AMERICAN RAILWAY INVESTMENT.

IT would be a curious inquiry to determine, could it only be done with any approach to accuracy, how much the mismanagement of the Erie Railway has cost the people of the United States. Partly because Englishmen invested to a considerable extent in Erie shares, and were swindled for a time by a corrupt judicial decision out of the proceeds of their purchase ; partly because the Erie Railway is one of the main connecting links between the Atlantic sea-board, and therefore between Europe and the great corn- growing States of the West ; and partly because it is from the New York Press that we of the Old World derive the principal part of our information respecting America, the manner in which a few obscure adventurers were allowed to make themselves masters of this great property, and to squander it, without even a pretence at concealment, in the furtherance of their own nefarious designs, made an impression upon observers in this country which will be hard to remove. It is idle to say that it is mere ignorance and prejudice to lump all American Railways in one sweeping condemnation, because Erie has been shame- fully mismanaged. Ordinary men cannot be expected to have a very minute acquaintance with the management of American Railways in general. They can only judge of the unknown from the known, and unfortunately Erie is not the only American rail- way that has been maladministered. But even if we admit that the particular instances are utterly insufficient to support the general induction, people are not more prejudiced in this matter than in most others. The world is seldom at the pains to institute a searching investigation before passing its judgments. It appears to us, then, incontestable that the suspicion and diafavour into which Ameri- can Railway investment has fallen in this country are necessary results of the mismanagement of the Erie and other conspicuous lines. But though necessary results, they are not the leas injurious to both America and England, —to America, because railway extension is its most urgent requirement, and they stop the flow of capital that would supply it ; to England, because they deter capitalists from a profitable investment, and also because they help to keep up the price of food by delaying the cheapening of transport in the States. To what an unimagined extent these feelings thus act as a drag upon the prosperity of both countries, is very forcibly brought out in a manual contributed to Cracroft's Investment Tracts* by Mr.

* Cracroft's Investment Tracts: American Railways as Investments. By Hobert Giffen. London : Edward Stanford.

Robert Giffen, in which the present condition and future prospects of Railways in the United States are discussed with a fullness of economic knowledge that leaves little to be desired.

At the end of 1871 the Railways of the United States taken together were of the enormous extent of 61,000 miles, or very close upon four times the length of all the Railways in Great Britain and Ireland. Of these, 48,000 miles, or just three times the whole of the lines in the United Kingdom, had been in existence long enough to allow of returns of the expense and of the profits of working them.

Not affecting minute accuracy, as that would overload our pages with figures, but using popular language sufficiently near the truth for our purpose here, it appears that a railway system three times greater than our own has a nominal capital somewhat less, or in other words, was built for a smaller sum ;--a mile of road in America costing £10,800, whereas a mile in England cost 135,000. It should, however, be borne in mind here, that this comparison does not take the land grants into account. In England, even in the rural districts, the purchase of land is a very heavy item in a railway company's expenditure ; in London and other great towns it is an enormously heavy item. But in America, speaking generally, the land is given free, and with it immense tracts, stretching sometimes as much as twenty miles on either side of the line. It will be seen, therefore, that a comparison of the two systems in this respect is as misleading as would be a com- parison of the cost of the English and Prussian military systems which would take note only of the votes of the two Parliaments.

But it is of coarse true all the same that in estimating the profit- ableness of the two systems, it is entirely indifferent whether the American Companies paid for their land or not. The only im- portant point is the return on the outlay actually incurred ; or rather, it would be the only important point, were there no " stock- watering " or fictitious expansion of the capital for stock-jobbing purposes. But owing to this practice, the real outlay in many cases is very much less than the interest-bearing capital.

To return from this digression. It appears that the American sys- tem, being three times greater than the British, and having cost, mile for mile, less than one-third as much, has an income fifty per cent. larger. But the cost of working the system is much greater in the States than here, and consequently the net return in America averages for the whole of the Railways about 15 2s. 11d, per cent.; in England the average is not more than /4 8s. 2d. Two-thirds of the American receipts, again, are derived from the carriage of goods, whereas only one-half is so derived in England. The American Railways, therefore, perform a more important service in opening up new regions, and they have a better prospect of increased profits. Every addition to the population must add to the passenger traffic. Furthermore, the debt of the whole of the Rail- ways amounts to only half the nominal capital ; their income would, therefore, yield an interest on the whole debt of more than eleven per cent. But the rate at which the debt was borrowed was not more than from seven to nine per cent. It follows, con- sequently, that the security for the debt is more than ample. Taking the whole of the States together, new as well as old, it will be seen, then, that the condition of their Railways is certainly not unfavourable. But if we confine our attention to the States which have made progress in trade and manufactures, and therefore contain numerous large towns and a population uniformly toler- ably dense, we find that though there is occasional mismanage- ment, as in the case of Erie, yet the general condition is so sound that, classing good and bad together, the net aggregate income averages over six per cent, on the capital. This is a most important fact, and it appears to bear out the inference which Mr. Giffen draws from it that American Railways are only undeveloped, that is to say, that the non-paying lines are generally new lines, and that the rapid increase of population which is taking place will soon make them profitable.

In the foregoing paragraphs we have endeavoured to give, with but little comment of our own, the bare skeleton of Mr. Giffen's book, stripped of the explanations and the reasonings with which he clothes it. In the main, we think his estimate sound, but we are compelled to add, that it seems to us to need qualification. Mr. Giffen appears to us to have omitted from his calculations IMMO of the conditions of the problem which it is necessary to take into consideration, if we would not vitiate the result. And first, as to the authority for the figures on which he bases his estimate. Our readers doubtless are aware that, as a general rule, Railways in America are chartered, worked, and managed, not under Federal, but under State law. The consequence is, that there is no department of the Federal Government with jurisdiction over them, or possessed of the means to collect statistics respecting them. Some of the States do, indeed, publish statistics of their

own lines ; but a great many others do not, or when they do, their statistics are untrustworthy. For Railway information in America, therefore, we have to look to private sources. The standard authority on the subject is Poor's Manual, and, from the necessity of the case, it is largely compiled from the statements which the Companies themselves choose to furnish. It is obvious that such statements should be received with much caution, and Mr. Giffea appears to feel too little misgiving in using them. He remarks, indeed, and justly, on the great addition to the laboriousness of his task caused by the absence of official information, but the information which he has he uses apparently without much suspicion.

that it may not be perfectlytrustworthy. In so doing he may be fully justified, but undoubtedly that is not the opinion of all well— informed Americans. And we ourselves could cite many facts.

that throw doubt upon it. A Ring connected with the carpet-bag Government of Arkansas some time ago obtained a subvention for the making of a railway, the charter for which it held. It is said to have brought rails from New York, and laid them down on the greensward, and then to have got a friendly inspector to certify that the first section was made. The rails were at once taken up and placed upon the second section, and so on to the end. Now this story may, of course, be false ; but if true, the line would figure- in the completed mileage of Arkansas, and yet have no actual existence in fact. Again, it has been stated on oath within the past few weeks, before a Committee of the New York. Legislature, that the last dividend voted by the Erie Direc- tors was paid out of a loan raised here in London. The- testimony may be perjured ; but if it is not, then Erie must be taken out of the list of dividend-paying lines. Other instances- of the same kind might be cited in any number, but these two will suffice to show the diffidence with which Poor's statements should be received, without the most intimate personal knowledge of the lines to which they refer. Another circumstance which must have introduced a certain amount of error into Mr. Giffen's calculations is his omission to take into account the repudiation of their debts by several of the States. Last autumn we commented in these columns on the repudiation by the State of Georgia of Railway bonds to the value of more than five millions of dollars. Other Southern States have already followed the example of Georgia, and others still seem likely to do the same. Nor has this dishonest policy been confined to the South, nor to the times since the war._ We do not mention this circumstance as a justification of the distrust of American Railways felt in Europe, though in fact it is a partial justification. But if we would know the real coat of these railways, we clearly must add the repudiated bonds to the

acknowledged capital. And when we have done this, we are- inclined to think that the profit on the outlay hitherto earned

will not be found so very much higher than that yielded by the

British lines. There is only one other circumstance to which we- will here allude, but it is one we are surprised Mr. Giffen has not-

touched upon. We refer to the danger that the present rate of railway construction in America is too rapid. It appears that in 1871 considerably more than 7,000 miles of new railways were

built, in 1870 the new mileage exceeded six thousand, in 1869,

the new miles were just five thousand. In three years it thus seems that a mileage exceeding that of the whole United Kingdom was added to the American Railway system. Now, even if we- assume that half the capital for these enterprises was borrowed in Europe, and that the cost of construction was less than one-third, that of the English lines, it is difficult to believe that a country needing capital so sorely in every department of industry can go- on with itumunity for any length of time investing at this rate in.

a form permanently inconvertible. Nor is it calculated to quiet our misgivings to learn that the Railway crisis of 1857 was preceded by a similar excessive activity in railway construction. The new mileage of 1856 was_3,643 ; but on the occurrence of the crisis.

there was an immediate decrease, which went on intensifying up to 1861, when the new mileage was as low as 621. We have thought it our duty thus to point out at some length the particu- lars in which we think Mr. Giffen has taken an over-sanguine view of the prospects of American Railways ; Ave must not, how- ever, be understood as questioning the general soundness of his conclusions. It must always be remembered that immigration is. adding to the American population at the rate of over a thousand persons a day. The great majority of these persons are at the productive period of life, and bring with them besides, in money and personal effects, a very considerable capital. A country whose resources and productive capacity are thus increased with- out expenditure on so large a proportion of its labourers, neces- sarily grows beyond all calculation, and railways which now pay nothing, in a little while will yield handsome dividends.