The morning call., 1894-02-08
THE SUBSIDY BONDS.

Progress has been made in the subsidy
| bond controversy S ince the days when Mr..
c. P. Huntington used to sill at the Airing
ton with his plan for settling the question,
while Senator Stanford. in his seat in the
Senate, urged upon his colleagues his plan,
which was entirely different. The Senator
and railroad magnate is dead; his success
sor in railroad man agement now offers a
plan of adjustment which may be regarded
as the company's plan.
1t assumes to be based on the reduction
in the value OF money and on the improve
ment OF the Government credit since 1864.
At the present time the company owes or
will presently owe the Government for
prin cipal and accrued interest on the sub
sidy bonds about S70.000,000. OF this sum
the principal. say $4,000. 900. bears inter-
est at the rate of per cent. The company
states that it Is virtually unable TO pay
this Indebtedness. In order to save its
creditor from loss it asks for an extension
OF 125 years and a reduction of the raie OF
interest 10 215 per cent. But it also re-
quests the Government to increase the
line of Endorsed bonds to S134. 600, 600 so as
to absorb the first mortgages and convert
into new issue of United States bonds,
on which the company processes to be able
to pay the interest, amounting. roughly, to
So, BOO 900 year. This is substantially
the plan which has been recommended by
Senator Frye of Maine.
The whole subject is threadbare and
those who take an interest in such matters
are familiar with the arguments pro ana
con. For the benefit of the class which
never acquainted itself with the contro-
versy. or which has forgotten all about it,
it may be said that the main argument in
favor of the extension plan is derived from
the difficulty OF devising any other scheme
to save the Government from loss. The
Central Pacific Company says that it can
not pay seventy millions Of dollars. If it
cannot it is in the position of an lnsolvent,
and il is the part of common-sense for its
creditors to get what they can ont Of it.
The creditor in this case may be the more
indulgent, as the road was built mainly
for national objects, and the subsidy
granted as a matter not of benevolenee
but of policy. This is the railroad view of
the case.
On the other hand, it rarely happens In
commercial business that the creditor of
an lDsolyent debtor betters his position by
throwing good money after bad. People
who fail often assure their creditors that
ii they could get a little more money they
would pull through and pay a hundred
cents on the dollar. Experience is not
favorable to the acceptance of such propo-
stons. The new money generally goes
where the old money went. Where a
dnhtOr ha hac fbipu % do
with him is TO take bis assets and business
and make the most of them. Thus many OF
th ose who have studied the subsidy bond
question have come TO the conclusion that
if the nation has made bad debt ii should
act as an individual would do in the like
case, take the property and run it for the
benefit OF the Government and the people.
Mr.. Huntington's proposition is that the
Government shall increase its indorse-
meut from $4,000, 600 TO S134, 00O, OO0 Why
should the nation do so? The Government
may run into debt to carry on war, to sup
press rebellion, to meet an unexpected de-
cline in the revenue; but " here comes the
authority to swell the public debt to help
a railroad corporation out of embarrass-
ment? If we have got into a scrape and
lent money to a concern which cannot pay
it back it would seem the part of common
sense to take and run the road. Ii is the
natural and exDedient way to an expert
ment in Government control and operation
of railroads. In France Government and
corporate roads run side by side, and both
are undoubtedly the better for the whole
some competition. In Germany the Gov
eminent railroads do good service. Why
not in the United States2 WHY should not
the Government take the Central and
Union Pacific roads and run them as
competing overland system? 1t should be
able to pay operating expenses and interest
on the investment. Beyond that the Gov
eminent would have no inducement to
make money out of the operation. 1t would
have no exploiters to enrich. 1t could make
the road what IL was meant TO be-a mill
tary route between East and West and an
instrument for the DEVELOPMENT of the
country and boon to the people who de-
pend upon it for transportation facilities.