1.1:LB BOITND A RTES OF RAILWAY SPECULATION. Winix the Westminster
Review is defining the "sphere and du- ties of Government," the Edinburgh is defining the sphere and duties of Railway Companies, vindicating the interests of railway minorities, and exposing the machinery that renders those incor- porations, singularly enough, instruments of rapine for the injury of shareholders. The process is curious, and the future investi- gator into the archa3ology of the present century will be infinitely amused at the analysis. The writer naively begins his anatomy by an express statement at starting, that, on the average, railway managers are not to be supposed to be morally lower than the community at large. The caveat is necessary. To tell the story in brief which the analyst expounds in full, the plan might be thus described.
Railways were originally designed to facilitate the traffic of mankind. They did so, but they were found also to facilitate the traffic of engineers; to the engineer, therefore, the railway was only a pretext, the engineering business was the object. It be- came necessary to procure Parliamentary powers : lawyers were the agents for that purpose ; and the iron road, which was to facili- tate locomotion still more facilitated the motion of expenses from the pockets of shareholders to those of lawyers : the railway, there- fore, became the pretext for another class of business ; and the self-appreciating lawyer has been known to exclaim, with the up- lifted brow of astonishment, "We have not a railway in our office !" In the attorney view, a railway is a thing which can be "in" a lawyer's office. To make the line, delvers and diggers were required ; a delver and digger of some standing would con- tract to do a few feet—subsequently a few miles—subsequently an entire railway; and then the contractor for the delving and digging part off the business regarded the railway as only a pre- text for Hudsonisin. Here, then, were three classes created: the locomotion of her Majesty's subjects supplies for engineers, lawyers, and contractors, a means of exacting tribute; and railways have been laid about the country only as the channels for conveying thousands or hundreds of thousands into the pockets of the three classes of highwaymen. That is only the rudest ebauche of the system ; the refinements are indeed interesting. Railways, made under circumstances such as we have imagined, must sometimes be got up when there was no want for the railway, and the concern of course would lose. The problem therefore was, how the three grand originating classes should profit by a losing concern. The feat was really accom- plished. In the first place, the whole is got up in shares ; then some extension is required, and money is to be borrowed; it is borrowed on preference shares, on which dividends are "guaran- teed." The ordinary class of shareholders cannot conveniently "take up" any additional liabilities; but the magnates, having the cash at command, "take up" preference shares with a guaranteed dividend. Thus they have in hand both preference shares and what we may call deference shares. There is no reason why they should keep the less profitable form of security; they are free to sell their deferred shares, retaining only the preference : thus the great creators of railways can make a line which shall be a loss to the ordinary shareholders, and the latter shall continue to pay the guaranteed dividends of the lucky few.
The reviewer gives a statement of preference shares taken out by the possessors of stock in a particular company. It exhibits a large proportion taken up on payment of Si. for each 501. share ; carrying votes at the meeting. The amount of these peculiarly created shares is distributed amongst a remarkable set of persons, —namely, " the company's solicitor, ditto in joint account with another, the solicitor's partner, the company's engineer, the en- gineer's partner, one of the company's Parliamentary counsel, another ditto ditto, local solicitor for the proposed extension, the company's contractor for permanent way, the company's convey- ancer, the company's furniture-printer, the company's surveyor,
the company's architect, one of the company's carriers, the com- pany's bankers, one partner, another partner, ditto in joint account with another."
"To this list some seven or eight of the company's tradesmen, similarly armed, might be added ; raising the amount of the almost factitious shares held by functionaries to about 5200, and increasing the number of votes com- manded by them from its present total of 1068 to upwards of 1100. If now we separate the 380,000/. which these gentlemen bring to bear against their brother shareholders, into real and nominal, we find, that whilst not quite 120,000/. of it is bona fide property invested, the remaining 260,0001. is nine parts shadow and one part substance. And thus it results, that by virtue of certain stock actually representing but 26,0001., these lawyers, engineers, counsel, conveyancers, contractors, bankers, and others interested in the promotion of new schemes, outweigh more than a quarter of a million of the real capital held by shareholders whom these schemes will injure !"
It is not pretended that all railways, or a large proportion of railways, are exactly in this predicament—of being a prey to their own magnates ; but here is the tendency of the system throughout. There is a constant tendency to hurry railway companies into losing projects, while the authors of these projects are guaranteed against loss. What is the remedy ? what the control ? It is, to adopt a new rule, that no railway company, even with a clear majority, shall have power to extend the scheme to any project not absolutely included in the original plan. If that were so, any ordinary shareholder who can now be out- voted, and be saddled with payment of guaranteed dividends which he does not share, would not see his property sacrificed to the subsequently contrived schemes of a victorious ma- jority. Such a rule would be no real restraint upon trade or enterprise. If persons saw that a scheme would pay in itself, they might undertake it; the very same persons might enter upon it under a new incorporation; but not a single man who began the old project would be hurried beyond his original intention, without his own concurrence. Next year, probably, we shall have a sup- plement to Mr. Cardwell's imperfect Railway Bill, and this point is one which merits grave consideration ; while the proposed restriction is quite accordant with the official idea of keeping great railway districts to themselves.
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