"There are two widely differing theories concerning the management of railroads in this country; one theory is that profits should be acquired from fluctuations in the stock, and the other is that the profits should be acquired in the old-fashioned way, by performing a useful service and receiving a reward therefor, to be divided among the stockholders in the way of a dividend. These two theories are so different in their practical operation that they give rise to the most diverse consequences. Of course, many railroads are not dividend-earning, and with these the profits to the managers and those who are allied with them must come from stock fluctuations and from whatever sucking arrangements can be devised whereby their vitality or sustenance can be acquired by the favored few who are in control. Unfortunately, there are many railroads in this condition, the history of which is too well known to require description. Once in control, the way is easy to retain it and to make money by a thousand devices which ingenious and unscrupulous managers are constantly planning and putting into operation.
"The consequences of the other theory are as different, both to the corporate property and to the public, as can be imagined. When a railroad is properly managed and earning dividends, a policy of development is adopted, having for its end the natural expansion of the property in harmony with the growth of the country, the needs of business and the desires of the people. The fruits of such a policy may not be apparent at once, but they inevitably come, and, when they are reaped, are enjoyed and appreciated by all. Only by such a policy can our roads ever become great, commanding the confidence of the people, and fulfilling their highest uses; in short, only by such a policy can a railroad be brought to a high degree of perfection.
"The difference is clearly seen by contrasting a road of this character with one that is run by the Wall Street method for stock-jobbing purposes. By this method dividends are not regarded as of so much consequence to investors as an instrument or argument for affecting the value of the stock. In other words, if a dividend is earned and paid at all, it is chiefly as an instrument or agency for stock-jobbing purposes, and not because the road is managed primarily for this purpose. Furthermore, dividends, too often, are disregarded altogether, as well as any policy of permanent improvement or of general development. The cardinal idea always is, how can the road be maintained and manipulated so as to cause the largest variations in the stock and the most money for the managers?
"Too many managers, as is well known, have made great sums for themselves and built additions long in advance of their means, and have seriously crippled their corporations by so doing. But they have made fortunes for themselves. What the great majority of mankind consider is the immediate present, and not the future.
"It is undoubtedly a hard thing for those who are conducting their corporations in an honest and able manner, for the benefit of their owners, to keep still while their enemies are pounding them and glorifying those who are managing their corporations for personal and corrupt ends; but all cheap and false practices must finally lead to disaster. We hear a great deal of this kind of thing nowadays. One of the evil effects of speculation and newspaper reading is, that people have got in the way of not thinking much for themselves; of regarding as truth whatever is printed, and of not opening their eyes wide enough to discover the shallowness of the reasonings and falsehoods that are put forth at the behests of speculators, or of those who are managing corporations for speculative purposes. The American people have had an amazing experience in losses from following advice thus plentifully and freely given; nevertheless, there seem to be persons left who are willing to listen and fall into the old ways and be trapped, as so many others have been in the past. There is a considerable class, having means and nothing to do, who perhaps might just as well lose their money in poker, railroad or grain speculation as in any other way, for this furnishes about the only source of amusement to them; but, after all, there is no reason why railroads should be managed so exclusively for the amusement of this class. The time is coming, and probably is not far off, when they will get enough of it; and railroad investors will conclude that dividends for themselves are better than profits for speculators; and when they do, all stock-jobbing managers will be consigned to the limbo which is their proper destination."
This magazine is edited by Mr. Albert S. Bolles, author of several excellent financial works. We are much indebted to him for the sound banking system which we now have, and which has contributed so largely to the unexampled prosperity which this country has enjoyed for the last thirty years.
Our national banking system illustrates well how service able the corporation may be to a people when its use is restricted by wholesome laws to the performance of its proper functions.
The old United States Bank was organized for practically the same purposes as our present national banks, but for lack of proper restrictions its use was soon perverted to ignoble purposes. The bank managers showed so much partiality in the distribution of their favors and accommodations, and meddled in politics to such an extent, that the people became disgusted with it, and a renewal of its charter was refused.
Mr. Clay clearly saw how dangerous a great money power might become to our country, and, in opposing the extension of the bank's charter, said:
"The power to charter companies is one of the most exalted attributes of sovereignty. In the exercise of this gigantic power we have seen an East India Company created, which is in itself a sovereignty, which has subverted empires and set up new dynasties, and has not only made war, but war against its legitimate sovereign! Under the influence of this power we have seen rise a South Sea Company, and a Mississippi Company, that distracted and convulsed all Europe, and menaced a total overthrow of all credit and confidence, and universal bankruptcy."