"Moreover, it may be fairly claimed that much greater benefits would have been realized had the statute as enacted expressed the evident purpose of those who framed it, and received a construction according to its apparent import. It is not too much to say that judicial interpretation has limited its scope and ascribed to it an intent not contemplated when it was passed. If its supposed meaning, as understood at the time of its passage, had been upheld by the courts, it is believed that its operation would have been much more effective and its usefulness greatly increased. So far as failure has attended the efforts to give it proper administration, that failure can be mainly attributed to differences between its apparent meaning and the judicial interpretation which some of its provisions have received; and the commission is of the opinion that if the present law could be so altered as to express clearly and beyond doubt what it was evidently intended to express at the time of its enactment, it would prove, even without other amendment, an instrumentality of the highest value in removing the evils against which it is aimed.
"The specific instances in which the statute has received judicial construction, and the limitations upon its scope and meaning which the courts have imposed, will be alluded to at greater length in another part of this report.
"It seems proper, however, to observe in this connection that the effect of these decisions in weakening the law and preventing its enforcement has been greatly exaggerated. The impression has been created in many directions that judicial construction has invalidated the essential feature of the statute and condemned the general principle which lies at its foundation. That impression cannot be too speedily corrected, for nothing has been decided which permits such an inference. On the contrary, neither the power of the national legislature to regulate the transportation of interstate commerce nor the general policy of the existing law has been questioned by any tribunal."
Probably no law in the United States has ever before been so fiercely attacked at all of its vital points as has this law. It is not strange that among the great number of National and State courts the railroad companies have found occasionally a judge ready and willing to assist them in breaking it down, but upon the whole the judiciary has been disposed to co-operate with other departments of the Government in their efforts to secure effective regulation of the transportation business.
CHAPTER VI.
STOCK AND BOND INFLATION.
The complaint is frequently heard from railroad men that our freight rates are too low, and in support of it the statement is usually made that the greater part of the railroad stocks of the United States pays dividends considerably smaller than the average interest realized by capitalists on money loaned or invested in other enterprises.
This statement may be true, and yet it is valueless as an argument for higher rates. It may be admitted that the dividends declared upon the face values of railroad stocks are quite moderate, but it is a fact too well authenticated to be contradicted that railroad securities represent to a considerable extent only fictitious capital. The public concedes that liberal returns should be allowed to railroad companies on money actually invested, but it naturally objects to being taxed for the purpose of making dividends on watered stock. The evil referred to is a serious one, and has contributed much to the general demand for railroad reform. Most of the early roads of this country were built for the accommodation of local traffic. They were constructed and managed by business men upon business principles. The stock issued by the companies was in most cases paid for in full and was not unfrequently sufficient for the completion of the entire road, and no incumbrance was permitted by the owners to be placed upon the property. These enterprises as a rule proved very profitable. One of the first roads running west of Chicago will serve as an illustration. The Galena and Chicago Union Railroad Company paid a 10 per cent. dividend within a year after being opened to traffic, and gradually increased its dividends to 15, 20 and 22 per cent. During the first two years of the road's operation its expenses were only 38-1/2 per cent. of its earnings. During the second year the company, after paying a 15 per cent. dividend, diminished its debt nearly $60,000 and increased its surplus $11,700. In 1856 the road had a length of 232 miles, on which the gross earnings amounted to $2,315,787. This revenue exceeded the estimate made by the company's officers the year previous by $300,000. In his annual report for 1856 the president of the company said: "This result shows an increased surplus of $65,000, after paying 22 per cent. in dividends and all expenses and interests chargeable to income account." The report also shows that expensive improvements, such as large permanent bridges and stone culverts, displacing as a rule wooden ones, were charged to current expenses.