enterprise by the old company, the question inevitably arises, on what terms can the absorption be compelled, and is the game, as a net result, worth the candle? Today, as of old, it is prudent to consider whether a board with ten thousand can meet him that cometh against it with twenty thousand. Possibly our enquirer will be right in considering that the compulsory absorption of unnecessary lines virtually amounts to the creation of new capital, which is not desirable, in view of the canons of political economy, and he will shape his course accordingly.

CHAPTER VIII.

REORGANIZATION.

WHEN a cynic remarked that "fools build houses for wise men to live in," he was understood to mean, in reference to railroad enterprise, that the resuscitation of wrecked property often gives better results to the investor than the construction of brand new lines. A very cursory observation of the history of American railroads will probably satisfy our observer that the utterance above cited is, at best, only a half truth; but that still the cynic probably knew what he was talking about. He will find no lack of instances in point. The most salient and impressive are cases in which a new railroad has been, in the main, well conceived. Let us suppose that the importance of its terminal points has been considered. Its relations to lines which it intersects, or with which it may hereafter make more intimate and direct connection, have not been overlooked. The volume of trade in a given direction and through a given channel, with fair presumption in favour of quantity and permanence, has been taken into account. Constructive work of good quality has been accomplished-(e. g.) expensive grading and here and there costly bridges and structures of permanent value. But on a promising beginning has supervened a financial panic, or a period of hard times, or disunion of shareholders, or some speculative complication. Construction is at first temporarily suspended, and after a time abandoned

sine die. The ordinary incidents of receivership, foreclosure etc. follow. As time goes on the outlook affords little hope of any available income or profit to the shareholders. Still a great deal of money has been sunk, and to write this off without an effort would seem to be a somewhat tame solution of the difficulty. Many meetings are held, and generally the smallest stockholders are the most eloquent and positive. The result is reorganization in a form which gives control of the concern to the men who provide the new capital. Now, assuming that a railroad was in the first place fairly well conceived, and has been brought within measurable distance of completion on a basis of (say) $25,000 per mile, a new combination or syndicate cannot hurt themselves very seriously if they see their way to acquire the enterprise on a basis of (say) $10,000 per mile. The advantage accruing to the new syndicate is not confined to the mere pecuniary cheapness of the acquisition. They succeed gratis to a vast aggregate of valuable experience for which their predecessors paid highly. They know more about the general and local possibilities and the correlative drawbacks of the enterprise than their predecessors could possibly know at the outset, and they get this knowledge without paying value received for it. On the whole, resuscitation appears a more comfortable theory than creation, and results are often found to justify this forecast.

On general principles then our observer will not be deterred from investing in reorganized concerns by the mere fact that their past history has been disastrous. He will make a few superficial enquiries which may be necessary for his protection, the answers to which will readily occur. For instance, he will note as a matter of course the amount of good money honestly expended on the

property, as distinguished from outlay incurred through intermediate construction companies, extravagant temporary loans, and other complex financial arrangements; its relation to the new capital proposed; the probabilities of reasonably prompt completion, and therefore productiveness within a measurable limit of time; and the nature and extent of the control proposed to be given to the persons providing the new capital. Next, it may be worth his while to enquire how often and to what extent an embarrassed railroad which it is intended to resuscitate has done duty as a factor in prior reorganizations. He will note that, in many great combined schemes, there have been several weak and comparatively worthless sections of line which were intrinsically and of their own nature destined to insolvency. With a really clever clique of capitalists possessing large means and influence at the helm, this circumstance has in many instances presented no insuperable obstacle to the ultimate manipulation of a great coup, involving the unloading of worthless securities on European investors. Again a wrecked line, well conceived at the outset and intercepted in its career of success by panic or accident, may have been employed as a serviceable stalking-horse, and its attraciveness already exhausted. For instance, after it has been bought up cheaply, the trumpet is freely blown and a lively tune is played on the theme of its intrinsic merits. It is now once more warranted to carry-almost exclusively the vast business of (let us say) the far West to the Eastern seaboard. Once more the unspeakably wealthy districts which it will "tap" are indicated on an appropriate map. The dense black line on this map, which indicates the route of the new figure-head portrays, with its new connection, a line so nearly straight, or (in the

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bee-line," that one marvels single ton of freight should

current argot) is so nearly a how it can be possible that a go by any other route. It will be enough for our observer to compare this dense black line with the ordnance map of the United States. This will possibly give him some new impressions on the subject.

In connection with the "tapping" business, it may occur to him to enquire whether this process has not been repeatedly performed on the favoured district during the last few years. He may perhaps reflect that, while "tapping" is essentially a festive process, it makes all the difference to a thirsty man whether the barrel is full or empty. He will also do well to enquire what are the incidents of recent receivership. These sometimes make serious calls on the resources of a demoralized road. The annals of receivership record enormous claims for compensation of receivers,-among the largest being in a heavy case $750,000 for seven months' service. Our enquirer will be disposed to prefer systems which, if they cannot pay a dividend, are somewhat more economical in their view of the compensation likely to be claimed for official service.

It will sometimes occur that a relatively heavy assessment on the stock of a distressed railroad is proposed. Our enquirer, if he hold such stock, will do well to consider a proposal of this kind somewhat carefully. It may of course be worth while to protect his stake in the concern by paying the amount required. But he will bear in mind that, in a large majority of cases, the stock which he is asked to protect really represents, not actual outlay, but a contingency dependent on the net earnings of the railroad over and above working expenses and fixed interest on the bonds by means of which the road itself