Earnings and Stock Issues
Probably, indeed, the earnings of the Central Pacific Railroad during construction were more important than the contributions of the partners. Between 1863 and 1869, according to the calculations of the United States Pacific Railway Commission, the gross earnings of the Central Pacific amounted to $10,807,508.76, its operating expenses to $4,700,625.56, and its net earnings to $6,106,884.20. The surplus after the deduction of interest and taxes for this period amounted to $2,427,533.80.[26] Most of these earnings came from local business, although an attempt was made to provide facilities for through travel before 1869, by arranging stage accommodation for stretches not yet covered by rails.
If we add three or four million dollars to the receipts listed in Stanford’s table, we shall have made liberal allowance for railroad earnings and partnership contributions up to 1869. This allowance would not be materially increased if account were taken of sales of Central Pacific stock. The authorized stock issue of the Central Pacific Railroad in 1862 was $8,500,000. In 1864 this was raised to $20,000,000, and in 1868 it was made $100,000,000. In spite of these large issues, the evidence is perfectly clear that there were substantially no cash subscriptions to Central Pacific stock, nor any market for this stock when issued. It is on record, for example, that one M. D. Boruck opened an office at the corner of Bush and Montgomery streets in San Francisco on behalf of the company, and kept it open, off and on, for about twenty-two days in November and December, 1862, and in February, 1863. He secured three subscriptions to an aggregate of twelve or fifteen shares.[27]
We know also that Crocker went personally to Virginia City to sell stock, but without success. He says of this experience:
They wanted to know what I expected the road would earn. I said I did not know, though it would earn good interest on the money invested, especially to those who went in at bed rock. “Well,” they said, “do you think it will make 2 per cent a month?” “No,” said I, “I do not.” “Well,” they answered, “we can get 2 per cent a month for our money here,” and they would not think of going into a speculation that would not promise that at once.[28]
Stanford says that he bought 2,300 shares of Central Pacific at ten cents on the dollar at one time, in order to accommodate a stockholder,[29] and it appears that Charles and A. B. Crocker transferred their stock to Huntington, Hopkins, and Stanford in 1873, for $13 a share.[30] No attempt to sell Central Pacific stock generally was made until 1873, and it was not listed on the Stock Exchange until 1874.[31]
Bond Sales
As a matter of fact, there was no sale at the beginning even for Central Pacific mortgage bonds. Huntington went to New York to get these securities started among the moneyed men there, and after a while he had some small success. But D. O. Mills gave it as his deliberate judgment on a later occasion that there was the greatest difficulty in securing loans on the bonds the Central Pacific had to offer—including government, county, convertible, state aid, and first mortgage bonds—to as much as 75 per cent of the face value of the issues.[32] Iron for the first 50 miles out of Sacramento was delivered to the associates only after they had given their own personal obligations secured by deposit of the company’s bonds. An agreement was entered into, besides, that Huntington and his friends would be responsible, as individuals, for ten years, for the payment of interest on these bonds.[33]
After 1864 conditions improved somewhat, and first mortgage bonds were disposed of at about 75, while convertible and state aid bonds brought 56 and 65 respectively.[34] Yet at the time when the construction of the Central Pacific Railroad was finished the private property of every one of the directors of the company was mortgaged up to the limit of all his individual credit would possibly allow and bear. The notes of the four associates were outstanding everywhere, many of them bearing interest rates as high as from 10 to 12 per cent, and the statement is made that Leland Stanford alone upon one occasion had his account at the bank overdrawn to the extent of $1,300,000.[35]