FINANCIAL REVIEW OF 1883. 



The returns of fifty-six other railroads show 

 an increase in gross earnings of from $263,750,- 

 000 in 1882 to nearly $291,000,000 in 1883. 

 The railroads of the Northwest make the most 

 favorable exhibit, as this is the part of the 

 country which has been most rapidly devel- 

 oped by immigration and settlement. The ag- 

 ricultural and industrial development of the 

 Southwest, and the progress in many of the 

 older settled portions of the South, are re- 

 flected in the railroad reports. The elaborate 

 net-work in the States of Ohio, Indiana, and 

 Illinois proved to surpass their needs when 

 in 1883 there was another short crop. 



The railroad properties stood the strain of 

 the present depression, instead of defaulting 

 and going into liquidation as in 1873-' 78, for 

 the reason that the powerful combinations of 

 capital which have consolidated vast railroad 

 systems, covering whole sections of the coun- 

 try, have taken into their systems the smaller 

 and less remunerative lines, and since 1879 

 have conducted the greater part of the rail- 

 road extension. This is the reason why over 

 25,000 miles of new railroad could be built 

 between Jan. 1, 1881, and Jan. 1, 1884, in a time 

 exceedingly unfavorable for floating new enter- 

 prises, while there was a constant decline in 

 the market values of securities, without pro- 

 ducing the disturbance and collapse which fol- 

 lowed the crisis of 1873. In the preceding 

 period local capital, individuals who traded 

 on their ideas rather than on their capital, and 

 speculative investors who were quick to take 

 alarm, stood behind the new mileage, con- 

 structed in fragmentary lines which were able 

 to co-operate only in a cumbersome way, and 

 were easily betrayed into antagonism. The 

 solidarity, organization, and economy of the 

 present system are in every way advantageous. 

 In regard to the construction of new roads 

 the money borrowed for the purpose is ob- 

 tained on the credit of the old paying con- 

 cerns with a saving, taking the rates at which 

 the bonds are issued into consideration, of 

 probably 2 per cent, in the 'interest, while the 

 bonus given with the bonds, in the shape of 

 stock or income bonds, does not require com- 

 pulsory payments which add to the fixed 

 charges. The mileage ; s laid out more intel- 

 ligently, with less sinking of capital in dupli- 

 cate or unnecessary lines, while nearly all of 

 the new roads serve as feeders to the stem 

 lines under whose auspices they are con- 

 structed, and often produce profits when their 

 own business is conducted at a loss. 



The manner in which auxiliary lines are 

 acquired and controlled affords railroad man- 

 agers an opportunity to carry out designs for. 

 their private emolument, and involves in un- 

 certainty the values of all the properties. The 

 subsidiary lines are not as a usual thing in- 

 corporated in the parent or purchasing com- 

 pany, but are controlled by acquiring a major- 

 ity of their stock. The enormous blocks of 

 the stocks and bonds of minor corporations 

 VOL. xziii. 22 A 



held by many of the leading companies are 

 in a number of instances unrepresented in the 

 capita] or debts of the latter, but are carried 

 on the books as a surplus, which may be in- 

 creased or diminished at the option of the 

 managers. In all cases the- stockholders are 

 ignorant of intended new operations of this 

 kind. The remaining owners of the securities 

 of branch lines are at the mercy of the mana- 

 gers of the controlling company, who by with- 

 holding traffic can depreciate stocks which, 

 they wish to acquire privately. The affairs 

 of companies are sometimes further compli- 

 cated by the creation of intermediary corpo- 

 rations, such as the Pennsylvania Company, 

 which operates the branch lines of the Penn- 

 sylvania railroad west of Pittsburg, the Oregon 

 Transcontinental, formed to work the com- 

 bined Oregon Navigation and Northern Pacific 

 properties, and the similar concern which 

 manages the connecting lines of the Rich- 

 mond and Danville. The securities held by 

 sixteen large corporations aggregated $383,- 

 000,000 in January, and if the holdings of four 

 others, of which the public could obtain no sat- 

 isfactory knowledge, were added, the amount 

 would be at least $450,000,000. The income 

 from these investments is often an important 

 item in the accounts of a company, supremely 

 so in the case of the Pennsylvania, which re- 

 ceived in this way $3,500,000 in 1882, equal to 

 4 per cent, on all its outstanding stock, and in 

 that of the Union Pacific, which received near- 

 ly $2,250,000. One use to which these assets 

 are sometimes put is to pledge them for new 

 loans, called collateral trust mortgages, as has 

 been done by the Oregon Transcontinental, the 

 Union Pacific, the Wabash, and other companies. 

 Among the chief roads which defaulted in 

 their interest in 1883, was the Toledo, Cincin- 

 nati, and St. Louis. This was a narrow-gauge 

 railroad built up by consolidation and exten- 

 sion since 1880, until it comprised 800 miles. 

 It runs through a country well supplied with 

 railroads. It attracted a large amount of Bos- 

 ton capital, but confidence failed before the 

 floating liabilities incurred in its construction 

 were cleared away, and it went into the hands 

 of receivers in July, involving the house of 

 Ballou & Co. in its failure. The Connotton 

 Valley and the Danville, Olney, and Ohio, 

 other defaulting roads, were built through the 

 same region of railroads and lacked terminal 

 advantages. The Richmond and Allegheny 

 extended through a district not sufficiently 

 developed. The Louisville, Evansville, and St. 

 Louis connects with the Louisville and Nash- 

 ville, forming a fairly direct route between 

 Louisville and St. Louis, yet was unable to 

 pay its interest and asked for an extension. 

 The Denver and New Orleans succumbed to 

 the competition of parallel roads and the de- 

 clension of the mining industry, causes which 

 were operative also in the failure of the Den- 

 ver, Utah, and Pacific. The Little Rock and 

 Fort Smith was wound up in consequence of 



