It will doubtless be alleged in defence of all this, that these secondary enterprises are supplementary to the original one—are in part undertaken for the furtherance of it; professedly minister to its prosperity; cannot, therefore, be regarded as altogether separate enterprises. And it is true that they have this for their excuse. But if it is a sufficient excuse for accessories of this kind, it may be made a sufficient excuse for any accessories whatever. Already, Companies have carried the practice beyond the making of branches and extensions. Already, under the plea of bringing traffic to their lines, they have constructed docks; bought lines of steam-packets; built vast hotels; deepened river-channels. Already, they have created small towns for their workmen; erected churches and schools; salaried clergymen and teachers. Are these warranted on the ground of advancing the Companies’ interests? Then thousands of other undertakings are similarly warranted. If a view to the development of traffic, justifies the making {93} of a branch to some neighbouring coal-mines; then, should the coal-mines be inefficiently worked, the same view would justify the purchase of them—would justify the Company in becoming coal-miner and coal-seller. If anticipated increase of goods and passengers is a sufficient reason for carrying a feeder into an agricultural district; then, it is a sufficient reason for organizing a system of coaches and waggons to run in connexion with this feeder; for making the requisite horse-breeding establishments; for hiring the needful farms; for buying estates; for becoming agriculturists. If it be allowable to purchase steamers plying in conjunction with the railway; it must be allowable to purchase merchant vessels to trade in conjunction with it; it must be allowable to set up a yard for building such vessels; it must be allowable to erect depôts at foreign ports for the receipt of goods; it must be allowable to employ commission agents for collecting such goods; it must be allowable to extend a mercantile organization all over the world. From making its own engines and carriages, a Company may readily progress to manufacturing its own iron and growing its own timber. From giving its employés secular and religious instruction, and providing houses for them, it may go on to supply them with food, clothing, medical attendance, and all the needs of life. Beginning simply as a corporation to make and work a railway between A and B; it may become a miner, manufacturer, merchant, shipowner, canal-proprietor, hotel-keeper, landowner, house-builder, farmer, retail-trader, priest, teacher—an organization of indefinite extent and complication. There is no logical alternative between permitting this, and strictly limiting the corporation to the object first agreed upon. A man joining with others for a specific purpose, must be held to commit himself to that purpose only; or else to all purposes whatever which they may choose to undertake.
But proprietors dissenting from one of these supplementary projects are told that they have the option of {94} selling out. So might the dissentients from a new State-enforced creed be told, that if they did not like it they might leave the country. The one reply is little more satisfactory than the other would be. The opposing shareholder sees himself in possession of a good investment—one perhaps which, as an original subscriber, he ran some risk in obtaining. This investment is about to be endangered by an act not named in the deed of incorporation. And his protests are met by saying, that if he fears the danger he may part with his investment. Surely this choice between two evils scarcely meets his claims. Moreover, he has not even this in any fair sense. It is often an unfavourable time to sell. The very rumour of one of these extensions frequently causes a depreciation of stock. And if many of the minority throw their shares on the market, this depreciation is greatly increased; a fact which further hinders them from selling. So that each is in a dilemma: he has to part with a good investment at much less than its value; or to run the risk of having its value greatly diminished.
The injustice thus inflicted on minorities is, indeed, already recognized in a vague way. The recently-established Standing Order of the House of Lords, that before a Company carry out any new undertaking, three-fourths of the votes of the proprietors shall be recorded in its favour, clearly implies a perception that the usual rule of the majority does not apply. And again, in the case of The Great Western Railway Company versus Rushout, the decision that the funds of the Company could not be used for purposes not originally authorized, without a special legislative permit, involves the doctrine that the will of the greater number is not of unlimited validity. In both these cases, however, it is taken for granted that a State-warrant can justify an act which without it would be unjustifiable. We must take leave to question this. If it be held that an Act of Parliament can make murder proper, or can give rectitude to robbery; it may be consistently held that it {95} can sanctify a breach of contract; but not otherwise. We are not about to enter upon the vexed question of the standard of right and wrong; and to inquire whether it is the function of a government to make rules of conduct, or simply to enforce rules deducible from the laws of social life. We are content, for the occasion, to adopt the expediency-hypothesis; and adopting it, must yet contend that, rightly interpreted, it gives no countenance to this supposed power of a Government to alter the limits of an equitable contract against the wishes of some of the contracting parties. For, as understood by its teachers and their chief disciples, the doctrine of expediency is not a doctrine implying that each particular act is to be determined by the particular consequences that may be expected to flow from it; but that the general consequences of entire classes of acts having been ascertained by induction from experience, rules shall be framed for the regulation of such classes of acts, and each rule shall be uniformly applied to every act coming under it. Our whole administration of justice proceeds on this principle of invariably enforcing an ordained course, regardless of special results. Were immediate consequences to be considered, the verdict gained by the rich creditor against the poor debtor would generally be reversed; for the starvation of the last is a much greater evil than the inconvenience of the first. Most thefts arising from distress would go unpunished; a large proportion of men’s wills would be cancelled; many of the wealthy would be dispossessed of their fortunes. But it is clearly seen that were judges thus guided by proximate evils and benefits, the ultimate result would be social confusion; that what was immediately expedient would be ultimately inexpedient; and hence the aim at rigorous uniformity, spite of incidental hardships. Now, the binding nature of agreements is one of the commonest and most important principles of civil law. A large part of the causes daily heard in our courts, involve the {96} question, whether in virtue of some expressed or understood contract, some of those concerned are, or are not, bound to certain acts or certain payments. And when it has been decided what the contract implies, the matter is settled. The contract itself is held sacred. This sacredness of a contract being, according to the expediency-hypothesis, justified by the experience of all nations in all times that it is generally beneficial, it is not competent for a Legislature to declare that contracts are violable. Assuming that the contracts are themselves equitable, there is no rational system of ethics which warrants the alteration or dissolving of them, save by the consent of all concerned. If then it be shown, as we think it has been shown, that the contract tacitly entered into by railway shareholders with each other, has definite limits; it is the function of the Government to enforce, and not to abolish, those limits. It cannot decline to enforce them without running counter, not only to all theories of moral obligation, but to its own judicial system. It cannot abolish them without glaring self-stultification.
Returning, now, to the manifold evils of which the cause was asked; it only remains to point out that, were the just construction of the proprietary contract insisted upon, such evils would, in great part, be excluded. The various illicit influences by which Companies are daily betrayed into disastrous extensions, would necessarily be inoperative when such extensions could not be undertaken by them. When such extensions had to be undertaken by independent bodies of shareholders, with no one to guarantee them good dividends, those who are locally and professionally interested would find it a less easy matter than at present to aggrandize themselves at the expense of others.
And now as to the policy of thus modifying railway legislation—the commercial policy we mean. Leaving out of sight the more general social interests, let us glance at {97} the effects on business interests—the proximate instead of the ultimate effects. The implication contained in the last paragraph, that the making of supplementary lines would no longer be so facile, will be thought to prove the disadvantage of any such limit as the one advocated. Many will argue, that to restrict Companies to their original undertakings would fatally cripple railway enterprise. Many others will remark, that, however detrimental to shareholders this extension system may have been, it has manifestly proved beneficial to the public. Both these positions seem to us more than questionable. We will first look at the last of them.
Even were travelling accommodation the sole thing to be considered, it would not be true that prodigality in new lines has been advantageous. The districts supplied have, in many cases, themselves been injured by it. It is shown by the evidence given before the Select Committee on Railway and Canal Bills, that in Lancashire, the existence of competing lines has, in some cases, both diminished the facilities of communication and increased the cost. It is further shown by this evidence, that a town obtaining branches from two antagonist Companies, by-and-by, in consequence of a working arrangement between these Companies, comes to be worse off than if it had but one branch; and Hastings is quoted as an example. It is again shown that a district may be wholly deprived of railway accommodation by granting a superfluity of lines; as in the case of Wilts and Dorset. In 1844–5, the Great Western and the South Western Companies projected rival systems of lines, supplying these and parts of the adjacent counties. The Board of Trade, “asserting that there was not sufficient traffic to remunerate an outlay for two independent railways,” reported in favour of the Great Western schemes; and bills were granted for them: a certain agreement, suggested by the Board of Trade, being at the same time made with the South Western, which, in {98} return for specified advantages, conceded this district to its rival. Notwithstanding this agreement, the South Western, in 1847, projected an extension calculated to take most of the traffic from the Great Western extensions; and in 1848, Parliament, though it had virtually suggested this agreement, and though the Great Western Company had already spent a million and a half in part execution of the new lines, authorized the South Western project. The result was, that the Great Western Company suspended their works; the South Western Company were unable, from financial difficulties, to proceed with theirs; the district has remained for years unaccommodated; and only since the powers granted to the South Western have expired from delay, has the Great Western recommenced its long-suspended undertakings.
And if this undue multiplication of supplementary lines has often directly decreased the facilities of communication, still more has it done this indirectly, by maintaining the cost of travelling on the main lines. Little as the public are conscious of the fact, it is nevertheless true, that they pay for the accommodation of unremunerative districts, by high fares in remunerative districts. Before this reckless branch-making commenced, 8 and 9 per cent. were the dividends returned by our chief railways; and these dividends were rapidly increasing. The maximum dividend allowed by their Acts is 10 per cent. Had there not been unprofitable extensions, this maximum would have been reached many years since; and in the absence of the power to undertake new works, the fact that it had been reached could not have been hidden. Lower rates for goods and passengers would necessarily have followed. These would have caused much additional traffic; and with the aid of the natural increase otherwise going on, the maximum would shortly again have been reached. There can scarcely be a doubt that repetitions of this process would, before now, have reduced the fares and {99} freights on our main lines by at least one-third. This reduction, be it remembered, would have affected those railways which subserve commercial and social intercourse in the greatest degree—would, therefore, have applied to the most important part of the traffic throughout the kingdom. As it is, however, this greater proportion of the traffic has been heavily taxed for the benefit of the smaller proportion. That the tens who travel on branches might have railway communication, the hundreds who travel along main lines have been charged 30, or 40 per cent. extra. Nay, worse: that these few might be accommodated, the many who would have been brought on to the main lines by lower fares have gone unaccommodated. Is it then so clear that undertakings which have been disastrous to shareholders have yet been beneficial to the public?
But it is not only in greater cost of transit that the evil has been felt; it has been felt also in diminished safety. The multiplication of railway accidents, which has of late years drawn so much attention, has been in no inconsiderable degree caused by the extension policy. The relation is not obvious; and we had ourselves no conception that such a relation existed, until the facts illustrative of it were furnished to us by a director who had witnessed the whole process of causation. When preference-share dividends and guarantees began to make large draughts upon half-yearly returns—when original stock was greatly depreciated, and the dividends upon it fell from 9 and 8 per cent. to 4 1⁄2 and 4 and 3 1⁄2, great dissatisfaction necessarily arose among shareholders. There were stormy meetings, motions of censure, and committees of investigation. Retrenchment was the general cry; and retrenchment was carried to a most imprudent extent. Directors with an indignant proprietary to face, and under the fear that their next dividend would be no greater, perhaps less, than the last, dared not to lay out money for the needful repairs. {100} Permanent way, reported to them as requiring to be replaced, was made to serve awhile longer. Old rolling stock was not superseded by new to the proper extent; nor increased in proportion to the demand. Committees, appointed to examine where the expenditure could be cut down, went round discharging a porter here, dispensing with a clerk there, and diminishing the salaries of the officials in general. To such a length was this policy carried, that in one case, to effect a saving of £1200 per annum, the working staff was so crippled as to cause, in the course of a few years, a loss of probably £100,000: such, at least, is the opinion of the gentleman on whose authority we make this statement, who was himself one of the retrenchment committee. What, now, was the necessary result of all this? With the line out of condition; with engines and carriages neither sufficient in number nor in the best working order; with drivers, guards, porters, clerks, and the rest, decreased to the smallest number with which it was possible to work; with inexperienced managers in place of the experienced ones driven away by reduced salaries; what was likely to occur? Was it not certain that an apparatus of means just competent to deal with the ordinary traffic, would be incompetent to deal with extraordinary traffic? that a decimated body of officials under inferior regulation, would fail in the emergencies sure from time to time to occur? that with way and works and rolling stock all below par, there would occasionally be a concurrence of small defects, permitting something to go wrong? Was not a multiplication of accidents inevitable? No one can doubt it. And if we trace back this result step by step to its original cause—the reckless expenditure on new lines—we shall see further reason to doubt whether such expenditure has been as advantageous to the public as is supposed. We shall hesitate to indorse the opinion of the Select Committee on Railway and Canal Bills, that it is {101} desirable “to increase the facility for obtaining lines of local convenience.”
Still more doubtful becomes the alleged benefit accruing to the public from extensions which cause loss to shareholders, when, from considering the question as one of traffic, we turn to consider it as a general commercial question—a question of political economy. Were there no facts showing that the travelling facilities gained were counterbalanced, if not more than counterbalanced, by the travelling facilities lost; we should still contend that the making of branches which do not return fair dividends, is a national evil, and not a national good. The prevalent error committed in studying matters of this nature, consists in looking at them separately, rather than in connexion with other social wants and social benefits. Not only does one of these undertakings, when executed, affect society in various ways, but the effort put forth in the execution of it affects society in various ways; and to form a true estimate, the two sets of results must be compared. The axiom that “action and re-action are equal, and in opposite directions,” is true, not only in mechanics—it is true everywhere. No power can be put forth by a nation to achieve a given end, without producing, for the time being, a corresponding inability to achieve some other end. No amount of capital can be abstracted for one purpose, without involving an equivalent lack of capital for another purpose. Every advantage wrought out by labour, is purchased by the relinquishment of some alternative advantage which that labour might else have wrought out. In judging, therefore, of the benefits flowing from any public undertaking, it is requisite to consider them not by themselves, but as compared with the benefits which the invested capital would otherwise have secured. But how can these relative benefits be measured? it may be asked. Very simply. The rate of interest which the capital will bring as thus respectively {102} employed, is the measure. Money which, if used for a certain end, gives a smaller return than it would give if otherwise used, is used disadvantageously, not only to its possessors, but to the community. This is a corollary from the commonest principles of political economy—a corollary so obvious that we can scarcely understand how, after the free-trade controversy, a committee, numbering among its members Mr. Bright and Mr. Cardwell, should have overlooked it. Have we not been long ago taught, that in the mercantile world capital goes where it is most wanted—that the business which is at any time attracting capital by unusually high returns, is a business proved by that very fact to be unusually active—that its unusual activity shows society to be making great demands upon it; giving it high profits; wanting its commodities or services more than other commodities or services? Do not comparisons among our railways demonstrate that those paying large dividends are those subserving the public needs in a greater degree than those paying small dividends? and is it not obvious that the efforts of capitalists to get these large dividends led them to supply the greater needs before the lesser needs? Surely, the same law which holds in ordinary commerce, and also holds between one railway investment and another, holds likewise between railway investments and other investments. If the money spent in making branches and feeders is yielding an average return of from 1 to 2 per cent.; while if employed in land-draining or ship-building, it would return 4 or 5 per cent.; it is a conclusive proof that money is more wanted for land-draining and ship-building than for branch-making. And the general conclusions to be drawn are, that that large proportion of railway capital which does not pay the current rate of interest, is capital ill laid out; that if the returns on such proportion were capitalized at the current rate of interest, the resulting sum would represent its real value; and that {103} the difference between this sum and the amount expended, would indicate the national loss—a loss which, on the lowest estimate, would exceed £100,000,000. And however true it may be that the sum invested in unprofitable lines will go on increasing in productiveness; yet as, if more wisely invested, it would similarly have gone on increasing in productiveness, perhaps even at a greater rate, this vast loss must be regarded as a permanent and not as a temporary one.
Again then, we ask, is it so obvious that undertakings which have been disastrous to shareholders have been advantageous to the public? Is it not obvious, rather, that, in this respect, as in others, the interests of shareholders and the public are in the end identical? And does it not seem that instead of recommending “increased facilities for obtaining lines of local convenience,” the Select Committee might properly have reported that the existing facilities are abnormally great, and should be decreased?