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was built. It may be that the value of the stock is purely speculative; useful for the purposes of the “Street," but of little merit so far as the chance of a dividend is concerned. Again, the destination of the money to be raised by assessment is worth attention. If it is to be strictly devoted to urgent repairs, improved equipment or the like, the investment may be worth making. If it is to be appropriated to the acquisition of speculative property, or to the protection or development of collateral assets, a single assessment will not permanently stop formidable gaps; and the process of taxing shareholders may be repeated at an unexpectedly short interval. The privilege of holding unproductive stock on the terms of assessment recurring at short periods may be somewhat too costly.

Per contra, the submission to assessment by stockholders may sometimes enable them to greatly strengthen their position by suitable arrangements with the holders of junior funded securities. The stockholder, who has ready money wherewith to meet a real emergency, may see his way to greatly fortify his position in a reorganization. The possession of cash, and the courage to invest it at a time of need, clothes him with special importance and power. No doubt the owners of prior securities hold the fortress and the big guns. But, in a period of emergency, the owner of ready money controls the ammunition. He is a very useful man in view of an immediate fight. If the resuscitated railroad has already done duty as a figure-head in one or two combinations which have resulted disastrously, the observer will be disposed to extend his enquiries somewhat more closely to the actual duty which it is at the moment called on to perform. Perhaps it may be incorporated in a new combination to facilitate the floating of a “blanket" mortgage. It is very commonly an incident of a “blanket

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mortgage that it covers under its ample folds one good section of line and several bad ones. If such a case should come under his notice, and he is the holder of sectional bonds of the sound portion of the proposed combination, he will do well to stick to them for the present. He need not be afraid of further investment, because it is probably very desirable to the holders of a great number of weak securities to float a "blanket" mortgage ; and the holders of bonds of the sound section are virtually masters of the position. If they have ready money besides, they should control the reorganization and have things pretty much their own way. No very deep or close enquiry is necessary to guide our observer in determining and identifying those cases in which the lemon has been squeezed dry. Financiers have made several coups in them already. The most speculative think they will not pay for another squeeze; and the confidence of the foreign investor is already wellnigh exhausted.

Superficial enquiries of the kind indicated above tend to prevent some of the most familiar and disappointing forms of investment in resuscitated American railroads. They may equally tend to indicate that resuscitation, reorganization and combination with new elements are not, by any means, necessarily prohibitory factors in connection with projected investments.

CHAPTER IX.

PROXIES.

AMONGST other obvious conditions which have made speculative control possible, our enquirer can scarcely fail to be struck by the circumstance that, in the past, there existed a remarkable divorce between the possession of stock and the voting power properly incident thereto. It is of course true that some fifteen or twenty years ago there was not the same craze for direct representation in every department of life or business which characterizes the life and politics of to-day. But it will strike him as a strange thing that one set of people should have paid for and own the stock of a railroad company, and that the voting power should be retained by Directors who, by virtue of that very fact, would have the option of running a railroad in the interest of a speculative clique, instead of in the interest of its real owners. The injury which in the past has accrued to foreign investors from the existence of this system of course admits of degrees, according to the circumstances of each particular case. But, in very extreme instances, the results have been in different aspects both disastrous and ridiculous. Take, for instance, the case of the Erie Road in the palmy days of the notorious Erie Ring. A corrupt Legislature at Albany controlled by Mr. Tweed and his friends had passed the Erie Classification Act, by virtue of which only a small proportion of the Directors could be retired at annual elec

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tions, thus leaving the power incident to a majority chronically vested in a compact and highly organized party. Now it happened that the Company had no power to issue directly an unlimited amount of new stock at the discretion of Directors, who might for any reason desire to water the capital. But, by the manipulation of a power vested in the corporation, it was permissible to issue bonds convertible into stock; and this power, from the point of view of the Ring, was sufficient for all

practical purposes. The mode of procedure was, on an electoral emergency, to issue (say) five or ten millions of dollars of convertible bonds; next to convert them into stock, and then to leave the stock standing in the name of one or more of the Directors or their brokers or agents. The certificates were sold upon the “ Street ”at a nominal price, and passed from hand to hand. But, if presented for transfer, they were retained in the office of the Company under the pretext of "verification ” etc., until the election in view of which the new stock was issued had passed. Of course, for the purposes of the immediately pending election, the voting power was vested in the Director, broker or agent in whose name the stock stood on the books of the Company. Purchasers of the stock certificates, having been precluded from obtaining transfer till after the election, were altogether out of the hunt. The party in control of course voted on the stock thus detained for “verification,” and equally of course voted their own re-election. The late Mr. Jas. Fisk Jr. is reported to have said that he could never be turned out of his seat in the Erie Board, so long as he owned a printing press. This is of course an extreme case ; but it serves to illustrate the principle that a divorce between the legal ownership of stock and the voting power which is its proper incident is an unhealthy symptom in the life and administration of a corporation. If, on the eve of an election, stock which has little or no value (except for speculative purposes) is bought up by the party in control at (say) forty cents or fifty cents on the dollar, it is impossible to resist the conclusion that permanence of control must, for some reason or other, be a very desirable thing to a party which is willing to pay so large a price for the exercise of power. If our enquirer is induced to look up this question and to ascertain for himself why any stock, which does not pay a dividend in the present and has little prospect of doing so in the future, should possess a large marketable value, he may perhaps acquire information which may be of use to him in his future investments. Nor will he fail to note that “controlling " parties, who are willing to make considerable sacrifice for the acquisition of stock necessary to maintain them in power, are diligent in the promotion of the system of proxies. The reasonableness or unreasonableness of the proxy system must of course, in the last resort, depend upon the reasonableness or unreasonableness of the delegation of the trust which is involved in voting power. It will not be denied that the exercise of voting power is, in every case, the exercise of a trust. Every trust contains within itself an element of duty and of responsibility. Every improper or rash exercise of a trust affects to a greater or less extent the interests of other persons more or less numerous. It may well and often does happen that the delegation of power by proxy is in every respect legitimate, proper and expedient. For instance, the administration of a given railroad may have been for many years past in every respect trustworthy, efficient and successful. In such a case, the delegation of a controlling

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