Nathaniel Hillyer. Egleston.

The North American review (Volume 139) online

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not do it for want of means, for he reigned over all Caria, and had immense

I hope that my excavations at Tiryns may be of some profit
to science, for once we could not boast of knowing the plan of
the smallest Greek house, whilst we possess now an excellent
plan of the palace of the mighty legendary kings of Tiryns, a
palace contemporaneous with its gigantic Cyclopean walls,
which have always been considered the most ancient structures


preserved to us from the heroic age of Greece. Besides the
wall-paintings in the Etruscan tombs and small remains in and
near Rome, the wall-paintings of Herculanetim and Pompeii
were hitherto the oldest we had, while now we possess a vast
number of beautiful, highly interesting wall-paintings of the
second millennium B. c., nay, of the legendary heroic age. I also
dare to hope that the masses of wonderful pottery found in the
palace, which more than the architecture shows us the degree of
civilization of its inmates, will be of some interest to science.



FOR many years after Stephenson had demonstrated the
practicability of operating a train of railway cars, public sen
timent in England was adverse to the extension of the system,
and a Mr. Berkeley, the " intelligent n member of Parliament for
Cheltenham, strongly expressed the views of his class when, at
a public meeting held in that town, he wished " that the eon-
coctors of every such scheme were at rest in Paradise." Many
of our leading railway managers in this country doubtless have
at times, during the past twenty years, shared to a certain extent
in this wish, and, when oppressed with the cares and anxieties
of their offices, earnestly wished that they might find rest in a
similar place. If the knowledge necessary to an economical
construction of these important arteries of commerce was as
unusual as has been shown, what wonder that no better compre
hension of the subject of their management should have
existed. Although the early projectors of our railways appear
to have been prompted by every good intention, and to have
manifested a disposition to administer their trust prudently
and honestly, yet having no precedent to govern, or proper
system of accounts, or arrangement of statistics to guide them,
they were uncertain of results, and scarcely able to determine
just where the construction account ended and the operation
account began. It appears to have been a period of good-
natured indifference to realities, with an accompanying con
dition of disorder, of which they seemed unconscious.

The annual reports made between 1835 and 1860 were a fair
index of the condition of things during that period, and were
exceedingly hopeful as to future prospects. No " earth-born
cloud " seems to have arisen to dim their vision or disturb
their faith. It was a period of great expectations, coupled
with intense enthusiasm. In the efforts to show large net re-



suits from operation, there was a disposition to charge every
thing possible to capital account. This, of course, increased the
amount of annual " fixed charges " to be met by net revenue,
which were drafts upon future resources. After these fallacies
became apparent, and default in interest began, the difficulty
was intensified by the efforts of reorganization committees, who,
instead of allowing the earlier mortgages to be foreclosed, and
thus placing the properties upon a paying basis, attempted to
keep alive the junior mortgages. This necessitated new issues,
representing not only the principal of the latter, but their accu
mulated interest, thus increasing a burden already too great for
the earning capacity of the line. In many instances the effect
of overloading them with debt was to place them at last, in an
impaired condition, in the hands of the first-mortgage holders,
to the extinguishment of all other equities. Thus it will be
seen that an inherent defect in the system was in the attempt to
carry out these enterprises with borrowed money. A fully
paid-up share capital, which should have been the basis of their
transactions, seems to have been considered a matter of second
ary importance ; though there were some exceptions to this.

Our roads were for the most part constructed from the pro
ceeds of mortgage bonds, most of which were negotiated in
London and Amsterdam. It has often been a matter of surprise
to people on this side of the water, that so much confidence was
placed in securities of this character ; it would seem that the price
at which they were generally offered, and the exorbitant rate of
interest they promised, must tend to discredit them j but their
negotiation was stimulated by the payment to foreign bankers
of large commissions, which prompted them to recommend in
too high terms, perhaps, a class of securities that could not other
wise be readily disposed of. And then, too, it must be borne in
mind that in 1861 foreign capitalists purchased the bonds of the
United States Government at a much larger discount than most
of the bonds in question were offered at, and that they afterward
received full payment at par. Remembering this, and having
even greater confidence in the resources of this country than its
own people had, they were justified in the belief that these rail
road bonds would be paid in full.

Many of the railways suffered from the mistakes and miscal
culations of their engineers in estimating their original cost;
but many of these mistakes were due to causes beyond the range


of human foresight. Statistics show that in scarcely a single
instance between 1840 and 1870, and even in later years, was a
sufficiently liberal estimate made to provide for the cost of a
properly finished road-bed with necessary equipment. In justice
to the engineers, it must be noted that, although the sole re
sponsibility for the work was placed upon them, they were often
hampered by suggestions and instructions from those who were
not familiar with the work, and whose chief anxiety was to pre
sent as low an estimate of cost as possible, in order to encourage
investments in the enterprise. As the work progressed, these
fallacies became apparent 5 and when the last rail was laid, amid
strains of music and firing of cannon, and the road was reported as
complete, it was too often found, after the excursionists had
returned to their homes, that more money was needed, and the
" ground floor" offered no special advantage.

The nine months preceding the panic of 1873 had been very
profitable to the railroad companies; their earnings and ton
nage were largely in excess of any previous period in their
history, and their expenses had not increased in a correspond
ing ratio. They had been sailing along on a sea of prosperity
that they had come to regard as a permanence. No aggressive
action had as yet been taken by the State authorities. Had the
lines that were completed and in running order prior to this
properly husbanded their resources, they would have found no
difficulty in weathering the financial storm that was about to
break upon them with such fury; but they had been " burning
the candle at both ends/ 7 and instead of holding in reserve a
portion of their easily acquired earnings, they had been spend
ing money with a lavish hand.

The ease with which charters for railways had been obtained
not only stimulated their construction (oftentimes at points
where they were not needed), but prompted many irresponsible
men to engage in these enterprises, who were ignorant of the
practical management of railways, and had neither the ability
nor the intention to operate them. The aid of towns and
counties was invoked, under promises that could not be fulfilled,
and securities were voted in return, the payment of which it was
impossible for them to meet, and these were sold at any sacrifice
to secure money. Such issues at best were a delusion, for even
when they were given in good faith, so much was expected in return
as to make their acceptance of doubtful propriety. These things


brought discredit upon the whole system, and aroused a spirit of
antagonism that led to the Granger movement, the promoters of
which suddenly seemed to regard the railways as the chief enemy
of the producer. Their action took the form of fierce denuncia
tion and unreasonable demand, in which politicians took a most
earnest interest, and " thereout sucked they no small advantage."
This movement was doubtless largely instrumental in precipitat
ing the panic of 1873, the real cause of which, however, may be
summed up in few words : the nineteen thousand miles of rail
way that had been constructed in the three years preceding was
in advance of the country's development. The report of the
committee of the House of Representatives on the Credit
Mobilier transactions was made in the spring of this year ; and
probably nothing ever occurred in the history of railroad con
struction to shake the confidence of capitalists more than the
revelations brought about by the investigation of the affairs of
that company. Railway construction culminated that year, and
more than seventy American railways defaulted in their interest,
bringing ruin to thousands on both sides of the water. This of
course put a check upon all new enterprises.

Following close upon the heels of this calamity came hostile
legislation in many of the States. Boards of commissioners
were appointed, who, through ignorance of their duties, acted in
some instances with great unfairness toward the railways,
disregarding not only the sacredness of vested rights, but the
regulations of the common laws of trade. The tone of the press
toward the railways at this time was for the most part extremely
bitter, as well as the course of the politicians, who, in their
attempt to ride into power, sent up with lusty voices the cry of
" Monopoly ! n Railway managers stood aghast, and for a while
it seemed as though there was " none so poor to do them rever
ence." The courts were appealed to, and the decision of the
United States Supreme Court, though only partial and evasive,
upon the question, has probably for the time being put a quietus
upon charter-contract litigation. Contemporaneously with the
action of the several States, the General Government took up the
consideration of interstate railway regulation. In 1873, Mr.
McCrary, of Iowa, introduced a bill in the House of Representa
tives, which passed that body, but failed in the Senate. Senator
Dorsey afterward introduced a bill embodying the views of
Charles Francis Adams, which was referred, conjointly with the


McCrary bill, to the select committee on transportation. The
plan of this bill was, to organize a commission, or bureau, in the
Department of the Interior, whose duty it should be to collect
statistics and information on every point connected with the
management of the railways. It was also to investigate all com
plaints against inter-State railways. In 1878, Mr. Reagan's biD
(now somewhat famous) was introduced and referred to the same
committee. Various conferences were held from time to time
between this committee and the representatives of the railways ;
and it must be admitted that the argument presented on behalf
of the latter, by such men as Albert Fink and George E.
Blanchard, was, as Captain Corcoran would say, " simply unan
swerable." They endeavored to show (to quote from the first
annual report of the Massachusetts Railway Commissioners,
made in 1870) " the utter futility of any legislation which par
takes rather of the nature of force than of an educated and re
flected public opinion." No law embodying such an indefinite
command as that which requires the railways to charge only a
" reasonable " rate, can ever be made effective. The operations
of the railways are governed by ever- varying circumstances, and
no specific answer can be returned to the question as to what
constitutes such a rate.

Between 1868 and 1872, what are commonly known as the
"trunk lines" began to assume more formidable proportions.
The Lake Shore passed under the control of the Vanderbilts,
and the Hudson River and New York Central were consolidated.
In 1869 the Pennsylvania Central leased the Pittsburg and Fort
Wayne road, thus completing its line to Chicago. The Erie was
as yet without a direct connection with Chicago, but was never
theless in an independent position with reference to the trunk lines.
The Grand Trunk did not secure its own connections with Chicago
until 1879, though it had for a long time, by reason of its
connections, occupied a prominent position. In 1874 the Balti
more and Ohio Railroad extended its system to Chicago, which
of course aroused the jealousy of its rivals, as it had a shorter
route to the sea-board. Its demand for a differential rate, early
in 1876, was the signal for a railroad war that for bitterness of
feeling has never been equaled. Rates to the east fell to a point
very much below the cost of transportation. Grain was carried,
during the season of navigation, by the Baltimore and Ohio road
to Baltimore, both from St. Louis and from Chicago, at ten cents
VOL. cxxxix. NO. 337. 39


per hundred pounds, thus compelling its competitors to carry at
the same rate to New York, Boston, and Philadelphia j and even
out of this an arbitrary deduction of a cent and a half per hun
dred pounds, for terminal charges, had to be made. Lake ship
ping, though offering the lowest rates known in the history of
lake navigation, could not secure the tonnage. In that year the
shipments of corn alone, by rail, were 17,217,520 bushels, exceed
ing in volume the aggregate of the preceding five years. To add
to the complication, on the 4th of March in this year (1876) the
jetties at the mouth of the Mississippi were opened, which gave
a new impetus to exportations via New Orleans, and a large quan
tity of grain was shipped in barges from St. Louis to that point.

In June, 1877, Albert Fink was appointed commissioner for
the four trunk lines, and for seven successive years he has been
able to accomplish, in the way of amicable adjustment of difficul
ties of the most intricate character, that which few men probably
could have succeeded in doing. The effort of these lines to se
cure a large through traffic at extremely low rates, to the partial
neglect of local traffic at compensating rates, proved detri
mental to their best interests, and probably did more to inten
sify public opinion against them than any thing else that occurred.
What is known as " through business " is undoubtedly moved
at a lower percentage of operation expenses, these being reduced
in proportion to the distance the freight is carried; but it is
questionable whether the best interest of a railway lies in the
direction of encouraging this class of traffic, which has been
built up upon a false theory as to the cost of carrying freight per
ton per mile. It is doubtful whether this one important item that
enters so prominently into the economy of railway management
has been, or ever can be, definitely determined. It varies ma
terially upon different lines, according to their physical condition,
character of gradients, cost of labor and supplies, geographical
location, direction of traffic, and numerous other circumstances.
A railway that can secure an equal amount of traffic in each
direction, can of course show the best results.

Nor has the ratio of expenses to gross earnings, for freight
and passenger business separately, ever been definitely deter
mined ; it cannot be, except by having a separate force of men for
each department, and separate tracks for the accommodation of
the trains of each class. The ratio of passenger expenses, how
ever, is known to be very much greater than that of freight.


The railways for tlie most part have divided up their earn
ings too closely. If, for instance, eight per cent, be earned in
any one year upon the share capital, over and above all fixed
charges, prudence would dictate that the shareholders be paid
six per cent, of this, and that the remaining two per cent, be
held as a reserve fund, applicable either to the improvement of
the property, or to the reduction of its debt. By this means the
property would be maintained in a good condition, and every
permanent shareholder would be benefited. The neglect to
make proper provision for depreciation, after the construction
account has been closed, has proved a serious defect in the
American railway system. But the difficulty with which a
board of directors of a dividend-paying road often has to con*
tend is, in resisting the clamorous demand of the temporary
shareholder for a distribution of the entire net revenue of the
line for the year. Speculators that buy on the strength of a
prosperous year's business, and have no interest in the property
beyond the result of that year, naturally demand all that has
been earned.

Another evil of our system is the practice of admitting mem
bers of stock exchanges into its directories. A stock-broker
occupying such a position enjoys, of course, immense advan
tages over his brother broker, and usually he is not slow to
avail himself of them. I presume I shall hardly be charged
with uttering a slander if I assert that stock-brokers, as a class,
do not make efficient railway managers j and yet it is no un
common thing to find this class acting as directors, and con
trolling the policy of roads over which they have never traveled,
and concerning which they are ignorant both of the resources
of the country through which they pass, and the wants of their
patrons. I will not say that all such men are unscrupulous
and designing, but it is well known that many have sought
the position of director for the express purpose of gaining an
opportunity of speculating upon the fortunes or misfortunes
of the company, and to accomplish their object they have
obtained (sometimes by very questionable means) the proxies
of confiding shareholders whose interest they are supposed to
protect. It has frequently occurred that proxies given without
proper consideration as to the manner of their use, have been
used entirely contrary to the wishes of the shareholders grant
ing them.


But for this abuse of confidence, the shareholders themselves,
in the readiness with which they grant such favors, are largely
responsible. Under no circumstances should a proxy be executed
in favor of an officer or a director of a company that will enable
him to vote upon it in approval of his own acts, or to perpetuate
his own power. One of the great difficulties in the way of suc
cessful administration of corporate trusts in this country, lies in
the fact that the boards of directors of many of our large com
panies reside from one thousand to three thousand miles distant
from the active operations of the line they represent, and, though
they may be governed by the highest motives, it is practically
impossible for them to comprehend the wants of the line at such
a distance.

Another difficulty is, that the shareholders are so scattered
over the world that it is difficult for them to act in unison, even
when measures of vital importance to their interest are pre
sented ; hence they are compelled to depend upon the judgment
of others. The remedy for this, in a measure, is for every com
pany to have a local board, resident upon or near the line of the
road. This board should be composed in part of representatives
of the foreign shareholders. They should be required to keep
themselves well informed as to the plans of the company, the
prospects for business, and all other matters of interest to the
shareholders, who should be properly advised of these things at
least once a month. By such a board, clothed with authority,
and acting with intelligence, the interests of the shareholders
would be infinitely better protected than they are under the
present cumbersome system. All directors should be paid a
salary, covering a certain percentage of, and dependent upon, the
net earnings of the line. Directors occupy the position of
trustees, and it is one of immense responsibility ; their duty is to
protect the interest of those who have confided that trust to
them, and the shareholders have no right to expect that they will
give their time and services gratuitously.

One evil that has been commented upon very freely, now
happily bids fair to be removed from the railway system of this
country, viz., the organizations known as " fast freight lines,"
having an existence, as well as an authority, independent of the
railway whose tracks they occupy. Originally they were in
tended as a convenience to shippers ; but, owing to the compli
cation they engendered, they gradually developed into an evil,


and the evil is likely to correct itself. In some instances the
spectacle was presented of several of these lines connected with
one through route, competing not only with one another for
freight, but actually bidding against the very railways that
tolerated them upon their lines. The gradual abolishment of
these fast freight lines is a step in the right direction.

The plan of adding unproductive lateral lines to an already
established system, merely for the purpose of reducing the aver
age cost per mile of road, is not likely to be continued. "While it
is true that by this method the average cost per mile, as repre
sented by the funded debt, was reduced, it is equally true that
the net result from the operation of the line, consequent upon
the increased fixed charges to which it was subjected by the
addition of unproductive mileage, was decreased. The ability
to manage must be the limit of mileage, and the five-thousand-
mile systems of railway, like the ten-story flats, are as yet only
an experiment.

The establishment and maintenance of large and expensive
manufacturing works by railway companies is, I believe, likely
to be discontinued. Railway companies were not organized for
the purpose of manufacturing, but for the special object of
transporting merchandise and passengers. This is their par
ticular business, and to this end the efforts of their managers
should be specially directed. A manager charged with the care
and responsibility of a railway cannot afford to have his atten
tion diverted from his legitimate vocation ; he has, in fact, little
or no time to give to the supervision of a manufactory. In the
early history of railways, before large and reliable establish
ments for manufacturing railway equipment and supplies ex
isted, there was doubtless a necessity for each company to
control its own manufactures in order to ensure thorough work
manship and proper materials; but with the facilities now
offered throughout the United States by organizations incor
porated for the express purpose of furnishing the railway com
panies with rolling-stock and other supplies, there seems to be
no longer any necessity for the railways to maintain such, exten
sive shops ; smaller shops, with largely reduced forces, are all
that would seem to be required for ordinary repairs. Before the
war of the rebellion almost every sugar-planter in the South
considered it necessary to maintain a mill on his plantation to
grind his own cane. It would have been as reasonable to expect


that every farmer in the North should have his own grist-mill
to turn his grain into flour. At present, in the South, under the
new order of things, one sugar-mill accommodates several plan
tations. And so in regard to the railways j even one repair
shop, conveniently located, might be made to answer the require
ments of two or three lines j and in this way, by a kind of
cooperative system, the cost of even running repairs could be
reduced to a minimum. But as regards new work, there can
be no question that it can be done now as effectually, with
greater facility, and at less cost, outside of the average railway
car-shops. I know this does not harmonize with the views en
tertained by the master mechanics and master car-builders ; it
is quite natural that it should not j but when the question of
feasibility comes to be determined in the interest of the share
holders, I do not imagine that these gentlemen will be consulted.
The practical effect of the railways employing some such outside
agency would be to reduce materially their working force, and

Online LibraryNathaniel Hillyer. EglestonThe North American review (Volume 139) → online text (page 52 of 60)