of the functions of a State to compel it to do so. The obligation of the State to compel a railroad to undertake gratuitous and costly experiments necessarily falls to the ground, if the duty of the railroad in that behalf be disproved. But the champions of the " Granger" movement could not be convinced of the absolute necessity, not to say expediency, imposed on railroad administrators of charging such rates as traffic would bear.

One school contended earnestly for the theory that all freight should be charged on an absolute basis of mileage, ignoring the certainty that, under such conditions, a railroad could not efficiently conduct its "way" and "through" business, without incurring the penalty of starvation. If its competitive rates were raised to the level of its local rates, it would of course lose its competitive business. If, on the other hand, it reduced its local rates to the level of its competitive rates, it could earn no income sufficient to keep it from insolvency. Another school contended for rates based on cost of service, overlooking the consideration ably pointed out by Prof. Hadley in his excellent work on transportation, that such a course could not permanently tend to the steady and systematic reduction of rates. All freight moved on the basis of the cost of service must bear its pro rata of fixed charges. Suppose the fixed charges are honestly and inevitably heavy. The result is obvious: If in America, where fixed charges are often unduly burdensome, this basis had been universally adopted, rates would have ranged much higher than is the case to-day. A third school thought the true remedy lay in the definition by Railroad Commissioners of reasonable rates. But experience only repeated itself, and plainly showed that technical problems, which have for years defied solu

tion at the hands of the ablest experts, could not so lightly be disposed of by less adequately trained Government officials.

From the poverty of the agriculturists who settled too far from their market arose, to a great extent, the embarrassment of numerous Western railroads with which the foreign investor has a painful familiarity. As time went on, many of these smaller roads recognized that their sole chance of salvation must be sought in combination; and, in isolated instances, arrangements favourable to the investors in the absorbed lines were eventually made. But, while the consolidation of isolated lines into large organizations was probably beneficial to the country, it tended to define and sharpen the lines of competition between the larger systems. To state the result shortly, several East and West lines, fairly compact in external form, but varying greatly in prospective value and organic symmetry, became very keen competitors for East and West trade. To include them all in one gigantic combination was obviously impracticable, their financial history, intrinsic merits, future prospects, and modes of administration being not sufficiently homogeneous. To fight out the competitive battle to its logical conclusion could only result in starving them all. So the pool was devised, as a modus vivendi, by which business which could not give a profit to all should still be so distributed as to give something to each. The basis of distribution differed from time to time, and as a matter of course there were always to be found dissatisfied parties. But, as between the railroads and the public, the result was on the whole beneficial. Stability of rates is, from the point of view of the trading public, second only in importance to lowness of rates. And, if this result could be consistently main

tained, practical railroad men would see no insuperable objection to pools.

On the other hand, it must be borne in mind that there is no pool without a leak. Although the trunkline pools in this country have been greatly helped by the immense ability and exhaustive knowledge of Mr. Fink, experience shows the enormous difficulty of keeping fairly in hand such a vast mass of conflicting interests. The truth is that, comparing mileage with tonnage and practicable rates throughout the year, there is not enough to go round so as to satisfy everybody. The stronger company reasonably contends that a pool is devised for the benefit of the weaker. But it is an incident of weakness to fail in seeing ourselves as others see us ; and, if the weak ask too much, the strong are driven to rely on their own force, and to adopt an independent policy. If in a trunk-line pool all parties could agree to abide by the decision of an extraordinarily able Commissioner, and recognize that two and two make four, it is probable that the success of pools in this country would be assured. But, if they are of opinion that two and two make seven, their arbitrator, however able and honest, must necessarily have an up-hill game.

So long as our observer takes note of the practical relation which a pool bears to the securities in which he proposes to invest, he will find no difficulty in protecting his money; and he may leave the theoretical merits or demerits of the modern pool to the exponents of political economy and railroad administration. He will probably conclude that the necessity for a pool indicates a certain amount of weakness somewhere, and that this weakness is most likely to make itself severely felt in the experience of the feebler corporations.

CHAPTER VI.

WATER.

MUCH has been written about the ethics of stockwatering, and from this point of view the subject has been pretty well threshed out. But its effect on investment has produced such serious results that it may be thought to deserve a short notice.

Let us suppose that a going concern finds itself in a position to earn 15 or 16% on the capital invested. The first impulse of its managers will probably be to observe strict reticence on the subject of its profits. To advertise or publish them without reserve would be to directly invite the investment of new capital in the same field, and to produce serious and possibly ruinous competition. A ready solution of the difficulty presents itself. If the capital on which dividend is paid be doubled, and the new stock issued to the original shareholders, instead of paying 15% on (say) $10,000,000, it will pay 7% on $20,000,000. Now, if there existed any law which restricted the amount of dividend payable on a going concern, this process would obviously be a fraud as against the law which created such restriction. But suppose no such law exists in a given case, the infusion of water becomes a question of commercial or corporate tactics. The managers of an industrial enterprise do not profess to be philanthropists. If they can make a large profit without transgressing the law of the land, it is their business to do so in the interest

of their shareholders. If a railroad board can distribute large dividends, their interest in the public is necessarily subordinate to their interest in their own corporation. They may properly contend that all the features of their organization-adjustment of their capital, status of their funded debt, mode of administration, distribution of profits etc.—are all parts of a mechanism which is not an end in itself, but a means to an end. The ultimate assets owned by the company are neither increased nor diminished by the infusion of water. But its component parts are expressed or represented on paper in different terms. It may be that the holders of $20,000,000 of stock paying 7% dividend can do better with it on the market than with $10,000,000 of stock paying 15 %. If the administration be honest and conservative, the infusion of water will not interfere with the productiveness of the concern. If it be speculative and adventurous, more frequent and liberal opportunities will occur for the manipulation of financial coups. To take a well-known instance: before the immense infusion of water into the N. Y. Central system, it was plainly earning an enormous dividend on the capital invested. Even after the infusion of 100 % of water, it paid such large dividends, and was such a strong and flourishing concern, that the projectors of the West Shore Railroad were tempted to scramble for a part of the profits, and were willing to spend a good deal of money for the exercise of that privilege. Whatever may have been the moral or social merits of the late Commodore Vanderbilt's coup, there can be no doubt whatever that the stockholders of the railroad did not eventually lose thereby. So active is the desire of keen trading communities to transfer capital from fading industries to those which appear to be unusually remunerative, that the owners of