332 TRANSPORTATION. 



2. Capitalization of surplus earnings. By this process, the net 

 profits, over and above the amount paid on interest and dividends, 

 are supposed to be expended in permanent improvements, and 

 charged up to capital account, for which additional stock is issued, 

 and increased charges rendered necessary to meet the increased div 

 idends required. It is insisted that this is a double form of taxa 

 tion; first, in the exorbitant charges from which such surplus profits 

 are derived; and, second, in the conversion of such surplus inco cap 

 ital-stock, thereby compelling the business of the country to pay in 

 creased charges on all future transactions, in order to provide divi 

 dends on capital thus unjustly obtained. It is argued with great 

 force, that as all the legitimate claims of railroad companies are met 

 by the public, when it has paid a fair and reasonable return for the 

 capital invested and services rendered, any surplus earnings ex 

 pended in improvements should inure to its benefit, instead of be 

 ing made the basis of future exactions. In brief, the people be 

 lieve that by this process they are first robbed, and then compelled 

 to pay interest on their own money. 



3. The introduction of intermediate agencies, such as car-com 

 panies, fast freight lines, etc. 



4. &quot;Construction rings&quot; and other means by which the managers 

 are supposed to make large profits in the building of railways, which 

 are charged up to the cost of the road. 



5. Unfair adjustments of through and local rates, and unjust dis 

 criminations against certain localities, whereby one community is 

 compelled to pay unreasonable charges in order that another more 

 favored may pay less than the services are worth. 



6. General extravagance and corruption in railway management, 

 whereby favorites are enriched and the public impoverished. 



7. Combinations and consolidations of railway companies, by 

 which free competition is destroyed, and the producing and com 

 mercial interests of the country handed over to the control of mo 

 nopolies, who are thereby enabled to enforce upon the public the 

 exorbitant rates rendered necessary by the causes above named. 



8. The system of operating fast and slow trains on the same road, 

 whereby the cost of freight movement is believed to be largely in 

 creased . This is perhaps the misfortune rather than the fault of rail 

 way companies. It is doubtless a necessity growing out of the con 

 ditions under which our railway system has been developed. 



Of the defects and abuses above enumerated, perhaps none have 

 contributed so much to the general discontent and indignation as the 

 increase of railway capital by &quot;stock-watering,&quot; and capitalization of 

 surplus earnings. It is fully conceded that a fair and even liberal 

 remuneration should be paid for capital actually invested, but that 

 the industry of the country should be taxed for all time to meet div 

 idends on paper-capital, is indignantly denied. 



To what extent the nominal railway capital of the country is rep 

 resented by fictitious stock is not easy to determine. The manner 

 in which railway accounts are usually kept, renders it very difficult 

 for the managers themselves to state what proportion of the entire 

 cost of a given road was paid by the stockholders, and what part 

 from the surplus earnings. Replacements and improvements are 



