River Falls journal. [volume] (River Falls, Pierce County, Wis.) 1872-2019, 1886-07-29
OUR RAILROAD METHODS.

stoch' u, July I, IS puDllsheu IN the
N. Y. Independent We publish the
following extract
In the following range of our law
making there is no one branch in
which there has been such an utter
lack of judgment. foresight and just
regard for the rights of the citizens, as
as in the Legislation. provided fer our
railroads and railroad companies. For
the most part, the statutes re.ating TO
this class Of corporations are set of
general enactments, loosely defining
the large power granted to the incor-
poratiors, Comparatively silent on the
duties and obligations of the compan-
les to the public. and confering upon
them virtual carte blanche as to their
methods Of finance and conducting
their BUSINESS.
In a country whose products are
mainly bulky, aud have to be carried
to market hundreds or thousands of
miles distant. it is OF the first moments
that its railroads should be built with
the strictest economy and on the low
est possible capitalization. The low
cost of land and the cheapness of ma
terial for rOad-beds are especially fav-
orable TO our securing this advantage;
but the laws have permitted system
of inflated iinanceering which neutral
izes these natural adaptations and i'm
menscly increases the cost ii Granspor-
tation.
As railroads have TO be built largely
with borrowed money, their cousIIuc-
ton in this country afforded an oppor-
tunity for establishing credit relations
with the great lending oenters of Eu-
rope, which might have been of meal
cJlable value in promoting the develop
ment or our vast resources in various
directions. England Holland and
Germany have. indeed, loaned us very
large amounts Tor railroad enterprises;
but the law has permitted these under
takiugs to be conducted with so much
concealment, misrepresentation and
actual fraud, and has so disregarded
the rights of the bond-hOlders, that
American credit has become a scan
dial and bv-word on the Eu-
ropean bourses. The result is, that
| foreign capitalists are seeking 9TH
er fields of investment, and their
respective governments are encOura-
ging them BY opening up new colonies,
and thus getting fresh sources for the
supply of products, which otherwise
would have continued to be readily
| taken from the United States. Such
are the rewards of immoral finan-
ciering; as these bad methods are
/ directly traced to the cncOuragements
afforded by our negligcutly construct
ed railroad laws.
Perhaps may succeed in making
myself understood on this subject by
| illustrating the way in which our rail
roads are built Under the laws of the
/ State of New York-which are = fair
sample of the laws of most other
states-a ndmber of persons form n
railroad company under the general
railroad laws, registering at Albany
/ the proposed route of the road, the
amount OF capital stock and bonds to
| be issued, and a few other particulars
required in the papers of Incorporation.
The incOrporators then proceed TO
/ form themselves into q syndicate or
company. Tor the purpose of contract
ing 10 build and equip the road. Here
comes the first step in the system of
crooked" iinanciering. In their c.
pacity of incorporatOrs, tie same men
make contract with themselves in the
capacity of constructors 81 course they
1 do rot fail to make : bargain to suit
/ their own interests. They would be
moe than human if they did. Usu-
/ ally. the bargain i that the cOnStTuc-
| ton company undertakes to build the
road for site 100 per cent. of HE face
value Of the ur-t mortgage bonds, with
/ an equal "muUut of stock, aud some
! tim 5. a'~r =, erJain amount of second
mortgages thrown in. virtually with
ont cons Iteration The first mort
cages are supposed TO represent the
real G. il outlay on the construction
and equipment; but. as matter of fact,
1 the true cash cost Of the work done and
materials furnished, ranges from 60 to
| 50 per ceut. of the amount of first lien
/ transferred to the constructors The
construction company disposes of the
/ bonds, partly by negotiating their sale
/ to the public by bankers, at AN advance
upon the valuation ut which they had
received them, and partly by using
them in payment for rails and equip
ment. Beyond the profits made from
building the road for the first mortgage
/ bonds. there remains in the hands of
! the constructors the entire capitol stock
and any second mortgage bonds they
may have received, as Il clear bonus
to be held for future appreciation,
and to keep control of the company
and be ultimately sold on n market
deftly manipulated for that purpose.
This is the way large majority of
our railroads have been and still are
constructed. 1t will thus be seen that
the actual cost of railroad is ordin-
arily less than 30 per cent. of the stock
and bonds issued against the property,
and that its first mortgage exceeds the
amount Of the legitimate actual cost of
the road.
The basis of all the discredit, the
embarrassment the bankruptcies and
the robberies of our railroad system Is
thus laid at the inception Of the enter
prises. They rest upon an intrinsically
rotten and dishonest foundations; and
the evil is far from having reached the
end of its mischief TO the financial,
political and social interests of the
country. In some few eases, railroads
thus exorbitantly capitalized have
proved able to earn the interest on their
debt. provide for additional OUTLAWS
on construction and betterments, and
even to pay dividend on their stock;
but in a large majority Of eases. they
have had to undergo a process Of
financial reconstruction, in order 10
bring the debts of the company within
its ability to meet its fixed charges.
1t is not a risky estimate to suppose
that of our present 10000 miles of
railroad. with 81, 800, 000,O0 of stock
and debts. 90 per cent, has undergone
this process of debt sealing and re-
Mobilization. We're it rot that the new
roads have opened up new coGntry for
settlement, which has become an i'm
mediate source of traffic, these bad
financial results would have been more
general. and worse than they have
proved to be. The risk attending the
building Of lines into unsettled regions
ought 10 have been reason why they
should be constructed upon cOnserva-
tive principles; but in real
itv. the prospects of settling
new populations. and of
tapping new sources of wealth., have
been so magnitied IN the eyes Of distant
and crcdulous lenders as to enable the
speculative constructors to easily con-
summate their Legitimate schemes.