The complaint is frequently heard from railroad men that our freight rates are too low, and in support of it the statement is usually made that the greater part of the railroad stocks of the United States pays dividends considerably smaller than the average interest realized by capitalists on money loaned or invested in other enterprises.

This statement may be true, and yet it is valueless as an argument for higher rates. It may be admitted that the dividends declared upon the face values of railroad stocks are quite moderate, but it is a fact too well authenticated to be contradicted that railroad securities represent to a considerable extent only fictitious capital. The public concedes that liberal returns should be allowed to railroad companies on money actually invested, but it naturally objects to being taxed for the purpose of making dividends on watered stock. The evil referred to is a serious one, and has contributed much to the general demand for railroad reform. Most of the early roads of this country were built for the accommodation of local traffic. They were constructed and managed by business men upon business principles. The stock issued by the companies was in most cases paid for in full and was not unfrequently sufficient for the completion of the entire road, and no incumbrance was permitted by the owners to be placed upon the property. These enterprises as a rule proved very profitable. One of the first roads running west of Chicago will serve as an illustration. The Galena and Chicago Union Railroad Company paid a 10 per cent. dividend within a year after being opened to traffic, and gradually increased its dividends to 15, 20 and 22 per cent. During the first two years of the road's operation its expenses were only 38-1/2 per cent. of its earnings. During the second year the company, after paying a 15 per cent. dividend, diminished its debt nearly $60,000 and increased its surplus $11,700. In 1856 the road had a length of 232 miles, on which the gross earnings amounted to $2,315,787. This revenue exceeded the estimate made by the company's officers the year previous by $300,000. In his annual report for 1856 the president of the company said: "This result shows an increased surplus of $65,000, after paying 22 per cent. in dividends and all expenses and interests chargeable to income account." The report also shows that expensive improvements, such as large permanent bridges and stone culverts, displacing as a rule wooden ones, were charged to current expenses.

The financial success of railroads soon attracted the cupidity of financial adventurers—men of great energy, but small means—whose aim was to secure the greatest possible returns with the least possible outlay of money. With the introduction of these elements into railroad circles the era of speculation commenced. Take the line just referred to. In 1852 the average number of miles operated was 62, and the year following, 90. But while the number of miles operated increased less than 50 per cent., the capital stock of the company grew from $444,193 to $1,362,559, and its debt from $60,145 to $542,287. The capitalization of the road was thereby increased from $8,000 to $21,000 per mile, and this was done for the purpose of making the capital appear adequate to its earnings. Nearly all railroads became in time the foot-balls of shrewd manipulators. They were bonded before they were constructed, and often for more than the value of the completed road. Stocks at the best only represented nominal values and were given as premiums to the bondholders or promoters of the road.

But the science of stock-watering did not reach its fullest development until during the period of railroad consolidation. Fictitious values were now created as often as a new consolidation took place. Watered stocks and bonds were watered again and again, until they represented little more than a purely imaginary capital upon the basis of which dividends might be declared. Take the case of the New York Central and Hudson River Railroad companies, which consolidated in 1869 with a capital of $103,110,137.31. The former of these roads was organized in 1853 by the consolidation of ten smaller roads connecting the cities of Albany and Buffalo. The capital stock of these companies amounted to $20,799,800, of which $16,852,870 was claimed to have been paid in. Their funded debt was $2,497,526. It is impossible at this day to ascertain the original cost of all these roads, but it is certain that the above sums represent about three times the amount actually expended for their construction.

One of the roads entering into the consolidation was the Utica and Schenectady. It was 78 miles long and formed about one-fourth of the consolidated line. It had the heaviest grading and rock-cutting, was the best-equipped and undoubtedly the most expensive, in proportion to its extent, of the ten roads out of which the New York Central was created. The original cost of this line was $2,000,000. Bonds were never issued by the company. The line was profitable from the very beginning, paid regularly ten per cent. dividends,—the limit to which railroad companies were then restricted,—and had a large surplus, which it expended mainly for improvements. No assessment was ever made on the stock beyond the $1,500,000 which was originally paid in by the shareholders and upon which they had drawn regular and liberal dividends. Taking the original cost of this line as a basis, it is but fair to presume that the entire line from Albany to Buffalo, covering a distance of 297 miles, did not cost to exceed $6,000,000. These roads, however, entered into the consolidation with a capital stock of $15,274,800 and a bonded indebtedness of $1,696,326.

Estimating the cost of the branches upon the same basis upon which we have estimated that of the main line, we shall find that the total original cost of the consolidated lines cannot have exceeded $8,000,000. The Mohawk Valley road was put in at $2,000,000 and the Syracuse and Utica direct at $600,000, though the roads only existed on paper and did not represent any value whatever. The Schenectady and Troy road, which went into the consolidation with $650,000 stock and $90,000 bonds, had been bought for less than $100,000 two months previous to the consolidation.

It will thus be seen that already nearly one-third of the stocks and bonds of the consolidated companies was water. The consolidation agreement fixed the capital stock of the New York Central at $23,085,600 and its funded debt at $11,564,033.62, increasing the stock over $2,000,000, and the bonded debt over $9,000,000. The latter was more than quadrupled, and $8,000,000 worth of bonds were, under the name of consolidation certificates, given as a present to the stockholders of the new road. The capital stock of the New York Central grew steadily up to the time of its consolidation with the Hudson River road, when it was $28,795,000. All improvements made during this time were paid for out of its surplus earnings, with the single exception of the Athens branch, for which the company issued $2,000,000 of its stock.

The gross earnings of the New York Central in 1854 were $5,000,000, and its net earnings $2,830,000. In 1863 its gross earnings were in round numbers $10,000,000, and in 1869 they reached $15,000,000. The dividends paid during that year amounted to $4,300,000, and the interest to $894,000. In view of the fact that the bonded indebtedness of the road was from two to three million dollars more than the original cost, this dividend of 15 per cent. upon a wholly fictitious capital must be regarded as an unwarranted tribute levied upon the commerce of the country. But we shall soon see that in railroad hydraulics, as well as in other branches of human industry, success stimulates to still greater energy.

The Hudson River Railroad Company was organized in 1847. It extended from New York City to East Albany and was 144 miles long. There are no data extant upon which could be based a reliable estimate of its original cost. Estimating it upon the basis of that of the Utica and Schenectady, we should have to place it somewhat below $3,000,000. While such an estimate may be too low, the amount of its funded indebtedness in 1851, which was $5,640,000, probably more than covers the amount actually expended in the construction of the road. In 1851 the capital stock of the Hudson River road was $4,000,000. In 1853 the funded debt had increased to $7,000,000, and in 1862 to $9,000,000. In 1869 the bonded indebtedness had decreased to $4,309,000, but the capital stock had grown to over $16,000,000. Between 1853 and 1869 the company increased its stock and bonded indebtedness nearly $11,000,000, while the assessments paid by its stock and bondholders during this time did not exceed $1,000,000. Improvements were made, but these were chiefly paid for out of the surplus earnings of the road. It has been shown by experts that $6,640,000 is a high estimate of the actual original cost of the Hudson River road to its stock-and bondholders, and that securities to the amount of more than $13,000,000 represented surplus earnings and water. At the time of the consolidation of the Hudson River and New York Central railroads the capital stock of the two roads had grown to $44,800,000. Under the consolidation agreement the stock was fixed at $45,000,000. The new company also assumed all the bonded and other indebtedness of both roads. If the consolidation manipulators had paused here, the capital of the new company would have been somewhat less than $60,000,000, or more than three times the cost of the property. But the road was, under existing rates, capable of earning dividends on a much larger capital, and this emergency was met by the issuance of consolidation certificates to the amount of $45,000,000. The total capital of the road was thus increased to and made to pay dividends on over $103,000,000, while the total cost of the road and its equipment, as claimed by the company in 1870, was less than $60,000,000, their estimate being based upon assumed consolidation values and the expenditures made from surplus earnings. During the same year the gross earnings of the company were $22,363,320, and their net earnings $8,295,240. In 1880 the gross earnings had increased to $33,175,913, and the net earnings to $15,326,019. The company was able to declare in that year 11.82 per cent. dividend on its $89,500,000 of fictitious stock. In 1890 its gross earnings were $37,008,403, or $26,050 per mile, while its total net earnings were $12,516,273. The gross earnings have largely increased during the years 1891 and 1892. It is safe to say that $2,000,000 per annum would pay very liberal interest and dividends on the amount of money expended upon the construction of the New York Central and Hudson River Railroad from the proceeds of its bonds and stocks. By the creation of fictitious values the managers of the company have attempted to impose an exorbitant tax upon the commerce and travel of the country for all time to come. The Government guarantees an inventor a monopoly only for a limited space of time, upon the expiration of which his invention becomes the common property of the people; but railroad managers endeavor to collect, under the protection of our laws, an exorbitant royalty from our people forever.

The case of the New York Central and Hudson River Railroad Company is only one of the innumerable instances of stock watering in the history of American railroads. Indeed, it can be shown that stock-watering reached a still higher degree of development in the case of the Erie road. It has been demonstrated that the actual original cost to the stock-and bondholders of the New York Central Railroad Company, which was, with its branch lines, 593 miles long, did not, including the Athens branch, exceed $10,000,000. Its cost to its owners, in 1869, including the bonuses, premiums, commissions and fictitious equalization values of several transfers, was reported by them to be only $37,600,000, or about $63,400 per mile. At about the same time the main stem of the Erie Railway, extending from New York to Dunkirk, a distance of 459 miles, was represented by a capital of $108,807,687, or $237,000 per mile. Considering the inferiority of this road to the New York Central, we are forced to the conclusion that nearly 85 per cent. of the capital of the road represented water, or, in other words, that the commerce of the United States was taxed to pay dividends on about $90,000,000 of watered securities. In 1863 the Erie Railroad had outstanding $11,437,500 of common stock. In 1864 this had been increased to $15,693,000, in 1868 to $37,765,000, and in 1869 to $70,000,000. Not one-tenth of this enormous increase of capital was ever expended on the property of the road. The stock was sold at from 20 to 40 cents on the dollar, and the proceeds disappeared in the hands of its managers. To what extent this freebootery was carried will probably never be known. An idea of the rottenness of the Erie management may be had from the fact that the courts at one time ordered its president to restore to the company $9,000,000 of diverted securities, which order was complied with. Vast private fortunes were amassed by nearly all the men who directed the affairs of the road, and the mismanagement became in time so notorious that the legislature of the State of New York was appealed to, to remove the directors of the road for the protection of its stockholders, and to reduce the capital stock of the company to the amount actually paid for it. This movement failed, however, because it was opposed by the very stockholders whose interests were supposed to have suffered by directorial mismanagement. They preferred to continue to draw dividends on the face value of stocks which they had purchased at 20 cents on the dollar. The capitalization of the company has since been increased to $163,679,825, and it is by no means a secret among those familiar with railroad values that the bonded indebtedness of the Erie road represents alone many millions more than the total amount that was ever invested in the property.

The principal competitor for through traffic of the two companies whose financial operations we have just reviewed is the Pennsylvania Central Company. It has often been asserted by the managers and friends of this company that its capital is free from water; but this is not true. In 1864 a dividend of $4,130,760 was made out of the surplus earnings of the road. This dividend was payable in capital stock and was equal to 30 per cent. of the then outstanding capital. Similar surplus dividends, each equal to 5 per cent. of the company's outstanding stock, were declared in 1867 and 1868. The people were thus taxed to pay dividends on a capitalized surplus which had been derived from excessive charges previously imposed on them. I shall not attempt here to determine whether the capital represented by the Pennsylvania Railroad Company has been honestly invested. A committee of Congress has expressed the opinion that the capitalization of its main line exceeds the amount of the actual cost of the property by more than eleven million dollars. There is, however, a system of inflation practiced by the Pennsylvania Railroad Company which is simply a new form of bond and stock watering. More than one-half of the capital of this company has been invested in the stocks and bonds of other corporations. In 1891 the amount so invested was $154,319,240, and the income derived from it $4,852,181. This does not only cause the stocks and bonds of certain companies to be counted twice, but exacts a double tax from the commerce of the country, interests and dividends upon the same capital being paid both to the bond- and stockholders of the Pennsylvania Central and to the bond-and stockholders of the roads in whose securities it has made investments. The income of the company is thus swelled far beyond the amount which the traffic reports indicate. It will be seen that, to perpetuate extortionate rates, this process of manifolding securities might be continued indefinitely.

The cost to its stock-and bondholders of the Baltimore and Chicago line of the Baltimore and Ohio Railroad, which has a length of 795 miles, was estimated by the company's officers at about $57,000,000. The actual cost of this road, owing to its expensive mountain grades, was probably greater than that of any of the other through lines between the sea-coast and Chicago, but there can be no doubt that the capitalization of this road represents from one-half to one-third pure water. At the time of the completion of this road to Chicago the surplus earnings of the company, after the payment of interest and dividends, amounted to over $29,000,000. This had been charged to "profit and loss" and used in the construction of branch lines. Thus an amount equal to more than half of the reported cost of this line had at the time of its completion been returned to its owners in other railroad values.

The Select Senate Committee on Transportation Routes to the Seaboard in 1874 estimated the excess of the capital over actual cost of the Erie road, from New York to Dunkirk, at $68,807,000; that of the New York, Lake Shore and Michigan Southern line to Chicago at $115,188,137, and that of the Pennsylvania and Fort Wayne line to Chicago at $11,290,374. If this estimate was correct the entire over-capitalization of these lines, on which the commerce between the West and the East was forced to pay a dividend of 8 and 10 per cent. per annum, was no less than $195,000,000. The committee assumed the actual cost of these roads to be $182,000,000, or about $78,000 per mile. They based their estimate upon the cost of the main branch of the Baltimore and Ohio, as reported by their officers, supposing it to represent the actual outlay made by its stock-and bondholders. Various revelations which have since been made to the public, as to the real cost of railway construction, justify the belief that the estimated cost of $78,000 per mile for those roads is far too high. Mr. Henry Poor, several years ago, estimated the average cost of the roads of the United States at $30,000 a mile. Making allowance on one hand for Mr. Poor's tendency to favor the railroad side of the question, and on the other hand for the more expensive grades, double tracks and better terminal facilities of these trunk lines, $50,000 per mile may be considered a fair estimate of their average cost. Upon this basis the total cost of the three lines in question would amount to $116,450,000, and the excess of their capital over actual cost would be the enormous sum of $261,000,000, or 325 per cent. of their actual cost, and probably not less than 400 per cent. of the original cost to their stock-and bondholders. The capital of these companies has since been considerably increased, to enable their managers to increase their dividends, and with it the tax levied upon the commerce of the country.

These are only a few of the many instances of stock watering that might be mentioned. In fact, there are to-day very few railroads in the United States that are entirely free from it. It is a notorious fact that the stock of a large number of railroad companies represents little or no value, having either been sold at a mere nominal price or been donated as a premium or bonus to those who purchased a large amount of the company's bonds. In recommending, in his December, 1891, annual message, Government aid for the Nicaragua Canal, President Harrison said: "But if its bonds are to be marketed at heavy discounts and every bond sold is to be accompanied by a gift of stock, as has come to be expected by investors in such enterprises, the traffic will be seriously burdened to pay interest and dividends." It is not difficult to surmise to what enterprises the President referred. It has for many years been a well-settled principle among railroad incorporators that no larger assessments should be made upon the stockholders than is necessary to float the company's bonds. A company, for instance, is organized with a capital stock of, say, $1,000,000. Five per cent. of this sum, or $50,000, is paid into defray preliminary expenses. The road is then bonded for perhaps $2,000,000, but as the bonds are sold for only 80 per cent. of their face value and as the incorporators allow themselves 5 per cent. for the negotiation of the bonds, only $1,500,000 is realized for the construction of the road. The incorporators now vote to themselves a contract to construct the road for $1,500,000 and at once sublet it to a contractor who is ready and anxious to build the road for $1,200,000. The incorporators thus realize $1,000,000 worth of stock, a portion of which is unloaded upon unsophisticated investors, and $300,000 in cash, at an outlay of $50,000; and the road, which cost $1,200,000, is made to pay interest and dividends on a total capital of $3,000,000, and this is subsequently watered indefinitely if the road proves profitable or a consolidation with some other road justifies the belief that its earning capacity might be increased. Nor is this an overdrawn picture. On the contrary, instances might be cited where only one-half of one per cent. of the company's stock was paid in by the shareholders.

In the days of inflation such transactions did not seem to seriously affect railroad securities. Even when they were no longer a secret to the public, stocks and bonds sold readily, because, owing to the large earnings of the roads, this class of investments was unusually productive.

In 1868 the earnings of the railroads of Massachusetts averaged $15,400 a mile, and were equal to 38 per cent. of the total reported cost of all the lines of the State. The Chicago, Burlington and Quincy earned $15,386 per mile in 1867, and paid a 15 per cent. dividend. Its stocks were quoted 100 per cent. above par. In 1867 the Lake Shore Railroad earned more than 50 per cent., and the Terre Haute and Indianapolis even as much as 57.2 per cent. of the amount of its cost. Previous to the war the inflation of railroad securities was, as a rule, confined to the stock. Where roads were bonded for more than the cost of construction it was, with but very few exceptions, done to make their capital to correspond with their earning capacity, or rather to divert public attention from the fact that the rates in force had outlived their reasonableness. It was reserved to the Union Pacific and the Central Pacific companies to bond their roads from the beginning to an amount equal to twice their actual cost, or, in other words, to virtually receive them as a present from the Federal Government, bond them for all they were worth, and, in addition, issue stock to an amount largely in excess of the cost of construction, and then try to earn interest and dividends on the whole amount of securities issued. The history of these companies forms so interesting and instructive a chapter in the railroad annals of America that a short synopsis of it may not seem out of place here.

The charter of the Union Pacific Railroad Company was granted by Congress on the first day of July, 1862. Shortly after the beginning of the War of the Rebellion it was made to appear to the country that a transcontinental road was a national necessity; that without it we could not hope to retain long the Pacific Coast. It was also very plausibly argued that the political benefits to be derived by the country from the construction of such a road, as well as its great length and extraordinary cost, made it the duty of the nation to aid liberally its enterprising and patriotic promoters in the prosecution of their gigantic task. In those stirring times few people were inclined to question the motives of those who advocated what appeared to be patriotic measures, or to be penurious in the expenditure of public funds when the public weal seemed to demand such expenditure.

The Union Pacific Railroad charter, which in substance was passed by Congress as it had been drafted by the promoters of the enterprise, gave to the new company the right of way through the public lands, and authorized it to take, from the lands adjacent to the line of its road, earth, stone, timber and other materials for its construction. It further granted to the company every alternate section of land to the amount of five alternate sections per mile on each side of its line, excepting only those lands to which preËmption or homestead claims attached at the time when the line of the road should be definitely fixed. In addition to these donations the United States issued to the company subsidy bonds in an amount equal to $16,000 per mile for the distance from the Missouri River to the eastern line of the Rocky Mountains, $48,000 per mile for a distance of 150 miles through the Rocky Mountains, and $32,000 per mile from the western base of the Rocky Mountains to the terminus of the road. Similar franchises were at the same time given to the Central Pacific Railroad Company, a corporation which had previously been chartered by the State of California. Besides its grant of right of way, land, timber, etc., this company received subsidy bonds at the rate of $16,000 a mile for a distance of 7.18 miles east of Sacramento, of $48,000 a mile for 150 miles through the Sierra Nevada, and of $32,000 a mile for the distance from the eastern base of that mountain range to its junction with the Union Pacific. The charters of the two companies provided that, to secure the repayment to the United States of the amount of those bonds, they should ipso facto constitute a first mortgage on the entire lines of the road, together with their rolling stock, fixtures and other property. The franchises and donations thus granted by Congress were most valuable; in fact, the latter were alone sufficient to build and equip the roads. In spite, however, of the liberal grants and in spite of the urgent necessity of the roads in those years of national trial, both of these enterprises made very slow progress. Their promoters were men of small means, and the capitalists to whom they appealed for help failed to realize the value of the franchises. No doubt when these men first engaged in their cause they expected to encounter serious obstacles in Congress, supposing that that august body would consider the proposed measure with much deliberation and to act upon it with still more circumspection. Their success greatly surprised them. They made the discovery that members of Congress could be imposed upon as easily as private citizens, and when they fully realized how readily their demands had been granted, they were greatly provoked at themselves because they had not asked for more.

According to a story told by my old friend Mr. J. O. Crosby, an experienced member of the brotherhood of tramps late one afternoon chanced to stroll into the city of Alton. Having no visible means of support, he was picked up by the police and brought before the Mayor to give an account of himself and to be dealt with as that dignitary might see fit. The tramp, a printer by profession, and by no means a tyro in meeting such emergencies, so managed to impress the Mayor with his superior accomplishments that the latter concluded it would be a good investment, both for himself and the city over which he presided, to offer the genial stranger a contribution to his traveling fund, upon the condition that he would no longer than absolutely necessary molest the city with his presence. He accordingly told the intercepted tourist that while it had been for years the policy of the city and its officials to entertain all tramps found within the limits of Alton for thirty days at the city jail in exchange for a fair amount of labor, he would, in consideration of the apparent fact that he was of better metal than the average tramp, make an exception in his case, and would, even at the risk of being censured for it by his constituents, hand over to him five dollars from the municipal funds if he would agree to leave the city early next morning. The tramp gladly accepted the proposition, replenished his empty purse with the proffered bounty and withdrew from the City Hall, to take a stroll through Main Street. The city seemed to him as prosperous as the Mayor had shown himself liberal. It occurred to the itinerant typographer that its treasury would not have been the worse off for a ten-dollar levy, and he hastily returned to the Mayor's office to plead for a larger donation. The Mayor, not disposed to argue the question, handed him another five-dollar bill and improved the opportunity to remind him of his previous promise and to give expression to the hope that as a gentleman of honor he would now discharge his obligation. The tramp fairly overwhelmed His Honor with assurances of good faith and bade him an affectionate good-by. The next rising sun found him on his onward journey. His route led through Alton on the Hill, a portion of the city which he had not seen before. He viewed with surprise the many fine residences and other evidences of opulence which this part of the city contained. He passed on in a pensive mood until he reached the summit of the hill, which commanded a fine view of the entire city. Here he turned to cast a farewell glance over the town ruled over by the most generous mayor that it had ever been his privilege to meet. As he beheld before him the fine homes and beautiful yards, and below in the valley the lofty church-steeples, the many school-houses, the massive business blocks, the long and well-paved streets and the spacious and shady parks, an expression of mingled surprise and disappointment stole over his face. He thrice slapped his wrinkled brow and then hurriedly retraced his steps down the hill. When the chief magistrate of Alton came to his office that morning, he met the irrepressible tramp anxiously waiting for him at the door. "Mr. Mayor," said the wily extortioner, "I acted very hastily yesterday when I accepted your second proposition. You have here a much larger town than I ever supposed. I have been constrained to take our last agreement into reconsideration, and I shall not leave this point until you add another five dollars to your consideration. You can certainly better afford to do that than to throw away thirty days' board and the ten dollars which you have already paid me besides."

The diplomacy of the Union Pacific and Central Pacific railway companies was the same as that of the Alton tramp. They had found Congress as generous as the tramp had found the Mayor of Alton, and now reproached themselves for their modesty and resolved to bring the pliability of Congress to a severer test. They again appeared before that body in 1864 and asked that their charter be so amended as to grant to them ten alternate sections instead of five on each side of the road, and also all the iron and coal found within ten miles of their track, which had previously been reserved by Congress. And in addition to this they asked that they be authorized to issue their own mortgage bonds on their respective roads to an amount equal to the bonds of the United States, and that the lien of the United States bonds be made subordinate to the lien created by the companies' bonds. By the act of Congress, July 2, 1864, all these demands were granted, and the two companies were thus virtually presented with their roads and were at the same time given permission to mortgage this gift of the people and divide the proceeds among their shareholders, many of whom had received their stock chiefly in consideration of their influence in and out of Congress. The contribution of the United States to these companies on account of their main lines has not been far from $80,000,000, of which over $52,000,000 was paid in bonds, and the remainder in lands, which aggregated about 23,000,000 acres. The whole line from Council Bluffs to Sacramento is 1,780 miles long. It will thus be seen that the national contribution was about $45,000 per mile, besides the right of way and all timber, iron and coal found within ten miles of the road. There is no doubt that this contribution was equal to, if it did not exceed, the actual cost of the road. There has been an erroneous impression abroad which has likened the Pacific road to those wonderful and very expensive lines which cross the Andes and the Alps. Those who have not crossed the continent can hardly believe that the construction of this line was neither more difficult nor more expensive than that of any of the numerous railroads crossing the mountain ranges of the East, but such is the fact.

Starting from Omaha, the Union Pacific follows for nearly 500 miles, or almost half of its entire length, the valley of the Platte River. A better route for a railroad cannot be found upon the western continent. There are between Omaha and Cheyenne but three bridges worthy of the name. The Platte Valley is almost straight, rising toward the west at a nearly uniform rate of about 10 feet to the mile. Grading was practically unnecessary, and the work of construction consisted of little more than the laying of the ties and track. From the base of the mountains at Cheyenne to their summit is a distance of about thirty-two miles, the difference in altitude between the two points being less than 2,200 feet. The average grade is therefore about 68 feet to the mile, and nowhere are the grades heavier than 80 feet to the mile. There are heavier grades than these in the prairie State of Iowa, and the mountain grades of a number of Eastern roads exceed those of the Union Pacific by from 30 to 40 feet to the mile. The rise is, if not uniform, at least gradual, and the construction of even this portion of the road required, therefore, neither great engineering skill nor any unusual expenditure of money. The road now crosses a plateau which extends almost to the terminus of the Union Pacific at Ogden, and a very large portion of this is as favorable for a roadbed as the average railroad territory of the country.

The route of the Central Pacific presented to the engineer no great obstacles between Ogden and the State line of California, the only elevation of any note to be surmounted being the Humboldt Mountains in Nevada. Their highest point, Humboldt Wells, is 221 miles west of Ogden, and has an elevation of 5,650 feet above the level of the sea, while that of Ogden is 4,320 feet. Upon an average the grades of this portion of the road do not differ from those found in the Mississippi Valley. The portion of the Central Pacific Railroad which traverses the Sierra Nevada is the most expensive of the whole line, but the cost of construction did not, even on this division, exceed the amount contributed for it by the Federal Government; for the statement is made upon good authority that a few of the leading promoters of the road built the first western section of twenty miles with their own capital, of less than $200,000, and a loan from the city of Sacramento and Placer County, amounting to $550,000, and then drew $848,000 Government subsidy, or more than enough to build the second section and draw another installment of the subsidy; and that they repeated the operation until the whole line was completed. These men were in such haste to realize the profits which their undertaking promised them that they did not even take sufficient time to make a proper survey of their line. Had they done so, a great saving, both in the construction and in the subsequent operation of the road, might have been effected. It is now well known that a route could have been found through the Sierra Nevada Mountains, not far distant from the route chosen, which would have saved 800 feet in elevation and at least 25 per cent. in the expense of grading.

It is certainly safe to say that if less than forty thousand dollars a mile was sufficient to construct the road through the Sierra Nevadas the Federal contribution of $50,000,000 for the entire line, from Omaha to San Francisco, left, after the completion, a respectable surplus, either to the companies or those of their members who had the construction contract, and that the $75,000,000 of capital stock and the $55,000,000 of first mortgage bonds which the two companies issued were a gigantic dividend to the stockholders, for which, practically, no consideration was given.

The companies might well have been satisfied with the Government's generosity, but their success in imposing upon Congress stimulated their greed. The act of 1864 provided that the charge for Government transportation over these roads should be applied to the liquidation of its bonds, and that after the completion of the lines five per cent. of their net earnings should likewise be so applied. When the Secretary of the Treasury, under the law, refused to pay them the amount earned by Government transportation, and in addition to this demanded the five per cent. of their net earnings in liquidation of their debt, the companies applied to Congress to again amend their charters so as to relieve them for the time being from any direct payment of either principal or interest of the Government bonds, and to make it the duty of the Secretary of the Treasury to pay to the companies in money one-half of the compensation allowed to them by law for services performed for the Government. And again Congress responded to their demands, granting them, by a rider to the army appropriation bill, passed March 3, 1871, all the relief asked for. Owing to the policy of the managers of the Pacific line to pay as little of the interest on the Government subsidy debt as is absolutely necessary to prevent foreclosure proceedings, the unpaid interest has accumulated until it now almost equals the amount of the original indebtedness. The last report of the Commissioner of Railroads shows that the total indebtedness, principal and interest, to the United States of the Pacific railroad companies, was $114,490,000 on July 1, 1892. The Commissioner seems to be of the opinion that the Union Pacific Company will not be able to pay the subsidy bonds at maturity, and he urges that some step be taken in the matter by Congress, whether it be to extend the loan, which will mature within the next six years, or to sell the road. The managers of the Pacific roads and their friends ask an extension of the Government subsidy bonds for fifty years, and a reduction of interest from 6 to 2 per cent. If Congress continues to be servile to these interests, the Pacific railroad lobby will secure just such legislation as they demand.

At the time the Pacific roads were built the people of the United States had no adequate knowledge of the topography of the Territories, and the promoters of the road for a while found it a difficult task to convince capitalists that the investment would be a safe one. That they knew the value of the projected road was shown by the contest between the Central Pacific and the Union Pacific for mileage. For a distance of over 200 miles the two companies graded roads side by side in contest for the Government subsidy.

The promoters were even disappointed in the cost of the roads, as Mr. Sidney Dillon states in an article published in the August number of Scribner's Magazine, 1892, in which he says:

"At the end of 1867 the road was completed to the top of the mountains and nearly half way to Salt Lake City. The cost of building over the mountains was so much less than we had expected that the construction company found itself with a surplus from the proceeds of the subsidy bonds. This was imprudently distributed in dividends."