watering stock, would show fair profits after running expenses, repairs, etc., are paid. If these corporations were prohibited by statute from increasing their capital stock above the actual cost of their roads, less money would be required for transportation of freights, and there would be no need of resorting to dispatch companies, or any other ring combinations for the purpose of extorting unjust amounts for transportation. But these combinations do not construct roads simply for the purpose of operating them; this is but a secondary consideration. The main object is to speculate in stock and bonds.

Wall street being the grand center for this kind of speculation, the company, in order to profit by sale of its bonds, must make a showing in this grand mart of receipts sufficient to command public attention, the rule being that stocks and bonds appreciate in value in market in proportion to the divi

dends declared upon their earnings. They who control these roads have two objects in view: first, to add to their capital stock; and second, to make dividends upon such increase of stock. If a line of road cost $2,000,000, and the company owning it can by any means make it pay dividends on three or four millions, they can issue to themselves stock representing this increase. Having thus increased their stock, under the pretense that they wish to construct more road, or improve or repair what they already have, they issue their bonds to the amount of the increased stock, (sometimes to an amount equal to more than their entire capital,) and put them upon the market. The first object is to get dividends upon whatever stock they have paid up, (if any is paid up,) and next to make their roads earn enough to pay the interest on their bonds, and then, if possible, to force the earnings of their roads to a point where dividends can be paid on the increase of stock. Having increased their capital stock, and issued and sold their bonds, they are in no haste to add to, or improve or repair, their roads; for they have already consummated the object in view, to-wit: made in cash the market value of their bonds. This same operation is repeated as often as their capital stock will bear reducing, and in some instances it has been repeated until the stocks and bonds became almost worthless. This species of speculation does not add one dollar to the wealth of the country, nor aid commerce. It only enriches that class of speculators who prey upon the public.

We have shown that one and one-fourth cents per mile per ton will compensate for transporting freights over railroads, provided the business is conducted fairly and honestly, and we can now begin to understand why such enormous rates are charged. The roads must earn enough to pay the interest upon all the bonds sold and upon the capital stock issued by these companies. The people, the producers, are taxed for this purpose. One-half of the products of every farm in the west goes into the pockets of these Wall street speculators, and the rates for transportation are increased in the same proportion that these stocks and bonds are increased. When more money is demanded in Wall street, telegrams are sent

throughout the country by these railroad kings to their agents and employes to advance the rates on transportation. This reduces the price of the farm products, and puts the earnings of the farmer into the pockets of the railroad monopolist, and the stock and bond gambler in Wall street.

It would look as though the combinations of this oligarchy were perfect; that the system of extorting from the people and robbing the producers could not be improved, and that these most unscrupulous oppressors ought to be satisfied. Such is not the case. Either because they wish to have fewer numbers with whom to divide the spoils, or because they have reduced the value of their stocks and bonds until it is necessary that their roads pass under other management, or because they must have still higher rates for transportation, of late a new combination for transportation has been formed, called Dispatch agencies or companies-a kind of "Credit Mobilier " arrangement. These dispatch companies are comparatively new in the west, and we know but little of their organization save that it costs still more to ship with them than with railroad companies. These dispatch agencies are not formed to compete with railroad companies in the transportation of freights, nor are they in any measure rivals or opponents of railroad companies. In the nature of things there must be perfect accord between these two corporations, for the railroad companies could and would at once destroy the dispatch business if the same in any manner conflicted with the interests of railroad managers. The dispatch companies depend entirely upon the railroad companies for cars, locomotives, and railroads for carrying their freight. Enough is known of railroad management to satisfy the most skeptical that the organization of dispatch companies is for purposes other than the more expeditious transportation of freight. These dispatch companies are composed mainly of railroad directors and superinendents, with a few figure heads to represent the outside world. After the formation of the dispatch companies, contracts for the use of cars, locomotives and roads are made upon the same principle and for the same object as in the case of the Union Pacific railroad company and the Credit Mobilier