The Piracy of Public Franchises

THE surface railway facilities in New York (boroughs of Manhattan and the Bronx), and its supply of gas and electricity, are now in the hands of two great corporations, behind which is one group or alliance of men. These corporations represent an actual outlay probably well within $125,000,000, for systems which could be replaced to-day, probably, for less than $100,000,000, while their nominal capitalization, share and loan, excluding securities of consolidated companies held in the treasury of the controlling company, is over $300,000,000, and the market value of their securities is above $400,000,000. The enormous difference between cost and market value represents roughly, if not accurately, the value of the franchises “ promoted ” out of the people’s possession into private pockets, — in large part not of those whose foresight, investment, and skill have developed the present facilities, but of those who, with the double leverage of “ politics ” and “ financing,” have become possessed in recent years of these franchise privileges. The story of how the street railway franchises in New York have been one by one obtained, and at last welded into a unified monopoly; how the gas companies, by various processes of peace and war, have been brought into final combination; how the leading electric corporation was captured by the gas interests; and how, finally, within the year past, all these enterprises have come under the same control, would easily fill volumes, but the brief statement here presented may throw some light on one of the chief municipal problems of the day.

Most New Yorkers of middle age remember the lumbering ten-cent “ stage,” seating ten and “ strapping ” more, such as that which, after emerging from the usual blockade at Fulton Street, over which a footbridge afforded safe passage, rumbled for a weary hour along Broadway as far as 34th Street, whence another started occasionally up Bloomingdale Road to Manhattanville ; and the primitive six-cent “ street car ” on Sixth and Eighth avenues, — some of the one-horse “ bobtail ” order, some with the legend “ Negroes allowed in this car,” a few with a placard “ Heated,” — which, with those of the “ Harlem Extension ” down Fourth Avenue, used alike for freight cars and street cars, and the other avenue lines, furnished the chief means of transportation in the days “ before the war,” and for some time thereafter. The present Metropolitan Street Railway, consolidating many separate lines into a single service, with marvelous engineering feats of reconstruction, excellently operated, as rapid as surface conditions permit, with cars well lighted, well heated, and comfortable, though chronically overcrowded, and an almost universal transfer system for a five-cent fare, affords such superior facilities that citizens are ready to forget or condone the steps by which charters have been obtained and consolidations effected, and to overlook the possibilities of still better facilities, lower fares, or reduced taxes, that might have been or might yet be, if the people, as the municipality, recover their rights in the streets, and properly control the operating companies which should lease. street privileges. The popular rumor that this company paid $750,000 secretly for illicit privileges which it failed to get through the Eldridge bill of 1898, vetoed by Governor Black, cannot, of course, be verified, and is perhaps not true in this form; but that it is believed is in itself significant, and it is probably true that large considerations were indirectly paid to keep hands off and eyes shut while the “combine” of capitalists behind the railway company was getting its grip on most of the public utilities of New York. Among these the master spirit is ex-Secretary William C. Whitney, who, like Richard Croker in the municipality, holds no official position and has no stated responsibility in his company, since, as stated in a laudatory article on the company in the New York Times for November 20, 1898, “ for reasons of his own, he withdrew from the Board of Directors two or three years ago. But his wishes find expression in every important act of the Board.” “With Mr. Whitney as the subtle, often invisible director,” wrote a correspondent of the Philadelphia Press, December 6, 1898, “ the corporation grew to majestic proportions. He apparently bore about the same relations to it that he did to Tammany Hall, of which, although not a member, he was, nevertheless, through men who respected his authority, the controlling influence.”

The New York and Harlem Railroad had been chartered by special act of the legislature in 1831, and the common council granted it permission to lay its tracks southward from the Harlem River, by successive resolutions from 1832 to 1852, in which year it reached the City Hall Park. This was the first street railway in New York, and no compensation was given for the franchise — except, according to rumor, to legislators and common councilmen — until in 1872 the legislative grant for the extension exacted 5 per cent of gross receipts on Madison Avenue above 79th Street. It required much pressure from 1854 to 1858 to replace steam with horses below 42d Street, and the common council complained by resolution that the company had defied it, had refused to obey its ordinances, and was using paid agents at Albany to circumvent it. The Sixth and Eighth Avenue franchises were granted in 1851-52, also without compensation, — though Comptroller Flagg, in a special message, urged that the companies should at least be required to pave and clean the streets they used, — but the roads were not to be assigned without consent of the common council, and were to be surrendered to the city on demand at 10 per cent advance on cost. Franchises for Third Avenue, — to a ring of stageowners and politicians, — for Second Avenue, and for Ninth Avenue were successively granted, with trivial conditions of protection to the city. In 1853 came a general exposé, on charges initiated by an outraged lobbyist, who thought it was not fair play that the common council should take $20,000 for a charter from one set of people, and then, for $50,000, revoke its action in favor of another. The grand jury obtained direct confessions of payments to bribe aldermen, — Tweed appearing on the scene in this connection, — but the charters remained intact.

Broadway had always been the golden goal of the charter-grabbers, and, also in 1852, Jacob Sharp and others obtained authorization for a Broadway railroad from the aldermen and assistant aldermen, without compensation to the city, notwithstanding various competing offers of $1,000,000, of $100,000 a year for ten years, of $1000 instead of $20 license for each car, of one cent for each passenger carried, or of a threecent fare. This grant was repassed over Mayor Kingsland’s veto, in the face of an injunction from Judge Campbell, and was checkmated only by the punishment of the aldermen for contempt of court, after a legal contest finally settled in the Court of Appeals. In 1859 an attempt to “ parallel Broadway ” took the shape of the “Yonkers road,” which, by beginning in Westchester County, was to avoid the restriction upon railroads “ commencing and ending within the city limits.” For this the common council raced a permit through both branches December 7, 1859, before the meeting of the legislature in January should give the Albany lobbyists a chance at the job, and only Mayor Tiemann’s veto saved the city. The ensuing legislature took from the “common scoundrels,” as they were called, the right to grant street railway franchises, and the seat of corruption was transferred, for a time, from the City Hall to the state Capitol. Various other attempts on Broadway were defeated, until in 1884 — when the first general surface railway law was passed, with a proviso that 3 per cent, and ultimately 5 per cent, of gross receipts should be paid the city — Jacob Sharp and his associates of the Broadway Surface Railroad Company procured the Broadway franchise from the “ boodle board” of aldermen, two of whom were sentenced to the state prison for bribery, while Sharp, also convicted, died pending a retrial ordered on appeal. In 1886 the legislature annulled the charter of the company ; but the Court of Appeals, in the O’Brien case, held that the right in the street granted by the city was perpetual and indefeasible, and hence that it survived the corporation, and vested in the directors as trustees for the creditors and shareholders. This decision, counter to the common rule that stolen goods may be recovered by the owner, gave an extraordinary force to the adage that “ possession is nine points of the law,” and put a premium on the corrupt or brutal overbearing by corporations of public or private rights; and it has yet to be overcome by that application of common sense to new conditions which constitutes the evolution of law.

Up to 1889-90 the many cross-town lines which had obtained charters, as well as the older lines lengthwise of the city, had been independently operated, exclusively by horse power. At that date the New York situation attracted the attention of the Widener - Elkins Philadelphia syndicate of street railway promoters, whose combination with the Whitney interests has resulted in the unified system of to-day, — a system as creditable in its operation as it has been the contrary in other respects. The first step was the incorporation of the Metropolitan Cross-Town Railway, which acquired a cross-town line whose charter permitted it to lease or consolidate with other roads. About the same time the Metropolitan Traction Company was organized in New Jersey ; in 1892 this was reincorporated in New York; and in 1893 the Metropolitan Street Railway Company was incorporated in New York, and became the operating company for the Traction Company, which owned its $30,000,000 stock. Meanwhile, by purchase, by lease, by control of securities, consolidations were going on, and in 1897 the Traction Company was dissolved, its shareholders receiving share for share of Street Railway stock and a premium in debenture bonds ; and the Metropolitan Cross-Town, the Broadway Surface, and other companies were finally merged in the Metropolitan Street Railway Company, whose only considerable rival was the Third Avenue Railroad, with its subsidiary lines. During this period, changes of motive power — from horse to cable, from cable to electricity — were going on ; but the city secured little pecuniary advantage, the minimum of $150,000 per year offered by the Broadway road as a premium for the change to cable proving to be no more than it would presently have been obliged to pay as the 5 per cent of its gross receipts. To safeguard the city, the Cantor act of 1886 had provided for the sale of new franchises at auction, with a minimum price of 5 per cent of gross receipts ; but the politicians who organized the Union Railway Company, called the “ huckleberry road ” because of the sparsely settled suburbs it traversed, evaded this law by obtaining special acts, and a $2,000,000 franchise, of which the Third Avenue Railroad became possessed, yielded the city nothing. A franchise for Lenox Avenue, separated from Sixth Avenue by the two and a half miles of Central Park, was granted to the Metropolitan Company without compensation, under the guise of a “ requirement ” that it should extend its Sixth Avenue line. For other extensions in the northern part of the city there was fierce rivalry between the Metropolitan and Third Avenue companies, resulting in charges and countercharges of corruption, and in the laying of four tracks on Amsterdam Avenue, to the intense indignation of its residents. When, under the law, a small extension privilege was offered at auction, a third bidder, the People’s Traction Company, offered the entire gross receipts, and afterward several times these, — a mystery which has never been altogether solved.

The Metropolitan Company was understood to be “ in with ” Tammany, and the Third Avenue with Republican politicians ; but when the Third Avenue line was retransformed from cable to electric traction, Tammany’s power was sufficient to require this company to cancel a contract for reconstruction which it had made, and give a new contract, at an increased price, to a politician contractor who was chairman of one of the Tammany committees. The Third Avenue Company, reeking with jobbery, came rapidly to its decline and fall: the Metropolitan Company expressed unwillingness to assume its burdens ; efforts to finance it met with many difficulties ; at last came a crash, in which its shares, which in 1899 had ranged from 242 to 1173/4, fell, on March 2, 1900, to 451/4. Ex-Mayor Hugh J. Grant, formerly a Tammany magnate, was appointed receiver ; and when the stock recovered it was found that the Metropolitan Railway interests held a majority of the shares. About $9,000,000 of the stock is now held in the Metropolitan treasury, assuring control, and $50,000,000 bonds on the Third Avenue property, virtually guaranteed by the Metropolitan Company, are in process of issue. This has been the final coup by which the Metropolitan Street Railway Company has obtained the monopoly of surface railways in the boroughs of Manhattan and the Bronx. It has now a capitalization of $45,000,000 stock, ruling at about 170, aside from about $18,000,000 stock in controlled lines (including Third Avenue) not in its treasury, and above $90,000,000 bonds (including $40,000,000 of the guaranteed Third Avenue bonds) ; representing, roughly, a market value of at least $200,000,000. The ablest administrative ability has been enlisted in this service; economies and improvements have been everywhere effected ; the results accomplished have been marvelous indeed ; and if the end justifies the means, the promoters have reason to be pleased with their work.

The Manhattan Elevated Railroad Company, into which were merged, in 1879, both the New York and the Metropolitan elevated railroads, initiated in 1875, has reached, with the usual processes of stock manipulation and multiplication, a capitalization of $48,000,000 stock and $40,000,000 bonds, having a market value, approximately, of $100,000,000 ; but it has not yet been brought into the general fold, and the alliance prophesied by a traffic agreement with the Third Avenue surface road, made in 1899, for transfers from one system to the other for a supplementary threecent fare, has come to little. The company enjoyed many facilities through a good understanding with “the powers that be,” until its president, George J. Gould, declined to concede to Richard Croker for his Auto-Truck Company the privilege of laying pneumatic tubes along the elevated structure. A picturesque account of an interview between Mr. Gould and Mr. Croker was made public, and a simultaneous and concentrated cross-fire from the city authorities upon the company began. The Park Commissioners notified the company to remove its structure from Battery Park ; the Health Department discovered that the supports were in unsafe and dangerous condition; and ordinances proposed in the municipal assembly required the company to inclose its stations in glass and place drip pans under its structure, to operate trains on fiveminute headway throughout the twentyfour hours, under $100 penalty for each omission, and to give up its revenues from newspaper stands and advertising. A renewal of friendly relations averted the threatened dangers; but effective notice was given to other companies of the treatment to be expected in case they failed to conform with the desires of the ruling powers.

When gas began to supplant oil for lighting, the New York Gas Company, organized in 1823, with a capital of $1,000,000, was given exclusive rights for thirty years in the built-up part of the city, and supplied gas at $10 the thousand cubic feet. A dozen gas companies have since been formed,—some confined by charter or by agreement to specified parts of the city, others organized for purposes of competition, — whose history has been a confused tangle of asserted corruption, rivalry, “ gas wars,” pooling, consolidation, overcapitalization, protests from consumers,movements for a municipal plant, improvements in manufacture, appeals to the legislature, and reductions of price, mostly in obedience to legislative requirement. In 1884, the New York, Manhattan, Mutual, Harlem, Metropolitan, Municipal, and Knickerbocker companies, which had formed a pool maintaining prices at $2.25, were merged into the Consolidated Gas Company, with a nominal capital of $45,000,000, but with “ less than $20,000,000 actual investment,” according to the Thomas Committee’s report to the legislature in 1885. The company itself valued the combined franchises at $7,781,000, for which practically nothing had been paid to the city. The Mutual Company, because of a provision in its charter which forbade combination, was obliged to withdraw from the Consolidated Company, and the proposed capitalization was reduced accordingly ; but it was understood that a controlling interest in the $3,500,000 stock of the Mutual Company passed to the Consolidated Company or its leading stockholders. The Equitable Gas Company was organized in 1882, to compete with these companies, and supplied gas in 1884 at $1.75 ; and in 1885 still another rival, the Standard Company, was incorporated. The grant to this company raised so great a scandal that the legislature, in 1886, in a spasm of virtue, reduced prices to $1.25 per thousand feet. In 1894 a new corporation, the East River Gas Company, obtained a franchise to lay its mains in New York, and to build a tunnel under the East River to bring gas from the Long Island side, for which it was to pay 3 per cent of its gross receipts. All these companies maintained prices at the maximum legal rate of $1.25, but were in furious competition in supplying apparatus gratis, until November, 1896, when another pool was formed, the business parceled out, and the competing agents discharged. These employees took their revenge by holding a mass meeting at Cooper Institute, December 31, 1896, at which they started an agitation for a municipal plant and for “ dollar gas.” The fighting was now transferred to the legislature, which, despite the efforts of the gas companies, reduced the price to $1.20 for 1897, and 5 cents each year thereafter until “ dollar gas ” should be reached in 1901.

In January, 1898, the East River and Equitable companies were brought together into the New Amsterdam Gas Company, having a capitalization of $21,000,000 stock and $20,750,000 bonds, with Anthony N. Brady at its head. The Standard Company maintained its identity, having a capitalization of $8,721,000 stock and $1,362,000 bonds, with Russell Sage as president, while the Consolidated Company still held the lead in the gas situation with a capital of $39,078,000 and $2,158,000 floating indebtedness. The three companies had together a total capitalization, share and loan, approximating $100,000,000, and probably exceeding that amount if the stocks and bonds of merged or controlled companies were included. An Astoria Gas, Heat, Light, and Power Company had been organized, which also was to supply gas through a tunnel under the East River, and which was granted questionable privileges; but this was understood to be an enterprise of one of the existing companies, incidental to the gas war which presently ensued.

An endeavor to force further consolidation resulted in 1899 in a “ rate war,” which cut prices from $1.10 to 65 cents, and later to 50 cents, per thousand feet. This war lasted until March, 1900, when, as the result of the combination meantime effected, former rates were resumed, — to the sorrow of the consuming public, — the Brady interests having been brought into line with the Consolidated Gas Company ; Russell Sage having been deposed from the presidency of the Standard Company, and the voting power of the majority of its stock put in the hands of a protective committee, also in the interests of the Consolidated Company. Thus unification of the gas interests became an accomplished fact.

Electric lighting had begun in New York before 1880 with the arc lights of the Brush Company, though the aldermanic permit granting a franchise was not secured until May 3, 1881, at which time, also, a like franchise was given to the United States Illuminating Company, — the two companies afterward associated under Westinghouse control. Both these, in common with all other companies then existing, used overhead conductors and the high-tension current, and it was generally asserted by electrical authorities that the electric current could not be conveyed underground. Meantime, Edison had worked out his incandescent lamp, — stimulated at the start, curiously enough, by a quarrel over the bills of a gas company, — and had successfully attacked the problem of an underground system of conductors. The Edison Electric Light Company, afterward merged into the General Electric Company, had been organized in 1878 to develop the Edison system, and, under royalty arrangements with it, the Edison Electric Illuminating Company of New York was organized December 17,1880, and obtained on April 10, 1881, the first aldermanic permit for an electric franchise within the limits of New York.

For some years New York was the battleground of the fierce contest between the high-tension overhead-wire arc-lamp systems, represented chiefly by the Westinghouse interests, and the low-tension underground - conductor incandescent Edison system. The public authorities, stimulated by an indignant public opinion over the fatal accidents from overhead wires, obtained from the legislature in 1885 an act creating a Board of Commissioners of Electrical Subways, which was to require the placing of all wires underground. In a supplementary act of 1887, giving this body increased powers under the new name of the Board of Electrical Control, an agreement made between the Board and the Consolidated Telegraph and Electrical Subway Company was specifically ratified and confirmed. This company had been organized as a quasi-public corporation with private capital, as the agent of the city to furnish underground conduits which should be rented to the electric-lighting companies under rentals to be regulated by the Board of Electrical Control, and in which all electric-lighting companies should be obligatory tenants. The politicians saw in this a great opportunity, but the capital required was so large as to be beyond their possibilities, and the Subway Company was ultimately financed by the telephone and Edison interests. In 1887 and subsequent years, the boom given to electric lighting resulted in the organization of a number of minor companies, nine authorizations having been granted in 1887-88 by the common council, and still others later by the Board of Electrical Control, — all the new companies using overhead wires and hightension systems. The contest between the city authorities and the overhead-wire companies was waged with great waste of capital on the part of the companies, until the city was finally successful in abolishing the poles in 1892.

Meantime, in 1891, the telegraph and telephone cables and the Edison low-tension conductors had been put, by permissive legislation, under the jurisdiction of a subway company known as the Empire City Subway Company, exclusively owned by the interests which nominally leased the low-tension subways, leaving to the Consolidated Subway Company, of which the telephone interests were the main owners, the control and the burden of the high-tension conduits. The hightension companies, though spared the investment necessary to build subways for themselves, complained bitterly of the situation, which was certainly anomalous. Not the city, but a private corporation, with the power of the city behind it, provided all the subways, at rates fixed by the Board of Electrical Control, and although the situation was not misused as was claimed, it seemed to invite misuse against any companies not personœ gratœ. The minor companies, organized on an inadequate basis, were not financially successful. The Edison interests purchased three of them, — the Manhattan and the Harlem companies, practically one system, from their original promoters, at about cost, and later, after a bankruptcy reorganization, the East River Company, supplementing that system, — as a competing arm in case of a threatened “rate war ; ” but proffers of the other companies and of the high-tension subways were declined. The multiplication and division of high-tension companies, in fact, gave the Edison low-tension company opportunity for perhaps larger success than as a monopoly.

The electrical situation in New York had attracted the attention of many promoters, and particularly of Anthony N. Brady, one of those remarkable “ selfmade ” men, more frequent in America than in any other country, who by sheer force of native ability overcome opposing circumstances and make their mark in affairs. This type, when it works toward good ends and is not unscrupulous in method, is creditable in the highest degree, but contrariwise it is the material of the boss. Mr. Brady, who rose from humble occupations in Albany, there attracted the favorable notice of Governor Flower, and the relationship between the two lasted in reciprocal loyalty until Governor Flower’s death, in May, 1899. Mr. Brady took hold of an unsuccessful mining enterprise in which many Albany people had lost money ; his handling brought the stock up to par, and thus began his career as a promoter and financier. He had come into relation with electric interests in Albany, and through the North River Electric Light Company, occupying the streets north of the Harlem River, had been brought into touch with the electrical situation in New York. With the final purpose of securing control in Manhattan, he first turned his attention to the conditions across the East River, where the Edison Electric Illuminating Company of Brooklyn had obtained practically a monopoly of electric lighting in that borough. The Citizens’ Electric Light Company, organized during the heydays of the McLaughlin ring, as one means of sharing the spoils, had stolen water from the city through an unrecorded water main, had obtained much of the public lighting, and had practically used up its old machinery in an obsolete central station. The Brooklyn Edison Company had purchased and bettered this system, and was also taking over the so-called Municipal Electric Light Company, — a private corporation, which had a rival system in the eastern district of Brooklyn. In 1897 Mr. Brady and his associates organized the Kings County Electric Light and Power Company, and proceeded to announce great plans, to build a waterside station, and to lay some miles of conduits in the principal streets, the Subway Company’s exclusive privilege not extending to Brooklyn. There was a sharp legal contest for possession of the Municipal Company. An injunction was obtained by the Brady people against an arrangement made by the Edison people; but this was obviated by another line of negotiations, and the purchase by the Edison Company was completed. But the Brooklyn Edison Company had about 40 per cent of its revenue from public lighting; it now began to have trouble with the city authorities. Bills were “ held up,” for one reason or another, until a large debt from the city had accumulated, and the Edison interests felt the coils of the Laocoön serpents about them. Finally, negotiations with Mr. Brady resulted, in the summer of 1898, in the sale of Edison stock for an even amount in 6 per cent purchase-money bonds, $1,000,000 being deposited by the purchasers for betterments. It was afterward stated that much of the Kings County Company’s exploitation had been “ bluff,” — apparent rather than real preparation for practical business.

The Edison Company in New York had developed a position peculiarly strong. It was generally considered that if any corporation could withstand “ politics,” it could. There was little, if any overcapitalization. The difference between capital account and the value of the physical properties was chiefly payments in stock as royalty on the Edison patents ; for stock returned by the parent company from this royalty was sufficient to cover preliminary expenses, experimental engineering, or wasted construction, against which Mr. Edison’s foresight, particularly in the initial adoption of underground conductors, had been a great safeguard. This difference was much more than covered by the “ good will ” of its growing business. Nevertheless, the policy of the administration had been to increase the dividend from 4 to 6 per cent only, writing off a liberal allowance for wear and tear of equipment, and investing the balance out of earnings, which reached 12 6/10 per cent in 1898, in new plant, until actual physical values should equal capitalization, and the good will should be a surplus asset, represented to the stockholder in the premium on his stock above a par value for which there was dollar for dollar of physical assets. This policy was intended to safeguard the company against future competition from possible new companies, starting afresh with the latest machinery, and without royalty charges or experimental costs. But it was contrary to the Wall Street trend of realizing high values by paying large dividends, and it kept the stock out of the market, inactive and unspeculative because held strongly by investors, and ruling lower in price than its actual or potential value, and subjected the company to some criticism. Three cardinal principles had been laid down: that no money or other consideration should be paid, directly or indirectly, for political influence or protection, or for other questionable purposes; that the price of electric current should be lowered as fast as the increase of output and the decrease of cost permitted, and should be invariably the same to each consumer under like conditions; and that no man should be denied work because he was not or was a member of a labor union. For years not a penny had leaked to “ strikers,” either at Albany or New York, and “ strike bills ” were met by immediate personal appearances of the executive and counsel at legislative hearings, with all the figures and books that could be asked for, placed frankly at the disposal of the legislators. The “ boys ” were puzzled by this queer kind of corporation, and those who held to the doctrine which leads conscientious directors to permit corruption to go on — that it is better to surrender to highwaymen part of the funds you hold in trust than to chance losing all — were sure that this policy could not last. Full publication of figures was made in the annual reports. Prices had been from time to time reduced, always voluntarily, as a matter of business policy, so that the average return per unit sold had been reduced from 16 cents to 11 cents, although no substantial reduction had been found practicable to the consumers who paid returns on a costly investment for only an hour’s daily use. The Edison Company had an understanding with the other companies that it would give them advance notice of any change of prices ; that it would maintain its stated prices strictly ; and that it would not solicit customers from other companies, although free to take business which came unsolicited. This arrangement was reciprocated and worked well, the slight misunderstandings occasioned by agents being promptly set right on frank comparison of notes by the executives. Any customer could see any other customer’s bills, if question of unfair price were raised. A labor benefit dividend was paid to employees out of the profits of the year, and in addition to a staff council, meeting weekly, a labor council, representing the wage - earners of all departments, cared alike for the interests of the men and of the company. Within ten years the Edison Company had doubled the number of its stations, increased its engine capacity from 4000 to 24,000 horse power, its customers from 1700 to 8700, its “lamp equivalent” from 77,000 to 915,000, its output from 2,000,000 to 22,000,000 kilowatt hours, its underground mains and feeders from 110 to 236 miles, its total earnings from less than $500,000 to $2,700,000. It had bought land and made plans for a waterside central station, to be the largest in the world, and had practically determined to reduce its basic price from one cent to three quarters cent per 16 candle-power lamp hour (below actual cost for the smaller users, but justifiable on the principle of equal postal rates), and to increase its dividend to 8 per cent. Its advance calculations, reaching to 1900, indicated for that year an output of at least 36,000,000 kilowatt hours, generated at a cost of but half that in 1898, and net earnings not less than 16 to 18 per cent. The policy proposed was, after bringing the actual physical properties up to par of stock, by appropriating surplus earnings for betterments, to distribute to stockholders, in dividends, the entire net earnings, keeping these at a maximum of 10 per cent by giving to the public continuously reduced prices. The company, in short, had reached a stage from which its prosperity promised to grow in geometrical ratio, permitting yearly decrease of prices and increase of dividends. It offered a tempting prize to the free cruisers on the financial seas.

The first attack upon the Edison Company of New York was through the Stock Exchange. Early in October, 1898, a bear “ drive ” was made upon the Edison stock from the office of Flower & Co. The price was temporarily depressed from 128 below 120, but the stock was widely and strongly held for investment; investors, instead of selling, began to buy, and the raiders found that they could not obtain control in this way. The stock promptly recovered, and the Edison situation was in fact strengthened by the failure of this coup. The New York company, though the owning interests were in some measure those which had been behind the Brooklyn company, was in no danger, it was said, from the tactics used to capture the Brooklyn company, because only 8 per cent of its revenue came from city lighting, and it was not otherwise at the mercy of the politicians. Nevertheless, the proverbial timidity of capital and the widespread fear of Tammany ramifications opened the way to a like result.

The Metropolitan Street RailwayCompany, in providing in 1898 for the transformation of its Broadway system to electric power, had laid an extraordinary number of conduits along that line. It had failed to obtain legal authority to sell electric current for other than its own use, the notorious Eldridge bill of 1898, which, by one of its provisions, granted to street railway companies the right to dispose of “ surplus ” electric power, having been vetoed by Governor Black ; and it explained authoritatively that all these ducts would be needed for a feeder system which would make each section of the line electrically independent of every other, and that they were intended solely for railway purposes. Meantime, a mysterious corporation, with incorporators unknown to fame or to the directory, had filed a certificate of incorporation at Albany, under the comprehensive name of the New York Gas and Electric Light, Heat, and Power Company, with a proposed capital of $25,000,000, on which an organization tax of $31,250 was actually paid. This corporation proved to be a “ Brady company,” and it was rumored that Mr. Whitney and the traction interests were also behind it, and that through it the Metropolitan Street Railway Company would come into the lighting business. The first move of the Power Company, as it came to be called, was to purchase the securities and control of the Consolidated Subway Company — which was a “ white elephant ” on the hands of the telephone interests — and of the minor electric-lighting companies. Those remaining were the local Westinghouse companies, for which the price asked was considered too high, and the Edison Company. The control of the subways gave no legal advantage, because the Board of Electrical Control was bound to assure equal rights and terms to all companies desiring or using ducts ; but this did not prevent fear of trouble from methods, in the words of the New York correspondent of the Philadelphia Press, “ not unfamiliar to great combinations of capital, sometimes called freezing out, sometimes buying out, sometimes clubbing out.”

On the securities purchased, the Brady interests proposed to issue Power Company mortgage bonds, for which they sought a market, and, very cleverly, a banker who was a director of the Edison Company was asked to handle the bonds. He replied, promptly and properly, that, as an Edison director, he must first consider the interests of the Edison Company; whereupon a proposition to purchase the Edison property was duly made. Threats are not usual in such negotiations, but there is sometimes an emphasis of certain features of the situation. As prophesied by the correspondent already quoted, the Edison Company might “ find itself confronted with two alternatives : to enter into ruinous competition, or to deliver itself for a price to the mysterious corporation.” The Tammany menace was a still more serious consideration. This director, fearful as to the results of a struggle, and seeing a legitimate business opportunity in a transaction through which his clients might get a higher price for their stock than the ruling market price, after conference with another banker director, arranged that an offer should be considered. The banking houses of these directors afterward made up, with the Central Trust Company representing the Power Company, a syndicate by which a transfer of control was finally effected. While the negotiations were being privately conducted, information as to the personnel, power, and prospects of the Power Company was made public through the press. The New York Journal announced that the “ Big Eight ” behind the concern were Mr. Whitney, Mr. Brady, ex-Governor Flower, Messrs. Widener, Elkins, and Dolan, of the Philadelphia traction syndicate, and Messrs. Ryan and Flynn, both well-known promoters. It printed a diagram, absolutely without foundation in fact, representing the maximum requirement of electric current for railway purposes as between seven and eight P. M., and for the lighting companies as from eight P. M. to one A. M., in proof of the economy of employing the same electric plant for traction and for lighting. The actual facts were that the maximums came closely together, with little, if any possible saving by combination, about six o’clock of a winter day, when the street cars were carrying the home-goers, and when office lighting and industrial motors downtown overlapped residence lighting uptown. It was announced as from an official representative of Mr. Whitney that a reduction of 30 per cent to consumers might be expected from the economy thus indicated. This newspaper talk naturally had an unsettling and disquieting effect.

Assurances had been given that the management of the Edison Company would be continued and protected, and the proposed purchase was at once made known to the active executive and to the other leading directors, and later to the larger stockholders, under the seal of confidence. The condition created by this confidence was peculiar. It was not imposed from motives of secrecy, for the sale was conducted throughout in the best of faith, but to prevent premature disclosures of negotiations which it was thought could not be carried on publicly without affecting the market value of the securities unfairly to all concerned, and perhaps making the transaction impossible. No meeting of the stockholders was held for the discussion of the proposed transfer; for the transaction was in form not a transfer of the company, but a concerted sale of private holdings, which was not to be consummated until 55 per cent of the shares were included. The directors were prohibited by law from selling stock not in their holding, nor could they, as a Board, sell control of the company. The proposals were discussed in meetings of the directors, but, for the same reason, never by the Board of Directors as such. The active executive stated that he should oppose a surrender by sale, and proffered his resignation, but was formally requested, by resolution, to remain in administration, and found himself under moral compulsion to do so, in the interests of the stockholders, though his hands and tongue were tied until the proposed transaction should be arranged and announced. It became his contradictory duty to coöperate in getting the best terms in negotiations to which he was opposed. Other directors were opposed to the transfer, but thought it wiser to take a good price than to risk a struggle with Tammany and its city administration. “ You have no idea what these people can do to you,” said one of the directors, a partner in a house foremost on the Street. These people were the triumvirate of Mr. Brady, on the promoting side, Hugh J. Grant, Tammany exmayor, on the political side, and Frederick P. Olcott, president of the Central Trust Company, on the financial side, with Mr. Whitney as the power behind the throne, and Tammany looming in the background. The Edison directors who were negotiating were not willing to advise a sale under 200 cash. It was finally arranged that 220 per share should be paid in 4 per cent purchase-money bonds (for which one of the syndicate houses guaranteed to pay at least 85, making 187 cash for the stock) secured by the Edison stock sold, and by $4,000,000 for investment in betterments to be supplied through the Central Trust Company, which was the trustee of the bonds, and was to hold the stock as collateral therefor in a voting trust. After the great body of the stock had come under this voting trust, the Edison shares were withdrawn from the list of securities sold on the New York Stock Exchange, and thus minority stockholders had no longer real share in the administration of the company, or the resource of an open market for the sale of their holdings.

This transaction required for the Edison capital of $9,200,000, bonds to the amount of $20,240,000, to which $760,000 was added for expenses and profit of the syndicate. As Mr. Edison tersely said, this was only “ paying with the printing press.” This issue required 9 per cent dividend on the stock to cover the 4 per cent interest on the bonds ; but the company was earning over 12 per cent for 1898, and it had been estimated that it would earn normally, at its ratio of growth, approximately 14 to 16 per cent in 1899, and 16 to 18 per cent in 1900. The syndicate houses, before issuing a circular stating the proposition, made sure that a majority interest in the stock was friendly to the arrangement, and the others concerned were under pledge of confidence. Not until the formal announcement had been issued by the syndicate, early in 1899, was the seal of confidence removed, and opposition then could be little more than protest from minority stockholders. A number of stockholders expressed a preference to keep their stock, but in fear of consequences made the exchange, or sold in open market, at about 195 cash, until all but a few hundred shares were in possession of the Power Company.

On the resignation of the active executive, which followed immediately, exMayor Grant was elected first vice president; but the real control was held by Mr. Brady himself, through a personal representative who was made general manager, the former incumbent being retained as associate general manager. No other changes in personnel were made, except that the secretary was later replaced by a son of Mr. Brady. The former directors were replaced, seriatim, mostly by “ dummies,” — the Wall Street name for directors who merely do as they are directed. The administration of the minor electric companies was gathered into the Edison building, some rearrangements were made, new Edison sub-stations were erected, and additional current was obtained from the Metropolitan Street Railway Company, while the work on the great waterside station, which had been stopped by the negotiations, was resumed and pushed forward. As the corporation laws provided that bonds should not be issued to a greater amount than the capital stock, the capital stock of the Power Company was increased to $36,000,000, to offset the issue of $21,000,000 Edison and $15,000,000 other purchase-money bonds, — a process complying with the letter of the law by inverting its intent. No reduction of prices was made, except possibly by special arrangement with individual consumers, and in fact the fixed charges of bond interest had added several cents per unit to the cost of current.

While these electrical consolidations had been in process the gas war was going merrily on, and had indeed developed into a battle of the giants. The Consolidated Gas Company, on the one side, had behind it the Standard Oil interests, with the National City Bank and other banks and trust companies, and it had also secured a hold in the electrical situation. The Power Company had declined to pay the price asked for the local Westinghouse companies, which had been much above evident value, and the “ freezing-out ” process was in progress when the properties were suddenly and secretly sold, — not even their executive officer knowing who the real purchasers were. Rumor at first named the Third Avenue Railroad ; later it proved that it was the Consolidated Gas Company which had thus stolen a march on its Whitney - Brady rivals. The New Amsterdam Gas Company and the Power Company, controlling all the other electrical companies, on the other side, were in alliance with the Metropolitan Street Railway Company, — with Mr. Whitney and the Philadelphia syndicate, the Central Trust Company and the State Trust Company, behind them. This was the situation on the chessboard up to the “ break ” in Wall Street on December 18, 1899, when the suspension of the Produce Exchange Trust Company precipitated a “ day of panic and financial wrecks.” A hundred million dollars would probably be a low estimate of the shrinkage of market values on that direful day. Consolidated Gas stock dropped from 179 to 169, but the greatest weakness developed in the Whitney securities, Metropolitan Street Railway stock dropping from 167 to 147. The conservative action of leading bankers stayed the panic ; but after the smoke had cleared away, it became known that the control of the Power Company had passed to the “ Octopus,” as the Consolidated Gas Company had come to be known.

The annual meeting of the stockholders of this company, in the January immediately following, was an interesting example of the modern method of handling corporations. The acquisition of the Power Company had been announced, and at this meeting it was proposed to elect Mr. Whitney, Mr. Brady, and Mr. Ryan as members of the Consolidated Board. Some opposition to the rate war and to the proposed absorption of the Power Company had developed. When the meeting was called to order, the chairman of the Board at once announced that the polls were open for balloting. The holder of the opposition proxies rose to speak, but the chairman recognized a stockholder who made a motion that a recess be taken for an hour while the voting was going on. After the statutory hour required for the polling had passed, and the meeting was again called to order, the chairman recognized a stockholder who moved that the meeting adjourn sine die, and that the tellers be directed to file their report of the vote with the secretary ; he declined to recognize the representative of the minority stockholders, on the ground that the motion was not debatable, and declared the motion to adjourn carried. It was later announced that out of 390,780 shares outstanding, 281,919 shares had been voted, all for the directors as nominated. The Consolidated Gas Company, it appeared, had arranged to purchase the entire $36,000,000 capital stock of the Power Company at par, with debentures to an equal amount which might be converted within six months into gas stock. The new board of the Consolidated Gas Company recommended the issue of 155,172 new shares of stock, which, at the price agreed upon of $232 (being 43 per cent in gas stock at par for each Power Company share), would take up these debentures, and the proposition was ratified at a special meeting of the stockholders, March 9, 1900. This new issue brought the capital stock of the Consolidated Gas Company up to $54,595,200, and later further increase to $80,000,000 was authorized, of which $72,814,800 has been issued. The “ Street,” which had at first considered the transaction a serious blow at Mr. Whitney’s prestige, now changed its view, and gave him credit for a merger in which he held his own ; but the real terms of the truce have never been fully made known.

An extraordinary incident of the campaign developed about this time through a petition by a minority stockholder of the State Trust Company, in which Mr. Whitney and his associates had obtained, in December, 1898, a controlling interest, for an investigation by the State Banking Department as to certain specified loans. In the new directorate were Mr. Whitney, Mr. Ryan, Mr. Widener, President Vreeland of the Metropolitan Street Railway Company, and Elihu Root, one of the counsel for the Whitney-Brady interests. The state banking law provided that no banking corporation should make any loan “ directly or indirectly to any director or officer,” or any loan “ to an amount exceeding one-fifth part of its capital stock actually paid in, and surplus.” The State Trust Company had a capital stock of $1,000,000, and about $1,200,000 surplus, which made the maximum legal loan approximately $440,000. The petition alleged that among the loans were $2,000,000 to Daniel H. Shea, a person unknown in the financial community ; $1,000,000 to Moore and Schley, bankers associated with some of the Whitney-Brady enterprises ; $785,000 to Mr. Brady; $412,800 to William F. Sheehan, counsel for some of his interests; $435,000 to Louis F. Payn, a widely known member of the “ third house ” at Albany, whose appointment as Superintendent of Insurance had provoked a storm of protest; and $500,000 to the Metropolitan Street Railway Company, — a total of over $5,000,000 to one set of interests, which was about a third of the capital and deposits. Shea, who proved to be an employee in Mr. Ryan’s office, suddenly leaped into fame as the office boy who had borrowed $2,000,000. The Superintendent of Banks promptly reported, January 13,1900, that the company’s affairs were in an entirely solvent condition, and added apologetically that the “ excessive loan of $2,000,000 made to a representative of a syndicate in which three of the directors were interested ” was amply secured, and that the loan of $500,000 “ had been reduced to the legal limit.” The collateral for these loans included 20,000 shares of Electric Vehicle stock, a Whitney enterprise which had recently increased its capital by this amount, 20,000 shares of Power Company stock, and $2,000,000 Consolidated Gas debentures. The State Trust Company weathered the exposure, but was afterward merged into the Morton Trust Company, and the episode is significant chiefly as showing the ramifications and methods of the transactions here chronicled.

When the control of the Power Company passed to the Consolidated Gas Company, the new directorate of the former included President Gawtry and others of the Gas Company, with Mr. Brady and his associates, who continued in management. There remained outstanding a few hundred minority shares of the Edison stock, and these were treated as having no rights, beyond the dividends, which the majority could be expected to recognize. Reports of earnings and of the condition of the company were no longer published ; no information was given to the stockholders at the annual meeting, and individual requests for figures were refused ; and the voting trust at the stockholders’ meeting passed votes approving and confirming all the acts of the directors, against protest of the minority that such votes could not be passed without information (which was refused) as to what the acts of the directors had been. Nine per cent dividend on the $9,200,000 Edison stock, required to pay the 4 per cent interest on the $21,000,000 purchase - money bonds, could not be legally paid without including in its benefits the minority stockholders. The bond interest above 6 per cent dividend was therefore obtained from other sources, up to May, 1901. To ease this situation, and to release the $8,962,500 Edison stock acquired by the Power Company, but tied up as security for the $21,000,000 purchase-money bonds, it was then proposed to take advantage of a clause in the deed of trust by which the Central Trust Company, as trustee for the bondholders, was permitted to surrender the Edison stock if the Edison properties were directly pledged as security. Notice was served of a fresh consolidation, by which the existent Edison Electric Illuminating Company of New York and the New York Gas and Electric Light, Heat, and Power Company were to be merged in a new company, to be called the New York Edison Company, which, when organized, was to make such direct pledge of the Edison properties. The accrued surplus Edison earnings, which were stated to be $31.15 per share, were to be paid to the Edison stockholders (including the Power Company) assenting to the merger, but not to others. One and a quarter shares of the new stock were to be given for each share of Power Company stock, and, to induce minority acquiescence, five shares for old Edison stock. As to those recalcitrants who declined to take the watered stock and dissented from the arrangement, reliance was had upon a clause in the corporation laws providing for a judicial appraisal. This plan was formally carried out, under protest from minority stockholders ; for although there were doubts as to its legality, there was no sufficient interest to enter upon a costly contest. The resultant is a consolidated company, including all the electric-lighting companies in Manhattan except the Westinghouse companies (these being directly owned by the Consolidated Gas Company), with a stock capital of $45,200,000, — all but a few hundred shares being owned by the Consolidated Gas Company. The new capital equals the sum total of the capital stocks of the two merged companies : $9,200,000 Edison, of which $8,962,500 was already owned by the Power Company, and $36,000,000 Power Company, of which $21,000,000 had originally been based on the Edison properties. Underlying this stock capital — which represents little, if any actual money investment, except possibly the $4,000,000 cash pledged for Edison betterments, as all the stocks and properties acquired were paid for in bonds — is $39,950,000 of Power bonds, $6,500,000 Edison bonds and other bonds of merged companies being still outstanding. It is difficult to state lucidly this extraordinary multiplication of complications, in which the original $9,200,000 Edison stock is represented by the $21,000,000 Power Company purchase-money bonds, the $21,000,000 Power Company stock based on the Edison property already purchased by these bonds, and the $9,200,000 again added as the old Edison capital in the new company. This is an aggregate of $57,700,000 out of a total capitalization, share and loan, of the new company exceeding $85,000,000, built up within two years, with which to carry on a business, based chiefly on the Edison earning power, which under the old conditions would have been done to-day on approximately $20,000,000 capitalization. This development may be carried further by the issue of new bonds of the new company, if a market can be found for them, when a fresh consolidation with the Westinghouse companies, and again with the Brooklyn companies, might repeat the process indefinitely.

It is impossible to state with full accuracy the total capitalization of the gas and electric interests in Manhattan and the Bronx now under control of the “ Octopus ” consolidation. It is understood that the $72,814,000 to which the stock capital of the Consolidated Gas Company has recently been increased, absorbs the stock both of the New Amsterdam and of the Standard gas companies, as well as of the new Edison Company, and perhaps also of the Astoria Company, which came avowedly under its control at the 1901 election of directors, but this may not cover all of the Mutual and other shares. Of bonds of the several companies, $71,747,000 are scheduled as outstanding, but this schedule may not be fully comprehensive. Allowing 210 as a recent average price of the stock, and par for the bonds, the market value of the gas and electric securities in New York is thus at least $222,000,000, not including the borough of Brooklyn, which field, it is reported, will presently be covered in a further consolidation.

The situation here noted is not without parallel in lesser degree in other cities than New York, into which the Whitney and Brady interests, the “ Philadelphia syndicate,” and financiers of similar methods have, severally or jointly, made their way. The disregard of public interests by speculative promoters abusing political power perhaps reached its acme in Philadelphia, where a municipal gas plant was so misused as to invite a reaction in favor of arrangements with a private corporation, and where a similar neglect of the water system, in an endeavor to force a water contract not unlike the notorious Ramapo scheme in New York, had the awful result, according to the Philadelphia newspapers, of numerous deaths from typhoid fever. The combination of the haute finance with base politics is not a question of party name or of affiliation, as the oft-cited comparison of New York and Philadelphia sufficiently suggests , for the financing which uses municipal politics as its tool works not only by help of the dominant party, but with the connivance of the minority as well. The recognition of this fact has led to the several movements to deal with the franchise question, once for all, in the fundamental law, in substantial accord with the suggestions of the National Municipal League.

The charter of Greater New York declares the rights of the city in and to its streets and all other public places to be inalienable, and provides that no franchise or right to use the streets shall be granted for a longer period than twentyfive years, with possible renewals, on revaluation, not exceeding in the aggregate twenty-five years more. The grant is to provide whether, at the expiration of the franchise, the plant and its appurtenances should become the property of the city without further compensation, or upon a fair valuation. If the city obtains the property without money payment, it may operate the plant on its own account, or renew the grant for not exceeding twenty years more, upon a fair revaluation, or lease the same to others for a like term ; but if it makes money payment for the property, it must operate the plant on its own account for at least five years, after which it may determine to continue such operation or to lease the franchise. Every grant must make adequate provision to secure efficiency of public service at reasonable rates, and the maintenance of the property in good condition. The grant must be embodied in an ordinance stating all the terms and conditions, including rates and compensation, which must be published at least twenty days before action, and a threefourths vote of the municipal assembly must be had, after approval of the terms by the Board of Estimate.

Next to that in the charter for Greater New York, the most important utterance on this subject, and one which deserves the attention of all students of municipal conditions, is the Report of the Street Railway Commission of Chicago, made at the close of 1900. The report accepts the principle that the street railway business should be recognized as a monopoly business, involving unification of management. It declares that franchise grants should be limited in duration, and that broad powers of public control should be exercised, suggesting a municipal committee, with regular quarters open during business hours for receiving complaints from citizens, and with the best expert assistance at its service. It holds that a city should possess and reserve the right to own and operate street railways, as a help in making better terms with private corporations, and that ownership of the trackage and of whatever may form a part of the street should be resumed by the city at the earliest practicable time, — every additional grant of privileges from the municipality being made an opportunity to provide for the reacquisition of street privileges previously granted in perpetuity or for extended periods. The people should have a direct voice, through a referendum, in the settlement of street railway questions, and the affairs of the company should be open and known to the public, as if managed and owned by the public directly. The public, it maintains, has the right to demand uninterrupted street railway service, and arbitration for the settlement of labor disputes. The law should forbid overcapitalization. Frontage consents should be required only when tracks are first laid, and the right of abutting property owners to prevent the use of a street, regardless of the public need, should not be absolute and unqualified. The city should be in a position to require the use of traffic subways in congested districts, to prohibit the use of overhead trolleys, and to insist upon the most desirable form of motive power. The question of low fares versus compensation, and the question of uniform fare as against graded fares or a zone system, should be matters of public policy, and there should be coördination between surface lines and steam and elevated roads. This able report, with its informing appendixes, fairly reflects the conservative yet progressive opinion of those best qualified to speak.

Both these documents emphasize the importance of reserving to the municipality, as a last resort against the greed of corporations, the power to municipalize franchise industries; that is, to undertake the actual operation of street railways, and the supply of gas, electricity, etc., as of water, by the city itself. The New York charter makes such operation obligatory for a period of five years, in case a plant is purchased on valuation by the city, — a provision intended to prevent the foisting of a plant upon the city by private capitalists, with the purpose of leasing it back again, freed from the necessity for investment. But, except by those who favor socialism per se, it is generally admitted by the advocates of municipal operation, as distinguished from municipal ownership of franchises with proper inspection and control, that, until the civil service of our cities, and especially the municipal employment of labor, is in better shape, municipalization is fraught with dangers. Municipal operation in Philadelphia, under conditions parallel to those in New York, has been made to play into the hands of private corporations ; and the authorities in an English city which has municipalized its gas and electric plants frankly admit that they cannot maintain a standard of labor as high as under private operation, because the dismissal of an employee is the signal for overwhelming use of political influence in defense of the discharged constituent. It is, of course, a question whether secret subservience of public utility corporations to a corrupt political organization in exchange for franchise privileges has not greater disadvantages than municipalization itself ; but the danger of applying so drastic a remedy for what are perhaps temporary conditions is suggested in the mere thought of turning over the transportation and supply services of New York to direct Tammany administration. The alternative of municipal ownership of franchises and of street and wharf structures, leased under proper conditions of control and inspection to operating companies, which has been made prominent in the New York charter, has been for years an entire success with respect to the ferries between New York and Brooklyn, which are periodically subject to new arrangements between the city and the operating companies.

It should be fully conceded that pioneers in industrial progress, who take large risks in the service of the public, are entitled to large profits, and that good service is entitled to good returns. But the pioneer work and the great risks of electric railways, in city or country, of gas and electric lighting, and of other public utilities, are matters of the past, and there is no longer semblance of justification for a condition of things through which promoters can, by manipulation of the market, put into their private pockets within a few months the great part of the value of a public franchise. Nothing, in fact, is so evident an example of the “unearned increment ” as a franchise value, and the recognition of this has led to such legislation as the franchise tax act, the Ford bill, passed by the New York legislature in 1899, which classes franchise privileges with real estate, and subjects public utility corporations to the same tax rate upon their franchises as upon their physical property. For 1901, the New York State Board of Tax Commissioners have valued the Metropolitan Street Railway franchise at $50,890,112, and that of the Third Avenue line at $16,370,285, — together $67,260,397 ; and the Manhattan Elevated franchise at $44,407,500. The gas franchise of the Consolidated Company proper is valued at $13,090,000, the Mutual franchise at $2,300,000, the Standard at $3,075,520, and the New Amsterdam at $4,127,500, — together $23,493,020 ; the original Edison franchise at $6,202,250, and the other franchises of the Power Company at $1,883,330, — together $8,085,580 ; giving for the gas and electric franchises in Manhattan $31,578,600, not including the two subway franchises, valued together at $6,395,200. Here is a total of $105,000,000 valuation of the Metropolitan - Consolidated franchises, on which a tax of 2f per cent is levied, as against a capitalization, share and loan, exceeding $300,000,000, for which an earning power of 4 to 8 per cent is claimed, giving a market value much above $400,000,000, and of which scarcely more than a third of the capitalization or a quarter of the market value is investment in physical properties.

These figures suggest that a large part of the “ unearned increment ” is yet to be reached by taxation, or otherwise recovered for the people. The exercise, in behalf of the superior interest of the people, as represented by the municipality which is the agent of the sovereign state, against corporations occupying the streets, of the right of eminent domain, with just but not inflated compensation, the right which has been used to condemn private property for corporate use, though it may prove useful as a last resort, seems scarcely necessary. In New York city, the subway companies and several of the railway lines are under specific obligations to surrender their properties to the city on a valuation, or for a reasonable advance upon cost; and in many cases corporation managers have so far exceeded their charters — even to the extent of violating their provisions by engaging in business which they have no right to do, or seizing upon street privileges to which they have no legal claim — as to render themselves amenable to such serious penalties as would make an arrangement with the city the preferable course. The hint of the Chicago Commission, that every extension of franchise privileges should be made a means of reacquiring proper control of the franchises already granted, should have effective application in New York under an honest and enlightened municipal government.

The New York corporation laws forbid overcapitalization by requiring that stock shall be issued at par for cash or for property only, and that bonds shall not be issued in excess of the amount of stock ; that is, that the mortgage on corporation property shall not exceed the amount paid for the property. But the valuation of the directors cannot be questioned, nor can they be held responsible for it, except in case of evident fraud. It has become a common practice to reverse this theory of the law by issuing stock for property really purchased with an equivalent amount of bonds. This stock, issued to the full extent of the earning power, as is justified by the decision of the Court of Appeals in the Western Union Telegraph case, and paid by the promoters to themselves, gives them control of the property for which the bondholders have really paid, and becomes, less the organization tax and like necessary charges, the fee or profit of the promoters. A public schedule of the properties for which stock is issued, perhaps with specific valuations by sworn official experts, seems necessary to make the present corporation laws effective; and this should be supplemented by yearly reports of the acquisition of properties, and by full publicity of the accounts of public utility corporations. The fact that the stock of the Consolidated Gas Company ranged, in 1897, between 241 and 136, and that of the Metropolitan Street Railway Company, in 1899, between 269 and 147, shows how uncertain to investors and how dangerous in the market are securities of this class when the real facts of the situation can be concealed, and when capitalization, bond issues, and dividends are at the beck of speculative promoters, whose interests may be at one time on the “ bear ” and at another time on the “ bull ” side of the properties which they are supposed to direct in the interests of the stockholders. In the railway development of the last generation, the capitalization of new railways by issuing bonds for the money actually paid, and preferred stock and common stock in equal amounts in expectancy of adequate earning power, has proved a sowing of the wind from which this generation — especially the small investor and the proverbial widow and orphan — has reaped the whirlwind harvest of railway reorganization, profiting only, in enormous fees, the bankers who, with the scalpel of the financial surgeon, cut down the inflated securities to a basis of real value. The speculative promoter who has turned from the general railway field to that of municipal utilities has found his opportunity in procuring franchises without compensation, or in buying up, under compulsion, franchise properties already developed, in capitalizing these to their potential earning power, and from this increase of capitalization realizing a profit which he has not earned.

The remedy which will cut to the root of these evils — aside from palliatives which may be found in further legislation or in the actual application of present laws — is a municipal spirit, a civic courage, a political morale, especially on the part of the “ well to do,” which will overcome the timidity of capital, and stand fearlessly firm against Tammany in New York or against a Republican ring in Philadelphia. The power and danger of Tammany misrule is nowhere more strikingly shown than by the fact that such representative citizens, men of integrity, ability, and honor, as made up the Edison Board, among them sincere and foremost leaders in altruistic enterprises, in crusades against vice, and in efforts for municipal reform, hesitate to lead in opposition to this form of Tammany domination, lest they should not have the support of those for whose financial interests they are trustees. Unfortunately, the great public utility corporations of New York have passed into the hands of those whose sympathies and interests are in affiliation with Tammany rather than in opposition, and this is one of the grave difficulties of the present crisis. Yet there are wholesome signs of the revival of a municipal spirit, a civic renascence inspiring rich and poor alike, which may prove a potent and triumphant foe to the forces of evil, and redeem our cities, and with them our country, from the shame and degradation of municipal misrule.

R. R. Bowker.

1. This article is intended to be presented from an external and objective point of view ; but, to prevent misapprehension, it should be stated that the writer was the first vice president and active executive of the Edison Company of New York, from 1890 into 1899. — R. R. B.↩