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RAILWAY MORALS & RAILWAY POLICY.
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RAILWAY MORALS & RAILWAY POLICY.
BY HERBERT SPENCER,
AUTHOR OF "SOCIAL STATICI," AND "TIE PRLSCIPLES OF PSYCHOLOGY."
UT00
REPRINTED FROM THE “ EDINBURGH REVIEW.”
WITH ADDITIONS AND A POSTSCRIPT BY THE AUTHOR.
LONDON:
LONGMAN, BROWN, GREEN, & LONGMANS.
1855.
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18826
RAILWAY MORALS AND RAILWAY POLICY.
DIUI
BELIEVERS in the intrinsic virtues of political forms, might draw
an instructive lesson from the politics of our railways. If there
needs a conclusive proof that the most carefully framed con-
stitutions are worthless, unless": they be embodiments of the
popular character --- if there needs a conclusive proof, that
governmental arrangements in advance of the time will inevi-
tably lapse back into congruity with the time ; such proof may
be found over and over again repeated in the current history of
joint-stock enterprises. As devised by Act of Parliament, the
administrations of our public companies are almost purely
democratic. The representative system is carried out in them
with scarcely a check. Shareholders elect their directors,
directors their chairman ; there is an annual retirement of
a certain proportion of the board, giving facilities for superseding
them; and, by this means, the whole ruling body may be
changed in periods varying from three to five years. Yets
not only are the characteristic vices of our political state repro-
duced in each of these mercantile corporations—some even in
an intenser degree--but the very form of government, whilst
remaining nominally democratic, is substantially so remodelled
as to become a miniature of our national constitution. The
direction, ceasing to fulfil its theory as a deliberative body
whose members possess like powers, falls under the control of
some one member of superior cunning, will, or wealth, to whom
A
RAILWAY MORALS AND RAILWAY POLICY.
the majority become so subordinate, that the decision on every
question depends on the course he takes. Proprietors, instead
of constantly exercising their franchise, allow it to become on
all ordinary occasions a dead letter : retiring directors are so
habitually re-elected without opposition, and have so great
a power of insuring their own re-election when opposed, that
the board becomes practically a close body; and it is only when
the misgovernment grows extreme enough to produce a revolu-
tionary agitation among the shareholders, that any change can
be effected. Thus, a mixture of the monarchic, the aristocratic,
and the democratic elements, is repeated with such modifications
only as the circumstances involve. The modes of action, too,
are substantially the same ; save in this, that the copy outruns
the original. Threats of resignation, which ministries hold out
in extreme cases, are commonly made by railway boards to
stave off a disagreeable inquiry. By no means regarding
themselves as servants of the shareholders, directors rebel
against dictation from them; and frequently construe any
amendment to their proposals into a vote of want of confidence.
At half-yearly meetings, disagreeable criticisms and objections
are met by the chairman with the remark, that if the share-
holders cannot trust his colleagues and himself, they had better
choose others. With most this assumption of offended dignity
tells ; and, under the fear that the company's interests may
suffer from any disturbance, measures quite at variance with
the wishes of the proprietary are allowed to be carried. The
parallel holds yet further. If it be true of national adminis-
trations, that those in office count on the support of all public
employés; it is not less true of incorporated companies, that the
directors are greatly aided by their officials in their struggles
with shareholders. If, in times past, there have been ministries
who spent public money to secure party ends; there are, in times
present, railway boards who use the funds of the shareholders
to defeat the shareholders. Nay, even in detail, the similarity
RAILWAY MORALS AND RAILWAY POLICY.
is maintained. Like their prototype, joint-stock companies
have their expensive election contests, managed by election
committees, employing election agents; they have their can-
Vassing with its' sundry illegitimate accompaniments; they have
their occasional manufacture of fraudulent votes. And, as
a general result, that class-legislation, which, until of late, was
habitually charged against statesmen, is now habitually dis-
played in the proceedings of these trading associations; consti-
tuted though they are on purely representative principles.
· These last assertions will probably surprise not a few. The
general public who have little or no direct interest in railway
matters—who never see a railway journal, and who skip the
reports of half-yearly meetings that appear in the daily papers
are under the impression that dishonesties akin to those gigantic
ones so notorious during the mania, are no longer committed.
They do not forget the doings of stags and stock-jobbers and
runaway directors ; they remember how men-of-straw held
shares amounting to £100,000, and even £200,000 ; how nu-
merous directorates were filled by the same persons—one having
a seat at twenty-three boards; how subscription-contracts were
made up with signatures bought at 10s. and 4s. each, and
porters and errand-boys made themselves liable for £30,000
and £40,000 apiece. They can narrate how boards kept their
books in cipher; made false registries, and refrained from
recording their proceedings in minute books; how in one com-
pany, half a million of capital was down to unreal names; how
in another, directors bought for account more shares than they
issued, and so forced up the price ; and bow in many others,
they repurchased for the company their own shares, paying
themselves with the depositors' money. But, though more or
less aware of the iniquities that have been practised, the gene-
rality think of them solely as the accompaniments of bubble
schemes. More recent enterprises they know to have beer bona
fide ones, mostly carried out by old-established companies; and
.
RAILWAY MORALS AND RAILWAY POLICY.
knowing this, they do not suspect that in the getting-up of
branch-lines and extensions, there are chicaneries near akin to
those of Capel Court; and quite as disastrous in their ultimate
results. Associating the ideas of wealth and respectability, and
habitually using respectability as synonymous with morality,
it seems to them incredible, that many of the large capitalists
and men of station who administer railway affairs, should be
guilty of indirectly enriching themselves at the expense of their
constituents. True, they occasionally meet with a law-report
disclosing some enormous fraud; or read a “Times” leader, charac-
they regard the cases thus brought to light as entirely excep-
tional; and, under that feeling of loyalty which ever idealises
men in authority, they constantly tend towards the conviction,
if not that directors can do no wrong, yet that they are very
unlikely to do wrong.
A history of railway management and railway intrigue, how-
ever, would quickly undeceive them. In such a history, the
doings of projectors and the mysteries of the share-market
would occupy less space than the analysis of the multiform dis-
honesties that have been committed since 1845, and the genesis
of that elaborate system of tactics by which companies are
betrayed into ruinous undertakings that benefit the few at the
cost of the many. Such a history would not only have to detail
the doings of the personage famed for “making things pleasant;"
nor would it have merely to add the misdeeds of his colleagues ;
but it would have to describe the kindred corruptness of other
railway administrations. From the published report of an in-
vestigation-committee, it would be shown how, not many years
since, the directors of one of our lines allotted among themselves
15,000 new shares then at a premium in the market-how to
pay the deposits on these shares they used the company's
funds how one of their number thus accommodated himself
in meeting both deposits and calls to the extent of more than
RAILWAY MORALS AND RAILWAY POLICY.
£80,000. We should read in it of one railway chairman who,
with the secretary's connivance, retained shares exceeding a
quarter of a million in amount, intending to claim them as his
allotment if they rose to a premium ; and who, as they did not
do so, left them as unissued shares on the hands of the pro-
prietors, to their vast loss. We should also read in it of directors
who made loans to themselves ont of the company's floating
balances at a low rate of interest when the market rate was
high; and who paid themselves larger salaries than those
assigned : entering the difference in an obscure corner of the
ledger under the head of " petty disbursements.” There would
be a description of the manæuvres by which a delinquent board,
under impending investigation, gets a favourable committee
nominated "a whitewashing committee.” There would be
documents showing that the proxies enabling boards to carry
contested measures, have in some cases been obtained by garbled
statements; and, again, that proxies given for a specific purpose
have been used for other purposes. One of our companies would
be proved to have projected a line, serving as a feeder, for which
it obtained shareholders by offering a guaranteed dividend, -
which, though understood by the public to be unconditiona),
was really contingent upon a condition not likely to be fulfilled.
The managers of another company would be convicted of having
carried party measures by the aid of preference shares standing
in the names of station masters ; and of being aided by the
proxies of the secretary's children too young to write.'
That the corruptions here glanced at are not merely excep-
tional evils, but result from some deep-seated vice ramifying
throughout our system of railway government, is sufficiently
proved by the simple fact, that notwithstanding the depreciation
of railway dividends produced by the extension policy, that
policy has been year after year continued. Does any
tradesman, who, having enlarged his shop, finds a proportionate
diminution in his rate of profits, go on, even under the stimulus
f
RAILWAY MORALS AND RAILWAY POLICY.
of competition, making further enlargements at the cost of
further diminutions? Does any merchant, however strong his
desire to take away an opponent's markets, make successive
mortgages on his capital, and pay for each sum thus raised a
higher interest than he gains by trading with it? Yet this
course, so absurd that no one would insult a private individual
by asking him to follow it, is the course which railway boarıls,
at meeting after meeting, persuade their clients to pursue. Since
1845, when the dividends of our leading lines ranged from 8 to
10 per cent., they have, notwithstanding an ever-growing traffic,
fallen from 10 per cent, to 5, from 8 to 4, from 9 to 31 ; and
yet the system of extensions, leases, and guarantees, notoriously
the cause of this, has been year by year persevered in. Is there
not something needing explanation here—something more than
the world is allowed to see ? If there be any one to whom the
broad fact of obstinate persistence in unprofitable expenditure
does not alone carry the conviction that sinister jufluences are
at work, let him read the seductive statements by which share-
holders are led to authorize new projects, and then compare
these with the proved results. Let him look at the estimated
cost, anticipated traffic, and calculated dividend on some pro-
posed branch line; let him observe how the proprietary before
whom the scheme is laid, are induced to approve it as promising
a fair return; and then let him contemplate, in the resulting
depreciation of stock, the extent of their loss. Is there any
avoiding the inference ? Clearly, railway shareholders can
never have habitually voted for new undertakings which they
knew would be injurious to them. Every one knows, however,
that these new unrlertakings have almost uniformly proved in-
jurious to them. Obviously, therefore, railway shareholders
have been continually deluded by false representations. The
only possible escape from this conclusion is in the belief that
boards and their officers have been themselves deceived ; and
were the discrepancies between promises and results occasional
RAILWAY MORALS AND RAILWAY POLICY.
only, there would be grounds for this lenient interpretation.
But to suppose that a railway government should repeatedly
- make such mistakes, and yet gain no wisdom from disastrous
experiences should after a dozen disappointments again mis-
lead half-yearly meetings by bright anticipations into dark
l'ealities, and all in good faith-taxes credulity somewhat too
far. Even, then, were there no demonstrated iniquities to rouse
suspicion, we think that the continuous depreciation in the
value of railway stock, the determined perseverance of boards
in the policy that has produced this depreciation, and the
proved untruth of the statements by which they have induced
shareholders to sanction this policy, would of themselves suffice
to show the essential viciousness of railway administration.
That the existing evils, and the causes conspiring to produce
them, may be better understood, it will be needful briefly to
· glance at the mode in which the system of extensions grew up.
Earliest among the incentives to it was a feeling of rivalry.
Even while yet their main lines were 'unmade, a contest for
supremacy arose between our two greatest companies. This
presently generated a confirmied antagonism; and the same im-
pulse which in election contests and the like, has frequently led
to the squandering of a fortune to gain a victory, has largely
aided to make each of these great rivals submit to repeated
sacrifices rather than be beaten. Feuds of like nature are in
other cases perpetually prompting boards to make aggressions
on each other's territories every attack on the one side leading
to a reprisal on the other : and so violent is the hostility occa-
sionally produced, that directors might be pointed out whose
votes are wholly determined by the desire to be revenged on
their opponents. Among the first methods by which leading
companies sought to strengthen themselves and weaken their
competitors, was the leasing or purchase of subordinate neigh-
bouring lines. Of course those to whoin overtures were made,
obtained bids from both sides; and it naturally resulted that
RAILWAY MORALS AND RAILWAY POLICY,
the first sales thus effected, being at prices far above the real
values, brought great profits to the sellers. What resulted ?
After a few recurrences of this proceeding, it was clearly per-
ceived by quick-witted speculators, that the making of lines so
circumstanced as to be bid for by competing companies, would
be a lucrative policy. Shareholders who had once pocketed
these large and easily-made gains, were eager to repeat the pro-
cess; and cast about for districts in which it might be done.
Even the directors of the companies by whom these high prices
were given, were under the temptation to aid in this; for it was
manifest to them that by obtaining a larger interest in any such
new undertaking than they possessed in the purchasing com-
pany, and by using their influence in the purchasing company
to obtain a good price or guarantee for the new undertaking, a
great advantage would be gained ; and that this motive has
been largely operative, railway history abundantly proves. Once
commenced, sundry other influences conspired to stimulate
this making of feeders and extensions. The non-closure of
capital-accounts rendered possible the “cooking” of dividends,
which was at one period carried to a great extent. Under
various incentives, speculative and other, expenditure that should
have been charged against revenue was charged against capital;
works and rolling stock were allowed to go unrepaired, or in-
sufficient additions made to them, by which means the current
expenses were rendered delusively small ; long-credit agree-
ments with contractors permitted sundry disbursements that
had been virtually made, to be kept out of the accounts; and
thus the net returns were made to appear much greater than
they really were. Naturally the new undertakings put before
the monied world by companies whose stock and dividends had
been thus artificially raised, were received with proportionate
favour. Under the prestige of their parentage their shares
came out at high premiums, bringing large profits to the pro-
jectors. The hint was soon taken ; and it presently became an
RAILWAY MORALS AND RAILWAY POLICY.
established policy, under the auspices of a prosperity either real
or mock, to get up these subsidiary lines — “calves," as they
were called in the slang of the initiated—and to traffic in the
premiums their shares commanded. Meanwhile had been de-
veloping, a secondary set of influences which also contributed to
foster unwise enterprises ; namely, the business interests of the
lawyers, engineers, contractors, and others directly or indirectly
employed in railway construction. The methods of projecting
and carrying new schemes, could not fail, in the course of years,
to become familiar to all persons concerned ; and there could
not fail to grow up among them a concerted system of tactics
calculated to achieve their common end. Thus, partly from the
jealousy of rival boards, partly from the avarice of shareholders ·
in purchased lines, partly from the dishonest schemings of
directors, partly from the manæuvres of those whose business it
is to carry out the projects legally authorized, partly, and
perhaps mainly, from the delusive appearance of prosperity
maintained by many established companies, there came the wild
speculations of 1844 and 1845. The consequent disasters,
whilst they pretty well destroyed the last of these incentives,
left the rest much as they were. Though the painfully-unde- .
ceived public have ceased to aid as they once did ; the various
private interests that had grown up have since been working
together as before; have developed their systems of co-operation
into still more complex and subtle forms; and are even now daily
thrusting unfortunate shareholders into losing undertakings.
Before proceeding to analyze the existing state of things,
however, we would have it clearly understood that we do not
suppose those implicated to be on the average morally lower
than the community at large. Men taken at random from any
class, would, in all probability, behave much in the same way
when placed in like positions. There are unquestionably
directors grossly dishonest: unquestionably also there are others
whose standard of honour is far higher than that of most
10
RAILWAY MORALS AND RAILWAY POLICY:
persons: and for the remainder, they are, we doubt not, as good
as the mass. Of the engineers, parliamentary agents, lawyers,
contractors, and various others concerned, it may be admitted
that though daily custom has induced laxity of principle, yet
they would be harshly judged were the transactions that may be
recorded against them, used as measures. Those who do not see
how, in these involved affairs, the most inequitable results may
be wrought out by men not correspondingly flagitious, will
readily do so on considering all the conditions. In the first
place, there is the familiar fact that the corporate conscience is
ever inferior to the individual conscience—that a body of men
will commit as a joint act, that which every individual of them
would shrink from did he feel personally responsible. And it
may be remarked that not only is the conduct of a corporate
body thus comparatively lax, but also the conduct towards one.
There is ever a more or less distinct perception, that a broad-
backed company scarcely feels what would be ruinous to a
private person; and this perception is in constant operation on
all railway administrators and their employés-on all con-
tractors, landowners, and others concerned; leading them to
show à graspingness and want of principle foreign to their
general behaviour. Again, the indirectness and remoteness of
the evils produced, greatly weaken the restraints on wrong
doing. Men's actions are proximately produced by mental
representations of the results to be anticipated; and the decisions
come to, largely depend on the vividness with which these results
can be imagined. A consequence, good or bad, that is immediate
and clearly apprehended, influences conduct far more potently
than a consequence that has to be traced through a long chain
of causation, and as eventually reached, is not a particular and
readily conceivable one, but a general and vaguely conceivable
one. Hence, in railway affairs, a questionable share transaction,
an exorbitant charge, a proceeding which brings great individual
advantage without apparently injuring any one, but which, even
RAILWAY MORALS AND RAILWAY POLIOY.
11
if analyzed in its ultimate results, can but very circuitously affect
unknown persons living no one knows where, may be brought
home to men who, could the results be embodied before them,
would be shocked at the cruel injustices they had committed
men who in their private business, where the results can be thus
embodied, are sufficiently equitable. Further, it requires to be
ncted that most of these great delinquencies are wrought out,
not by the extreme dishonesty of any one man or group of men,
but by the combined self-interest of many men and groups of
men, whose minor delinquencies are cumulative. Much as a
story which, passing from mouth to mouth, and receiving a
slight exaggeration at each repetition, comes round to the original
narrator in a form scarcely to be recognised; so; by a little
improper influence on the part of landowners, a little favouritism
on the part of members of Parliament, a little intriguing of
lawyers, a little manquvring by contractors and engineers, a
little self-seeking on the part of directors, a little under-state-
ment of estimates and over-statenient of traffic, a little magnify-
ing of the evils to be avoided and the benefits to be gained--it
happens that shareholders are betrayed into ruinous undertakings
by grossly untrue representations, without any one being guilty
of more than a small portion of the fraud. Bearing in mind,
then, the comparative laxity of the corporate conscience; the
diffusion and remoteness of the evils which malpractices produce;
and the composite origin of these malpractices; it becomes,
possible to understand how, in railway affairs, gigantic dis-
honesties can be perpetrated by men, who, on the average, are
little if at all below the generality in moral character.
With this preliminary mitigation we proceed to detail the
various illegitimate agencies by which these seemingly insane
extensions and this continual squandering of shareholders'
property are brought about.
11T
i Conspicuous amongst these is the self-interest of landowners.
12
RAILWAY MORALS AND RAILWAY POLICY.
Once the greatest obstacles to railway enterprise, owners of
estates have of late years been amongst its chief promoters.
Since the Liverpool and Manchester line was first defeated by
landed opposition, and succeeded with its second bill only by
keeping out of sight of all mansions, and avoiding the game
preserves-since the time when the London and Birmingham
Company, after seeing their project thrown out by a committee
of peers who ignored the evidence, had to “conciliate” their
antagonists by raising the estimate for land from £250,000 to
£750,000-since the time when Parliamentary counsel bolstered
up a groundless resistance by the flimsiest and absurdest excuses,
even to reproaching engineers with having " trodden down the
corn of widows” and “destroyed the strawberry-beds of
gardeners”-since then, a marked change of policy has taken
place. Nor was it in human nature that it should be otherwise.
When it became known that railway companies commonly paid
for “land and compensation,” sums varying from £4000 to
£8000 per mile; that men were indemnified for supposed injury
to their property, by sums so inordinate that the greater part has
been known to be returned by the heir as conscience money;
that in one case, £120,000 was given for land said to be worth
but £5000—when it was bruited abroad that large bonuses in
the shape of preference shares and the like, were granted to
buy off opposition—when it came to be an established fact
that estates are greatly enhanced in value by the proximity
of railways—it is not surprising that country gentlemen
should have become active supporters of schemes to which they
were once the bitterest enemies. On considering the many
temptations, we shall see nothing wonderful in the fact, that in
1845 they were zealous provisional committeemen; nor in the
fact, that their influence as promoters enabled them to get good.
terms, for their own acres; nor in the fact that they committed
various acts sufficiently reprehensible from any but their own
point of view. If we are told of squires soliciting interviews
13
with the engineer of a projected railway; prompting him to
take their side of the country; promising support if he did, and
threatening opposition if he did not; dictating the course to be
followed through their domains; and hinting that a fair price
would be expected; we are simply told of the special modes in
which certain private interests show themselves. If we hear of
an extensive landowner using his influence as chairman of a
board of directors, to project a branch running for many miles
through his own estate, and putting his company to the cost
of a parliamentary contest to carry this line; we hear only of
that which was likely to occur under such circumstances. If
we find now before the public, a line proposed by a large
capitalist, serving amongst other ends to effect desirable com-
munications with his property; and the estimates for which
line, though considered by the engineering world insufficient, are
alleged by him to be ample; we have but a marked case of the
distorted representations which under such conditions self-interest
is sure to engender. If we discover of this or that scheme, that
it was got up by the local nobility and gentry—that they
employed to make the survey a third-rate engineer, who was
ready, in anticipation of future benefit, to do this for his bare
expenses—that principals and agent wearied the directors of an
adjacent trunk line to take up tireir project; threatened that if
they did not their great rival would; alarmed them into con-
cession; asked for a contribution to their expenses; and would
have gained all these points but for shareholders' resistance-
we do but discover the organized tactics which in process of
time naturally grow up under such stimuli. It is not that
these facts are particularly remarkable. From the gross instance
of the landowner who asked £8000 for that which he eventually
accepted £80 for, down to the everyday instances of influence
used to get railway accommodation for the neighbourhood, the
acts of the landed class are simply manifestations of the average
character acting under special conditions. All that it now
RAILWAY MORALS AND RAILWAY POLICY.
behoves us to notice, is, that we have here a large and powerful
body whose interests are ever pressing on railway extension,
irrespective of its intrinsic propriety.
The great change in the attitude of the Legislature towards
railways, from “the extreme of determined rejection or dilatory
acquiescence, to the opposite extreme of unlimited concession,"
was simultaneous with the change above described. It could
not well fail to be so. Supplying, as the landowning community
does, so large a portion of both Houses of Parliament, it neces-
sarily follows that the play of private interests seen in the first,
repeats itself in the last under modified forms, and complicated
by other influences. Remembering the extent to which legis-
lators were themselves involved in the speculations of the
mania, it is scarcely probable that they should since have been
free from personal bias. A return proved, that in 1845 there
were 157 members of Parliament whose names were on the
registers of new companies for sums varying from £291,000
downwards. The supporters of new projects boasted of the
number of votes they could command in the House. Members
were personally canvassed, and peers were solicited. It was
publicly complained in the upper chamber, that “it was nearly
impossible to bring together a jury, some members of which
were not interested in the railway they were about to assess.”
Doubtless this state of things was in a great degree exceptional;
and there has since been not only a diminution of the tempta-
tions, but a marked increase of equitable feeling. Still, it is not
to be expected that private interests should cease to act. It is
riot to be expected that a landowner who, out of Parliament,
exerts himself to get a railway for his district, should, when in
Parliament, not employ the power his new position gives him
to the same end. It is not to be expected that the accumula-
tion of such individual actions should leave the legislative policy
unchanged. Hence the fact, that the influence once used to
throw out railway bills is now used to carry them. Hence the
RAILWAY MORALS AND RAILWAY POLICY.
15
fact, that railway committees no longer require a good traffic
case to be made out in justification of the powers asked. Hence
the fact that the directors and chairmen of boards having seats in
the House of Commons, are induced to pledge their companies
to carry out extensions. We could name a member of Parlia-
ment, who, having bought an estate fitly situated, offered to an
engineer, also in Parliament, the making of a railway running
through it; and having obtained the Act (in doing which the in-
fluence of himself and his friend were of course useful), pitted three
railway companies against each other for the purchase of it. We
could name another member of Parliament, who, having pro-
jected, and obtained powers for, an extension through his
property, induced the directors of the main line, with whom he
had great influence, to subscribe half the capital for this exten-
sion, to work it for fifty per cent. of the gross receipts, and to
give up all traffic brought by it on to the main line until he
received four per cent. on bis capital; which was tantamount to
a four per cent. guarantee. But it is not only, nor indeed
mainly, from directly personal motives that legislators have of
late years unduly fostered railway enterprises. Indirect motives
of various kinds have been largely operative. The wish to satisfy
constituents has been one. Inhabitants of unaccommodated.
districts, are naturally urgent with their representatives to help
them to a line. Such representatives are not unfrequently con-
scious that their next elections may possibly turn upon their
successful response to this appeal. Even when there is no po-
pular pressure there is the pressure of their leading political
supporters; of large landholders, whom it will not do to neglect;
of the magistracy, with whom it is needful to be on good terms;
of local lawyers, important as electioneering friends, to whom a
railway always brings business. Thus, without having any in-
mediately private ends, members of Parliament are often almost
coerced into pressing forward schemes which, from a national or
from a shareholder's point of view, are very unwise ones. Thien
16
RAILWAY MORALS AND RAILWAY POLICY.
there come the still less direct stimuli. Where neither personal
nor political ends are to be gained, there are still the interests of
a relative to be subserved; or, if not those of a relative, still those :
of a friend. And where there is no decided impulse to the con-
trary, these motives, of course, have their weight. Moreover, it
requires in fairness to be said, that possessed as most members
of Parliameut are, with the belief that all railway-making is
nationally beneficial, there exist in their minds few or 110
reasons for resisting the influences brought to bear on them.
True, shareholders may be injured; but that is their own
affair:--the public will be better served; constituents will be
satisfisca; friends will be pleased; perhaps personal ends gained;
andziauder some or all of these incentives affirmative votes are.
readily given. Thus, from the Legislature also, there has of late
yea.s proceeded a factitious stimulus to railway extensions.
From Parliament to Parliamentary agents, and the general
body of lawyers concerned in railway enterprise, is a ready
transition. With these, the getting up and carrying of nev
lines and branches is a matter of husiness. Whoever studies
the process of obtaining a railway act; or considers the number
of legal transactions involved in the execution of railway works ;
· or notes the large sums that figure in half-yearly reports under
the head of " law charges;” will at once see how strong are the
temptations which a new project holds out to solicitors, convey-
ancers, and counsel. It has been shown that in past years, Par-
liamentary expenses have varied from £650 to £3000 per mile;
of which a large proportion has gone into the pockets of the
profession. In one contest, £57,000 was spent amongst six
counsel and twenty solicitors. At a late meeting of one of
our companies, it was pointed out, that the sum expended in legal
and parliamentary expenses during nine years, had reached
£480,000; or had averaged £53,500 a-year. With these and
scores of like facts before them, it would indeed be strange did
not so acute a body of men as lawyers use vigorous efforts and
RAILWAY MORALS AND RAILWAY POLICY.
17
sagacious devices to promote fresh enterprises. Indeed, if we
look back at the proceedings of 1845, we shall suspect, not only
that lawyers are still the active promoters of fresh enterprises,
but often the originators of them. Most people have heard
how in those excited times the projects daily announced were
very frequently set afloat by local solicitors—how these looked
over maps to see where plausible lines could be sketched out-
how they canvassed the local gentry to obtain provisional com-
mitteemen-how they agreed with engineers to make trial sur-
veys-how, under the wild hopes of the day, they found little
difficulty in forming companies—and how most of them ma-
naged to get as far as the Committee on Standing Ord s, if no
farther. Remembering all this, and remembering that thu. t who
were successful are not likely to have forgotten their cunning,
but rather to have yearly exercised and increased it, we may
naturally expect to find railway lawyers amongst the most in-
fluential of the many parties conspiring to urge railway pro-
prietaries into disastrous undertakings: and we shall not be
deceived. To a great extent they are in league with engi-
neers. From the proposal to the completion of a new line, the
lawyer and the engineer work together; and their interests are
throughout identical. While the one makes the survey, the
other prepares the book of reference. The parish plans which
the one gets ready, the other deposits. The notices to owners
and occupiers which the one fills in, the other serves upon those
concerned. Throughout, there is continual consultation between
them as to the dealing with local opposition and the obtainment
of local support. In the getting up of their case for Parliament,
they necessarily act in concert. Whilst, before committee, the
one gets his ten guineas per day for attending to give evidence;
the other makes profits on all the complicated transactions which
the carrying a bill involves. During the execution of the works
they are in frequent correspondence; and alike profit by any
expansion of the undertaking. Thus there naturally arises in
18
RAILWAY MORALS AND RAILWAY POLICY.
.
each, the perception that in aiding the other he is aiding himself:
and gradually, as, in course of years, the proceedings come to be
often repeated, and a perfect familiarity with railway politics
gained ; there grows up a well-organized system of co-
operation between them a system rendered the more efficient
by the wealth and iufluence which each has year by year accu-
mulated.
Among the mancuvres employed by railway solicitors thus
established and thus helped, not the least remarkable is that of
getting their own nominees elected as directors. Startling
though it may seem, it is yet a fact, which we state on good
authority, that there are puppet-directors who vote for this or
that at the instigation of the company's lawyer, whose creatures
they are. The obtainment of such tools is by no means difficult.
Vacancies are about to occur in the directorate. Almost always
there are sundry men over whom a solicitor, conducting the
extensive law business of a railway, has considerable power :
not only connexions and friends, but clients and persons to
whom, in his legal capacity, he can do great benefit or great
injury. He selects the most suitable of these; giving the pre-
ference, if other things are equal, to one living in the country
near the line. On opening the matter to him, he points out the
sundry advantages attendant on a director's position, the free
pass and the many facilities it gives; the annual £100 or so
which the office brings; the houour and influence accruing; the
opportunities for profitable investment that are likely to occur;
and so forth. Should ignorance of railway affairs be raised as
an objection, the tempter, in whose eyes this ignorance is a chief
recommendation, replies that he shall always be at band to guide
his votes. Should non-possession of a due amount of the com-
pany's stock be pleaded, the tempter readily meets the difficulty
by offering himself to furnish the needful qualification. Thus
incited and flattered, and perhaps conscious that it would be
dangerous to refuse, the intended puppet allows himself to be
RAILWAY MORALS AND RAILWAY POLICY,
19
pat in nomination; and as it is the general habit of half-yearly
- meetings, unless under great indignation, to elect any one pro-
posed to them by those in authority, the nomination is success-
ful. On subsequent occasions this proceeding can, of course, be
repeated; and thus the company's legal agent and those leagued
with him, may command sufficient votes to turn the scale in
their own favour.
Then, to the personal interest and power of the head solicitor,
have to be added those of the local ones, with whom he is in
constant business intercourse. They, too, profit by new under-
takings; they, therefore, are commonly urgent in pressing them
forwards. Acting in co-operation with their chief, they form a
local staff of great influence. They are active canvassers; they
stimulate and concentrate the feeling of their districts; they
encourage rivalry with other lines; they alarm local share-
holders with rumours of threatened competition. When the
question of extension or non-extension comes to a division, they
collect proxies for the extension party. They bring pressure to
bear on their shareholding clients and relatives. Nay, so deep
an interest do they feel in the decision, as occasionally to manu-
facture votes with the view of influencing it. We have before
us the case of a local solicitor, who, before the special meeting
called to adopt or reject a contemplated branch, transferred
portions of his own shares into the names of sundry members of
his family, and so multiplied his seventeen votes into forty-one;
all of which he recorded for the adoption of the new scheme.
The morality of railway engineers is not greatly above that
of railway lawyers. The gossip.of Great George Street is fertile
in discreditable revelations. It tells how So-and-so, like others
before him, testified to estimates which he well knew were
insufficient. It makes jocose allusion to this man as being
employed to do his senior's “ dirty work”-his hard-swearing ;
and narrates of the other, that when giving evidence before
committee, he was told by counsel that he was not to be believed
20
· RAILWAY MORALS AND RAILWAY POLICY.
even on his knees. It explains how cheaply the projector of a cer-
tain line executed the parliamentary survey, by employing on it
· part of the staff in the pay of another company to which he was
engineer. Now it alludes to the suspicion attaching to a certain
member of the fraternity from his having let a permanent-way
contract, for a térm of years, at an extravagant sum per mile.
Again, it rumours the great profits which some of the leaders of
the profession made in 1845, by charging for the use of their
names at so much the prospectus, even up to a thousand guineas.
And then, it enlarges upon the important advantages possessed
by engineers who have seats in the House of Commons.
Thus lax as is the ethical code of engineers, and greatly as
they are interested in railway enterprise, it is to be expected
that they should be active, and not very scrupulous promoters
of it. To illustrate the vigour and skill with which they fur-
ther new undertakings, a few facts may be cited. Not far from
London, and lying between two lines of railway, is an estate that
has been purchased by one of our engineers. He has since ob-
tained acts for branches to both of the adjacent lines. One of
these branches he has leased to the company whose line it joins;
and he has tried to do the like with the other, but as yet without
success. Even as it is, however, he is considered to have doubled
the value of his property. Again, an engineer of celebrity once
very nearly succeeded in smuggling through parliament, in the
bill for a proposed railway, a clause extending the limits of
deviation, through a certain district, to several miles on each side
of the line the usual limits being but five chains on each side;
and the attempt is accounted for by the fact, that this engineer
possessed mines in this district. To press forward extensions by
the companies with which they are connected, they occasionally
go to great lengths. Not long since, at a half-yearly meeting,
certain projects which the proprietary had already once rejected,
were again brought forward by two engineers who attended in
their capacity of shareholders. Though known to be personally
RAILWAY MORALS AND RAILWAY POLICY.
21
interested, one of them moved and the other seconded, that.
certain proposals from the promoters of these schemes be con-
sidered without delay by the directors. The motion was carried ;
the directors approved the proposals; and again, the proprietors.
negatived them. A third time a like effort was made; a third
time a conflict arose; and within a few days of the special meet-
ing at which the division was to take place, one of these engineers
circulated amongst the shareholders a pamphlet, denying the
allegations of the dissentient party, and making counter-state-
ments which it was then too late to meet—nay, he did more;
he employed agents to canvass the shareholders for proxies in
support of the new undertaking; and was obliged to confess as
much when charged with it at the meeting.
Turn we now to contractors. Railway enterprise has given
to this class of men a gigantic development, not only in respect
of mimbers, but in respect of the vast wealth to which some of
them have attained. Originally, half a dozen miles of earth-
work, fencing, and bridges, was as much as any single con-
tractor undertook. Of late years, however, it has become
common for one man to engage to construct an entire railway;
and deliver it over to the company in a fit condition for opening.
Great capital is necessarily required for this : great profits are,
made by it: and the fortunes accumulated in course of time
have been such, that sundry contractors are described as being
each able to make a railway at his own cost. But they are as
insatiate as millionnaires in general; and so long as they continue
in business at all, are, in some sort, forced to provide new under-
takings to keep their plant employed. As may be imagined,
enormous stocks of working materials are needed ; many hun-
dreds of earth-waggons and of horses ; many miles of temporary
rails and sleepers; some half-dozen locomotive engines, and
several fixed ones ; innumerable tools; besides vast stores of
timber, bricks, stone, rails, and other constituents of permanent
works, that have been bought on speculation. To keep the
22
RAILWAY MORALS AND RAILWAY POLICY,
capital thus invested, and also a large staff of employés, standing
idle, entails loss, partly negative partly positive. The great
contractor, therefore, is alike under a pressing stimulus to get
fresh work, and enabled by his wealth to do this. Hence the
not unfrequent inversion of the old arrangement under which
companies and engineers employed contractors, into an arrange-
ment under which contractors employ engineers and form com- .
panies. Many recent undertakings have been thus set on foot.
The most gigantic project which private enterprise has yet dared
-a project of which, unfortunately, there is now no hope-origi-
nated with a distinguished contracting firm. In some cases, as
in this chief one, this mode of procedure may be considered as
advantageous; but in a far greater proportion of cases its results
are disastrous. Interested in promoting railway extensions, even
in a greater degree than engineers and lawyers, contractors fre-
quently co-operate with these, either as agents or as coadjutors.
Lines are fostered into being, which it is known from the very
beginning, will not pay. Of late, it has become common for
landowners, merchants, and others personally interested, who,
under the belief that their indirect gains will compensate for
their meagre dividends, have themselves raised part of the
capital for a local railway, but who cannot raise the rest—it has
become common for such to make an agreement with a wealthy
contractor to construct the line, taking in part payment a por-
tion of the shares, amounting to perhaps a third of the whole,
and to charge for his work according to a schedule of prices to
be thereafter settled between himself and the engineer. By this
last clause the contractor renders himself secure. It would never
answer his purpose to take part payment in shares likely to
return some £2 per cent., unless he compensated himself by
unusually high profits; and this subsequent settlement of prices
with one whose interests, like his own, are wrapped up in the
prosecution of the undertaking, ensures him high profits. Mean-
while, the facts that all the capital has been subscribed and
".
23
RAILWAY MORALS AND RAILWAY POLICY.
the line contracted for, unduly raise the public estimate of the
scheme; the shares are quoted at much above their true worth;
unwary persons buy; the contractor from time to time parts
with his moiety at fair prices ; and the new shareholders ulti-
mately find themselves part owners of a railway which, unpro-
fitable as it originally promised to be, has been made yet more
unprofitable by expensiveness of construction. Nor are these
the only cases in which contractors- gain after this fashion,
They do the like with undertakings of their own projection. To
obtain acts for these, they sign the subscription-contracts for
large amounts; knowing that in the way above described, they
can always make it answer to do this. So general had the
practice latterly become, as to attract the attention of commit-
tees. As was remarked by a personage noted for his complicity in
these transactions—“Committees are getting too knowing; they
won't stand that dodge now.” Nevertheless, the thing is still
done under a disguised form. Though contractors no longer
enter their own names on subscription lists for thousands of
shares; yet they effect the same end by making nominal holders.
of their foremen and others; themselves being the real ones.
Of directorial misdoings some samples have already been re-
ferred to; and more might be added. Besides those arising from
directly personal aims, there are sundry others. One of these is,
the still increasing community between railway boards and the
House of Commons. There are eighty-one directors sitting in
Parliament; and though many of these take little or no part in
the affairs of their respective railways, many of them are the
most active members of the boards to which they belong. We
have but to look back a few years, and mark the unanimity with:
which companies adopted the policy of getting themselves repre-
sented in the Legislature, to see that the furtherance of their
respective interests especially in cases of competition was the
incentive. How well this policy is understood among the
initiated, may be judged from the fact, that gentlemen are now
24
RAILWAY MORALS AND RAILWAY POLICY.
in some cases elected on boards, simply because they are mem-
bers of Parliament. Of course this implies that railway legisla-
tion is affected by a complicated play of private influences ; and
that these influences generally work towards the facilitation of
new enterprises, is tolerably obvious. It naturally happens that
directors whose companies are not opposed, exchange good
offices. It naturally happens that they can more or less smooth
the way of their annual batch of new bills through committees.
Moreover, directors sitting in the House of Commons not only
facilitate the passing of the schemes in which they are interested,
but are solicited to undertake further schemes by those around
them. It is a very common-sense conclusion, that representatives of
small towns and country districts needing railway accommoda-
tion, who are daily thrown in contact with the chairman of a
company capable of giving this accommodation, will not neglect
the opportunity of furthering their ends. It is a very common-
sense conclusion, that by hospitalities, by favours, by flattery, by
the many means used to bias men, they will seek to obtain his
good offices. And it is an equally common-sense conclusion, that
in many cases they will succeed—that by some complication of
persuasions and temptations they will swerve him from his
calmer judgment; and so introduce into the company he repre-
sents, influences at variance with its welfare.
Under some motives, however-whether those of direct self-
interest, of private favour, or of antagonistic feeling, need not
here be discussed—it is certain that directors are constantly
committing their constituents to unwise enterprises; and that
they frequently employ unjustifiable means for either eluding or
overcoming their opposition. Shareholders occasionally find that
their directors have given to Parliament, pledges of extension
nyuch exceeding what they were authorized to give; and they are
then persuaded that they are bound to endorse the promises
made for them by their agents. In some cases, among the mis-
leading statements laid before shareholders to obtain their
RAILWAY MORALS AND RAILWAY POLICY,
25
consent to a new project, will be found an abstract of the earn-
ings of a previously executed branch or feeder to which the
proposed one bears some analogy. These earnings are shown
(not always without “cooking") to be tolerably good and improv-
ing; and it is argued that the new project, having like prospects,
offers a fair investment. Meanwhile, it is not stated that the
capital for this previously executed branch or feeder, was raised
on debentures or by guaranteed shares, at a higher rate of in-
terest than the dividend pays; it is not stated that as the capital
for this further undertaking will be raised on like terms, the
annual interest on debt will swallow up more than the annual
revenue: and thus unsuspecting shareholders--some unacquaint-
ed with the company's antecedents, some unable to understand
its complicated accounts-give their proxies, or raise their hands,
for new works which will tell with disastrous effect on their
future dividends. In pursuit of their ends, directors will from
time to time go directly in the teeth of established regulations.
Where it has been made a rule that proxies shall be issued only
by order of a meeting of the proprietors, they will yet issue them
without any such order, when by so doing they can steal a
march on dissentients. If it suits their purpose, they will
occasionally bring forward most important measures without due
notice. In stating the amount of the company's stock which
has voted with them on a division, they have been known to in-
clude thousands of shares on which a small sum only was paid
up, counting them as though fully paid up.
To complete the sketch, it requires to say something on the
management of board meetings and meetings of the shareholders.
For the first-their decisions are affected by various manquvres.
Of course, on the fit occasions, there is a whipping-up of those
favourable to any project which it is desired to carry. Were
this all, there would be little to complain of; but something
more than this is done. There are boards in which it is the
practice to defeat opposition by stratagem. The extension party
RAILWAY .
MORALS AND RAILWAY POLICY.
having summoned their forces for the occasion, and having
entered on the minutes of business a notice worded with the
requisite vagueness, shape their proceedings according to the
character of the meeting. Should their antagonists muster more
strongly than was expected, this vaguely-worded notice serves
simply to introduce some general statement or further informa-
tion concerning the project named in it; and the matter is
passed over as though nothing more had been meant. On the
contrary, should the proportion of the two sides be more favour-
able, the notice becomes the basis of a definite motion commit-
ting the board to some important procedure. If due precautions
have been taken, the motion is passed; and once passed, those
who, if present, would have resisted it, have no remedy ; for in
railway government there is no "second reading,” much less a
third. So determined and so unscrupulous are the efforts some-
times made by the stronger party to overcome and silence their
antagonists, that when a contested measure, carried by them at
the board, has to go before a general meeting for confirmation,
they have even been known to pass a resolution that their dis-
sentient colleagues shall not address the proprietary !
How, at half-yearly and special meetings, shareholders should
be so readily led by boards, even after repeated experience of
their untrustworthiness, seems at first sight difficult to under-
stand. The mystery disappears, however, on inquiry. Very
frequently, contested measures are carried quite against the sense
of the meetings before which they are laid, by means of the
large number of proxies previously collected by the directors.
These proxies are obtained mostly from proprietors scattered
every where throughout the kingdom, who are very generally
weak enough to sign the first document sent to them. Then, of
those present when the question is brought to an issue, not many
dare attempt a speech ; of those who dare, but few are clear-
headed enough to see the full bearings of the measure they are
about to vote upon; and such as can see it are often prevented
RAILWAY MORALS AND RAILWAY POLICY,
27
by nervousness from doing justice to the views they hold.
Moreover, it must be borne in mind that the party displaying
antagonism to the board are apt to be regarded by their brother
proprietors with more or less reprobation. Unless the miscon-
duct of the governing body has been very glaring and very recent,
there ever arises in the mass, a prejudice against all playing the
part of an opposition. They are condemned as noisy, and factious,
and obstructive; and often only by very determined courage
avoid being put down. Besides these negative reasons for the
general inefficiency of shareholders' resistance, there are sundry
positive ones. As writes a Member of Parliament who has been
an extensive holder of stock in many Companies from the first
days of railway enterprise :-"My large and long acquaintance
with Railway Companies' affairs enables me to say, that a large
majority of shareholders trust wholly to their directors, having
little or no information, nor caring to have any opinion of their
own:.... some others, better informed but timid, are afraid,
by opposing the directors, of causing a depreciation of the value
of their stock in the market, and are more alarmed at the pro-
spect of this temporary depreciation than at the permanent loss
entailed on the company by the useless, and therefore un profit-
able, outlay of additional capital:. ... others again, believing
that the impending permanent evil is inevitable, resolve on the
spot to sell out immediately, and to keep up the prices of their
shares, also give their support to the directors.” Thus, from
the lack of organization and efficiency among those who express
their opposition, and from the timidity and double-facedness of
those who do not, it happens that extremely unwise projects
are carried by large majorities. Nor is this all. The tactics of
the aggressive party are commonly as skilful as those of their
antagonists are bungling. In the first place, the chairman, who
is very generally the chief promoter of the contested scheme, has
it in his power to favour those who take his own side, and to
throw difficulties in the way of opponents; and this he not un-
28
RAILWAY MORALS AND RAILWAY POLICY.
frequently does to a great extent—refusing to hear, putting
down on some plea of breach of order, browbeating, even using
threats.* It generally turns out too, that whether intentionally
or not, some of the most important motions are postponed until
nearly the close of the meeting, when the greater portion of the
shareholders are gone. Large money-votes, extensive powers,
unlimited permits to directors to take, in certain matters, “such
steps as in their judgment they may deem most expedient,”—
these, and the like, are left to be hurried over during the last
half-hour, when the tired and impatient remnant will no longer
listen to objectors; and when those who have personal ends to
serve by outstaying the rest, carry every thing their own way.
Indeed, in some instances, the arrangements are such as almost
to ensure the meeting becoming a pro-extension one towards the
end. The result is brought about thus :-A certain portion of
the general body of proprietors are also proprietors of some sub-
ordinate work-some branch line, or steam-boats, or canal, which
the Company has purchased or leased; and as holders of
guaranteed stock, probably having capital to take up further
such stock if they can get it, they are naturally favourable to
projects that are to be executed on the preference-share system.
These hold their meeting for the declaration of dividend, &c., as
soon as the meeting of the Company at large has been dissolved;
and in the same room. Hence it happens, that being kept
together by the prospect of subsequent business, they gradually,
towards the close of the general meeting, come to form the
majority of those present; and the few ordinary shareholders who
* We may remark in passing, that the practice of making the chairman of
the board also chairman of the half-yearly meetings, is a very injudicious one.
The directors are ihe servants of the proprietary; and meet them from time to
time to render an account of their stewardship. That the chief of these ser-
vants, whose proceedings are about to be examined, should himself act as chief
of the jury is absurd. Obviously, the business of each meeting should be con-
ducted by.some one independently chosen for the purpose; as the Speaker is
chosen by the House of Commons.
RAILWAY MORALS AND RAILWAY POLICY.
have been patient enough to stay, are outvoted by those having
interests quite distinct from their own-quite at variance with
the welfare of the Company.
And here this allusion to the preference-share system, intro-
duces us to a fact which may fitly close this detail of private
interests and questionable practices—a fact serving at once to
illustrate the subtlety and concert of railway officialism, and the
power it can exert. That this fact may be fully appreciated, it
must be premised, that though preference-shares do not usually
carry votes, they are sometimes specially endowed with them ;
and further, that they occasionally remain unpaid up until the
expiration of a time after which no further calls can be legally
made. In the case in question, a large number of £50 prefer-
ence-shares had thus long stood with but £5 paid. Those
desirous of promoting extensions, &c., had here a fine oppor-
tunity of getting great power in the Company at small cost;
and as we shall see, they duly availed themselves of it. Already
had their party twice tried to thrust the proprietary into a new
undertaking of great magnitude. Twice had they entailed on
them an expensive and harassing contest. A third time, notwith-
standing a professed relinquishment of it, they brought forward
substantially the same scheme, and were defeated only by a small
majority. The following extracts from the division lists we take
from the statement of one of the scrutineers. --See Table, p. 30. 1
To this list, some seven or eight of the Company's tradesmen,
similarly armed, might be added ; raising the amount of the
almost factitious shares held by functionaries to about 5200,
and increasing the number of votes commanded by them, from
its present total of 1068 to upwards of 1100. If now we
separate the £380,000, which these gentlemen bring to bear
against their brother shareholders, into real and nominal ; we
find that whilst not quite £120,000 of it is bonâ fide property
invested, the remaining £260,000 is nine parts shadow and one
part substance. And thus it results, that by virtue of certain
RAILWAY MORALS AND RAILWAY POLICY.

301. Pre-
foronco
Sharos
with 51.
paid up.
Additional Stock or
Sharos.
Recorded Total
Stock at actual
the Poll as! Capital
hold. paid up.
Number
of Votes
scored
for tho
Cxton-
gion.
The Company's solicitor - 1
500
( 7,5001. stock, and )
100 501. shares,
with 421. 10s.
paid up.
75,650
18,140
188
778
60
150
300
20
None
None.
None.
4,26C1. stock.
3,000
7,500
71,966
13
750
11,036
1,354
200
125
2,000
1,0001. stock.
2001. stock.
11,000
6,450
825
Ditto in joint account with
another - -
The solicitor's partner -
The Company's engineer -
The engineer's partner. -
One of the Company's par-
liamentary counsel
Another ditto, ditto -
Local solicitor for the pro-
posed extension -
The Company's contractor
for permanent-way
The Company's conveyancer/
The Company's furuiture
printer - - - -
The Company's surveyor -
The Company's architect -
None.
350
347
1,003
52,8331.
3331. stock.
I
70,183
50,483
54,568
5,348
158
118
35
360
217
10,0001. stock. 11,750 10,175
1,2501. stock. 19,250 13,050
14,9161. stock; 119 507. 32,230 20,416
shares, with 421. 10s.
paid up; and 13 407.
shares, with 341. paid
up.
37
8331. stock.
1,683
918
One of the Company's car.
riers - -
1
The Company's bankers:
One partner - - -
Another partner - -
Ditto in joint account with
another
::
33,666
2,500
32,366
2,500
1,000
850
stock actually representing but £26,000, these lawyers, engi-
neers, counsel, conveyancers, contractors, bankers, and others
interested in the promotion of new schemes, outweigh more
than a quarter of a million of the real capital held by share-
holders whom these schemes will injure!
Need we any longer wonder, then, at the persistence of
Railway Companies in seemingly reckless competition and
ruinous extensions ? Is not this obstinate continuance of a
policy that has year after year proved disastrous, sufficiently
explicable on contemplating the many illegitimate influences at
work? Is it not manifest that the small organized party
RAILWAY MORALS AND RAILWAY POLICY.
always out-manæuvres the large unorganized one? Consider
their respective characters and circumstances. Here are the
shareholders diffused throughout the whole kingdom, in towns
and country houses; knowing nothing of each other, and too
remote to co-operate were they acquainted. Very few of them
see a railway journal; not many a daily one; and scarcely any
know much of railway politics. Necessarily a fluctuating body,
only a small number are familiar with the Compauy's history
-its acts, engagements, policy, management. A great propor-
tion are incompetent to judge of the questions that come before
them, and lack decision to act out such judgments as they may
form-executors who do not like to take steps involving much
responsibility; trustees fearful of interfering with the property
under their care, lest possible luss should entail a lawsuit;
widows who have never in their lives acted for themselves in
any affair of moment; maiden ladies, alike nervous and inno-
cent of all business knowledge; clergymen whose daily discipline
has been little calculated to make them acute men of the world;
retired tradesmen whose retail transactions have given them
small ability for grasping large considerations; servants pos-
sessed of accumulated savings and cramped notions; with
sundry others of like helpless character-all of them rendered
more or less conservative by ignorance or timidity, and
proportionately inclined to support those in authority. To
these should be added the class of temporary shareholders, who,
having bought stock on speculation, and knowing that a revolu-
tion in the Company is likely to depress prices for a time, have
an interest in supporting the board irrespective of the goodness
of its policy. Turn now to those whose efforts are directed to
railway expansion. Consider the constant pressure of local
interests—of small towns, of rural districts, of landowners-all
of them eager for branch accommodation ; all of them with great
and definite advantages in view ; few of them conscious of the
loss those advantages may entail on others. Remember the
32
.
RAILWAY MORALS AND RAILWAY POLICY.
influence of legislators, prompted, some by their constituents,
some by personal aims, and encouraged, most of them, by the
belief that additional railway facilities are in every case
nationally beneficial ; and then calculate the extent to which,
as stated to Mr. Cardwell's committee, Parliament has “excited
and urged forward” Companies into rivalry. Observe the
temptations under which lawyers are placed—the vast profits
accruing to them from every railway contest, whether ending in
success or failure; and then imagine the magnitude and subtlety
of their extension manquvring. Conceive the urgency of the
engineering profession, to the richer of whom more railway-
making means more wealth; to the mass of whom more
railway-making means daily bread. Estimate the capitalist-
power of contractors, whose unemployed plant brings heavy
loss; whose plant when employed brings great gain. Then
recollect that to these last-lawyers, engineers, and contractors
business—a business to which every energy is directed ; in
which long years of practice have given great skill; and to the
facilitation of which, all means tolerated by men of the world
are thought justifiable. Finally, consider that the classes
interested in carrying out new schemes, are in constant oom-
munication; and have every facility for combined action. A
great part of them live in London, and most of these have
offices at Westminster-in Great George Street, in Parliament
Street, clustering round the Legislature. Not only are they
thus concentrated, not only are they throughout the year in
frequent business intercourse; but during the session they are
daily together, in Palace Yard hotels, in the lobbies, in the
committee-rooms, in the House of Commons itself. Is it any
wonder then, that the wide-spread, ill-informed, unorganised
body of shareholders, standing severally alone, and each pre-
occupied with his daily affairs, should be continually out-
generalled by the comparatively small but active, skilful,
RAILWAY MORALS AND RAILWAY POLICY.
combined body opposed to them, whose very occupation is at
stake in gaining the victory?
“But how about the directors ?” it will perhaps be asked.
“How can they be parties to these obviously unwise' under-
takings? They are themselves shareholders : they gain by
what benefits the proprietary at large ; they lose by what
injures it. And if without their consent, or rather their agency,
no new scheme can be adopted by the Company, the classes
interested in fostering railway enterprise are powerless to do
harm."
This belief in the identity of directorial and proprietary
interests, is the fatal error commonly made by shareholders. It
is this which, in spite of many bitter experiences, leads them to
be so careless and so trustful. “Their profit is our profit;
their loss is our loss; they know more than we do; therefore
let us leave the matter to them.” Such is the argument which
more or less definitely passes through the shareholding mind-
an argument of which the premises are vicious, and the
inference disastrous. Let us consider it in detail.
Not to dwell upon the many disclosures that have in years
past been made respecting the share-trafficking of boards, and
the large profits realized by it-disclosures which alone suffice
to disprove the assumed identity between the interests of direc-
tors and proprietary—and taking for granted that little, if any,
of this now takes place; let us go on to notice the still-prevailing
influences which render this apparent unity of purpose decep-
tive. The immediate interest which directors have in the pros-
perity of the Company, is often much less than is supposed.
Occasionally they possess only the bare qualification of £1000
worth of stock. In some instances even this is partly nominal.
Admitting, however, as we do frankly, that in the great majority
of cases the full qualification, and much more than the qualifi-
cation, is held; yet it must be borne in mind that the indirect
advantages which a wealthy member of a board may gain from:
34
RAILWAY MORALS AND RAILWAY POLICY.
the prosecution of a new undertaking, will often far outweigh
the direct injury it will inflict on him by the depreciation of
his shares. A board usually consists, to a considerable extent,
of gentlemen residing at different points throughout the tract
of country traversed by the railway they control : some of them
landowners; some merchants or manufacturers ; some owners
of mines or shipping. Almost always these are advantaged
more or less by a new branch or feeder. Those in close
proximity to it, often gain great benefits either by enhanced
value of land, or by increased facilities of transit for their
commodities. Those at more remote parts of the main linc,
though less directly interested, are still frequently interested in
some degree : for every extension opens up new markets
either for produce or raw materials ; and if it is one effecting
a junction with some other system of railways, the greater
mercantile conveniences afforded to directors thus circum-
stanced, become important. Obviously, therefore, the indirect
profits accruing to such from the prosecution of one of these
new undertakings, may more than counterbalance the direct
loss upon their railway investments; and though there are,
doubtless, men far too honourable to let such considerations
sway them, yet the generality can scarcely fail to be affected
by temptations so strong. Then we have further to bear in
mind the influences brought to bear upon directors having
seats in Parliament. Already these have been noticed ; and
we recur to them only for the purpose of pointing out that here,
too, the immediate evil of an increased discouut on his £1000
worth of stock, may be to a director of much less consequence
than the favours, patronage, influence, connections, position,
which his aid in the carrying of a new scheme will bring him-
a consideration which, without saying how far it applies, suffices
to show that in this respect, also, the supposed identity of in-
terests between directors and shareholders does not hold.
· But, greatly as this supposed identity is weakened by the
RAILWAY MORALS AND RAILWAY POLICY.
influenoes assigned, the disunion of interests they produce is
further increased by the system of preference-stock. Were
there no other cause in action, this practice of raising capital
for supplementary undertakings, by the issue of shares bearing a
guaranteed interest of 5, 6, and 7 per cent., would alone suffice
to destroy that community of motives which is supposed to
exist between a railway proprietary and its executive. Little
as the fact is at present recognised, it is yet readily demon-
strable that by raising one of these mortgages, a Company is
forthwith divided into two classes : consisting, the one of the
richer shareholders, inclusive of the directors, and the other of
the poorer shareholders ; of which classes the richer one can
protect itself from the losses which the poorer one has to bear
-nay, can even profit by the losses of the poorer one. This
assertion, startling as it will be to many, we will proceed to
prove.
When the capital required for the execution of a branch or
extension is raised by means of guaranteed shares, it is the
custom to offer to each proprietor, the privilege of taking up a
number of such shares proportionate to the number of his
criginal shares. It is manifest that by availing himself of this
offer, he more or less effectually protects himself against any
possible loss which the new undertaking may entail. Should
this, not fulfilling the promises of its advocates, diminish in
some degree the general dividend; yet, a high dividend on the
due proportion of preference-stock, may nearly or quite com-
pensate for this. Hence, it becomes the policy of all who can
do so, to take up as many guaranteed shares as they can get.
But what happens when the circular announcing this apportion-
ment of guaranteed shares is sent round to the proprietary ?
Those who possess much stock, being generally capitalists,
forthwith apply for as many as they are entitled to. On the
other hand, the smaller holders, constituting as they do the bulk
of the Company, having no available funds with which to pay
36
RAILWAY MORALS AND RAILWAY POLICY.
the calls on new shares, are obliged to decline them. What
results ? When this additional line has been opened, and it
turns out, as usual, that its revenue is insufficient to meet
the guaranteed dividend on its shares — when the general
income of the Company is laid under contribution to make up
this guaranteed dividend—when, as a consequence, the dividend
on the original stock is diminished; then the poorer shareholders
who possess original stock only, find themselves losers ; whilst
the richer ones, possessing guaranteed shares in addition, find
that their gain on preference dividends nearly or quite counter-
balances their loss on general dividends. Indeed, as above
hinted, the case is even worse. For as there is nothing requiring
the large share-proprietor who has obtained his proportion of
guaranteed stock, to retain his original stock—as, if he doubts
the paying character of the new undertaking, there is no reason
why he should not gradually dispose of such part of his invest-
ment as will suffer from it; it is obvious that he may, if he
pleases, become the possessor of preference shares only; and
may so obtain a handsome return for his money at the ex-
pense of the Company at large and the small shareholders in
particular. To what extent this policy is pursued we do not
pretend to say. All which it here concerns us to notice, is,
that directors being almost always men of large means, and
being therefore able to avail themselves of this guaranteed
stock, by which at least much loss may be warded off, if not
profit made, are liable to be swayed by motives different from
those of the general proprietary. And that they often are
so swayed there cannot be à doubt. Without assuming that
any of them will be guilty of so flagitious an intention as that
of benefiting at the cost of their co-proprietors; and believing,
as we do, that few of them duly realize the fact that the protec-
tion they will have, is a protection not available to the mass of
the shareholders; we think it is a rational induction from com-
mon experience, that this prospect of compensation will often
.
37
RAILWAY MORALS AND RAILWAY POLICY.
turn the scale in the minds of those who are hesitating, and
diminish the opposition on the part of those who disapprove.
Thus, the belief which leads the majority of railway share-
holders to place in plicit faith in their directors, is an erroneous
one. It is not true that there is an identity of interest between
the proprietary and its executive. It is not true that the board
forms an efficient guard against the intrigues of lawyers, engi-
neers, contractors, and others who profit by railway making.
On the contrary, it is true that its members are not only liable
to be drawn from their line of duty by various indirect motives,
but that by the system of guaranteed shares they are placed
under a positive temptation to betray their constituents.
And now what is the proximate origin of all these corrup-
tions ? and what is the remedy for them ? What general error
in railway legislation is it that has made possible such complicated
chicanerics? Whence arises this facility with which interested
persons continually thrust companies into unwise enterprises ?
We believe there is a very simple answer to these questions.
It is an answer, however, which will at first sight be thought
quite irrelevant: and we doubt not that the corollary we pro-
pose drawing from it, will be forth with condernned by practical
men as incapable of being acted on. Nevertheless, if such will
give us a little time to explain, we are not without hopes of
showing, both that the evils laboured under would be excluded
were this principle recognised, and that the recognition of it is
not only feasible, but would even open the way out of some of
the perplexities in which railway legislation is at present involved.
We conceive, then, that the fundamental vice of our system,
as hitberto carried out, lies in the misinterpretation of the pro-
prietary contract - the contract tacitly entered into between
each shareholder and the body of shareholders with whom he
unites; and that the remedy desired lies simply in the en-
forcement of an equitable interpretation of this contract. In
38
RAILWAY MORALS AND RAILWAY POLICY.
reality it is a strictly limited one: in practice it is treated as
altogether unlimited : and the thing needed is, that it should
be clearly defined and abided by.
Our popular form of government has so habituated us to
seeing public questions decided by the voice of the majority, and
the system is so manifestly equitable in the cases daily before us,
that there has been produced in the general mind, an unhesitating
belief that the majority's power is unbounded. Under what-
ever circumstances, or for whatever ends, a number of men co-
operate, it is held that whenever difference of opinion arises
among them, justice requires that the will of the greater number
shall be executed rather than that of the smaller number; and
this rule is supposed to be uniformly applicable, be the question
at issue what it may. So confirmed is this conviction, and so
little have the ethics of the matter been considered, that to
most this mere suggestion of a doubt will cause some astonish-
ment. Yet it needs bnt a brief analysis to show that the opinion
is little better than a political superstition. Instances may
readily be selected, serving at once to prove, by reductio ad
absurdum, that the right of a majority is a purely conditional
right, valid only within specific limits. Let us take a few.
Suppose that at the general meeting of some philanthropic
association, it was resolved that in addition to relieving distress
the association should employ home-missionaries to preach down
popery. Might the subscriptions of Catholics, who had joined
the body with charitable views, be rightfully used for this end?
Suppose that of the members of a book-club, the greater number,
thinking that under existing circumstances rifle-practice was
more important than reading, should decide to change the
purpose of their union, and to apply the funds in hand for the
purchase of powder, ball, and targets. Would the rest be bound
to abide by this decision ? Suppose that under the excitement
of news from Australia, the majority of a Freehold Land Society
should determine, not simply to start in a body for the gold
RAILWAY MORALS AND RAILWAY POLICY.
39
diggings, but to use their accumulated capital to provide outfits.
Would this appropriation of property be just to the minority ?
And must these join the expedition ? Scarcely any one would
venture an affirmative answer even to the first of these questions ;
much less to the others. And why? Because all must more
or less clearly perceive that by uniting himself with others, no
man can equitably be betrayed into acts utterly foreign to the
purpose for which he joined them. Each of these supposed
minorities would properly reply to those seeking to coerce
them :-“We combined with you for a defined object; we gave
money and time for the furtherance of that object; on all
questions thence arising, we tacitly agreed to conform to the
will of the greater number ; but we did not agree to conform
on any other questions. If you induce us to join you by pro-
fessing a certain end, and then undertake some other end of
which we were not apprised, you obtain our support under false
pretènces ; you exceed the expressed or understood compact to
which we committed ourselves; and we are no longer bound by
your decisions." Clearly this is the only rational interpretation
of the matter. The general principle underlying the right
government of every incorporated body, is, that its members
contract with each other severally to submit to the will of the
majority in all matters concerning the fulfilment of the objects for
which they were incorporated; but in no others. To this extent
only can the contract hold. For as it is implied in the very
nature of a contract, that those entering into it must know what
they contract to do; and as those who unite with others for
a specified object, cannot contemplate all the unspecified objects
which it is hypothetically possible for the union to undertake;
it follows that the contract entered into cannot extend to such
unspecified objects : and if there exists no expressed or under-
stood contract between the union and its members respecting
.unspecified objects, then for the majority to coerce the minority
into undertaking them, is nothing less than gross tyranny. .
40
RAILWAY MORALS AND RAILWAY POLICY.
: Now this almost self-evident principle is wholly ignored
alike in our railway legislation and the proceedings of our
companies. Definite as is the purpose with which the promoters
of a public enterprise combine, endless other purposes not
dreamed of at the outset are commonly added to it; and this,
apparently without any suspicion that such a course is altogether
unwarrantable, unless taken with the unanimous consent of the
proprietors. The unsuspecting shareholder who signed the sub-
scription contract for a line from Greatborough to Grandport,
did so under the belief that it would not only be a public benefit
but a good investment. He was familiar with the country : he
had been at some trouble to estimate the traffic : and, fully
believing that he knew what he was embarking in, he put down
his name for a large amount. The line has been made: a few
years of prosperity have justified his foresight: when, at some
fatal special meeting, a project is put before hina for a branch
from Littlehomestead to Stonyfield. The will of the board and
the intrigues of the interested, overbear all opposition ; and in
spite of the protests of many who like him see its impolicy, he
presently finds himself involved in an undertaking which, when
he joined the promoters of the original line, he had not the
remotest conception would ever be proposed. From year to year
this proceeding is repeated ; his dividends dwindle and his shares
go down ; and eventually the congeries of enterprises to which
he is committed, grows so vast that the first enterprise of the
series becomes but a small fraction of the whole. Yet it is in
virtue of his consent to this first of the series, that all the rest
are thrust upon him. He feels that there is an injustice some-
where; but, believing in the unlimited right of a majority; fails
to detect it. He does not see that when the first of these ex-
tensions was proposed, he should have denied the power of his
brother-shareholders to implicate him in an undertaking not
contemplated in their deed of incorporation. He should have
told the advocates of such undertaking that they were perfectly
RAILWAY MORALS AND RAILWAY POLICY,
41
free to form a separate Company for the execution of it; but
that they could not rightfully compel dissentients to join in
a new project, any more than they could rightfully have com-
pelled dissentients to join in the original project. Had such
a shareholder united with others for the specified general purpose
of making railways, he would have had no ground for protest.
But he united with others for the specified purpose of making
a particular railway. Yet such is the confusion of ideas on the
subject, that there is absolutely no difference recognised between
these cases !
It will doubtless be alleged in defence of all this, that these
secondary enterprises are in reality supplementary to the origi-
nal one—are in some sense undertaken for the furtherance of it;
professedly minister to its prosperity; cannot, therefore, be re-
garded as altogether separate enterprises. And it is true that
they have this for their excuse. But if it is a sufficient excuse
for accessories of this nature, it may be made a sufficient excuse
for any accessories whatever. Already, Companies have carried
the practice beyond the making of branches and extensions.
Already, under the plea of bringing more traffic to their lines,
they have constructed docks; bought lines of steam-packets;
built vast hotels ; deepened river-channels. Already, they have
created small towns for their workmen ; erected churches and
schools; salaried clergymen and teachers. Are these warranted
on the ground of advancing the Companies' interests? Then,
thousands of other undertakings are similarly warranted. If a
view to the development of traffic, justifies the making of a
branch to some neighbouring coal-mines; then, should the coal-
mines be inefficiently worked, the same view would justify the
purchase of them—would justify the Company in becoming coal-
miners and coal-sellers. If anticipated increase of goods and
passengers iş a sufficient reason for carrying a feeder into an
agricultural district; then, it is a sufficient reason for organizing
a system of coaches and waggons to run in connexion with this
42
RAILWAY MORALS AND RAILWAY POLICY.
feeder; for making the requisite horse-breeding establishments;
for hiring the needful farms; for buying estates ; for becoming
agriculturists. If it be allowable to purchase steamers plying in
conjunction with the railway; it must be allowable to purchase
merchant vessels to trade in conjunction with it; it must be
allowable to set up a yard for building such vessels ; it must be
allowable to erect depôts at foreign ports for the receipt of goods;
it must be allowable to employ commission agents for the col-
lection of such goods ; it must be allowable to extend a mercan-
tile organization all over the world. From making its own
engines and carriages, a Company may readily progress to
manufacturing its own iron and growing its own timber. From
giving its employés secular and religious instruction, and provid-
ing houses for them; it may go on to supply them with food,
clothing, medical attendance, and all the needs of life. From
being simply a corporation to make and work a railway between
A. and B.; it may become a miner, manufacturer, merchant,
shipowner, canal-proprietor, hotel-keeper, landowner, house
builder, farmer, retail-trader, priest, teacher-an organj- tion of
indefinite extent and complication. There is no logical alterna-
tive between permitting this, and strictly limiting the corpora-
tion to the object first agreed upon. A man joining with others
for a specific purpose, must be held to commit himself to that
purpose only ; or else to all purposes whatever that they may
choose to undertake.
But proprietors dissenting from one of these supplementary
projects are told that they have the option of selling out. So
might the dissentients from a new State-enforced creed be told,
that if they did not like it they might leave the country. The
one reply is little more satisfactory than the other would be.
The opposing shareholder sees himself in possession of a good in-
vestment--one perhaps which, as an original subscriber, he ran
some risk in obtaining. This investment is now about to be en-
dangered by an act not named in the deed of incorporation, And
RAILWAY MORALS AND RAILWAY POLICY,
his protests are met by saying, that if he fears the danger he
may part with his investment. Surely this choice between two
evils scarcely meets his claims. Moreover, he has not even this
in any fair sense. It is often an unfavourable time to sell. The
very rumour of one of these extensions frequently causes a de-
preciation of stock. And if many of the minority throw their
shares on the market, this depreciation is greatly increased; a
fact which further hinders them from selling. Thus, the choice
is in reality between parting with a good investment at much
less than its value; and running the risk of having its value
greatly diminished.
The injustice inflicted upon minorities in the prosecution of
this extension policy, is, indeed, already recognised in a certain
vague way. The recently established Standing Order of the
House of Lords, that before a Company can carry out any new :
undertaking, three-fourths of the votes of the proprietors shall
be recorded in its favour, clearly implies a perception that the
usual rule of the majority does not apply. And again, in the
case of The Great Western Railway Company versus Rushout,
the decision that the funds of the Company could not be used
for purposes not originally authorized, without a special legisla-
tive permit, involves the doctrine that the will of the greater
nuniber is not of unlimited validity. In both these cases, how-
ever, it is taken for granted that a State-warrant can justify
what without it would be unjustifiable. We must take leave
to question this. If it be held that an Act of Parliament can
make murder proper, or can give rectitude to robbery; it may be
consistently held that it can sanctify a breach of contract; but
not otherwise. We are not about to enter upon the vexed
question of the standard of right and wrong; and to inquire
whether it is the function of a Government to make rules of
conduct, or simply to enforce rules deducible from the laws of
social life. We are content, for the occasion, to adopt the expe-
diency-hypothesis ; and adopting it, must yet contend, that,
44
RAILWAY MORALS AND RAILWAY POLICY.
rightly interpreted, it gives no countenance to this supposed
power of a Government to alter the limits of an equitable con-
tract against the wishes of some of the contracting parties. For,
as understood by its teachers and their chief disciples, the doc-
trine of expediency is not a doctrine implying that each particu-
lar act is to be determined by the particular consequences that
may be expected to flow from it; but that the general conse-
quences of entire classes of acts having been ascertained by
induction from experience, rules shall be framed for the regula-
tiou of such classes of acts, and each rule shall be uniformly
applied to every act coming under it. Our whole administration
of justice proceeds on this principle of invariably enforcing an
ordained course, regardless of special results. Were immediate
consequences to be considered, the verdict gained by the rich
creditor against the poor debtor would generally be reversed ;
for the starvation of the last is a much greater evil than the in-
convenience of the first. Most thefts arising from distress
would go unpunished ; a great portion of men's wills would be
cancelled ; many of the wealthy would be dispossessed of their
fortunes. But it is clearly seen, that were judges thus guided
by proximate evils and benefits, the ultimate result would be
social confusion ; that what was inmediately expedient would
be ultimately inexpedient; and hence the aim at rigorous uni-
formity, spite of incidental hardships. Now, the binding nature
of agreements is one of the commonest and most important
principles of civil law. A large part of the causes daily heard in
our courts, involve the question, whether in virtue of some ex-
pressed or understood contract, those concerned are, or are not,
bound to certain acts or certain payments. And when it has
been decided what the contract implies, the matter is settled.
The contract itself is held sacred. And this sacredness of a con-
tract, being, according to the expediency-hypothesis, justified by
the experience of all nations in all times that it is generally
beneficial, it is not competent for a Legislature to declare that
RAILWAY MORALS AND RAILWAY POLICY.
43
contracts are violable. Assuming always that the contracts are
themselves equitable, there is no rational system of ethics which
warrants the alteration or dissolving of them, save by the con-
sent of all concerned. If then it be shown, as we think it has
been shown, that the contract tacitly entered into by railway
shareholders with each other, has definite limits; it is the func-
tion of the Government to enforce, and not to abolish, those
limits. It cannot decline to enforce them without running
counter, not only to all theories of moral obligation, but to its
own judicial system. It cannot abolish them without glaring
self-stultification.
· Returning, for a moment, to the manifold evils of which the
misinterpretation of the proprietary contract was assigned as
the cause; it only remains to point out that, were the just con-
struction of this contract insisted upon, such evils would, in
great part, be impossible. The various illicit influences by
which Companies are daily betrayed into disastrous extensions,
would necessarily be inoperative when such extensions could
not be undertaken by them. When such extensions had to be
undertakeu by independent bodies of shareholders, with no one
to guarantee them good dividends, the local and class interests
would find it a less easy matter than at present to aggrandize
themselves at the expense of others.
And now as to the policy of thus modifying railway legis-
lation—the commercial policy we mean. Leaving out of sight
the more general social interests, let us glance at the effects on
mercantile interests-the proximate instead of the ultimate
effects. The implication contained in the last paragraph, that
the making of branches and supplementary lines would do
longer be so facile, will be thought to prove the disadvantage
of any such limit as the one advocated. Many will argue, that
to restrict Companies to their original undertakings would fa-
tally cripple railway enterprise. Many others will remark, that,
46
RAILWAY MORALS AND RAILWAY POLICY.
however detrimental to shareholders this extension system may
have been, it has manifestly proved beneficial to the public.
Both these positions seem to us more than questionable. We
will first look at the last of them.
Even were travelling accommodation the sole thing to be
considered, it would not be true that prodigality in new lines
has been advantageous. The districts supplied have, in many
cases, themselves been injured by it. It is shown by the evi-
dence given before the Select Committee on Railway and Canal
Bills, that in Lancashire, the existence of competing lines has,
in some cases, both diminished the facilities of communication
and increased the cost. It is further shown by this evidence,
that a town obtaining branches from two antagonist Companies,
by-and-by, in consequence of a working arrangement between
these Companies, comes to be worse off than if it had but one
branch--and Hastings is quoted as an example. It is again
shown that a district may be wholly deprived of railway accom-
modation by the granting of a superfluity of lines; as in the
case of Wilts and Dorset. In 1844-5, the Great Western and
the South Western Companies projected rival systems of lines,
supplying these and parts of the adjacent counties. The Board
of Trade, “asserting that there was not sufficient traffic to
remunerate an outlay for two independent railways,” reported
in favour of the Great Western schemes; and bills were granted
for them: a certain agreement, suggested by the Board of
Trade, being at the same time made with the South Western,
which, in return for reciprocal advantages, conceded this dis-
trict to its rival. Notwithstanding this agreement, the South
Western, in 1847, projected an extension calculated to take
most of the traffic from the Great Western extensions; and in
1848, Parliament, though it had virtually suggested this agree-
ment, and though the Great Western Company had already
spent a million and a half in the part execution of the new lines,
authorized the South Western project. The result was, that
RAILWAY MORALS AND RAILWAY POLICY.
47
the Great Western Company suspended their works; the South
Western Company were unable, from financial difficulties, to
proceed with theirs; the district has remained for years unac-
commodated; and only since the powers granted to the South
Western have expired from delay, has the Great Western re-
commenced its long-suspended undertakings.
And if this excessive multiplication of supplementary lines
has often directly decreased the facilities of communication, still
more has it done this indirectly, by maintaining the cost of tra-
velling ou the main lines. Little as the public in general are
conscious of the fact, it is nevertheless true, that they pay for
the accommodation of unremunerative districts by high fares
in remunerative districts. Before this reckless branch-making
commenced, 8 and 9 per cent. were the dividends returned by
our chief railways; and these dividends were rapidly increasing.
The maximum dividend allowed by their Acts is 10 per cent.
Had there not been unprofitable extensions, this maximum
would have been reached many years since; and in the absence
of the power to undertake new works, the fact that it had been
reached could not have been hidden. Lower rates for goods
and passengers would necessarily have followed. These would
have caused a large increment of traffic; and with the aid of
the natural increase otherwise going on, the maximum would
shortly again have been reached. There can scarcely be a
doubt that repetitions of this process would, before now, have
reduced the fares and freights on our main lines to at least one
third less than the present ones. This reduction, be it remem-
bered, would have affected those railways which subserve com-
mercial and social intercourse in the greatest degree-would,
therefore, have applied to the most important part of the traffic
throughout the kingdom. As it is, however, this greater pro-
portion of the traffic has been heavily taxed for the benefit of
the smaller proportion. That the tens who travel on branches
might have railway communication, the hundreds who travel
48
.
RAILWAY MORALS AND RAILWAY POLICY.
.
along main lines have been charged 30, perhaps 40 per cent.
extra. Nay, worse: that these tens might be accommodated,
the hundreds who would have been brought on to the main lines
by lower fares have gone unaccommodated. Is it then so clear
that undertakings which may have been disastrous to shareholders
have yet been beneficial to the public?
But it is not only in greater cost of transit that the evil has
been felt; it has been felt also in diminished safety. The mul-
tiplication of railway accidents, which has of late years drawn
so much attention, has been in no inconsiderable degree caused
by the extension policy. The relation is not obvious; and we
had ourselves no conception that such a relation existed, until
the facts illustrative of it were furnished to us by a director
who had witnessed the whole process of causation. When
preference-share dividends and guarantees began to make large
draughts upon half-yearly revenues—when original stock was
greatly depreciated, and the dividends upon it fell from 9 and
8 per cent. to 41 and 4 and 31, great dissatisfaction necessarily
arose among shareholders. There were stormy meetings,
inotions of censure, and committees of investigation. Retrench-
ment was the general cry; and retrenchment was carried to a
most imprudent extent. Directors with an indignant proprie-
tary to face, and under the fear that their next dividend would
be no greater, perhaps less, than the last, dared not to lay out
money for the needful repairs. Permanent way, reported to
them as requiring to be replaced, was made to serve awhile
longer. Old rolling stock was not superseded by new to the
proper extent; nor increased in proportion to the demand.
Committees, appointed to examine where the expenditure could
be cut down, went round discharging a porter here, dispensing
with a clerk there, and diminishing the salaries of the officials
in general. To such a length was this policy carried, that in
one case, to effect a saving of £1200 per annum, the working
staff was so crippled as to cause, in the course of a few years, a
RAILWAY MORALS AND RAILWAY POLICY.
49
loss of probably £100,000—such, at least, is the opinion of the
gentleman on whose authority we make this statement, who
was himself one of the retrenchment committee. What, now,
was the necessary result of all this? With the line out of con-
dition; with engines and carriages neither sufficient in number
nor in the best working order; with drivers, guards, porters,
clerks, and the rest, decreased to the smallest number with which
it was possible to work; with inexperienced managers in place
of the experienced ones driven away by reduced salaries; what
was likely to occur? Was it not certain that an apparatus of
means just competent to deal with the ordinary traffic, would
be incompetent to deal with extraordinary traffic? that a
decimated body of officials under inferior regulation, would fail
in the emergencies sure from time to time to occur? that with
way and works and rolling stock all below par, there would
occasionally be a concurrence of small defects, permitting some-
thing to go wrong? Was not a multiplication of accidents
inevitable? No one can doubt it. And if we trace back this
result step by step to its original carise—the reckless expendi-
ture in new lines—we shall see further reason to doubt whether
such expenditure has been as advantageous to the public as is
supposed. We shall hesitate to indorse the opinion of the
Select Committee on Railway and Canal Bills, that it is de-
sirable " to increase the facility for obtaining lines of local con-
venience."
Still more doubtful becomes the alleged benefit accruing to
the public from extensions that cause loss to shareholders, when,
from considering the question as one of traffic, we turn to
consider it as a general commercial question—a question of
political economy. Were there no facts showing that the
travelling facilities gained, were counterbalanced, if not more
than counterbalanced, by the travelling facilities lost; we should
still contend that the making of branches that do not return
fair dividends, is a national evil, and not a national good. The
50
RAILWAY MORALS AND RAILWAY POLICY.
prevalent error committed in studying matters of this nature,
consists in looking at them separately, rather than in connection
with other social wants and social benefits. Not only does one
of these undertakings, when executed, affect society in various
ways; but the effort put forth in the execution of it affects
society in various ways: and to form a true estimate, the two
sets of results must be compared. The axiom that “action and
re-action are equal, and in opposite directions,” is true, not only
in mechanics—it is true every where. No power can be put
forth by a nation to achieve a given end, without producing, for
the time being, a corresponding inability to achieve some other
end. No amount of capital can be abstracted for one purpose,
without involving an equivalent lack of capital for another
purpose. Every advantage wrought out by labour, is purchased
by the relinquishment of some alternative advantage which that
labour might else have wrought out. In judging, therefore, of
the benefits flowing from any public undertaking, it is requisite
to consider them not only by themselves, but as contrasted with
benefits which the invested capital would otherwise have secured.
But how can these relative benefits be measured ? it may be
asked. Very simply. The rate of interest which the capital
will bring as thus respectively applied, is the measure. Money
which, if used for a specific end, gives a smaller return than
it would give if otherwise used, is used disadvantageously, not
only to its possessors, but to the community. This is a corollary
from the commonest principles of political economy—a corollary
so simple that we can scarcely understand how, after the free-
trade controversy, a committee, numbering among its members
Mr. Bright and Mr. Cardwell, should have overlooked it.
Have we not been long ago taught, that in the mercantile world
capital goes where it is most wanted—that the business which
is at any time attracting capital by unusually high returns, is
a business proved by that very fact to be unusually active-
that its unusual activity shows society to be making great
RAILWAY MORALS AND RAILWAY POLICY.
51
demands upon it; giving it high profits; wanting its com-
modities or services more than other commodities or services ?
Do not comparisons among our railways demonstrate that those
paying large dividends are those subserving the public needs
in a greater degree than those paying smaller dividends ? and
is it not obvious that the efforts of capitalists to get these
larger dividends led them to supply the greater needs before
the lesser needs ? Surely, the same law which holds in ordinary
commerce, and also holds between one railway investment and
another, holds likewise between railway investments and other
investments. If the money expended in making branches and
feeders is yielding an average return of from 1 to 2 per cent.;
whilst if employed in land-draining or ship-building, it would
return 4 or 5 per cent. or more; it is a conclusive proof that
money is more wanted for land-draining and ship-building than
for branch-making. And the general conclusions to be drawn
are, that that large proportion of railway capital which does
not pay the current rate of interest, is capital ill laid out; that
if the returns on such proportion were capitalized at the current
rate of interest, the resulting sum would represent its real
value; and that the difference between this sum and the amount
expended, would indicate the national loss a loss which, on the
lowest estimate, would exceed £100,000,000. And however
true it may be that the sum invested in unprofitable lines will
go on increasing in productiveness; yet as, if more wisely invested,
it would similarly have gone on increasing in productiveness,
perhaps even at a greater rate, this vast loss must be regarded
as a permanent and not as a temporary one.
Again then, we ask, is it so obvious that undertakings which
have been disastrous to shareholders have been advantageous
to the public ? Is it not obvious, rather, that in this respect,
as in others, the interests of shareholders and the public are in
the end identical? And does it not seem that instead of recom-
mending "increased facilities for obtaining lines of local con-
52
RAILWAY MORALS AND RAILWAY POLICY.
venience," the Select Committee might properly have reported
that the existing facilities are abnormally great, and should be
decreased ?
There remains still to be considered, the other of the two
objections above adverted to as liable to be raised against the
proposed interpretation of the proprietary contract—the ob-
jection, namely, that it would be a serious hindrance to railway
enterprise. After what has already been said, it is scarcelý
needful to reply, that the hindrance would be no greater than
is natural and healthful—no greater than is requisite to hold in
check the private interests at variance with public ones. This
notion that railway enterprise will not be carried on with due
activity without artificial incentives — that bills for local ex-
tensions "rather need encouragement," as the committee say,
is nothing but a remnant of protectionism. The motive which
has hitherto led to the formation of all independent railway
companies—the search of capitalists for good investments-
may safely be left to form others as fast as local requirements
become great enough to promise fair returns; as fast, that is,
as local requirements should be satisfied. This would be
manifest enough without illustration ; but there are facts
proving it.
Already we have incidentally referred to the circumstance,
that it has of late become common for landowners, merchants,
and others locally interested, to get up railways for their own
accommodation, which they do not expect to pay satisfactory
dividends; and in which they are yet content to invest consider-
able sums, under the belief that the indirect profits accruing to
them from increased facilities of traffic, will out-balance the
direct loss. To so great an extent is this policy being carried,
that, as stated to the Select Committee, “in Yorkshire and
Northumberland, where branch lines are being made through
mere agricultural districts, the landowners are giving their land
for the purpose, and taking shares.” With such examples
RAILWAY MORALS AND RAILWAY POLICY.
53
before us, it cannot rationally be doubted that there will always
be capital forthcoming for the making of local lines as soon as
the sum of the calculated benefits, direct and indirect, justifies
its expenditure.
“But," it will be urged, “a branch that would be unremu-
nerative as an independent property, is often remunerative to
the company that has made it, in virtue of the traffic it brings
to the trunk line. Though yielding meagre returns on its own
capital, yet, by increasing the returns on the capital of the
trunk line, it compensates, or more than compensates. Were
the existing company, however, forbidden to extend its under-
taking, such a branch would not be made; and injury would
result.” This is all true, with the exception of the last assertion,
that such a branch would not be made. Though in its corporate
- capacity, the company owning the trunk line would be unable
to join in a work of this nature; there would be nothing to
prevent individual shareholders in the trunk line from doing so
to any extent they thought fit: and were the prospects as
favourable as is assumed, this course, being manifestly advan-
tageous to individual shareholders, would be pursued by many
of them. If, acting in concert with others similarly circumstanced,
the owner of £10,000 worth of stock in the trunk line, could
aid the carrying out of a proposed feeder promising to returu
only two per cent, on its cost, by taking shares to the extent of
£1000; it would answer his purpose to do this, providing the
extra traffic it brought would raise the trunk-line dividend by
one-fourth per cent. Thus, under a limited proprietary contract,
companies would still, as now, foster extensions where they
were wanted : the only difference being, that in the absence of
guaranteed dividends, some caution would be shown ; and the
poorer shareholders would not, as at present, be sacrificed to
the richer.
In brief, our position is, that whenever, by the efforts of all
parties to be advantaged — local landowners, manufacturers,
64
RAILWAY MORALS AND RAILWAY POLICY.
merchants, truuk-line shareholders, &c.—the capital for an ex-
tension can be raised whenever it becomes clear to all such,
that their indirect profits plus their direct profits will make the
investment a paying one; the fact is proof that the line is wanted.
On the contrary, whenever the prospective gains to those in-
terested, are insufficient to induce them to undertake it; the fact
is proof that the line is not wanted so much as other things are
wanted; and therefore ought not to be made. Instead then of
the principle we advocate being objectionable as a check to
railway enterprise, one of its merits is, that by destroying the
artificial incentives to such enterprise, it would confine it within
normal limits.
A perusal of the evidence given before the Select Committee,
will show that it has sundry other merits, which we have space
only to indicate.
It is estimated by Mr. Laing—and Mr. Stephenson, whilst
declining to commit himself to the estimate, “ does not believe
he has overstated it,"—that out of the £280,000,000 already
raised for the construction of our railways, £70,000,000 has been
needlessly spent in contests, in duplicate lines, in “the multipli-
cation of an immense number of schemes prosecuted at an almost
reckless expense ;” and Mr. Stephenson believes that this sum
is “a very inadequate representative of the actual loss in point
of convenience, economy, and other circumstances connected with
traffic, which the public has sustained by reason of parliamentary
carelessness in legislating for railways.” Under an equitable
interpretation of the proprietary contract, the greater part of
this would have been avoided.
The competition between rival companies in extension and
branch making, which has already done vast injury, and the
effects of which, if not stopped, will, in the opinion of Mr. Ste-
phenson, be such that “property now paying 51 per cent. will
in ten years be worth only 3 per cent., and that on twenty-one
millions of money”—this competition could never have existed
RAILWAY MORALS AND RAILWAY POLICY. 55
in its intense and deleterious form under the limiting principle
we advocate.
Prompted by jealousy and antagonism, our companies have
obtained powers for 2000 miles of railway which they have never
made. The millions thus squandered in surveys and parliamen-
tary contests—“food for lawyers and engineers "--would nearly
all have been saved, had each supplementary line been obtain-
able only by an independent body of proprietors with no one to
shield them from the penalties of reckless scheming.
It is admitted that the branches and feeders constructed from
competitive motives, have not been laid out in the best directions
for the public. To defeat, or retaliate upon, opponents, having
been one of the ends--often the chief end—in making them;
routes have been chosen especially calculated to effect this end;
and the local traffic has in consequence been ill provided for.
Had these branches and feeders, however, been left to the enter-
prise of their respective districts, aided by such other enterprise
as they could attract, the reverse would have been the fact;
seeing that on the average, in these smaller cases as in the greater
ones, the routes which most accommodate the public must be
the routes most profitable to projectors.
Were the illegitimate competition in extension-making done
away, there would remain between companies just that normal
competition which is advantageous to all. It is not true, as is
alleged, that there cannot exist between railways a competition
analogous to that which exists between traders. The evidence
of Mr. Saunders, the secretary of the Great Western Company,
proves the contrary. He shows that where the Great Western
and the North Western railways communicate with the same
towns, as åt Birmingham and Oxford, each has tacitly adopted
the fare which the other was charging; and that whilst there is
thus no competition in fares, there is competition in speed and
accommodation. The results are, that each takes that portion of
the traffic, which, in virtue of its position and local circumstances,
56
RAILWAY MORALS AND RAILWAY POLICY:
naturally falls to its share; that each stimulates the other to give
the greatest advantages it can afford; and that each keeps the
other in order by threatening to take away its natural share of
the traffic, if, by ill-behaviour or inefficiency, it counterbalances
the special advantages it offers. Now, this is just the form which
competition eventually assumes between traders. After it has
been ascertained by underselling, what is the lowest remunerative
price at which any commodity can be sold, the general results are,
that that becomes the established price; that each trader is con-
tent to supply those only who, from proximity or other causes,
naturally come to him; and that only when he treats his cus:
tomers badly, need he fear that they will inconvenience thein-
selves by going elsewhere for their goods.
Is there not, then, pressing need for an amendment of the
làws affecting the proprietary contract, an amendment which
shall transform it from an unlimited into a limited contract? or
rather--not transform it into such, but recognise it as such?
If there be truth in our argument, the absence of any limitation
has been the chief cause of the manifold evils of our railway
administration. The share-trafficking of directors; the compli-
cated intrigues of lawyers, engineers, contractors, and others; the
betrayal of proprietaries—all the complicated corruptions which
we have detailed, have primarily arisen from it, have been made
possible by it. It has rendered travelling more costly and less
safe than it would have been; and whilst apparently facilitating
traffic, has indirectly hindered it. By fostering antagonism, it has
led to the ill laying-out of supplementary lines; to the wasting
of enormnous sums in useless parliamentary contests; to the loss
of an almost incredible amount of national capital in the making
of railways for which there is no due requirement. Regarded
in the mass, the investments of shareholders have been
reduced by it to less than half the average productiveness which
such investments should possess; and, as all authorities
RAILWAY MORALS AND RAILWAY POLICY.
57
admit, railway property is, even now, kept below its real value,
by the fear of future depreciations consequent on future exten-
sions. Considering then the vastness of the interests at stake-
considering that the total capital of our companies will soon
reach £300,000,000—considering, on the one hand, the immense
number of persons owning this capital (many of them with no
incomes but what are derived from it), and, on the other hand,
the great extent to which the community is concerned, both
directly as to its commercial facilities, and indirectly as to the
economy of its resources — considering all this, it becomes
extremely important that railway property should be placed on
bounds. The change is demanded alike for the welfare of share-
holders and the public; and it is one which equity manifestly
dictates. No charge of over-legislation can be brought against
it. It is simply an extension to joint-stock contracts, of the
principle applied to all other contracts; it is merely a fulfilment
of the State's judicial function in cases hitherto neglected; it is
nothing but a better administration of justico.
POSTSCRIPT.
.
SHORTLY after the publication of the foregoing article in the
Edinburgh Review, the writer received sundry letters from gen-
tlemen conversant with railway affairs, endorsing the statements
and reasonings contained in it, and, along with minor criticisms,
giving further facts and arguments in support of its conclusions.
The reprinting of the article has offered an opportunity of
utilizing this additional matter; and, at the writer's request,
two of these gentlemen have been so good as to put their valu-
able information and suggestions into a fit form for general
currency.
The communication which, as being a further exposure of the
evils to be remedied, may most conveniently be placed first,
refers to certain very recent transactions in one of our leading
Railway Companies; whose previous misdoings have supplied
some of the most telling illustrations in the preceding pages.
A case has been mentioned, in which, after the proprietary had
twice rejected certain extensions, which were on each subsequent
occasion brought forward under some colourable modification or
change of circumstances, they had, even a third time, to go
through a harassing and expensive contest to prevent this
threatened injury of their property. Such has been the strength
and pertinacity of the landowning, parliamentary, official, and
directorial influences at work in this case, that there has since
been yet another attempt, of course made under plausible
pretexts, to force the Company into this same losing under-
taking. The following is a narrative of this last series of
manæuvres :-
POSTSCRIPT.
59
August 3, 1855.
. My Dear Sir,—In compliance with your request, I send york
the following narrative of the contest in the South Western Rail-
way Company, which has just terminated in the complete sub-
jugation of the shareholders to the views of the directors. The
novel and startling circumstances under which this result has
been finally achieved, deserve the attentive consideration of
all who are interested in the security of railway property.
In the session of 1853, the directors of the South Western
Company, being desirous of defeating a pending scheme for a
broad gauge railway from Exeter to Dorchester, conceived the
project of pledging their own Company to a committee of the
House of Commons, to make a narrow gauge railway between
the same points.
They accordingly, notwithstanding the opposition of two of
their body, issued a report to their shareholders advocating such
à pledge, and, as an inducement, representing that the Com-
pany's existing line from Southampton to Dorchester, in exten-
sion of which their proposed line would be constructed, yielded
a profit of 34 per cent. This report gave no intimation that there
was any difference of opinion amongst the directors; and along
with it was sent to each shareholder, at the Company's expense, a
stamped form of proxy-not in blank so that the shareholder
might intrust it to whom he might think fit—but with the
names of the chairman and deputy-chairman inserted in print,
so as to enable them to vote in the name and according to the
directions of the shareholder, at a meeting of the Company to be
held on the 19th of May, 1853. A pressing canvass of the larger
shareholders in favour of the scheme was at the same time made
by the chairman and some of the directors.
A considerable number of proxies in support of the directors'
project was by these means obtained; and, at the meeting, the
chairman proposed that the directors should be empowered to
pledge the Company to bring in a bill, in the session of 1854,
60
RAILWAY MORALS AND RAILWAY POLICY.
for a single line of railway from Dorchester through Bridport
to Exeter, in extension of the Company's existing railway from
Southampton to Dorchester, which was also a single line.
Much opposition was made to this proposal. Mr. Mortimer,
a director eminently versed in questions of traffic, entirely
denied the accuracy of the directors' statements as to the profits
of the Southampton and Dorchester line. It was also con-
tended that the railway which the directors wished to defeat,
would be a useful feeder to the South Western lines. The
directors, however, with the aid of the proxies obtained on the
representations in their report, had a considerable majority in
favour of their proposal.
Notwithstanding the efforts of the directors, however, not one-
third of the shareholders were induced to execute proxies in
favour of the pledge, or otherwise to assent to it. The sharehold-
ers who actually opposed the pledge, held about £600,000 of the
Company's stock. On the conclusion of the meeting, Mr.
Henry Wood, a large shareholder, delivered in a written pro-
test against the projected pledge.
The illegality and invalidity of such a pledge are obvious to
every lawyer who has studied the constitution of public com-
panies. The violation of the proprietary contract, by which
shareholders in a Company incorporated for the purpose of one
undertaking, may be forced into a new and different under-
taking (unjust as it is at best), at all events confessedly requires
an act of parliament for its accomplishment. Nobody has ever
pretended that the mere vote of a meeting is sufficient for such
a purpose. But the system under which acts of parliament are,
granted, enabling existing Companies to embark in new under-
takings, at all events gives the shareholders some time for
consideration, and some protection against surprise. Before the
introduction of a bill for such a purpose, authority must usually
be obtained from the shareholders for raising the necessary.
capital. The bill itself is pending for many months. If, during
POSTSCRIPT,
61
e held by capital, may dority of them
this period, any improvidence or dishonesty in the scheme is
pointed out, the shareholders, or even a minority of them
holding a prescribed amount of capital, may defeat it at the
meeting required to be held by the Wharncliffe order of the
House of Lords. It is true, that, notwithstanding these oppor-
tunities, a project advocated by the directors is seldom rejected
by the shareholders. But if, as was attempted here, a Company
could irrevocably pledge itself to a new scheme, of whatever
magnitude, within a few days after the first suggestion of such
a project by the directors; and if such a pledge could, by anti-
cipation, deprive the shareholders, including those who had not
assented to it, of the opportunities for consideration, and the
right of rejecting new projects at a Wharncliffe meeting, which
are afforded by the ordinary practice of parliament; the insecurity
which the prevalence of the extension policy has attached to
railway property, would be tenfold greater than at present.
However, having obtained the resolution of the meeting of the
19th May, 1853, Mr. Francis Scott, M.P., the then chairman of
the Company, went before the Committee of the House of Com-
mons, and, being examined, proposed to pledge his Company to
make the single line of railway from Dorchester, through Brid-
port, to Exeter, which the meeting had sanctioned. At a later
stage of the proceedings, the Committee, in the absence of Mr.
Francis Scott, inquired of Mr. Hope Scott, the Company's coun-
sel, whether the South Western Company were prepared to make a
double line? Mr. Hope Scott thereupon referred to Mr. Bircham,
the Company's solicitor; and the result of this consultation be-
tween the solicitor and counsel was, that Mr. Hope Scott took
upon himself, without any authority whatever from Mr. F. Scott,
to state to the Committee that this requirement should be com-
plied with. The Committee thereupon, and without further com-
munication with Mr. F. Scott, came to their decision, and resolved
to report against the broad gauge line. On the following morning
they called on Mr. F. Scott to sign a letter embodying the pledge
62
RAILWAY MORALS AND RAILWAY POLICY.
to make a double line, which had been given by Mr. Hope
Scott. The circumstances which ensued are narrated by Mr.
Bircham, the Company's solicitor, in his evidence before a re-
cent Committee of the House of Lords, in the following terms:
“Mr. Scott certainly tried very hard to have a distinction
made upon the face of that letter, that he had only promised a
single line and double works; the Committee said they could
not make distinctions between the Company and the Company's
counsel-that they had understood there was to be a double
line, and they must require the letter to be signed, as in fact
it was signed. Mr. Francis Scott having made some modifica-
tion, to show that a part of the pledge had been made by Mr.
Hope Scott rather than by himself, the letter was signed.” The
letter which the Committee thought proper to exact, and Mr. F.
Scott was weak enough to sign, under the foregoing circum-
stances, was addressed to the chairman of the Committee, and
was in the following terms:-
“ LONDON, July 1, 1853.
" Lounas
“SIR—With reference to the case of the Devon and Dorset
Railway, and the railway communication of the district it was
proposed to serve, I beg, as chairman of the London and South
Western Railway Company, and as their representative, acting
under the authority of the resolutions of the proprietors at their
public meeting on the 19th May last, to repeat the pledge which,
in the course of my evidence before the Committee, I intended
with all distinctness to give, viz. :—That the London and South
Western Railway Company will, in the next session of parlia-
ment, introduce and use their best endeavours to carry a bill,
authorizing an extension of their railway from Dorchester to
Exeter, on the gauge of the London and South Western Rail-
way, themselves finding the necessary capital, and taking all the
proper preliminary measures, and afterwards executing the works
with all despatch; and I have no hesitation in adding that the
Company will, if such extension line be granted to them,
POSTSCRIPT.
63
immediately proceed to double the line between Southampton
and Dorchester, without waiting for the period at which the
obligation to do so might come into operation under the exist:
ing provisions of the Southampton and Dorchester Act.
. “The resolutions of the Company with reference to the making
of the extension line from Dorchester to Exeter, enable me to
assure you, and I do assure you, that the line to be proposed
shall be a satisfactory and efficient one, and, in accordance with
the pledge given by Mr. Hope Scott, shall comprise a double
line of way. I am, Sir, your very faithful and obedient servant,
“FRANCIS SCOTT."
It will be observed, that by this letter Mr. Scott not only
pledges his Company to make a double instead of a sivgle line
from Dorchester to Exeter, but moreover to convert from a
single into a double line, the Company's existing line of railway
from Southampton to Dorchester. This latter project had never
been laid before the shareholders. On the whole, the departure
from the authority obtained from the meeting of the share-
holders of the 19th May, 1853, which was extorted by the
Committee, and submitted to by Mr. Scott, involved an outlay
of upwards of £400,000 of the shareholders' money. The
directors' report to the meeting of the 19th May, 1853, stated
that the cost of the line for which they sought authority to
pledge the Company had been estimated at £630,000, and could
in no case exceed £700,000. In a report issued in May, 1855,
the directors tell the shareholders that the cost of redeeming
the pledge actually given could scarcely have been less than
£1,100,000.
I should have mentioned that not only did this Committee
ignore the rights of the shareholders, by exacting a pledge con-
fessedly exceeding the authority which had been sought from
the shareholders; but they acted in the full warning from
the counsel for the rival project, that by the general principles
64
RAILWAY MORALS AND RAILWAY POLICY.. :
of law, no such pledge could be legally given at all, and that
the ordinary rights of the shareholders who had opposed or not
assented to such a pledge, would remain unaffected by it. No
attention was paid to this consideration.
At the Company's half-yearly meeting which followed soon
after these transactions, and was very thinly attended, the
directors obtained a vote sanctioning what had been done. It
is plain, however, that if the vote of the first meeting could
not legally deprive the shareholders, by anticipation, of their
ordinary rights of assent or dissent with reference to new
undertakings, the same principle applies to the vote of this
second meeting. In the latter case, moreover, no notice had
been given that any resolution on the subject would be sub-
mitted to the meeting.
In November, 1853, the directors brought forward a scheme
for the fulfilment of their pledge. But by this time the subject
had been discussed; and the invalidity of the pledge, and the in-
jurious character of the project, had become understood. The
consequence was, that the directors' scheme was defeated at the
largest meeting of the Company ever known: 796 shareholders
voting for, and 1040 against it.
Not only was this pretended pledge thus repudiated by a
numerical majority of sharenolders; but that majority containerI
names which could never have been found there if liuw and
justice had not fully warranted such a repudiation. Several of
the highest judicial authorities in the superior courts of law and
equity, including a late Lord Chancellor, voted in that majority;
and bave voted in a similar sense on every subsequent occasion.
With the decision of the meeting of November, 1853, the
matter, so far as the South Western Company was concerned,
for some time rested. The session of 1854, in which, by the
terms of the pledge, the Company was bound to introduce a bill,
passed away without any notice of the omission to do so being
taken in Parliament. Hundreds of persons who had never heard
POSTSCRIPT.
65
of the pledge, subsequently bought shares in the Company. Par-
liament, moreover, subsequently granted to an independent
Company, a line connecting Dorchester and Bridport; which is
about one-third, and I believe the least unprofitable third, of the
line between Dorchester and Exeter.
. In the session of 1855, the South Western directors, without
consulting their shareholders, introduced into Parliament a bill
for effecting some miscellaneous objects, confessedly of no great
importance. On the second reading of this bill, it was objected
that the pledge given by the Company in 1853 had not been
fulfilled. The bill was in charge of Mr. Chaplin, M.P. for Salis-
bury, who had succeeded Mr. Scott as chairman of the company,
and of Mr. Hutchins, M.P., another director. Mr. Chaplin was
the leadivg champion of the project for the extension of the
Company's railway to Exeter from Salisbury, by way of Yeovil,
known as the central line, which had during several years been
vainly urged by the directors on the shareholders. Mr. Hutchins,
who represented a borough between Southampton and Dorchester,
was also a supporter of extensions to Exeter. It might have
been expected, that when these gentlemen heard their fellow-
shareholders denounced in strong terms as guilty of a breach
of faith, they would in fairness have stated to the House, that
a great body of the shareholders insisted that the alleged pledge
was illegal and invalid—that no meeting of the Company
could authorize such a pledge ; and, moreover, that the committee
of the House of Commons had wrongfully exacted from Mr.
Şcott, a pledge confessedly unauthorized by the votes of his con-
stituents. No such statement whatever was made. Mr. Chaplin
actually told the House that he was on his knees pleading for
pardon for the breach of the pledge; and he excused its non-ful-
filment by the occurrence of a fall of 16 per cent. in the Com-
pany's shares, and a decrease in their dividends. Whatever may
have been the motive with which these excuses were put forward,
the result of them may be easily anticipated. A strong disposi.
66
DIORALS AND RAILWAY POLICY..
RAILWAY y
tion was felt by the House, to resist conduct on the part of the
Company, which its chairman openly avowed to involve a breach
of faith.
· The House of Commons, thus in the dark as to the real feel-
ings of the shareholders, ultimately adopted a course which, as
was emphatically stated by Sir John Walsh, M.P., in his speech
at a subsequent meeting of the Company, would never have
been adopted if the House had been made aware, as it ought to
have been, that the validity of the pledge of 1853, and the
propriety of its acceptance by the committee were denied.
They referred the Company's bill to the committee by whom
the pledge had been accepted the very persons who, if that
pledge was illegal or irregular, so that it was a blunder to accept
of it, were responsible for that blunder.
This committee at once decided (notwithstanding the opposi-
tion of the only one of its members, who had, in 1853, objected
to any report to the House founded on the pledge) to intimate
that they should expect proposals from the Company for the re-
demption of the pledge; and should otherwise insert a clause in
the bill before them, providing for its entire fulfilment, on pain
of stoppage of the Company's dividends. The directors, a
majority of whom had for several years notoriously supported
extensions to Exeter, lost no time in taking advantage of this
decision. On the very day it was come to, they resolved that
the bill should not be withdrawn, but that the company should
consent to the insertion of a clause binding it to bring in a bill
for the construction of a railway from Yeovil or Dorchester (at
the Company's option) to Exeter. By the first of these alterna-
tives, the pledge would be twisted into a means of forcing on the
shareholders Mr. Chaplin's often rejected project of a central
line, with which, as given by Mr. Scott, it had nothing what-
ever to do. .
· A meeting of the Company was summoned for the 28th of
April, 1855, with reference to the bill. The first intimation to
POSTSCRIPT.
the shareholders of any intention to insert in the biil any thing
relating to the construction of a railway to Exeter, was contained
in a circular from the Company's secretary, dated the 24th, and
delivered to the shareholders generally on the 26th of April.
The last day on which, by the Company's bye-laws, proxies were
receivable for the meeting, was the 25th of April; so that no
shareholder receiving this circular on the 26th could send his
proxy to be used against the bill. A poll demanded at the
meeting, instead of being kept open according to the invariable
practice at previous meetings of the Company, for two or more
days, to allow the shareholders full opportunity of voting in per-
son, was, notwithstanding much remonstrance, and a written
protest, finally closed by the decision of the chairman about an
hour after the mecting ended.
A meeting thus conducted, yielded an easy triumph to the
directors. Of upwards of 4000 shareholders, only 113 voted,
including the numerous officials of the Company. And of this
number a considerable majority supported the proposal of the
Company's surveyor and architect, who, after denouncing the
dishonour of breaking the pledge (which involved in its
fulfilment the erection of some half a dozen stations and other
architectural works), moved & resolution delegating to the
directors full power to act in the matter as they might thiuk
expedient.
At the next meeting of tho House of Commons' Committee,
after a pointed inquiry by the chairman of the committee
whether the meeting of the 28th of April had been in all respects
regular, and a reply in the affirmative by the directors through
their counsel, arrangements were made, in conformity with which
there were inserted in the bill, clauses compelling the Company
to bring in a bill for the construction of a railway from Yeovil
or Dorchester (at the Company's option) to Exeter; a clause pro-
viding for the raising by the Company of a million sterling for
constructing this railway, and a further clause stopping the
68
RAILWAY MORALS AND RAILWAY POLICY.
Company's dividends in the event of the non-fulfilment of the
obligations imposed by the bill. The bill ultimately passed the
Commons in this shape.
During all these proceedings, the shareholders who disputed
the validity of the pledge of 1853, never had an opportunity of
stating their case to the House of Commons. One of their
number, Mr. Sergeant Gaselee, a director of the Company,
claimed to address the committee on the subject; but was re-
fused a hearing. Another shareholder stated in writing to
the chairman of the committee, that the regularity of the meet-
ing of the 28th of April, concerning which inquiry had been
made by the committee, was disputed, and tendered himself as
a witness on the subject, but with the same result.
By conceding the option to construct a railway from Yeovil
to Exeter, instead of from Dorchester to Exeter, the committee
virtually abandoned the original pledge; and allowed it to
become the means of forcing on the Company a totally different
project. It is well understood that the real desire of the
majority of the directors is to make the central line from Yeovil,
with which, as already observed, the pledge of 1853 had nothing
to do. When the South Western Company is committed to
this line, the shareholders will probably be offered the advantage
of purchasing (on adequate terms) the undertaking of an indepen-
dent Company, which has obtained a bill for a line from Salisbury
to Yeovil, but is said to be without funds for commencing its
works. Meanwhile, the inhabitants of Dorchester and its neigh-
bourhood will enjoy about as much advantage from this fulfil-
ment of the pledge to make a railway from Dorchester to Exeter,
as would be obtained by the inhabitants of Dover, if a pledge
to make a line from Dover to London were fulfilled by making
a line from Brighton to London.
The history of the matter up to this point is surely,
instructive. On the part of the directors, we have an issue, at
the Company's expense, of stamped forms of proxy to be
POSTSCRIPT.'
69
intrusted by the shareholders to the supporters of the proposed
pledge; while shareholders wishing to give their proxies to the
opponents of that proposal, are left to do so at their own expense.
Circulated with these proxies, and used as a means of obtaining
them, we have a report containing statements on the part of
the board of director's, of which the accuracy is afterwards
entirely denied by an able director. We bave the directors
involving the Company in a pledge which there is the highest
legal authority for pronouncing invalid altogether; and which,
at all events, was, when it was given, to the extent of £400,000
confessedly unauthorized by the shareholders. And when the
time comes for considering whether the Company will submit
to fulfil this pledge, we have a meeting so conducted that the
great majority of the shareholders could by no possibility vote
on the question.
On the part of the House of Commons, we find this pretended
pledge accepted by a committee, although they were warned
that it was totally invalid, and well knew that, at all events, it
went greatly beyond the authority which had been sought
from the shareholders. And when, two years later, the same
committee were about to adopt an unusual and penal course
towards the Company, in consequence of the non-fulfilment of this
pledge, we find them refusing a hearing to the shareholders who
repudiated its validity. Well may a great orator describe parlia-
mentary committees as the very worst tribunals that mortal man's
wit ever devised. If the sphere of their jurisdiction is to be
extended from ordinary private bill legislation to compulsory and
penal legislation, the consequences will be serious indeed.
If report is to be believed, the discussions on the Company's
bill in the House of Commons itself, were preceded by an active
canvass, in which members of the legislature, including a late
cabinet minister, interested as landowners or otherwise in the
districts to be traversed by the projected railway, took part.
But the proceedings in the House of Commons did not settle
70
RAILWAY MORALS AND RAILWAY POLICY.
the question. The directors had still to get the bill through
the Lords; and, with this view, they sunmoned, with the
formalities required by the Wharncliffe order of the House of
Lords, a meeting of the Company. Now, by the Wharncliffe
order, a bill providing for the execution of new works by an
existing Company, cannot proceed unless it is approved, at
a meeting of that Company, by a majority holding three-fourths
of the paid-up capital represented at the meeting. The order
also prohibits the issue of stamped proxies for the meeting at
the Company's expense; and makes it necessary that certain
notices of the meeting shall be given to the shareholders.
It had always been contended by the South Western share-
holders, that the pledge which had been given by their directors
was not only in itself illegal, but was in direct contravention of
this standing order of the House of Lords. For if a meeting at
which questions were determinable by a bare majority, and for
which stamped proxies were issued by the directors at the
Company's expense, could bind the Company by such a pledge;
the right of rejecting a new project given by that order to the
shareholders, would be in effect destroyed. When the Wharn-
cliffe meeting was summoned, the shareholders entertaining this
view, therefore, conceived that the opportunity for action was
come.
A public meeting of shareholders opposed to the directors?
policy, was held in London, presided over by a gentleman who
has earned the gratitude of his fellow proprietors by his
energetic exertions in their cause. At this meeting a series of
resolutions was adopted, demonstrating, with singular ability,
the invalidity of the pledge, and the injustice of the proceedings
which followed it. A similar meeting was held in Manchester.
On the other hand, the directors issued a report preparatory
to the meeting of the Company, recommending the adoption of
the clauses introduced into the bill in the House of Commons.
After enlarging on the parliamentary difficulties which would
POSTSCRIPT.
71
otherwise ensue, and intimating that, if the shareholders should
disregard their recommendation, the bill must be lost; they con-
cluded their observations on this part of the subject with a
formal statement—which may probably be thought superfluous,
but which will be found to contrast strangely with their subsea
quent conduct that they must leave the decision with the
proprietors.
When the meeting of the Company took place, resolutions
approving and disapproving the bill were moved and seconded.
A. poll was taken; and on the re-assembling of the meeting a
singular scene ensued. Mr. Chaplin, the chairman of the Com-
pany, refused to declare either of the resolutions carried or
rejected: He stated the amount of capital, but refused to state
the number of shareholders voting, or the number of votes,
according to the Company's acts, for and against the bill. Re-
monstrances and protests were in vain resorted to. The chair-
man persisted in his refusal: and justified it, as did the Company's
solicitor, by the argument that, at a Wharncliffe meeting, the
amount of capital was alone material.
The results which the chairman refused to state are now
known. It may perhaps be anticipated that they were not very
favourable to the directors. Five hundred and twenty-nine
shareholders disapproved of the bill; while no more than 296
approved of it. The majority of voters against the bill was thus
233. The majority in votes, according to the Company's acts,
against the bill, was 784. In regard to capital, to which the
chairman confined his statement, there was a preponderance in
favour of the bill; but it fell short by no less than one million
eight hundred thousand pounds of the preponderance of capital
which was requisite, according to the terms of the Wharncliffe
order, to enable the bill to be proceeded with. The defeat of the
directors on the poll was thus complete on all points.
By the result of this meeting an unsuspecting shareholder
might have thought the battle won. . The directors had
72
RAILWAY MORALS AND RAILWAY POLICY.
announced that they left the decision to the shareholders; and
that decision had been given against the bill by a large majority.
They had professed to hold a Wharncliffe meeting; 'and, according
to the terms of the Wharucliffe order, the result of the poll was
fatal to the bill. I believe there is no instance in which tlie
directors of a railway company have ventured to proceed with a
bill in the face of such results as these. In the present case,
however, the attempt was made.
The first and main obstacle to such an attempt, of course, lay
in the Wharncliffe order. Within eight days after the Wharn-
əliffe meeting—within eight days after the chairman had refused
to state its results, either in votes or voters, on the ground that
it was a Wharncliffe meeting—the directors were found contend-
ing, by their agent, before the Standing Orders' Committee of the
House of Lords, that none of the important parts of the bill were
within the Wharncliffe order at all.
The argument in support of this conclusion may be thought
isomewhat technical. The Wharncliffe order, as I have said,
applies to bills providing for the execution of new works. But
the enactment of the bill in this case was, that the Company
should bring in another bill in a future sessiou for a new work,
viz., a railway from Yeovil or Dorchester to Exeter. Now,
though the prosecution of this future bill was made imperative
by the present bill, on pain of stoppage of the Company's
dividends; and though, on the bringing forward of this future
bill, the Wharncliffe order could therefore avail the shareholders
nothing, seeing that if they thus got rid of it their dividends
would be stopped by the present bill; yet, nevertheless, it was
argued that the bill before the House was not a bill providing
for the execution of new works, but only a bill providing for the
bringing in of a future bill for the execution of new works.
I should not have troubled you with this astute piece of
reasoning, but that it had the merit of success. The vote of the
meeting was held, by the Standing Orders' Committee of the
POSTSCRIPT.
73
House of Lords, to be fatal to some of the less important parts of
the bill, which were decided to be within the Wharncliffe order;
but the portions of the bill providing for the bringing in of a
future bill for the railway between Yeovil or Dorchester and
Exeter, were decided not to be within that order, and were per-
mitted to proceed. A coach-and-four has thus been driven
through the Wharncliffe order. How many similar equipages
are likely to follow by this newly-discovered route, persons
acquainted with the tactics of railway warfare can well con-
jecture.
This unexpected and startling decision was in its results fatal
to the shareholders. Their plain case against the bill was, that
it had been rejected by the meeting of the Company to which it
had been submitted, and that the directors were proceeding with
it against the will of the shareholders. The established mode of
ascertaining the assent or dissent of shareholders to bills brought
into the House of Lords, is prescribed by the Wharncliffe order.
When the shareholders found that the directors had succeeded
in depriving them by a technicality of the benefit of this order,
they appeared by counsel before the committee on the merits of
the bill, and objected to the locus standi of the directors to pro-
secute a bill which had been rejected by the shareholders. But
this objection, which was in fact a novel mode of raising the
question usually disposed of by the Wharncliffe order, was over-
ruled; and the result was, that notwithstanding such further
opposition as the shareholders' counsel could offer, the Committee
found the preamble of the bill to be proved. During the
discussions before this Committee, the counsel employed by the
directors professedly to represent the Company, was heard to
argue zealously in favour of the enforcement of the pledge against
the very Company which was, in name, his client.
A second Wharncliffe meeting was afterwards held, with
reference to the clauses of the bill which had been struck out
in consequence of the vote of the first meeting. As these
74
RAILWAY MORALS AND RAILWAY POLICY.
clauses were not the main subject of objection by the share-
holders, little serious opposition was made to their reinser-
tion. The discussion at the meeting, which was, as may be
supposed, of a stormy character, related chiefly to the general
conduct of the directors in reference to the bill. The clauses
which had been struck out having been restored by the vote
of this meeting, the bill has passed verbatim as it was sub-
mitted to the first meeting, and there rejected by the share-
holders.
Here, then, is a new era in railway politics. Hitherto the
complaint has been of the unfair and absolute power of the
majority of shareholders over the minority. You have, in the
Edinburgh Review, forcibly shown the justice of that complaint.
But it is now, for the first time, so far as I am aware, that we
find an admitted minority coercing the admitted majority; that
we find the directors of a railway company sufficiently audacious,
and openly regardless of the wishes of their shareholders, to
proceed with a bill in Parliament in the teeth of a formal vote
of disapproval by the shareholders—a vote come to, as we have
secn, by a decisive majority. No doubt the shareholders will be
offered, in justification of this proceeding, and of the evasion by
a technicality of the Wharncliffe order, the hackneyed plea, that
the chairman and directors have acted for the good of the
Company. Seldom has this excuse been wanting for any abuse
of power, however flagrant. When it appeared, a few years ago,
from the report of a committee of investigation, that the deposits
and calls on the shares of this very chairman, Mr. Chaplin, had
been paid out of the Company's funds, to the extent of upwards of
£80,000, it was alleged that it had been done for the good of
the Company. But, in the present case, the answer to that
argument is obvious. In law and justice, as well as by the
express announcement of the directors, it was for the share-
holders to decide on the course which it was most for the good
of the Company to adopt with reference to this bill. They
POSTSCRIPT.
did decide by a large majority; and the directors have set
them and their decision at defiance.
Having been a South Western shareholder for many years,
I may say of the proprietary thus defeated, that it has not been
altogether an apathetic body. The ascendency of the party
devoted to the making of railways, as distinguished from the
ownership or working of railways actually made, has not been
submitted to without some violent efforts to shake it off. The
failure of these attempts is due to the faulty constitution of
railway companies, rather than to the indifference of the
shareholders.
The Company is now committed, in a time of railway disaster,
to spend a million of money on an extension railway, whichi
cannot, for years to come, so much as pay its working expenses.
The landowners in the district to be traversed by this railway,
will find the value of their property greatly increased. Half
a dozen members of Parliament will have pleased their con-
stituents. Some over-growu capitalists, and a few well-known
lawyers, architects, engineers, and jobbers, will derive large
profits out of the project, in a variety of ways. But these results
will be accompanied by grievous loss and injury to the great
body of shareholders; including hundreds of families whose
property has been placed in the Company as a permanent invest-
ment. I think, as I said at the outset, that the means by which
this state of things has been brought about, deserve the attentive
consideration of every railway shareholder.—Believe me, always
yours faithfully,
R. MAC DONNELL.
HERBERT SPENCER, Esq.
In respect to the equity and advantage of limiting railway
companies to the enterprises specified in their deeds of incor-
poration, some facts and comments have been furnished by
a gentleman who has an extensive practical knowledge of con-
76
RAILWAY MORALS AND RAILWAY POLICY.
tinental railways, and more especially of their administrative
systems. It will be seen from his statements, that the policy
advocated in the foregoing pages as the only just one, and the
nationally-beneficial one, is one that has been elsewhere pursued.
He writes thus : -
It cannot but be difficult to write even a few paragraphs in
favour of an incontestable proposition; and this difficulty is
greatly increased by the ability, truthfulness, and judgment
with which the argument is maintained in the article on Rail-
way Morals and Railway Policy. It may not be easy to prove
that the sun shines, or that night will succeed morning; it would
nevertheless be thought a sad waste of time to endeavour to show
the certainty of the one, or the probability of the other.
The argument on the article before us, seems to trace many of
the evils of railway management to a departure from the spirit
of the original contract of partnership by which the Company
was first formed. That, to such a deviation, almost all the mis-
fortunes of railways may be attributed, every one conversant
with public companies must admit. A line is concocted from
London to Birmingham and Liverpool, and would be remunera-
tive; but when Shrewsbury is added to it as one branch, Bedford
as another, Preston as a third, and finally a duplicate line is
made through the Trent Valley, no wonder that dividends have
dropped from ten to five per cent., and are even trembling at
that.
But how can these things be? Easily-directors are taught
to believe that they should not only be carriers, but politicians.
“Our external policy must be attended to. Our frontier
must be saved from invasion.” And — sub-silentio--“Our
pockets would not be lighter if the shares we bought in A. B.
and C. D., and which don't pay, were resold to L. and N. W."
on “strictly equitable terms."
Then follow the usual whisperings—the sad effects to be ap-
prehended from such an opposition—the fear that such a biļl
2
POSTSCRIPT.
77
may succeed, &c. &c.; and finally a proposition from the board
to the proprietary, two-thirds of whom are widows and orphans,
whose trust-money has been used by these very directors to
place themselves in power. Very little influence is required to
make the worse appear the better reason when coming from the
lips of a noble chairman; and a majority having been attained,
the legislature are ready to pass the bill—by which the original
property is diluted, after the fashion of London milk, according
to conscience.
So much for the facts, now for the remedy; and at no period
could the application of a cure be more important than at pre-
sent, when the new law of limited liability is about to open the
flood-gates of speculation to joint-stock companies.
They manage these things better on the continent, by making
any proposition or resolution of proprietors, which in its nature
is contrary to the spirit of the original agreement-absolutely
null and void. I here quote the opinion of an eminent Dutch
lawyer on the point:-
“No deviation from the original contract can in any respect
take place by virtue of a resolution of a general meeting of
shareholders, unless all the participants, present or absent, con-
sented, because the contract contains the contract of the associa-
tion; and although the power is reserved to the king to permit
alterations in the original contract, and to which the non-con-
senting participants must submit; yet, should any alteration
affect the substance of the contract, and have a material influence
on the rights and obligations of the participants, then, in my
opinion, such alterations could be successfully opposed, and the
Company dissolved, or the opponent indemnified; these altera-
tions must, however, be very cardinal to cause such an opposition
to be successful.”
So much for the protection afforded by the law; and now for
the practical management.
· In foreign railways there are generally two distinct governing
78
RAILWAY MORALS AND RAILWAY POLICY.
·bodies. The one having the managemeut of the daily adminis-
tration, and composed of the lawyer, engineer, traffic manager,
treasurer, land agent, &c. &c., each of whom are paid according
to their relative merits, but who are subservient to, and controlled
by, a board of commissioners, or honorary directors, who are
unpaid, and not even essentially shareholders, but who are gene-
rally selected from their high official position in the several
towns through which the railway has to pass, and composed
mainly of burgomasters, local judges, and eminent civilians.
The latter board meets at least once in three months, to receive
a report from the direction of all that has happened during that
period, and to look into the actual position of the Company ;
and to them is reserved the power to allow calls to be made,
contracts above a certain sum entered into, and a supervision of
all salaries above £100 per annum ; and further, the audit of
the accounts is their exclusive privilege.
For example, let us imagine that the London and North
Western was managed by a board consisting of Messrs. Swift,
Carter, Stewart, Booth, Glynn, Huish, Trevithick, and Norris,
and it is not difficult to fancy that men such as these, practically
acquainted with every part of the line, and untrammelled by
marquises and baronets, would work out a far more beneficial
result than is now done by a different system.
Such a suggestion will necessarily be sneered at, and pooh,
poohed ! because it would be most distasteful to the powers that
be; but let shareholders carefully consider whether the present
system has not been tried and found wanting.
The time is peculiarly auspicious for a change ; but if it is.
now. neglected, the ruin may be increased tenfold.
It has been by some objected, that to establish any law for-.
bidding joint-stock companies to undertake other works than
those for which they were originally united, would be extremely
difficult; seeing that as, at present, our legislature assumes the
POSTSCRIPT.
power of authorizing such companies to exceed the objects speci-
fied in their subscription-contracts, the passing of a general law
by which they should be debarred from exceeding these objects,
would be tantamount to a resignation by the legislature of its
present power to give them special authority for doing so ; and
that, however valid the reasons assigned, the legislature will not
consent so to limit its own power. There is doubtless much
weight in this objection : aud, were there no way of achieving
the desired end without such a general law, any amelioration
would seem almost hopeless. But, as has been suggested by one
to whom the writer is under much obligation for various hints,
as well as for a commuuication given below, it is not necessary
that any such general law should be passed. The end “is attain-
able by an alteration in the practice of parliament in dealing
with railway bills. This practice is regulated by a code of rules
called the standing orders, and it would be competent for either
House of Parliament alone to carry the principle into full effect
by a standing order.” Already, the Wharncliffe order establishes
a precedeut, which would simply havo to be enlarged. And
though standing orders may be suspended, yet as special reasons
for their suspension must be shown, a great obstacle would be
put to the carrying out of these reckless and dishonest schemes.
Among the many causes conspiring to bring about the cor-
ruptness of our railway administration, there is an important
one which has not yet been alluded to—one which seems to
have been alınost wholly overlooked one of which the writer
was quite unconscious, until his attention was drawn to it.
Once pointed out, however, no one can fail to recognize the
reality and greatness of the evil. In the annexed letter, its
nature and the required remedy are fully explained.
June 30, 1855.
My Dear Sir, I wish to call your attention to what I con,
80
RAILWAY MORALS AND RAILWAY POLICY.
ceive to be one of the principal causes why the government of
Railway Companies, though representative in theory, is, in
practice, almost purely oligarchical ; and also to suggest a
change in the constitution of these companies, which, I think,
would go far to correct this evil.
It is essential to the working of any representative constitu-
tion, that the representation should not be monopolized by oue
dominant party. It may happen that an absolute majority of
the electors of the United Kiugdom are of some one political
party; but nobody wishes to see a House of Commons composed
exclusively of one political party. Every sensible man desires
that each important class or interest in the community, be they
Whigs or Tories, landowners or manufacturers, churchmen or
dissenters, should have a share in the representation, and possess
the means of making their opinions and wishes heard in parlia-
ment.
This principle has been wholly disregarded in framing the
constitution of railway companies. There is in such companies
no subdivision or variety in the constituency by which directors
are elected. Wheu vacancies at the board occur, the election
to every vacancy, be they few or many, is referred to the whole
body of shareholders, and is decided by a bare majority of that
body. The result is, that this bare majority elects the whole of
the directors. Suppose a thousand shareholders to support one
set of candidates, and a thousand and one shareholders, of equal
average voting power, to support another set the latter candi-
dates are elected to a man. The one thousand shareholders
remain without a representative at the board, the one thousand
and one shareholders monopolize the entire representation.
To a certain extent this evil must occur under any repre-
sentative system. But the subdivision of constituencies tends
to reduce it to a point at which it ceases to be practically felt.
If, in one of our counties, all the Conservative candidates are
returned, notwithstanding the opposition of a minority of
POSTSCRIPT.
81
Liberals, the latter are perhaps consoled by perceiving that in
the county town the Liberal candidates are entirely successful,
notwithstanding the opposition of a minority of Conservatives.
On the whole, no considerable party can fail to have a share of
the representation.
But there is no such system of counterpoise in railway com-
panies. Elections are conducted in these companies, as parlia-
mentary elections would be conducted if the election of mem-
bers by towns and counties were abolished, and there were one
election of all the six hundred and fifty-four members of the
House of Commons, at which every elector in the United
Kingdom was entitled to vote. Under such a system each
political party would have its list of candidates—or its ticket, as
I believe it is called in America. The list of the political party
most in favour would be successful; and the defeated party,
it might be outvoted, would be left without a single representa-
tive in Parliament.
The practical result of this mode of election in railway com-
panies is what might be expected. In every great company
which is engaged (as nearly all such companies are) in parlia-
mentary contests, and in the extension of their undertakings,
there are two parties. There is the party which approves of this
policy, and which, active and well organized, wielding the enor;
mous influence derived from the possession of office, and compris-
ing all the lawyers and engineers, jobbers and contractors,
connected with the Company, is usually in the ascendant. There
is the disapproving party, often considerable in number, which
consists mainly of persons who have placed their money in the
Company as a permanent investment, and comprises nearly all
the more intelligent of such persons.
· Is it not of the essence of a representative system, that this
latter party should be represented at the board of directors 3
Persons unacquainted with railway affairs, will hardly believe
82.
RAILWAY MORALS AND RAILWAY POLICY.
that, in most companies, this party has not a single representa-
tive in the direction. When a new project is brought forward,
the shareholders are almost invariably told, and with truth, that
the board is unanimous in recommending its adoption. In one
or two companies, indeed, in which the corruption of the leading
directors is notorious, and the dissatisfaction of the shareholders
unurnally great, a member of the opposition party has occasionally
succeeded in forcing his way to the board. All who are con-
versant with the affairs of those companies, well know what a
grievous impediment the presence of even one such director
presents to “making things pleasant.”
If the monopoly of the representation by a bare majority is
to be got rid of, it must be by some subdivision of the constituent
body. I think the principle on which it was proposed to provide
for the representation of minorities by Lord John Russell's
Reform Bill of 1854, affords the means of effecting this object.
Whether that principle is a good one with reference to Parlia-
meitary elections, it is not my purpose to inquire. The
political evil it was intended to meet is, as already observed, to
a great extent practically obviated by the subdivision of Parlia-
mentary constituencies. The objections which were made to its
working as a political measure have no application to public
companies; and the nature of such bodies affords some peculiar
facilities for bringing it into operation. I should suggest in
accordance with this principle, that on the filling up of several
vacancies in the direction of public companies, each shareholder
should be entitled to vote for one candidate only; or, at all
events, for some number of candidates less than the number of
seats to be filled up.
The practical result of this mode of election may be readily
calculated. If there were three seats to be filled up, and each
shareholder could vote for one candidate only, the dominant
party in the Company could not secure all the three seats, un-
Jess they could command more than three-fourths of the whole
POSTSCRIPT.
83
number of votes. Otherwise, the minority would obtain one
seat out of the three. If there were two seats, the dominant
party must command upwards of two-thirds, and if four seats,
upwards of four-fifths of the votes, to monopolize the representa-
tion. The minority would obtain one seat, if they could muster
above one-third of the whole number of votes in the first case,
and above one-fifth in the second. In the latter case, they would
obtain a second seat out of the four, if they could muster above
two-fifths of the whole number of votes. It seems obvious that,
by means of a well-arranged system of election of this kind, the
nearest approach to fairness could be made which the case admits
of, and the state of the directorship might reasonably represent
the state of opinion amongst the shareholders.
The adoption of the mode of election. I have suggested would
require an amendment of the Companies Clauses Act of 1845.
If that act were amended, the clause which gives the election to
casual vacancies in the direction, to the directors themselves,
ought surely to be repealed, and the right of election in such
cases to be conferred on the shareholders. The tendency to re-
elect retiring directors is so strong, that it is only when vacancies
occur by death or resignation that an independent candidate can.
have, under ordinary circumstances, any prospect of success. The:
election of such candidates has consequently been confined, as far
as I am aware, except in some extreme cases, to Companies which
have not come within the Companies Clauses Act.
I will conclude by referring to another cause which greatly
fetters the action of shareholders, both in choosing directors and
in other respects. This is the half-crown stamp imposed on proxies.
It is by proxy alone that the vast majority of shareholders can
vote. Proxies in support of the dominant party are generally
paid for, in one shape or another, out of the funds of the Company.
But to an independent candidate for the direction, or to a body
of independent shareholders associated to resist some project
which they think detrimental to their interests, the expense of
84
RAILWAY MORALS AND RAILWAY POLICY.
circulating half-crown proxies amongst a proprietary numbered
by thousands, is always a formidable and often an insuperable
obstacle. That the vote of a shareholder concerning his own
affairs should be the subject of taxation appears a singular anomaly,
and greatly conduces to the mismanagement of public Companies.
Even a reduction of the tax would be a great boon, and I am
satisfied that, with the growing disposition of shareholders to
think for themselves when they have an opportunity, a sixpenny
proxy stamp would be far more productive to the exchequer than
the present duty, which practically confines the exercise by share-
holders of the right of voting to great and unusual emergencies.
I remain, my dear sir,
Always yours very truly,
R. MAC DONNELL
HERBERT SPENCER, Esq.
After the number of the Edinburgh Review containing the
article now republished, had been issued in the United States,
sundry comments were made by the press of that country on its
disclosures concerning our railway system. The American Rail-
road Journicil made them the text for a series of four leading
articles on the railway system of America. As these contain a
large amount of information possessed by but a few in England;
and as this information has an important bearing on the general
doctrines that have been set forth; it has been decided to reprint
thein along with the additional matter above given. Respecting
the criticism with which the first of the four articles sets out,
it may be admitted that there is ground for it. But it did not
come within the writer's object to touch upon those yet deeper
legislative errors referred to; nor, probably, would his views have
met with editorial approval had they been expressed.
POSTSCRIPT.
RAILWAY MORALS AND RAILWAY POLICY.
From the American Railroad Journal, for November 25, 1854.
We copy, on another page of the Journal, an article upon the
railway morals and railway policy of Great Britain. It is
undoubtedly a truthful picture of the condition and manage-
ment of railway property in that country. As far as there is
a parallelism between the manner in which the railways of the
two countries are conducted, the article may be studied with as
much profit by our own people as those to whom it is directly
addressed. We copy it for the additional object of seeing how
far this parallelism holds good, and as a means of obtaining a
more correct view of the policy and management which prevails
in this country, and of the condition and prospects of our rail-
roads.
We would remark, in the outset, that the article quoted
appears to us to touch only upon a part, and perhaps upon the
least important of the mistakes and misconduct from which
railways have suffered. It is an able statement of the present
condition of railway affairs ; but it only partially explains the
causes, while it hardly suggests a remedy, for the abuses which
are shown to exist. From the article, it would seem that
English railroads have suffered most from branches, or exten-
sions of the trunk lines, which have been the occasion of
enormous expenditures, without any useful object or end.
Another great source of evil is Purliamentary legislation.
Abuses of legislation, in fact, are the constant theme of complaint
on the part of the Brirish press, and undoubtedly with good
reason, as erroneous ideas in legislation lie at the foundation of
many of the abuses and losses that have been suffered. The
article also fails, in our judgment, to point out the proper
remedies, mainly for the reason, we think, that the causes of the
abuses and mistakes are not correctly appreciated.
But whatever be the causes of the disasters which have
befallen British railroads, involving a loss, variously estimated
at from 350,000,000 to 500,000,000 dollars, equal to one-half
or two-thirds of the whole expenditure upon such works in this
country, the fact stares us fully in the face. Are our roads in
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RAILWAY MORALS AND RAILWAY POLICY.
a similar category ? Is the vice from which the former have
suffered inherent in the system, or peculiar to one country?
We propose to draw, in connection with the above article, a
parallel between the works of the two countries, for the purpose
of showing how far we are suffering from the influence of simi-
lar causes, as well as to point out, if possible, the appropriate
remedy.
We commence with a comparative review of the Legislation
of the two countries. As already stated, the wrongs inflicted
upon. railways by a partial, unwise, and unjust system of
legislation, is regarded in England as one of the great sources of
the evils suffered. What this legislation is, was well stated by
Mr. Robert Stephenson (himself a member of Parliament), in
a speech made when in this country to the citizens of Toronto,
from which we extract as follows :
“In the various railway struggles, the committees of Parlia-
ment took into consideration not what was right nor what was
wrong, but entered into considerations entirely subsidiary, and
not at all connected with the profits of the lines, nor the
necessity for making them. The consequence was that the
committees sometimes decided upon different lines, upon reasons
entirely apart from their real merits or the scientific questions
involved in the details. There was one district through which
it was proposed to run two lines, and there was no other diffi-
culty between them than the simple rivalry, that, if one got a
charter, the other might also. · But here, where the Committee
might have given both, they gave neither. In another instance,
two lines were projected through a barren country, and the
Committee gave the one which afforded the least accommodation
to the public. In another, where a line was to be run merely
to shorten the time by a few minutes, leading through a
mountainous country, the Committee gave both; so that, where
the Committee might have given both, they gave neither; and
where they should have given neither, they gave both. Such a
species of legislation was faulty, and he hoped it would not be
imitated in this country. There was, indeed, a Committee
sitting in England, the attention of which he had called to these
facts. After lines were granted, the competition which began
within the walls of Parliament continued when the lines came
to be put in operation. He could say, upon the authority of
the Board of Trade, and from his own knowledge, that, since
POSTSCRIPT.
competing lines commenced, out of 300 millions of pounds ex-
pended 70 had been wasted ; that is, in duplicate lines. But in
order to mark the inconsistency of the proceedings in railway
legislation, when the London and Birmingham was asked for,
the feasibility of the route was doubted, great difficulties were
suggested as being in the way. Engineers were called in to
decide every thing in opposition to it; the estimates were dis-
puted and doubted, it was maintained that the company ought
to prove the traffic that was to go over it, and that 6 or 8 per
cent. was to be obtained upon the money invested ; in fact a
most paternal part was taken in the project. Before Parliament
granted the charter, before the people were allowed to expend
their own money, they were here asked to prove the traffic and
the profit, and show a regular contract to establish that the
work was to be done within the estimate."
He concludes by urging upon the Canadian Parliament to be
wiser than that of the mother country, and to pernit 1200e of
the abuses and mistakes which have been followed by such
disastrous consequences at home.
Having shewn the incompetency of the legislature of his own
country to direct the routes and superintend the construction of
railroads, the natural inference conveyed to his own mind should
have been, we think, that all legislatures are equally incompe-
tent—which is really the case. The Legislature of Great
Britain is as competent as that of Canada, or the United States,
to interfere in the construction of works of internal improve-
ment. The fact is, that none of them are competent to
successfully conduct commercial enterprises. Such duties do not
come within the function of any government, and where they
are assumed the result is always mischief. The proper legisla-
tion therefore upon all such subjects is none at all, but to leave
the action of the people entirely untrammelled, as we think we
can show.
When the right to build a railroad depends upon a special act
of government, such right will always be regarded as possessing
a value in itself, independent of the work to be constructed
under it, and which of itself justifies an expenditure, or a
division of its value among the grantees, greater or less
according to its assumed worth-expenditures or a division of
value, which would not be for an instant thought of, or tolerated,
were the construction of such work a common right, like that of
88 . RAILWAY MORALS AND RAILWAY POLICY.
a ship, or manufacturing establishment. The idea that a
charter confers a value is the great cause of the expensive con-
tests, in the outset, before Parliament, to obtain them, in which
those who already possess such, resist every new application.
Hence the parliamentary battle upon every charter cost all the
way from £2000 to £3000, a sum nearly equal to the total
cost of many of our roads. The cost of the charter, of course,
magnifies its value. As soon as it is obtained, the company
organizes upon the most expensive scale, with enormous salaries
paid to officers, engineers, officials, &c., &c., salaries for which
the services rendered are no equivalent. The fallacy lies in
attaching a value to a mere right to construct a railroad. Were
this right regarded as valueless, as is the right to build a ship,
then not a penny would be paid to obtain it, nor incurred in the
organization of the company, nor wasted in its operations. The
merits of the project would alone be regarded, and the means
exactly proportioned to the end to be accomplished. Without
the stimulus of the advantage that a charter is supposed to
confer, few projects would be commenced that did not promise
to pay. With entire freedom in the matter of the construction
of railroads, the people of Great Britian would have acted as
rationally as in any similar enterprise ; and only such railways
would have been built as are needed. The direction of their
roads would have been suited to the public convenience, and
their cost proportioned to the business, or, in other words, their
income. Instead of such a result, acting upon the idea that a
charter in itself possessed a value, a great number of rival roads
have been built, at enormous cost; showing that the tendency.
of all special legislation is to aggravate the very evil it is :
intended to cure. Experience has proved that a railroad charter
in Great Britain is not only entirely valueless, but its possession
is almost certain to entail serious losses upon its possessors.
The first great cause of competing lines, and extravagant ex-:
penditures upon the railways of Great Britain, is to be found in
the fact that the legislature assumes to determine the routes of
the roads, their mode of construction, and to designate the
persons who are to have the privilege of constructing them.
The tendency of legislation in this country is entirely opposite.
Taking the state of New York as a standard, the right to con-
struct railroads is just as common as is the right to construct
ships. . Any number of individuals may unite to build ani
POSTSCRIPT.
89
railroad, where, and as they choose ; no matter how many other
roads are built having the same direction and objects. There
are two roads from the city of New York to Albany. A dozen
more may be built, if there are fools enough to construct them.
The Government neither confers special privileges, nor does it
assume to act as conservator of individual interests. It does
not interfere to prevent a man from making what appears to be
a bad investment. The result is, that having the right to build
railroads when and where they choose, people cannot be driven
to act precipitately, which they often do, when acting under a
special charter, the rights which it confers being often forfeited
by lapse of time. When they commence the construction of a
road, they see that their only safety lies in placing it upon the
best route, and building it at the lowest possible cost, as the
only means of protecting their investment; as mistakes in either
particular will be sure to be corrected by another company,
which will thus be able to maintain a successful competition.
With perfect freedoin therefore in the matter of railroad con-
struction, the first road is pretty certain to be built with
reference to the public wants, and at the lowest cost, which
precludes the necessity for more than one, where with special
charters there would certainly be two. Our view of the case is,
we contend, not only supported by sound reasoning, but is
proved by the experience of this country, where with the most
liberal legislation we have but few competing roads.
To cease to legislate at all upon the subject of railroads will,
in England, be thought to be a singular remedy for abuses of
legislation, we have no doubt. But why not the proper one ?
Would Englishmen think commerce would be the gainer by
having Parliament yearly designate the number of ships that
should be built, and who should have the privilege of building
them ? Would not they say, “We know better what we want
than a body of men who have no experience nor interest in
commercial affairs ?” Should government assume to interfere,
in reference to ships as it does in reference to railroads, could a
proper harmony be preserved between the wants of the public,
and the means by which they are met? Would not those who
first got the right to build ships, think they had secured a
valuable boon, and would they not be the less careful about
their construction, and the economy with which they were built,
than without such supposed boon, or protection ? Would they
.90
RAILWAY MORALS AND RAILWAY POLICY.
not find in it an excuse for extravagance and inattention ? Is not:
this always the case in similar matters ? Does any business pay
in the long run that is not conducted with express reference
to the end to be gained ? Would not outsiders, thinking
favoured ones had secured some great advantage, besiege Parlia-
ment for similar grants? Having justice on their side they
would in the end be sure to triumph, though at great cost to
both parties. As soon as the latter had succeeded in securing
their rights, would they not fall into the same indifference and
extravagance as their predecessors; and would not the result
be that in the end there would be twice as many ships as would
be wanted, and would not those that were built be both costly,
and badly managed, and but poorly adapted to the wants of
commerce, and the ships themselves turn out to be ruinous
investments? We think there is no one that will not assent to
the above proposition. If it be correct, is not legislation just
as inappropriate in reference to the construction of railroads as
it is in reference to the construction of ships ?
In the United States we have little to complain of on the
score of legislation. In this respect consequently the parallel
between the two countries does not hold. If Englishmen suffer
from this cause, our people do not. We believe in the inherent
incapacity of legislatures to direct or conduct successfully any
commercial enterprise. The remedy for legislative abuses is not
inore legislation, but in none at all. It is all bad. The mistake
consists in supposing that legislatures can be rendered conpetent.
The thing is impossible. No legislative wisdom is a match for
the instinct of self-interest on the part of the individual. The
more our English brethren trust to legislation, the more involved
in difficulties will they become. The remedy they seek has
caused the disease, and will only aggravate the case.
As a result of our non-legislative policy, the railway interest
of this country has, in the aggregate, suffered only slightly from
branch, or competing roads, which have so reduced the value of
railway property in Great Britain. There is another reason
why we are without them, and this is, that most of the States
have not reached that stage in the progress of railways in which
the tendency to branch, or competing lines, manifests itself;
they have not yet got through with their trunk lines. That a
tendency to excess will manifest itself in railways, as it does in
every pursuit, there is no doubt. But there is no reason for
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91. .
believing, with a healthy sentiment prevailing, that this ten-
dency should be more strongly felt in the construction of
railroads than ships. In no department of industry can supply
and demand be made to exactly harmonize. But occasional
over-production does not prove that the particular branch of
industry in which such excess occurs is not in the main
profitable.
We think we have indicated the germ from which sprung.
many of the disasters which English railroads have suffered.
We think that should a government attempt to control the con-
struction of ships, the result would be what we have seen it to
be in the case of railroads; and we do not believe that subjected
to the same law by which other commercial enterprises are
controlled, the construction of these works would be pushed to
an extravagant and injurious excess. We cannot see why this
should be the case. We do not see any necessity why men,
wiser in other matters, should lose their capacity the moment
they take up a railroad. The fault is not in the works them.
selves, but in erroneous principles which control their con- .
struction.
* Although from a more correct system of legislation the
railroads of this country are mainly free from many of the abuses
from which English ruilroads have suffered, this fact by no
means proves that railroad property in this country is not in
jeopardy from the operation of other causes common to the
systems of both countries, the most important of which is the
inability of stock and bond holders to exercise a personal oversight
of the expenditure of their money.
We will illustrate this point.
We will take for this purpose a railroad in an agricultural
district-the Syracuse and Binghamton-as a good case in
point. This road of 80 miles was built at a cost, say, of
1,600,000 dollars. One half of this sum was furnished by some
2000 stockholders living on the line of the road. The work
went forward under the daily inspection of nearly every stock-
holder-ninety-nine out of every hundred of whom had a pretty
correct idea of the cost of the various items of construction.-
As they furnished the means to build the road, every penny
lost was so much out of their own pockets. Every stockholder,
consequently, watched every movement of the directors as if
they were men in his employ. Constituting a vigilance com.
$2
RAILWAY MORALS AND RAILWAY POLICY.
mittee of two thousand, under their supervision, it was im-
possible that any thing abuse-like could be practised without
being exposed. The fact that so large a body of men were
interested, carries in favour of the road the whole sentiment of
the community, so that no person would be tolerated in asking
a greater sum for land, or material, than its lowest cash value.
A whole people in this way became co-labourers to the same
end. The result was, the road stands the stockholders at its
actual cost. Now let us suppose a party of capitalists from New
York had undertaken to build the road. None but themselves
would have felt any interest in the result. The object of their
immediate employés would be to get the most money for the
least service, and to prolong the work as much as possible, as a
means of keeping in employ. As they would be far removed
from the eye of the owners of the road, they would naturally
and inevitably give way to the universal tendency to indolence,
inattention, and prodigality. And how would it be with the
people on the line? Seeing that it was certain to be constructed,
their sentiments in reference to it would undergo a complete
change. Instead of doing every thing in their power to aid it,
they do every thing to enibarrass the operations of the company,
provided by doing so they can make money out of them, by
demanding exorbitant sums for what, under a different mode of
construction, they would have cheerfully furnished gratuitously,
or at low cost. The result would be that the road would cost
40,000 instead of 20,000 dollars, per mile. It would be easy to
refer to illustrations of our statements, to roads that have cost
40,000 dollars, which might have been built for less than the
Syracuse and Binghamton, but which excess is entirely due to
the causes stated.
Here then is one explanation of the great waste of money in
railroad construction, in this country, as in Great Britain. It
is expended by parties who have no interest in the result, and
beyond the inspection and observation of those who supply it.
No corrective of extravagance, or imposition, in the shape of
careful, intelligent, and shrewd stockholders to watch the expen-
diture of every penny, and the habits and capacity of every
person employed, who stand ready to expose and correct every
abuse that is discovered. The parties in interest may be a
thousand miles from the theatre of the operations of the com-
pany ;-busy in their counting-rooms, and in their ordinary
POSTSCRIPT.
avocations; and the only time they direct a thought to their
road, is when called upon for instalments on their subscrip-
tions.
No one will deny that we have correctly described the causes
of the difference between the cost of a road built by parties
living upon its line, whose position gives them an opportunity
to oversee the expenditure, and roads built by parties living at
a distance. In the one case the road is built at the lowest
possible cost. In the other at perhaps twice its cost. We ask
whether similar results do not follow similar premises in every
department of industry? No business is ever profitable unless
under the most careful supervision of the parties in interest.
Such a relation is necessary to success in all cases. Suppose a
manufacturer of steam-engines, living in New York, to carry
on his business at Chicago by means of agents, of whose capacity
and honesty he knows nothing, and who gives no other atten-
tion to his establishment than to pay the calls of his agents for
money. Would such a person succeed against the competition
of parties who take the immediate supervision of their affairs -
the question does not require an answer. Now railroads are
precisely like any other commercial and manufacturing enter-
prise. To ensure success the same training, intelligence, capacity,
and attention is necessary, and eminent success is never achieved
in any department of industry, without the possession and exer-
cise of all these qualities.
In the management of railroads people fall into an error in
supposing that their affairs can be conducted in the same
manner as those of other companies. As banking and manu-
facturing establishments preceded railroads, the modes of operating
of the former have been transferred to the latter, and as the
former have been usually successful, it was supposed that the
latter, under a similar administration, would be equally so.
Here is a grand mistake from which railroads have suffered.
The duties of most agents and employés in banking and manu-
facturing establishments are merely ministerial, involving only
a slight exercise of skill or discretion. The only way an
employé in a Bank can make away with the funds of the
institution, is to steal them. He has certain duties to perform,
which cannot be shirked, nor done only in the proper manner,
without his being exposed. The same is the case in manufac-
turing establishments, with this différence, that in most of such,
94
RAILWAY MORALS AND RAILWAY POLICY.
the pay of the employé, or operative, is in proportion to the
labour he performs. But to perform in a proper manner the
simplest duty on a railroad requires training, skill, constant
attention and watchfulness, and integrity. The track of the
road must be maintained in perfect order, or an accident involv-
ing the destruction of life and property is inevitable. The
engine-driver should be thoroughly versed in physics, to under-
stand the qualities and the capacity of matter for the service it
is called upon to perform. He is constantly working the
material, of which his engine, and the superstructure of the
road is composed, very nearly up to the limit of its capacity for
resistance. If he pass the boundary, he destroys both. The .
locomotive is a most complicated machine, which, with indiffer-
ent management may be destroyed in a few months, but in the
hands of a competent person, will last as many years. There is
hardly a person employed by any company in whose capacity
and integrity the safety of a large amount of property is not
involved. Even when there is a disposition on the part of the
servants of a company to discharge their duties, the want of
capacity may be fatal to success. When we ascend from the
mere details of operating a railroad, the highest order of ability
is necessary to conduct the relations that the road sustains to
the public; to develop its business ; to inspire and maintain the
general confidence in the value of its securities. The success of
a railroad may depend upon the popular estimation in which it
is held; especially when it requires the popular support in the
matter of its finances.
Qualities, therefore, fitted to conduct successfully a banking
or manufacturing establishment, may be entirely inadequate to
the superintendence of a railroad. To be fitted for filling the
place of president of a road, requires experience and ability in
financial affairs; a thorough knowledge of the operations of
railroads, of the cost of transportation of the different classes
of passengers and freight, and of the route and tendency of trade
and commerce. He must be able to form an accurate judgment
of all the einployés on the road. He must possess great
administrative talent, and command the obedience and respect
of all his subordinates. The superintendent should have all
the qualities last described, and an intimate and practical
acquaintance with every branch of service on the road. All the
subordinates should be men of integrity, industry, and experi-
POSTSCRIPT.
95
ence in their duties, and of more than ordinary capacity, as the
humblest employé on a road fills a place where a defective
judgment, or unfitness for his duties, may cost the company fifty
times his wages.
We have described the requisites to the proper management
of a railroad. We should like to be shown a company where
they are possessed even in a tolerable degree. We should like
to be shown a road where a majority of the persons employed
were selected for the qualities they possessed. It too often
happens that the leading officers on roads seek their places, not
for the purpose of advancing the interests of the Company, but
of promoting private ends. The subordinates are the protégés
of rich stockholders, whose wishes the president or superinten-
dent has not the firmness to resist, or whose good-will it is
desirable to secure against the nesct election. So little are the
qualificationis necessary to fit a man to be useful on a railroad
understood, that large holders of the stock and securities of a
company, will solicit places in it for friends or dependents, in
cases where the harm that such a person may do to the Coni-
pany, will cost the very persons who secured to him his place
more than it would to support him out of their own purse.
We are particular to enumerate the qualifications necessary
to be possessed by the managers and employés of a well-
conducted railroad, for the purpose of showing that because a
man has earned a good reputation as a lawyer, merchant, doctor,
farmer, or banker, it is no evidence that he is fit to take charge
of a railroad. And here is one of the weak spots in the system,
An eminent banker, for example, is placed at the head of a
railroad. The public are in an ecstasy of satisfaction that so
distinguished a mau has taken charge of their favourite enter-
prise. Every thing will go on well hereafter. “Hon. Mr. So-
and-so's previous honourable and successful career is full
guarantee for the success of the road.” Of course such a man
is allowed full swing. Hon. Mr. So-and-so is a very upright
man, who has made a huge fortune by “operating in stocks."
But the operating a railroad is as great a mystery to him as
would be a table for the calculations of “embankments and
excavations.” If money is wanted he can supply it, which is
all he is fitted to do. Having not the slightest practical
experience in any grade of service on the road, he has neither
the capacity of making proper selections of subordinates, nor of
96
RAILWAY MORALS AND RAILWAY POLICY.
knowing whether he is well or poorly served. The more such a
man assumes to act the worse very likely for the Company.
But the probability is that he will really do nothing. He
cannot give up a pressing and lucrative business for something
in which he has only a remote and contingent interest. How-
ever well disposed he may be, he cannot discharge his duties,
simply because he does not understand them. The result is
that but little is accomplished, and what is done is badly done ;
the public all the while imagining that their affairs are going
on swimmingly, and being as much puzzled as their president,
when they find how slight is the progress that has been made.
Their money has gone, without any thing to show for it, and
without any one being directly chargeable for the loss.
RAILWAY MORALS AND RAILWAY POLICY.
Firom the American Railroad Journal, for December 2, 1854.
We give this week the balance of the article upon Railway
Morals and Railway Policy from the Edinburgh Review; and
continue our own upon the same subject.
We showed last week, we think, that our railroads, from the
absence of legislative interference, have escaped a part of the
disasters and losses which British railroads have suffered. In
this country the construction of railroads is, by law in many of
the States, and practically in all, open to general competition, as
much as are any other commercial enterprises. Railroad com-
panies neither look to government for favours, nor are they
subject to any burdens not common to all kinds of property.
Those engaged in their construction act under the influence of
no artificial stimulus supplied by the State ; and, as far as legis-
lation is concerned, are in no greater danger of pushing to excess
the construction of railroads, than of ships, or any of the various
branches of manufacturing.
Our works therefore rest upon the solid foundation of indi-
vidual interests and individual instincts, and our people are
influenced in their construction by precisely the same motives
by which they are actuated in any similar pursuit. We speak
POSTSCRIPT.
now of governmental interference. We attach great importance
to their exemption from it. Theoretically, we think it easy to
show that any interference in their construction or management,
except to promote their own advantage, and to guard the rights
and safety of the public, is mischievous. We have only to refer
to the experience of English railways in full proof of our posi-
tions.
We showed too, we think satisfactorily, that the waste and
misconduct in the construction of railroads is owing to the fact
that those who furnish the means do not oversee its expenditure.
We have only to refer to numerous illustrations in confirmation
of our views. Now as the construction of most of our roads has
been supervised by the parties most interested, their first cost
has not been exorbitant. Such of them as have not been
cramped for money, have come from the hands of the construc-
tor at what must be considered a fair cost. We speak now of
the aggregate. There is no reason why this should not be so.
Competition among contractors brings down prices to the low-
est remunerating point; and training and experience enable
them to do work at one-half the cost to a company. The con-
struction of a railroad is a simple affair, compared with the
working of it; and no matter what difficulties are involved in
the former, experts are always found equal to any emergency.
There are no reasons therefore but gross dishonesty, or incompe-
tency on the part of the engineer, why a penny should be
wasted in construction.
We also stated in the preceding article, that our people had
not reached that stage in the progress of railroads in which the
tendency to branch or competing lines manifests itself to any :
great extent. Our people have been too busily occupied with
legitimate, to waste much money on illegitimate projects. This
is a very important fact in estimating the Ÿalue of railroad pro-
perty in this country. The great majority of our railroads in
progress, or construction, was called for. Our people have been
properly employed, and the conviction that they were so, contri-
buted not a little to success. It operated as a talisman to shield
them from harm. Give to a man, or a body of men, a convic-
tion that they are pursuing the proper. path to a laudable end,
and this conviction becomes a higher principle of action, raises
them above the influence of selfish aims, or gratification, and
renders them cheerful, industrious and vigilaut co-workers to a
98
RAILWAY MORALS AND RAILWAY POLICY.
common result. The end gives character to, and renders effi-
cient the means. But where no useful end can be seen, men at
once become demoralized, and the first care is to serve them-
selves. Imagine employés on a railroad to believe that the
work will prove an entire failure, that all the money expended
in its construction will be lost, will they not feel that it would
be much better if a part of the money could go into their own
pocket, than to lie in an useless embankment? Would they not
become indolent when they saw that their labour produced
nothing useful, and cease to feel pride or interest in a work with
which they foresaw their names would appear in disgraceful
association ? All these things are equally true of persons ein-
ployed in a railroad, as in any other business or calling. Most
of our roads fortunately have been projects that have called into
exercise the better sentiment, which many of the English roads.
have failed to do. Hence the low cost and better management
of our own compared with the high cost and management
of the former. We speak now of our present success. Our peo-
ple thus far, fortunately, have been engaged upon legitimate
objects which have been pursued by legitimate means. But our
danger is a mere matter of time. We are fast approaching the
period in the progress of railroads in which our works 'will be
subject to the same influences that have overwhelmed English
roads. These roads commenced with bright promises. They
were successful till the appropriate theatre for their construction
was exhausted. The evil day came when the object in the con-
struction of a railroad ceased to be that of a cheap, well-managed
and useful work, but the money that could be made out of the
process of construction.
The low cost of American roads is proof that most of them
have been constructed under favourable conditions. It is a great
mistake to suppose that the greater cost of English roads is ow-
ing to the greater amount of work involved in their construction.
We have in this country a much better standard of engineering
than in England. The great aim of American engineers is to
secure the greatest returns on the investments. The construc-
tion of many of our more important lines is due to the skill of
the engineer, among which may be named the Atlantic and St.
Lawrence, and the Baltimore and Ohio, the routes of both of
which presented great difficulties, which have been surmounted
by consunimate skill. With ordinary engineering neither road
1
POSTSCRIPT.
99
could have been built. Only so much money could be raised
for each. The fact that the means of our people are so dispro-
portioned to works, for the construction of which there is felt to
be an imperative necessity, compels them to practise economy,
and to supply, as far as possible, by expedients, the lack of capi-
tal. There is no doubt that an American engineer will accom-
plish vastly more with an equal amount of money than an
English engineer. The latter cannot be made to feel the neces-
sity for economy that is felt in this country. He knows that
in Great Britain there is money enough for any work that may
be undertaken, and acts upon this idea. One of our best engi-
neers just returned from England informed us, that he made a
critical examination of several roads of that country, for the pur-
pose of comparing their nominal cost, and the amount of work
involved, with our own. Among others was the London and
Bristol, which is exactly the length of the Western Railroad of
Massachusetts—157 miles. He states that the copparent cost of
the Western is vastly greater, while its capital account is not
one-half that of the English road. In other words, had the
Western been an English work, it would have cost 150,000 dol-
lars per mile, instead of 63,000 dollars. It should be remem-
bered too, that labour and iron in this country are at least 60 per
cent. higher than in Great Britain. The graduation of our roads
is done almost entirely by labour imported from that country.
The proper test of successful engineering is the result. An
engineer who builds a road that pays 8 per cent. upon its cost,
with structures which though cheap and unpretending, protect
and preserve property and supply the necessary accommodation to
the traveller, is much better entitled to be called successful, than
one who sacrifices the earnings of a road to magnificent erections,
or to ornament without use. The first object to be gained is to
make the road useful and profitable. After these conditions are
satisfied, ornament may follow. In this country we consult the
practical. Another reason why we expend less upon our roads,
is, because the general standard of architecture is lower. The
style of the structures on a railroad is regulated by the best il-
lustrations, or ideas, which prevail in the community where such
railroad is located. But ornament is so much capital sunk, and
should always be proportioned to the earnings of a road. In
the United States, from the equality which prevails, the struc-
tures of our roads correspond to the average for the country,
RAILWAY MORALS AND RAILWAY POLICY.
The expenditure ceases when this point is reached. Our stations,
consequently, are not imitations of baronial castles, nor are the
accommodations furnished above what the average of the commu-
nity enjoy. There may be an aesthetic value in the castle, as a
beautiful illustration of art. But it is not the province of rail-
road companies to become instructors in architecture. Their
only object should be money-making.
Our roads cost much less than English railroads, because we
make our expenditures in reference to a different standard.
Ours is a practical ; theirs, an ideal one. In this country those
who earn the money, the labouring classes, fix the standard. In
England, those who spend it. Here lies the difference. A
grand castle is a grand affair, but it is poor property. In Eng-
land many of the railroads are grand affairs, but equally poor
property. Ours are less pretending; but most of them have
the merit of paying well on their cost.
We are aware that this will be thought by some to be a far-
fetched argument, but it appears to us to be sound, nevertheless.
Certain it is that we attempt nothing on the grand scale that
we see in England. A good illustration of the different ideas
which prevail in the two countries, is the Victorice Bridge now
in progress over the St. Lawrence River, at Montreal, for the
accommodation of the Grand Trunk Railroad. An American en-
gineer would have recommended a wooden superstructure, ma-
king the whole cost of the bridge about 1,000,000 dollars. In
fact, responsible contractors have offered to build such a bridge
for 800,000 dols. A further sum of 500,000 dols., put out at
interest, would maintain the bridge for ever, making a total cost
of, say, 1,500,000 dols. But the construction of the Grand
Trunk is an illustration of English ideas transferred to this
country. A wooden bridge for such a great work was too frail
a structure. One must be built upon the model of the Britannia,
of iron, at an estimated cost of 7,500,000 dols., to go probably
to 10,000,000 dols.! Now a wooden bridge would serve every
useful end of an iron oue. Here then are 6,000,000 dols. to be
sacrificed to carry out the English way of doing things, which
amount might as well have been thrown into the sea. We do
not hesitate to say, that no engineer of reputation in the United
States would recommend the bridge that the Grand Trunk Co.
are constructing. He would feel certain, if he did, it would be
the last time his opinion would be called for. If the bridge be-
POSTSCRIPT.
101
come a part of the Grand Trunk scheme it will very nearly ruin
it. The whole travel to pass over it would hardly justify the
expenditure of the sum first named.
We have dwelt upon this branch of the subject for the pur-
pose of giving as distinct a notion as possible of the rationale of
the American mode of constructing railroads and explaining
their low cost, compared with those of most countries, particu-
larly of Great Britain, with which we usually contrast our roads,
We believe that, on the whole, the money expended on the
railroads in this country has been well expended. It has pro-
duced the results predicated both in their income, and in the
development of the resources of the country. Their earnings
are justifying public expectation and the representations of the
companies. In cases where the income to be derived from them
was a secondary consideration, they have realized all the expect-
ed results. That there has been much misdirected effort, and
a great deal of money wasted, there is no doubt, but could we
compromise past errors by purchasing exemption for the future
we should pronounce our success complete.
Having pointed out the causes that have led us successfully
thus far, we now return to the danger to which the railroad
interest and the public are exposed, and proceed to indicate, as
far as possible, the tests which distinguish legitimate from ille-
gitimate projects, and to point out the reforms, and that system
of management necessary to secure success after our roads come
into use.
To distinguish a legitimate from an illegitimate project, we
must look in the first place to the parties who are engaged in
their construction. A road is built with one of two objects;
the income to be derived from it, with its incidental advantages,
or the money that is to be made out of the process of construc-
tion. Those who are to derive the i79cidental advantages, are
the parties living upon its line. It is their interest to have it
built as cheaply as possible ; as the less it cost, the less will
commerce and travel be taxed. If they supply the means, they
will take good care that they are not wasted, and their position
gives them the opportunity to oversee its proper expenditure.
Now, however much our people desire railroads, they are very
careful not to put their money into one that does not promise
to pay well. Where the people on the line of a railroad furnish
the means for its construction, this fact is good indication : :
102
RAILWAY MORALS AND RAILWAY POLICY.
1st, That there being sufficient strength on the line of a road
to furnish a considerable portion of the means for its con-
struction ; there is a sufficient development of the country to
support it.
2nd, That the parties supplying the money, having an oppor-
tunity to superintend its expenditure, the road will be econo-
mically built; and as long as it remains in first hand, will be
well managed.
Where, on the other hand, i road is taken up by parties living
off its line the inference is :-
1st, That such parties not being incidentally benefited by such
road, their object is to make money out of the process of con-
struction : the road in such cases instead of being built econ-
omically, is built as expensively as possible, (as represented
by the amount of stock and securities issued,) the object being
to impose such securities upon the public ; or,
2nd, That such parties not having any oversight of the expendi-
ture of the money, the road will of necessity be built at high
cost and badly managed.
Where parties, living of the line of a railroad, engage in its
construction ; and where the object is to make money in its
construction, of course, they are exceedingly desirous that the
road should pay well on its cost, as a means of carrying up the
price of the securities which are their profits.
Now, if all purchasers of securities would buy only such as
are sanctioned by the tests given above, we should have few or
no useless roads. As before stated our people will not put their
own money to any considerable amount into roads that do not
promise to pay; especially will they not do this, when they are
not in a position to derive any incidental advantage arising
from them. Where a project is taken by parties living at a dis-
tance, the inference is almost irresistible that either there is no
money in it, or that its stock and debts will represent a much
larger sum than its cost. Such a view of the case is sanctioned
not only by cominon sense, but is fully supported by facts.
When, therefore, the securities of a railroad are offered for sale,
the first thing to be asked for is the list of stockholders. If
they live upon its line, and have taken stock in the road because
they need it, and if such subscription represent the collective
strength of the community, and be sufficient to furnish one-half
of the cost of the road, they show that there is a population ade-
POSTSCRIPT103
ma
ID
.
quate to its support, and that the means will be properly ex-
pended. The purchaser of the bonds issued under such
circumstances, possesses all possible guarantees of safety, as a
large interest must be sacrificed, before he can be injured.
Where, on the other hand, a railroad is built to make money,
the amount actually expended may have been only a small pro-
portion to its capital account. The purchasers may get two
dollars bonus, to one dollar in money, and will soon find the
whole concern on their hands, at twice its cost, provided the
getters up of the scheme are sufficiently adroit to float it upon
the public. But the mischief does not end here. The parties
who come into possession of the road, retired capitalists, bank.
ing or insurance companies, widows, orphans, &c., &c., live, per-
haps, a thousand miles from the road, and have neither the
capacity nor opportunity to look after its management, which
has to be done by proxy; and the road, whatever its merits
may be, as we have shown, prove unproductive from the causes
stated.
The ability of a people to build a railroad is the test of their
ability to furnish a business sufficient to its support. Where
they have not yet reached such a degree of strength, it is much
more for the interest of such community to postpone the con-
struction of such work, than to allow it to go into the hands of
speculators, which will result in a road at double cost, iinposing
a perpetual tax upon them, in the shape of double charges for
transportation.
An adherence to the above tests will not only prevent the
construction of roads that will not pay, but would limit con-
struction to the ability of the country to build and sustain theni,
It would produce a healthy state of affairs. It would keep
within reasonable limits a credit system, the tendency of which,
in a country like our own, is constantly to excess. It would
render uniform a progress which is now desultory. It wouid
enable us to achieve as great results as we now witness, and
avoid the drawbacks that mar our success. It would be the
imeans of checking a vast amount of commercial distress, which
is always attended by a čertain amount of moral delinquency.
By confining the construction of railroads within proper
limits, a double good would be accomplished. We should only
have paying roads, and escape the greater part of the dangers to:
which they are subject. The parties fitted to build them econo-)
104
RAILWAY MORALS AND RAILWAY POLICY.
mically, are the very persons to manage them in the same man-
ner. In such an event the management of railroads. would
remain in the hands of those, who, from their interest, position,
means of observation and integrity, are just the parties to con-
duct them.
. The railroad system in this country is not without striking
illustrations of the correctness of our last position. Among the
more notorious of these are the Vermont Central, the Rutland,
and the Ogdensburgh. These works were projected, and the
means for their construction furnished, by the merchants and
capitalists of Boston.. Their aim was to enlarge the area of the
trade of that city, not to make money in building them, which
renders them all the better proofs of the points assumed.
· In all of the above cases a double fault was committed. The
roads were built upon the idea that they could be made the
outlet to tide water of the products of the interior. In building
any road, it is hardly ever safe to make an hypothesis the basis.
of an expenditure. Nothing should be taken into consideration
but a traffic which can be proved to exist on the line of the
road, especially when the hypothetical business has been accus-
tomed to take other channels. It is now plain to see why the
through business of the above roads is not remunerative. It
should have been equally evident to their projectors. To attract
new business, it has to be carried without profit, if not at an ac-
tual loss, for the reason that there are cheaper routes between
the same termini. In anticipation of a business which is done.
without profit, an eúormous expenditure was incurred which the
local traffic by no means justified. In addition the cost of the
roads for the reasons already enumerated has exceeded all rea-
sonable limit. All these causes combined have rendered them
the most striking failures of the kind in the United States.
Had their projectors reckoned only upon local traffic, the result
would have been very different; the roads would either have
not been built, or their objects and means would have been
carefully adapted to the business of their routes.
If roads, where the aim throughout has been economy in con-
struction, have proved disastrous failures, from the reasons enu-
merated, how much greater will be the disaster, where the chief
object in construction is to make money, which can only be
done by creating a nominal capital much greater than the cost
of the road.
POSTSCRIPT.
105
RAILWAY MORALS AND RAILWAY POLICY.
From the American Railroad Journal, for December 9, 1854.
In the last two numbers of the Journal we endeavoured to
present the rationcile upon which the railroad system of this
country is based. We showed their low cost to be due to causes
peculiar to this country; to a wise legislation; to more correct
ideas as to their uses and objects; to a better standard of
engineering; to the fact that the parties who are to be benefited
by them superintend their construction; to the corrective
influence of public opinion, which enforces faithfulness and
economy. Necessity has rendered us an eminently practical
people. We transfer this training to our railroads. But our
government partakes of the infirmity of all governments, and
had it undertaken to construct our railroads, their cost would
not have fallen much short of that of English roads. Had their
construction been superintended by persons, whose habits
and ideas spruny from the relations they have sustained to
Government, or to the privileged classes, the result would have
been the same. Persons acting under such influences have no
proper notion of the value of money, or of that economy necessary
to secure a returu upon its outlay. They execute the works
assigned them according to their ideal, of which cost is no element,
nor despatch a measure of success. Such persons feeling that
nothing is to be gained by economy and diligence, give way to
the natural tendency to sloth and extravagance. Our people,
fortunately, have been governed in the construction of their
works by a wiser principle. Railroads have been treated pre-
cisely as other commercial enterprises, in which not a penny can
be wasted without being felt in dividends. We suppose at least
one-third of the capital invested in English railroads has been
lost. Still people wonder why they are not remunerative. The
cause is palpable. A ship, that by extravagance has cost
100,000 dollars loses money, while an equally valuable one, at
a cost of 50,000 dollars, would prove very good property. In
commercial enterprises money that is wasted can never form
the basis of production. When once lost it can never be recalled.
This fact more than all others should be kept constantly in
106
RAILWAY MORALS AND RAILWAY POLICY.
mind. It is true that there are cases of great waste in this
country which apparently do not affect the earnings of the roads.
The reason is that we do not see how much greater such earnings
would have been, with economy. There is another reason why
railroads can for a time bear a much greater waste in their con-
struction than other enterprises. There are no other in which
capital can exact so large a return. A railroad constructed
through an agricultural district of the United States, adds
inmediately at least five-fold its cost to the value of the property
of such district. An agency that is so potent in creating values,
may properly ask to share a portion of the gain due to its instru-
mentality Money, therefore, properly expended in railroads
in this country, yields a better return than the average of other
investments, and even if a considerable part of its cost be wasted,
still for several years, the road, from a monopoly it may happen
to enjoy, and from its immense influence in creating values, may
yield a tolerable income on its excessive cost. But large profits
lead to competition. Railroads economically built and well
managed, the owners of which are content if they receive six
per cent. on their cost, come in competition with those built at
an extravagant cost, which must regulate their charges by those
that come after them, and in losing the monopoly they once
enjoyed, they lose with it the capacity to pay dividends. No
kind of investment open to all, yields in the long run more than
the common rates of iuterest. Capital steadily flows in the
direction of profit till the minimum is reached; and often, the
influence of a large profit in the outset, leads to an over-invest-
mient, which will not produce even the ordinary rates. Our
railioads ought, in the outset, to pay better than other works,
but they soon become amenable to the law of “supply and
demand," and their profits are regulated by precisely the same
law that governs other investments. If people want a steady
income, they must not waste a penny in construction, and
be content in the commencement with the same rate of returns
that they are willing to receive for years.
We believe the money that has gone into our railroads
has been invested in conformity with the principles laid down,
and that, consequently, these works can be made productive, if
our people are as wise for the future as they have been for the
past. Of course, we do not mean to assert that all our roads
will earn dividends upon their stock. Many of them have been-
POSTSCRIPT.
107
constructed rather with reference to the incidental advantages
that are anticipated, than from expectation of a direct revenue
from them. Where the people of Indiana have subscribed one
dollar to a railroad, they have benefited five-fold by its con-,
struction. The advantage is not remote and contingent, but
direct; so that, should the stocks of their roads never receive
a dividend, they would be vastly the gainers, notwithstanding.
It is those who have contributed money to our roads, and who
derive no incidental advantage from them, that suffer from
failure to payWe make this distinction, as an explanation for
the low prices of many of our stocks, and for the purpose of
showing that their depression does not prove a loss of a corres-
ponding amount of capital. If our new roads can meet promptly
the interest on their debts, and provide for their ultimate pay-
ment, our people have achieved a vast success. But the stocks
of a number of our roads will yield a better income than the
interest on the bonds.
We also, in our last, pointed out the dangers to which our
people are exposed in new works, undertaken to make money
'out of the process of construction, and indicated some tests by
which these works might be distinguished from such as are
legitimate. We stated that we have just reached the period in.
the progress of railroads, when the tendency to competing,
branch, or useless liues manifests itself. It follows the closiug
up of our useful works. This tendency has received a thorough
check for the present, in the recent reverse in monetary affairs,
and the general unpopularity of railroad investments. Before
this tendency shall again have an opportunity to manifest itself,
our people will have come to a better knowledge of the cost,
management, and productiveness of these works. They will
then have the experience of the past to guide them. It is most
fortunate, on many accounts, that the moment our system has
reached an apparently healthy limit in many of the States, the
further construction of any but lines of unquestioned prosperity
should be rendered impossible by borrowing. Before any great
mistake has been committed, time is allowed to await the result of
past effort. That experience will teach wisdom for the future, we
have no doubt. For the real good of our railroads, the present
stringency could not have happened at a better time.
It is in the management of our railroads, that our great peril
lies. We have escaped many of the evils from which English.
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RAILWAY MORALS AND RAILWAY POLICY.
railroads have suffered. But after our railroads come into
operation, the principles and motives that control their manage-
ment in the two countries more nearly assimilate. In both
cases the inherent selfishness of human nature is the same. If
there be any difference in this respect, it is one of degree, not of
kind. There is the same tendency in both countries on the part
of the owners of railroad property, to indifference and careless-
ness as to its management; the same difficulty in securing the
services of competent officials; the same temptations to dis-
honesty or unfaithfulness. These are vices that belong to no
parallels of latitude, and which are peculiar to no political
organization. They are universal. It is on our exemption
from them that the success of our roads must depend.
The first condition to success is intelligent management. This,
in a great measure, could be secured through the medium of
properly prepared reports, detailing the experience of our rail-
road companies. For the want of such, each company is forced
to go through the same process of education, often at great
expense, to arrive at truths which have been long solved by
other companies. Let a discovery be made in any branch of
mechanical science, or in the mode of conducting elaborate
business operations, and the press instantly diffuses the intelli-
gence from one end of the country to the other. In this manner,
the highest intelligence and training at once becomes the
property, and soon the experience, of the noviciate. Every
superior man, in this way, becomes an instructor, and the press
the medium of his teachings. Under a similar system of instruc-
tion, society moves forward at a rate that far exceeds all former
experience. But in railroad management the parallel ceases.
Most of our railroad companies are dumb. Reports, if made at
all, are only the baldest statements, showing that so much
money has been received, and so much paid out. Any thing
really instructive rarely finds place in their columns. What is
valuable and peculiar in the management of the Erie never
travels across the Hudson river to enlighten its neighbour on
the opposite bank, which in consequence plods along for years
in the old path, wasting as it goes. Whatever of light is
developed by the Hudson River Road benefits that alone.
What we have stated of these roads is mainly true of the whole
country. The Erie Company have never made but one valuable
report, and the Hudson River Road none at all. We suppose
POSTSCRIPT.
109
that the experience of both, if known, would prove very valuable
in the management of other roads, the more so, in proportion to
the time they have been in operation. Both companies
ought to be able to give us the ratio that the expense of main-
taining a road bears to the speed of the trains. The Erie ought
to tell us the relative cost of the passenger and freight move-
ment; the cost of transportation of different kinds of freight;
the most fruitful sources of accidents and the means adopted
for their prevention; the system of administration by which the
road is worked; the means by which responsibility, efficiency,
and punctuality are secured; the improvements that have been
effected in the working of the road, or in the machinery; the
conditions upon which each is worked with the greatest economy;
in fine, the entire system of management. If the road be well
managed it has certainly much that is new and valuable to com-
municate. So in the office of the company. What is the mode
by which their accounts are kept, and all the complicated opera-
tions of the company simplified and classified under their appro-
priate heads. It cannot be doubted that many companies, from
the vant of experience, or of proper examples, suffer a heavy
loss in the manner of conducting their business operations, which
might be saved, had they the benefit of the best standards of
management which prevail. Instead of a hundred different,
and many of them vicious systems, there would be but one, and
that the best. All these advantages are lost by the silence of
our companies upon all proper topics.
Again, full and detailed reports are the best possible safe-
guard against improvident, incompetent, or dishonest manage-
ment. The stockholders would then know what the directors
are about. Suppose the construction of a railroad or some new
work be undertaken. The stockholders should always insist
upon an exact statement of what is proposed to be done, of the
cost of the work, and the means applicable to it. Suppose at
the end of the year, the estimates are found to be entirely at
fault, that the work has cost twice as much as it was supposed;
such discrepancy should always be taken as evidence of incom-
petency or dishonesty. Their previous estimates at once convict
the offending parties. The public have had enough of estimates
that bear no kind of relation to the result, to tolerate them
longer. As soon as directors and engineers found that they
: would be held to a rigid accountability, they would strain every
110
RAILWAY MORALS AND RAILWAY POLICY.
nerve to wake good their statements. But how is it now? In
& great majority of cases, no plan of operations is presented to
the stockholders and nothing from which any estimate can be
inferred of the ultimate cost of the road. The directors, con-
sequently, go blundering along, inventing as they go some
apology or excuse in case they fail to justify public expectation.
No tangible point is presented upon which issue can be taken,
and consequently incompetent persons remain for a long time
in important positions from which they would have been ejected
upon the first reckoning day, had it been known what they had
been doing. Every thing in the management of railroad com-
panies should be as open and patent as the day. There should
be no dark secluded spot in which dishonesty or incompetency
can seek immunity. The New Haven Railroad is a notable
instance of the effect of secret and irresponsible management.
Had Mr. Schuyler admitted himself interested in the contract
for the road, he would probably have been early ejected from
the direction. Had detailed statements been made of the cost
of the different items of construction, the stockholders would
have seen that they were paying twice as much for work as it
was worth. Had the arrangements which were made with other
companies been notorious, the directors would, without doubt,
have been overhauled a long time ago. Had the directors
'required the usual annual statement for 1853, the frauds of Mr.
Schuyler would have been prevented entirely, or nipped in the
bud, and the company saved from ruin.
We repeat, that the first step toward the successful manage-
ment of railroads, are full and frequent statements detailing the
entire transactions of our companies. Such statements will not
be made without due consideration. They are a public exhibi-
tion of the acts of the directors, or managing parties, and when
a man appears before the public, he will endeavour to propitiate
its good opinion. He is received with favour, only under the
idea that he is what he appears to be,-competent and honest.
The very fact forces him to be competent and honest. He can
only sustain himself by justifying expectation: otherwise he
forfeits both favour and his place. Suppose the same person
were allowed to go on for years without ever being called to ac-
count : he would be a miracle of honesty, industry, and prin-
ciple, did he not become lax in his notions, indolent, and
indifferent to his duties. Suppose him to be dishonest; before
POSTSCRIPT.
111
his character is discovered, he may have completely sapped the
company or institution of which he was an officer. Men of
doubtful character are often kept straight by the force of public
opinion. They may have too much policy to sin, if they see
exposure to be inevitable. We do not believe that Mr. Schuyler
would ever have committed his frauds, had it not been for the
Norwalk accident. Not that he would have been restrained by
principle, but because he could not have done so without im-
mediate exposure. The losses sustained by that accident placed
it beyond the power of the company to pay a dividend for a
year or two. Till one should be paid, he supposed nothing to
occur to direct attention to his conduct. In the outset he un-
doubtedly intended to cancel all his issues. The payment of a
dividend would have at once discovered the fraud, and the cer-
tainty of discovery would have prevented its commission.
Again, the best intention to serve a company may be accom-
panied by utter incompetency. To be corrected, this incom-
petency must first be made known. Companies ought to compel.
reports from their officials, at short notices, for this reason alone.
ately upon its publication, whatever it contains is compared
with the best standard of management, and its defects immedi-
ately pointed out. A mirror is thus held up, in which the
delinquent sees his own mistakes compared with the better
conduct of others. He must reform or be disgraced. Every
report would provoke the criticism of the community, and in
this manner develop and make public the best ideas which
prevail. Where, on the other band, a company goes to sleep, the
public go to sleep with them; and when any catastrophe happens,
they only wonder at the result, but are unable to discover the
cause, or point out the remedy.
The publication of the system of management of railroads has
a tendency not only to render employés faithful, but educates
the public mind up to the capacity to judge whether they are
well or badly conducted. Intelligence must exist before public
opinion can exert its corrective force. And with a sound senti-
managed. There is no inherent difficulty in the matter. To
be understood, the subject of railroad management must be
studied; to be studied the public must have access to information,
to whatever experience has developed. The reports of every
112
RAILWAY MORALS AND RAILIVAY POLICY.
company should be the mirror of its internal organization and
management. These reports should annually go into the hands
of every stock and bondholder, and, in a few years, a vigilance
committee would be found in every company, embracing every
person having a pecuniary interest in the success of the road.
The advice and opinion of such a committee would point
out a path of duty from which the managing parties could not
deviate.
A knowledge of the best system would lead to the general
adoption of the best principles or routine of management. A
great cause of the waste is in the fact, that many companies
have no adequate system according to which their affairs are
managed. The impulse or caprice of the day controls the acts
of the day. There is nothing that stockholders or directors of a
road are so apt to overlook, as the importance of conducting its
affairs according to certain fixed rules or principles. When a
person buys into a banking company, he takes for granted that
its affairs will be conducted upon the acknowledged principles
of sound banking. Most banks are conducted in this manner,
and are successful. The failure is the exception. When a
person buys into a railroad, does he feel assured that its affairs
will be conducted upon the best standard of management that
is known? By no means. In fact he does not himself know
what such standard is. He consequently invests upon his faith
in the reputation of the managing parties. Now, there is no
more fallacious standard. The reputation of being a good
business-man, and the capacity to conduct the complicated affairs
of a railroarl, may by no mcans reside in the same person. Faith
in great names is a great absurdity, and is the source of more
mistakes in making investments in railroads than all other
things. Mr. So-and-so, the manager of a railroad, has had a
highly honourable and successful career, and to question his
integrity or capacity in any matter would be regarded as a
serious insult; consequently he is deferred to, almost to the
extent of servility. His own will becomes the rule of his
conduct, and the road is sacrificed to a point of etiquette. Instead
of this, no factitious consideration should be allowed the least
influence. Nothing should be presumed in favour of any. All
should be stretched upon the same iron bed. The test of merit
should be the capacity to serve the public in the new vocation.
Because a man has been successful in trade, has been a member
POSTSCRIPT.
113
of Congress, or has commanded a regiment in the Mexican war,
is no reason why his acts should be placed above suspicion or
inquiry, nor why he should be allowed to preserve a mysterious
silence in his various functions. Accountability in every depart-
ment of management should be enforced iủ the most rigid
manner, and neither titles nor reputation should sanction the
employment of incompetent men, any more than a fine coat of
paint should justify the use of an imperfect, or unsafe wheel, or
axle, attached to a railroad car or locomotive.
RAILWAY ECONOMY AND RAILWAY MORALS.
From the American Railroad Journal, for December 16, 1854.
Intelligence and integrity are the qualities necessary to a
proper management of railroads. The former must be possessed
by the public, as well as by the persons in charge of them. The
public, or in other words, the owners of railroads, are the parties
to be served, and are to direct the mode. The duties of those
intrusted with the inmediate management of roads are simply
ministerial. Now every person is poorly served who does not
know when he is well served. There are exceptions, but the
rule is as stated. No matter how faithfully disposed, in the
outset, the employés may be, they must feel that those who
give them their places are able to judge whether they are well
or poorly filled, or they will forget their obligations, to serve
themselves. In every relation of life, the intelligence of the
superior becomes that of the subordinate-becomes his principle
of action, securing his respect, and faithful service. Such are
the conditions of success in every enterprise requiring the co-
operation of a large number of persons, and numerous grades of
service. By the publication of the facts developed in the
construction and management of railroads, the intelligence
necessary to their proper management is gradually acquired by
their owners. It can be acquired in no other manner. This is
the reason why we have so steadily insisted upon the importance
of the publication of full reports by railroad companies. In
their publication is involved no less a problem than the success
of our roads; for self interest will always direct intelligence to
114
RAILWAY MORALS AND RAILWAY POLICY.
its proper ends; and when the two co-exist, integrity is the
product. It is of little avail to arouse the moral sentiment
against bad management, if no substitute for such exist in the
popular mind. The sentiment against bad management is strong
enough in England, but this has been unable to effect the
needed reforms. It is strong enough in this country, but it
will not alone save our roads from disaster. No one among us
wishes to see his own property, or that of his neighbour
destroyed. He submits to the loss only because he cannot see
any mode by which it can be avoided. So with our railroads.
The numerous successful roads show that they possess no inhe-
rent vice, which renders success impossible. Other roads are
unsuccessful because they have not an equally intelligent
management. The reports of a company, properly made, would
soon disclose the character of its management; and if bad,
would secure the needed reforms. The whole problem of success
is consequently narrowed to one proposition.
In our last article, we stated with sufficient distinctness the
information that reports should contain, and showed that the
best examples of management would soon become the standard
for every road in the country. We know no reason why any
concealment should be practised. If the directors have mis-
judged, their feelings are not to be considered. Those of the
stockholders should always exert a paramount influence. Yet
how few companies ever make a clean breast of their transactions;
of their entangling alliances, of the unlucky investments they
have made, or enormous shaves to which they have submitted.
These are withheld, either for the fear that the directors will be
called to account, or that the stock or securities of the unlucky
road may be affected. But if the directors of a company are
incompetent, ought not the fact to be known at the earliest in-
stant? If the value of a road be impaired, ought not the stock-
holders and the public to know it? Concealment only aggravates
the evil. The indiscriminate and excessive fluctuations of rail-
road securities of all kinds show how much in the dark are the
public, which has no firmier ground for conviction than conjec-
ture. Now there is no reason why this should be so. The
public mind would rest in a state of comparative repose, did it
see things as they are. Its fluctuations in such case would only
reflect a change in the actual value of the road.
While we must look to the development of a higher standard
POSTSCRIPT.
115
of education and intelligence as the means of securing in the
end competent management, there are certain rules, which
though resting upon sufficient reasons not necessary to be
developed at greater length, may be laid down as axioms in rail-
way economy.
Ist, No company should be allowed to exceed the scope, or depart from
the articles of copartnership originally entered into, without the unani-
mous consent of the stockholders.
When a person goes into a company upon a well-defined agreement as to
the objects in view, the majority have no right to violate that agreement,
If they desire to introduce new articles, it is only just that they release,
upon reasonable terms, the objecting party. Another advantage resulting:
from holding companies to thc original propositions, is the fact that com-
panics so held will in the outset take very good care to provide for all future
contingencies that may arisc.
2nd, No road should be commenced till detailed and properly vouched
estimates are prepared of its cost. Engincers should be made responsible
for the correctness of their estimates. In such case we should have fewer
cxamples of roads half completed, crushed for want of means.
3rd, Parties lending to railroad companies should do so only upon the
basis of a sufficient stock subscription, obtained from those living upon the
line of the road, or immcdiately interested in its proper construction or
management. The management of a road should always reside with such
parties as have the best opportunities to oversce it, and who must pay the
penalty for bad management in the loss of their own property.
4th, The managing directors should receive an adequate and stipulated
sum for their scrvices entirely devoted to the company, should be held
to the ordinary responsibility of agents, and should never be allowed to
derive any incidental advantage from the position they hold.
5th, A strict accountability, the publication of every important act of
every official, and semi-annual reports, which should be mirrors of the
internal organizations and operations of a company, should be rigorously
exacted.
'6th, We think, too, that the stockholders of every company should
possess a source of information independent of the directors. At each
annual meeting, the stockholders should choose, say, three of their number,
who, without having any voice in the management of the road, should
have access to the books of the company, to all the acts and agreements
of the directors, to all sources of information that may enable them to
form an opinion as to the policy of the directors, and the management of
the road, and report, if they see cause, to the stockholders, at the annual
mecting, as well as at other times. We would have this committee
appointed, so that the minority should be heard, which could be done by
allowing po stockholder to vote for more than one of the committee, and
by making such committee consist of the three persons having the highest
number of votes. As matters now go, a bare majority control
the entire interest in a road, allowing the minority no rights or voice in
the management. Now, while the majority must exert a paramount
authority, this is no evidence that they are competent to conduct a road
116
RAILWAY MORALS AND RAILWAY POLICY.
properly, or that the minority have no right, or are capable of rendering
no service or useful suggestion. The latter ought to have the right of
examination, and remonstrance, if nothing more. Suppose such a com-
mittee be appointed by the stockholders of the Hudson River, Erie, and
Central roads of this State. Assuming all these roads to be well managed,
it is more than probable that all suffer from defective management, or
oversiglit in many important particulars. There are always two sides to a
question, and when only one is presented partial views are the result. It
may be that the policy of the majority is radically wrong, and needs only
to be exposed to be corrected. Should companies neglect any step that
can shed light upon and supply intelligence to its manageinent?
We have in previous articles endeavoured to present the
nationale of the railway system of this country; to point ont
the more important dangers to which it is exposed, and the
means by which they are to be avoided. If we are correct in
our views, and have suggested useful means of reform, we hope
to have the support of those interested, in securing their adop-
tion. If we point out errors or abuses in their management, we
hope to be effectually seconded by those most interested the
holders of the stock and bonds in our roads.
The most important fact which the foregoing articles deve-
lop, is one which confirms, in a quite unexpected manner, one of
the writer's positions: namely, that the supposed need for an
encouragement of railway extension is an illusion--that branches
and feeders should be left to the ordinary laws of demand
and supply; and wonld be better laid out, and more economically
executed, if they were left until the accumulated interests to
be subserved by them, sufficed to bring together an adequate
capital. The fact that, in America, railways have been wholly left
to ordinary trading principles, without any legislative limita-
tion or control, (startling as it will be to most on this side the
Atlantic,) proves conclusively how groundless is the argument
offered in defence of our present system; namely, that it is
needful for the due facilitation of railway extension.
M'CORACODALF AND CO., PRINTEIS, LONDO:
WORKS, NEWTON.

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