Rensselaer Republican, Volume 21, Number 17, Rensselaer, Jasper County, 27 December 1888 — COMPETITION AND COMBINATION. [ARTICLE]

COMPETITION AND COMBINATION.

New Yorr Sun. ' / Th£ recent cataclysm in the stock market did not take by .surprise those who had been waTcning the course of events in the railroad world. The war of rates in the West and Southwest, which long ago compelled the Chicago, Burlington and Quincy, the Missouri Pacific, the Atchison, Topeka and Santa Fe, and the Chicago, Rock Island. and Pacific Railroad Companies to reduce their dividends, and which must inevitably soon affect their competitors in the same way, is alone sufficient to account for the fall in the prices of speculative stocks, without the aid of gold exports and the selling of London holders. The only surprising thing is that the public has not taken alarm sooner. Nothing is known now which was not known six months ago, and prudent operators then sold out with the confident expecta ion of buying back at the profit, but it seems that their example was not generally followed. Most people, apparently, never see a falling brick till it hits them on the head, and investors usually w'ait till their property has depreciated to the lowest point before they find out that anything is the (natter with it. As might be expected, they are now full of wrath against the officers of their companies. Without undertaking to say that these gentlemen do not fully deserve all the abuse that is heaped upon them, I must remark that censure of their conduct comes much too late to be of use. The mischief that they have done can not be undojjp, and it is even doubtful whether it can be obviated in the future. The clearing house scheme, which for a day or two was hailed as a panacea, proved on further examination to be worthless. Like other Utopias, it was found to be adapted only to the case of mortals in a state of perfection, and would not answer for ordinary men. Now there is talk oi a gigantic railroad trust, like the Standard Oil Trust, the Sugar Trust, and other similar devices. A controlling interest in each of the belligerent companies is to be vested in certain selected managers, and upon them is to be devolved the task of fixing rates and of preventing cutting. If practicable at all, the first step of this scheme will require months for its successful accomplishment, and after that would come a long and bitter struggle with courts and /legislatures, the result of which, judging from past experience, could not fail to be disastrous to it. It is none the less true, as I have on other occasions pointed out, that the only permanent antidote to destructive competition in railroading, as in all other kinds of business, is combination. This the workingmen of civilized countries long ago discovered,and they have acted upon it with success. Their unions fix reasonable rates of wages, and maintain them in-spite of all efforts of employers to bring about reductions. One by one the employers have also learned the lesson, and formed,under various names, combinations of a similar character. The principle which lies at the bottom of them is the substitution of the joint action of an organized body for the irregular efforts of individuals. The more skillful and enterprising surrender for the benefit of their less gifted comrades the right to work or to do business independently, and accept, in the place of a large but uncertain remuneration which they might obtain by crushing their competitors, a smaller but more steady one. The struggle for existence is suspended, and not only the fittest survive, but also the less fit who would otherwise go under. Undoubtedly, therefore, if the railroad managers, who are now doing their best to ruin one another, could and wou'd abandon their mad efforts and combine for mutual assistance, they would reap a similar benefit. Whether they unite in a clearing house or in a trust or in the old pooling arrangement is immaterial. The essential is that they should make common cause together and present a solid front to their customers, instead of inviting by their quarrels inroads at every weak point.

The obstacles in the way of such a consolidation of railroad interests are,nevertheless, formidable. Even-the preliminary step of organization is extremely difficult and slow of accomplishment. Jt took the Standard Oil Trustyears to absorb enough of the oil refineries of the country to render its success tolerably certain. The Sugar Trust was not formed until more than half the companies now in it were brought to the verge of bankruptcy for want of its restraining agency, and it still lacks the cooperation of several important refineries. The White Lead Trust was delayed in a similar way long after its promoters undertook to create it The fire insurance companies©! this city have never been able to act in harmony in maintaining rates, although most of them have not for ten years earned enough to pay losses and expenses, and only live by drawing upon the accumulated profits of an earlier and more prosperous period. When, therefore, we consider what an army of men, is engaged in the management of railroads in the West and Southwest alone, without considering the rest of the country, as presidents and vice-presidents, superintendents, freight agents,pa- senger agents, and in numberless other capacities, and when to tnis is added the conflicting interests of stockholders who have bought their stock at various prices, it

will be seen that the task of uniting them all on a satisfactory bas s is weH nigh impossible. It has been atttempted repeatedly before this, sometimes with temporary success, but it has as often ultimately failed-for reasons which still exist in unabated strength. Supposing these obstacles to have been surmounted and the combinations to be formed and in successful operation, there yet remains the task of' overcoming the opposition of the public. We all know the character of the legislation against railroad companies, both by States and by the United States, during the past few years, and how the courts, with rare exceptions, have sustained it. Bitter as this hostility is, it is mild in comparison with that which would be evoked by such a great consolidation of railroad companies as is now proposed. Already pooling is forbidden by the Inter-State Commerce act, the local Legislatures have cut down fares and freights, and a bill is pending in Congress to make trusts illegal. It is not to be doubted that, against what is regarded by every Western man as a common enemy, the most radical measures would at once be taken in view of this increase in its strength and efficiency. That the stockholders, and even the bond-hold-ers, suffer in their pockets does not trouble those who profit at their expense. They want as cheap a rai'road service as they can get, and they will make every effort in their power to se - cure it.

It must be said in extenuation of the Western disregard of the rights of railroad owners that they are, to a certain extent, defending themselves against the extortion of, profits in excess of what is commonly regarded as a sufficient remuneration for invested.,capital. It is a well-known fact, though—not so , well known here at the East as it ought to be, that the stock of most Western railroad companies, and even a considerable part of their bonded debt, represent not money actually expended, but a part or an expected increase of value due to the increase of the population and business of the country. A railroad costing nothing for the right of way, and frequently endowed with a munificent grant of lands, will be built in a new Western State or Territory for SIO,COO per mile cash, and bonds to the amount of $25,000 per mile, and as much more stock, will be created to represent the money. The contractors, or the projectors of the road themselves, will sell the bonds for more than enough to reimburse their outlay and take the stock for nothing, in addition to a large cash profit. The pioneer in this sort of enterprise was the Illinois Central Railroad Company, which was built with bonds which it sold at 75 cents on the dollar and which was subsequently paid out of the sales of lands given to it, leading the stock as a pure gratuity to the constructors. In other cases, where the road originally cost all that its bonds and stock represehted, there have been increases of stock . and issues of new bonds from time to time to meet the increase of capital value estimated upon the net earnings. Thus, for example? the present Rock Island, Chicago and Pacific Railroad Company not many years ago doubled its share capital and distributed the new stock to its share-holders without requiring them to give a cent for it. The Union Pacific Railway Company’s stock notoriously never was paid for in money, and its original projectors pocketed a fortune in profits on the sale

to themselves of its bonds. The Chicago, Burlington and Quincy Raiiroad Company has gone on distending its share and bond account in a similar way until its debt alone more' than represents the money actually expended for its property. It is true that to duplicate the track, stations and equipment of all these roads would cost far more now than it did tcrbuild £hem at first, but the fact remains that they did not then cost what they are now reckoned to be worth This fact the Western people know full well and conduct themselves with reference to it.

At all events, no combination of railroad companies to suppress competition will be permitted to endure which aims at the dividend of past years. There was a time when neany every railroad west of the Alleghanies, returned its owners ten per cent, per annum. Then they dropped to eight per cent., and have since fallen steadily, until now the Chicago and Alton is the only eight per cent, stock left, the rest ranging from seven per cent, down to nothing. If the descent can be arrested at the present point it will be a great thing, but it seems to be that this is more than can be hoped for. An average of five per cent, is talked of, but ! doubt if it can be attained. Altogether the? outlook is gloomy, and at present I see no ray of brightness in i,t. It is true that freight, and passenger rates have nominally been restored, but nothing exists to prevent their being cut again on the first provocation. Things have got to oe a great deal worse before they will take a turn for the better, and when the turn will come it is yet to soon too predict. Matthew Marshall, Governor Blake, of Newfoundland, has been appointed Governor General of Queensland, the place recently made - vacant by the death of Sir Anthdny Musgrave, a son-in-law of David Dudley Field, of New York A salary of J25,000 and emoluments which are said to be enormous have made the office one of the most desirable in the gift of the British., Government. I