But it is not merely in respect of the adroit manipulation of the market that the word "Control" has a special significance for the uninstructed investor. The word involves many other important elements of success or failure-(e. g.) the question of leased lines, issue of new capital, special contracts and the like.

Leased Lines.

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As the investor becomes more familiar with the subject, he will readily note that many trunk lines, which would pay enormous dividends if standing alone, are grievously hampered by parasitical groups of leased lines. He will conclude that, in many instances, what are popularly known as "feeders" might better be described as suckers." The old tree has plenty of sap, but it needs the pruning knife. Instances of course occur in which an expensive branch line not only pays its way but helps the main stem. But, in a far larger number of instances, branches constitute a serious embarrassment. Sometimes it happens that the branch line has been originally built by private projectors, either with a view to develope real estate of their own, or in deference to popular clamour in local circles. If the cost of building such a branch had never been incurred, nor its adoption by a main line procured, a clique of land owners or perhaps a limited local public might have been dissatisfied. But still topographical and physical conditions would have compelled them to bring the bulk of their business to the main line. In short, what the main line really gains from the extension is, not the whole of the business carried by the extension, but only the excess over and above the amount of business which the main line would have obtained in any case if the extension had not been built. That circumstance

appreciably reduces the desirability of the branch, and puts a new interpretation on its earning power, as compared with the cost of construction and maintenance.

Or again, a branch line has been advocated by cordial friends-possibly even by one or two Directors—of the main line. The parties concerned have been sanguine rather than critical, and a large guarantee of interest either on the bonds or stock of the branch Company has been given. There will come within the enquiring investor's observation dozens of cases, in which the capitalized value of the branch (on which interest in some form has been guaranteed) is far in excess of any cold-blooded and critical estimate of its real worth. Suppose six or seven per cent. to be guaranteed on a capital far exceeding the value of a leased line. Next, suppose that competition and Railroad Commissioners so reduce rates that the main line can pay little or nothing by way of dividend on its own stock. The holders of the securities of the leased line have reason to rejoice in their assured income. But the holders of the junior securities of the main line can scarcely be expected to be enthusiastic about it. The uninitiated investor will merely note that careful and conservative boards hesitate very much before committing themseves to such liberal guarantees; but that, under speculative forms of "Control," leased lines have been accepted with astounding avidity.

Issue of New Capital.

The light-hearted issue of unnecessary capital is another point which our simple-minded enquirer will naturally take into consideration. It will, of course, have occurred to him that the tendency of the times is unmistakably to reduce the rate of interest earned by safely invested capi

tal, in railroads as well as in other forms of enterprise. Where invested capital is practically, though not nominally, earning twelve or fourteen per cent., he will note that such a result is especially liable to suffer from the "changes and chances of this mortal life." Such a rate of interest is, of course, far less likely to be permanently sustained than a rate of four or five per cent. on a sound commercial security. It is at this point and in this connection that his attention will fasten on the question of unnecessary capital, which practically amounts to "water" in one form or another. It is plain that, if a railroad is to-day earning four or five per cent. on any given capital, including "water," while only (say) half of that capital was really and honestly invested in the undertaking, it is, in fact, earning eight or ten per cent. upon the capital invested. It is easy for our enquirer to perceive that the tendency of the times is adverse to the supposition that very heavily "watered" concerns can permanently and consistently pay large dividends on both genuine stock and on a large and light-hearted infusion of "water."

Special Contracts.

If our enquirer is wise, he will probably not be greatly intimidated by the idea of "ghost trains." But he will perhaps discover that, to a certain extent, discrimination in favour of friendly cliques, under the guise of special contracts for transportation etc., is not a mere figment. Possibly he will do well to conclude that abuses of this kind are incidents of a speculative form of "control," but are emphatically discountenanced by every sound and conservative administration.

Let us take, for example, some familiar irregularities which would certainly have been restrained, if foreign

stockholders some fifteen or twenty years ago had been more careful about their direct representation on railroad boards. Let us suppose that a Director on a central board is interested in an unfinished leased line which his company desires to control, or holds shares in a rolling stock company from which his board proposes to hire cars, or has a heavy stake in an oil company with which a special contract is to be made. His personal interest points to a large capitalization and a liberal rental for a leased line, to a liberal rent for cars, or to a low rate for oil under any special contract that may be made. In short, his personal interests are in direct conflict with his fiduciary capacity. No doubt his faith in the value of the subordinate undertaking, in which he has become a shareholder, was the cause of his investing in it. But, just because his confidence in its merits is very great, his estimate of its value is apt to be somewhat sanguine. It would be by no means as critical as the view of a Director who represented exclusively interests which would be best subserved by strict economy.

A few years ago the European stockholder did not know enough about American railroads to put his finger on the real points of leakage. He was credulous enough to believe that his railroad did not pay, because American engineers were incompetent, and American officials could not run a railroad efficiently and keep its accounts clearly. Our enquirer is very likely to infer from what he sees that, if European investors had concentrated their vigilance and attention on the wise and conservative administration of financial and board business, instead of worrying themselves about engineering and executive details, they would have saved untold millions of cash, which are today, so far as they are concerned, represented exclusively by a mournful experience.

He will pay some attention to the relation which subsists between the real owners of a railroad and the representatives by whom their interests are protected. Suppose him to have acquired his knowledge of railroad administration in England, it will appear to him incongruous that one set of people should have provided all the capital, and that quite another set should control it. In England stockholders commonly build a road out of their own resources; and when they have brought it to such a point of development as to constitute a real security for money, they mortgage it, in the form of bonds, for all that it will carry. Obviously, in such a case, stockholders are the real owners of the property, and the bondholders are their mortgagees. So long as the obligations of the mortgage are properly fulfilled, the bondholder has no reason for complaint, unless indeed the corpus of the security is wasted by the methods adopted for the raising of the interest. But in a great number of American railroads the stockholders had no means of their own out of which to construct and equip a railroad. The foreign bondholders supplied the money; the native stockholder was in clover. He stood to win, and not to lose. If the resources of the district not only grew up to the fixed charges, but made the railroad worth more than its funded debt, the excess of value was the stockholder's profit. If success stopped somewhat short of this, he disposed of contracts to intermediary construction companies, and stood in with them. But whatever profit he made came out of the bondholder's pocket, and, if the enterprise proved a failure, he lost nothing.

It is plain that burthens and privileges are closely correlated. Profit, power, control, patronage, are properly incident to the cash that builds the railroad. When foreign