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At this time a few interesting facts were developed by a government commission which are worth reporting here. It was shown that for the $54,000,000 stock of the Central Pacific only $760,000 had been paid in cash. The balance was just pure water—not very pure at that. For $36,824,000 Union Pacific stock only $406,650 had been paid in cash, the balance being that same variety of water. It was shown that the promoters of these railroads had obtained from first mortgage bonds $61,000,000; from United States bonds $61,000,000; from land sold $50,000,000; from stock $97,000,000, a total of $259,000,000 and that the costs of the roads had not exceeded $95,000,000, thus giving the promoters a tidy profit on this public enterprise of $164,000,000. It was also shown that from 1879 to 1894 the net income of the roads after paying all operating expenses had exceeded $374,700,000; and yet it was claimed before congress that the roads were practically bankrupt and could not pay the government bonds.
Eventually a deal was worked out whereby these bonds were to be paid off over a series of years, the public supplying the money to pay themselves, through transportation rates, in order that the genial promoters and their heirs might retain their publicly donated fortunes intact. To those who marvel at the generosities of congress it is only necessary to refer to the correspondence between Mr. Huntington and his legislative agents which became public some years ago when an attempt was made to find out what had been done with some $5,000,000 railroad monies expended for political purposes. It is enlightening to read the following comments by Mr. Huntington upon the representatives of the people in congress assembled:
"Scott is prepared to pay or promises to pay a large amount of money to pass his bill but I do not think he can pass it although I think that this coming session of congress will be composed of the hungriest set of men who ever got together, and the devil knows what they will do.”
Another letter: "I notice that you say of Luttrell (a congressman), he is a wild hog; don't let him come back to Washington."
Another letter: “Can you have Safford (governor of Arizona) call the legislature together and grant such charters as we want at a cost of say $25,000 ?"
Another letter: "It costs money to fix things so that I knew that his bill would not pass. I believe with $200,000 I can pass our bill but I take it that it is not worth this much to us."
Another letter: "Scott is working mostly among the commercial men. He switched Senator Spencer of Alabama and Walker of Virginia this week but you know they can be switched back with proper arguments when they are wanted. All the members in the house from California are doing first rate except Piper, and he is a damned hog; anyway you can fix him. I wish you would write a letter to Luttrell saying that I say he is doing first rate and is very able, etc., and send me a copy."
Another letter: "I think I have written you before about Senator Conover. He may want to borrow some money, but we are so short this summer I do not see how we can let him have any in California.”
(It will be noted that the idea of borrowing money did not originate with Secretary Fall.)
Another letter: "I saw Axtel, governor of New Mexico, and he said he thought if we would send to him such a bill as we wanted to have passed into a law he could get it passed with very little or no money; when if we sent a man there they would stick him for large amounts."
Another letter: "If we are not hurt this session it will be because we pay much money to prevent it and you know how hard it is to get it to pay for such purposes.
I think congress will try very hard to pass some kind of a bill to make us commence paying on what we owe the government. Every year the fight grows more and more expensive."
In another letter regarding a senator from Nevada, he wrote: “I have paid him the $25,000 as he told me he needed it very much.”
Another letter: "Matters do not look well in Washington, but I think we shall not be hurt much although the boys are very hungry and it will cost considerably to be saved.”
It may be interesting at this place to point out that Mr. Huntington was not alone in his methods of dealing with public officials. He refers in another letter to his competition with Jay Gould, the founder of another railroad dynasty, in the following language: "Jay Gould went to Washington about two weeks since and I know saw Mitchell, senator from Oregon, since which time money has been used very freely in Washington and some parties have been hard at work at the T. & P., N. P. that never work except for ready cash, and Senator Mitchell is not for us as he was, although he says he is, but I know he is not. Gould has large amounts of cash and he pays it without stint to carry his points."
Let us turn now for a little consideration of another imperial family. In the year 1876 a government endowed railroad—the
St. Paul and Pacific—was in the hands of a federal receiver named Farley. According to his subsequent testimony in court there came to him at that time a humble dealer in butter and eggs whose name was James J. Hill who had previously been "working on the railroad." Mr. Hill proposed, according to Mr. Farley, that through him as receiver and with the assistance of a few friends they could manage to squeeze out the bondholders of this railroad who were innocent investors residing in Holland; and thus they could get control of the road. A deal was made. The road was sold. The Dutch bondholders were persuaded by the corrupt receiver to accept a small portion of cash for the large amount of defaulted bonds which they held.
As soon as the road was sold a new issue of bonds was made large enough to cover all the expenses of the Hill gang, leaving them some $15,000,000 of stock which soon had a real value. Mr. Farley claimed that he was to have received one-fifth of that stock for his betrayal of his trust; and when the others would not pay him he sued them. Thus the story of the corrupt foundation of this proud house became public property.
Mr. Farley never got his pay; but that $15,000,000 of stock, issued for nothing, was quite a money maker. The land grant gave the railroad 6,400 acres of land for every mile of road; and, as a large percentage of the road was at a cost of less than $10,000 a mile, it becomes obvious that the value of the land was sufficient to pay the cost of the road. Furthermore, the reorganized road was prosperous from the start. One tabulation of the profits shows that by the year 1906 after payment of operating expenses and interest on borrowed money the insiders had collected approximately $375,000,000 of extra profits. The political control exercised by Mr. Hill throughout the states that have paid tribute to his railroads and in the Congress of the United States is well known. There are no letters available like those of Mr. Huntington to show the manner in which this control was exercised. But if the story of the aggrieved receiver of the St. Paul and Pacific is to be believed it might appear that Mr. Hill's methods for controlling public officials did not differ greatly from Mr. Huntington's except that Mr. Farley complained that he did not get what he was promised, whereas there are ample evidences that Mr. Huntington paid for what he bought.
In order that the forgetful citizen may not imagine that the building of railroad fortunes through corruption was practiced only west of the Mississippi river, or in the earlier days of railroad development, he might be reminded of the comparatively recent collapse of the New York, New Haven & Hartford. He might be asked to read the government reports showing how the capitalization of that railroad was increased over 240 per cent in seven years, while the property was neglected and horrible wrecks occurred with such outrageous frequency that eventually the public was aroused and the whole rotten mess was exposed with a smash of many fine reputations and a loss to investors of two or three hundred million dollars.
The forgetful citizen might also recall the history of the Chicago & Alton, for a time one of the best railroads in the middle west which fell into the efficient control of another railroad genius, the founder of one of the later aristocracies, Edward H. Harriman. He increased the obligations of this railroad, according to the report of the Interstate Commerce Commission, by $60,000,000 without adding a dollar of investment to the property. The forgetful citizen will profit also by reading the story of the wreckage which the Moore brothers and their associates made of the Rock Island system, of the Frisco lines, and the Chicago and Eastern Illinois.
He might review the stories of the Pere Marquette and the Cincinnati, Hamilton and Dayton to see how well located railroads, capable of furnishing transportation at reasonable rates, were loaded and overloaded with capital obligations until they broke under the strain, their service disorganized, their efficiency permanently impaired and real public service made impossible in order that the insiders might increase their private fortunes. He might reread the shameful record of how Jay Gould and Daniel Drew looted the Erie and plundered innocent investors who thought that when thieves made money they became honest men. If he has forgotten why public clamor demanded the abolition of free passes, he might investigate the dust-covered reports of the Interstate Commerce Commission and note how in one year the Louisville & Nashville issued 6,578 passes to public officials, granting them transportation for a total of over 2,000,000 miles with a value exceeding $60,000 while one of its subsidiaries in the same year issued over 16,500 passes to public officials for a total of over 5,500,000 miles, with a value of nearly $165,000.
The purpose of recalling these fragments of railroad higtory is to point out again the falsity of that fable which the railroad propagandists repeat from time to time: that the railroads of the United States represent in their development great benefits conferred upon the public by the farsighted, efficient, courageous public service of private individuals. In truth the American railroads represent the squandering of billions of dollars furnished by the public in land grants, in donations of public money, in payment of exorbitant rates, wherein greedy, dishonest exploiters of public needs have competed with each other for opportunities to bleed the public.
Let it be understood that railroads have not been omitted from this historical review because their methods were different, but because of the impossibility of reviewing the entire railroad industry in a short space of time. The available records concerning the operations of the New York Central, the Pennsylvania, the Nickle Plate, the Santa Fe, the Burlington, the Illinois Central, the Hocking Valley, the Northern Pacific and other great railroad systems tell the same story. Public monies are obtained either through outright gift, or valuable franchises permitting the levying of unjust taxes upon the public, extortionate earnings are capitalized, melons are cut to divide surplus profits with insiders, stock markets are manipulated, innocent investors are plundered, favored contractors and railroad officers become wealthy in secret partnerships. Ruthless and greedy men operating within and without the law have used every known device for getting something for nothing and the public has paid them billions of dollars for no value received.
To review briefly the period of graft that followed the period of gift, a few facts may be quoted from one of the great decisions of the Interstate Commerce Commission written by Commissioner Lane in 1911 in the western rate case. In that case the principal carriers in the west sought to increase rates, utilizing the arguments which the railroad propagandists have been dinning in the ears of the American people for the last 20 years.
They claimed they needed more capital to provide more facilities, that they could not raise capital unless they had higher rates. They claimed that government regulation was stilling successful operation of railroad properties. Every one of their arguments was proven conclusively to be false.
Commissioner Lane pointed out that in 10 years the mort gage indebtness of the railroads had increased 77 per cent, although their mileage had increased but 36 per cent; that interest in 1899 on this debt was at the rate of 442 per cent; while in 1909 it was less than 4 per cent. In 10 years the roads had raised $4,250,000,000 at a less rate of interest than they were previously paying: and Commissioner Lane well said: “These figures are incomprehensible. Our railroads borrowed upon mortgage in one decade more than twice as much as the national debt at the close of the Civil War. "Give us reason for hope' is the impassioned cry of one of the railroad counsel. "We wish to know that we may have the funds wherewith to supply the transportation needs of our people.' To this there is apparently no answer unless one is suggested by these figures."
The commissioner continued: “In 10 years with an increased rate of dividend and increased maintenance charges and a vastly increased fixed charge for interest, these carriers had accumulated a surplus of $606,536,556, or an increase of 312 per cent as of 1899, while the mileage had increased only 36 per