It is not without interest that the fluctuations in the quotations of the stock of the Central Pacific were quite as extreme between 1885 and 1890 as were those of the Southern Pacific shares, although one stock was occasionally a dividend payer and the other was not, and that the Central Pacific stock was quoted at a distinctly lower figure between 1894 and 1898 than was the stock of its apparently more speculative associate. The reason is not to be found in the different natures of the properties represented by the two stocks, nor in any difference in operating conditions. It was plainly due to the gradually approaching maturity of the debt which the Central Pacific owed to the United States government, and to the complete uncertainty as to the effect which government action might have upon the solvency of the Central Pacific Railroad. So long as there seemed a possibility that the Central Pacific would be called upon to make good, in cash, an advance which by 1898 would amount to nearly $60,000,000—a sum which few persons believed that the Central Pacific would be able to pay—the stock certificates of this company could have only a speculative value.
The question of the best way to meet the huge obligation which had grown out of the assistance tendered to the Central Pacific Railroad by the federal government under the Pacific Railroad Acts of 1862 and 1864, was indeed the most important financial problem which the company had to solve after Mr. Stanford’s death. The two following chapters will be devoted to an exposition of the points involved in this transaction, and to a description of the solution finally reached in the year 1898.
CHAPTER XX
THE THURMAN ACT
A Loan, Not a Subsidy
The original loan of the United States government to the Central and Western Pacific railroads amounted to $27,855,680. The bonds which were issued to the companies were United States currency bonds, bearing 6 per cent interest, payable semiannually and maturing at the end of thirty years. They fell due therefore between 1895 and 1899. Some question has been raised as to whether these bonds were to be regarded as a loan or as a donation to the corporations which received them. Setting aside the fact that a loan at a critical moment may be almost as serviceable to the recipient as a gift, the evidence shows that the unquestionable purpose of Congress in 1862 and 1864 was that principal and interest of the bonds should be met by the railroads for the benefit of which they were issued. It follows that this bond issue constituted an advance to the Central and Western Pacific railroads, not a gift; a loan, not a donation. It was the contention of Mr. Huntington, indeed, that the very name “subsidy” was a misnomer. He said:
The Central Pacific never got a subsidy; they got the loan of a small subsidy. The government loaned money at six per cent and they expected and did receive direct benefits from the time the road was built. It was not a subsidy in any way.... A subsidy as I believe is where you give ... For instance if you will build a railroad I will give you $10,000 as a subsidy; as to being a loan of money it is no such thing. It is only a business negotiation.[516]