Mr. TALCOTT, assistant to the president of the Seaboard Air Line, thinks that the principal cause of the receiverships, which were so numerous several years ago, was that the managers in their anxiety to build up big systems bought properties and paid more for them than they were worth. In the case of the Richmond Terminal, for instance, an exceedingly valuable stock was diluted by adding weak properties to it until its back was broken. This company was not actually insolvent when it was put into the hands of a receiver. It was not in default even on a note. Ratecutting had nothing to do with the failure of this company, nor with that of the Norfolk and Western, though there have been many cases of failure due to reckless competition. (636.)

D. Speculation in railway and other securities.—Mr. WOODLOCK, railroad editor of the Wall Street Journal, expresses the opinion that the majority of transactions on the New York Stock Exchange are purchases of stocks on margin. By this system, if a man has $1,000 to invest, he can buy 100 shares, par value $10,000. He gets whatever profit there is from an advance, and is liable for the loss if the shares go down.

Mr. Woodlock does not believe that speculation in stocks has any permanent effect on their value at all. The real earning capacity determines the prices of stocks in the long run. Temporary fluctuations, even of considerable amount, may take place without any real change in permanent value. This may be due to sympathy with other stocks or to the necessity which compels some large holder to sell out rapidly. Thus, even in the case of the Great Northern, which is on a splendid financial basis, there have been fluctuations of as much as 20 points in a day."

Mr. Woodlock asserts further that the stock exchanges have very strict requirements as regards stocks which are formally listed. The companies have to furnish much information at the outset, and make periodical reports. There are some companies, such as the American Sugar Refining Company, which are not willing to furnish the information required for listing. The stock exchange allows some of these, known as unlisted securities, to be dealt with on the floor of the exchange, but with the understanding that greater risk is involved. Unlisted securities are mostly "industrials." The witness believes that, if possible, legislation requiring the furnishing of adequate information regarding corporations should be enacted. (465, 466.)

Stock gambling.-Professor PARSONS states that one of the evils of overcapitalization in private monopolies is that it creates a mania for speculation and stock gambling in New York and other cities, which is very detrimental to the industries of the country and also detrimental in its effect on young men especially. If these industries were controlled by the public the opportunities for stock gambling would be done away with. (155, 156.)

Mr. GREENE, of the Audit Company of New York, asserts that the trade on the New York Stock Exchange is all legitimate. No member is allowed to resort to bucket-shop practices-simply betting on the market, without actual buying and selling. (483.)

Wall street and banking houses.-Mr. SCHIFF testifies that "Wall street" in the sense in which it is generally used means the stock exchange, which is something entirely different from the banking business. Large banking houses have only to do with Wall street in so far as it represents a market for securities. Speculation is an entirely different thing. The enormous rise in values which has lately taken place (1901) has to a great extent been the result of market speculation. "People went insane and went into what is popularly termed Wall street and bought on margins, and naturally something had to occur, as it always does, to bring down these unreasonably inflated prices, and it did occur."

American wealth and prosperity will keep prices to their natural level. Legitimate capital and property can never be used to build up a level of prices which is not justified. The American banker did not come to the aid of the speculator, but merely saved the legitimate owners of securities from being compelled to sacrifice them at any price. (776.)

Northern Pacific Railroad corner. Mr. RICE says that he understands that an injunc tion was issued to compel the holders of the stock of the Northern Pacific to settle with the short sellers on a basis of $150 per share, on the ground that where there is a physical impossibility of performing the contract it can not be enforced. (742.)

E. American securities held in Europe.-Mr. SCHIFF testifies that nobody can estimate correctly the proportion of American securities held in Europe, but he believes the amount is exceedingly small and the greatest protection to the welfare and prosperity of this country, the great strength of the country, lies in the fact that Europe holds so few of our railroad securities. (776.)

16A- -V

F. Recent increased earnings of railroads. (See also, in relation to rates, p. LXXIV).—Mr. GREENE, of the Audit Company, of New York, says that there is a very great increase in the earnings of railroads in the last few years as compared with their earnings during the period of depression, and even before 1893. This increase is due, first, to the general prosperity of the country and the greater amount of trade shipped, and, second, to the improved methods of the railroads. They have been forced to learn how to do business better-for example, to increase train loads in a way that was thought impossible 10 years ago. The lower rates of interest on bonds will also leave more for the stockholders than formerly. (486.)

Mr. NICHOLSON, manager of the Central Railway Clearing House, testifies that there has been a general increase month by month in the railway business of the country for the last year, 1900-1901. The maintenance of rates and the general prosperity of the country have brought this about. (727.)

Mr. RIPLEY says that some of the roads at the present time are paying a low rate of dividends because they are turning a large amount of surplus earnings back into the property in straightening curves, putting up new stations, and developing terminals.

(304.)

Economy of operation. Mr. NICHOLSON testifies that the railroads are attempting to increase the service of each car. One way in which this is done is by demurrage charges being applied to stations holding cars. The clearing-house system contributes to this end, the cars being moved quicker. (728.)

Southern railroads-physical condition.-Mr. TALCOTT, assistant to the president of the Seaboard Air Line, says that railroads in the Southern States have greatly improved in recent years in every respect, as to track, weight of rails, capacity of engines and cars, and equipment generally. They are improving every year. (635.)

II. CONSOLIDATION.

COMMUNITY OF INTEREST. POOLING.

A. The movement toward consolidation and community of interest.-1. Generally.-Mr. WOODLOCK declares that community of ownership and railway consolidations were the direct outcome of the restrictions upon less formal agreements and combinations between railroads. The movement goes back to the interstate-commerce law, prohibiting pooling. One by one the decisions of the courts have made impossible the other forms of organization which took the place of pooling, the trans-Missouri decision taking away the last method possible. Mr. C. P. Huntington seems to have been the first to develop the community-of-ownership principle. It has always been the case that seven or eight groups of bankers were in a position to control 75 per cent of the railroad mileage of the country. They have simply come together in an informal manner. Thus the Vanderbilts and the Pennsylvania Railroad Company agreed as regards their respective systems to "keep everything quiet," and cease excessive competition, rate cutting, discriminations, etc. This is at least what is supposed to have taken place. In any case the trunk-line situation has become quiet, and the same is true of the soft-coal situation. In other cases it has seemed to the railroads necessary to secure actual control one of the other, as in the case of the purchase of the Southern Pacific by the Union Pacific. (462.) Mr. SCHIFF, a member of the banking firm of Kuhn, Loeb & Co., of New York City, testifies that his firm has had leading interests in the reorganization of the Union Pacific Railroad and to some extent the Baltimore and Ohio Railroad. He says the community-of-interest idea arose in the desire of the railroads to protect themselves against the demoralization and depression in the values of their properties, which was brought about by antipooling legislation. The cutting of rates brought about by competition demoralized the railroad interests and was not beneficial to shippers. This competition resulted in a gradual coming together of the railroad interests and induced them to buy into one another's properties-that is, the competing lines bought stock, directly or through large stockholders, in the other competing roads. This process has been going on on a large scale, and while not yet completed it will naturaily bring about some protection to the properties and will be of great benefit to the laboring man and will give security to the shipper, as well as be beneficial to the owner of railroad property. The final result will be a "community of interest between railroads, shippers, and labor." (39.)

Nothing like general consolidation of railroad properties is intended by this proceeding. There will not necessarily be an absorption by one company of another. The establishment of a community of interest does not necessarily involve any struggle for the transfer of control from one party to another. Ordinarily these processes have been accomplished by direct acquisitions of stocks, by the railroads or large owners, but not necessarily of controlling interests in the stock. The object sought

is not higher rates, but uniform, equal, steady rates, and when the general public understands the situation there will be no fear as to the result and no misapprehension as to the wisdom of it. The community-of-interest idea can not be applied to all the railroad property in the country. All that can be expected for the present is to bring certain great competing systems into harmonious action. The trunk lines and the transcontinental lines are likely to be embraced. (770–771.)

2. Pooling and consolidation.—Mr. GREENE, of the Audit Company, of New York, says that people interested in railroads are rather glad that the law authorizing pooling did not pass, because, being prohibited from pooling, the railroads have been forced into consolidation with its attendant advantages. The pool keeps the methods of business of the separate roads essentially unchanged. It merely sustains prices. Consolidation permits economies in operation. (473.)

Mr. WOODLOCK declares that even if a law were passed allowing .the railroads to form pools they probably would not do so. The community-of-ownership method has been found the safest solution of the problem of railroad competition. None of the former associations were of any great value. There were disputes and rate cutting half the time. Now the same people happen to be directors of many of the railroads, and if one road makes special rates or discriminations it can be reached at once by men who control other roads. (463.)

3. Control of Interstate Commerce Commission as affected by consolidation of railroads.— Mr. GREENE, of the Audit Company, of New York, thinks that the movement toward the consolidation of railroads may make necessary additional control by the Interstate Commerce Commission. It may be that the present tendency will finally lead to just the condition which the Interstate Commerce Commission has been seeking. (473.)

Professor ADAMS, statistician of the Interstate Commerce Commission, says that probably the present tendency toward contractual consolidation is in part due to the inability of the roads to pool. If that is true Government control over these great consolidations is just as important as increased control would have been if Congress had legalized pools. (386.)

4. Combination of trunk lines and transcontinental lines.-Mr. SCHIFF says that he does not know of any financial interests trying to control any two of the great transcontinental lines west of the Missouri River. He says the great railway systems of the country are divided into two divisions-the lines to and those beyond the Mississippi or Missouri River. East of that division line are the great trunk lines and west of it are the transcontinental lines. He does not believe that the trunk lines have any desire whatever to extend their lines and thus control the transcontinental lines, or to construct additional lines west. There is always a limit to the freight business which one system can handle, and traffic questions in the different sections of the country are different. The heads of the trunk-line systems on one hand and the transcontinental systems on the other are very wisely desirous of keeping apart. Any of the transcontinental lines would prefer to have every trunk line come to it on equal terms and use its facilities of transportation. (772.)

The witness has seen a statement in the paper that the remaining $60,000,000 of bonds of the Union Pacific Road out of the $100,000,000 authorized were to be assumed to secure the purchase of stock in the Northern Pacific by the Union Pacific interests, but preferred not to make any statement with respect thereto, saying that it was a leading question. (776.)

5. Railway consolidations and agreements in Colorado.-Mr. GRIFFITH, representing the Denver Chamber of Commerce, says that he understands from newspaper reports that the Colorado Southern Railroad has acquired a half interest in the Colorado Midland, and also in the Rio Grande Western, which runs from the Colorado line to Salt Lake City. It is also claimed that the Missouri Pacific has acquired control of the Denver and Rio Grande, and a half interest in the Rio Grande Western, and that it is trying to get control of the Colorado Southern. There is also a report that the Union Pacific is trying to control the Colorado Southern. The witness does not know what the effect of such consolidation would be upon rates, although they would certainly reduce competition. (855.)

Mr. GRIFFITH thinks that the fact that the 5 railroads reaching Denver from the east have all maintained the same rates firmly would indicate that they must have some agreement for the maintenance of rates. (856.)

6. Combination of Union Pacific, Southern Pacific, and Central Pacific.-Mr. WOODLOCK says that the Union Pacific Railroad Company has recently substantially bought control of the Southern Pacific. It will be possible, however, for the two systems again to separate, and it may not be unlikely. The Union Pacific was originally designed as a continuous line with the Central Pacific from Ogden, and the ownership of the

Central Pacific by the Southern Pacific forced the Union Pacific into the combination. The Southern Pacific may now sell to the Union Pacific the stocks and bonds of the Central Pacific, in which case the occasion for the control of the Southern Pacific by the Union Pacific will largely have disappeared. (462.)

Mr. STUBBS, third vice-president of the Southern Pacific Company, says that this company is a Kentucky corporation, which has authority to own and operate railroads and do sundry other things which railroad companies ordinarily can not do. It controls by ownership of a majority of all of the stocks a number of separate railroads which make up what are known as the Atlantic system and the Pacific system of the Southern Pacific lines. Originally the Atlantic system included all lines east of El Paso, the Pacific system all west, including the lines as far as Portland, and the Central Pacific line from San Francisco to Ogden. The laws of Texas forbade the leasing of Texas roads, which necessitated the separate operation of the Texas lines, so that nominally the Atlantic system now lies east of the Texas State line. (757.) Mr. STUBBS asserts that from the first construction of the Southern Pacific and Central Pacific railroads they worked in entire harmony, being under common control, though not under strictly common ownership. Since about 1885 the Southern Pacific Company has held a lease of the Central Pacific. Quite recently there has been further combination, amounting to a merger of interests, concerning which this witness is not familiar.

Mr. Stubbs denies that there has been any tendency to divert traffic from the Central Pacific to the Southern Pacific lines, because of the fact that the Southern Pacific owns other lines to the east, and thereby would get a longer haul than over the Central Pacific west of Ogden. He says that the Central Pacific connects at Ogden with the Union Pacific, and through this and the Rio Grande Western with the Burlington, Missouri Pacific, the Chicago and Northwestern, and numerous other railroads. All of these more eastern railroads have well-equipped soliciting agencies in San Francisco and Los Angeles, and solicit business going over the Central Pacific lines. The Southern Pacific has also a soliciting agency, which tries to get freight for the southern route, and this practice on its part is the only foundation for a complaint that there has been a discrimination against the Central Pacific which tended to decrease the value of the Government's securities based on that rate. The witness supposes that the Southern Pacific has the legal power to direct the route which freight shall take, but it has not exercised that power except in the case of oranges, where it was done in order to break up a system of rebates by Eastern connecting lines. (757, 764.)

7. Pennsylvania and Baltimore and Ohio railroads.-Mr. SCHIFF testifies that he is very certain that the Pennsylvania Railroad does not own a controlling interest in the Baltimore and Ohio. He is quite certain that only the smallest percentage of the directors of the Baltimore and Ohio are in any way connected with the Pennsylvania Railroad system. Any company owning less than 50 per cent of the stock of another company can not be said to have a controlling interest in the latter company. He does not know how the cooperation of the Pennsylvania system with the Baltimore and Ohio has been reached. (771, 772.)

8. Northern Pacific stock flurry.-Mr. SCHIFF testified in May, 1901, that he was not aware that there has been any contest in respect of the Northern Pacific and Union Pacific stocks. There may have been some Wall street speculation. He explained the phenomenal rise in Northern Pacific stock on the ground that somebody had sold something he did not have, and could not get it when he wanted it. He never listens to rumors, and knows nothing about Wall street gambling. (772.)

9. Large and small railroads in the Southern States.-Mr. DUNLAP, who is the receiver of the Gainesville, Jefferson and Southern Railway, a line 65 miles long, and the general manager of the Tallulah Falls Railway, 20 miles long, declares his belief that short railroads such as these can no longer operate profitably, and that they will more and more tend to become absorbed in large systems. One of the two roads named is insolvent and the other makes no money. The large systems are at present (1900) all prosperous. The Georgia railroad commission fixes the same maximum limit of rates for the short lines in sparsely settled territory as for the trunk systems, and the short lines can not afford to carry on business at these low rates. Nevertheless a special arrangement is made by the commission in favor of the Tallulah Falls road because it is so short and poor. On the Gainesville road, however, the rates are the same as the local rates on the Southern Railway. (1,2.)

B. Effects of consolidation and community of interest on rates and the public.-1. Generally.-Mr. GREENE believes that consolidation of railroads will result in great economies, and therefore ultimately in lower rates to the public. Even community of interest without absolute combination effects some economies, though to what extent it will have that result in the future is a matter of

guesswork. As yet there is little absolute common ownership among railroads, such as we find in the case of industrial combinations. By common ownership of railroads it will be possible to eliminate the expensive ticket offices of competing lines in the cities and to reduce the number of employees and officers in various ways. In fact, one of the serious results will perhaps be the displacement of railroad officers.

Mr. Greene feels confident that the reduction in expenses through consolidation will ultimately lead to reduction of rates. There is a constant demand for low export rates and special rates on the part of large industries. Such low rates are necessary in order that the business can be carried at all. When low rates are made for these special reasons, other persons observing the fact will demand lower rates and ultimately will succeed in getting them. Anything that will enable a railroad to do business more cheaply will ultimately benefit the public. All the conditions in this country tend to enforce lower railroad rates. Accordingly, although the reason for railroad combinations is selfish, the hope of profits being the main lever in this as in all business movements, it is a step in progress for the entire community. Mr. Greene believes that the movement toward consolidation will go still further. (484, 485, 487.)

Mr. THOMAS, of the Erie Railroad, believes that by consolidation great economies can be secured, and that charges are sure to be lessened wherever economies are introduced. The Erie Railroad was formerly made of three separate corporations. By combination the expense of maintaining two sets of officers and organizations has been eliminated, and the public has benefited by the saving. (559.)

Mr. McGOVERN, of the Southern classification committee, says that there is a strong tendency toward the consolidation of railroads and he can not foresee what the final outcome will be. He does not favor consolidation beyond a limited extent, but thinks there should be several large systems, with healthy competition. He believes there will be eventually 5 or 6 separate systems in the South, which may all work in harmony to the extent that the separate owners of the properties may agree among themselves and in a general way maintain rates. The Georgia Central and the Southern Railway are competing systems, and will be so until they are actually taken under one management and have the same traffic officials. Consolidation without competition would be a bad thing for the roads, as well as for everybody else. It would not be a good thing for the railroads of the United States to be under one management. Competition brings about a fair relative adjustment, which the carriers believe is to the interest of the patrons and of the roads themselves. Rebates and such like discriminations, however, would be very much diminished by consolidation and might be wiped out entirely. (682, 683.)

Hon. CHARLES FRANCIS ADAMS, of Boston, says that railroad consolidation is a thing which should be left to work out its own results in its own way, with as little hampering as possible. It is found that the large corporation, while its political power is undoubtedly great, has proportionately increased responsibility, and it is far easier to handle it. It gives better and more satisfactory service than a number of small corporations. (829.)

Mr. MCLEOD, in connection with his views regarding the desirability of community of interests among the anthracite coal roads, declares his belief that the community of interest principle in general is an advantageous one. Whatever will make railroad rates reasonable and stable will increase the prosperity of the country. Such combinations can not tax the people, not only because of competition, but because of public opinion. "You can't get any combination of capital that is big enough in this country to rob the people. (571.)

Mr. SCHIFF declares that the law of competition will be preserved. Capital is becoming so strong and so easily obtained that the moment compensation for any service is demanded at a higher rate than that at which it can be produced competition will set in. He doubts if any additional transcontinental lines will be built, but believes that if a consolidation of those lines of road should be effected it would result, perhaps, in bringing about the construction of another line. (777.)

Mr. WOODLOCK believes that railway consolidations and community of interest will certainly tend to prevent disturbance of rates. Rates are already more stable than they have been for 30 years. The witness thinks, further, that the new combinations will not raise rates. It will be to their interest to economize in management and to keep rates stable rather than high. (463.)

Mr. LANGLEY, of the Merchants' Association of New York, thinks that the community of interest plan may eventually be of some benefit to New York in eliminating the differential which exists in favor of the Southern seaboard cities. The merchants of New York have never objected to a direct increase in rates. They are particularly interested in having each merchant or each shipper secure the same rate, so that no one shall have any advantage over the other. The difference in the rate of freight