THE FARMER AND THE RAILROAOS. l(ji 



the necessities of the public, while protecting honest investors 

 from spoliation, and assuring them a just revenue from their 

 investment. It will be possible, here, to consider but a very 

 few even of the most important questions which must arise. 

 As a preliminary to our study it is necessary to make a few 

 statements of fact. 



The nominal capital of a railroad company is represented 

 by its outstanding stock and bonds. The bonds represent 

 money Avhich has been invested in the road, and in theory is 

 a debt for whose payment the stockholders are responsible. 

 In fact, it is a debt never intended to be paid, but forever to 

 remain invested and earning interest. The stockholders con- 

 trol the property, so long as interest upon the bonds is met. 

 The bondholders get their interest in full before stockholders 

 receive anything. If default is made in interest upon bonds, 

 the mortgage securing them is foreclosed, and the stockholders 

 lose whatever investment they have made. While the above 

 is true, in theory, in many cases, of late years, bondholders, by 

 means of agreements which are made effective, are assured a 

 certain representation in the directory of tlie road. 



In 1896 the nominal capitalization of the railroads of the 

 United States was $9,744,399,332, of which $5,226,527,209 was 

 stock, and $4,517,872,063 was bonds. Upon stock to the 

 amount of $3,667,503,194, or 70.17 per cent of the rated stock 

 outstanding, no dividends whatever were paid, and, for the 

 most part, probably, ought not to have been paid, as not repre- 

 senting actual investment, although to some extent actual 

 investment is represented, even in this class of stock. On the 

 remaining 29.83 per cent of the stock, dividends to the amount 

 of $87,603,361 were paid, or 5.62 per cent on the par value of 

 the dividend-paying stocks, the actual rates paid varying from 

 one to ten per cent. The dividend-paying stocks are mainly 

 in the old and thickly-settled parts of the country, and to a 

 large extent, but not wholly, represent actual investment. 

 Tlie capital of a few railways in New England is entirely 

 represented by stock, upon which large dividends are paid. 

 The capital stock of some prosperous railroads has been 

 "watered" by "stock dividends," until a small dividend on 

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