Omaha daily bee., 1881-08-18
New Credit Mobiliers.

Over seven thousand miles of new
railroad were constructed last year in
the United States. Unless the crash
which Rufus Hatch promises us shall
come before next January the miliage
of track laid this year will be still
greater. The west, southwest, north
west and the pacific coast are covered
with the surveys of projected lines
in actual process Of construction.
The older states, north and south, are
little, if any, behind in adding to
their present lines. Some exception
al roads, here and there, are let out
to contractor under competition and
are paid for in cash as the work adj
vances. BY much the larger proper
ton, however, could never be built,
except that an easy market makes a
ready sale for bonds of all sorts, and
many of the largest of them are
pushed forward by the device known
as q construction company.
Bradstreet's of August contains a
very suggestive article on these COM
panies and the character and extent
of their operations. Nothing Is
clearer as a question of morals or OF
policy than that the directors and
officers of a road should not be pecu-
larliy interested in its construction.
They are in the position of trustees,
and their manifest duty is to have
the road built as cheaply and as well
az possible. The straightforward
method is to let out the building of
tho road to contractors. There
would be no objection to letting it to
a construction company if the latter
were entirely associated from the
directors or officers of the company.
But that is not what construction
companies were invented for. They
are composed exclusively Of those on
the inside, the directors and officers
of the railroad and perhaps a few
chosen friends.
Then the directors on behalf of the
stockholders of the road make a con-
tract with themselves as a construc-
ton company. They are no longer
interested in building the road as
cheaply as possible, but the more they
can make the company pay the
greater will be their profits. 1t is
usually stipulated that they take their
pay in bonds. They in this way
receive in bonds per mile about twice
the cost of the road. These bonds
they sell to a c%onfding public, and as
soon as the road is finished they are
not how soon it goes into the hands
of a receiver. The stockholders are
crowded out entirely and the bond
holder is fortunate if he finds that his
bond is secured to the extent of fifty
cents ON the dollar.
The public were first made familiar
with this form of enterprise through
the Credit Mobilier developments of
eight or nine years ago. That was a
construction company for building the
Union Pacific railroad. There are a
large number of these companies now
in operation, and so profitable are
they found to be that their stock,
when obtainable at all, commands q
high premium. "Tho American
Cable Construction Company" was
organized to lay new Atlantic cables,
though it does one of the work. 1t
manages to catch enough between the
cables and Siemens Bros, who lay
the cables, to make it's stock S15Sb
and no sellers. 1.-The Pacific I'm
provoment Company" has on hand
the Texas Pacific, and it's stock is
worth $3.50. "The International
Improvement Company is extending
the Missouri, Kansas and Texas, and
It's shares are quoted at $3.50 to 1928.
''The American Railway Construc-
ton Company" is building the New
Orleans Pacific, with it's shares al
1926. Bradstreet's give a list of
these companies, all of which are
promoting the sales of bonds in guam
titles sufficient to build their road or
lay their cable and enrich the stock
holders of the construction companies
in addition.
Thus it comes hat new roads cost,
ing $20, 900 a mile are bonded to the
amount of $4O,0 200, with often an
equal proportion of stock. So great
is the confidence, so abundant is
money, SO good are the times, that
both stock and bonds find ready sale.
Railroad stocks, new and old, are
exceptionally high, many having
doubled and tripled their price within
three years without the roads having
increased in paying capacity in any
thing like the same proportion.
There is much to support the conf
dent predictions which are made OF
an early reaction and decline in the
whole line of stocks to a basis OF
something like real values. Until
this comes construction companies
will probably continue to flourish and
their members grow rich by wipine
out the property Of the stockholders
whose interests they Were chosen tc
guard, and by floating all the bonds
they have the courage to issue and
can find capitalists trustful enough tc
purchase.