It is evident that the prices of the above stocks were not materially lower on September 1, 1897, than on October 1, 1892. The exact average was 73¾ for the earlier month, and 71⅛ for the later. The comparison may fairly, however, be carried further than this, and considerable pains have been taken to arrive at general figures which are conclusive. Such, it is believed, are the following. The market value of thirty-nine different bond issues of seventeen companies, taken at random from among those frequently bought and sold upon the New York and Philadelphia exchanges, was in October, 1892, $388,628,968. This differed little from the market value of the same securities in September, 1892, which was $388,198,432, or that in November, 1892, which was $390,170,323. The market value of these issues in 1897 was $371,125,135 in August, $373,875,293 in September, and $372,962,239 in October. Represented in tabular form the situation appears as follows:

Market Value of Securities

18921897Decrease 
September$388,198,432August$371,125,1354.4 per cent 
October 388,628,968September 373,875,2933.7 per cent 
November 390,170,323October 372,962,2394.4 per cent 

In other words, the quotations for this large mass of representative securities were within 4½ per cent in 1897 of what they were in 1892. If to these are now added the same proportions of stock that existed for the disturbed securities of the seven reorganizations from 1893–8 there appears the following result:

Market Value of Securities

18921897Decrease 
September$641,105,160August$620,794,2023.1 per cent 
October 644,276,634September 631,061,3292.0 per cent 
November 644,131,632October 629,005,577 2.3 per cent[723] 

This is, as nearly as possible, a computation comparable with figures already cited. It is made up the same way, has too broad a basis to give a non-typical result, and is not dependent upon the selection of a single month for its conclusion that security prices had nearly regained their former level by the last half of 1897. A decrease in value of 16.2 per cent for the securities of seven reorganized railroads has been determined. Less than one-fifth of this can be attributed to general causes. The significance of the decrease therefore remains.

In conclusion, two other points of interest may be mentioned. First, the provision which sound reorganization plans should make for the future development of their properties, and second, the creation of voting trusts to prevent sudden changes in control. It has been seen that restrictions on new mortgages have accompanied the issue of income bonds and of preferred stock, in order to afford to these latter a desirable protection. If old bondholders demand these clauses, a certain amount of new issues is required by the interests of the corporation. A railroad is never finished. New extensions and improvements which shall increase earnings are generally called for to a degree which current earnings are insufficient to meet. Some provision for regular increments of new capital, without the need of stockholders’ approval in each case, is highly advisable, and implies no lack of conservatism. In fact, some such provision is often forced upon a railroad. Take the case of the successive reorganizations of the Atchison properties. In 1889 no new bonds were to be allowed to be inserted between the income and the mortgage issues, but it was left optional with the management to deduct all improvements before estimating the earnings applicable to dividends on the former bonds. This proved quite inadequate, and the reorganization of 1892 provided definitely a fund of $20,000,000 second mortgage bonds, which were to be issued to a limit of $5,000,000 each year, for specific improvements on the Atchison, exclusive of the Colorado Midland and the St. Louis & San Francisco. The right was reserved to the company, when all the above should have been used up, to issue more bonds of the same sort for the same purpose, and on the same mileage up to a limit of $50,000,000. Finally, in 1895, there were reserved $30,000,000 general first mortgage bonds, to be issued each year to a limit of $3,000,000, and $20,000,000 adjustment bonds, to be issued each year to a limit of $2,000,000, after the general mortgage fund should have been exhausted. In each of the reorganizations in the nineties considered in this study, in which restrictions on new bond issues were imposed, there was concomitant provision for regular increments of mortgage bonds to be used for improvements, betterments, and new construction. Thus the Baltimore & Ohio in 1898 reserved $5,000,000 prior liens and $27,000,000 general mortgage bonds, of which the latter were to be issued at the rate of not exceeding $1,500,000 for the first four years after the organization of the new company, and not exceeding $1,000,000 a year thereafter; and the former were to be put forth at the rate of not exceeding $1,000,000 a year after January 1, 1892, for enlargements, betterments, and extensions. The Erie in 1895 provided $5,337,208 in cash to be spent at once, and $17,000,000 in general lien bonds to be issued during the years following the reorganization. The Northern Pacific in 1896 set aside $25,000,000 prior lien bonds, of which not more than $1,500,000 were to be issued in any one year, and $4,000,000 general lien bonds, presumably to be used as needed. The Reading in 1895 reserved $20,000,000 general mortgage bonds for new construction, additions, and betterments, of which not over $1,500,000 were to be used in any one year. And, finally, the Richmond Terminal reserved $20,000,000 in 5 per cent bonds to be used at the rate of $2,000,000 per year, and has recently authorized a $200,000,000 4 per cent mortgage which will raise the yearly limit of expenditure to $5,000,000.[724]

Before the nineties, as after, provision for new capital accompanied restriction on the future issue of bonds. In 1886 the Reading provided a lump sum of $9,792,000 general mortgage bonds for future use in the improvement of the railroad; and in 1875 the Northern Pacific contemplated the issue of first mortgage bonds to an average of $25,000 per mile of new road actually completed. Where, as with the Atchison in 1889, some such provision did not accompany the general restrictions placed upon new bond issues, or where, as with the Northern Pacific in 1875, the provision proved inadequate, fresh measures of relief were compelled. The Atchison reorganization of 1892 has been mentioned; in 1889 a financial operation of the Northern Pacific, which according to our definition was not properly a reorganization, provided $20,000,000 5 per cent consolidated mortgage bonds for additional branches at a rate not to exceed $30,000 per mile, and a like sum for betterments, etc.