Vermont phÅ“nix. [volume] (Brattleboro, Vt.) 1834-1955, 1873-08-29
THE MODERN sTrLB OF R.fEL-
RO.fD HUELDs.vG.
Specially .fd0Pfed 10 CoHHeoficwf, but
nth do for any latitude.

ganizing railroad companies and construct
ing railroads in Connecticut, as well as in
other States of the Unicn. Whether the
modern method adopted Is based upon
sound business principles, and Is healthy
in its results, Is question which deserves
the careful consideration of the public, and
especially of those who are invited to in
vest their money in stocks and bonds of
new railroads.
The railroad companies in Connecticut
prior 10 the late civil war, and before spec
ulalion began 60 rage widely throughout
the country, obtained most of the means
with which to construct their roads from
cash subscriptions, made in good faith to
their capital stocks. Very few of these old
companies issued bonds or other evidences
of indebtedness to an amount exceeding
one-third the actual cash cost of their roads.
In fact most of the old railroads were pro-
hibited by their charters, and by the gem
eral laws of the State from issuing bonds
to greater amount than this. II Is true that
in certain special cases authority was given
to few of the old roads TO create greater
bonded debt than this, but it is equally
true that IN almost every instance where
this was permitted the stock of the compa-
ny became worthless, the companies de.
faulted in the interest upon their bonds,
the bonds greatly deprecated in value, and
great pecuniary loss fell to the lot of all
who invested therein. On the other hand,
those railroads in Connecticut which were
IN the main built on bona fde cash sub
scriptions TO ca )ital stock have Welded
fair return 10 the original stock holders,
and their bonds have ever maintained
good position, and have been readily sought
after by those seeking safe investments.
The reason for this Is plain. Any railroad
that is reasonably sure 10 pay the interest
upon its cost is almost certain 10 find poo
pie upon its line and capitalists enough to
subscribe freely to its capital stocks.
But even If such road does not at first
yield dividend TO its stockholders, If ii
has no large amount of bonds outstanding,
1t can very soon, by the gradual increase of
business, be able to pay fair interest to its
stockholders. One great difficulty with
the modern plan of issuing large amounts
Of bonds upon a railroad in process of con-
struction is that large amounts must be
to earn anything whatever. Thereby the
cost of the road is augmented
embarrassments, and, not unfrequently,
bankruptcy occur before the road is COM
pleted. A forcible illustration of the truth
of this is found in the history of almost
every railroad in Connecticut construct ed
or commenced within the last six or
eight years. All have commenced with
very small stock subscription compared
with the estimated cost of their roads and
in some cases even these small stock sub
scriptions have been deceptive The
main reliance has been in the issue of first
mortgage bonds. First mortgage bonds in
Connecticut railroads had in former years
ms general rule, proved safe and favorite
investments. Farmers, mechanics, and
others who had money to invest were
strongly preiudiced in their favor, and for
good cause. For before The days of modern
decentralization in railroad building, first
mortgage bond was seldom issued TO an
amount which could have not been paid off
in full, If necessary, by the sale of the iron,
lands and rolling stock of the company.
Speculative railroad corporations have la
ken advantage of this mania oil the public
for FIRST mortgage bonds, and, as Il result,
this Slate has been flooded with the first
mortgage bonds of uncomp'eted railroads,
and, in many cases, the first mortgage has
exceeded in amount the entire value of the
road when completed.
The result of this state of things has been,
that not Il solitary railroad in Connecticut
commenced within the last five years has
realized sufficient actual net earnings to
pay The interest on one-half of the amount
of its bonds and debt. To say nothing in
regard TO the financial condition of the
Boston, Hartford and Erie railroad which
has foisted more than 49,, 600 600 of bonds
upon the public, which are now ruling at
about thirty-lour cents ON the dollar, we
find the following to be the condition in
the aggregate of the other new roads in
Connecticut which are either wholly or
partly completed and in operation, viz.
Aggregate amount of bonded and floating
debt of these companies about 81 900, 600
aggregate amount of the net earnings Of the
same companies over and above operating
expenses for the year ending September 30,
1872, about $4,000. In other words, the
new railroads in Connecticut, built under
the modern demoralized plan, are not earn
ing an average of two per cent. upon the
amount Of their indebtedness. 1t would
seem that il was about time for men of or
binary judgment, before they invest their
money in the bonds of new railroad, TO
stop long enough TO ascertain what proper
Al . 4. 4
TO the amount of cash actually paid in by
subscribers TO the stock, and invested in
good faith in the construction and equip
ment of the road. No new railroad in pro-
cess of construction, or in contemplation, in
the State of Connecticut, can safely issue
more than $1,000 of bonds for every $4,000 of
cash paid In on the stock and actually ex-
pended on the road. 1t is safe TO assert
that any man who purchases the bonds of
any railroad in this State about to be built
which do not have as basis two dollars of
cash paid in on the stock to every dollar of
bonds issued, will soon regret his purchase
and wait in vain for tho promised interest.
Most of the railroads now are started by
contractors and spectators. A moderate
su description to the capital stock is made
by those within the ring, with an under
standing that only small installment will
be called in that bonds enough will be
put on the market and sold to complete the
road, and then stock "ad libitum" will be
issued ms n profit to the original parties.
The originals are pretty sure to sell out
their stock in time. If the stock does not
sell for more than ten cents on the dollar,
that percentage is just so much Profit to
the originals, while the loss comes upon
the purchasers of the stock and bonds.