HOW RAILROADS ARE BUILT.
Four men of great power and influence in the financial world had
gathered in the offices of Scott & Rand, brokers, New York City.
Of course, old Gripper Scott himself was one of the four. Two more were
Sudbury Bragg and Warren Hatch.
The fourth was a slender, smooth-faced, cold-eyed, thin-lipped man of
uncertain age, whose name was Basil Jerome. The latter had just
appeared, and had been greeted by the others assembled.
It was several days after the landslide that had brought the stirring
events in the Adirondack Mountains to a close--events that were directly
traceable to the great business consolidation that these capitalists
were now discussing.
"Mr. Jerome, gentlemen," said Watson Scott, "has expressed his
willingness to come into our railroad project in case he is satisfied
that it will be carried through in a manner that will insure success and
profit to us all. You have expressed your willingness to take him in if
he will enter on the same terms as the rest of us. Mr. Merriwell should
be here now, and----"
"He is," said a voice, and Frank Merriwell, himself, entered the
office. "I hope I have not kept you waiting, gentlemen. My cab got into
a jam on Broadway, and I was delayed full fifteen minutes."
"You are in good season, Merriwell," said Old Gripper. "Let me introduce
to you Mr. Basil Jerome, the gentleman I spoke to you about last
evening. Jerome has been concerned in the organization of many a big
project, and he stands ready to take a corner in the Central Sonora
Railroad deal."
"Providing," said Jerome, "that I become satisfied that the deal is to
be carried through properly and there are no serious obstructions in its
way."
Frank did not like the man's look, nor the cold voice that corresponded
so well with his frigid eyes and face.
"Just what do you mean, sir," he questioned, "when you state you are
ready to come in if the deal is carried through properly?"
Jerome sat down, and Frank followed his example. They faced each other,
and something told Merriwell there was to be a clash between them.
Jerome surveyed Merry from head to feet, taking him all in. Without at
once answering the question, he observed:
"You are a very young man to be the promoter of a project of such
magnitude."
Frank flushed, for there was something most annoying in the manner and
words of the fellow.
"I fail to see what my age has to do with it."
"Youth lacks experience and judgment. It is liable to be flighty and
build great projects on moonshine."
"I think you will admit, sir, that Watson Scott is not a man to be
dazzled or deceived by moonshine. He is actively concerned in this
business."
"Mr. Scott seldom makes mistakes," admitted Jerome.
"Besides," added the youth, "I object to the word 'promoter' as you
applied it to me. I am not a promoter. I propose to put a good, round
sum of hard cash into the combined fund of the syndicate."
"Oh, you do?"
"Yes, sir."
"Which goes to prove that what I have just said is correct--youth lacks
experience and judgment."
Frank was surprised.
"I fail to see how you make that out. If the plan is a promising one,
and I am satisfied that the railroad will be a paying venture, why
should I not invest my money in it? If I were not confident that it
would pay, I'd not be advocating it."
Jerome made a slight gesture.
"No such project can be absolutely assured of success at the outset," he
asserted. "It is a great venture, and the men who get in on the ground
floor are certain to protect themselves from loss in any case."
Merriwell frowned, a puzzled expression on his face.
"How is that possible?" he asked. "If we are assembled here to organize
and build that railroad, how is it possible for us to be protected
against loss if the railroad does not prove a paying piece of property?"
A cold smile flitted across the face of Jerome.
"I knew you were inexperienced. Young man, there are several ways of
doing it; but undoubtedly the simplest way is to organize a stock
company and sell stock to the public. Let the public in general build
the railroad, while we reap the profits, if there are any."
"But if the public owns the stock, I fail to see how we can reap the
profits if the railroad is a financial success."
Jerome looked with something like pity at the questioning youth.
"It is a simple matter. I will explain it in a few words. To begin with,
it is not necessary for us to invest one dollar of our own money in the
scheme."
"What? And still we may hold an interest in it?"
"The controlling interest, Mr. Merriwell."
"Go on, sir."
"We will suppose at the start that we organize the Central Sonora
Railroad Company and capitalize it for--well, just as an example, let's
say ten millions of dollars. Before deciding on this we will have made
surveys and estimates that have convinced us beyond question that the
road may be built and placed in operation for four millions of
dollars."
"Then why should it not be capitalized for four millions?"
"Because that is not business--safe, conservative business. Because that
would make it impossible to raise the money needed without ourselves
taking chances of great loss. Let me proceed. Having organized in a
legal manner, and having issued certificates of stock to the extent of
ten millions of dollars, we can next proceed to raise the money required
to begin active building operations."
"By placing the stock on the market?"
"Not yet. Every man here, with the possible exception of yourself, Mr.
Merriwell, is known to every great banking institution in the country,
and his credit is unlimited. At the outset we will take four million
dollars' worth of our stock to some institution and secure from it on
that stock the full sum required to build the railroad. Thus, you can
see, we will not have to put up a dollar of our own money; but we will
build the railroad with the money of the general public, which has been
deposited at the bank from which we secure it."
"I see," nodded Frank, his eyes shining queerly. "It's a fine little
scheme you have, Mr. Jerome!"
"I am letting you into the secret methods of capitalists who build
railroads and organize great business projects without using a dollar of
their own money," said Jerome. "Having secured our money, we will
proceed to put our railroad through."
"We'll build it, and the general public will pay the bills?"
"Exactly. Having it constructed, by successful manipulation--the easiest
thing in the world for those who know the trick--we'll unload four
million dollars' worth of stock on the public and square ourselves with
the bank. At this stage of the game the public will have paid for the
railroad, which was built with the public's own money; but we shall
still hold six million dollars' worth of stock in that road, or the
controlling interest."
Frank felt his blood growing hot within his veins.
"In short," added Jerome, "we take no chances whatever, for at the start
we know the road will cost a million less than half the amount for which
it is capitalized, we have borrowed the public's money to build it, we
are certain we can sell stock enough to pay back every dollar, and still
hold control of the railroad, and we are in a position to come out ahead
whether the railroad proves to be a paying piece of property or not."
"And this is the way railroads are built?" muttered Merriwell. "But what
if we find, after the railroad is put in operation, that it is a losing
venture--that it will not pay a dividend on the amount at which it is
capitalized, and is running behind?"
"Then it becomes a simple matter for us to step out from under, and as
we step out we can take with us in our own pockets a few millions in
profits. If we become satisfied that the railroad is a loser, we'll
again work the stock market, and, by certain manipulations, boost the
price of Central Sonora to the highest possible point. When we are
satisfied that we have it up to the top notch, we'll dump every dollar's
worth of stock in our possession, pocket our profits, and smile as we
see Central Sonora slump and go to the dogs."
"In short," said Frank, "after we have built the railroad with the money
of the general public, overcapitalized it in a criminal manner, and
discovered that it will not pay a dividend on its watered stock, you
propose that we perpetrate another outrage on unsuspecting investors by
selling back to the public our holdings of stock that actually belongs
to the public anyhow!"
"Your inexperience is again shown by the manner in which you apply the
term 'watered' to that stock. Watered stock is new stock issued by a
railroad or other corporation that already has a certain amount of stock
in existence, but claims that it does not fairly represent, through
increase of the value of a property and franchises, the increase of
actual capital. We capitalize at the start for more than double the
actual cost of building and putting in operation, and therefore our
stock may not justly be called watered. In case this railroad should
thrive wonderfully, and should pay wonderful dividends on our ten
million dollars' worth of stock, we might then water it by issuing more
stock. I hope I have made the whole thing clear to you, Mr. Merriwell."
"You have!" cried Frank. "You have made it clear that what you propose
is criminally dishonest, is a gigantic swindle, and that parties
concerned in such an outrageous fraud should be amenable to the law and
sent to the penitentiary!"
Frank had risen to his feet, his eyes flashing and his whole aspect one
of righteous indignation.
Although he had thus pretended, he had not been entirely ignorant of the
dishonorable methods of stock jobbers, but he had feigned ignorance in
order to draw Basil Jerome out and lead him to fully expose the true
inwardness of his reprehensible plan of operation.
Jerome gazed at the indignant youth with a mingling of surprise and
pity.
"My dear boy," he said, "you are excited. Don't permit yourself to
become so wrought up and to use such violent language. I have simply
explained to you the usual method of building railroads, as Mr. Scott
and the other gentlemen will attest."
"Then the usual method of building railroads is a rotten and dishonest
method!" exclaimed Merry. "Mr. Scott, do you approve of such a scheme?"
"What if I should tell you that I do?" asked Old Gripper, his stolid
face calm and unreadable.
"Then here and now I would lose no time in announcing my withdrawal from
the project," retorted Merriwell. "I am not a poor man, but did I not
possess a dollar in the world, and you were to show me beyond question
that I could make five millions as my own share by entering into such a
dastardly operation, I would refuse to have anything to do with it."
"Very well," said Jerome, with one of his cold smiles, "it will be a
simple matter to leave you out of it. If I have been correctly informed,
your principal reason for wishing this railroad constructed is to give
you better facilities for handling the production of a mine of yours,
located in Eastern Sonora, near the line of the proposed road. Am I
right?"
"If you are--what then?"
"We may build the road, and you need have nothing to do with it. The
desired result will be obtained, for your mine will have an outlet by
rail to the rest of the world, and you will no longer find it necessary
to pack ore or bullion hundreds of miles to the nearest railroad
shipping point."
"Then you are ready to carry this thing through without me?" asked
Frank, holding himself in check.
"If these other gentlemen are ready to take hold of it in the proper
manner, they will find me ready to stand with them."
"And the proper manner is the dishonest manner you have just explained
to us! Not only do I decline to take a part in such an operation, but I
refuse to permit it to be carried out!"
"What?" cried Jerome, surprised out of his icy reserve for once. "I
don't think I understand you. You refuse to permit us to carry it out?"
"That is what I said, sir. Evidently you understood me perfectly."
"You refuse?" repeated Jerome.
"Yes, sir."
The man smiled.
"I fail to see what effect that can have on us. To begin with, you are
crazy to make such ridiculous talk. Don't you want that railroad?
Wouldn't it be of benefit to you?"
"I want the road, and it would be of great benefit to me," confessed
Merriwell; "but not even to obtain that benefit and advantage will I
permit the road to be constructed in a manner that I regard as criminal
from start to finish."
"You talk about not permitting it, young man. In case we decide to
build, I don't see how your permission or your refusal will have the
slightest effect on us. Will you explain how it can?"
"Yes."
"How? What will you do?"
"I will expose the whole rotten scheme to the public! I will let the
public know just how its money is being used for the purpose of
defrauding it. I will publish the story from one end of the country to
the other. You may borrow four million dollars and give as security the
stock of the Central Sonora, but I promise you I'll let daylight into
that thing so that the gullible public will decline to buy your stock,
and in the end you'll have to make that four millions good out of your
own pockets."
Again Jerome surveyed Frank Merriwell from his head to his feet, unable
to keep from his cold face a slight expression of wonderment. What sort
of a young man was this who not only refused to share in the profits of
such a deal, but threatened to stop the whole thing by exposure, even
though the construction of the railroad was greatly desired by him and
would be of incalculable value to him?
"I confess that you are beyond my comprehension," he said. "It is
possible, however, that Mr. Scott may be able to do something with you."
There was a queer look in the eyes of Old Gripper.
"I have found," he said, "that Mr. Merriwell is not easily turned aside
once he has determined on any course."
"But you," said Jerome--"you and the other gentlemen present know that
the plan I have proposed is the only safe and conservative way of
building this railroad. Here is Mr. Hatch--he has been concerned in
similar deals."
"But I have never had as an associate a man like Mr. Merriwell,"
confessed Warren Hatch, stroking his full beard with his thin hand. "In
fact, I think it wholly improbable that the whole of us could turn
Merriwell a whit, even if we set about the task in unison."
"Do you mean to admit," asked Jerome, "that you are willing to be
governed by this fellow, who is scarcely more than a boy? I can't think
it of you!"
"Perhaps we have good reasons," grunted Sudbury Bragg.
Jerome gazed at them each in turn, his show of wonderment increasing.
"And do you mean to say," he questioned, "that you propose to invest
your good money in this railroad project of his? Is it possible that men
like you, who are familiar with all the methods of pushing through such
a project without risk, will let this young fellow inveigle you into
jeopardizing yourselves?"
"We have become satisfied," said Scott, "that the scheme promises well,
and we are willing to take the risk. Unless you wish to come in and join
your money with ours in backing the deal, I think we'll have to get
along without you."
"We'll get along without him under any circumstances," said Frank
grimly.
"Why----"
"Nothing in this world could induce me to become concerned in any
business venture with Mr. Jerome as a partner, for I would be in
constant expectation that in some underhand method he would undermine
and defraud me."
"You have heard Mr. Merriwell's decision, Jerome," said Watson Scott.
"That lets you out."
Jerome's pale face was unusually so as he rose to his feet. His thin
lips were pressed together, and his mouth drooped a little at the
corners. After a moment of silence, he said:
"Very well, gentlemen; I will depart and leave you to organize. I wish
you all the success you deserve to obtain through a wildcat scheme of a
simple boy, who knows just about as much about business and business
methods as a yellow dog knows about algebra. Good day, gentlemen!"
With a contemptuous movement, he walked out of the office.