328 THE POPULAR SCIENCE MONTHLY. 



corporate management of property began when it was found that 

 corporations could borrow. Abuse of the borrowing power is cer- 

 tainly a very common sin among artificial persons, and especially 

 among American railways. When the holders of a small amount 

 of stock, only partially paid in, build a road with borrowed money, 

 the limitation of their liability shields them from personal loss ; 

 while their power of voting themselves salaries, and of concluding 

 profitable contracts either with themselves or friends, gives them 

 great opportunities for personal profit irrespective of the success 

 of the road. The last report of the statistician of the Interstate 

 Commerce Commission shows that many of the minor and branch 

 lines of the country have been built wholly with borrowed money 

 —that is, they are bonded to their full cost value. Many of the 

 longer and independent roads are bonded at half to three fourths 

 of their entire capitalization. The total bonded debt of the rail- 

 roads of the United States is actually greater than the total of 

 their share capital ; and this, although the amount of water in the 

 stocks is much larger than in the bonds. As the possession of the 

 majority of the stock gives control over all the capital invested 

 in the roads, it follows, from the figures given in the statistician's 

 report, that the ownership of 81,932,234,128, or 2377 per cent of the 

 total railway capital, insures complete direction over $8,129,787,731 

 of railway capital, or 136,883*53 miles of line. Massachusetts law 

 forbids the bonding of a road to an amount exceeding the total of 

 paid-up share capital, and this regulation is being introduced by 

 other States. To forbid the issue of bonds that must be sold below 

 par has been found to limit unsatisfactorily legitimate enterprises, 

 but the effect of such a regulation is thought to be good if applied 

 with care to specific classes of corporations. As to what is best 

 in this matter, as in those that have gone before, we need more 

 definite information. 



3. How to secure a more representative and more responsible 

 directorate. In regard to the election of directors it may be said 

 that one device to prevent the tyranny of a majority of the stock- 

 holders has been frequently tried, and another frequently recom- 

 mended. The former plan is to limit the number of votes which 

 any one person may cast. In Massachusetts no person except a 

 municipal corporation can vote over one tenth of the capital stock 

 of a railroad corporation. The trouble with this plan, and the 

 variations of it that have been tried, is that evasion is too easy. 

 Dummy stockholders are very easy to manufacture, and it is diffi- 

 cult to unmask them. The much-recommended device for accom- 

 plishing a similar purpose is that of cumulative voting. By this 

 device a shareholder is allowed to cast as many votes for any one 

 director as the number of his shares, multiplied by the number of 

 directors to be elected at the given time. Nebraska has a provision 



