38 THE FARMER, THE INVESTOR AND THE RAILWAY. 



for the service of the public and charged with remuneration for the private capital em- 

 ployed; that the corporatiops thus endowed must provide all needed facilities for con- 

 ducting speedily the business for which they are created; and that the charge for the 

 services rendered sliall be no more than just and reasonable; and the Federal courts have 

 not hesitated to deteiiuine what was ajust and reasonable charge. 



The courts hold that rates lixed by the State are prima facie reasonable, and while 

 railway companies cannot'be barred from showing the unreniu iterative character of such' 

 rates, they can only do so by disclosing — in addition to the cost of maintenance and 

 operation — the exact cost of the plant employed, and that in arriving at such cost account 

 can be taken only of monies actually exjjended in construction and cciuipnieut. Railway 

 companies have evinced no desire to make disclofures of this character, although it would 

 be easy in this way to show that the schedule of rates established by the State was unre- 

 nnmerative, if such was the case. 



The cost of maintaining and operating any given railway is re.adily ascertainable, 

 and it should be equally easy to determine its cost, but such a procedure is surrounded 

 with grave difficulties — diflioulties growing out of syndicates and construction companies, 

 tlie manufacture of securities, of boi.d and stock waterings, the purchase a)\d construc- 

 tion of branch lines at low cost and unloading upon the stockholders at high cost, stock 

 and scrip dividends, bonus* of stock to purchaser of bonds, bonds sold to pay unearned 

 divideuds that much stock may be unloaded at high prices h. la Waliash, the hnibiing of 

 branch lines at low cost, capitalizing at high cost, and covering resulting profits into the 

 treasury of the parent company tc be distributed as dividends, and forever taxing the 

 railway user to pay ill teresi and dividends on the profits thus enjoyed, as well as by a 

 thousand and one other shady devices by which water is added to the basic power of 

 levying tolls and increasing the amount upon which the public is expected to furnish the 

 means of paying interest and dividends. 



The cost of the railway is known only to its managers, and rarely to them, as the 

 constructors but seldom retain the management and railway accounts are manipulated in 

 numberless peculiar ways for the sophistication of investors. For instance, on page 184 

 of the 1889 report of the Kansas Railroad Commissioners there is appended to the state- 

 ment of bonded indebtedness, made by the Atchison, Topeka and Santa Fe, this note: 

 "The early records of the Company are very incomplete and it is impossible to tell, with 

 any accuracy, the amount realized from the issue of these bonds," i. <\, $14,061,500 of 

 first mortgage, land grant and consolidated bonds. Another typical case is that of a rail- 

 way company in whose service was the writer, and which built a costly line of passenger 

 steamers for lake service; but, by reason of the building of railways north and south of 

 the lake, the operation of the line became unprofitable, the steamers were dismantled, 

 engines sold and the great sum they represented dropped from the annual report of the 

 company without a word of explanation. 



Managers dealing thus with stockholders, are not likely to be more frank with the 

 public. Indeed the cost of the railway, and the manipulations of such cost, areof the pro- 

 fessional secrets which are employed to defraud railway users and investors, and a case or 

 two in point may not be uninteresting, as showing some of the processes adopted in the 

 manufacture and marketing of stocks and bonds, which are so frequently but evidences 

 of corporate fraud, rather than ownership. 



An illustration of the ease with which investor and user are alike plundered is 

 found in the case of a corporation controlling a vuhialile dividend-paying proi>erty, 

 which another compan J' parallels with expectation of profits only from construction, and 

 by forcing a sale— eventually efltected— to the older company, the result being the trebling 

 of railway capital without an increase of traffic. 



Another form of corporate fraud is the payment of unearned dividends from the 

 proceeds of bonds sold, thus adding to the capitalization and necessitating the collection 

 of unjust tolls to pay interest. Tliese fraudulent payments are often made to enable the 

 management to foist upon the public immensu issues of worthless shares, such 



*The .Santa Fe and otbei' companies have given as a bunus as much as ten shares of stocic with 

 each $1,000 bond sold. 



