;-ss' 
 
 
 
 HE. 
 
 2751 
 

RELATIONS 
 
 BETWEEN THE 
 
 Central Pacific Railroad Company 
 
 AND THE 
 
 United States Government. 
 
 SUMMARY OF FACTS 
 
 1889. 
 
 SAN FRANCISCO : 
 H. 8. Crocker & Co., Stationers and Printers. 
 
 1889. 
 
th^-^-T T 1 * 
 
 L_ (_^_>-A^^-Gy S^o^. 
 
 / 8 <T6 ~ 
 
 RELATIONS 
 
 BETWEEN THE 
 
 Central Pacific Railroad Company 
 
 AND THE 
 
 United States Government. 
 
 SUMMARY OF FACTS 
 
 1889, 
 
 SAN FRANCISCO : 
 H. S. Crocker & Co., Stationers and Printers. 
 

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LETTER OF THE HON. LELAND STANFORD. 
 
 Central Pacific Railroad Company, 
 office of the president. 
 
 San Francisco, Cal., September i, 1889. 
 Mr. G. L. Lansing, 
 
 Secretary and Controller, 
 
 Southern Pacific Company, 
 
 San Francisco, 
 
 Dear Sir: From the records to which you have had 
 access during your long connection with the Central 
 Pacific Railroad and its affiliated lines, and from the 
 public documents of the Government, will you please 
 prepare a summary of facts as to the relations between 
 this company and the United States, particularly on the 
 following points: 
 
 First As to the obligations of both parties under the 
 several Acts of Congress comprising the contract between 
 the Government and the company, and whether they have 
 all been observed. 
 
 Second As to the benefits to both the United States 
 and the company which were to follow on the completion 
 of the road, and how they have been realized. 
 
 The affairs, records and property of this company have 
 annually, since 1878, been examined by the United States 
 Commissioner of Railroads, assisted by his engineers and 
 accountants; and the Pacific Railway Commission, ap- 
 pointed under the Act of Congress approved March 3, 
 1887, have made an exhaustive examination into the 
 company's entire history and affairs. The reports of these 
 Government officers conclusively show that all of the legal 
 obligations to the Government, arising out of the loan of 
 bonds or otherwise, have been fully kept and discharged 
 
on the part of the company. The reports also show that 
 the legal obligations of the Government to the company 
 have not been fully complied with. 
 
 But beyond these obligations on either side, which 
 were named in the Contract Acts and in the laws relating 
 thereto, there were certain implied promises of benefits to 
 be received on either side, on which the terms of the con- 
 tract as to the loan of bonds, as well as the manner and 
 time of their payment, were based. The facts as to these 
 promises and the way they have been fulfilled must receive 
 full consideration in any fair plan . that may be proposed 
 looking to the settlement of the affairs between the com- 
 pany and the United States. A summary of these facts 
 taken from official sources will furnish desired information 
 in a convenient form for the purpose of considering any 
 such arrangement. 
 
 Yours very truly, 
 
 IvELAND STANFORD, 
 
 President. 
 
 San Francisco, October 15, 1889. 
 Hon. Iceland Stanford, 
 
 Pesidenl, Central Pacific Railroad Company, 
 
 San Francisco, 
 
 Sir : In conformity with the request contained in your 
 letter of September 1st, I beg to hand you herewith a 
 summary of facts compiled from official sources, as to the 
 relations between the Central Pacific Railroad Company 
 and the United States Government. 
 Very truly yours, 
 
 G. Iv. LANSING, 
 
 Secretary and Controller. 
 
CONTENTS. 
 
 I. The Legal Obligations and the Manner in which 
 
 THEY HAVE BEEN OBSERVED. 
 
 II. The Benefits Promised and how they have been 
 Realized. 
 
The Central Pacific Railroad Company 
 
 AND 
 
 The United Slates Government, 
 
 SUMMARY OF FACTS, 
 
 Showing all Obligations on the part of the Company 
 
 fulfilled, and all Benefits expected by the 
 
 Government realized. 
 
 I. 
 
 THE LEGAL OBLIGATIONS AND THE MANNER 
 IN WHICH THEY HAVE BEEN OBSERVED. 
 
 The relations between the Central Pacific Railroad Com- 
 pany and the Government are twofold. There are legal 
 obligations on either side, which are specified in the sev- 
 eral Acts of Congress; and there are equitable considera- 
 tions which are evident only on an examination of the 
 history and the causes which led to the passage of the 
 Acts. The legal obligations have recently been fully 
 examined into and reported on by the United States 
 Pacific Railway Commission, which was appointed by the 
 President, pursuant to the Act of Congress approved March 
 3, 1887. Their report and the testimony on which it is 
 based comprise nine printed volumes octavo, which, by its 
 size, precludes its ready use. A summary of this report 
 as to the Central Pacific will furnish in brief form a view 
 
IO 
 
 of the facts as to the legal obligations of the company 
 and the United States under the several Acts of Congress, 
 and will show that they have been kept fully and in good 
 faith by the company, but that they have not been com- 
 plied with in all respects by the United States. 
 
 Company 
 grants every 
 facility for 
 investigation. 
 
 REPORT OF THE INVESTIGATING COMMISSION. 
 
 The Commissioners were appointed to make an inves- 
 tigation of the books, accounts and methods of the Pacific 
 railroads which have received aid from the Government 
 in bonds, with a view of reporting to Congress a plan 
 which should effect a final settlement between the com- 
 panies and the United States. They secured the assistance 
 of a large force of accountants and a staff of engineers. 
 Their labors commenced immediately upon their appoint- 
 ment, April 15, 1887, and concluded only on the trans- 
 mission of their report to the President on December 1st. 
 On January 17, 1888, the President transmitted the report 
 to Congress, together with the accompanying reports of 
 the accountants, engineers, and the testimony. The com- 
 mission conducted its principal examinations relative to 
 the Central Pacific Railroad Co. in New York and San 
 Francisco; "but it also examined witnesses at a vast 
 11 number of local points for the purpose of ascertaining 
 " the relations existing between the different railroads 
 " and the local communities, and of giving full and abun- 
 11 dant opportunity to all persons who had business relations 
 ' l with these roads to state their views and make known 
 { ' their complaints, if any ' ' (report, page 4). 
 
 The accountants of the commission established them- 
 selves in the general offices of the company in June, and 
 did not conclude their labors there until October. The 
 Chief Accountant of the commission, Mr. Richard F. 
 
II 
 
 Stevens, personally directed the examination of this com- 
 pany's affairs. His staff consisted of seven expert account- 
 ants. In his report to the commission (vol. 8, p. 4525), 
 Mr. Stevens says: " On my arrival in San Francisco I 
 1 ' presented my credentials to Senator Stanford, the Presi- 
 ' ' dent of the company. He informed me that the com- 
 ' ' pany was only too anxious to have a full examination of 
 M the affairs of their offices, and referred me to the Sec- 
 " retary of the company, and requested him to give me 
 11 every facility in his power. It gives me pleasure to 
 " state that such request was heartily, thoroughly and 
 u fully complied with by the Secretary, who afforded me 
 u every facility to examine all the books and vouchers 
 " that were under his control." 
 
 The Engineer of the commission, with his assistants, 
 made a thorough and detailed examination of all the com- 
 pany's lines and the property connected therewith. For 
 this purpose every facility was afforded him by the com- 
 pany, its officers and employes. The commission itself 
 spent a month in San Francisco, and much time in New 
 York and other places, examining officers and employes 
 of the company. During their sessions in San Francisco, 
 the resources of the general offices were placed at their 
 disposal. Books, records and vouchers were produced as 
 called for and the officers of the company allowed no 
 other matters to interfere with the business or require- 
 ments of the commission. 
 
 The Act of Investigation was subdivided by the f^gJVJJ^ 
 commission into fifty-eight headings or subjects for in- fiedb y Act - 
 vestigation and report. Of these, twenty-three consist 
 substantially of charges or allegations that the railroads 
 had violated their obligations or failed in their duty to the 
 Government. Nineteen relate to the value of the prop- 
 erty, the holdings of stock, salaries paid officers, payments 
 
12 
 
 to influence legislation, and other miscellaneous subjects 
 tending to furnish general information concerning the 
 companies, or inserted for political effect, but containing 
 no charge either that the Government or the companies 
 had failed in any undertaking towards each other. Six are 
 devoted to instructions to the commission ; and the remain- 
 ing ten consist substantially of allegations that the Gov- 
 ernment has failed to act towards the companies with 
 fairness, or that the latter have experienced unusual diffi- 
 culties and that the former has realized unusual benefits, 
 all of which deserve consideration in any equitable plan 
 of settlement which Congress may propose. 
 
 As to the first and last of these groups, the charges 
 against the companies and equities in their favor, the 
 following review of the report shows : First, as to the 
 implied assertions contained in the twenty-three subdivis- 
 ions of the Act, that this company has not kept and per- 
 formed its obligations to the Government, not one is true ; 
 Gov^nSent 01 Second, as to the implied assertions contained in the ten 
 subdivisions of the Act, that the company had overcome 
 at great cost unlooked-for and extraordinary difficulties, 
 to the great advantage and profit of the Government, and 
 that the latter had failed to keep its obligations and act 
 with fairness towards the company, all are true. 
 
 Company's 
 obligations all 
 kept. 
 
 not kept. 
 
 REVIEW OF CHARGES AGAINST THE COMPANY. 
 
 By the terms of the contract, as stated in the Acts of 
 1862 and 1864, this company was required to pay annually 
 to the United States, on account of the bonds and interest 
 thereon, five per cent of the net earnings of the aided road. 
 By the terms of the Thunnan Act (May 7, 1878), this 
 annual requirement was changed to twenty-five per cent 
 of the net earnings. These requirements have been full}' 
 
*3 
 
 and promptly paid by this company to the United States 
 as the amounts were ascertained to be due by the Govern- 
 ment officers appointed for that purpose. Nevertheless, 
 insinuations and charges have been frequent at different 
 times from irresponsible sources, that these requirements 
 have not been kept by the company, or that the net 
 earnings have been continually stated at less than they 
 actually were, thus defrauding the Government of twenty- 
 five per cent of the amounts so understated. Eight sub- 
 divisions of the Act of Investigation relate to this subject. 
 They practically allege that the company has violated its 
 obligations as to these payments by all of the following 
 practices: That the books and accounts have not been 
 so kept as to show the net earnings of the aided line 
 separately from the non-aided lines. That earnings have 
 been diverted from aided lines to less productive branches 
 through constructive mileage allowances, or average mile- 
 age allowances, which practices have resulted unfairly to 
 the interests of the United States. That earnings of the 
 aided road have been unlawfully reduced by discrimina- 
 tions in favor of unaided lines, by diversion of traffic which 
 could have been done by the aided line, by way of rebates, 
 overcharges, pooling arrangements, etc. And, finally, that 
 there is money due the United States from the company 
 account of mistaken or erroneous accounts, reports and 
 settlements. In answer to these charges, the commission 
 have found the facts to be as follows: 
 
 "The books of the company are so kept as to show the c ^. ai ^ s b 
 " net earnings of the aided portion. As a matter of fact, commission. 
 u the Commissioner of Railroads has stated and settled 
 ' ' these earnings for many years past, and has had no diffi- 
 u culty in ascertaining their amount. 
 
 ' ' There has never been a diversion of earnings of aided 
 u roads to less productive branches through constructive 
 
x 4 
 
 M mileage allowances or average mileage allowances 
 u between aided and non-aided roads, or parts of roads. 
 * 4 No evidence has been presented to the commission of 
 11 any discrimination of rates in favor of unaided as against 
 1 ( aided roads. 
 Diversions of " The evidence discloses that traffic has been diverted 
 
 traffic for pub- 
 lic advantage. "i n a great variety of instances from the Union Pacific 
 
 44 and Central Pacific Railroads to other lines. As illus- 
 
 * 4 trations of such diversions, the commission refer to the 
 
 1 ' following : The Southern Pacific, the California Pacific 
 
 1 ' and the Oregon Short L,ine. It would have been pos- 
 
 44 sible to have carried the traffic which was forwarded 
 
 1 ' over the roads named by the Union Pacific and Central 
 
 44 Pacific route. In the judgment of the commission, the 
 
 44 controlling motive which has led to this alteration in 
 
 44 the transit of freight has been the question of con- 
 
 44 venience and public advantage. It has not arisen from 
 
 44 the intention to reduce the net earnings applicable to 
 
 1 ' the percentage due to the United States. In the report 
 
 44 of the Postmaster-General, it is stated that this same 
 
 44 diversion is practiced by his department, and that he 
 
 44 selects the best and quickest routes, because he thereby 
 
 44 promotes public convenience. * * * It appears to 
 
 4 ' us that this question of the diversion of traffic must be 
 
 44 regulated by the interests and demands of the people 
 
 44 who use the railroads. Trade will always find the easiest 
 
 44 and most natural channel." 
 
 rebate e s n ^o f o[s ^ s to reDates ) overcharges, pooling arrangements, etc., 
 they state: u An overcharge occurs when a frieght bill 
 14 is erroneously stated at a larger amount than proper 
 44 by reason of overweight, overmeasurement or mistake 
 44 in the rate charged. The practice is to refund to 
 the parties against whom a mistake has been made 
 the amount of the overcharge on a proper voucher. A 
 
 etc. 
 
 u 
 
1 5 
 
 ' rebate is an agreed reduction from the ordinary open 
 ( rate. It is adjusted in the same way. All overcharges, 
 4 rebates and pool balances which form part of the many 
 4 millions of dollars which have been paid by the bond- 
 1 aided roads in the adjustment of these matters have been 
 1 actually and in fact paid out by these companies. No 
 ' evidence was produced before the commission of any 
 ' pretended or fraudulent vouchers relating to the matter. 
 ' As far, then, as the system of bookkeeping is concerned, 
 ' it is not open to criticism. The payment of these sums 
 ' did not tend in any way to reduce or diminish the real 
 4 earnings of the companies. 
 
 "There are no amounts due the United States because 
 4 of mistaken or erroneous accounts. 
 "By the Act of 1864, all of the bond-aided companies united states 
 
 requirements 
 
 were required to apply five per cent of their net earn- fuiiy satisfied. 
 4 ings to the payment of the interest accrued on their 
 4 debts to the United States. By the Act of May 7, 1878, 
 4 this requirement was increased as to the Union and Cen- 
 4 tral Pacific Companies to twenty-five per cent of the 
 1 net earnings. In the opinion of the commission, these 
 1 requirements have been fully satisfied." 
 
 Mr. Stevens, the Chief Accountant of the commission, 
 after his examination of the company's accounts, con- 
 cludes to the same effect, as follows : " The company have 
 "up to the present time complied with all the require- 
 " ments of the laws prescribing payments to the United 
 " States; and all demands of the Government have been 
 4 ' promptly met. ' ' 
 
 As to the proceeds from lands, the commission find Proceeds from 
 that "no lands granted to the companies have been 
 " diverted from their lawful use." 
 
i6 
 
 Iand patents. 
 
 l,oss to 
 company by 
 delays of U. S. 
 in issuing 
 patents. 
 
 Iii answer to the charge that the railroads had delayed 
 in taking out patents for lands, the commission state: 
 " It appears from the evidence that frequently the bond- 
 " aided companies did delay taking out their patents, 
 M with the object and for the purpose of avoiding the 
 M taxation to which they would be subjected after the 
 u perfection of their patents." In this statement, as in 
 certain other cases, the* commission group all of these 
 companies together; and a complaint which is found 
 against one is charged equally to all. It is in this way 
 that many charges made against other of the roads are 
 popularly thought to apply to the Central Pacific; and the 
 commission has not altogether escaped the common con- 
 fusion. The testimony furnished the commission on this 
 subject by the Central Pacific shows that it has never 
 been derelict in applying for patents, and that the 
 failure of the United States land-office to furnish patents 
 as fast as applied for has caused the company great loss 
 in the sales of lands and in the business which would 
 have arisen on their occupancy. The delinquency of the 
 Government in making surveys and furnishing patents 
 has increased from year to year, till, on June 30, 1887, 
 this company had applications on file for 622,612.54 acres 
 which the United States land-office had failed to act upon. 
 The hopeless condition into which the United States gen- 
 eral land-office has fallen in furnishing patents was shown 
 by the official reports to be such that, "if no further lists 
 " of selections are presented to the department, and the 
 u average amount of business can be transacted in the 
 " railroad division in the future as in the past, it will 
 " require thirty- two years to complete the examination of 
 u the land already selected by lists of selections now 
 " before the department for examination" (testimony of 
 President Stanford). The company has estimated its loss 
 
*7 
 
 from the delays of the Government in issuing patents at 
 $500,000. 
 
 In the inquiry regarding loans by the company, and the Loans made 
 names of the lenders and borrowers, reference was doubtless 
 made to the irresponsible statement some time in circula- 
 tion, that the directors were in the habit of borrowing from 
 the company, to the injury of the latter. The report of 
 the accountant of the commission shows that the company 
 was nearly always a borrower from its principal directors. 
 In speaking of the construction of the road, the commission 
 make the following statement on this subject of loans : 
 ' It is doubtless true that after July 7, 1864, and during 
 ' the entire period ensuing, to the completion of the road, 
 ' these gentlemen (Stanford, Huntington, Hopkins and 
 1 Crocker) used their personal credit in order to assist in 
 4 the consummation of the great enterprise. It is also 
 1 true that the construction itself was conducted under 
 ' circumstances of extraordinary difficulty. The engi- 
 ' neering feat of successfully attacking and scaling the 
 ' Sierra Nevada mountains is scarcely surpassed by any 
 ' railroad construction in the world. The difficulties 
 ' encountered by reason of the snow and violent winter 
 ' storms, the vast excavations and fills required, the 
 ' expensive sheds needed for the protection of the road, are 
 ( vividly portrayed in the evidence of witnesses. ' ' 
 
 Regarding the investments in other companies and investments in 
 
 . . r branch lines. 
 
 branch lines, it appears that these investments were made 
 by means of consolidation and also by lease. The consoli- 
 dated lines are not subject to the United States lien, but 
 have greatly increased the earning power of the company, 
 and as feeders have furnished much additional traffic to the 
 aided line. The commission, following the popular cry, 
 
i8 
 
 comment on the leased lines in an injured tone, but with- 
 out showing any injury. After considering the whole 
 subject from this attitude of adverse criticism, they are 
 compelled to the conclusion that, "the actual operation of 
 u the leases has, however, on the whole, been a source of 
 "profit to the Central Pacific Railroad Company." 
 
 Discrimina- 
 tions, etc. 
 
 Pools. 
 
 As to the charges against this company of discrimina- 
 tions, pools and other devices, the commission conclude : 
 ' We are informed that the minority Commissioner has 
 ' reported, as proved, an interminable succession of alleged 
 
 discriminations, preferences and advantages granted for 
 1 corrupt or improper purposes, and violations of duty of a 
 ' similar character. We must respectfully protest against 
 ' such conclusion, because it is based on no evidence 
 ' worthy the name. It is a judgment rendered against the 
 ' party inculpated without a sufficient hearing. When- 
 ' ever the practice prevails, it has been found impossible 
 ' for any railroad company in the country to maintain 
 ' itself except by participation in the practice. 
 
 u Pools are not in their essence either good or bad. 
 ' When resorted to for the purpose of attempting a. 
 ' monopoly and the imposition of burdensome rates, they 
 ; should be severely condemned. When resorted to for 
 ' the purpose of preventing ruinous competition, they may 
 ' serve a good purpose. Fierce competition begets the 
 4 worst form of rebates and secret allowances. Its result. 
 ' is often the destruction of the weak carriers and the 
 1 integration of their more powerful rivals, which, after 
 1 destroying their weaker competitors, establish and main- 
 1 tain rates that are destructive to trade. Pooling agree- 
 
 * ments, with proper provisions for publicity as to the 
 1 terms of the contract between the constituent members, 
 1 and as to the rates to be charged, if subjected to suitable 
 
*9 
 
 " supervision and control, are beneficial both to railroads 
 14 and to the communities which deal with them. Their 
 4 existence in one form or another is almost universal in 
 " Europe. But the subject seems to have no bearing on 
 14 the matter referred to the commission." 
 
 The commission devote much space to complaints capital stock 
 
 * t * and dividends. 
 
 against the company for the issue of stock in part pay- 
 ment to the contractors for construction of the road, 
 instead of requiring full payment in cash for all stock 
 issued. They also complain that the company has paid 
 dividends, though repeatedly stating that "no dividends 
 have been unlawfully declared," and seem to exceed 
 somewhat their duties, as defined by the Act under which 
 they were appointed, in gratuitously furnishing their views 
 on the policy of paying dividends which were lawfully paid. 
 
 In their strictures on the issue of capital stock and the commission 
 
 -,..,.., .. r ^1 confuse the 
 
 pavment of dividends, the commission again confuse the central Pacific 
 
 r J with other 
 
 Central Pacific as to its legal obligations with the other g^ ds 
 Pacific railroads where distinction is most necessary to a 
 correct understanding of the facts. They also ignore the 
 fact that the capital stock is now largely held by third 
 parties, who purchased practically upon the guaranty of 
 the Government that all earnings in excess of the Thur- 
 man Act requirements would be available for dividends. 
 Though their statements on this subject amount to a mis- 
 representation, yet we cannot believe that such was their 
 intention. The conclusions of the commission rather 
 resulted from their attitude towards the company, the 
 impossibility of sufficiently digesting the immense mass of 
 evidence before them in the time at their disposal, and, in 
 the same limited time, to correctly trace the effects on each 
 of the several companies of the various laws which have 
 been passed concerning them. As the vital criticism of 
 
20 
 
 Central Pacific 
 organized 
 under laws of 
 California and 
 United States. 
 
 Ivimit of 
 United States 
 lien, 
 
 this company made by the commission is on this point, 
 and as the errors in their conclusions follow from their 
 misapprehension as to the facts, it is proper here to correct 
 the errors which they have published. 
 
 The commission state that: u By the second section of 
 "the Act of July 2, 1864, the Union Pacific Railroad 
 " Company was required to make assessments upon its 
 1 ' stockholders of not less than five dollars per share, and 
 1 ' at intervals not exceeding six months from and after the 
 1 ' passage of the Act until the par value of all the shares 
 M subscribed should be fully paid. Money only was to be 
 il received for any such assessment, or as equivalent for 
 " any portion of the capital stock authorized. The com- 
 u mission report that this obligation has not been kept by 
 " any of the bond-aided railroad companies." 
 
 The commission seem ignorant of the fact that this 
 section of the Act does not apply to the Central Pacific 
 Railroad Company. This company was incorporated 
 under the general railroad laws of California of 1861; and 
 its duties regarding the issue of capital stock are as therein 
 only provided. The provisions of these laws have been 
 strictly followed by the company in its issue of stock. 
 Indeed the issue of this stock, instead of being in violation 
 of the laws under which the company was organized, was 
 made necessary by them. This condition of affairs arises 
 from the fact that the company, while organized and 
 incorporated under the laws of the State of California, 
 received also certain rights, and subjected itself to certain 
 conditions under the laws of the United States. In accept- 
 ing the terms of the Acts of Congress, it could not ignore 
 the requirements of the State laws. 
 
 So far as the issue of stock or bonds of this company 
 and the dividends paid out by it affect the lien of the 
 United States in any way, the facts are as follows: 
 
21 
 
 The commission show, by quoting the decision of the 
 Supreme Court in United States vs. The Kansas Pacific 
 Ry. Co. (99 U. S., 455), "that the lien of the United 
 " States is limited to that portion of the railroad in con- 
 " sideration of which the bonds were issued; that is to 
 u say, it applies only to the road between Ogden and San 
 u Jose, and has no application to any of the branches or 
 11 leased lines." 
 
 The bonds issued by the United States to the Central 
 and Western Pacific railroads amount to $27,855,680. 
 This aniozmt was provided fo7' by the Act of July 1, 1862 
 (sees. 5 and 11). By section ten of the Act of July 1, 1864, 
 the company was authorized to issue its first mortgage 
 bonds for an equal amount, l ' and of even tenor and date, 
 time of maturity, rate and character of interest." And 
 the lien of the United States was made subordinate to 
 such bonds of the company. By authority of this Act, the 
 company issued its first mortgage bonds on the aided road 
 to the amount of $27,853,000. On December 1, 1862, 
 the company issued $1,483,000 in convertible bonds under 
 the laws of California; and on July 1, 1864, it issued 
 $1,500,000 California State Aid bonds under authority of 
 a special Act of the State legislature. These last two 
 issues have since been redeemed from the operation of 
 the sinking fund established for that purpose. They do 
 not, therefore, affect the lien of the Government. The 
 laws of California regarding the issue of bonds by rail- 
 roads provide that they shall not exceed in all the amount 
 of their capital stock (General R. R. Law of 1861, sec. 
 15). The testimony presented to the commission in San 
 Francisco conclusively showed that this stock could not 
 have been sold. No one was willing to purchase it, 
 though every effort was made by the company to secure 
 subscriptions. Had it depended on cash payments for 
 
22 
 
 stock, therefore, the road would not have been built. 
 To carry on the work, it was necessary for the company to 
 issue the bonds authorized by the laws of the United 
 States and of California. But to issue these, capital stock 
 for an equal amount must be issued to comply with the 
 State law. This was accomplished by issuing it in part 
 payment for the work done. The stock at that time had 
 little or no value. It could not be sold for any price, 
 stock issued as The issue of this stock, therefore, was not in violation 
 
 required by 7 J 
 
 law - of the United States law, which did not apply to this com- 
 
 pany ; while it was required, under the laws of California, 
 to enable the company to legally issue its bonds authorized 
 by the Act of Congress. 
 
 The burden of the complaint of the commission is that the 
 contractors for the construction of the road were directors of 
 the company, and were practically its only stockholders at 
 the time of such issue of stock in payment for construc- 
 tion. But, under such circumstances, they fail to show 
 what difference it can make whether the stock is repre- 
 sented by 5,000 shares or 500,000 shares. The value of 
 the property is not changed by the increase of its nominal 
 capital. The earning power of the road is not affected ; 
 nor is the amount available for dividends more or less than 
 before. The obligations as to the Government are the 
 same in either case; and the lien of the United States is 
 exactly as the Contract Acts provide. None of the stock 
 could have any value until all prior obligations had been 
 provided for. The surplus after such provision would 
 belong to the stockholders of the company, whether the 
 capital stock were more or less. Should the stock thus 
 come to have a value, and should there be a surplus over 
 all requirements available for dividends, it would properly 
 belong to the holders of the stock, those who organized 
 the enterprise, who devoted their means, credit and lives 
 
23 
 
 to the undertaking, and who carried it to a successful 
 completion. 
 
 Dividends were first paid in 1873, and continued each JSglg'SSf* 
 year till 1877, when it was found that the United States S&fit^^ 
 requirements under the Contract Acts were not sufficient Con&ress - 
 to meet the accruing obligations on the United States 
 bonds, which were, however, payable only at their 
 maturity. Dividends were then discontinued till the 
 deficit was supposed to be finally provided for by the 
 Thurman Act. By section eight of this Act the company 
 was excused from discharging, out of other finds than 
 that provided by the Act, their debt to the United States. 
 And by section six of the Act the company was allowed to 
 pay dividends from any surplus there ?night be after pro- 
 viding for the requirements of the Act. Accordingly, in 
 1880, dividends were resumed and continued till 1884. 
 
 For the above periods, during which dividends were paid, 
 the commission state : M Tested by the simple question of 
 earnings, it is true that all of the above-named dividends 
 appear by the income account of the company to have 
 been earned. * * * While finding that none of the 
 dividends have been paid in violation of any statutory 
 provision, we do not wish to be misunderstood as approv- 
 ing the policy of distributing the assets of these respective 
 companies in this manner." 
 
 GOVERNMENT RESPONSIBLE FOR CONDITION OF DEBT. 
 
 The reason for not approving the policy of paying divi- 
 dends legally earned is stated by the commission to be, 
 that the payments to the United States required by the 
 Acts of Congress are not sufficient to meet the accruing 
 indebtedness; so that, at the maturity of the bonds, there 
 
 id 
 
24 
 
 will be a large balance due for which no provision has 
 been made. This state of affairs is not, however, charge- 
 able to the company, but is the direct result of the man- 
 agement of the matter by the United States. The com- 
 pany offered to provide for this debt when it was in a 
 position financially to do so. But the Government took 
 the control from the company's hands. In assuming the 
 control, it could not escape the responsibility ; and its 
 excusing the company from making other payments than 
 it then forcibly prescribed, is evidence that the Govern- 
 ment did not intend to shrink from the obligation it thus 
 assumed. 
 untSdstates ** * s important that the reasons why this debt has not 
 proiidedfor ng been provided for should be stated, that the responsibility 
 may rest where it belongs. The original Acts of 1862 
 and 1864 provided that the debt and interest should be 
 paid within thirty years from the dates of the bonds ; and 
 until the debt should be paid the company should annually 
 pay thereon five per cent of the net earnings of the aided 
 road and one-half the charges for transportation of United 
 States mails, troops, munitions of war, etc. It was shown 
 by official reports, during the debates on the bill, that the 
 Government was paying over $7,000,000 a year for trans- 
 portation on the plains; and it was believed that these 
 requirements would finally provide for the debt. 
 
 The road was completed in 1869, in seven years less 
 time than was allowed by the contract. In 1877 it became 
 fully apparent, on account of reduced rates charged for 
 United States mails, troops, etc., and the ending of the 
 Indian wars, by which the Government saved many times 
 the amount of the debt, that the annual requirements pro- 
 vided by the contract would not be sufficient to meet the 
 debt at its maturity. The subject then received the 
 attention of the company and of the Government. The 
 
25 
 
 matter was at different times before both houses of Congress 
 and it became more and more evident that harmonious 
 action could not be had between the United States and 
 the company. 
 
 Thereupon the company, on January jo, i8j8, approved company's 
 a plan, and ratified it by the formal adoption and publica- for debt - 
 Hon of proper resolutions, which would positively provide 
 for the payment of the debt and interest at maturity. This 
 plan contemplated a sinking fund in the treasury of the 
 company, into which semi-annual payments were to be 
 made, which, with their income from investments, would 
 be sufficient "to overtake and cancel said remainder of 
 ' ' indebtedness by the date of maturity, if invested in a 
 " sinking fund with an interest accumulation of four per 
 " centum semi-annually ; * * * and that if, by reason 
 u of a lower rate of interest prevailing on first-class invest- 
 u ments within this State, or if, from any other cause, it 
 u shall appear to the Finance Committee that said sinking 
 " fund is unable to earn and accumulate at the aforesaid rate 
 " of eight per cent per annum, then and in that case they 
 "shall cause a proportionately larger sum to be applied 
 "semi-annually to said fund, so as to make up any defi- 
 " ciency. And all said sums shall be appropriated from 
 " the common treasury of the company, out of any moneys 
 "remaining after the payment of operating and adminis- 
 " trative expenses, the interest upon its debt, and the 
 "installments to the several sinking funds provided 
 " therefor, and before any moneys shall be paid out as 
 "dividends upon the capital stock" (extract from pub- 
 lished resolutions). 
 
 This plan was proposed by the company at a time when 
 it could have been carried out. It was the most successful 
 period in its history. Had the Government allowed the 
 matter to remain in the management of the company, it 
 
26 
 
 Dividends 
 practically 
 promised by 
 Congress. 
 
 would have pledged by this plan not only the earnings of 
 the aided line, but its entire net profits before the pay- 
 ment of any dividends, whether earned on aided, non- 
 aided or leased lines. 
 
 The company was, however, relieved from making this 
 final provision for the debt. The Government assumed 
 the control and responsibility of the matter by the adoption 
 of the Thurman Act ; section eight of zvhich excuses the 
 Central Pacific Railroad Company from the duty of dis- 
 charging, out of other funds than that provided by the 
 Act, its debt to the United States. 
 
 The company thereupon, on August 21, 1878, rescinded 
 the resolutions which had provided for the establishment 
 of a sinking fund in its own treasury. 
 
 After the Thurman Act had gone into effect, payments 
 thereunder were fully made ; and a sufficient surplus 
 remained available for dividends, which were then resumed, 
 and regularly paid until 1884. The commission show, as 
 above stated, that all the requirements of the company 
 under the Thurman Act have been fully and promptly 
 complied with, and that no dividends have been declared 
 except from the surplus profits of the company, and after 
 the annual payments under the Act had been made. It 
 was not only contemplated by this Act that any such sur- 
 plus as there might be should be used in the payment of 
 dividends ; but handsome dividends were predicted by both 
 the Senate and House Committees in their reports on the 
 bill. 
 
 By section six of the Thurman Act, the payment of divi- 
 dends is specifically allowed after the payments under the 
 Act are provided for. 
 
 The House Committee, in their report to Congress on the 
 subject of a sinking fund, states that the companies "are 
 " making large profits, and are abundantly able to indem- 
 
2 7 
 
 11 nify the Government against future loss, and pay hand- 
 " some dividends besides on the par value of the stock. 
 u* * * with the Central Pacific Company, the net 
 1 ' earnings are nearly fifteen per cent on the nomi- 
 " nal capital stock" (44th Cong., 1st Session, Rep. 
 No. 440, p. 14). 
 
 The Judiciary Committee of the Senate, in submitting 
 the Thurman Bill, stated that this company would be 
 able to make payments under the Bill of $1,900,000 per 
 annum, u and have a surplus sufficient for handsome divi- 
 " dends to its shareholders." They continue, " that after 
 " paying the requirements of the Acts of 1862 and 1864 
 u and all other charges, the annual amount that will be 
 " divided among the shareholders, should no sinking fund 
 " be created, will be nine per cent on the nominal value 
 " of the stock, $4,883,795. If the bill we report become 
 " a law, this amount would be diminished by the amount 
 " required to be paid into the sinking fund, say $1,400,000, 
 "leaving $3,483,795 after the payment of all expenses 
 " and interest, and the payments into the sinking fund, 
 4 ' to be divided among the shareholders, being 6.4 per cent 
 4 'on the nominal value of their stock" (45th Cong., 
 2d Ses., Rep. in, p. 9). 
 
 The Supreme Court also, in the sinking-fund cases, 
 dwells upon the protection to the stockholders by the 
 Thurman Act, and implies the promise that, after the terms 
 of the sinking-fund Act are complied with, no further 
 obstacle will be in the way of continued dividends so far 
 as the debt to the Government is concerned. In the case 
 of U. P. R. R. vs. U. S., the Court in October, 1878, said : 
 u The company has been in the receipt of large earnings 
 1 l since the completion of its road ; and, after paying the 
 u interest on its own bonds at maturity, has been dividing 
 
28 
 
 11 the remainder, or a considerable portion of it, from time 
 " to time, among its shareholders, without laying by any- 
 " thing to meet the enormous debt which, considering the 
 " amount, is soon to become due. It is easy to see that in 
 4 ' this way the stockholders of the present time are receiv- 
 ing, in the shape of dividends, that which those of the 
 " future may be compelled to lose. It is hardly to be pre- 
 " sumed that this great weight of pecuniary obligation can 
 u be removed without interfering with dividends hereafter, 
 M unless at once some preparation is made by sinking fund 
 " or otherwise to prevent it." 
 
 The needed sinking fund which would provide for the 
 
 debt and so not interfere with dividends thereafter was 
 
 established by the Act which the court was at the time 
 
 considering. The Act was not alone for the benefit of the 
 
 Government. It was for the benefit of the corporation 
 
 itself, and for the holders of its stock and bonds. "The 
 
 Act," the court continues, "establishes a sinking fund for 
 
 ' the payment of its debts when they mature, but does not 
 
 1 pay the debts. * * This is no more for the benefit of 
 
 the creditors than it is for the corporation itself. It tends 
 
 1 to give permanency to the value of the stock and bonds, 
 
 : and is in the direct interest of a faithful administration 
 
 1 of affairs. It simply compels the managers for the time 
 
 ( being to do what they ought to do voluntarily. The 
 
 ' fund to be created is not so much for the security of the 
 
 1 creditors as the ultimate protection of the public and 
 
 ( the corporators. * * * It takes nothing from the 
 
 : corporation or the stockholders which actually belongs 
 
 ' to them. It oppresses no one and inflicts no wrong. It 
 
 ' simply gives further assurance of the continued solvency 
 
 1 and prosperity of a corporation in which the public are 
 
 ' so largely interested, and adds another guaranty to the 
 
 1 permanent and lasting value of its vast amount of securi- 
 
29 
 
 " ties. * * * The right of the stockholders to a 
 " division of the earnings of a corporation is a privilege 
 11 derived from the charter. When the charter and the 
 ' ' amendments first became laws, and the work on the 
 u road was undertaken, it was by no means sure that the 
 u enterprise would prove a financial success. No statu- 
 * ' tory restraint was then put upon the power of declaring 
 u dividends. It was not certain that the stock would 
 ' ' ever find a place on the list of marketable securities, or 
 " that there would be any bonds subsequent in lien to 
 1 ' that of the United States which could need legislative 
 M or other protection." 
 That the sinking: fund in the United States Treasury The failure of 
 
 & J theThurtnan 
 
 has not amounted to as much as Congress predicted is a . ct no fault of 
 
 <-> tne company. 
 
 misfortune to the company. Had the net earnings and 
 the United States transportation charges been as great as 
 predicted, the debt would have by that means been pro- 
 vided for. That they have not been as much is, however, 
 no fault of the company, and does not change the terms of 
 the annual requirements. The responsibility for the oper- 
 ation of the sinking fund was assumed by the Government 
 upon taking the matter out of the company's hands. The 
 excuse of the company from making other provisions for 
 the debt stands, whether the fund has realized its expec- 
 tations or not. After paying the amounts required by the 
 Act, the surplus, if any, is still available for dividends to 
 stockholders according to the promises contained in the 
 Act, and in the decisions of the Supreme Court. And 
 the predictions made by the Congressional Committees 
 justified the stockholders in believing that such surplus 
 would continue to allow large dividends. 
 
 Stock pur- 
 
 The protection given stockholders by this Act, together chased by 
 with the reports of the committees, the decisions of the JhipStectiS 
 courts in connection with it, and the implied promises congress? 
 
3 
 
 of continued dividends thus made by the Government, 
 created a public confidence in the value of the stock, and 
 led many with small means to purchase it as a permanent 
 investment. It had, in their opinion, practically the 
 guaranty of the Government. The cloud of the United 
 States lien had been removed by the Government's prom- 
 ise that it would be provided for by the payments into 
 the sinking fund. As soon as it was demonstrated that 
 these payments could be made and still leave a surplus 
 available for dividends, the stock found ready purchasers; 
 and it has since that time been divided into small 
 holdings. The commission state that: "But little stock 
 " was sold by Stanford, Huntington, Hopkins and Crocker 
 u until 1880. Between 1873 and 1877, they were sub- 
 " stantially the only stockholders of the Central Pacific 
 M Railroad." 
 
 The present large number of small holders have pur- 
 chased under the implied promises of the Government for 
 the final settlement of the debt by the operation of this Act. 
 The predictions of large dividends have failed. For this 
 there is now no remedy. But the assurances that no more 
 would be required from the income than twenty-five per 
 cent of the net earnings of the aided line have the same 
 force as when they were made. That the net earnings 
 have not been as much as predicted is to a large extent 
 owing to the competition of parallel lines, which were also 
 aided in their construction by the United States; and the 
 fact that the sinking-fund has not increased by compound 
 interest, as was expected, is owing to its management by 
 the Government, 
 contract Acts The Thurman Sinking Fund Act was an amendment to 
 
 amended by 
 
 Thurman Act. the Contract Acts of 1862 and 1864 (see sec. 13). The 
 original Acts required the payment of one-half charges on 
 United States transportation, and at least five per cent of 
 
3i 
 
 the net earnings. The amended Act requires the payment 
 of the whole of the charges on United States transporta- 
 tion, five per cent of the net earnings, and such an 
 additional sum as shall make in all twenty-five per cent of 
 the net earnings. It excuses the company from making 
 other payments than these, and after such payments are 
 made allows any surplus there may be for the payment of 
 dividends. 
 
 The essence of this change in the agreement is not the 
 amount that is to be paid, but that it shall be all the 
 charges on United States transportation, and in addi- 
 tion thereto a sum sufficient to make twenty-five per cent 
 of the net earnings. In the event of a foreign war, the 
 transportation of troops might in a year amount to enough 
 to cancel the debt, as the charges would all be withheld 
 by the United States. That they have not been so great 
 as anticipated is a cause of congratulation on the part of 
 the Government; for it would have lost many times more 
 by the necessity for the transportation than it would profit 
 by the full payment of the bonds and interest. 
 
 The popular charges made against this company which conclusion as. 
 are echoed in the Act of Investigation are thus found to against 
 
 company. 
 
 be without foundation. This conclusion the commission 
 were compelled to report regarding all of the allegations 
 excepting those relating to land patents and the issue of 
 capital stock; and their exceptions in these cases arose from 
 confusing the laws affecting the several Pacific railroads, 
 and erroneously judging this company by certain obliga- 
 tions and acts chargeable only to others. 
 
 These facts fully establish this company's claim that it 
 has kept and performed in good faith every obligation 
 towards the United States; that in its dealings with the 
 Government it has never neglected any duty; and that 
 
32 
 
 lack of sufficient provision for the debt is from no fault of 
 the company, but from the acts of the government. 
 
 Completion of 
 road seven 
 years before 
 time allowed. 
 
 EQUITIES CLAIMED BY THE COMPANY. 
 
 In contrast to these conclusions as to the popular charges, 
 are the claims in favor of the company, consisting of 
 certain equities suggested by the Act of Investigation. 
 These are briefly as follows : 
 
 The road was opened for through traffic May 10, 1869. 
 The law allowed the company until July 1, 1876. The 
 Government and the public thus received the benefit of its 
 use seven years earlier than was required of the company 
 by the contract. The commission state that: "This early 
 " completion of the road was doubtless of great benefit to 
 u the United States. The advantage of reduced rates 
 u for transportation of troops, supplies, munitions of war 
 " and the mails was thereby secured and enjoyed six 
 u (seven) years sooner than would have been the case if 
 1 ' the bond-aided companies had taken the full measure of 
 " time permitted by law." 
 
 On account of this early completion, the cost of con- 
 struction was greatly increased. At the time the road was 
 constructed, the prices of labor and materials in Cali- 
 fornia, Nevada and Utah were enormously inflated, not 
 only on account of the war prices which then prevailed, 
 and the war risks which were incurred in transporting 
 material from the Bast by sea, but also by the great mining 
 excitement which prevailed in California and Nevada, and 
 employed nearly all the available labor. It is shown by 
 the testimony of engineers who had charge of the con- 
 struction of the road that the cost exceeded fifty per cent 
 more than it would have been if the completion had been 
 delayed until 1876. 
 
33 
 
 During the time of construction, all payments made ^ e ^ n states 
 on the Pacific Coast were in United States gold. The l u s n< * 
 bonds of the United States issued to the company were 
 made payable t7i currency. Gold during all the period of 
 construction was at a high premium. The company has 
 shown that, in order to get the gold coin necessary to pay 
 its bills, it was compelled to sell the bonds at a discount of 
 $7,120,073.55. The company is charged interest by the 
 United States on the par value of these bonds at six per 
 cent for thirty years, which on the discount lost makes the 
 sum of $12,816,132.39. The total charge, therefore, to 
 the company, for which it received really no equivalent, is 
 $19,936,205.94. 
 
 A further loss, which is a fair complaint by the com- 
 pany in connection with these bonds, is that the Govern- 
 ment did not provide for their refunding at a lower rate of 
 interest, as has been done with other United States bonds. 
 The company has thus been charged unnecessarily with 
 interest at six per cent for the thirty years, which could 
 readily have been reduced to three per cent for half their 
 term. This oversight of the Government increases the 
 charge to the company over $12,500,000. 
 
 As to the saving to the Government in the cost of trans- untteS states 
 portation, the commission say: "The evidence, so far as '"""P 01 ** 10 * 
 M the commission were able to obtain the same, establishes 
 "the fact that, before the completion of the Pacific rail- 
 14 ways, the cost of transportation was many times greater 
 " than it now is. Reference is made on this subject to the 
 "report of the War Department herewith submitted, and 
 " to the evidence of Kimball and Stanford, and the exhib- 
 its attached to Stanford's statement." A summary 
 from these exhibits is given hereafter. 
 
 Although the company has at all times promptly paid c | h ^jgj 1 " 
 the United States requirements under the several Acts of 
 
34 
 
 Congress, the Government has neglected to pay the com- 
 pany for transportation services performed by it on non- 
 aided and leased lines, even after the decision of the 
 Supreme Court that such payments should be made to the 
 company in cash (October term, 1885). This unjust and 
 illegal withholding of moneys has been made for all the 
 roads which were ever leased to or operated by the Central 
 Pacific Railroad Company, and continues to the present 
 time, when the roads are operated by the Southern Pacific 
 Company. The amount thus retained by the Government 
 which was due these companies in cash on December 31, 
 1888, and has not yet been paid, is $2,584,052.56, of 
 which $1,068,161.67 is due the Central Pacific, and 
 $1,515,890.89 is due the Southern Pacific Company. 
 Regarding these payments, the commission say : u In 
 " the judgment of the commission, after the determina- 
 1 ' tion by the Court of Claims and the Supreme Court of 
 " the United S-tates in the case of the Denver Pacific R. R. 
 " against the United States (relating to the obligation of 
 " the United States to pay over these amounts), it was the 
 " duty of the Government to pay over, without delay, to 
 " the respective companies, all moneys due for services 
 "rendered by leased or auxiliary roads belonging to the 
 1 ' bond-aided roads. * * * Whatever amount there 
 1 ' may be due to the Central Pacific R. R. Co. , arising out 
 1 ' of transportation, or services rendered by the branch 
 " lines, or by the unaided portion of the road, ought to be 
 "promptly paid to that company. It appears from the 
 ' ' evidence, and the report of the Commissioner of Rail- 
 " roads, that the Central Pacific R. R. Co. has discharged 
 " all the obligations arising out of the Acts of 1862, 1864 
 " and 1878, respecting the transportation applicable to the 
 " interest and bond account, and applicable to the sinking- 
 u fund account, and also for the requirement calling for 
 
35 
 
 "additional payments to the sinking fund until the 
 " amount of such payments should equal twenty-five per 
 " cent of the net earnings. The United States has there- 
 * ' fore no demand or claim on account of which it can 
 1 ' justly retain any amount which is due from it to the 
 " Central Pacific R. R. Co. ; and the amount so due ought 
 "to be paid and discharged without delay." 
 
 The commission admit that much larger payments would Sdto^fmS* 
 have been made on the debt to the United States by the lug lines ' 
 twenty-five per cent of the net earnings had not the Govern- 
 ment subsidized opposition roads, and thus taken traffic from 
 the Central-Union line, which it was contemplated that this 
 line would have had, at least to the maturity of the debt. 
 Transcontinental transportation for the United States in 
 the same way has been diverted from aided to non-aided 
 roads by the Government, thus reducing the payment on 
 the debt to be made by these charges. They further state 
 that, "The United States has granted very large amounts 
 " of aid in lands to other roads, which have become com- 
 " petitors of the Union Pacific Railway Co. and the Cen- 
 " tral Pacific R. R. Co." The testimony presented to the 
 commission shows that the traffic diverted to other lines, 
 which were aided in their construction by the United 
 States, has amounted to $37,000,000, the Central Pacific 
 proportion of which is about forty-six per cent, or say 
 $17,000,000. 
 
 The relations between the debtor company and the cred- 
 itor Government concerning this diverted business are 
 these: The contract contemplated that the debtor should 
 discharge its loan by the annual payment of a percentage 
 of the income from the mortgaged property. The creditor 
 then proceeds to establish competing institutions, which 
 greatly reduce the income of the property. This it does 
 to advance its interests in other ways which are of much 
 
36 
 
 greater importance than the collection of its debt in full. 
 The percentages of income are promptly paid by the 
 debtor ; but they are less in amount than was contem- 
 plated, because of the act of the creditor. Any equitable 
 settlement for the balance of the debt must, it is claimed 
 by the debtor, consider these facts, payment in full now 
 being impossible. 
 
 Embarrass- 
 ment to com- 
 Eany by 
 :gislation. 
 
 Losses to 
 company by 
 United States 
 sinking fund. 
 
 As to the embarrassment to the company by hostile legis- 
 lation concerning which inquiry was asked by the Act, the 
 commission report: "It is of the opinion that these roads 
 1 have been embarrassed by the frequency with which 
 ( bills intended to affect them have been introduced into 
 ' the legislatures of States and Territories through which 
 ' they pass. Many of these bills contained provisions 
 * which, if adopted, would have been ruinous to the rail- 
 ' roads. Very frequently the persons introducing such 
 ' bills failed to realize the effect which their passage 
 ( would produce. The constant threat of the adoption 
 ' of such measures has been a source of embarrassment 
 ' to all the bond-aided companies, and has forced them to 
 ( protect themselves by frequent and constant attendance 
 ' before committees of the legislatures." 
 The sinking fund in the Treasury of the United States, 
 established by the Thurman Act, is invested, as provided 
 by the Act, by the Secretary of the Treasury. The invest- 
 ments have been made in such a manner that there was in 
 the fund, on December 31, 
 
 In bonds $3,021,000 00 
 
 In cash 48,689 06 
 
 Total in fund $3,069,689 06 
 
 The amount paid into the fund to the same time is 
 $3,469,641.62. The fund was established July 1, 1878. 
 
37 
 
 As a result, therefore, of its operation under the Govern- 
 ment management for the nine and a half years, there is 
 $399,952.56 less in the fund than has been paid in by the 
 company. 
 
 The testimony to the commission showed that this com- 
 pany had been injured by the Government's management of 
 the fund in premium paid and interest lost to July 1, 1887, 
 by the sum of $1,612,966.72. The loss to December 31, 
 1888, on this account, amounts to $2,000,215.68. They 
 report on this subject that : " It was the belief of Senator 
 " Thurman, as appears from the debates in Congress, that 
 " the sinking fund created under this Act would accumu- 
 M late at the rate of five per cent per annum compounded, 
 " and would, at the maturity of the debt, produce a sum 
 ' ( sufficient to liquidate the same. It evidently was the 
 " opinion of the Supreme Court that the sinking-fund 
 1 ' would be managed by the Secretary of the Treasury so 
 " as to give entire satisfaction, and do full justice to the 
 " railway companies affected thereby. All these expecta- 
 tions have been disappointed. The fund does not 
 ' ' increase at five per cent per annum, or at three per cent 
 ' ' per annum. In fact it has lost money, and is worth 
 " to-day less than the principal originally invested. * * 
 u This in the opinion of the commission ought to be fully 
 " remedied." 
 
 The commission examined into the operation of the Lease to 
 
 x Southern 
 
 lease of this company's lines to the Southern Pacific Com- Pacific com- 
 pany, and the criticisms which have been made in connec- 
 tion therewith, and conclude as follows: "In the judgment 
 u of the commission, the terms of the lease are just and 
 " equitable as between the companies; and its operation 
 u has as yet given no just cause of complaint." 
 
Conclusion as 
 to failure of 
 United States 
 in its duty 
 towards this 
 company. 
 
 38 
 
 The commission thus find that the Government, in its 
 acts towards this company, has violated the letter of its 
 obligations in several particulars, and the spirit of the 
 contract in many others. And all of the allegations, which 
 practically were contained in the Act of Investigation, to 
 the effect that the Government has failed in its duty 
 towards the company, are shown to be true. 
 
 In view of these facts, the company has claimed that 
 any equitable settlement with the United States for the 
 balance remaining due on the debt must consider this 
 failure of good faith on the part of the Government, and 
 the injuries thus done the company. The wording of the 
 Act of Investigation clearly suggests that these failures of 
 the Government in its duty, if found to be true, should be 
 considered as equities on the side of the company. 
 
 BILL PROPOSED BY COMMISSION NO SETTLEMENT. 
 
 The salient feature of the bill proposed by the commis- 
 sion is to find the present value of the debt, and for this 
 amount to issue to the United States, bonds of the com- 
 pany to run fifty years, to bear three per cent interest, and 
 to be retired by the annual application of a sinking fund. 
 The whole to be secured by a mortgage on all the com- 
 pany's property, including the aided and non-aided lines. 
 The payments required from the company under this bill 
 as estimated by the commission are, for the first ten years, 
 $1,726,000 per annum; for the remainder of the time, 
 $1,973,000 per annum. 
 
 This bill cannot be considered as a real effort towards the 
 settlement of the debt, as it requires payments which the 
 commission themselves state would be beyond the power of 
 the company to make. Its acceptance by the company, if 
 it were adopted by Congress, would but end in failure and 
 
39 
 
 the renewed discussion of the whole matter, with the 
 addition of further complications. In recognition of this, 
 the commission state that : "It is hardly to be expected 
 
 * that any Act resembling the Act submitted in the case 
 
 * of the U. P. Ry. will be accepted by the Central Pacific 
 ' R. R. Co." They suggest, therefore, that: " If the 
 1 Central Pacific R. R. Co. should reject the terms pro- 
 1 posed because of its inability to comply with them, and 
 4 it should be deemed advisable to effect a permanent set- 
 ( tlement with that company, a method by which that 
 
 * result might be obtained would be a reduction of the 
 1 interest to a rate lower than three per cent. The pro- 
 1 priety of such an action might, in the judgment of the 
 1 commission, be justly referred to a board to be desig- 
 1 nated by Congress, or to Congress itself." 
 
4Q 
 
 II. 
 
 THE BENEFITS PROMISED TO THE GOVERN- 
 MENT AND THE COMPANY, AND HOW 
 THEY HAVE BEEN REALIZED. 
 
 The obligations imposed by the Acts can only be fairly 
 interpreted by a consideration of the benefits which were to 
 accrue to both the United States and the company by the 
 construction of the road. These promised benefits for the 
 Government and the public were the cause of the grant of 
 aid; and the benefits predicted for the company in the way 
 of earnings and charges on transportation for the United 
 States were the promises on which the terms of the loan 
 as to the manner and time of its repayment were based. 
 A review of these promised benefits on either side will 
 therefore assist to a fuller understanding of the relations 
 between the Government and the company resulting from 
 the loan, and the obligations in connection therewith. 
 
 CAUSES OF THE UNITED STATES AID. 
 
 The causes which led the Government to aid the con- 
 struction of the road are ably expressed by Mr. Justice 
 Davis of the Supreme Court in delivering the opinion of 
 the Court in United States vs. Union Pacific Railroad (91 
 U. S. Rep., 79), as follows: "Many of the provisions in 
 " the original Act of 1862 are outside of the usual course 
 ( ' of legislative action concerning grants to railroads, and 
 "cannot be properly construed without reference to the 
 " circumstances which existed when it was passed. The 
 "War of the Rebellion was in progress; and, owing to 
 ' ' complications with England, the country had become 
 ' ' alarmed for the safety of our Pacific possessions. 
 
4i 
 
 ' ' The enterprise was viewed as a National undertaking lo^tSfto 
 4 for a National purpose; and the public mind was directed causeof aid - 
 1 to the end in view rather than to the particular means 
 ' for securing it. Although the road was a military neces- 
 ' sity, there were other reasons active at the time in pro- 
 ' ducing an opinion for its completion besides protection 
 ' of an exposed frontier. There was a vast unpeopled 
 1 territory lying between the Missouri and Sacramento 
 c Rivers which was practically worthless without the facil- 
 1 ities afforded by a railroad for the transportation of per- 
 ' sons and property. With its construction, the agricultu- 
 ' ral and mineral resources of this territory could be 
 1 developed, settlements made where settlements were 
 1 possible, and thereby the wealth and power of the 
 1 United States largely increased; and there was also a 
 ' pressing want, in time of peace even, of an improved 
 1 and cheaper method for the transportation of the mails, 
 ( and of supplies for the army and the Indians. 
 
 ' \ It was in presence of these facts that Congress under- 
 ' took to deal with the subject of this railroad. The 
 1 difficulties in the way of building it were great, and 
 ; by many intelligent persons considered insurmountable. 
 
 "The scheme for building a railroad two thousand 
 ( miles in length, across mountains, over deserts, and 
 1 through a country inhabited by Indians jealous of iutru- 
 ' sion upon their rights, was universally regarded at the 
 ' time as a bold and hazardous undertaking. It is nothing 
 1 to the purpose that the apprehended difficulties in a great 
 ' measure disappeared after trial, and that the road was 
 4 constructed at less cost of time and money than had 
 ' been considered possible. No argument can be drawn 
 ' from the wisdom that comes after the fact. 
 
 " The project of building this road was not conceived 
 ' for private ends; and the prevalent opinion was that it 
 
42 
 
 "could not be worked out by private capital alone. It 
 "was a National work, originating in National necessi- 
 1 ' ties, and requiring National assistance. The primary 
 u object of the Government was to advance its own inter- 
 " ests; and it endeavored to engage individual co-opera- 
 " tion as a means to an end, the securing a road which 
 4 ' could be used for its own purposes. ' ' 
 
 On the same subject, the United States Commissioner of 
 Railroads (Rep. 1883, p. 13) concludes that: "The pur- 
 " poses of Congress in granting the liberal aid extended 
 " to these companies were held to be important elements 
 " in arriving at the true construction of their present rela- 
 " tions to the Government. All these purposes have been 
 "much more than realized; and it has been frequently 
 1 * and officially stated that the actual saving, year by year, 
 " to the Government greatly exceeds the whole annual 
 " interest paid." 
 specification The chief causes which led to the grant of aid may be 
 
 of causes for 
 
 grant. summarized as follows : (1) That it was a political neces- 
 
 sity, and would prevent the loss to the Union of the 
 Pacific States ; (2) That it was a military necessity, and 
 would enable the Government, by the rapid movement of 
 troops, to resist the invasion of a foreign enemy ; (3) 
 That it would end the Indian wars ; (4) That it would 
 furnish a cheaper and more rapid means of transportation 
 for mails, troops and munitions of war ; and (5) That it 
 would lead to the development of the resources of the vast 
 and then unpeopled territory between the Missouri and 
 Sacramento Rivers. 
 
 On the other hand, there were certain predictions made 
 of benefits that were to be received by the company from 
 the operation of the road. The most important of these 
 were : (1 ) That one-half the charges for transportation 
 
43 
 
 services performed for the United States would amount to 
 as great a sum as the accruing interest on the subsidy 
 bonds ; (2) That the commerce between Asia and Europe 
 would be carried across the American continent ; and (3) 
 That the net earnings of the line from the above and other 
 sources would be so great that five per cent of the amount 
 applied on the principal of the bonds would be sufficient 
 to pay them on or before their maturity. 
 
 We may now review these several considerations in 
 light of the results. 
 
 A POLITICAL NECESSITY. 
 
 At the time the Pacific Railroad Acts were passed, it was 
 still a question whether States would be allowed to with- 
 draw from the Union. The probability of the withdrawal 
 of the Pacific States at any time or for any reason was not 
 then looked upon as an impossibility. It was in fact by many 
 thought to be very probable. The West was separated 
 from the East by the Rocky Mountains, a natural barrier 
 such" as in all other parts of the world has divided the 
 nations from one another, and which with us is geo- 
 graphically known as the great continental "divide." 
 With the peoples living on either side of so vast a conti- 
 nent separated by a natural boundary, local interests fre- 
 quently urge the adoption of different policies. As this 
 is a government of the majority, the only remedy for 
 the Pacific Coast minority in case of a contest would be 
 in secession. The population of the coast at that time 
 consisted chiefly of Mexicans, and immigrants from the 
 Eastern States who had reached there by way of the Isth- 
 mus of Panama, or more commonly by the long overland 
 route of toil and hardship. With the means of communi- 
 cation available, few of these would ever revisit the scenes 
 
44 
 
 of their youth ; and their children would look upon the 
 Eastern States as a foreign land. Without the means of 
 rapid and easy communication, the feeling- of relationship 
 would gradually die away ; and differences of sentiment 
 and of interest would increase and expand in time with the 
 growth of population and the development of the country. 
 The secret of the harmonious control under a Republi- 
 can form of government of so vast and varied a population, 
 extending over so great an area as the United States, is 
 found in railroad transportation. Without that easy com- 
 munication and intercourse which the railroad alone 
 affords, the tendency of the different parts would be from 
 one another, instead of following the present course 
 towards homogeneity of ideas and harmony of interests. 
 Whether the fears regarding the continued allegiance of 
 the Pacific States would or would not have been realized 
 had no Pacific railroad been built, they were by its 
 construction completely dispelled. So far, then, as the 
 political cause of the aid is concerned, it must be admit- 
 ted that the end desired has been realized. 
 
 A MILITARY NECESSITY. 
 
 value as a The importance of railroad transportation to the Pacific 
 
 Sliwa^ as a means of concentrating troops for defense from inva- 
 
 sion by foreign force, or to quell domestic disturbances, 
 had long been urged before Congress. In 1862, the 
 strained condition of our foreign relations caused it to be 
 considered a necessity. We had been on what, at that 
 time, appeared to be the eve of a war with England. 
 Her demands in the Trent affair had been acceded to 
 from a sense of helplessness, not of right. It was stated 
 that orders had gone out to the British fleet in the Pacific 
 to strike at San Francisco as soon as news arrived of the 
 commencement of hostilities. The Pacific Coast would 
 
45 
 
 be comparatively defenseless in the event of such a war. 
 The British fleet there numbered two ships to our one, 
 four steam vessels to our one, and three guns to our one. 
 Had such a war taken place, there is every probability 
 that the British possessions on the Pacific Coast to-day 
 would extend from the Arctic Circle to the Gulf of Cali- 
 fornia. 
 
 The apprehensions of the past, well grounded as they 
 were, are now forgotten. Yet the defense of the Pacific 
 States to-day in the event of a foreign war would be the 
 railroads. Within a week's notice the resources of the 
 continent could be massed at San Francisco. Without 
 the defense furnished by rapid transportation, it would be 
 necessary to maintain a navy equal to the most formidable 
 afloat, and to spend many millions annually in the fortifica- 
 tion of our harbors. The present availability of all the 
 resources of the country at any point of attack or need by 
 the means of railroad transportation is thus commented on 
 in the report of the General of the Army : 
 
 4 ' Our population is now sufficiently great to admit of J 1 ^^/ f 
 4 the formation of armies of any size that may be desired, the Army. 
 4 Our railway mileage is in the neighborhood of 115,000 
 4 miles (1883), penetrating every part of our vast domain, 
 4 and especially those regions from which supplies would be 
 4 drawn. It is not probable that a foreign foe will ever 
 4 undertake an invasion of our country. But, should 
 4 such an event occur, we would not be called upon to 
 4 organize forces at all comparable in number with those 
 4 used during the civil war; and the ease with which 
 4 they could be supplied goes without saying. With our 
 4 great extent of vulnerable coast, it would be a simple 
 4 matter for an enemy to land an invading force; but, 
 4 before it could be prepared to move inland, it would be 
 4 opposed by an army amply sufficient to destroy it, 
 4 drawn from every direction and concentrated by means 
 
4 6 
 
 c< of the railways. W^th harmony existing among our 
 ' ' people, as at present, a successful invasion of our terri- 
 4 ' tory may well be considered impracticable ' ' (Report 
 Secy, of War, 1883, Vol. I, p. 299). 
 
 TO END THE INDIAN WARS. 
 
 A third reason for the aid was the belief that the con- 
 struction of the road would end the Indian wars. The 
 old system of fighting the Indians was stated to be as 
 fruitless as it was extravagant. The savages were mounted. 
 They were the best horsemen in the world. They attacked 
 almost unseen, and were out of sight and beyond pursuit 
 in a moment. They had no permanent homes and no 
 fixed property, no crops to watch, no stores to guard, no 
 invasions to fear. During the season of grass, to war on 
 them was to pursue shadows in a circle. December left 
 the vast field of strife exactly as April found it, save 
 that the graves of white soldiers roughened the surface ; 
 while few had seen a mound that marked the grave of a 
 dead Indian. It was said that the Indians would be awed 
 and subdued by the road and its influences; that as fast as 
 the line advanced they would recede before it ; and a row 
 of white settlements would spring up along its path. 
 Sherman on An idea of the extent to which these predictions have 
 
 been fulfilled may be gained by a statement upon the 
 subject made by General Sherman. He is perhaps the 
 person best fitted to estimate the importance as a mili- 
 tary measnre of the Pacific railroads. Between 1849 an ^ 
 the year of his retirement, he tells us, he had crossed 
 the continent by every known route; and experience con- 
 tinually forced upon his mind the necessity of railroads as 
 a final solution of the Indian question. In his last report 
 as General of the Army, he says (Report, 1883, p. 5): 
 u I now regard the Indians as substantially eliminated 
 " from the problem of the army. There may be spas- 
 
 ending Indian 
 
 wars, 
 
47 
 
 "modic and temporary alarms; but such wars as have 
 " heretofore disturbed the public peace and tranquil- 
 " lity are not probable. The army has been a large 
 " factor in producing this result; but it has not been the 
 " only one. Immigration and the occupation by indus- 
 11 trious farmers and miners of lands vacated by the 
 " aborigines have been largely instrumental to that end; 
 " but the railroad [the italics are the General's], which 
 1 ' used to follow in the rear, now goes forward with the 
 "picket line in the great battle of civilization with bar- 
 " barism, and has become the greater cause. I have in 
 1 ' former reports for the past fifteen years treated of this 
 " matter; and now, on the eve of withdrawing from active 
 " participation in public affairs, I beg to emphasize much 
 ( ' which I have spoken and written heretofore. The recent 
 11 completion of the last of the four great transcontinental 
 ' ' lines of railway has settled forever the Indian question, 
 il the army question and many others which have hitherto 
 " troubled the country. * * * I regard the building 
 u of these railways as the most important event of modern 
 ' ' times, and believe that they account fully for the peace 
 11 and good order which now prevails throughout our 
 ' ' country, and for ' the extraordinary prosperity which 
 " now prevails in this land. A vast domain, equal to 
 u two-thirds of the whole surface of the United States, 
 " has thus been made accessible to the immigrant; and, 
 "in a military sense, our troops may be assembled at 
 " strategic points and sent promptly to the places of dis- 
 u turbance, checking disorders in the bud." 
 
 SAVING IN UNITED STATES TRANSPORTATION CHARGES. 
 
 The saving in transportation charges was one of the 
 greatest direct benefits which the Government expected 
 
4 8 
 
 from the building of the Pacific railway. That the pre- 
 dicted benefits in this respect have been more than realized 
 has repeatedly been shown by officers of nearly every 
 department of the Government. The reports of the Sec- 
 retary of War, the Secretary of the Navy, the Secretary 
 of the Interior, the Secretary of the Treasury and the 
 Postmaster-General, all bear testimony to the same effect. 
 The charge to the United States for transportation of 
 troops and army supplies on the route now covered by the 
 Central-Union Pacific line prior to the construction of the 
 road has been usually stated as about ten times the annual 
 charge since then. On April 8, 1862, the chairman of the 
 House Committee on Pacific railroads (Mr. Campbell), in 
 committee of the whole, stated : ' ' On the ground of 
 " economy, which we all admit to be of the first moment 
 u in the present condition of public affairs, the construc- 
 u tion of a Pacific railroad will save the Government 
 " annually a large sum, which truth I now propose to 
 u demonstrate " (see Cong. Globe). He then presented 
 official communications, showing the annual expenditure 
 in time of peace, under ordinary circumstances, for Govern- 
 ment transportation to the Pacific Coast, to be $7,357,781. 
 tiS n char rt ?s ^ n ^ ne con tinues : "Take then the annual interest (esti- 
 g^P 1 *** "mated at $3,892,080 for Central-Union line, though 
 " actual interest proved to be but $3,305,531) from the 
 u annual expenditure, and we have left a sinking fund 
 u of $3,465,701, a sum more than sufficient to extinguish 
 u the bonds before they become due, or, what is the same 
 u thing in effect, saved to the Government by cheapening 
 u expenditure in that direction." 
 
 Quartermaster-General Meigs shows that the cost to the 
 Government for the transportation of military stores west- 
 ward across the plains, for the fiscal year ending June 30, 
 
49 
 
 1865, was $6,388,856. "This expenditure," the Quar- 
 termaster-General states, "would be reduced, by the 
 u opening of the railroads, by a sum which would aid 
 M materially in paying interest upon the cost of their con- 
 struction ;) (Rep. Secy, of War, 1865-66, Vol. I, p. 
 114). 
 
 A further idea for the former cost to the Government is cost of Indian 
 
 wars. 
 
 given in the report of the Pacific Railway Committee of 
 the Senate dated February 19, 1869, in which it is stated 
 that the Indian wars for the thirty-seven years then past 
 cost the Nation 20,000 lives and $750,000,000, or about 
 $20,000,000 annually. During the years 1864 and 1865, 
 the Quartermaster's department alone spent $28,374,228 
 for military supplies against the Indians (40th Cong., 3d 
 Session, Sen. Rep. Com., 219, p. 16). 
 
 Compared with these former expenditures, it is interest- present costot 
 
 * * ' army trans- 
 
 ing to note the present charges to the Government on the portation. 
 Central-Union line for transportation of troops, passengers, 
 military supplies and other freight, which for the past ten 
 years is given below: 
 
 Years. 
 
 Central Pacific. 
 
 Union Pacific. 
 
 Total I^ine. 
 
 1878 
 
 1879 
 
 1880 
 
 1881 
 
 1882 
 
 1883 
 
 1884 
 
 1885 
 
 1886 
 
 1887 
 
 |I92,95I 
 253,141 
 294,782 
 
 513,592 
 95,917 
 82,957 
 
 173,939 
 44,059 
 38,362 
 28,531 
 
 $518,279 
 552,912 
 598,782 
 576,209 
 447,014 
 448,029 
 
 300,594 
 225,142 
 217,806 
 141,072 
 
 $711,230 
 806,053 
 
 893,564 
 1,089,801 
 
 542,931 
 530,986 
 
 474,533 
 269,201 
 256,168 
 169,603 
 
 
 Total for ten years . 
 
 $1,718,231 
 
 $4,025,839 
 
 $5,744,070 
 
5 
 
 Wagon 
 freight rates. 
 
 Railroad 
 freight rates. 
 
 Transportation for the army was the chief item of ex- 
 pense formerly incurred in conducting campaigns against 
 the Indians. This service was performed with wagon 
 trains by contract. The rates ranged from $3.00 to $1.60 
 per hundred pounds per hundred miles (see Rep. Secy, of 
 War, 1867-68, Vol. I, p. 533; 1868-69, P art J > P- 8 29). 
 The lowest of these rates equals thirty- two cents per ton 
 per mile. The average rates per ton per mile charged 
 by the Central Pacific and its associated lines for the past 
 ten years were as follows ; 
 
 Central 
 Pacific. 
 
 Rate per 
 
 ton per mile, 
 
 cents. 
 
 1878 2.75 
 
 1879 2.43 
 
 l880 . 2.34 
 
 l88l . . 2.l6 
 
 1882 I. 8l 
 
 1883 I .92 
 
 1884 I.96 
 
 1885 I.83 
 
 1886 I.38 
 
 1887 T -49 
 
 It will thus be seen that, as to both the amounts and 
 rates, the charges for army transportation have been reduced 
 to a fraction of what they were before the completion of the 
 road. A similar conclusion has been reached from an 
 investigation on the subject made by order of the General 
 of the Army, which is stated as follows: "Taking the 
 " route from Fort Leavenworth to Fort Union for exam- 
 u pie, the average cost by wagon per hundred pounds 
 " per hundred miles, for the sixteen years from 1855 
 " to 1870, both inclusive, was $1.77 (or 35.4 cents per ton 
 u per mile); whilst by rail it is now less than one-tenth 
 " of that amount. This represents the relative cost of 
 " wagon and railway transportation, bearing in mind that 
 ' ' any variation is always such as to show more strongly 
 
5 1 
 
 " the advantages of railway transportation. In some cases 
 ' ' transportation by wagon is twenty times more costly than 
 11 by railway" (Rep. General of the Army, 1883, p. 213). 
 
 From the foregoing facts, it is apparent that the reduc- Reduction in 
 tion in charges to the United States for the transportation 
 of military supplies and stores is owing to the reduction 
 in rates, which have fallen from thirty- two cents per ton 
 per mile as the lowest ante-railroad rate, to the average of 
 1.49 cents in 1887. 
 
 The charges for mail transportation, and the data rela- ^SmafS! 
 tive to the weights and character of the service, are all 
 furnished by the annual reports of the Postmaster-General. 
 The rates paid just prior to the completion of the railroad . 
 between the termini of the Pacific railroads from Cheyenne, 
 Wyoming, to Virginia City, Nevada, for carrying an aver- 
 age daily weight of mails of from 1,000 to 1,500 pounds, 
 was $1,598.17 per mile per annum (Rep. P. M. Gen., 1868, 
 p. 7; 1869, p. 9). The rates since the completion of the 
 railroad have ranged from about $250 to $500 per mile 
 per annum. But this was for carrying an average daily 
 weight of from 5,300 to 30,000 pounds. The mails by 
 rail are carried in postal cars built according to the Gov- 
 ernment's plans, affording every facility for the distribu- 
 tion of mails en route, and so expediting their prompt and 
 proper delivery. In the certainty, celerity and security of 
 the service, there can be no comparison between the old 
 conditions of affairs and the new ; Their relations present 
 a contrast as remarkable as that of the mail service 
 between the Colonies before the war of the Revolution, 
 compared with that between the States after the war of 
 the Rebellion. 
 
 An exhibit of the amounts saved to the United States 
 in the transportation of troops, military supplies and mails, 
 
52 
 
 furnished from official sources, appears in the report of the 
 United States Pacific Railway Commission (p. 2583 et 
 seq.). A summary of this exhibit is as follows: 
 
 1869-1876. 
 
 Exhibit of saving to the United States in transportation 
 charges by the construction of the Central- Union Pacific 
 Railroad line, from the completion of the road to fuly /, 
 1876. 
 
 Traffic. 
 
 U. S. Transporta- 
 tion Charges on 
 Central-Union 
 Pacific. 
 
 Cost to U. S. 
 
 at rates paid prior 
 
 to Railroad. 
 
 Saving to U. S. 
 
 to 
 
 June 30, 1876. 
 
 Freight 
 
 Troops, etc 
 
 Mails 
 
 $1,793,556 00 
 2,162,296 OO 
 3,689,343 00 
 
 $15,509,977 00 
 18,698,671 OO 
 
 21,199,725 00 
 
 $13,716,421 OO 
 16,536,375 OO 
 17,510,382 OO 
 
 Total 
 
 17,645,195 00 
 
 $55,408,373 00 
 
 $47,763,178 00 
 
 1869-1885. 
 
 Exhibit of saving to the United States in transportation 
 charges by the construction of the Central- Union Pacific 
 Railroad line, from the completion of the road to Jamiary 
 /, 1886. 
 
 Traffic 
 
 U. S. Transporta- 
 tion Charges on 
 Central-Union 
 Pacific. 
 
 Cost to U. S. 
 
 at rates paid prior 
 
 to Railroad. 
 
 Saving to United 
 States. 
 
 Freight 
 
 Troops, etc 
 
 Mails 
 
 $5,740,753 00 
 4,616,053 OO 
 
 10,606,507 22 
 
 $61,161,307 OO 
 49,178,967 OO 
 49,970,780 47 
 
 $55,420,554 OO 
 44,562,914 OO 
 39,364,273 25 
 
 Total 
 
 $20,963,313 22 
 
 $160,311,054 47 
 
 $139,347,741 25 
 
53 
 The United States bonds and accrued saving more 
 
 than bonds and 
 
 interest thereon issued on the same interest. 
 
 line, to the same date, less the amounts 
 
 repaid by the companies, was shown 
 
 to be $ 86,685,907 86 
 
 The saving to the United States in trans- 
 portation charges to January 1, 1886, 
 was 139,347,741 25 
 
 Thus exceeding the debt and interest by 
 
 the amount of $ 52,661,833 39 
 
 Supposing an equal average annual saving were to con- 
 tinue to the maturity of the debt, the result would be as 
 follows : 
 
 Exhibit of saving to the United States in transporta- 
 tion charges by the Central-Union Pacific line, to the savings L- 
 
 r tt ' j r* 1 j turity of bonds. 
 
 maturity of the United States bonds. 
 
 Kind of Service. 
 
 Average Yearly 
 
 Amount saved by 
 
 Government. 
 
 Amount saved 
 
 in Thirty Years to 
 
 Maturity Debt. 
 
 Freight 
 
 Troops, etc 
 
 Mails 
 
 $3,463,785 OO 
 2,785,182 00 
 2,385,714 00 
 
 $103,913,550 OO 
 83,555,460 CO 
 71,571,420 OO 
 
 Total 
 
 $8,634,681 OO 
 
 $259,040,430 OO 
 
 It appears then that in the first seven years during which 
 the road was in operation before it was expected or required 
 to be completed by the Contract Acts, the Government 
 saved, in transportation charges, $47,763,178, an amount 
 during this short time greater than the sum realized by 
 the companies for the bonds issued to them by the United 
 States. The saving to the end of 1885, or for about 
 
54 
 
 half the time the bonds were to run, amounted to $139,- 
 347,741, exceeding by over $52,000,000 the whole amount 
 of bonds and interest to the same date, less the amounts 
 which had been repaid by the companies. Had the loan 
 therefore been a donation, it would still be more than justi- 
 fied by the results. 
 
 DEVELOPMENT OF THE WEST. 
 
 A further cause for the issue of United States bonds was 
 to develop the resources of the continent west of the Mis- 
 souri River. Here is.a territory comprising in area almost 
 two-thirds of the whole United States, the greater part of 
 which could never have had a market if it were not for rail- 
 road transportation, and so would practically be unavailable 
 for settlement. A glance at the map will show how all- 
 important the railroad here is. The States east of the 
 Missouri River are provided to a great extent with nav- 
 igable streams, the Great Lakes, or the ocean. But the 
 country from the Missouri River to the Sacramento is 
 destitute of similar waterways, with one or two unimpor- 
 tant exceptions where a difficult navigation is possible for 
 a part of the year. The two great mountain chains of the 
 continent separate the East from the West; and the lack 
 of navigable streams prevents communication by water 
 through the intervening valleys. The territory not being 
 supplied with its fair proportion of these highways of 
 nature must otherwise depend on wagon transportation. 
 For this, however, the distances are too magnificent. It 
 is a country which railways only could develop; and much 
 emphasis was placed on that fact at the time the aid was 
 granted. That the prophesies regarding its development 
 have been fulfilled will hardly be denied. The following 
 observation on the change which has taken place was 
 
55 
 made by General Sherman in 1883: "No person who changes 
 
 > kj x wrought by 
 
 ' has not been across the continent by the several routes road - 
 ' can possibly comprehend the changes now in progress 
 ' there. Nearly two-thirds of the domain of the United 
 ' States lie west of the Mississippi ; and at the close 
 ' of the Civil War the greater part of it was occupied 
 1 by wild beasts, buffalo, elk, antelope and deer, and 
 ' by wilder Indians. Now, by the indomitable courage, 
 f industry and thrift of our people, this vast region has 
 1 become reduced to a condition of comparative civiliza- 
 ' tion. Three great railroads now traverse the continent, 
 ' with branches innumerable; and a fourth is making 
 ' rapid progress. States, territories, cities and towns 
 ' have grown up; neat cattle have already displaced the 
 ' buffalo; sheep and goats have displaced the elk, deer 
 ' and ajitelope; and crops of wheat, rye, barley and oats 
 ' are now grown in regions believed hitherto to be desert 
 ' or inaccessible. This is the real cause of the great pros- 
 ' perity which now blesses our country and swells the 
 1 coffers of our National treasury " (Rep. Secy, of War, 
 Vol. I, 1882-83, p. 5). 
 
 THE PREDICTED BENEFITS REALIZED. 
 
 Though much more might be added illustrating the bene- 
 fits realized by the Government and the people from the 
 construction of the road, sufficient has been said to show 
 that the promises made have all been kept. The resulting 
 benefits to the Government and the people have exceeded 
 the most sanguine anticipations of the advocates of aid. 
 The railroad affords a sufficient protection to the Pacific 
 Coast against foreign invasions ; while it binds it with 
 ties of daily increasing strength with the rest of the 
 Union. The Indian wars have been practically brought 
 
56 
 
 to an end ; and the transportation services for the Govern- 
 ment are performed at a small fraction of their former cost ; 
 while the development of the resources of what was the 
 uninhabited West, and the homes which have thus been 
 furnished to hundreds of thousands, is of value beyond all 
 calculation. It was to secure these results that the aid of 
 bonds was granted ; and it is the opinion expressed by 
 those officers of the Government whose duties have 
 brought them into familiarity with the facts, that even had 
 the grant been a donation instead of a loan it would still 
 have been more than justified by the results. 
 
 RAILROADS AIDED BY CANADA AND MEXICO. 
 
 If there is now a doubt in the mind of any officer of the 
 United States as to the wisdom of the aid to the. Pacific 
 railroads, it is a sentiment not shared by the governments 
 joining us on the north and on the south. The Republic 
 of Mexico and the Dominion of Canada have made every 
 effort and almost exhausted their resources to secure rail- 
 roads to their distant frontiers and unite the scattered parts 
 of their vast domains. The benefits, to this country follow- 
 ing from the subsidies to the Pacific railroads have, in the 
 minds of the Dominion Government, justified the enor- 
 mous subsidies to the Canadian Pacific. The summary of 
 these subsidies is given in the Report on International Com- 
 merce of the United States, 1884 (p. 97 et seq.). It in- 
 cludes a loan of $47,500,000, a donation of 25,000,000 
 acres of land, including only that suitable for settlement, 
 the construction by the Government and transfer to the 
 company free of cost of 714 miles of railway, estimated 
 in value to be worth $30,000,000, freedom from taxation 
 forever, and protection from competition of parallel 
 lines for twenty years from the date of its charter. The 
 
57 
 
 concessions and subventions by the Republic of Mexico 
 during the last decade have exceeded its present power to 
 pay. Whether these Governments were wise in making 
 such enormous subsidies, by comparison with which the 
 grants by the United States sink into insignificance, it is 
 not necessary here to inquire. That they have been made 
 is sufficient evidence that in the judgment of our neigh- 
 bors the benefits resulting from the construction of the 
 Pacific railroads would have justified subsidies of much 
 greater value than those which were granted. 
 
 Ba&crofc 
 
 BUSINESS PREDICTED FOR THE ROAD. 
 
 While these prophesied benefits to the Government and ^|ts U pr e omised" 
 the country have been more than realized, there were com P ames - 
 certain predicted benefits to the companies which have 
 as signally failed. It was expected that one-half the 
 transportation charges for the Government and five per 
 cent of the net earnings would pay the bonds and interest 
 on or before their maturity. Both the majority and min- 
 ority reports of the Committee on Pacific Railroads of the 
 House of Representatives have called attention to this fact. 
 The majority report says: " It was stated upon the floor of 
 41 Congress, and generally believed, that the compensation 
 44 then being paid out for transportation of mails and Gov- 
 ernment supplies, all of which would be carried by the 
 "roads along the routes aided, was nearly double the 
 u interest on the subsidy bonds, and that to retain one-half 
 u of said compensation would be sufficient, in the hands 
 44 of the Government, to meet the interest payments, leav- 
 4 4 ing the five per cent of net earnings to liquidate the 
 44 principal and any interest left unsettled. So by the fifth 
 14 section of the Act of 1864 it was provided that only 
 
58 
 
 One-half U. S. 
 transportation 
 and 5$ of net 
 earnings ex- 
 pected to pay 
 the debt. 
 
 " one-half the compensation for services rendered for the 
 u Government by said companies shall be required to be 
 "applied to the payment of the bonds issued by the Gov- 
 u ernment in aid of the construction of said roads." (48th 
 Cong-., 1st Ses., Rep. 1431, H. R.) 
 
 The views of the minority, submitted as part two of same 
 report, state: "The original Act of 1862, and the Act 
 "supplementary thereof of 1864, evidently contem- 
 " plated that the transportation services for the Govern- 
 "ment would pay the current interest on the subsidy 
 "bonds, and that five per cent of the net earnings per 
 "annum, which would pay the debt in twenty years, 
 "would render the payment abundantly 'secure by extend- 
 " ing the time to thirty years, being a margin of ten years 
 "over. At that time the expenditures by the Government 
 ( ' for military and other transportation greatly exceeded 
 "the interest which would accrue upon the whole subsidy; 
 " but the construction of the road so changed the condition 
 "of affairs in the region traversed thereby, and so dimin- 
 ished the necessities of the Government for transporta- 
 " tion, that it fell far short of the current interest, and 
 ' ' resulted in a gradually accumulating debt, which it soon 
 "became apparent could not be paid under the provisions 
 "of the original law." 
 
 The cost of transportation on the plains for several years 
 prior to 1862, as reported to Congress during the discussion 
 of the Pacific Railroad Bill, amounted, as has been shown, 
 in times of peace, to the annual sum of #7,357,781. This 
 was at a time when the Missouri River formed the frontier 
 line. As settlements spread westward J the territory to be 
 protected was rapidly extended; and the expenses of army 
 transportation were correspondingly increased. But had 
 the charges made by the railroads been what they were 
 prior to 1862, half the amount would have been sufficient 
 
59 
 
 to pay the accruing interest; and there would now be no 
 discussion as to how to provide for the deficiency. The 
 fact of their amounting to but a fraction of their former 
 sum is a circumstance of much greater importance and 
 profit to the Government than if they had equaled the 
 amount predicted. While this is the cause of the inad- 
 equacy of the United States lien, it is followed also by a 
 gain to the Government in transportation charges much 
 greater than the interest on the bonds. As the companies 
 are held for the interest as well as the principal of the bonds, 
 the failure of the predicted amount of charges for United 
 States transportation is a misfortune to the railroad which 
 largely adds to the benefits received by the Government. 
 
 A source of most profitable traffic which was predicted sS! nerceof 
 to pass over the Pacific railroad on its completion was the 
 commerce between Asia and Europe. The commerce of 
 the world was to cross the American continent. This was 
 much dwelt upon as a prospective source of great revenue 
 to the companies. For instance, the Government Direc- 
 tors of the Union Pacific Railroad, in reporting on the 
 prospects of that road to the Secretary of the Interior, 
 prophesied that, in adding this final link between the 
 East and the West, a new thoroughfare would be formed: 
 ( ' Between Europe, California and China, we shall nat- 
 " urally become, to a large extent, the carrier of the 
 u world's products, and take the place that Venice and 
 u Holland once held" (Rep., Jan. 30, 1867). 
 
 But while the rails of the two roads were daily nearing compSSoL. 
 one another, which were when joined to unite the Atlan- 
 tic and Pacific, work was progressing on the opposite side 
 of the world which led the waters of the Indian Ocean 
 into the Mediterranean Sea. The Pacific railroad was 
 completed May 10, 1869. In the following November, 
 the Suez Canal was opened. The completion of the canal 
 
6o 
 
 dispelled all hope of carrying across America the trade 
 between Asia and Europe. A portion of the commerce 
 between the United States and China or Japan crosses this 
 continent; but the commerce of Europe passes through 
 the canal. On this subject we have the testimony of Mr. 
 W. H. Whitely, the Custom-House Attorney for the 
 Pacific railroad in San Francisco, who, in reply to a com- 
 munication from the Treasury Department, says: "I have 
 c attended to the Custom-House business of the Central 
 ' Pacific Railroad Co. since 1875; and, with the exception 
 1 of silk-worm eggs, and two or perhaps three consign- 
 ( ments of valuable furs for, I think, London, England, 
 4 there has been no such thing as commerce between Asia 
 ( and Europe via San Francisco, and there never will be 
 c so long as the Suez Canal is navigable. * * * * 
 ' There is a tradition in this office that, soon after the 
 ' opening of the overland road, we received a consign- 
 ( ment of raw silk for England; but I cannot locate it. 
 ' No tea, to the recollection of the oldest inhabitant, has 
 ' ever been consigned this way ; and no sons of men now 
 ' living will see such a transaction. Every effort has 
 ' been made to increase what so many imagine to be an 
 ' important commerce. It is of no use. The natural 
 ' advantages of an all-water route in steamers via the 
 ' Suez Canal cannot be overcome" (Rep. Internal Com. 
 U. S., 1884, p. in). 
 
 The development of the ocean freight steamer, which 
 has occurred since the opening of the Pacific railroad, has 
 further increased competition by sea, so that now not 
 only does commerce between Asia and Europe go through 
 the canal, but much traffic between China and New York 
 also takes the same course. A large portion of the com- 
 merce also, between Oriental countries and the United 
 States, has recently been diverted from American carriers 
 over the Canadian Pacific line. 
 
earnings. 
 
 61 
 
 These predicted charges to the Government for trans- JJSiSed 
 portation, and of large returns to the company from that 
 and other sources, were the promises to the road on which 
 the manner and time for the repayment of the bonds and 
 interest were based. 
 
 When it was found that the predictions were not real- 
 ized, the Thurman Act, in 1878, provided for the deficit 
 by requiring an annual payment of twenty-five per cent of 
 the net earnings from the companies. And now it is 
 found that, if the whole of the net earnings were required 
 from the bond-aided line, the sum, on the Central Pacific 
 at least, would pay but a fraction of the accruing interest 
 on the U. S. bonds. This result is caused by the reduc- 
 tions in rates which have constantly taken place on these 
 roads (see Rep. U. S. Comr. of R. R's., 1883, pp. 5-6), 
 and latterly by a loss of traffic through competition with 
 other Pacific railroad lines which were also aided in their 
 construction by the Government, as well as with the 
 Canadian Pacific Railway, which not only has received 
 enormous subsidies from the Dominion Government, but 
 is not subject to the restrictions imposed on American 
 roads by the Interstate Commerce Law. 
 
 CONCLUSION. 
 
 From the foregoing statement of facts, the following 
 conclusions may be drawn as to the present relations 
 between the company and the Government. 
 
 The contract obligations have all been complied with by 
 the company to date. When it became apparent that the 
 current payments on the bonds and interest as provided 
 by the Contract Acts were not sufficient to provide for the 
 debt when due, the company through its Board of Direct- 
 ors provided for the establishment of a sinking fund in its 
 
Control 
 assumed by 
 Government. 
 
 United States 
 lien. 
 
 treasury, which should be adjusted from time to time so 
 as to fully pay the bonds and interest at maturity. The 
 formal resolutions for that purpose were printed; and 
 copies were placed in the hands of the proper officers of 
 the United States. The Government, however, decided 
 to take the matter from the company's charge, and, by the 
 Thurman x\ct of May 7, 1878, assumed control of the 
 matter by exacting certain annual payments into a sinking 
 fund in the United States treasury. By the same Act 
 (section 8), the company was excused from making other 
 payments on account of its debt to the United States, 
 except those provided therein. The company was also 
 allowed (section 6) to pay dividends from any surplus 
 earnings remaining after meeting the Thurman Act 
 requirements. Following this assumption of the control 
 by the Government, dividends which had been suspended 
 ill 1877, pending discussion of the debt settlement, were 
 resumed in 1880. 
 
 Had the control of the debt not been assumed by the 
 Government in i8j8, the company ivould . have been able to 
 provide for it. The company's plan would have paid the 
 debt. The net result of the Government's plan to Decem- 
 ber 31, 1888, is a loss to the road of $2,000,000 by the 
 wasteful investments of the sinking-fund money in the 
 custody of the Secretary of the Treasury. This loss is 
 nobody's gain. 
 
 The United States bonds issued are at the mileage rate 
 named in the Act; and the company's bonds for an equal 
 amount were also issued as the contract provides. The 
 lien of the United States is subject to the prior lien of the 
 company's bonds, and covers only the aided line of road 
 (see 118 U. S. Reports, p. 235). The value of the United 
 States lien which depends on the earning power of the 
 aided line is far short of the debt, the accrued amount 
 
63 
 
 of which, less the repayments thereon made by the com- 
 pany, is about $50,000,000. Even if there were not back 
 interest to provide for, the annual interest, amounting 
 to $1,671,341, would considerably exceed the current 
 earnings. 
 
 The net earnings of the aided line, subject to the pay- Jjjjj 1 ^ 6 
 ments which are prior in lien to the United States bonds, 
 represent the extreme sum which the company can be 
 required to pay by any construction of the agreement. 
 The annual amount of these earnings has shown a gradual 
 decrease since the completion of other transcontinental 
 lines; and now the competition of the Canadian Pacific, 
 subsidized by the Dominion Government and not subject 
 to the restrictions of the Interstate Commerce Law, further 
 reduces our income and adds to the uncertainty of its 
 future. The average net earnings of the aided line, in- 
 cluding both the Central and Western roads, amount 
 currently to about $1,000,000 per annum; but, in three 
 years out of the past six, they have fallen considerably 
 below this sum. A payment on the debt amounting to 
 $1,000,000 a year could not be secured with certainty, 
 except by the voluntary guaranty of other associated lines. 
 Neither can payments be secured other than those now 
 made, except by the consent of the company. 
 
 All obligations of this company to the Government have u! s p , r bSh Ses to 
 been promptly and fully complied with. This is true not pifed, have 
 only as to the specified terms of the Contract Acts and all 
 other laws of the United States, but also as to all implied 
 promises or predicted benefits to the Government from the 
 construction of the road. This is established by the fore- 
 going extracts from the reports of Congress, the courts 
 and commissions. It is shown on the same authority that 
 the Government is delinquent in its contract obligations 
 to the company, and continues to disregard the require- 
 
 stated and im- 
 >lied, have 
 een fulfilled. 
 
6 4 
 
 inents of its own laws, and to ignore the decisions of its 
 own courts. While the predicted benefits on behalf of the 
 Government have been more than realized, those promised 
 to the company have as completely failed. The United 
 States bonds and interest, the amount thereof, the time 
 and manner of their payment, as well as the lien therefor, 
 are all as specified in the Contract Acts and amendments. 
 The impairment of the value of the lien, and the changes 
 in the amounts and manner for the repayment of the 
 bonds and interest, the Government alone is responsible for. 
 settlement The position of the Government as to this loan is simply 
 
 must consider r % t t t x J 
 
 equities. as a private creditor; and, if it were a private person, 
 
 there would be no difficulty in effecting a settlement which 
 would be just and honorable alike to the debtor and cred- 
 itor. Such a settlement would consider not only the value 
 of the security and the extreme annual payments possible 
 to exact, but the equities would be stated as an offset to 
 the mere legal demands. Not the least among these are the 
 benefits realized by the creditor from the use of the prop- 
 erty, which are all in excess of his expectations, and 
 which are accompanied by and to a large extent are the 
 cause of a corresponding failure in the promised returns 
 to the company. 
 
 G. L. LANSING. 
 
INDEX. 
 
 PAGE 
 
 Accountants for United States examine Company's books ... 5, 10 
 
 Accounts and Books of Company. 
 
 Nothing due United States for erroneous accounts 15 
 
 So kept as to show aided line earnings 13 
 
 System of book-keeping not open to criticism -. . 15 
 
 Aided Line. 
 
 Earnings of, predicted 57 
 
 " " shown by books 13, 63 
 
 Lien of United States, confined to . 21,62 
 
 No discrimination against 14 
 
 Not injured by rebates, overcharges or pools 15 
 
 Traffic diverted by Company from, only in public interests . . 14 
 Traffic diverted by United States aid to competing lines ... 35 
 
 Aid Granted. See Causes of Grants. 
 
 Asia. 
 
 Commerce of, predicted for road 59 
 
 Benefits Promised. 
 
 Promises to Company 6, 42 
 
 " " failure of 57,61,63 
 
 Promises of, to Government 42 
 
 " " ". realized 55, 64 
 
 Review of promises and how realized 6, 40-64 
 
66 
 
 Bonds. page 
 
 Company's. 
 
 Amount of issue provided by Act 21 
 
 Prior in lien to United States . .... 21, 62 
 
 United States. 
 
 Amount of bonds and interest less than amount saved by 
 
 United States 3, 53 
 
 Amount less than expected 48 
 
 Amount of issue provided by Act 21,64 
 
 Company offers to provide for 25, 61 
 
 Company's loss in realizing on them 33 
 
 Government responsible for their non-payment . . 23, 26, 62 
 Means of payment based on promised returns to Com- 
 pany 6, 35, 57, 61 
 
 Pa3'able in Currency 33 
 
 Books and Accounts. See Accounts, 
 
 System of book-keeping not open to criticism 15 
 
 Branch Lines. 
 
 A source of profit to Company 17 
 
 Capitai, Stock. 
 
 Manner of issue as required by law 19, 22 
 
 Original holders 22, 30 
 
 Purchased by third parties on guaranty of Thurman Act . 19, 28, 62 
 
 Canadian Pacific Railway. 
 
 Subsidies to by Dominion Government 56 
 
 Competition of 60, 61, 64 
 
 Causes oe Grants. 
 
 As stated by Justice Davis 40 
 
 Summary of causes 42 et seq. 
 
 Charges Made Against Company. See Obligations. 
 
 Commerce. 
 
 Predicted for road 57 
 
6 7 
 
 Competition. page 
 
 Canadian Pacific 60, 61, 64 
 
 Other lines aided by land grants 35 
 
 Suez Canal 59 
 
 Construction of Road. 
 
 Completed seven years before contract required 32, 53 
 
 Cost less than predicted by Congress 41 
 
 Difficulties in 17, 3 2 
 
 Stock issued in payment of 22 
 
 Debt to United States. See Bonds. 
 
 Development of the West. 
 
 Resulting from construction of road 54 
 
 View of General Sherman as to 55 
 
 Discriminations. 
 
 No evidence of 14, 18 
 
 Diversion of Traffic from Aided Line. See Aided Line. 
 
 Dividends. 
 
 All paid have been earned 19, 23 
 
 Provided for by Thurman Act 19, 23, 27, 62 
 
 Sum of not affected by amount of stock issued 22 
 
 Earnings. 
 
 Aided line net earnings, shown by books 13, 63 
 
 Predicted for road 57 
 
 Engineer. 
 
 United States, examines property 11 
 
 Equities Claimed by Company. 
 
 Acknowledged by United States 38, 63 
 
 Damages for non-issue of patents for lands earned 16 
 
 Injury to Company by management of sinking fund .... '36, 62 
 Government subsidies to competitors of Central Pacific ... 35 
 
 Loss on sale of United States currency bonds 33 
 
 Review of . 32, 61 
 
 Saving in United States transportation charges 33, 47 
 
 Transportation charges on non-aided lines due but not paid. . 34 
 
68 
 
 PAGE 
 
 Freight Charges. See Transportation Charges. 
 
 Grant of Aid. See Causes oe Grants. 
 
 Indian Wars. 
 
 Ended by construction of the road . 46 
 
 Cost of, prior to road 49 
 
 Lands. 
 
 "Delays issuing patents for, by United States 16 
 
 Grants to competitive lines 35 
 
 Injury to Company from delayed patents 16 
 
 Not diverted from lawful use 15 
 
 Lansing, G. L. 
 
 Letter to Hon. Leland Stanford, transmitting statement ... 6 
 
 Leases. 
 
 A source of pf ofit to Company 18, 37 
 
 Legislation. 
 
 Company embarrassed by hostile 36 
 
 Lien of United States. 
 
 Causes of decrease in value of 14, 35, 56, 59, 61, 62, 64 
 
 Injured by United States aid to competing lines ....... 35 
 
 Limited to aided road 21, 62 
 
 Subordinate to Company's bonds 21, 62 
 
 Loans by Company. 
 
 Personal credit of Proprietors used for 17 
 
 Mails. See Transportation Charges. 
 
 Mexico. 
 
 Subsidies to railways 56 
 
 Military Railway. 
 
 Road aided as a military necessity 44 
 
 Views of General Sherman 46 
 
6 9 
 
 Obligations. page 
 
 Both legal and equitable 5, 9, 63 
 
 Legal obligations and their observance, view of 9, 63 
 
 Of Company, all observed 12, 31, 34, 61, 63 
 
 Of United States, not observed 12, 34, 38, 63 
 
 Political Necessity op Road 43 
 
 POOLS. 
 
 Beneficial to Company and public when suitably controlled . 18 
 
 Saving to United States in Transportation Charges. 
 
 Commission report on 33, 52 
 
 Diagram showing view of 3 
 
 Review of 47 et seq. 
 
 Settlement for Bonds and Interest. 
 
 Must consider equities 38, 4 
 
 Proposed by United States Commission 38 
 
 Sinking Fund Act. See Thurman Act. 
 
 Sinking Fund. 
 
 Company proposed to provide 25, 26, 61 
 
 In United States Treasury, condition of 36, 62 
 
 Southern Pacific Company. 
 
 Due by United States for services on non-aided lines not paid . 34 
 Lease to, just and equitable 37 
 
 Stanford, Iceland, President Central Pacific Railroad. 
 
 Letter of, asking for statement as to relations between Central 
 Pacific and United States 5 
 
 Suez Canal. 
 
 Competition of . 59 
 
 Thurman Act. ' 
 
 Excuses Company from making other payments on debt to 
 
 United States 23, 26, 30 
 
 Payments under, promptly made by Company 15 
 
 Provides for payment of dividends 19, 23, 27, 62 
 
 Sinking fund established under, condition of 36, 62 
 
7 o 
 
 Transportation Charges. page 
 
 Freight rates of railroad 50 
 
 Mail transportation 51 
 
 Neglect of Government to pay charges on non-aided lines . . 34 
 
 Saving in, to United States 3, 33, 47~54 
 
 Wagon rates for army transportation 50 
 
 United States Government. 
 
 Benefits from use of road 42 
 
 Bonds issued to Railroad. See Bonds. 
 
 Charges to Government on non-aided lines due but not paid . 34 
 
 Government responsible for condition of debt ... 23, 26, 62, 64 
 
 Grants of aid followed by Mexico and Canada 56 
 
 Grants of aid more than justified by results 56 
 
 Obligations to Company not observed 12, 34, 38 
 
 Object of, in granting aid. See Causes of Grant. 
 
 Payments by Company all promptly met 15 
 
 Saving in transportation charges to 3, 33, 47-54 
 
 Sinking Fund. See Sinking Fund. 
 
 United States Lien. 
 
 Causes of decrease in value of 14, 35, 56, 59, 61, 62, 64 
 
 Iyimited to aided road 21, 62 
 
 Subordinate to Company's bonds 21, 62 
 
 United States Pacific Railway Commission. 
 
 Settlement proposed by 38 
 
 Summary of their report as to Central Pacific 9-39 
 

 m