THE report of the Erie Investigating Committee to the Legislature of New York has not attracted much public attention. The public mind is already so full of new scandals, that the old ones of two or three years back with difficulty find elbowroom.
In most of the States — and the Credit Mobilier inquiry of last winter shows that the practice is not improbably to be made part of the annual Congressional business also — it has now become the duty of each legislature to investigate the corruption of its predecessor, and of course such investigations soon lose their flavor. Once admitted that everybody is corrupt, and corruption becomes no more interesting than universal honesty. Nevertheless, the Erie report is of some interest, as it traces down to a very late date the remarkable history of a remarkable corporation, — one which, perhaps, to future generations will present as interesting a subject of study for the “sociologist” as the famous East India Company.
The real history of the “ Erie Reform “ movement, headed by General Sickles, and brought to a triumphant end by the coup d'état of last year, has been told a great many times, but never more thoroughly than by this committee.
The first fact of importance was the existence of two parties among the English stockholders, united at the beginning, but afterwards separated by their diversity of interest, one of them known, by two names of its brokers, as the Heath and Raphael party, and represented in this country by a firm of highly respectable counsel; the other known as the Bischoffsheim and Goldschmidt party, so called from the names of another London firm of brokers. There was also a third interest, that of the Atlantic and Great Western Railroad, — a bankrupt concern connecting with and depending for its value upon the Erie Road, owned partly by Bischoffsheim and Goldschmidt, partly by a number of speculators in New York, of whom S. L. M. Barlow is perhaps the best known, and partly by James McHenry, one of the best types of the railroad-man of the day, — an adventurer of unbounded imagination and uncertain income, who had conceived the idea that the Atlantic and Great Western was to become part of the great national highway to the West, and had acted upon it with such confidence that the road is to-day saddled with a debt of some $, 109,000,000 (its exact amount is unknown), and has been for a long time utterly without the means of meeting its current liabilities. Some idea of the Atlantic and Great Western, as well as of the character of its principal promoter, may be gathered from facts made public by Mr. James Robb of New York, who was president of the road some nine years ago, for the brief period of three months. Mr. Robb, who was induced in August, 1864, to accept the office of president on representations made by Mr. James McHenry that the capital amounted in round numbers to $ 10,000,000, found, on being inducted into office, that the capital account, “ inclusive of shares claimed as being due to James McHenry, contractor, would swell the capital to thirtyfive millions of dollars.” While he was revolving in his mind how he could reconcile himself to these unpleasant facts, he received in November of the same year the announcement that $ 2,800,000, of 8 per cent debentures were to be issued immediately, payable in November, 1867. Mr. Robb on this resigned his position, and some two years later printed an account of “the deception imposed upon him, which placed him temporarily in official relations with Messrs. McHenry and Kennard, who by skilful management, and aided by the influence and counsel of Sir Morton Beto, have involved people in England and on the continent in the possible loss and forfeiture of investments in the Atlantic and Great Western Railway, to the extent of six million pounds sterling.”
This, however, was in 1864. In 1873, a road with a capital of thirty-five millions is a mere pygmy. To have any great power or influence at all, a railroad must have nowadays a much larger debt, and, as we have said, the Atlantic and Great Western now owes $ 109,000,000. Owing as much as this, it begins to be evident that the time has come for great enterprises, and a great one has been undertaken ; it has been determined to capture Erie. In this undertaking it has been enabled to secure the assistance of some of the most eminent and powerful men in the United States, includingthe President, the Minister of the United States to Spain, a number of bona fide reformers, defrauded stockholders, and philanthropists, who, through the agency of Heath and Raphael and their counsel, were making a vigorous and honest attempt to recover their property ; and besides all these individuals they have succeeded also in securing the aid of the very corporation they proposed to plunder, — the Erie Railroad itself.
The principal difficulty of the true reformers was, that the old Gould-Fisk direction had so intrenched their position that they were beyond the reach of the stockholders, unless they could be removed by a legislative act suspending them from office, and at the same time prevented from getting a new foothold by a repeal of the “ Classification Act,” under which the board of directors had become a close corporation. To secure these objects they went to work ; and, by the aid of the reform movement which was then (1871, 1872) beginning to alter the complexion of New York politics, were gradually succeeding by honest means, when affairs took a strange and unexpected turn.
Mr. F. A. Lane was then counsel to the Erie Railway, and it occurred to his fertile mind that, if he could betray his principal, and find some one who would buy out the old board of directors, bribing them to resign their seats for a round sum of money, the great work of reform would go on far more smoothly as well as more profitably than it would by the slow process of litigation and legislation. He knew also that the existing board had an interest in selling themselves, because Gould himself had begun to think of reforming Erie, by making a new board fit “to give the company standing before the financial public.” The market being thus depressed, Lane arranged with certain directors the price that they should receive, and at once sent word by one O’Doherty, since deceased, a gentleman whose profession was “ to make disclosures,” not to the reformers in New York, nor to the advisers of Heath and Raphael, but, as a wise man would, to James McHenry in London, “ offering him a majority of the Erie board ” for $1,500,000. “ Mr. McHenry’s replies
were for some time indefinite, but he ultimately agreed,” the committee report, “to pay that amount.” The funds were placed in the hands of Bischoffsheim and Goldschmidt, and the next reformer who is taken into the “ confidence of the parties engaged ” was Mr. S. L. M. Barlow, who, it seems, is Mr. McHenry’s legal adviser in the United States.
Meantime General Sickles, who had obtained promises of profitable temporary employment from Bischoffsheim and Goldschmidt, or McHenry, or both, and at the same time leave of absence from the President, was also in New York, working tooth anti nail for reform, and while engaged in the preliminary reconnoisances, was informed of Lane’s plans, by the mysterious George Crouch, whose operations in the stock market attracted a good deal of attention at the time, and who was in reality McHenry’s man of all work. The “ pride and jealousy ” of Sickles were naturally aroused, the committee say, by this clandestine attempt to rob him of whatever honor and profit there might be in the undertaking; and accordingly he set “ Crouch secretly at work, negotiating with the same parties and to the same end. By skilful financiering, he found that the result could be accomplished for a less sum than had been named by Lane and O’Doherty, and so communicated with McHenry, who broke off the former engagement. Barlow also united with Sickles, and succeeded finally in harmonizing conflicting interests by a promise of positions on the new board, or of sums of money, to the disaffected parties. Matters being finally arranged, Bischoffsheim & Co. inclosed a credit to Barlow in favor of Sickles for $ 300,000. Suffice it to say that, attended by much confusion and risk of failure, the arrangement was carried out, the old directors resigning and receiving their price, and a new board was elected, the nominees of McHenry, which gave him absolute control of the Erie Road. Mr. Gould was evidently not unaware of the matters in progress, but chose to allow the conspiracy to proceed to a certain point, when he was to bring to his aid his old ally, an injunction, to be served at the opportune moment, and thus to thwart the scheme midway in execution ; but the aggressive party was too reckless to heed this restraining power, and by disregarding the injunction, got actual possession of the board and offices of the company. General Dix was elected president, H. W. Sherman treasurer, and S. L. M. Barlow counsel. This action was made legal next day by Gould resigning the presidency, and causing a re-election of the new board, the reported consideration for which was the confirmation of certain releases from claims by the Erie Road.” It may be worth while, for the sake of historic truth and the information of future reformers, to give the price-list. Messrs. Lane and Thompson received $67,500 each; Simmons, $ 50,000 ; Archer, $ 40,000 ; Otis, White,and Hilton, $ 25,oooeach; O’Doherty received $25,000, and Gardner $25,000; Crouch was paid $ 50,000; General Sickles, on his return to London, got $ 100,000; and $60,000 more were paid the General for “ expenses,” which came out of the Erie treasury directly. As to the other payments at the election which took place in July following the coup d'état, a resolution was passed instructing the board of directors to audit this account and pay it. As to McHenry’s and Bischoffsheim and Goldschmidt’s part in this drama, the committee says “ that there is no evidence to show that the latter permanently owned or controlled any considerable amount of stock previous to the election in July. It is in evidence that McHenry, who advanced more than one half the sum used to buy out the directors and for other purposes, was not a permanent holder of Erie stock, and had no direct interest in the welfare of the Erie Road. So much disinterestedness is not commonly found among managers of great corporations, and the secret springs of Mr. McHenry’s actions must be sought in his ownership or interest in the Atlantic and Great Western Road, a corporation representing $ 109,000,000 of stock and bonded debt, and whose affairs are currently believed to be in an insolvent condition. This road has its principal connection with the Erie Railway, and is mainly dependent upon it for the through traffic passing over its track. It is fair to conclude, from the testimony, that McHenry’s object in controlling the Eric board was for the purpose of forming intimate relations between the two roads, and thus benefiting the property owned by him, namely, Atlantic and Great Western. The present board was approved by him, McHenry himself being present at the election.”
The present board, “ approved by McHenry,” is governed by the same men who control the Atlantic and Great Western ; and so the reform movement ends in the capture of the Erie Railway by a bankrupt road. The operations of Erie since this practical consolidation have been very wonderful. In February last the board of directors declared a dividend of three and a half per cent on the preferred, and one and three fourths per cent on the common stock, from the earnings of the previous six months on the preferred and of the year on the latter stock. From this, one would naturally infer that the road, with its $ 120,000,000 capital, was in a flourishing condition. Strange to say, however, at this very time the company was giving its stockholders this substantial proof of its prosperity, it was borrowing $ 7,000,000 of the ever-benevolent Bischoffsheim and Goldschmidt, for a commission of two and three fourths per cent.
“ Shortly before the time for the election of directors, in July last, a contract for the negotiation of $30,000,000 of consolidated bonds was entered into with Bischoffsheim and Goldschmidt. This contract contains some unusual provisions. Between six and seven millions were to be sold, and $23,000,000 are reserved for the conversion of old bonds. But the contract extends to the year 1920, and the commission of two and three fourths per cent is to be paid on the whole amount whenever sold or converted. In regard to the $ 23,000,000, the only service to be performed is to exchange the new bonds for the old, and to stamp and countersign the same.
“ As to whether this is an unusual commission on the $7,000,000, there seems to be some conflict of opinion by different witnesses. But your committee are of opinion that, under all the circumstances, the rate of commission at that time was not too large upon the amount of bonds actually negotiated. But upon the $23,000,000 which were to be exchanged for the same amount held by the Farmers’ Loan and Trust Company and by J. S. Morgan & Co., the rate of commission seems too high, and may have been influenced by past services rendered by Bischoffsheim & Co., in effecting the revolution of the Erie board.”
As we write, it is openly announced that the interests of both roads demand a consolidation of some kind. Whether this shall be by leasing, or pooling, or guaranteeing, seems not yet to be determined ; but, whatever the name of the operation, its results will be the same : the Atlantic and Great Western will be fastened as a parasite upon the body of the connecting line, and the rich earnings of the latter will go through the channel afforded by the former into the pockets of the gentlemen who control both. Some time since these same gentlemen, or some of them, descended upon a small Ohio road with such effect that, while actually controlling only a minority of the stock, they did control the election for directors ; elected themselves, and proceeded to lease the unfortunate corporation to themselves again. The other stockholders, knowing well enough what leasing meant, ran for aid to the Ohio Legislature, which blocked the wheels of the movement by passing a law prohibiting any such arrangement without the ratification of three fourths, or, in certain cases, all the stockholders. Something of the same sort the Erie committee advises to prevent the consolidation of the Atlantic and Great Western and Erie. The scheme may, for a time, be hindered ; but, in the long run, as things are at present, railroads will do what they please.
We have not completed the recent history of Erie, however ; the operations of the enterprising gentlemen who control it not only comprise the control of a great Western highway : they have plans which take them in another direction. Reform has made its appearance also in Vermont. The Vermont Central has for a long time been in that State the ruling power ; its career has been more extraordinary than even that of most railroads. It has not only issued first-mortgage bonds and second-mortgage bonds, and made leases, but it has reabsorbed all its own indebtedness, and, passing through the stage of virtual bankruptcy, has suddenly reappeared upon the scene as a fresh and active young body corporate, —the “ Central Vermont,” ready to begin the work of incurring liabilities with all the eagerness of the corporation of which it is the heir. On examining the list of names connected with this philanthropic enterprise, we find they are old friends, the reformers of Erie, who are going soon to control a line to Montreal and levy tribute upon the tax-ridden people of at least a dozen sovereign States.
— The various strikes which have recently taken place and are now going on in different parts of the country, seem to show, when we take into account the fact that they were predicted in advance, that we may rely on a certain amount of periodicity in labor-disturbances. The laborers have apparently abandoned the notion that it is necessary to keep their initiatory movements secret ; and they now allow it to be announced beforehand that, at this time of year, we must “ look out for ” strikes. This plan evidently has advantages for them. It enables them to give the appearance of an “ uprising of labor ” to what is in reality merely a dispute about the division of profits, and to notify the laboring population that they are expected for a month or so to keep themselves in a revolutionary state. During the greater part of the year, if a number of gas-men were told by the trades-union officials that it was their duty to pursue any inoffensive German they might find in the streets, seeking employment, and prevent him by fair means or foul, they would probably decline. But once in a year, for the good of the cause, they can be got up even to the point of boarding a horse-car, as some of them did the other day in New York, and engaging in a handto-hand fight with the passengers.
The general question of strikes we do not now propose to discuss. Its merits are pretty well understood ; and as the questions involved are mainly questions of selfinterest, it is evident that they must be solved by those who are immediately affected by them. But such strikes as the recent gas-strike in this city differ from most others, in the fact chat they affect a public interest for the safety of the entire community. When we reflect what a lawless city New York is, and remember the scenes which have been enacted in its streets, in times of riot, in broad daylight, it is impossible to think without a shudder of what might happen if the gas supply were suddenly cut off. With a police force notoriously inefficient, the total darkness of the city by night would mean a return to the times when a man’s house well guarded by private retainers was his only place of real security ; when, if he wished to go about at night, he must do it at the peril of his life ; when robbers and murderers could easily afford to engage in hand-tohand fights with the police for the booty they desired to carry off.
Last December, for several nights, all London was plunged in darkness by a strike of the gas-stokers. The strike was in some respects remarkably like that which lately took place in New York. The stokers were hired by a private company ; most of them were members of a tradesunion ; and one of them was discharged by the company, apparently for a good cause. His fellow-members refused to work unless he was reinstated, but the company refused to comply with their demands. There was the usual violence, accompanied by threats, against members of the union who had not been notified of the intended strike, and who at first refused them assistance. The company prosecuted five of the men for a conspiracy “to hinder or prevent the company from carrying on their business by means of the men simultaneously breaking the contract of service they had entered into with the company.” (This contract required ott the part of the men a certain definite notice of from one week to thirty days of an intention to cease work.) A conspiracy of this kind is, in England and in many of the United States, a criminal act. The jury found the men guilty, and recommended them to mercy. But the court disregarded this recommendation, and sentenced them to imprisonment far one year. In imposing this sentence, the judge said that while, on the question of guilt, the jury had no right to take into account the danger to the public in the conspiracy, — the question for them being simply one of fact, — still he, having to measure the sentence by the intent of the guilt, could not leave it out of consideration. He “ could not throw aside what was one of the obvious results of the conspiracy into which they entered, and what must have been in their minds ; and he could not doubt that the obvious result was great danger to the public of this metropolis ; that that danger was present to their minds ; and it was by the acting on that knowledge, and on the effect they thought it would have upon their masters’ minds, and trading upon their knowledge of the danger, that they entered into this conspiracy.”
We do not by any means wish to intimate by citing the decision as an important one, that it furnishes a solution of such a vexed question as that of gas strikers. Indeed, on the whole, the gas-stokers seem, so far as public opinion in England is concerned, to have got the better of the law. Sympathy has been rather on their side in the dispute than on that of the court. Nevertheless, the case is worth more than passing attention, as it turns upon a distinction which most people who discuss the labor question seem to overlook.
A criminal act, if there is any distinction between what is criminal and what is not, ts an act which imperils in some way the public interest, [t may be by knocking a man down in the street and robbing him ; it maybe by murdering a private enemy. These are ordinary instances of criminal acts, which everybody is willing to recognize as such. But in such an act as the malicious cutting-off of the gas supply of a city like New York or London, the danger is far more immediate and direct than in the other cases. If, as I walk along the street, my pocket-book is taken from my pocket, how can any one measure the damage to the public caused by the act ? If a man’s honor has been outraged, and he kills his enemy in revenge, how can we decide whether the public interest is affected ? In both these cases, not many hundred years ago, the public had no remedy against the offender. The person injured was left to obtain his own satisfaction. It was only by the gradual accumulation of experience on these subjects, as well as the gradual growth of public sentiment, that it was found that every act of murder or theft did a damage to public security far greater than the private wrong.
But in such a case as a gas-strike anyone can see that the danger to the public is the principal danger ; that any combination to deprive a large modern city of its light is as different in its character from a simple dispute about wages, as sacking a city would be from walking through it The gas-men know perfectly well that this is so, and their knowledge is one of their most efficient weapons. In order that a few hundred men may get higher wages or a shorter day’s work, they wilfully imperil the lives and property of two or three millions of people. Labor agitators ought to take this into account, — that strikes like these gas-strikes will always be regarded by sober-minded and law-abiding people as essentially different from other sorts of labor commotion. We have so much to say, from time to time, about the iniquities of railroads and other corporations managed in the interest of capital, that we must, in simple justice, say that it is worth while observing how much more careful of the public interest these selfish agents have recently shown themselves than the highly organized bodies, really resembling corporations in many essential respects, called trades-unions. If, when the “ postal-car difficulty” with the government began, the railroad companies had declined to continue to carry the mails, they would have behaved precisely as strikers do when they stop the gas supply, and the confusion and trouble caused would have been immense ; but, notwithstanding they are capitalists, railroads have some sense of responsibility, and they left this act of oppression uncommitted.