A CURSE OF BIGNESS
Bigness has been an important factor in the rise of the Money Trust:
Big railroad systems, Big industrial trusts, Big public service
companies; and as instruments of these Big banks and Big trust
companies. J. P. Morgan & Co. (in their letter of defence to the Pujo
Committee) urge the needs of Big Business as the justification for
financial concentration. They declare that what they euphemistically
call “coöperation” is “simply a further result of the necessity for
handling great transactions”; that “the country obviously requires not
only the larger individual banks, but demands also that those banks
shall coöperate to perform efficiently the country’s business”; and
that “a step backward along this line would mean a halt in industrial
progress that would affect every wage-earner from the Atlantic to
the Pacific.” The phrase “great transactions” is used by the bankers
apparently as meaning large corporate security issues.
Leading bankers have undoubtedly coöperated during the last 15 years
in floating some very large security issues, as well as many small
ones. But relatively few large issues were made necessary by great
improvements undertaken or by industrial development. Improvements
and development ordinarily proceed slowly. For them, even where the
enterprise involves large expenditures, a series of smaller issues is
usually more appropriate than single large ones. This is particularly
true in the East where the building of new railroads has practically
ceased. The “great” security issues in which bankers have coöperated
were, with relatively few exceptions, made either for the purpose
of effecting combinations or as a consequence of such combinations.
Furthermore, the combinations which made necessary these large security
issues or underwritings were, in most cases, either contrary to
existing statute law, or contrary to laws recommended by the Interstate
Commerce Commission, or contrary to the laws of business efficiency.
So both the financial concentration and the combinations which they
have served were, in the main, against the public interest. Size,
we are told, is not a crime. But size may, at least, become noxious
by reason of the means through which it was attained or the uses to
which it is put. And it is size attained by combination, instead of
natural growth, which has contributed so largely to our financial
concentration. Let us examine a few cases:
THE HARRIMAN PACIFICS
J. P. Morgan & Co., in urging the “need of large banks and the
coöperation of bankers,” said:
“The Attorney-General’s recent approval of the Union Pacific settlement
calls for a single commitment on the part of bankers of $126,000,000.”
This $126,000,000 “commitment” was not made to enable the Union Pacific
to secure capital. On the contrary it was a guaranty that it would
succeed in disposing of its Southern Pacific stock to that amount. And
when it had disposed of that stock, it was confronted with the serious
problem--what to do with the proceeds? This huge underwriting became
necessary solely because the Union Pacific had violated the Sherman
Law. It had acquired that amount of Southern Pacific stock illegally;
and the Supreme Court of the United States finally decreed that the
illegality cease. This same illegal purchase had been the occasion,
twelve years earlier, of another “great transaction,”--the issue of a
$100,000,000 of Union Pacific bonds, which were sold to provide funds
for acquiring this Southern Pacific and other stocks in violation of
law. Bankers “coöperated” also to accomplish that.
UNION PACIFIC IMPROVEMENTS
The Union Pacific and its auxiliary lines (the Oregon Short Line, the
Oregon Railway and Navigation and the Oregon-Washington Railroad) made,
in the fourteen years, ending June 30, 1912, issues of securities
aggregating $375,158,183 (of which $46,500,000 were refunded or
redeemed); but the large security issues served mainly to supply
funds for engaging in illegal combinations or stock speculation. The
extraordinary improvements and additions that raised the Union Pacific
Railroad to a high state of efficiency were provided mainly by the net
earnings from the operation of its railroads. And note how great the
improvements and additions were: Tracks were straightened, grades were
lowered, bridges were rebuilt, heavy rails were laid, old equipment
was replaced by new; and the cost of these was charged largely as
operating expense. Additional equipment was added, new lines were built
or acquired, increasing the system by 3524 miles of line, and still
other improvements and betterments were made and charged to capital
account. These expenditures aggregated $191,512,328. But it needed no
“large security issues” to provide the capital thus wisely expended.
The net earnings from the operations of these railroads were so large
that nearly all these improvements and additions could have been
made without issuing on the average more than $1,000,000 a year of
additional securities for “new money,” and the company still could have
paid six per cent. dividends after 1906 (when that rate was adopted).
For while $13,679,452 a year, on the average, was charged to Cost of
Road and Equipment, the surplus net earnings and other funds would have
yielded, on the average, $12,750,982 a year available for improvements
and additions, without raising money on new security issues.
HOW THE SECURITY PROCEEDS WERE SPENT
The $375,000,000 securities (except to the extent of about $13,000,000
required for improvements, and the amounts applied for refunding and
redemptions) were available to buy stocks and bonds of other companies.
And some of the stocks so acquired were sold at large profits,
providing further sums to be employed in stock purchases.
The $375,000,000 Union Pacific Lines security issues, therefore, were
not needed to supply funds for Union Pacific improvements; nor did
these issues supply funds for the improvement of any of the companies
in which the Union Pacific invested (except that certain amounts were
advanced later to aid in financing the Southern Pacific). _They served,
substantially, no purpose save to transfer the ownership of railroad
stocks from one set of persons to another._
Here are some of the principal investments:
1. $91,657,500, in acquiring and financing the Southern Pacific.
2. $89,391,401, in acquiring the Northern Pacific stock and stock
of the Northern Securities Co.
3. $45,466,960, in acquiring Baltimore & Ohio stock.
4. $37,692,256, in acquiring Illinois Central stock.
5. $23,205,679, in acquiring New York Central stock.
6. $10,395,000, in acquiring Atchison, Topeka & Santa Fe stock.
7. $8,946,781, in acquiring Chicago & Alton stock.
8. $11,610,187, in acquiring Chicago, Milwaukee & St. Paul stock.
9. $6,750,423, in acquiring Chicago & Northwestern stock.
10. $6,936,696, in acquiring Railroad Securities Co. stock
(Illinois Central stock.)
The immediate effect of these stock acquisitions, as stated by the
Interstate Commerce Commission in 1907, was merely this:
“Mr. Harriman may journey by steamship from New York to New Orleans,
thence by rail to San Francisco, across the Pacific Ocean to China,
and, returning by another route to the United States, may go to Ogden
by any one of three rail lines, and thence to Kansas City or Omaha,
without leaving the deck or platform of a carrier which he controls,
and without duplicating any part of his journey.
“He has further what appears to be a dominant control in the Illinois
Central Railroad running directly north from the Gulf of Mexico to the
Great Lakes, parallel to the Mississippi River; and two thousand miles
west of the Mississippi he controls the only line of railroad parallel
to the Pacific Coast, and running from the Colorado River to the
Mexican border....
“The testimony taken at this hearing shows that about fifty thousand
square miles of territory in the State of Oregon, surrounded by the
lines of the Oregon Short Line Railroad Company, the Oregon Railroad
and Navigation Company, and the Southern Pacific Company, is not
developed. While the funds of those companies which could be used for
that purpose are being invested in stocks like the New York Central and
other lines having only a remote relation to the territory in which
the Union Pacific System is located.”
Mr. Harriman succeeded in becoming director in 27 railroads with 39,354
miles of line; and they extended from the Atlantic to the Pacific; from
the Great Lakes to the Gulf of Mexico.
THE AFTERMATH
On September 9, 1909, less than twelve years after Mr. Harriman
first became a director in the Union Pacific, he died from overwork
at the age of 61. But it was not death only that had set a limit to
his achievements. The multiplicity of his interests prevented him
from performing for his other railroads the great services that had
won him a world-wide reputation as manager and rehabilitator of the
Union Pacific and the Southern Pacific. Within a few months after
Mr. Harriman’s death the serious equipment scandal on the Illinois
Central became public, culminating in the probable suicide of one
of the vice-presidents of that company. The Chicago & Alton (in the
management of which Mr. Harriman was prominent from 1899 to 1907, as
President, Chairman of the Board, or Executive Committeeman), has
never regained the prosperity it enjoyed before he and his associates
acquired control. The Père Marquette has passed again into receiver’s
hands. Long before Mr. Harriman’s death the Union Pacific had disposed
of its Northern Pacific stock, because the Supreme Court of the
United States declared the Northern Securities Company illegal, and
dissolved the Northern Pacific-Great Northern merger. Three years
after his death, the Supreme Court of the United States ordered the
Union Pacific-Southern Pacific merger dissolved. By a strange irony,
the law has permitted the Union Pacific to reap large profits from its
illegal transactions in Northern Pacific and Southern Pacific stocks.
But many other stocks held “as investments” have entailed large losses.
Stocks in the Illinois Central and other companies which cost the Union
Pacific $129,894,991.72, had on November 15, 1913, a market value of
only $87,851,500; showing a shrinkage of $42,043,491.72 and the average
income from them, while held, was only about 4.30 per cent. on their
cost.
A BANKERS’ PARADISE
Kuhn, Loeb & Co. were the Union Pacific bankers. It was in pursuance of
a promise which Mr. Jacob H. Schiff--the senior partner--had given,
pending the reorganization, that Mr. Harriman first became a member
of the Executive Committee in 1897. Thereafter combinations grew and
crumbled, and there were vicissitudes in stock speculations. But the
investment bankers prospered amazingly; and financial concentration
proceeded without abatement. The bankers and their associates received
the commissions paid for purchasing the stocks which the Supreme Court
holds to have been acquired illegally--and have retained them. The
bankers received commissions for underwriting the securities issued
to raise the money with which to buy the stocks which the Supreme
Court holds to have been illegally acquired, and have retained them.
The bankers received commissions paid for floating securities of the
controlled companies--while they were thus controlled in violation
of law--and have, of course, retained them. Finally when, after
years, a decree is entered to end the illegal combination, these same
bankers are on hand to perform the services of undertaker--and receive
further commissions for their banker-aid in enabling the law-breaking
corporation to end its wrong doing and to comply with the decree of the
Supreme Court. And yet, throughout nearly all this long period, both
before and after Mr. Harriman’s death, two partners in Kuhn, Loeb &
Co. were directors or members of the executive committee of the Union
Pacific; and as such must be deemed responsible with others for the
illegal acts.
Indeed, these bankers have not only received commissions for the
underwritings of transactions accomplished, though illegal; they
have received commissions also for merely _agreeing_ to underwrite
a “great transaction” which the authorities would not permit to be
_accomplished_. The $126,000,000 underwriting (that “single commitment
on the part of bankers” to which J. P. Morgan & Co. refer as being
called for by “the Attorney General’s approval of the Union Pacific
settlement”) never became effective; because the Public Service
Commission of California refused to approve the terms of settlement.
But the Union Pacific, nevertheless, paid the Kuhn Loeb Syndicate a
large underwriting fee for having been ready and willing “to serve,”
should the opportunity arise: and another underwriting commission was
paid when the Southern Pacific stock was finally distributed, with the
approval of Attorney General McReynolds, under the Court’s decree. Thus
the illegal purchase of Southern Pacific stock yielded directly four
crops of commissions; two when it was acquired, and two when it was
disposed of. And during the intervening period the illegally controlled
Southern Pacific yielded many more commissions to the bankers. For the
schedules filed with the Pujo Committee show that Kuhn, Loeb & Co.
marketed, in addition to the Union Pacific securities above referred
to, $334,000,000 of Southern Pacific and Central Pacific securities
between 1903 and 1911.
The aggregate amount of the commissions paid to these bankers in
connection with Union Pacific-Southern Pacific transactions is
not disclosed. It must have been very large; for not only were
the transactions “great”; but the commissions were liberal. The
Interstate Commerce Commission finds that bankers received about 5
per cent. on the purchase price for buying the first 750,000 shares
of Southern Pacific stock; and the underwriting commission on the
first $100,000,000 Union Pacific bonds issued to make that and other
purchases was $5,000,000. How large the two underwriting commissions
were which the Union Pacific paid in effecting the severance of this
illegal merger, both the company and the bankers have declined to
disclose. Furthermore the Interstate Commerce Commission showed,
clearly, while investigating the Union Pacific’s purchase of the
Chicago & Alton stock, that the bankers’ profits were by no means
confined to commissions.
THE BURLINGTON
Such railroad combinations produce injury to the public far more
serious than the heavy tax of bankers’ commissions and profits. For in
nearly every case the absorption into a great system of a theretofore
independent railroad has involved the loss of financial independence
to some community, property or men, who thereby become subjects or
satellites of the Money Trust. The passing of the Chicago, Burlington &
Quincy, in 1901, to the Morgan associates, presents a striking example
of this process.
After the Union Pacific acquired the Southern Pacific stock in 1901,
it sought control, also, of the Chicago, Burlington & Quincy,--a
most prosperous railroad, having then 7912 miles of line. The Great
Northern and Northern Pacific recognized that Union Pacific control
of the Burlington would exclude them from much of Illinois, Missouri,
Wisconsin, Kansas, Nebraska, Iowa, and South Dakota. The two northern
roads, which were already closely allied with each other and with
J. P. Morgan & Co., thereupon purchased for $215,227,000, of their
joint 4 per cent. bonds, nearly all of the $109,324,000 (par value)
outstanding Burlington stock. A struggle with the Union Pacific ensued
which yielded soon to “harmonious coöperation.” The Northern Securities
Company was formed with $400,000,000 capital, thereby merging the
Great Northern, the Northern Pacific and the Burlington, and joining
the Harriman, Kuhn-Loeb, with the Morgan-Hill interests. Obviously
neither the issue of $215,000,000 joint 4’s, nor the issue of the
$400,000,000 Northern Securities stock supplied one dollar of funds
for improvements of, or additions to, any of the four great railroad
systems concerned in these “large transactions.” _The sole effect of
issuing $615,000,000 of securities was to transfer stock from one set
of persons to another._ And the resulting “harmonious coöperation”
was soon interrupted by the government proceedings, which ended with
the dissolution of the Northern Securities Company. But the evil done
outlived the combination. The Burlington had passed forever from its
independent Boston owners to the Morgan allies, who remain in control.
The Burlington--one of Boston’s finest achievements--was the creation
of John M. Forbes. He was a builder; not a combiner, or banker, or
wizard of finance. He was a simple, hard-working business man. He
had been a merchant in China at a time when China’s trade was among
America’s big business. He had been connected with shipping and with
manufactures. He had the imagination of the great merchant; the
patience and perseverance of the great manufacturer; the courage of
the sea-farer; and the broad view of the statesman. Bold, but never
reckless; scrupulously careful of other people’s money, he was ready,
after due weighing of chances, to risk his own in enterprises promising
success. He was in the best sense of the term, a great adventurer. Thus
equipped, Mr. Forbes entered, in 1852, upon those railroad enterprises
which later developed into the Chicago, Burlington & Quincy. Largely
with his own money and that of friends who confided in him, he built
these railroads and carried them through the panic of ’57, when
the “great banking houses” of those days lacked courage to assume
the burdens of a struggling ill-constructed line, staggering under
financial difficulties.
Under his wise management, and that of the men whom he trained, the
little Burlington became a great system. It was “built on honor,” and
managed honorably. It weathered every other great financial crisis, as
it did that of 1857. It reached maturity without a reorganization or
the sacrifice of a single stockholder or bondholder.
* * * * *
Investment bankers had no place on the Burlington Board of Directors;
nor had the banker-practice, of being on both sides of a bargain.
“I am unwilling,” said Mr. Forbes, early in his career, “to run the
risk of having the imputation of buying from a company in which I am
interested.” About twenty years later he made his greatest fight to
rescue the Burlington from the control of certain contractor-directors,
whom his biographer, Mr. Pearson, describes as “persons of integrity,
who had conceived that in their twofold capacity as contractors and
directors they were fully able to deal with themselves justly.” Mr.
Forbes thought otherwise. The stockholders, whom he had aroused, sided
with him and he won.
* * * * *
Mr. Forbes was the pioneer among Boston railroad-builders. His example
and his success inspired many others, for Boston was not lacking then
in men who were builders, though some lacked his wisdom, and some his
character. Her enterprise and capital constructed, in large part,
the Union Pacific, the Atchison, the Mexican Central, the Wisconsin
Central, and 24 other railroads in the West and South. One by one
these western and southern railroads passed out of Boston control; the
greater part of them into the control of the Morgan allies. Before the
Burlington was surrendered, Boston had begun to lose her dominion,
even, over the railroads of New England. In 1900 the Boston & Albany
was leased to the New York Central,--a Morgan property; and a few years
later, another Morgan railroad--the New Haven--acquired control of
nearly every other transportation line in New England. Now nothing is
left of Boston’s railroad dominion in the West and South, except the
Eastern Kentucky Railroad--a line 36 miles long; and her control of the
railroads of Massachusetts is limited to the Grafton & Upton with 19
miles of line and the Boston, Revere Beach & Lynn,--a passenger road 13
miles long.
THE NEW HAVEN MONOPOLY
The rise of the New Haven Monopoly presents another striking example
of combination as a developer of financial concentration; and it
illustrates also the use to which “large security issues” are put.
In 1892, when Mr. Morgan entered the New Haven directorate, it was a
very prosperous little railroad with capital liabilities of $25,000,000
paying 10 per cent. dividends, and operating 508 miles of line. By
1899 the capitalization had grown to $80,477,600, but the aggregate
mileage had also grown (mainly through merger or leases of other lines)
to 2017. Fourteen years later, in 1913, when Mr. Morgan died and Mr.
Mellen resigned, the mileage was 1997, just 20 miles less than in 1899;
but the capital liabilities had increased to $425,935,000. Of course
the business of the railroad had grown largely in those fourteen years;
the road-bed was improved, bridges built, additional tracks added, and
much equipment purchased; and for all this, new capital was needed;
and additional issues were needed, also, because the company paid out
in dividends more than it earned. But of the capital increase, over
$200,000,000 was expended in the acquisition of the stock or other
securities of some 121 other railroads, steamships, street railway-,
electric-light-, gas- and water-companies. It was these outside
properties, which made necessary the much discussed $67,000,000, 6 per
cent. bond issue, as well as other large and expensive security issues.
For in these fourteen years the improvements on the railroad including
new equipment have cost, on the average, only $10,000,000 a year.
THE NEW HAVEN BANKERS
Few, if any, of those 121 companies which the New Haven acquired
had, prior to their absorption by it, been financed by J. P. Morgan
& Co. The needs of the Boston & Maine and Maine Central--the largest
group--had, for generations, been met mainly through their own
stockholders or through Boston banking houses. No investment banker had
been a member of the Board of Directors of either of those companies.
The New York, Ontario & Western--the next largest of the acquired
railroads--had been financed in New York, but by persons apparently
entirely independent of the Morgan allies. The smaller Connecticut
railroads, now combined in the Central New England, had been financed
mainly in Connecticut, or by independent New York bankers. The
financing of the street railway companies had been done largely by
individual financiers, or by small and independent bankers in the
states or cities where the companies operate. Some of the steamship
companies had been financed by their owners, some through independent
bankers. As the result of the absorption of these 121 companies into
the New Haven system, the financing of all these railroads, steamship
companies, street railways, and other corporations, was made tributary
to J. P. Morgan & Co.; and the independent bankers were eliminated or
became satellites. _And this financial concentration was proceeded
with, although practically every one of these 121 companies was
acquired by the New Haven in violation either of the state or federal
law, or of both._ Enforcement of the Sherman Act will doubtless result
in dissolving this unwieldy illegal combination.
THE COAL MONOPOLY
Proof of the “coöperation” of the anthracite railroads is furnished by
the ubiquitous presence of George F. Baker on the Board of Directors
of the Reading, the Jersey Central, the Lackawanna, the Lehigh,
the Erie, and the New York, Susquehanna & Western railroads, which
together control nearly all the unmined anthracite as well as the
actual tonnage. These roads have been an important factor in the
development of the Money Trust. They are charged by the Department of
Justice with fundamental violations both of the Sherman Law and of
the Commodity clause of the Hepburn Act, which prohibits a railroad
from carrying, in interstate trade, any commodity in which it has an
interest, direct or indirect. Nearly every large issue of securities
made in the last 14 years by any of these railroads (except the Erie),
has been in connection with some act of combination. The combination
of the anthracite railroads to suppress the construction, through
the Temple Iron Company, of a competing coal road, has already been
declared illegal by the Supreme Court of the United States. And in the
bituminous coal field--the Kanawha District--the United States Circuit
Court of Appeals has recently decreed that a similar combination by the
Lake Shore, the Chesapeake & Ohio, and the Hocking Valley, be dissolved.
OTHER RAILROAD COMBINATIONS
The cases of the Union Pacific and of the New Haven are typical--not
exceptional. Our railroad history presents numerous instances of large
security issues made wholly or mainly to effect combinations. Some
of these combinations have been proper as a means of securing natural
feeders or extensions of main lines. But far more of them have been
dictated by the desire to suppress active or potential competition;
or by personal ambition or greed; or by the mistaken belief that
efficiency grows with size.
Thus the monstrous combination of the Rock Island and the St. Louis and
San Francisco with over 14,000 miles of line is recognized now to have
been obviously inefficient. It was severed voluntarily; but, had it not
been, must have crumbled soon from inherent defects, if not as a result
of proceedings under the Sherman law. Both systems are suffering now
from the effects of this unwise combination; the Frisco, itself greatly
overcombined, has paid the penalty in receivership. The Rock Island--a
name once expressive of railroad efficiency and stability--has, through
its excessive recapitalizations and combinations, become a football of
speculators, and a source of great apprehension to confiding investors.
The combination of the Cincinnati, Hamilton and Dayton, and the Père
Marquette led to several receiverships.
There are, of course, other combinations which have not been disastrous
to the owners of the railroads. But the fact that a railroad
combination has not been disastrous does not necessarily justify it.
The evil of the concentration of power is obvious; and as combination
necessarily involves such concentration of power, the burden of
justifying a combination should be placed upon those who seek to effect
it.
For instance, what public good has been subserved by allowing the
Atlantic Coast Line Railroad Company to issue $50,000,000 of securities
to acquire control of the Louisville & Nashville Railroad--a widely
extended, self-sufficient system of 5000 miles, which, under the wise
management of President Milton H. Smith had prospered continuously for
many years before the acquisition; and which has gross earnings nearly
twice as large as those of the Atlantic Coast Line. The legality of
this combination has been recently challenged by Senator Lea; and an
investigation by the Interstate Commerce Commission has been ordered.
THE PENNSYLVANIA
The reports from the Pennsylvania suggest the inquiry whether even
this generally well-managed railroad is not suffering from excessive
bigness. After 1898 it, too, bought, in large amounts, stocks in
other railroads, including the Chesapeake & Ohio, the Baltimore &
Ohio, and the Norfolk & Western. In 1906 it sold all its Chesapeake
& Ohio stock, and a majority of its Baltimore & Ohio and Norfolk &
Western holdings. Later it reversed its policy and resumed stock
purchases, acquiring, among others, more Norfolk & Western and New
York, New Haven & Hartford; and on Dec. 31, 1912, held securities
valued at $331,909,154.32; of which, however, a large part represents
Pennsylvania System securities. These securities (mostly stocks)
constitute about one-third of the total assets of the Pennsylvania
Railroad. The income on these securities in 1912 averaged only 4.30
per cent. on their valuation, while the Pennsylvania paid 6 per cent.
on its stock. But the cost of carrying these foreign stocks is not
limited to the difference between this income and outgo. To raise money
on these stocks the Pennsylvania had to issue its own securities;
and there is such a thing as an over-supply even of Pennsylvania
securities. Over-supply of any stock depresses market values, and
increases the cost to the Pennsylvania of raising new money. Recently
came the welcome announcement of the management that it will dispose
of its stocks in the anthracite coal mines; and it is intimated that
it will divest itself also of other holdings in companies (like the
Cambria Steel Company) extraneous to the business of railroading. This
policy should be extended to include the disposition also of all stock
in other railroads (like the Norfolk & Western, the Southern Pacific
and the New Haven) which are not a part of the Pennsylvania System.
RECOMMENDATIONS
Six years ago the Interstate Commerce Commission, after investigating
the Union Pacific transaction above referred to, recommended
legislation to remedy the evils there disclosed. Upon concluding
recently its investigation of the New Haven, the Commission repeated
and amplified those recommendations, saying:
“No student of the railroad problem can doubt that a most prolific
source of financial disaster and complication to railroads in the
past has been the desire and ability of railroad managers to engage
in enterprises outside the legitimate operation of their railroads,
especially by the acquisition of other railroads and their securities.
The evil which results, first, to the investing public, and, finally,
to the general public, cannot be corrected after the transaction
has taken place; it can be easily and effectively prohibited. In
our opinion the following propositions lie at the foundation of all
adequate regulation of interstate railroads:
1. Every interstate railroad should be prohibited from spending money
or incurring liability or acquiring property not in the operation
of its railroad or in the legitimate improvement, extension, or
development of that railroad.
2. No interstate railroad should be permitted to lease or purchase any
other railroad, nor to acquire the stocks or securities of any other
railroad, nor to guarantee the same, directly or indirectly, without
the approval of the federal government.
3. No stocks or bonds should be issued by an interstate railroad except
for the purposes sanctioned in the two preceding paragraphs, and none
should be issued without the approval of the federal government.
It may be unwise to attempt to specify the price at which and the
manner in which railroad stocks and securities shall be disposed of;
but it is easy and safe to define the purpose for which they may be
issued and to confine the expenditure of the money realized to that
purpose.”
These recommendations are in substantial accord with those adopted by
the National Association of Railway Commissioners. They should be
enacted into law. And they should be supplemented by amendments of the
Commodity Clause of the Hepburn Act, so that:
1. Railroads will be effectually prohibited from owning stock in
corporations whose products they transport;
2. Such corporations will be prohibited from owning important
stockholdings in railroads; and
3. Holding companies will be prohibited from controlling, as does
the Reading, both a railroad and corporations whose commodities it
transports.
If laws such as these are enacted and duly enforced, we shall be
protected from a recurrence of tragedies like the New Haven, of
domestic scandals like the Chicago and Alton, and of international ones
like the Frisco. We shall also escape from that inefficiency which
is attendant upon excessive size. But what is far more important,
we shall, by such legislation, remove a potent factor in financial
concentration. Decentralization will begin. The liberated smaller
units will find no difficulty in financing their needs without bowing
the knee to money lords. And a long step will have been taken toward
attainment of the New Freedom.