to pay the rental, thus cutting off the road from its lease and leaving him free to dispose of it as he pleased. He thereupon sold the roads to the Northern Central Railroad of Pennsylvania for three million dollars.
Again, the Northern Railroad of New Jersey had a stock capital of $159,000 and $300,000 of bonds. It had never been able to earn dividends on this small amount of stock. It was leased to the Erie on favorable terms. Here was another example of Gould’s genius. Four million dollars in bonds were issued on the property, and a million dollars of stock, which was divided among the conspirators; and then, to give these securities a market value, a new lease was made to the Erie by which the latter guaranteed thirty-five per cent. of the road’s net earnings—enough to pay interest on the enormous creation of new bonds and four or five per cent. on the stock.
One more instance: The National Stock Yard Company was organized by the conspirators. The Erie Company advanced a million dollars, taking bonds to that amount. A million dollars of stock was then issued, representing not one cent of money paid, and was divided among the gang.
It is well known that in nearly every large railroad company there is a construction ring which builds all extensions and feeders on the most extravagantly profitable terms granted by the railroad company, the officials of the railroad being the chief parties in interest in the ring.
Aside from all these rascalities in the actual management of the properties, is the deplorable fact that the officials and directors speculate in the shares of their own concerns, thus betraying the interests of the bona fide stockholders, whose trustees they are. It is more than suspected that the chief bears who have been active in depressing the securities of some of the Western roads during the past winter were in partnership with the directors and other officers of these corporations. It is easy to see that those in a position to know the exact earnings of a company and to foresee the possibilities in the way of dividends have the advantage of everybody else in estimating the future market value of the securities.
While the holders of railroad bonds and shares, however, display so much apathy with reference to the management of their properties and the election of proper men to administer them, they deserve little sympathy. It is notorious that the annual elections of most of our railroads are the merest pro forma affairs. The men who are in power send out blanks every year asking for the proxies of shareholders, and the latter forward them, and thus enable these men to continue in power and practically own the corporations they control. Where there is a contest for control, it usually lies, not between the shareholders, on some kind of principle in the administration of the property, but is found to be between two speculative Wall street factions, each of whom is anxious to secure the pickings. Until the shareholders of American roads take an active interest in their properties, as do English shareholders for instance, and insist upon the publication of the annual reports in advance of the meetings in order that they may attend the meetings and question their officials upon all dubious points, there can be little hope of permanent reform. In cases where there is a contest, it is not at all uncommon for an interested faction to pay stockholders a small sum for the proxies on their stock—a proceeding which has been aptly compared to a merchant selling to a burglar for a dollar in cash the use of the key of his safe every night. So much for the relations of holders of shares and bonds to the men who manage the corporations. As to the relations of the railroads to the public, it is clear that the recent widespread discussion and the salutary influence of the Interstate Commission must lead to beneficent results.