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vote by proxy to one or more Directors who are deserved. ly entitled to the confidence of shareholders is a wise and entirely justifiable step. The trustees of the interests of stockholders have represented those interests to the best of their power, and have earned the confidence of their cestuis que trustent. But, in cases where the history of a railroad has been marked by the unmistakable incidents of speculative control, the proxy system is necessarily fraught with danger.

Our observer will, in the course of his casual enquiries, read some of these proxies, and he may perhaps observe that they affect to pledge the giver of the proxy to something like a power irrevocable within a given number of years, or even irrevocable absolutely. He will not un.

( naturally) ask what inducement there can possibly be for the Trustees or practically the servants of the stockholders in a company-to desire comparatively permanent pledges in respect of a tenure of office, which can only be desirable to shareholders so long as it is thoroughly understood by them to be held for their exclusive benefit, and in the prosecution of interests neither directly nor indirectly outside of their own.

CHAPTER X.

FUNDING.

In his casual survey our observer will note the great number of enterprises which are hopelessly overloaded by the volume and incidents of their fixed indebtedness. The experience of the most successful English railways certainly points to the conclusion that the adjustment of a reasonable or even heavy measure of fixed charges is not an insoluble problem. It does not necessarily cripple the credit or impair the efficiency of a well-managed railway, provided the rate of interest be not unduly burdensome. But he will note that, in many American railroads, while the senior securities receive an extraordinarily high rate of interest, sufficient to take the marrow out of the concern, the junior securities have nevertheless multiplied to an extent quite passing the belief of the ordinary ob

It goes without saying that the holders of prior securities would always welcome a large extension of the interests held by posterior encumbrancers. he asks, “should junior securities have been heaped up at such an unconscionable pace, and to such an incredible amount, relatively to the value of the undertaking ?” The true answer may perhaps be indicated as follows: The trade of America, of which railroads are more or less a barometer, has undergone many grave vicissitudes, which it is unnecessary to specify in detail. To keep a concern going under grievous pressure often needed immediate and

server.

“ But why,"

liberal outside assistance, and the foreign investor was known to be, as a rule, dogged and staunch in protecting investments to which he had committed himself. The prior and best securities in American railroads were generally held by native capitalists, and the posterior and more risky ones were unloaded on Europe. The spirit of a familiar precept contained in the Levitical law * seems to have been appreciated by the native capitalist in connection with dead or moribund concerns. “Ye shall not eat," says the precept, “ of any thing that dieth of itself: thou shalt give it unto the stranger that is in thy gates that he may eat it; or thou mayest sell it unto an alien."

Now the native holders of these prior securities naturally maintained a very hopeful attitude of mind. If they had not felt great confidence in the future of their country, they would not have retained even prior securities. But they believed that times would mend and that existing troubles would be only transitory. Their confidence in their investment was confirmed by the consciousness of special strength derived from the priority of their securities. They felt that sort of trust in Providence which a poker player is supposed to feel when he holds four aces. Every thing which they could do to stimulate the confidence of investors in junior securities they conscientiously and consistently did, short of reducing the rate of interest to which their own securities were entitled. They insisted on the temporary character of successive depressions, and said re-assuring and often witty things about the future of their railroads.

If, when collapse and stoppage of effective work were imminent, foreign investors had insisted on measures of

* Deuteronomy, xiv., 21.

a

funding, sufficiently drastic to place a railroad in a condition to bear its fixed charges, they would have occupied an indefinitely better position to-day. The command of ready money, sufficient to stave off a disastrous crisis, is an immense screw power recognized to a greater or less extent even by prior encumbrancers. A modest interest in a solvent going concern is often more satisfactory than a larger interest in an enterprise which may at any moment become unproductive or insolvent. If there be any truth in this view, the proper time to assert it commonly occurs when ready money is urgently needed. If such an opportunity is missed, it may possibly not recur; for finance, like whist, rarely forgives a blunder. In a vast number of instances occasions suitable for drastic measures of funding were overlooked. And so it came to pass that the native investor sat down quietly in the enjoyment of his seven or eight per cent., and advised the junior encumbrancers to settle it among themselves. He prudently withdrew from the strife

ere close of day,
And bade the rest keep fighting.”

To ask prior encumbrancers to concur in funding arrangements of drastic character is of course to ask a great deal. Sometimes the mere magnitude of an undertaking renders it improbable that prior encumbrancers will fail to get their coupons paid for several years to come. Of course, the greater the value of posterior interests, the greater is the probability that the first mortgagee will be saved harmless. As long as he gets his seven or eight per cent. on bonds which he originally bought at prices far below their face value, he has every reason to be satisfied with the status quo. Delay is altogether in his favour, and the energy developed by persons who desire to include him in funding arrangements seems to him repulsive, not to say unchristian. On the other hand, a railroad of large mileage, burthened with excessive capital and in inferior working condition, is not an article which, in the event of a foreclosure, every investor (even a first mortgagee) would wish to acquire or could use with effect. There is something of the white elephant about it. It is not given to every one to handle a white elephant as Mr. Barnum did. Capitalists possessing enormous resources might, in rare instances, be able to do so,-in the confident expectation of persuading the public to shoulder the heavier portion of the weight to be car. ried. But nothing short of exceptional ability, backed by liberal supplies of money, could cope with the situation so as to make a profit. Probably in the long run a thoroughly liberal adjustment, by funding the fixed indebted. ness of an overburthened enterprise, would be best for all parties, even though it postulated exceptional foresight and generosity in respect of sacrifices and concessions which would be inevitable. The history of a great railroad may fairly be regarded as covering a large area in national growth and development,-far larger than that which is embraced by an individual life. There is both need and room for a long range of foresight, and for a corresponding generosity in the interpretation of prospective, sometimes very remote, conditions. Our observer will note that the wise adjustment of fixed charges is an element too important to be lightly passed by. The price of money, popular sentiment, trade depression, and in short the general tendency of the times point to the conclusion that railroad profits in the future may suffice to pay reasonably good and safe interest on fixed indebtedness;

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