Monopolies and the People

by D. C. Cloud

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.[C] Aside from these government bonds, the reported cost of the road shows that the stock has been watered.

[C] Note.—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.

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 mile, 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 city subscriptions 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 stockholders 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, &c. But few roads in the 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, &c., 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 dividends 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 superintendents, 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 objects as in the case of the Union Pacific railroad company and the Credit Mobilier company. The directors of the railway company, representing the company, contract with themselves as a dispatch company, to supply themselves cars, locomotives, and roads for the prosecution of the business of the dispatch company, and for a certain consideration agree to pay themselves, as directors of the railway company, for what is so leased to themselves as a dispatch company; and then in order to promote the business interests of the dispatch company, and secure to themselves as its directors higher rates for transportation of freight, they make it a point at all times to give the preference to the said dispatch company. As a result of this arrangement the dispatch companies monopolize the principal part of the business. They are in appearance opposition lines to the roads on whose tracks they are carried, and are really so, when the interest of the railroad stockholders not concerned in the dispatch companies are considered. These stockholders get their dividends upon their capital stock and their share of "watered stock" and bonds, but do not participate in the profits of the dispatch business.

Like the Credit Mobilier, it pays large dividends which it extorts from the people, charging even higher rates than the railroad companies; but it only divides among its members, and not with the stockholders of the railroad company whose track it uses. The interest of these stockholders is not considered. They have built and equipped the road, and selected their directors and managers; but these managers and directors turn the road over to a hostile company, composed of themselves and select friends. To promote the business of the dispatch companies, their trains are transported from one end of the railroad to the other in less than half the time required to transport a train of freight cars belonging to the road. The effect of this course of procedure is obvious. Shippers, finding that these railroad managers discriminate against the cars belonging to the road proper, and that they grant extraordinary favors and facilities to the opposition lines, quit patronizing the former and do business with the dispatch companies. The result is that the dispatch companies now control the freight business, and the railroads have, as a rule, quit providing themselves with freight cars. When applied to for cars, the answer is, "We have none," while at the same time the side tracks are filled with freight cars belonging to these dispatch companies, demanding much higher rates than the regular charges. At the first glance we fail to understand why a course so suicidal to the best interests of the railroad company is pursued by its directors and managers, nor can we readily comprehend why they permit these dispatch companies to monopolize their tracks and destroy the business of their roads. We think we can solve the problem. These managers of the railroads, and such stockholders as are admitted to a participation in the conspiracy, are the proprietors and incorporators of the dispatch companies. After payment of the running and other expenses of the road, and their own salaries (fixed by themselves) the dividends on their railroad stock is small. Their position as stockholders in both the railroad and dispatch companies is the same as was that of the stockholders of the Pacific railroad companies and the Credit Mobilier, who could well afford to sacrifice the interests of the road and its stockholders who had no interest in the Credit Mobilier, provided they received large dividends from their Credit Mobilier stock. So, in organizing the dispatch companies and giving them the preference over the roads, with the absolute control of the freighting business, while the railroad stocks pay no dividends and depreciate in value, and the roads and rolling stock are being worn out, the dispatch business thrives and pays large dividends to this inside ring—comparatively small in numbers—which controls the road, and in addition to preying upon the public, so arrange the business as to exclude the stockholders of the road from any share in the profits of the dispatch company. Having oppressed the public by extortionate charges for transportation, increased the stock of the railroad company to an amount that precludes profitable dividends, even from the highest of tariffs, and issued and sold bonds of the company to so large an extent as to make it impossible to pay the interest on them, and at the same time meet the running expenses of the road, including their own salaries as officers and managers, having, in short, loaded the railroad companies with burdens greater than they can bear, as a last master stroke of financiering they organize themselves into dispatch companies, and while they enrich themselves they reduce the railroad companies in which they are managing directors to absolute bankruptcy. The stockholders who, confiding in the integrity of these men, elected them directors and managers, are swindled out of their legitimate dividends, their stock becomes worthless, debts accumulate against the company, locomotives, tracks, and cars are worn out in transporting freights for the dispatch company, at rates ruinous to the railroad company, and as a grand finale the road passes into the hands of these conspirators, under the orders or judgments of courts. In the meantime shippers are compelled to pay double prices for freights, because the railroad companies have not the necessary facilities for shipping; all has passed into the hands and under the control of the dispatch companies. By a mere fiction, the managers of the road contracting with themselves as dispatch companies, a competition is permitted to take the control of the carrying trade over the road, control the track and rolling stock, as well as the officers of the railroad company, destroy their business and drive them into bankruptcy. Those not in the secret of the organization fail to comprehend its necessity; why, for example, a train of cars run in the interest of the dispatch companies can travel at double the rate of speed of the trains run in the interest of the railroad company, or why higher rates for transportation should be taxed and paid. The only solution we can give is, that it presents additional means for taking from the producer an additional portion of his product, in the shape of charges supposed to be paid to a company organized for the purpose of aiding in the transportation of freights, but which is, as a matter of fact, a combination in the interest of the managers of the road with the real purpose of making personal gain to themselves at the sacrifice of the interests of the stockholders.

As a result of this new mode of conducting business, let us see how the price of freights is affected. During the summer and fall of 1872 the price of freights by water from Chicago to New York was $4.25 per ton, and by railroad from $7.00 to $8.00. With the close of navigation the rates, under the management of the dispatch companies, advanced to from $25.00 to $28.00 per ton. While the railroad companies can carry for $7.00, the dispatch companies charge $25.00. The margin for profit on the stock of these dispatch companies promises to equal the dividends of the Credit Mobilier stock, and from this showing we can have some idea of the robbery being practiced upon the people, particularly the farmers. Well may the producers of the west complain of these swindling monopolies, and band together for mutual protection.