The Great Erie Imbroglio

THE ultimate solution of the Erie contest awaits the next election of the board of directors.

Until the second Tuesday of October we shall have plenty of surmises; there will possibly be very strange and conflicting tactics, the purposes of the capitalists who have ventured many millions in the fight will become more and more enigmatical and inscrutable ; but of the real import of the war the rightfully curious public will have no certain knowledge before the autumnal meeting of the Erie shareholders.

In our present review of the recent developments regarding the Erie Railroad, therefore, no attempt will be made to forecast the future. Neither shall we essay to explain the aspect which affairs have seemed to assume since the passage of the anti-consolidation bill through the New York Legislature. It suffices that what has already transpired of the immediate or habitual policy of the principal actors in this unfinished drama is of a nature so notably representative of railway management and stock operations in America as to justify careful examination, whatever may be the incongruities in sequel.

The primary fact, tire overshadowing fact, the fact which should be kept steadfastly in the foreground in all speculations upon the conflict, is that Cornelius Vanderbilt had resolved to secure control of the Erie Railroad, in order to largely enhance the cost of travel and freightage throughout every rood of soil in the State whereof with one exception he is the wealthiest citizen. The programme was broad, and with many ramifications. If completed, it would affect disastrously, not onlythe producing class and the national commerce, but the very share-gamblers who have been most clamorous in its favor. Nevertheless, the scheme was defended so sagaciously, so secretly, and with such incomparable sophistry, that for many months its full measure was most imperfectly comprehended, while it encountered only halting and spasmodic opposition.

The general public first became cognizant of the monopoly programme during the initial session of the recent Constitutional Convention of New York. At that time a strenuous effort was made to estop finally and comprehensively all combinations looking toward exorbitant charges in railroad transportation ; and the subsequent result of the struggle was the insertion among the proposed amendments of a clause forbidding the Legislature from authorizing “the consolidation of railroad corporations owning parallel or competing lines of road.” The measure naturally provoked a very considerable discussion, and in the course of its advocacy there gradually transpired certain facts and hypotheses of which the following are the most trustworthy.

By a series of rapid and enormous purchases of stock, the Vanderbilt family had acquired the control, not only of the Harlem and Hudson River Railroads connecting the commercial with the legislative capital of the State, but also of the New York Central, which traverses the inland counties from Albany to Buffalo.

The capital stock of these lines may be thus tabulated : —

Present capital,— Hudson . . . . . $ 14,000,000

Bonds outstanding Jan. 1, 1868 . . . 5,000,000

Present capital, — Harlem. . . . . 6,800,000

Bonds outstanding Jan. 1, 1868. . . . 5,000,000

Present capital, — New York Central . 28,990,000

Bonds outstanding Jan. 1, 1868 . . . 11,347,000

Giving in sum total . . . . . . $ 71,137,000

The fourteen millions credited to Hudson in the above summary represents only ten and a half millions of actual money, and owes its creation to one of those peculiar financial expedients by which shrewd American capitalists acquire the enviable title of railroad kings. When the head of the dynasty which now dominates over the three affined companies made his first move toward empire by securing possession of the river route, he inaugurated a system of economical management, special traffic arrangements, and vast construction outlays which afforded a specious pretext for augmenting the capital stock. It was therefore voted that the then capital of seven millions should be increased to fourteen by an issue of bonus shares at fifty per cent. Each stockholder paid in fifty dollars, and received scrip, the par value of which was one hundred, but which sold in Wall Street at forty-five premium. This splendid manœuvre, by which the company obtained three and a half millions for the construction and repair fund, while the stockholders doubled their money, presented features too large and captivating to lapse into desuetude. It was now proposed to repeat the same operation along all the lines, which at the same time were to be consolidated. The scrip dividend in this second scheme was to be 33⅓ per cent.

This would give : —

Fresh capital, — Hudson ..... $6,000,000


N. Y. Central .... 9,663,000 With previous sum total of capital . . . 71,137,000

Capital of consolidation .... $ 90,000,000

But this magnificent project had one important drawback. The increasing business upon the coalescing roads, though certain, is essentially slow. It was inconceivable that the ordinary earnings could allow of current dividends on so vast an augmentation of capital. The statistics of railroads are subject to the tyranny of arithmetic. If the subtrahend remain the same, and the subtractor be multiplied 33⅓ or 50 per cent, the remainder will be definitely decreased. It was evident that the profitableness of the programme depended upon the possible elasticity of the rates of transportation. At this dilemma Mr. Vanderbilt showed himself in no wise disconcerted. Dividends must be provided for, and he would therefore advance the tariff.

Experts in railroads are generally agreed that the expense of freightage is seventy-five per cent on earnings. It costs a trifle less to carry passengers, somewhat more to transport merchandise ; but the average is about three fourths of gross income, while out of the residual twenty-five per cent must proceed the money for repairs and replacement, the interest on bonds, the contingent fund,1 and the dividends. Now it would put the company to no greater expense to carry a ton of wheat at eight cents than at four, while a merely marginal increase on rates of goods in bulk and of passenger travel would secure quite satisfactory profits on the new shares.

Such an enhancement of current rates was therefore a necessary feature of the scheme. From one aspect this programme was not only plausible, but feasible. Against the irritation incident to an advance in charges stood the habitual lethargy of the citizens of the United States, who pay six cents as readily as five for a ride in a street car, ten cents as quickly as six in omnibuses, and forty cents for expressage where they once paid twenty-five ; while even if popular excitement should so far develop itself as to prompt Albany legislation, there was “influence” at hand quite adequate to check agitation.

It was the ever-present danger of competition which constituted the important obstacle to the measure. As long as the Erie Railroad occupied the position of an active rival, it was impossible either to effect dividends on the fictitious stock, or even to insure large returns on the genuine capital. In previous years, and on a minor scale, an agreement had been entered into, not only with this line, but also with the Pennsylvania Central, by which the general rates had been kept up very much above a reasonable maximum. Goods shipped from St. Louis to New York at the average charge of $ 2.62 were carried from the same point to Baltimore for $ 1.10. From Chicago there was a like invidious distinction of sixty-two cents ; from Cincinnati, of eighty cents. On large importations the difference amounted to immense sums, and was threatening disaster to the mercantile interests of the metropolis.

Nevertheless, this exorbitant tax was found utterly insufficient for the purposes of the prospective consolidation, and a more intimate alliance became of paramount importance. One of two courses was open to the president of the New York Central. He must either secure the unlimited co-operation of the Erie direction by treaty, or he must control the road by buying up a majority of the stock. Each of these alternatives presented peculiar difficulties, and subsequent events would seem to prove that his mind has been in a state of painful indecision as to which he should finally adopt. It is a historical fact, that he made essays in both these particulars. We have now to consider the special embarrassments of the problem.

The Erie is one of the most important links in the great chain of interior railway connection between the producing and the consuming States. It was built under the impulsion of popular excitement, amid keen opposition, and with the disadvantage, at the start, of being enormously expensive. Its broad and massive line sweeps through a country of singular picturesqueness, while, for every glory of river gorge and mountain slope its stockholders have had to pay enormously in deep cuts, solid causeways, and firm-built bridges. There is scarcely a road in the country which will compare with it for unavoidable and immense engineering expenses. Moreover, its splendid gauge, while undeniably the most luxurious to travellers, and admitting of excessive freighting, is notoriously costly, both in construction and repairs. Still further: the central idea of the New York and Erie, as it was originally called, was the modern one of comparatively straight lines, and through trade, rather than intermediate traffic. This principle underlay the construction of the Illinois Central, and is seen in most remarkable activity in the Pacific railroads. Experience has demonstrated the wisdom of the theory. It has been seen that population accepts the fresh channels, that cities rapidly spring up, that manufacture as well as agriculture centralizes itself around the new highways, and real estate triples and quadruples its value everywhere within sound of the locomotive whistle. But all these immeasurable changes come after the completion of the roads ; and, in the interval, the rewards to invested capital are in inverse ratio to desert. It has happened, therefore, that what is averagely true of the first stockholders, even of such roads as pass through a comparatively well-populated country from the first, was exasperatingly true of the original share-owners of Erie. The agriculturists and land-owners throughout all the inland lower tier of counties were enriched, New York City was enriched, but the stockholders were hopelessly ruined. Mr. Greeley recently stated that on five thousand dollars, which he invested out of pure public spirit, his loss was forty per cent, and it is believed that his case was comparatively a fortunate one.

But there is a worse fact beyond. Ordinarily the capitalist who steps in and buys the shares which have proved fatal to former investment succeeds in bringing up the property to a dividendpaying basis. In the case of the New York and Erie this was never accomplished. Had Dr. Kane discovered an orange-grove on the borders of the Central Polar Sea, he would not have been more astonished than would have been a holder of the old Erie stock by the announcement of a six-per-cent dividend. The road was not merely expensive in building, but it had the misfortune of requiring large sums for repair and improvement, while its direction never appears to have acted in the best interests of the company. Although it had received a State gift of three millions, it was always in debt, from which it extricated itself only by fresh emissions of stock or bonds, that depressed, while flooding, the market.

This exceptional phase finally resulted in the bankruptcy of the company. The mortgages were foreclosed, the property passed into the hands of receivers, a reorganization of the corporation was effected, and under a new name, but with much the same management as before, the road made a fresh appeal to public confidence. The confidence, however, never came. That large portion of the well-to-do and opulent classes which buys stocks for the sake of dividends alone refused to invest in the new scrip. The contractors were “ suspect,” the employees and directors were “suspect ” ; an atmosphere of distrust closed in around the company, as the spring fog closes around the Erie ferry-boats. This disastrous suspicion gave birth to one of the most curious phenomena in railway annals. The really profitable roads in America are seldom quoted on the stock-list. The old Camden and Amboy never was. Neither is Panama stock ; neither is Central Pacific. Other roads, like the Illinois Central, are only partially used for speculation ; a very considerable portion of the shares being absorbed for trust funds, or held by local capitalists. But it has resulted to Erie, by reason of its unparalleled expenditures, its indubitably incompetent management2 and the redistribution of its shares, that the sum total of its stock in all its vast volume has become “street” property. Discarded as a legitimate investment, it has been taken up by the lower or lesser operators on ’Change and employed for “ corners,” to control elections, for all possible uses but that for which it was originally created. With no deeper significance than a ball in the game of financial battledore and shuttlecock, or counters in rouge et noire, it has acquired a notoriety the most shameful and infamous. The hard practical argot of Wall Street has a certain odd admixture of metaphor in its texture. Like the grammarian of verse, it deals in “longs” and “shorts.” A share-bidder who rises or falls with the market is described as “riding in the saddle.” A broker who temporarily yields to the storm of adverse fortune is said to “ squat.” True to this rude tendency for figurative language, the stock board has shown its contempt for the creature of its shameless uses by affixing to Erie the terse Saxon epithet which King James’s translators of the Apocalypse attached to the mystery of Babylon. It is “on the street.” It is the scarlet woman ot the Stock Exchange.

This statement of the actual condition of Erie scrip will enable the reader to properly understand one feature of the problem which Mr. Vanderbilt was now attempting to solve. The whole volume of stock last October amounted to about twenty-five millions. If his purpose, therefore, were supreme control, he would have to purchase one hundred and thirty thousand shares. The fact that this stock was entirely in the street might, or might not, be in his favor. It would enable his agents to work more rapidly, but it also subjected his movements to observation, with the possibility of encountering an opponent who could either hopelessly embarrass the enterprise, or convert it into that species of victory which is worse than defeat. It remained for events to determine whether such an obstacle would disclose itself; but the King of Central well knew that there was but one person throughout all Wall Street who could contest supremacy with himself. This antagonist was Daniel Drew.

Three years younger than Commodore Vanderbilt, Mr. Drew is far his senior in all that pertains to the mystery of stocks. Not so wealthy,3 he is essentially more subtle; and in the present issue he had the immense advantage of working from interior lines. His connection with Erie has been a long one, and in the devious transactions which this intercourse necessitated, he had come to comprehend in minutest detail every “point” on which speculations in its stocks must hinge. It is an open question whether the road profited by the intimacy. On certain occasions, it is true, Mr. Drew has come to the rescue of the direction, and propped up the waning credit of Erie by extraordinary loans, where other capitalists declined the proffered terms. But there was something in the nature of these financial expedients that reminds us of Sir Morton Peto, while at best they operated like high stimulants, flushing the exchequer of the company for the moment, to be invariably succeeded by long periods of still greater abasement.

In one particular there is a dim resemblance between the monopolizing president and the speculative director. The former, partly from honorable pride, but not less from a personal theory of stock finance as complete and more secure than the “systems” of players at trente et quarante, habitually tides up the shares of the roads under his control to the maximum register. Every one knows that Hudson and New York Central rule higher than the actual dividends would justify. Nor are there wanting acute thinkers, who hold that this fictitious appreciation is quite as questionable a procedure as any unwarrantable depression. Among railroad men, however, this tendency of Mr. Vanderbilt is regarded an ail unusual and sterling virtue ; and the friends of Mr. Drew claim that to a certain limit his policy is the same. The stock of the old New York and Erie corporation sold for 17. Under the new régime, Mr. Drew has seldom permitted it to fall below 60. But at this point he stops. To lift Erie to par, and to float it to 120 or 145, as Vanderbilt persistently does Hudson, is contrary to the whole bias of his nature. A believer in the doctrine of total depravity, and an active participant in the sombre transactions of both stock-boards, the speculative director has acquired that melancholy tinge of character which gives to all its victims in Wall Street the epithet of “bear.” Having from his official relations very thorough knowledge of the intimate affairs of the company, he is able to predict with something like astronomical accuracy the rise and fall of its shares in the market; and his constitutional infirmity invariably leads him to employ this information in the depreciating interest. To sell “ short,” to offer large quantities of shares for future delivery at figures below ruling rates, or, as his enemies would say, to pledge himself to render the scrip of the corporation of which he is a leading member less valuable than the share-board estimates it, is his familiar practice. At times, indeed, this leviathan of the Stock Exchange has appeared to reverse his habitual rule, and to look more hopefully upon the resources of the great broad-gauge line. The public has not forgotten the famous movement of 1866, when Mr. Drew, as is popularly believed, formed a “pool” with other speculators who were committed to the rise, and lifted Erie buoyantly to 97. But it would seem that the preternatural distrust of the constitutional “bear” had in no respect lost its empire. Side by side with every dollar invested in the “corner” Mr. Drew staked five dollars in short sales. At last this strange financial zigzag reached its crisis. The original “ pool ” threatened to transmute itself into a speculating Frankenstein. The despondent director, startled at his own creation, turned to the Erie Company for an instrument to check this untoward appreciation of its shares. Some little while previous he had lent the corporation three millions and a half, for which there had been deposited in his hands, as collateral security, convertible bonds and unissued stock at sixty cents on the dollar. Mr. Drew is well known as a powerful lay preacher, and his appeals during periods of great religious interest have been helpful to the conversion of many souls, but his capacity for converting bonds is not less remarkable. Quietly but quickly he “placed” all these collaterals, amounting to fifty-eight thousand shares, upon the market.4 A chill struck the mercurial Exchange. Stock dropped to 40. The operators for the rise were recklessly ruined, while Mr. Drew, who had already made more than half a million, now ventured on long purchases, brought the shares rapidly up to a healthy figure, and then retired from the field much elated, much execrated, and so powerful that he could overlook and stand superior to his defamers.

One feature in this magnificent transaction, as will presently be shown, links it with the recent imbroglio. The details, however, are not without their immediate lesson. It cannot fail to be apparent to the reader, that a gentleman whose fatal facility for rapid and perfectly safe stock operations was quite as remunerative as the far-sighted methods of Mr. Vanderbilt, would not readily abandon his own system, and accept the other, unless prompted thereto by very potent reasons.

Had the president of the New York Central any such reasons at command ?

The answer to this question, so far as relates to known facts, must be in the negative. Whatever arguments may have been at Mr. Vanderbilt’s service, there is no satisfactory evidence that be employed them with any success for the purposes of coalition. Indeed, the first positive revelation of his intentions which has reached the public was that of a combination in which Mr. Drew was wholly ignored.

Between New England and the distant West there has long existed a subtle bond, the offspring of a sentiment and an aspiration, both of them legitimate, but as yet attended by scarcely commensurate fruit. That wonderful homogeneity of Eastern States, which through its superfluous population has created the West, and given tone to Occidental communities, where its presence, gauged by statistics, is but dimly recognizable, justly regards direct and rapid commercial intercourse with the vast agricultural resources of the Lakes, the Mississippi, and the Pacific, as of predominant importance. From the aspect of social science, it would seem proper that what are pre-eminently the producing and consuming States should be brought into intimate relations. Nor are there wanting many cogent political reasons for such a restoration of the national balance as shall keep the Middle States more in equipoise, and check the tendencies of commerce to enormous concentration in and around New York.

Heretofore, however, peculiar obstacles have stood in the way of this consummation. Although Boston is some twenty-four hours nearer Europe than is New York, yet the latter city has been enabled by the convergence of existing lines to hold the grain market tightly under control. The problem of New England capital at the present time is to obviate this disadvantage ; and among the enterprises looking to this end is the Boston, Hartford, and Erie Railroad. The plans of its projectors include the tapping of the Erie line at Newburg. This would open to the manufacturing centres of the East not only the coal section, hut all that trade which now finds its way to the mouth of the Hudson by the short route from Buffalo.

At the head of this railway movement was Mr. John S. Eldridge, a gentleman comparatively new in Wall Street, bound to no clique, clean in record, and believed to entertain the somewhat obsolete idea that railroads are created by legislatures solely for public advantage and shareholders’ profit. As the route which he favored was to connect with Erie, and as it was desirable that a close alliance between the two roads should be effected, not only for the purpose of securing an indorsement of four millions bonds of the Boston company, but for making the parent line a solvent and dividendpaying property, he determined to so shape the approaching election as to sweep the great speculative director from the board.

When, therefore, the stock-jobbing owners of Erie began to prepare their proxies, they found among the solicitors for their vote a monopolizing railroad king, a great share-gambler, and a representative New-Englander, whose principles were supposed to be those of his own section, — a section signally exempt from corruption in its corporations, and as hostile to monopoly in transportation as it is to monopoly in labor.

The sanctity of truth compels us to relieve “the street” from any imputation of giving its suffrages to either of the three rivals out of any romantic impulse of admiration for their individual qualities. A majority of the stockholders parted with their stock outright; a large majority sold their proxies, and retained their shares.5

As the momentous second Tuesday drew near, the chief contestants began to count their votes and make their estimate of chances. It was found that neither of the three had a majority. Although the Eastern party held the larger vote ; yet a combination of any two would ruin the third. That such a dilemma should have arisen would seem to prove that Mr. Vanderbilt chose to make his first attempt in the vast consolidating programme by securing the co-operation of the Erie direction, rather than by controlling it. In that event, however, if our estimate of Mr. Eldridge’s position be correct, he had no alternative but to ally himself with Mr. Drew. Unfortunately, at this juncture, the speculative director was not in the Commodore’s good graces. The latter for many weeks had been “ long ” in an immense stock operation ; and — so far from aiding him in the emergency — the hero of the 1866 corner had developed a powerful “bear” interest, producing a stringent money market, and effectually checkmating Mr. Vanderbilt at the moment of apparent success. Upon this, the king of the affined roads sacrificed his policy to his pique, and threw the weight of his influence on the side of Mr. Eldridge.

The hour of election arrived. The president of the Boston line was installed president of Erie. Mr. Drew was dropped from the board, and for a little space financial New York throbbed with novel excitement. Scarcely, however, had the street recovered from its surprise, when there succeeded a second shock, even more electric than the first. It was currently rumored that one of the newly elected directors had resigned, that Mr. Drew was reinstated in office, and that he held the keys of the Erie treasury ! The report proved true. At the last moment Mr. Vanderbilt had repented of his rashness, and had patched up an awkward compromise, of which this was the singular sequel. The outside public was scandalized, but it was also mystified. Queer whispers circulated. Metaphor-loving brokers spoke in parables, and quoted Scripture. It was gravely hinted that “ the path which leads to destruction” had a point of resemblance with Erie, — they were both broad gauge ! The market partially collapsed. A multitude of small speculators and outsiders went " short ” in the unpopular scrip. The stock fell sharply. When at length Erie was fairly shivering in the lower register, the curtain which had veiled the secrets of the great railroad intrigue was suddenly pushed aside, and the jubilant shorts found themselves confronted by a gigantic bull interest, with nine million in the pool, and Messrs. Drew and Vanderbilt at the head. The stock rose with a bound. In January the pool was closed, and the easy victors divided their immense spoils.

Flushed with his late triumph, the president of the New York Central now converged his entire strength to effect that coalition of the railroads on which the splendid monopoly programme necessarily depended. A meeting of the rival managers was called. Holding the main scheme guardedly in the background, Mr. Vanderbilt proposed that the agreement for a uniform tariff of freight and passengers from the metropolis to the West should be continued for the next five years. Assent to this proposition once gained, the rest would be easy. The measure provoked great discussion. A scrutiny of details revealed the fact that the profits of the alliance were wholly on the side of the Central clique. Nevertheless, that party refused to make any modifications. The conference consequently broke up in confusion, and the railroad king, foiled in his attempt at coalition, boldly accepted the alternative, and, sending out orders in all directions, began the prodigious task of purchasing the control of Erie.

Meanwhile Mr. Eldridge and his associates were quietly completing a comprehensive plan for extending the connections of the broad-gauge road, and at the same time effecting the entire renovation of its present rolling stock and road-bed. By the Ohio and Mississippi, Erie already reaches St. Louis ; by the Atlantic and Great Western, it commands Cincinnati. It was now proposed that a new road should be built from Akron, on the line of the latter route, to Toledo. Here a junction would be formed with the Michigan Southern, and thence, by means of an extra rail, would be established unbroken communication between New England, New York, and the great interior grain State whose central depot is Chicago.

The scheme was gigantic, but it required corresponding expenditure. The treasury was worse than empty ; it was a million dollars in arrears. Yet there seemed no possible expedient for securing the necessary funds for this large and imperative improvement save by adding to that indebtedness. The company therefore voted an issue of ten million of bonds, and as usual Mr. Drew stood ready to accept the loan.

The contract was signed, and the convertibles transferred. True to his constitutional infirmity, the speculative director was just then very short. Mr. Vanderbilt, now pledged to the success of his programme, had bought up some fourteen millions of stock. The shares were wellnigh swept from the market. Yet, with Erie rising day by day, the agents of Mr. Drew still continued to sell large quantities for future delivery on current rates, at both open, and close board. The claquers of the Central clique were dumb at the recklessness with which their antagonist was plunging into inevitable destruction. This amazement, however, was but momentary. Placing on the street in one day the fifty thousand shares into which the fresh issue of bonds had been converted, Mr. Drew forced down Erie from 82¾ to 65, and at the same time sent his loan to the company as a "special deposit ” to the banks.

Our narrowing space precludes any adequate portrayal of the immense explosion which followed upon this unique invention of Mr. Drew for “ covering his shorts ” ; nor indeed is there a necessity for details. Its history is fresh in all memories. Probably from no single cause were the financial circles of New York ever so deeply and so continuously affected as by this strategetic movement of the treasurer of the Erie. Never did the legal fraternity reap a more abundant harvest, nor the State legislators indulge in brighter dreams. Strangely enough, the feature which appealed most conspicuously to public attention was that of least practical importance. The litigation in the courts was a meaningless farce. All those injunctions, attachments, precepts, and affidavits which hurtled through the air, and served as texts for innumerable and ill-considered editorials, were employed by both parties, not because a great wrong had been committed, but simply as legitimate instruments for attaining a definite result. The suit of Work against Drew, regarding the issue of stocks in the 1866 corner, had been overhanging the latter for months, and could have been compromised at any time if the defendant had chosen to accept the proffered terms. The injunction restraining the directors from the ten-million issue came from Mr. Vanderbilt, not because he believed the act was criminal or illegal, but in order to gain time for freeing himself from his terrible entanglement.

Indeed, the position in which the great railroad king found himself when the Erie “ bear ” closed upon him was one of the most peculiar and dangerous on record. It was not merely his Central programme that was at hazard, he was on the edge of what might have been the most startling financial failure of the century. Resolved to continue his hold of Erie, he had absorbed the new emission, and was carrying shares to the extent of twenty millions of dollars. With the depression of the market, his bankers compelled him to put up his margins, while his antagonist not only continued the short movement, but, by calling in loans and forming extensive alliances with the capital of outside cities, he produced a heretofore unparalleled stringency of the money market. If all the facts of this great passage of arms between these gigantic moneyed powers could be accurately related, it would afford one of the most thrilling chapters of financial history.

At present, however, they are veiled behind a cloud of conflicting surmises, and we only know that, after a few days of breathless anxiety, Mr. Vanderbilt emerged from his embarrassments triumphant and serene. Popular rumor affirms that he accomplished this by mortgaging his whole railroad and realestate property for a temporary loan of thirty million dollars, which he effected with a famous foreign house. Whatever credence this may receive, no smaller sum could have enabled him to wrestle on equal terms with his acute and remorseless antagonist.

But although extricated from the toils of the bear interest, the success of the monopoly scheme was still matter of grave doubt. The Erie directors, driven into exile, plucked victory from defeat, and secured from the courts and legislature of New Jersey what New York denied them. At Albany the sons-in-law of Vanderbilt, together with the attorney of the New York Central, successfully manipulated the Assembly. The financial and editorial columns of the metropolitan press, with a single exception, labored morning and night in the consolidation interest. Nevertheless, the outlook remained dubious. Mr. Vanderbilt maintained his control of Erie stock, but a large proportion was in the new issue. This issue was entered on the stock ledger in the name of the original buyers, while the transfer clerk was in Jersey City ; and it was given out that the books were closed, and would continue so until the October election. In that event the proxies on the ten millions would be unavailable for monopoly purposes. Moreover, the fearful calamity of April 15, at Carr’s Rock, so far from inhering to the disadvantage of the Erie directors, afforded a remarkable justification for their conduct, especially as Mr. Eldridge now came forward, and pledged himself that the moneys accruing from the loan would be sacredly devoted to the renovation of the entire line. Still further, the affined roads were suffering grievously from more than one cause. Mr. Drew’s boats had commenced to run from the State capital to New York for a dollar. Fares were reduced on Erie thirty-three and even sixty per cent. The merchants and grain-growers along the Central complained of the outrageous rules of the company, which required that no freight should be taken for any point with which their route connected, unless shipped all the way by rail ; and these complaints began to have their effect at Albany.

What fresh tactics Mr. Vanderbilt may have determined upon at this crisis are known only to himself. The theory that he gave up the contest in despair is absurd. His resources are too great, his ambition too exalted, for so crude a supposition. Yet so far as the external indications, he would certainly seem to have retired from the field. The Erie bill was hurried through the legislature with railroad speed. The extension of lines East and West was authorized, the issue of bonds indorsed, and the consolidation scheme rendered legally impossible. In New York City the courts still kept up their highly scenical display ; but the exiles of Erie returned from their sojourn in Jersey City, and reposed secure in their luxurious apartments at the palatial West Street offices. It is proper to add that this singular phenomenon is ascribed in financial circles to a mysterious compromise, in which Drew and Vanderbilt are parties, and of which the great public is to be the unconscious and submissive victim.

For the sake of the national honor and the interests of commerce, we may well hope that these floating rumors are destitute of foundation. The scheme which the King of the Central has at least momentarily abandoned would have proved disastrous, not only to New York, but to New England as well. The theory of “watered” stock, on which it was based, is fatal to the prosperity, not only of the mercantile and producing class, but to the very interests it apparently favors.6 Compelled to vast gains, in order to meet its excessive obligations, monopoly would find itself at the hour of supremest success on the verge of appalling disaster. The impatient and long-suffering West would seek new outlets by Canada, by Baltimore, by the Mississippi. No expedient could ward off this sure result, save spasmodic competition, entailing the loss in a week of the profits of a year. Nor could “privilege,” the creature of the State, maintain its fleeting existence, except by such corruption in the legislative chambers as must inevitably arouse that giant sense of public virtue, now strangely drugged, but liable at any moment to spring into terrible activity.

But while "fictions” are fraught with equal ruin to commerce and to corporations, share-gambling is demoralizing our financial centres, and eating like a canker into the very heart of the national life. Capital draws back discouraged from new and necessary investments. Under present conditions, it cannot be otherwise. When Mr. Drew and his imitators on other railroad boards sell “ short,” they destroy the value of the stock they are sworn to protect, at least to the extent of their profits in speculation. Practically it is the same as if President Lincoln had wagered his official salary on the success of the late Confederacy, or Napoleon had bet on Wellington before the Battle of Waterloo. The state of Erie under the Drew system is a sufficient illustration of the injury which results. What that state is has already partially been set forth ; but there is further testimony upon this subject which should by no means be omitted. In the very heat of the injunction period a pamphlet was issued on the Erie side, which contained the subjoined paragraph : —

“ The object of a borrower should be to have his loan so made that he will never he called upon to pay either principal or interest. The Erie Company appear to have perfectly accomplished this end. Its shares, like British consols, are never due. As for interest in the shape of dividends, this is what no one expected or expects. The holders of Erie stock do not want a dividend. Were one regularly paid, the stock would in a great measure lose its value as an instrument of speculation. All parties, therefore, are, or ought to be, perfectly satisfied. As for the Erie, it is certainly a wonderful stroke of good fortune to be able to raise $ 7,250,000 for construction and repairs upon its road, without incurring an obligation for a dollar. Not to avail themselves of such an opportunity would show that the directors were utterly unfit for their place.”

This significant statement, written apparently with no consciousness of its splendid irony, indicates very remarkably the estimate of Wall Street upon the uses of railroad property, nor can there be any stability in stock, until the strong arm of legislation intervenes to arrest the demoralization of the hour. It must be made as criminal for a director to deal in railroad scrip as it is to utter counterfeit money or to appropriate trust funds, In fact, the national or State governments ought to enter at once upon the construction of a railroad code which should be universal in its working and sweeping in its reforms.

If the developments of the Erie contest anywise conduce to such an auspicious result, we may well rest satisfied. That contest, so inadequately described in these pages, conveys its own lessons. What new shape it will assume it is not for us to forecast. But we may safely affirm that neither in the ascendency of Mr. Drew nor of the Vanderbilt clique is any health possible. What Erie needs is revolution. From Boston, from Chicago, from New York, there should be a simultaneous conjunction of capital, powerful enough to wrest the line from share-gamblers and monopolists, and thoroughly determined to take the solution of the difficulty firmly in hand. We know not what forces are at the control of the actual president, but it seems to us that no man more adequately comprehends the situation, or more ardently desires to infuse fresh blood into the management of the road,—to repair, replace, reorganize, and reform ; to make the stock a stable property, clean from the defilement of the street, certain of dividends, safe for fiduciary investment. If he should accomplish this, by whatsoever device, he will acquire a national reputation as enviable as it would be justly earned. We may overestimate Mr. Eldridge’s intentions or his powers; but there can be no question of his opportunity. It is for the future to disclose how far that opportunity is converted into achievement.

  1. Under the impress of modern ideas, this item has recently acquired startling proportions. The Union Pacific, for instance, paid not less than $500,000 for services rendered to the company by lobbyists at Washington. It recently cost the Missouri Pacific Railroad $ 192,178 to secure the possession of that road by State legislation. The New York Central credits $ 250,000 to the contingent fund for expenses at Albany in 1866-67. In view of these facts, it seems just to modify the popular prejudice against the Camden and Amboy Railroad, which has certainly attained its ends in Congress and at Trenton by a far more economical expenditure.
  2. This vague phrase has a very definite meaning among railway men, especially as regards Erie. It includes quite a variety of improprieties, such as the borrowing of money to pay dividends, the concealment of debts from the published reports, the Wall Street operations of responsible directors, secret arrangements with contractors, &c., &c. It is asserted that, although no salary attaches to the position of director, yet no man of intellect, however poor on assuming office, has ever left the Erie board other than rich. A former secretary, who had never been more than a newspaper reporter until accepting place in the company, died worth half a million. Any one familiar with the history of the Napoleon Transportation Company, connected with the Camden and Amboy Railroad, will comprehend how this opulence is generally attained.
  3. Mr. Vanderbilt is credited with property to the amount of forty millions ; Mr. Drew, with fourteen millions. Such estimates are, however, very delusive, as they depend upon valuations of stock,— a species of wealth the most fluctuating and uncertain in the world. That they are each very rich, we are quite free to admit. Mr. Drew, for instance, is said to have raised ten millions in one day without borrowing a dollar.
  4. These shares he bought of the company for $ 3,480,000. He sold them in the street when the stock stood at 97. Supposing that the average price realized was 80, this would give Mr. Drew a clear profit of $ 1,160,000 ; but, as he bought up the stock again when it reached 50, he made very much more. So also in the case of the five million convertible bonds, the sale of which led to the late widespread litigation. Mr. Drew bought them at 72½, and sold the stock largely at 80 ; thus clearing a fair fortune from the company, apart from what he made on the street. To transactions like these Erie owes much of its ill repute.
  5. It is court testimony that Vanderbilt’s agents advertised for proxies, and that Drew’s agent sold out to the Central party. There is probably no greater impropriety in selling one’s vote at a railroad corporation election than at the polls of that larger corporation which is called the State. Both acts are the offspring of indifference, and in the case of Erie there is this excuse, that no one can hold it without being brought temporarily into somewhat the same moral condition which is normal to Swiss body guards and Free Lancers.
  6. All fictitious stock is a tax on the community, and in the end, by encouraging lavish expenditure, large salaries, careless contracts, it impoverishes the corporations themselves. At present, however, the tendency in America is strongly in this direction. It is estimated that the “watered’’ stock of the railroads in the United States is from thirty to forty per cent above actual cost, and that the whole volume of fictitious railway paper can be little less than four hundred millions. The loss entailed by this vicious system on all industries is enormous ; nor can we safely look for the day of cheap transportation before legislation shall have peremptorily forbidden any increase of capital beyond the narrowest limits of economical management.