Lniv.Gf j H, Library Wn LETTERS ON Abuses and Misuses Q is v> 00 w ^ < O 2 IN THE Management OF THE ENNSYLYANIA RAILROAD For Free Distribution. SCARBOROUGH 1 E. T. W. Dennis, Printer, 82, NewborougiJ StreBt. 1882. Digitized by the Internet Archive in 2015 https://archive.org/details/lettersonabusesmOOunse TO THE SHAREHOLDERS OF THE Pennsylvania Railroad. The writer was requested many months ago, to republish the letters he issued to the Philadelphia Shareholders in 1880, on "The Abuses and Misuses" in the management of the Pennsylvania Railroad. As he sees no improvement in the management or credit of the company, he is now induced to trace out the cause, and to reprint some of the letters, and so invite the Share- holders to consider seriously the financial policy of the Directors, which places the Company in so much doubt and mistrust with the public. It was one of the last acts of President Thompson to sanction the appointment of a Committee of Shareholders to investigate the position of the Company, and to suggest \ improvements in the general management of the Road. : I will give a few extracts from their reports, and preface these with the unqualified sanction and approval of the Directors, under the presidency of Thomas Scott. The ' two annual reports the Shareholders can easily refer to. In the one for 1875, pages 47 and 48, we read: % "The Committee so appointed, made a thorough % examination of every thing committed to their charge, including the books, leases, contracts, and records of every - nature and kind; and having visited the Roads and properties of your Company, finally made a report to a Special Meeting of the Shareholders, called by the chair- man of the Committee, and held October 3rd, 1874." "This report, covering 240 pages of closely printed matter, gives the Shareholders in detail, all possible 4 information, in regard to the condition of the Company, and the values of its property, // is perhaps the most complete and exhaustive report that has ever been made to the Shareholders of any Company. The Committee are entitled to great credit for the zeal, and ability, with which they discharged the duties entrusted to them," » Again, in the Annual Report for 1876, on page 43, the Directors say, " The Report is considered by experts, both in this country and Europe, to be o?ie of the most exhaustive and valuable documents ever prepared in connection with any Rail- re ay Company T Page 44, the report concludes as follows : " It is hoped that the results attained during the past year will be satis- factory to the Shareholders of the Company. Your Board beg to assure you, that in their judgment the property of the Company was never before in as good condition as at the close of the past year. The Roadway has been greatly improved, the equipment is in thoroughly good condition, facilities have been enlarged and extended, the capacity for doing a largely increased business is now provided ; and it is believed, that with moderate expenditures for construction and equipment purposes, during the next few years, and with the return of reasonable prosperity to the business interests of the country, your road can, and will, under proper economical management, show results that must be grati- fying to its owners T Here we have the ownership of the Road and net earnings admitted, but how fearfully and shamefully belied have all these fair promises been, and within two years, the dividend was stopped, when the net earnings were 6 to 7 per cent. I now give a few extracts from the Shareholders' Com- mittee's Report. On pages 16 and 17 it is stated :— The cost of the road is - - - $178,371,778 And the capital to debit - - - 127,560,848 Leaving a surplus value of - - $50,810,930 Which makes each share of the Company to represent a value of $87*28. This surely asserts ownership to this surplus value. Page 23 it is stated, "$36,133,637 during the previous nineteen years, have been taken for betterments, generally 3 excess earnings over the dividends paid." Page 24 it states, " Taking the real cost of the Road, embracing nine hundred and ninety-four miles single track, as above, at $55>743,86i, it gives an average cost of $45,436 for one mile of single track, which is below the average of the best Roads, but which is represented on your books at an average cost of $i9>73° per mile, making a total cost of $19,610,223." Page 1 16 it is stated, "in 1873 the Roads controlled by the Pennsylvania Railroad Company earned 6rWr P er cent on their entire capital and bonded debt; that the Roads east of Pittsburg earned 7-1V0 per cent, and the Pennsylvania Railroad proper, after paying interest and losses on her leased lines, earned for its stockholders 12-dHhr per cent." . _ • . . Page 187. " That the Pennsylvania Railroad Company is wonderfully fulfilling the objects of its creation no one can doubt, who will compare the comparatively feeble, doubtful, and undeveloped condition of the State of Pennsylvania in 1846, when the Company was chartered, with its present powerful and prosperous position." With all these benefits conferred on others it has paid its Stockholders from 1853, when the line was opened to Pittsburg, down to 1873 — a period of twenty years — an average of nine and nine- tenths per cent. Page 154, on the finances of the Company, it says:— " Summing up these items, and looking at the past busi- ness and net earnings of your Company, we feel quite safe in recording our opinion that the net receipts of the Pennsylvania Railroad Company will, after the present exceptional year, be equal to fifteen per cent, on a capital stock of $70,000,000, which will give you a reliable dividend of ten per cent., and leave $3,500,000 for developing the general interests of the Company." In the Resume, page 181, the Committee say, "We have given you a detailed explanation, and introduced our valuations of the different items in the general account, as submitted by the Board of Directors, to December 31st, 1873, and have shown that the assets of the Company are worth $118,955,405 over and above its bonded and other indebtedness, and deducting the amount of capital stock issued to December 31st, 1873, leaves a surplus value 6 of $50,810,930, making each share of stock represent $87*28, excluding any increased value in the anthracite coal interests held by your Company, and that each mile of single track represents a value of $45,436, while on your hooks it shows but $19,728*59 per mile. With all these facts and assurances held out by the Committee's Report, and the emphatic endorsement of them by the Board, what can justify the Directors in their present unjust policy, and especially in with-holding from the Shareholders, in the present prosperous state of the Road, the $6,000,000 of net earnings which belonged to dividends in 1878-9, and which they unscrupulously applied to new works and betterments. In the interests of the Shareholders, I demand the restitution of this money by an issue of stock to cover it, and the writer offers $500 if an ample fund is raised in America to test the question in the law courts, and compel the Directors not only to re- fund the $6,000,000 stopped in the years 1878-1879, but also much of the other earnings used for betterments. I may give you a quotation from the Philadelphia paper, The Railway World, of September 23rd, as it indicates not only the depressed value of the Pennsylvania shares as compared with other Roads, but it surely points to the questionable position many of the Directors hold in public estimation. It says, " A novel and somewhat instructive contrast between the productive value of a number of important American Railway Stocks, at the prices current in London on September 8th, is presented in the following table, given in Slatterthwaite & Co.'s circular of that date, the rate of interest being based on the rate of dividend paid last year : — Baltimore & Ohio 10 per cent, at 205 yields 4*87 per cent. Central Pacific . . 6 ,9 96 » 6-25 >> Cleveland & Pitts. (guarantee) . . 7 >> „ H4 » 4-86 Illinois Central . . 7 >> H 2 » 4' 2 3 Lake Shore and Mich. South . . 8 >> „ 115 '„ 6*95 N. Y. Central and Hudson River . 8 ?> >, i3 8 » 5-80 Pennsylvania .... 8 >> „ 13° » 6-15 >> 7 In this list we have the Baltimore Road with its $42,000,000 of reserved earnings at 205 per cent, value, and the Pennsylvania with $68,489,699 net earnings at 1 10 per cent., can the shareholders be satisfied with a policy that leads to these results, and puts the Pennsylvania Road in a third rate position with the investing public. It will now be interesting to the Shareholders to see a little of the policy of some of the Directors as regards their own interests and investments as shown by the following list. ) 1870 1880 1881 Shares held in years | l8 § 0 l8 8i 1882 T. Scott 112 2000 r G.B.Roberts 200 5<> 2 57 6 Edward Smith 100 30° 3<> 0 A. J. Cassett 50 5° 5° W. L. Elkins. 100 151 2 5* — Cassett & Co 39^20, These being clandestinely or irregularly entered m the register. This statement requires, to make it complete, the holdings for 1878-1879; but, unfortunately, I cannot give these. What is given will perhaps be instructive to the Shareholders as regards the past. Many of the Directors, I am glad to say, honourably held their shares "through evil and through good report," but we see the Finance Committee putting themselves m a very comfortable and convenient position for the stoppage of the dividend, and I have no hesitation in expressing the convictions of my own mind, that the stoppage of the dividends was not made in the interests of the Shareholders, or the requirements of the Road, or a stock dividend would have been paid, but this would not have put the value of the shares down, and a deprecia- tion of $30,000,000 did not seem to disconcert or surprise some of the Directors. Is it too much to assume, the Shareholders who sold their shares in utter disgust, at 25 to 35 dollars per share, in consequence of the stoppage of dividend now trace some of the fruits of the stoppage, in the 39,220 shares surreptitiously entered in the register, of shares for 1879-1880, and also in the untold millions left by one of the Directors. I do not, of course, state 8 these as positive facts, but there is much that leads the Shareholders to very unsatisfactory conclusions. To show the present position of the Company, the several amounts taken from net earnings may now be given : — Page 23 of Committee's Report, it states reserved earnings at $36,133,637 Page 37 of the " Annual Report for 1878," we find taken from the Reserve Fund to reduce the cost of the Bonds and Shares held by the Company - - 7,9 1 0,387 Also appropriated earnings for 1879 - 645,675 Also taken annually for betterments since 1 873, say over two millions annually 16,000,000 Also stoppage of Dividends - 6,000,000 Also taken for Finance scheme in 3 years 1,800,000 68,489,699 If we take the increased value as given by the Committee at - $50,810,930 In the place of - - 36,133,637 And add this additional value to the net earnings - 14,677,293 We find an increased value on the cost of the road of - - - §83,166,992 After this statement what can be thought of Mr. Smith's letter of Dec. 16th, 1878, and the strange policy of the Directors "to keep down capital for five years," and what about the stoppage of dividend and keeping $6,000,000 for this purpose. I here reprint Edmund Smith's letter of Dec. 16, 1878. To Isaac Burkill, Esq. Dear Sir, — Your favour of the 12th ult., to Secretary Lesley was read at a meeting of the Directors, as you requested, and I was instructed to reply to it. Our Board of Directors are of opinion that our present capital is as large as it is prudent for it to be, at least for the next five years. Had all the investments made in years gone by turned out profitably, so that our income 9 would have kept pace with the increase of capital, then it might have been prudent to issue Stock or Bonds to represent undivided earnings of the Company. But many investments of the Company resulted in total loss in some cases, and partial loss in others, owing to causes which it is scarcely necessary to enumerate, the main one, however, being traceable to the fallacious condition of all monetary affairs at the close of the war. The views and policy of our Board of Directors may be indicated generally as follows : // being understood they are subject to such change as the force of circumstances may require. Out of the Net Earnings the fixed Liabilities, such as interest upon bonded debt, rentals payable under leases, &c, will be paid, also the sum of $50,000 per month for the purchase of certain securities under the terms of a Trust, a copy of which is herewith enclosed. A dividend will then be paid to the Shareholders of such a rate semi- annually as the Directors deem most prudent for the interests of the Company, and should any surplus remain, it will no doubt be used for the maintenance and improve- ment of the property, or for increasing the appropriation to the Trust annually. It is quite true that the shrinkage in the value of railway property within the last five years to which you refer has been great, but in our opinion it has been no greater proportionately than we see in every other business interest throughout the world. You will perhaps find that the average annual income that you have derived from your investments in the shares of the Pennsylvania Railroad Company for a number of years, compares favourably with any other of your investments of a similar character. Yours very truly, EDMUND SMITH,^ Vice-President. The following questions may be asked : — Is it usual or sound policy for Directors to pledge " future earnings for five years " for such a purpose ? Have not the investments now turned out profitably " so as to make it prudent to issue Stock or Bonds to represent undivided earnings ? " Have we not here the acknowledgement, that the Net Earnings be- long to the Shareholders, and has not this implied pledge under improved circumstances with all the assurances of 10 the Shareholders' Committee been most gratuitously ignored. Then, do the Shareholders quietly admit "the Directors are to pay such dividends as they please," and apply residue of earnings to the maintenance and improve- ment of the property ; if so, how can the shares have any value, but such as suits the Directors and their speculative purposes, if they are to use net earnings in this capricious way. It might be supposed the $68,489,699 already taken from net earnings would be enough to satisfy "the con- servative purposes " of the Finance Committee, with the greatly enhanced value of the property, as stated by the Share- holders' Committee, but if the Shareholders examine the annual reports for the last ten years, they will find direct and indirect applications of net earnings in the way of betterments and working expenses amount to a further large sum, and they will find " that convenient system of Trusts " absorbing a great deal more. We had a Trust for the §3,000,000 to pay for the Transportation Company Stock, a Trust to pay for waggons, which is to be paid off this year, see page 16 of last year's report, a Trust for waggons amounting to $11,337,000 page 17, partly paid, and $6,067,000 yet to be paid from net earnings. Again, we have a Trust for the $10,000,000 of Bonds to pay from profits for the P. W. and B. Road, the $7,000,000 in shares having been merged, I assume, in the Pennsylvania Capital to receive dividends from the earnings of the Pennsylvania Road. After all this, one might use the words of Shakespere in describing such men as may be found amongst too many of the Directors of American Roads, " Iago, with all thy faults, I cannot kill thee." So with all the faults I have referred to in the management of the Pennsylvania Road, one cannot but admire the ability and cool cleverness of the Finance Committee in much that is done, in "the assumed interests of the Share- holders," and especially of those who will come into future possession of the shares, with " the three thousand miles to be secured by the purchase of bonds" (seethe annual report for 1878, page 77) at so much cost from net earnings. It may be remarked the Finance Committee, and the Directors, can go on pledging future earnings in this way, 1 1 but they can give no pledge to the Shareholders of a steady 8 per cent, dividend, or the 10 per cent, dividend the Shareholders' Committee assured, and advised, so as to crive a firm and steady value to the property,— a thing so much to be desired, although they have another reserved fund of near $10,000,000 for the purpose of equalizing the dividends, as I understand. Have the Directors ever considered the probabilities and possibilities induced by their policy, and uncertain dividends,— how the Shareholders, and the public, dis- gusted by a stoppage of dividend, calculate on a future stoppage, as it is clear, if one can be approved and passed over by Americans, a repetition can be. Do they consider the mistrust that is caused by large and irregular additions to the working expenses, and how they affect the value of the shares by causing suspicion^ Do they consider the questionable policy of allowing the President to alter and gives rates without consulting the Board ? as Shareholders see monopolies fostered on all hands, by this blind confidence. We have had mon- opoly in the coal trade, and the standard oil company, with its offspring, the Acme, that secret organization, to distribute millions of dollars " to those who had deserved th We have seen Col. Scott boasting he had carried much traffic at non-paying rates, " because the manufacturers had made contracts at low prices, ,, and applied to him to help them to a profit. These are things that could never have been thought of " in the Old World," where to use a vulgar saying, " every tub is allowed to stand on its own bottom." We now see the Reading branches are to be made by two companies, for future manipulation and arrangement, as though the Pennsylvania Company could not raise the money by an issue of shares to make these tributary roads. Truly this round-about way is a puzzle that defies any Englishman to comprehend it, and when things cannot be comprehended there is generally the fear of indirect profits on the contracts for some one, and the Shareholders are cheated out of the benefit of an issue of new stock. We see Roads bought and sold, and as regards the latter, results are not to be traced in the accounts so far as the writer can see. u. OF ILL UB. 12 Now a few words on the policy of taking Net Earnings for betterments. The policy doubtless began in expe- diency, but what are the results ? It is pretty generally admitted the reserved net earnings belong to the Share- holders, but they are to be distributed, or capitalized when it is expendient, or suitable to the Director? to do this. We have the Baltimore Company with $42,000,000 of reserved earnings. It has been recently stated, the Direc- tors, for twenty years, paid scarcely any dividend in order to accumlutate this large amount, as the Pennsylvania Direc- tors would term it, "to keep capital down," and it may be asked how many of the Shareholders outlived the twenty years of extortion, or sold out at nominal prices, while the few rich men of Baltimore got possession of the shares, and "the good things" that wait the disposal of the Directors. We have again, the New York Roads managed on the same convenient principles, until the Vanderbilts owned most of the Shares, when an 80 per cent, issue of stock was made, and a further issue is now expected by the present Shareholders, when it suits the Directors to make it. Then we have the Pennsylvania Company after a 30 per cent, bonus issue of Stock and a subsequent issue of 10 per cent, made by President Thompson, with near $80,000,000 of reserved earnings now held at the will and caprice of the Directors. Surely the rights of the Share- holders have been admitted by the distributions above named, and what can now justify the withholding so much of the earnings from them. This policy which began in expediency is made the means of stupendous wrongs, by making a few millionaires at the cost of the many, who cannot hold their shares until it is convenient to the Directors to return the reserved earnings to them, the rightful owners. We see one Company after another making restitution, and as remarked in one of my letters to President Roberts, " if they knew the wisdom and satisfaction of working the Roads for the Shareholders, and paying dividends on the full cost, they would never wish to go back to the miserable system of expediency, and betterments that obtains so generally in America." I would ask the Shareholders what they think of the 13 Finance Committee, as it is, and as it was recommended by the Shareholders' Committee, page 191, of their report, viz. : — " That, if such an Act is obtained and accepted by the Stockholders of the Pennsylvania Railroad Company, there shall thereafter be selected from among the Directors elected by the Stockholders at each annual m.eeting four persons, three of whom shall be skilled in the construction and manage- ment of railways, and one of distinguished reputation for financial experience, and skill, one of the above-named three shall be elected as President of the Company, the details of duties being left to the discretion of the Directors as a body." We now see the Finance Committee selected from the officers of the Company, and practically ruling the policy of the Board, and what is the experience of the Shareholders during the time of their appointment since 1875. We have had no lack of financing, much of which the Shareholders do not understand, such as the payment of 10 millions of dollars for the purchase of the P. W. and B. Shares, and the issue of 10 millions by the Pennsylvania Company, which it is assumed has been chiefly used to buy up the Shares and Bonds of the C. C. and I. C. Roads, so " as to make pleasant" a settlement of the long pending suits with the Shareholders of that unfortunate Company. Then, as a climax of finance, we have the stoppage of dividend without a word of explanation — this was truly " Scottish" in its daring and morality. Many other bits of finance might be named but which may be referred to elsewhere. After all this experience, so unusual in Railway management, I again ask the Share- holders what they think of the Finance Committee. Now we are having new appointments to it, of course named by Mr. Roberts, and from " the officers of the Company," it will become a self-constituted Committee, that none of the Directors will dare to question, or oppose, lest their names should be dropped from the annual Ticket, as honest J. Derbyshire's name was, without giving him an opportunity at the meeting to explain his position to the Shareholders. I am free to admit the great ability of the officers of the Pennsylvania Company, but if great ability is combined with questionable .principles what results may be looked i4 for ; " Brutus was an honourable man," and so may the Pennsylvania Officials be, " all honourable men " as well as those of other Roads, but when we see the Presidents of these Trunk Roads leaving, or possessing $5,000,000 to $50,000,000, it rather staggers one's faith in their dis- interestedness, if not in their honesty, and while these large fortunes were accumulating the interests of the Share- holders have been a very secondary thing with them, and have often been made a convenient means " by the better- ment policy" of making the few rich instead of the many. It is well to call the attention of the Shareholders to the unjust rules laid down for the use of proxy papers, viz., that no Shareholder attending the annual meeting shall hold, or present, more than three, and as the names of the proxy must be inserted before they are attested and made legal, they cannot be transferred, the result is any- one who has the confidence of the foreign, and home Shareholders if he receive 500 proxies he can only use three, the others being annulled by this rule. Let the Shareholders see the working of this rule on the other side, the Directors send proxy forms to Mr. Powell, in London, with names of those who usually vote for them inserted, and only for such, thus giving to each the number they can vote. If American Shareholders will tolerate this tricky practice now it is stated to them, they will not promote fair play which all good men wish to see ; but they will increase the demoralization which they deplore in much of the policy of the Company. The Times correspondent in Philadelphia writes October 12th, 1882. — W. A. Vanderbilt being interviewed in Chicago, (that absurd practice that seems to break down the independence of public men in America) after many pertinent and impertinent questions on the management and policy of his Roads, and how far this was done in the interests of the public, significantly said, " the public be d— — , what do the public care for the Railroads, but to get as much out of them and for as little consideration as possible. We work the Roads on business principles to make them pay, and not on sentiment, professing to care for everybody before the Shareholders," and for these sound 15 principles, not for the coarse expression, Mr. Vanderbilt is to be ostracised by the press, and held up to public con- demnation. Surely interviewing is made a foolery in such cases as this, and open to all kinds of misrepresentations to gratify the anti-monopoly section in the States. I now refer to the following letters, some written during the year and others selected from those published two years ago. Westwood, Scarborough, June 28th, 1882. G. B. Roberts, Esq. Sir, — The annual report, which is drawn up with great ability, does not in anything fall behind former reports, it is equally clever in its omissions and admissions, and the purpose of this letter is to point out some of these, and invite you to state to the Shareholders in the next annual report, what, in the views of the Directors, makes it necessary to keep down capital account, while growing population, and trade, demand extensions and large ex- penditures. The Shareholders, with a little careful examination, may find the Pennsylvania Road, the last two years, has earned 16 to 18 per cent., can this imply necessity to keep down capital ? In the Cumberland report, after the payment of 10 per cent, dividend, it is said the " increased expenses, are caused by charging thereto, expenditures for additional equipment," in pursuance of the policy " of bringing this property up to the highest standard of efficiency without increasing its capital account T The dividend may be satisfactory, but where is the necessity to keep down capital, at the expense of revenue, on such a successful Road. If we now try to find, from documentary evidence, any- thing to justify this policy, we do not find it in the annual reports, but I may refer to Edmund Smith's letter of 16th December, 1878, which I published some time ago, and to the Shareholders' Committee's report, which certainly do not sanction the policy now pursued by the Directors. Mr. Smith wrote at a time of great Railway depression, as follows, " Our Directors are of opinion that our present capital is as large as it is prudent for it to be, at least for the next five years ; " in this opinion we have the impression i6 left, by five years of trade depression ; he then says, " had the income of the Road kept pace with the increase of capital then it might have been prudent to issue stock, or bonds, to represent the undivided earnings of the Company," this language was used, and approved by the Board, and the paragraph has two important admissions, first, " that the net earnings belong to the Shareholders" and second, that they ought to be distributed to the Shareholders in Stock, or Bonds, when the earnings of the Road are satis- factory. How then can such language as this be ignored, and belied, to gratify the unnecessary " whim " of keeping the capita] account down. Can it be alleged the income is now, not equal to the growing capital. If the property was depreciated in value four years ago, will anyone dare to say it is depreciated now, or can they say it is not greatly enhanced in value in every respect. If we turn to the Shareholders' Committee's report which was approved and endorsed by Colonel Scott and the Board, we find it stated in unequivocal language that the stations and Roads could not then be built, within very many millions, of their actual cost, and yet Mr. Parker says "$50,000,000 of the net earnings have been kept from the Shareholders to cheapen the cost," and the mania for cheapening still goes on. Now, where is the necessity for this, and why is not the implied promise in Mr. Smith's letter acted on ? Is this a delusion, as the Shareholders' Committee's report was made to be, by the reckless " rates wars," and continually reducing rates, so that instead of the shares being of the $87 value, as stated in the Committee's report, they seem to be any- thing the dubious policy of the management makes them. Could I impress on you the wisdom and desirableness of paying dividends on actual cost, you would soon find out many advantages, it would place the management on an honorable basis, and do away with all the mis- trust and discontent that now surround it, it would give a prestige and standing to the Company that American Roads greatly need, and make the Pennsylvania the first investment property in the States, and with a policy of peace and mutual development with all Roads, you would make yourself a nation's example and benefactor, and greatly multiply benefits to your own Shareholders. This n policy would do away with much of the unreasonable claims of the public for lower rates, as it would be seen the earnings on actual cost were not unfair or unjust. I remain, yours truly, ISAAC BURKILL. p^S. — As I, like many of the other Shareholders, have been greatly deceived by the Committee's report, and held shares on its assurances, will you not inform the Share- holders it was a great hoax, and it was never intended to carry out its recommendations, or will you now endeavour to carry out its engagements, as they were so formally accepted by the Board. Westwood, Scarborough, August 2nd, 1882. G. B. Roberts, Esq. Sir, — If any of the remarks in my letters to you appear to imply personal ill-will, or reflect too severely on personal conduct, I wish to remove such impressions, as my quarrel is simply and solely with the policy the Board pursue, and my wish is to see the Pennsylvania Road, as I have often said, a sound and safe investment for the public, as assuredly it ought to be ; and holding myself more than 4000 Shares, which will be held as an investment for many years to come, you will not be surprised I am anxious to see a just and wise policy carried out by you. I have never sold a Share, but have transferred a few hundreds to my son and daughter, as a permanent investment for them. After thus stating my purposes you will perhaps favourably con- sider the following remarks : There is much in the American Railroad system that is admittedly bad, which does not strike the tolerant American mind, as at all unusual, or improper. The way in which many foreclosures have been made, has imposed untold loss on the shareholders, but perhaps the most reprehen- sible thing of all is what we have recently seen in the Jersey, the Cleveland, and the P. W. and B. Roads, viz : buying a preponderance of the Shares at fabulous rates, to gain the power of appointing the Directors, not on the honest principle of working the Road in the interest of the Shareholders, but simply to make it subservient to the interests of others ; and the Shareholders who have not i8 the opportunity to sell, or do not, see their property pirated from them by shameful plotting and intrigue. It may be assumed, the Directors usually have, or can have the power, with the consent of the Shareholders, to sell and transfer the Roads on fair terms, and how much more honourable it would be to make such arrangements a Board transaction, instead of conspiring with Syndicates and Bankers to get a thing attained, in an underhand way, and by such means, at a much greater cost. We see in the Cleveland Road the new Directors, in connivance with the minority of the Old Road, stop the Dividend, when the Road had earned sufficient to pay a good dividend. We see in the Jersey Road, Vanderbilt and Gowan, placed at the Board, to work the Road not for the Shareholders, but to carry out the Reading and New York policy and interests. \Ve see in the P. W. and B. Road (which was almost wholly bought) the plausible purpose of redeeming the $10,000,000 of Bonds indirectly from the earnings of the Pennsylvania Road, so that the purchase may stand at $7,000,000 ultimately. That the simple American Share- holders cannot see the injustice of this, is very strange, they are told the surplus earnings of the P. W. & B. Road may cover the $10,000,000 in Bonds, but they are not told the Pennsylvania dividend may be kept down if not reduced by the $7,000,000 in shares, issued in part payment. There is" something so financially sharp in this arrangement that few would suspect its design, and who can tell the con- sequences when the Baltimore Company make their new competing Road, and further complications arise to lessen, it may be, the earnings of the Pennsylvania Road. The " spendthrift policy" could not be more dangerous and absurd than pledging the net earnings of the main Road in this reckless way, and yet Steinmetz and Remak, and the directors can see no other way to cover these large expenditures, or for raising money, but the light fingered practice of taking it covertly out of the Share- holders pockets, and perhaps greatly reducing the value of the shares ultimately. If we could conceive of other properties being subject . to such influences as these referred to in Railroads, what would it lead to, surely property would be a curse instead of a blessing, and there would be no confidence, or con- 19 tentment, but happily it is only in American Railroads this strange evil is to be found, and perhaps it may be attributed to the precocious talents of some. of the Presi- dents who are so strangely invested with almost unlimited power. Well may Shakespere write, " Man, drest in a little brief authority, plays such fantastic tricks before high heaven as, make the angels weep." Hoping for reform soon, and a remedy for these ills, I remain, yours truly, ISAAC BURKILL. N.B.— It is now stated that the Cleveland dividend is to be paid to avoid law proceedings. The following values of English Railways in September, 1882, were sent to President Roberts with the letter dated September 1 3th. : — London and North Western, 178 to 178^ ; London and South Western, 135 to 136; Metropolitan, izotoizoj; Midland, 138^ to 138J ; North Eastern, 170! to 170J ; South Eastern, 132 to 134. Westwood, September 13th, 1882. G. B. Roberts, Esq. Sir, — I hand you the above instructive list of values of our chief English Railways, as they hold out some assurance as to what American Railways may be, and ought to be. I have great confidence in their future value, and that sound, just, commercial principles will soon govern them. John Taylor quaintly observed at the annual meeting that " Americans have a very amiable and hearty appreciation of everything connected with their country, and from oysters upwards, to their great rivers and mountains, they think there is nothing elsewhere like anything that is American, but there seems to be one exception, he remarked, and only one, I can find, and it seems to be in their estimated value of the Pennsylvania Rail Road." I need scarcely point out to you in the above list, the two Railroads that compare best with the Pennsylvania in amount of traffic, and in national importance. The North Eastern Railway, and the London and North Western, both paying a divi- dend rather lower than the Pennsylvania, and yet standing in market value at 70 per cent, and 78 per cent, premium. 20 Is there nothing instructive in the fact that investors will hold these properties at so high a premium to pay them rather under 4 per cent., while the Pennsylvania shares are selling at 126 per cent., a premium 0/26 per cent., and recently at 1 2 per cent. only. When it is considered the English Roads pay dividend on a cost double, if not nearer three times the mileage cost of the Pennsylvania, there surely should be no misgivings about the future of this first American Railway, and much less reason for the crimping policy of keeping down its capital at the cost of net earn- ings, and the confidence of the public. I do not wish to bring any charge against the management in this letter, but would simply urge the enquiry, why should not the Pennyslvania again, as formerly, be the first and most successful Road in America, and take the honorable and advantageous position our two English Roads have estab- lished for their Shareholders ? That Railroads confer ample benefit on the public at large will not be questioned now, and there is no call for unjust sacrifices to be imposed on the Shareholders in the assumed interests of the public. I remain, yours trulv, ISAAC BURKILL. N.B. — American Shareholders will see by the above quota- tions the London and North Western shares are now at 78 premium, after an issue of $40,000,000 of new shares at par, two years ago. when the premium was 65 per cent. By this issue the Directors assert the rights of the Shareholders to all new issues, and Americans may note this large addition to capital has not checked the value of the shares, as legitimate increase of capital for increased property and rolling stock, cannot do. They may also note, this is the position and value of a Railway that has cost per mile near three times the cost of the Pennsylvania Road. [REPRINTED LETTERS.] We st wood, May 5, 1879. To the Directors of the Pennsylvania Railroad. Gentlemen, — Any fallacy or even ambiguity in business matters, I think you will agree with me, is to be deprecated. 21 and what greater fallacy can we have than the Monthly Reports of the Traffics, commenced, I think at the request of the English Shareholders, and in imitation of our English practice, to guide them in their estimation of the value of their shares and of the coming dividend, a thing that^is very closely attained with us, and which is so very desirable ; but in the practice of the Pennsylvania Com- pany, this object is defeated by capricious payment of dividends, wholly regardless of the earnings, and the returns are thus made a snare and delusion. I do not think this is intended, but such is the result, and the returns ought to be given up or the net earnings fairly assured to the Shareholders, as they are in this country. Common consistency, not to say common honesty, claims that the object of these returns be fairly carried out in the interests of the Shareholders. Another fallacy I may refer to, as it may become a grevious injustice to your present Shareholders. Your policy suggests the conclusion that money spent in ex- tensions, betterments, &c, &c, is simply wasted money, giving no adequate return, and therefore ought not to go to capital account. It was very differently stated by Col. Scott, four years ago, in the yearly report, when he estimated that money so invested gave a return of 20 to 30 per cent., and as there is no necessity to spend money unprofltably, I trust the net earnings which are taken so easily may not be so used in future to the loss of con- fidence and the credit of the Company. Another fallacy is, the Directors placing in the hands and power of the President the Funds, as well as the Rates of the Company, so that the stupendous interests of the Pennsylvania Railroad are easily involved by him, as we experienced in 1876, when a reckless fight was carried on for six months, and a wasteful expenditure made over the exhibition, the results of which we have felt ever since. Yet another fallacy, and I will close this letter: It is a reflection on your wealthy state and " proud city," to assume they cannot support these Roads without arbitrarily taking the net earnings to pay off floating debts or betterments, thus making your English Shareholders con- tribute to what alone is to benefit Americans, in future, by low-rates. You have misappropriated $6,000,000 that 22 ought to have been paid in dividends, and of this 1 am made to contribute $12,000 which I feel to be a great wrong, and injustice, and as unnecessary as it is grevious. Your finance scheme, which has the merit of putting the bonds up to a reasonable value, was suggested to you by your London Agent, with 5 per cent, stock for the money appropriated. This would in every way have been a good thing, but your financiers must suggest a 4 per cent, stock, and when you had asked and got the assent of the Share- holders at the yearly meeting, you then decided to take the money without any stock at all, in return for it. This practice may be American, if so, I trust it will be confined to American management, for surely no other nation has Shareholders that would submit to it. ISAAC BURKILL. N.B. — We have now had a second " rates war," which has caused infinite mischief, and millions of loss to Shareholders. Westwood, July 21st, 1875. To the Directors of the Pennsylvania Railroad. Gentlemen, — I promised in my last letter to supply a few deductions which fairly come from the system of finance, which has been inaugurated for the benefit of coming generations, certainly not for the present Penn- sylvania Shareholders. In the first place, as the scheme is designed to take $20,000,000 from the Shareholders "if circumstances permit " — that is if they are submissive — by the stoppage of dividend and misappropriation of net earnings during five years, which extraordinary policy put the value of the shares down 50 per cent., representing a depreciation of $30, 000,000 until the panic subsided, and the Share- holders regained some measure of confidence, and now the shares have advanced sufficiently to show the daring folly of the transaction. These are considerable sacrifices for the Shareholders to bear, to accomplish a doubtful and unnecessary policy. But this is only one side of the finance scheme. We have it stated in the Annual Report for 1877, that the buying up of a great portion of the Bonds of the Tributary Roads, combined with minimum rates, is to give to the Pennsyl- vania Company 3,000 miles of road, by foreclosure, it may be assumed, or other suitable means, at a mere nominal cost, but which will involve a loss to the Shareholders of these Roads of perhaps 90 to $100,000,000, and is this result to be calmly waited for by the officers of the Road and the Merchants of Philadelphia. Surely some of the Directors and many of the Shareholders will stand aghast at such a policy as this, to be consummated by un- just sacrifices imposed on themselves and others, and they may well ask who are to reap the fruits of such stupendous wrongs, and what are the fruits to be. We have read of the apples of Sodom, " very fair to look at but only ashes within," and may not the fruits of an unjust policy prove equally worthless and disappointing. Of course all cheapening of the Roads should lead to fine dividends, as suggested in the Annual Report, but Col. Scott tells us in the same report that money is to be cheaper, that profits are generally to be lower, and that the Road must be worked on a lower scale of dividends, and is this to be the results to the Shareholders after all this clever financing, after all the sacrifices they have had forced on them ? but this is not near the end of the mischief— where will the other Trunk Roads be, that cannot cheapen their system by absorbing Tributary Roads in the same way ? Of course the low rates to Philadelphia simply means ruin or loss to them by severe competition, and then foreclosures, which only put the Roads on a lower capital basis for further competition. Is it not well to rest awhile and enquire what good comes out of so much ruin, and also what need there is for this strange financing in the present state of America. I cannot do better, perhaps, by way of answer, and in commending these deductions to the consideration of the Directors, than apply American opinions as expressed in the Railway World of June 7th, and if they apply to any one connected with the Pennsylvania Company the Editor must be responsible for them,— they are to this effect :— " Novo that people see that the Country has been growing rich in spite of the brawling fools who have been preaching eternal bankruptcy and ruin, — now that it begins to be understood that instead of reaching the climax of prosperity we are but on the threshold— and that the development of the nation is to be more rapid and vigorous than ever" if there is any grounds for these glowing visions, ought you not as Trustees of the Pennsylvania Company to reconsider your policy, and make it in harmony with the prosperity of the nation. Great your country must be, try to be great also, and remember it is said, " righteousness exalteth a nation," and be worthy of a country that many predict is to be the first nation in the world,— but you cannot be this and yet cast heedlessly away the primary rules of life, such as " live and let live," " do not bite and devour one another," " have charity towards all," and " be just before you are generous," in dealing with the property of others especially. If these remarks are published, I hope they will induce American Shareholders to compel a change in the manage- ment of the Company, and place it on sounder principles. Expediency and artful finance cannot form a basis for the successful management of such a Company as the first Railroad in America. I remain, gentlemen, ISAAC BURKILL. Westwood, March 22nd, 1879. J. Lesley, Esq. Dear Sir, — I do not know whether I am indebted to you or to Mr. Smith for the newspaper containing the Annual Report of the Company, but I feel greatly obliged. It seems an able and candid statement, and I note there is no parade about " minimum rates," which have done so much to ruin all Tributary Roads and fix the present competitive rates unnecessarily low ; there is no boast about money spent in ' ' betterments," giving a return of 20 to 30 per cent., as in former reports, — there is no congratulation on an 8 per cent, dividend, and the expressed hope " that the results of the future traffic would continue equally satis- factory to the Shareholders." We have however something the reverse of this, the almost farcical congratulation that the Company so soon, has been able, prudently to resume dividends of 2 per cent., with the hope, subject to 3 or 4 conditions, that dividends may be continued." Has the Pennsylvania Road come to such a dubious condition from its 10 per cent, dividends as assured by the Committee's "most valuable and exhaustive report ?" Surely there is a 2 S little of American irony, in a report, that seems so diffident about future dividends, while it deals so lavishly in mis- appropriations of net earnings, in paying the debts of other companies. I think the report will assure the Share- holders that in ability and management the Company would lose nothing by the absence of Col. Scott, and if he finds a lasting home (I don't mean a final home) in sunny Italy many Shareholders would not regret this, and the Directors would find many of the Officers of the Company are able to conduct its affairs as ably as he, if not with greater success. We hear much about the disastrous results of Mr. Thomson's Leases (the grave will not reply), but I have no hesitation in saying if rates had been fixed simply in the interests of the Shareholders, all the tributary roads would have been self-supporting, instead of being ruined, and a burden to the Trunk Road, but everything has been sacri- ficed to a policy adverse to the interests of Shareholders of late. I assume my last communication to the Board with its valuable contrast of American with our English Railways was stopped in transit. ISAAC BURKILL. Westwood, Sept. 13th, 1879. To the Directors of the Pennsylvania Railroad. Gentlemen, — A year and a half ago I made a suggestion to Col. Scott, which he promised to lay before the Finance Committee, but perhaps it was not submitted to the Directors. It was simply our English practice which works so well to the interest and satisfaction of the Share- holders, viz : the issue of perpetual Bonds or Shares by allot- ment to the Shareholders to meet and cover all expenditures for extensions and betterments. As this simple and open practice does away with all profits and bonuses to bankers in negoti- ating the sale of Bonds, and all indirect commissions to others, it may not find much favour in America, but it may claim a fair consideration from those who do not partici- pate in such profits. The large amount of Bonds annually sold by the President or Finance Committee, without any supervision of a Committee of Shareholders, or subject to any independent audit, as I understand, is a matter that demands serious attention in many respects. On our 26 Stock Exchange, the practice is to allow to Bankers and Officials one-half of the Commission, and if it is so in America, it is surely necessary to know on what terms the large business is done for the Company. The Committee's exhaustive report referred to " indirect commissions " got by some of the officials, and if there are any such indirect profits now on the sale of Bonds, this may be one reason why the plan I have suggested is not adopted, as it would do away with much of the present financing, and many things that only lead to temptations and perhaps demoral- ization. A select committee of Shareholders to supervise the Sale of Bonds would be very desirable. It may be assumed the Directors, or the Shareholders, will soon put an end to the vain notion of "keeping down the cost of the Road " for five years, with the present lavish expenditure on the following schemes — the Elevated Road into the City, the Elevator and Works in Jersey City, the adaptation and completion of the Navy Dock Yard, the New Road to the Coal and Iron Fields, the many thousands of New Waggons, and the " crooked places of the Road to be made straight, and the rough places made plain." These are rather considerable works for " Stew- ards" to do without asking the consent of the Shareholders, and which involve so large an outlay. It is pretty certain you cannot pay for them from net revenue, even American Shareholders will rebel against such a wrong. It will therefore be well to begin and test the system I have proposed, and which is the invariable practice in England, and I think in Europe, when money is wanted for new works. A 5 per cent, perpetual Bond would if issued pro- rata to the Shareholders be readily accepted, and any allotment not accepted could be sold, or included in a future issue, as money was wanted, and such Bonds might be substituted for many of the 6 or 7 per cent. Bonds now in the hands of the public. Commending these remarks to your serious consideration I remain, ISAAC BURKILL. Westwood, March 27th, 1880. To the Directors of the Pennsylvania Railroad. Gentlemen, — The Shareholders will no doubt read the Annual Report with much interest, and perhaps many will 2 ? commend it for its apparent fulness and honesty, and the great ability manifested in it, but there are two or three points which suggest remark. In the first place the un- scrupulous misappropriation of the net earnings :— You again take $1,600,000 to reduce the cost of securities, after having before reduced them from reserve fund near $10,000,000, and when it is patent to everyone that these securities have advanced in value 15 to $20,000,000 during the year, do you not think that the asserted necessity for this further reduction, after so great a change in the value of them, will stamp your late Annual Report as a dishonest report, as the Shareholders are forced to the conclusion that before this large advance the securities were falsely returned to the extent of the late increase in their value. The report speaks of having experts to examine the men, and test the question of colour blindness ; is it not more important to have experts to inquire into the " moral blindness " of the Directors ? for it seems to the Share- holders (whose servants they are, or ought to be so con- sidered) they do all things in defiance of all morality— unintentionally we may hope— but I would suggest to the New Directors before their characters are committed to the management of the Road, that they carefully ponder these questions of policy, and correct what is unjust. Of what value are the reports (however good and exhaustive they may be) or what help can they be to Shareholders, showing immense resources and satisfactory earnings, if these are to be withheld from them, and as it is this year, one half diverted, to be a future benefit to others, at the mere dictum of Col. Scott and the Directors, who claim arbitrary power in this wrong doing. Another paragraph refers to Acres of Land, " and expresses a willingness to pay on demand." Can it be that the City officers and Pennsylvania Road officers have for so many years passed over this transaction without a settlement for the Land, or can we have another Anspick affair to compromise or condone ? it is really startling to hear of such things. I note there is only one promise in the report, and this happily is not likely to be broken, as it is to Col. Scott and his Subordinates, the general staff of the Company, — but one might have supposed some 28 assurance was due to the Shareholders after a year's suspension of dividend, and the unjust payment o/ only t P ! nt /°l the laSt y ear - Jt is true Ae trade of the country and the capability of the Road to earn largely hold ou flattering hopes, and you intimate « the Securities assure the Shareholders that future earnings will be for them, It is stated that three or four Tributary Road tha llL.H H ar K nth t C ° St0f workin ghave been cast off, and like dried branches are to be thrown away. Would it not be just to the owners of these Roads to enquire how far they have been made unprofitable by the low rates so much in favour with Col. Scott, and admittedly made often Z !lVl ereStS °l the , Ir0n and Coal Companies. Can it be that this rum from low rates is part of the plan with the buying of the Bonds with the net earnihgs-of getting hold of the 3,000 miles of Tributary Roads ? Well it tlT S Ju eas ? Y a 7 of Sfttmg them, but one has to sow, and others wil reap the ultimate profit. It has been suggested that it was due to the Shareholders that you should be open with them, and inform them of your policy and purposes for the five years, viz., that you mean, f circumstances permit, to keep down the capital cost of the Road at the expense of revenue. If so stated, the present large additional expenses monthly taken from earnings would be understood, as doubtless these may include expenditure on extensions and betterments, which you may pass off as repairs, and renewals in the amount of $347.34-1 the last month. How far this £lossin°- of the monthly returns may be unavoidable I cannot say, but I think the Shareholders will feel it a blot and a discredit to the management, and an injustice to themselves. I am sorry I cannot review the report more favourably. I remain, yours truly, ISAAC BURKILL. m ni u Westwood, August oth, 1880. Mr. Editor,-It has been suggested to me "to collate a few facts about the Pennsylvania Railroad, without beinjr personal in my remarks." It is difficult to comment on facts, without speaking of the " Factors," but I suppose I am to " set down nothing extenuate nor aught in malice " 2C) so with "charity to all men" I will commence and go over a little of the history of the Pennsylvania Road, and the principles I may educe will apply to all American Railroads. With a steady and sound management under Mr. Thom- son, dividends near 10 per cent, were annually paid (that is an average) for 20 years, and we had a contented and prosperous proprietory. Then "another Pharaoh arose that knew not Joseph," or rather that ignored the policy that had been carried out so long, and the years of famine began, and doubts, "like wintry clouds," came over the minds of many Shareholders, as years of decreasing dividends followed (with greatly increasing traffic), so that in three or four years the dividend was stopped, even when the Road was earning sufficient to pay 6 per cent, dividend. The following year \\ only was paid, when the earnings were equal to a 10 per cent, dividend. After the death of Mr. Thomson, whose policy had gained general confidence, a feeling of mistrust prevailed, and many large holders of Shares sold out, others were induced (myself being one of them) to hold their Shares by the Shareholders' Committee's Report, which was stated in two Annual Reports, to be considered by experts and Railroad Officials "as the most exhaustive and valuable report ever issued." Although this commended Report stated the Road to be a 15 per cent, earning Road, and it advised the pay- ment of 10 per cent, annual dividends, the public began to question the honesty of it, as well as the animus of it ; and the English Press became literally rabid in con- demnation of the Road and its management, and the insolvency of the Pennsylvania Railroad Company was generally asserted. I think it may be assumed the many leases and working agreements the Directors had entered on were the primary cause of this mistrust, or perhaps it may be more correctly said, the ruin of all these leased and Tributary Roads, by a fighting policy, and unjustly low rates, which were likely to involve them and the Trunk Road in ruin also. Much has been said about the policy of Mr. Thomson, and the liabilities he accepted, but now it will be admitted the fault was not in taking these Tributary Roads, but in the policy which involved them 30 in ruin, until the revival of trade set in to assert their value again. The plausible theory suggested by the Shareholders' Committee was a most questionable one, it made four of the Officers Directors, or Presidents, instead of being Managers only, and so subject to the wisdom and policy of the Board — now they literally rule the decision of the Directors. It was surely bad enough for the Directors (as is usual in America) to delegate so much power to the President, but now we have u the many masters," and we need not w r onder at the new and strange policy " that over-much cleverness" has devised. I refer to the purpose of keeping down capital at the cost of dividends or net earnings for five years. May it not be said that the Presidents nominate the Directors. Joseph Darbyshire was quietly dropped out of the " Ticket," and when he wished to explain or vindicate himself, he was denied the opportunity. It was said by Walpole the great statesman, " that every man had his price," and may w r e not say that the immense patronage of the Presidents can always find the support they want at the Annual Meeting to place at the Board anyone they choose, so that it may be literally impossible to place there any honest reformers like E. T. Parker, to leven its policy, and to give confidence to the Shareholders. We have now begun an era of prosperity, when it may be hoped all will go well with us. But will it be so ? The Shareholders see the Monthly Returns of the Traffic, which now are equal to 15 to 20 per cent, dividend. But what if the Directors " in their Conservative policy " pay only 6 or 7 per cent, in November, will not disappointment and disgust again force down the market value of the Shares $7 or $10; a result which will be certain, if anything short of 8 or 10 per cent, dividend is paid. And this question is to be chiefly decided by men who hold from 50 to 100 Shares each. I would here suggest to all Directors of American Roads that if they would pledge themselves to pay all the net earnings up to any definite amount, it would be a means of giving stability to the value of the Shares, and content- ment to the Shareholders. For instance, if the Pennsyl- vania Directors say they will pay up to 8 per cent., should p we see the great disparity there is between the Pennsyl- vania Shares and those of the New York Central, when it is generally admitted that the Pennsylvania Road cannot be equalled in its earning capacities, and it is only depreciated by its management. The new era has hrought peace, and security for this, m the judgment and authority conceded to the Commissioners —Messrs. Wright, Wells, and Adams— so that it may be hoped there will be no more wars, such as ruined the Centennial traffic, and sacrificed millions of dollars ; no more wars to monopolize the oil traffic, and to establish such gigantic swindles as we have seen in the oil business, where rebates were given to destroy all competition, by the general trade. . . If the Shareholders are willing to give up their just claim to all the net earnings and accept the limitation of dividend to 8 or 10 per cent., by way of making their property more stable, it surely is a matter well worthy of the consideration of the Directors, as this would at once settle all doubts as to future policy, and it would give a basis for investors to act on, very different to the one they now have, viz., fallacious traffic returns, and capricious dividends. In American Railroads the policy pursued has been eminently suited to unsettle value, and cause speculation, but surely it is not desirable to enrich a few, that this stupendous and important property should be kept as a " football" for the Stock Exchange, instead of being a safe means for the non-trading part of the community to invest in. How many thousands of widows, retired trades- men, and professional men will welcome the day when they can, with confidence, and reasonable safety invest in Railroads, and have a steady and permanent income from them ? But the writer is sorry to say the present shifting and scheming policy of the Pennsylvania Company will not lead to this, but in the management of the New York Central we do see signs of it, and also some results already, and on the prediction that " the first shall be last and the last first," we may see the Erie and the Atlantic and^ the Western assume a more honourable name and position than the Pennsylvania has lately achieved, and which their present policy may perpetuate. F I am, yours truly, ISAAC BURKILL. 32 Westwood, April 3, 1880. Mr. Editor, Sir, — I send you a few remarks on the present manage- ment of American railroads, which has not, I am sorry to think, left off the nursery system of wet nurses, feeding bottles, and walking cradles, to help other interests, and it is too much assumed that the iron and coal companies, with many others, need still this same coddling treatment. 1 will point out the disadvantages of this enfeebling treat- ment and then contrast it with our English practice and its better results. I wish now to comment on the manage- ment of traffic, and point out a more just and correct way. In the first place we have Col. Scott stating openly, or inferentially, that he had been carrying for the iron com- panies at very low rates during as good and inflated trade, " to help them over certain low and large contracts they had made," thus to benefit them at the expense of his own Shareholders. Then we have also Mr. Gowen asserting the policy of nursing up the iron companies, on the Read- ing Railroad, by favoured and special rates. Mr. Vander- bilt has asserted the same practice of nursing the large works on his Road, and, I think, Mr. Jewitt does the same. Now what are the results of this immediate sacrifice for future gains, — it fosters unduly competition, and makes the railroad interests to benefit others instead of the Stock- holders ; and we have the sharpness of the managers of these several works acting on the pliability of the Presidents of the Roads. We have Col. Scott, who does not know what rates Mr. Gowan may accept, fixing rates that no fair and open competition would sanction ; and this nursing system is the natural result of leaving to the President the great patronage of the Road, with power to alter the rates as caprice or any other motive may induce. Surely it is time these great national interests should be governed by sound principles, and equal rights and accommodation, with fixity of rates, so far as seasons and lake competition allows. I will now give you a few facts and comment 011 our English Railways, which have led to very satisfactory results, viz : — a sound, safe property in which to invest the surplus wealth of the nation. The first step in promoting the making of these railways must have the sanction of 33 Parliament, and the first principle enforced is the inviolate separation of capital and revenue, so that in case of exten- tion of road, or station, or stock, new capital has to be created, and to make this safe and profitable, it is judi- ciously spent, and it is always willingly subscribed. Now such is the confidence inspired by this upright and denned practice that no property is in greater favour, and at the present time no shares in important railways can be bought on the Exchange to pay over 4 per cent on the investment, and no bonds to pay over 3! per cent. Compare this with the value and insecurity of the American Roads, and if such men as Mr. Steinmetz and others like him cannot find out the cause of difference, I will point out one or two primary ones. The first is having directors who do not accept the responsibility of directing, and the second is giving to one man almost unlimited and arbitrary po wer ; and thus we have Mr. Gowen, as he says, " worshipping the statute of labour," and we have Mr. Scott " paying- far more deference to his subordinates than to his Share- holders," all this may indicate consideration, but does not make American railroads that secure and satisfactory property they ought to be, and perhaps will be with a change of policy. We have seen too much of the " Beaconsfield policy" in the American Roads— ' ' an unsettling and distressing of all interests," and a readiness by war or false treaties to ruin the rates and the just prosperity of railroads generally in the States. I may write you again about " the men and the means." Yours truly, ISAAC BURKILL. Westwood, May 12th, 1880. To the Editor of the Star. Sir, — The magnitude and cost of railroads amply justify any remarks that may in any way suggest a better manage- ment of them. It seems a remarkable thing that in England and America the policy and system of manage- ment should be so very different, and that the results should be so long disregarded. In England we have a stable and satisfactory property, based on sound, equitable principles ; how far these obtain in America may be a profitable inquiry, 34 It has been the general understanding " that the stock, or the Shareholder, would bear all the risk of working the road, and that in return he was entitled to all the net profit." I have the impression this just condition is carried out in all nations except America. On what moral or legal plea the practice of using the net earnings for enlargements, extensions, and betterments of any kind, is based without giving an equivalent in shares, I cannot comprehend. The writer has a strong conviction that the long depression in America was perpetuated by the widespread ruin of many railroads and of many thousands of Share- holders, caused by the unprofitable rates forced on them by the four Trunk Roads, so that 197 Roads suffered fore- closure during the last few years, and perhaps one to two hundred millions of dollars were lost by the Shareholders. Now, beyond all this, Mr. Vanderbilt, and also Mr. Gould, have been buying up the half-ruined roads at mere nominal prices, and the Pennsylvania Company is to get the ownership of 3,000 miles by purchasing $70,000,000 to $80,000,000 of their bonds, the money for the said purchases to be taken from the net earnings, without any consideration for it ; although the Shareholders assented to the scheme at the annual meeting, subject to 4 per cent, bonds being issued for it. How the public or the Shareholders can place confidence in property so managed I cannot see. We have here a breach of faith, and we have the net earnings misappro- priated in many ways. If, Mr. Editor, we refer to the Committee's Report issued five years ago, and endorsed by the Directors, we find them stating that $28,000,000 of net earnings had been spent in betterments, and that this sum, with other advantages in the working of the road, gave an intrinsic value to the shares of $87 each. Of course, they assured the Shareholders this $28,000,000 would come to them in some shape, and yet three years after, by the mistaken policy pursued, the dividend is stopped and the shares come down to $25. If this does not convince the public that a change of policy is called for nothing will. What can be more destructive to confidence than such management as this ? And now we have nearly half the net earnings used " to 35 keep down the capital cost of the Road for five years," the Directors say, as though in future years the State of Penn- sylvania would not be able to maintain its railroads. I may give another contrast here. Our first Railway Company, the London and North Western, is just issuing Stock for ^~8, 000,000 or $40,000,000, to cover extensions and betterments, and yet the confidence of the Share- holders and the public is not at all shaken. The question will suggest itself, why should our railways be extended and improved, and new Stock issued for this, with general approval, and the Directors in America pursue a con- fiscating policy, which brings disgrace and loss of credit ? I will close this letter with a reference to Mr. Vander- bilt's sale of 350,000 shares to a Syndicate, which have been resold at great profit to the public, on the assurance that $10,000,000 of net earnings were used in betterments, and might be capitalised. The buyers of these shares are now asking the Directors to capitalise this sum — but will they assent ? or are the buyers of the shares to find out by and bye they have been misled if not deceived ? Injustice is the first evil, and giving a false and unstable value to the shares is scarcely a less one that results from the Directors assuming the right to give Shareholders what dividends they like, and use what they like in betterments. Surely this system is so crude and shapeless it is not worthy of men of ordinary experience, as it cannot give value and stability to the property entrusted to them. ISAAC BURKILL. Westwood, June 19th, 1880. To the Editor of the Evening Star. Sir, — The public and the Shareholders of the Pennsyl- vania Railroad Company will regret the cause that has led to the resignation of Colonel Scott, but many of the latter will not thank him for the legacy he has left, and sought to impress on the future management of the company — " the conservative policy " he refers to, and it may be well to consider what this conservative policy costs, and what it results in to the Shareholders. It may well claim consideration on three important points. Firstly, the " Financial Scheme,' 1 recommended by Col. Scott, and absented to by the Shareholders at the 36 Annual Meeting "that net earnings should be appropriated to buy up the Bonds guaranteed by the Company the amount of net earnings so taken to be represented by a 4 per cent. Stock ; " but this condition is ignored without any formal assent of the Shareholders. As this scheme proposes to buy up $180,000,000 of Bonds, it implies taking a very large amount of the net earnings for the purpose, which cannot in any way benefit present Share- holders, but in 30 or 40 years it is to secure 3,000 miles ot Road at a mere nominal cost, and by these means con- summating the grand scheme of Col. Scott— " 4,000 to c.ooo miles of road at a very low cost ! " The second purpose is to keep down the capital cost ol the present Road, "at least for five years," the Directors, say, at the cost of revenue. If all betterments and exten- sions are to be made without increasing capital, the cost must come from net receipts, and from dividend bearing Bonds, which should add to net revenue. Of course this "Conservative policy" is to be at the cost of present holders, to the amount of, perhaps, 20,000,000 dollars during the five years named ; and if this is acquiesced in the same policy may be carried on a longer period unti. the enquiry is made— Why all this cheapening of the Road in a growing country like America, and especially m a State like Pennsylvania ? , . , „ . We have heard much of "watering the Stock, on manv Roads, but surely this is the new process of reducing " or' watering the Shareholders," to benefit the coming generation. , . ^- . Now the third purpose may be to work the traffic at " minimum rates," which will soon lead all the tributary Roads to foreclosure by the Pennsylvania Company, who will hold the Bonds when the suitable time comes tor absorbing them in the Company. . Can any one doubt that the buying up ot Bonds by the Trunk Roads is to get command of the different Roads I That having this command they are worked at rates which may be profitable to the main Road but which are ruinous to the tributary Roads, and can it be necessary to point out the self-evident fact that a Road having directly and indirectly the traffic from ten tributary Roads can work the combined traffic much lower than the Roads supplying 37 separately the traffics ? Yet regardless of this fact the reports of the Pennsylvania Company have again and again boasted of " minimum rates," and that even last year, when trade had greatly improved, the rates were lower than they had ever been. Some Shareholders may say, as two have said to the writer "that the money from net earnings spent in Bonds and betterments will be in the concern ; but does it never occur to them that while the present practice of submitting to any dividend *e Directors decide to pay irrespective of the earnings, they never can be benefitted by the increased capacity of the Roads to earn dividends, and that all these imposed sacrifices can only end in lower rates and severer competition ? ., ... It is difficult to conceive how any one can consider with complacency the vast amount of loss and sacrifice this policy imposes on present holders of railway shares. r Yours truly, ISAAC BURKILL. Westwood, June 24th, 1880. To the Editor of the Evening Star. Sir —Having in my last letter referred to the legacy left by Colonel Scott, which he calls "a conservative policy," I will, with your permission, make a few remarks on the "elementary code" that should govern all Rail- r °With few exceptions, where city money and influence have been used, it may be asserted that Railroads generally have been projected by the Stockholders; they have accepted the results, whether success or failure, guarantee- ing the bonds by giving them security on the whole Pr if this be so, surely the net earnings, of indubitable right, belong to the Stockholders. We have 197 /ore- closures in four years to attest the losses that have fallen on many, and last of all we have the Reading Company to bring ruin to many more ; but it is my purpose to confine my remarks to the Pennsylvania, and all sound and important companies, and suggest the policy they should in future carry out. I think it would be far more con- servative than the one initiated by Col, Scott, As it may 38 safely be assumed in America, capital accounts cannot be closed, and large expenditures in betterments and exten- sions (which simply mean enlarged property, and enlarged powers to earn profits) must yearly be made, and should be so on the principle, that every property owner acts, when extending or improving his own, so I would go, as we do in England for all money required, to the Shareholders. Of course the proper way to do this is to allot New Stock pro rata and fix the time of payment as the Directors find most suitable, in the interests of the Company. As a holder of many Shares, and asserting as I do the liability and the duty of Shareholders in their own interest to maintain and increase the property to meet future require- ments, I do not object to any amount of the net earnings being taken, if Stock is issued to cover the amount so taken from revenue. Now, it may be well to inquire what effect a growing capital will have on the credit and success of the Roads. We have proof enough in England on these points, if Americans would " stoop " to learn from our experience. Assuming, to bring the question home, the Pennsylvania Stock Capital was increased to $100,000,000, would it not be pretty certain that the $30,000,000 added would be so spent that a proportionate increase of earnings would be realised. But if not so, would not the loss fall upon the Stockholders, who from the first have willingly accepted such risks. Then, again, would the Bondholders complain that they had less security with the $30,000,000 added to the value of the property. Surely they would be as much the gainers as if such expenditure had been taken from the dividends of the Stockholders, and not added to Capital account. In my last letter I referred to this way of " cheapening the Road " as a means of reducing the rates still further at a future time, and causing more ruinous competition. But I may ask is it possible any longer to work traffic at rates that give profit to Trunk Roads only, and bring ruin to many tributaries, simply because the strong can lay their hands on the weak and use their property as it suits them for through traffics. The question of rates may well claim consideration, as on this the real interests of the public are closely com- 39 bined with that of the Shareholders; tney cannot be separated, and the simple principle of fixing the rate that brings the greatest amount of traffic with the greatest amount of profit" is the only thing to be attained. For instance, if the managers can double the amount of traffic by reducing the rates £ or i only, it is clear a double gain is realized, and rates based on a just return to the Share- holders, and a just consideration for public interests, would result Now, beyond this, we want in managers the animus " that looks not on their own things only (Roads), but on the things of others also," then we should not have a Company like the " Reading/' suspending payment and spreading distrust and want in many a household. We may well ask who is responsible for these things ? And why should they be ? Can any responsible manager ot neighbouring or competing Roads consider the distress caused by such events to thousands of Shareholders, and not ask how far their own policy and competition has led to it ; it is for them to decide. And it is well in all matters for each one "to be fully persuaded in his own mind," and keep " a conscience void of offence." I may assert without fear of contradiction that in mutual consideration and concession, so far as sound policy admits, they will find the interests of the Shareholders and the public will be best promoted. ISAAC BURKILL. Westwood, England, June 21st. To the Editor of the Evening Star. Si r —When the writer was in America eight years ago, he was told by Mr. Lesley the Pensylvania Company had such dominant influence they could fix and impose rates for traffic over the Trunk Roads. When he was again over, four years ago, and the divi- dends had fallen to 8 per cent., and the future seemed un- certain, he was assured, by Col. Scott that what the Road earned it was his policy to pay in dividends, "and if it earned over 8 per cent., more would be paid. ihese statements I am sure were truly and honourably made, but since then the " scare " in London, and the unfair articles in the London press in the interests of bondholders, have 4 o doubtless led to the unfortunate change of policy in the management. We might assume in a Company like the Pensyivania, the bonds having the entire earnings of the Road to meet their claims, and beyond this, $50,000,000 of other Bonds and all the capital of the Company as security, they could not require more: but it is the present purpose of the Directors to take from net earnings near $20,000,000 to keep down the capital, "if circumstances permit," so as to make the property a better security. As it is evident the Bondholders do not need this, it may be asked in whose interest is the sacrifice of the dividends to be made ? The writer wishes to point out what ought to be patent to everyone who considers the question, that any increase of the property which is paid for out of revenue, or by stock, is equally an addition to earning power and a o-reater security to the bonds, and if fifty millions were added to the capital it would only affect the Stockholders. Can it be supposed that the money spent on the Roads now, would be carelessly spent and give no return to revenue ? If not, what can justify the policy pursued by the directors in taking largely from the net earnings merely to keep down the capital account ? Why should the London and North Western Company increase their capital just now by $40,000,000 without fear of results, and the Pennsylvania Directors hesitate to increase Capital with the increase of property ? How is it the traffic has increased 10 per cent, annually during the last five years if this is not (as stated in the Annual Reports) the results of judicious expenditure and enlarged facilities? But the inquiry may be pressed here : Of what use all this pros- perity if it is only to disappoint the shareholders ? We have monthly returns of the traffic, published for the information of the shareholders. The public buy shares on the faith of these returns, and at the end of the year they learn the net earnings have been used for other pur- poses than dividend, and they find themselves misled and deceived by these monthy statements of the traffic ; surely honour and fair dealing call for the cessation of these returns if they mean nothing, or that the receipts, as belonging to the Shareholders, should be divided m 4 1 dividends as they certainly would be in any other country. If there is to be any steadiness and firmness m the value of railroads as an investment for surplus capital, surely it need not be urged that this great object can only be attained by keeping revenue distinct, by legal enforce- ment, from capital. I have used the word "legal" in reference to the separation of revenue and capital advisedly, as it is very certain no stability or value can ever be attained until Directors are made "'legally responsible" for the just disposal of the net earning. It is this, and this alone, that can give assurance and steadiness to the value of share property, and these results are clearly shown in the management of the English Rail- wavq Yours truly, WayS * ISAAC BURKILL. Westwood, September, To the Shareholders of the Pennsylvania Railroad. Gentlemen,— These letters are published without any desire to give offence, and certainly without any intention of over- stating, or in any way of mis-stating the serious matters they invite you to consider. The "facts" I have given are taken from the Reports, and if incorrect, I shall be glad to see them explained. The policy of management recommended is what generally rules our English Railroads so successfully, and with Directors who have the confidence of Share- holders. Now to put the management of the Pennsylvania Road on a similar creditable position, the Shareholders must do their part and duty at the Annual Meetings " The farce " of asking the Mayor to nominate a Com- mjtte, " with the approval of the President," and this Committee to nominate Directors "in consultation with the President," must be scouted, as an insult to intelligent men. l How can any independent man be placed on the Board. Such candidates as E. T. Parker are, and will be met, by every official influence and trick to keep them away, until the Shareholders see how they have been misled by the 4 2 plausible nominations of the Mayor of Philadelphia, who I doubt not is an honourable man, only in these matters he is a little too officious. The present highly favourable workings of the Road must not lead to apathy. If there is this tendency, per- haps the November Dividend will rouse the indignation of Shareholders by its " outrageous littleness " compared to the earnings,. ISAAC BURKILL. N.B.— The Shareholders find in Mr. Smith's letter the following remark which may be assumed to be the basis of their past policy. Had atl the investments of the Com- pany made in years gone by, turned out profitable, (note the valuations and figures in the Committee's Report, which have been accepted and approved by the Board,) so that our income would have kept pace with the increase of capital, then it might have been prudent to issue new Stock or Bonds to represent undivided earnings of the Company. This was written with the authority of the Pennsylvania Board, and now that the Eoad is earning 15 to 20 per cent., and keeping pace with the increase of capital, will the Directors deem, it prudent to issue Shares or Bonds to represent undivided earnings of the Company ? Can they " with the grand future of the Country/' so patent to all business men, hesitate to do this act of policy and right, to the Shareholders. Nov. 2nd, 1882. It is well to note one dollar per share of stock issue comes to $1, 553,455, and is not a moiety of the ex- penditure on capital account going on half-yearly. Will the Directors explain what this small amount is to cover, and if the residue is to come from a further issue of shares, or from "the secret service money," which is always at hand. 43 Nov. nth, 1882. An improved dividend of 9 per cent., and a small issue of shares at par, which makes the dividend equal to gi per cent., has just been declared, and the Philadelphia Ex- change puts the shares down many dollars. Perhaps the following remarks from The Statist, one of our English papers, will explain this, and also much of the discredit and disgrace that influence the market value of American Railroads. "The course of the New York Railway Market is causing perplexity as well as disappointment in Europe . The wheat harvest in the United States this year is the largest perhaps that ever has been gathered, and the surplus available for export will therefore be very great. The cotton and maize harvests also, though late, are very large, and cotton is already being sent to market in immense quantities ; and, lastly, the other crops which are consumed at home, and therefore of comparatively little interest to Europe, are likewise very large. In con- sequence, the traffic of the railways has greatly increased, and between now and next harvest it is certain to increase still more. Yet the New York railway market is depressed, and, what is worse as regards the foreign buyer, it is so uncertain, that from day to day there is no forming any reasonable opinion as to what is likely to be its tendency. If to-day prices rise, to-morrow they are sure to go down, and if in the morning the market opens weak, it is almost equally certain to close strong. What is the explanation of this strange state of things ? The first explanation we believe to be the discredit caused by the freight war last year, and by the shamelessly unscrupulous manner in which railway presidents "beared" their own stocks, manipu- lated dividends, suppressed or gave information, and, in short, operated upon the market. Investors and specu- lators alike suffered heavy losses in consequence of this unconscionable conduct, and the general public, therefore, is not willing to put itself quickly again in the power of 3 0112 105256728 44 those who have acted so unscrupulously. The American public, therefore, speaking generally, is not buying stocks, and the markets, as a necessary result, are at the mercy of cliques and syndicates. When the great body of the public stands aloof, a small clique with a command of consider- able funds can always cause a temporary rise or a tem- porary fall." N.B.— The writer (page 8) assumes $16,000,000 as spent during the last eight years for better- ments. The Shareholders' Committee's report, page 156, states $3,000,000 as the probable ex- penditure annually in this way, or $24,000,000 in eight years. E. 7. W. Dennis, Printer, Scarborough, Forks., Eng.