CHAPTER XIV
Montague returned to New York and plunged into his work. The
election at which he was scheduled to become president of the
Northern Mississippi was not to come off for a month. Meantime there
was no lack of work for him to do. It would, of course, be necessary
for him to return to Mississippi to live, and he had to close up his
affairs in New York. Also he wished to fit himself for the work of
superintending a railroad. Through the courtesy of General Prentice,
he was introduced to the president of one of the great transcontinental
lines, and made a study of that official's office system. He went South
again to inspect the work of the surveyors, and to consult with the
engineers who had been selected for the work.
Price went ahead with his arrangements to take over the control of
the road, without paying any attention to the old management. He
sent for Montague one day, and introduced him to a Mr. Haskins, who
was to be elected vice-president of the road. Haskins, he said, had
formerly been general manager of the Tennessee Southern, and was a
practical railroad man. Montague was to rely upon him for all the
details of his work.
Haskins was a wiry, nervous little man, with a bad temper and a
sarcastic tongue; he worshipped the gospel of efficiency, and in the
consultations with him Montague got many curious lights upon the
management of railroads. He learned, for instance, that a
conspicuous item in the construction account was the money to be
used in paying local government boards for right of way through
towns and villages. Apparently no one even considered the
possibility of securing the privilege by any other methods. Montague
did not like the prospect, but he said nothing. Then again, the road
was to purchase its rails and other necessaries from the Mississippi
Steel Company, and apparently it was expected to pay a fancy price
for these; it was not to ask for any of the discounts which were
customary. Also Montague was troubled to learn that the secretary
and treasurer of the road were to receive liberal salaries, and that
no questions were to be asked, because they were relatives of Price.
All that he put up with; but matters came to a head about ten days
before the election, when one day Haskins came to his office with
the engineers' estimates, and with his own figures of the probable
cost of the extension. Most of the figures were much higher than
those which Montague had worked out for himself.
"We ought to do better on those contracts," he said, pointing to
some of the items.
"I dare say we might," said Haskins; "but those contracts are to go
to the Hill Manufacturing Company."
"I don't understand you," said Montague; "I thought that we were to
advertise for bids."
"Yes," replied Haskins, "but that company is to get the contracts,
all the same."
"You mean," asked Montague, "that we are not to give them to the
lowest bidder?"
"I'm afraid not," said the other.
"Has Price said anything to you to that effect?"
"He has."
"But I don't understand," said Montague; "what is this Hill
Manufacturing Company?"
And Haskins smiled. "It's a concern that Price has organised
himself," he said.
Montague stared in amazement. "Price himself!" he gasped.
"His nephew is president of the company," added the other.
"Is it a new company?" Montague asked.
"Organised especially for the purpose," smiled the other.
"And what does it manufacture?"
"It doesn't manufacture anything; it simply sells."
"In other words," said Montague, "it's a device whereby Mr. Price
proposes to rob the stockholders of the Northern Mississippi
Railroad?"
"You can phrase it that way if you choose," said Haskins, quietly;
"but I wouldn't advise you to let Price hear you."
"I thank you," responded Montague, and brought the interview to an
end.
He took a day to think the matter over. It was not his habit to act
upon impulse. He saw that the time had come for him to speak, but he
wished to be sure of his course of action before he began. He had
dinner at the Club that evening, and, seeing his friend Major
Venable ensconced in a big leather chair in the reading-room, he
went and sat down beside him.
"How do you do, Major?" he said. "I've got another case that I want
to ask you some questions about."
"Always at your service," said the Major.
"It has to do with a railroad," said Montague. "Did you ever hear of
such a thing as a railroad president organising a company to sell
supplies to his own road?"
The Major smiled grimly. "Yes, I have heard of it," he said.
"Is it common?" asked Montague.
"Not so common as you might suppose," answered the other. "A
railroad president is commonly not an important enough man to be
permitted to do it. If it happens to be a big road, and the
president is a power in it, why, then he may do it."
"I see," said Montague.
"That was Higgins's trick," said the Major. "Higgins used to go
around making speeches to Sunday schools; he was the kind of man
that the newspapers like to refer to as a model citizen and a leader
of enterprise. His brothers, and his brothers-in-law, and his
cousins, and all his family went into business in order to sell
things to his railroads. I heard of one story--it has never come
out, but it's very amusing. Every year the road would advertise its
contract for stationery. It used about a million dollars' worth, and
there'd be long and most elaborate specifications published--columns
and columns. But sandwiched away somewhere in the middle of a
paragraph was the provision that the paper must all bear a certain
watermark; and that watermark was patented by one of Higgins's
companies! It didn't even own so much as a mill--it sublet all the
contracts. When Higgins died, he left eighty million dollars; but
they juggled the records, and you read in all the newspapers that he
left 'a few millions.' That was in Philadelphia, where you can do
such things."
Montague sat thinking for a few moments. "But I can't see why they
should do it in this case," he said. "The men who are doing it own
nearly all of the stock of the road."
"What difference does that make?" asked the Major.
"Why, they are simply plundering their own property," said Montague.
"Tut!" was the reply. "What do they care about the value of the
property? They'll unload it before the public finds out; and in the
meantime they are probably manipulating the stock. That's the scheme
they're working with the street railroads over in Brooklyn, for
instance; the more irregular the dividends are, the more violently
the stock fluctuates, and the better they like it."
"But this is the case of a railroad that is being built," said
Montague; "and they are putting up the money to build it."
"Yes," said the Major, "of course; and then they are paying it back
to themselves by this dodge; and they'll still have the stock, and
whatever they can get for it will be profit. And if the State
Legislature comes along and asks any impertinent questions, they can
open their books and say: 'See, we have spent this much for
improvements. This is the cost of the road; and if you reduce our
freight-rates, you will cut off our dividends and confiscate our
property.'"
And the Major gazed at Montague with a mischievous twinkle in his
eye. "Besides," he said, "another thing. You say they are putting up
the money. Are you sure it's their own money? Commonly the greater
part of the cost of railroad building is paid by bonds, and they
work those bonds off on banks and insurance companies and trust
companies. Have you thought of that?"
"No, I hadn't," said Montague.
"I know very few men in Wall Street who use their own money," the
Major added. "Take the case of Wyman, for instance. Wyman's railroad
keeps a cash surplus of twenty or thirty millions, and Wyman uses
that in Wall Street. And when he has made his profit, he takes it
and salts it away in village improvement bonds all over the country.
Do you see?"
"I see," said Montague. "It's a bad game for the small stockholder."
"It's a bad game for the small man of any sort," said the Major.
"When I was young, I can remember, a man would save a little money
and put it into an enterprise of some sort, and whatever the profits
were, he would get his share of them. But now, you see, the big men
have got control, and they are greedier than they used to be. There
is nothing hurts them so much as to see the little fellow get any
share of the profits, and they've all sorts of schemes for doing him
out of it. I could take a week off and tell you about them. You are
manufacturing soap, we will say. You find there are too many soap
manufacturers and too much soap, and so you propose to combine, and
put your rivals out of business, and monopolise the soap market.
Your properties are already capitalised at twice what they cost you,
because you are naturally hopeful, and that is what you expected
they would earn; but now for this new combination you issue stock to
the amount of three times this imagined value. Then you fill the
street with rumours of the wonders of your soap combination, and all
the privileges and monopolies that you've got, and you unload your
stock on the public, we'll say at eighty. You may have sold all your
stock, but you've still got control of the corporation. The public
is helpless and unorganised, and your men are in. Then the Street
begins to hear disturbing rumours about the soap trust, and your
board of directors meet and declare that it is impossible to pay any
dividends. There is great indignation among the stockholders, and an
opposition is organised, but you set the clock an hour ahead, and
elect your ticket before the other fellow comes around. Or perhaps
the troubles have already knocked the stock down sufficiently low to
satisfy you, and you buy a majority of it back. Then the public
hears that a new interest has purchased the soap trust, and that a
new and honest administration is to be elected; and once more there
is hope for soap. You buy a few more plants, and issue more stocks
and bonds, and soap begins to boom, and you sell once more. You can
work that regularly every two or three years, for there is always a
new crop of investors, and nobody but a few people in Wall Street
can possibly keep track of what you are doing."
The Major paused for a while, and sat with a happy smile on his
countenance. "You see," he said, "there are floods and floods of
wealth, pouring into Wall Street from all over the country. It comes
to me like a vision. The crops are growing, the mines and the mills
and the factories are working, and here is all the money. People
don't like to take it and hide it up their chimneys--few people have
chimneys nowadays. They want to invest it; and so you prepare
investments for them. Take the street railroads here in New York,
for instance. What could be a safer investment than the street
railroads of the Metropolis? An absolute monopoly, and traffic
growing so fast that construction can't keep up with it. Profits are
sure. So people buy street railway stocks and bonds. In this case
it's the politicians who organise the construction companies; that's
their share, in return for the franchises. The insiders have a new
scheme--the best yet; it's like a Gatling gun against bows and
arrows. They organise a syndicate, and get the franchises for
nothing, and then sell them to the company for millions. They've
even sold franchises they didn't own, and railroad lines that hadn't
been built. You'll find some improvements charged for four or five
times over, and the improvements haven't yet been made. First and
last they have paid themselves about thirty million dollars. And, in
the meantime, the poor stockholder wonders why he doesn't get his
dividends!"
"That's the investment market," the Major continued after a pause;
"but of course the biggest reservoirs of wealth are the insurance
companies and the banks. It's there the real fortunes are made;
you'll find you lose the greater part of your profits, unless you've
got your own banks to take your bonds. I heard an amusing story the
other day of a man who was manufacturing electrical supplies. He
prides himself on being an honest business man, and having nothing
to do with Wall Street. His company wanted to extend its business,
and it issued a couple of hundred thousand dollars' worth of bonds,
and went to the Fidelity Insurance Company and offered them at
ninety. 'We aren't buying any bonds just at present,' said they,
'but suppose you try the National Trust Company.' So the man went
there, and they offered him eighty for the bonds. That was the best
he could do, and in the end he had to take it. And then the trust
company turns the bonds over to the insurance company at par. I
could name you half a dozen trust companies in New York that are
simply syndicates of insurance people for the working of that little
game."
The Major paused. "You see it?" he asked.
"Yes, I see," Montague replied.
"Is there a trust company by any chance back of this railroad you
are talking of?"
"There is," said Montague; and the Major shrugged his shoulders.
"There you have it," he said. "By and by they will find their first
bond issue inadequate to meet the cost of the proposed improvements.
The estimates of the engineers will be found too low, and there will
be another issue of bonds, and your president's company will get
another contract. And then the first thing you know, your president
will organise a manufacturing enterprise along the line of his road,
and the road will give him secret rebates, and practically carry his
goods free; or else he'll organise a private-car line, and make the
road pay for the privilege of hauling his cars. Or perhaps he's
already got some industrial concern, and is simply building the road
as a side issue."
The Major stopped. He saw that Montague was staring at him with an
expression of perplexity.
"What's the matter?" he asked.
"Good heavens, Major!" exclaimed the other. "Do you know what road
I've been talking about?"
And the Major sank back in his chair and went into a fit of
laughter. He laughed until he was purple in the face, and he could
hardly find breath to speak.
"I really thought you did!" Montague protested. "It's exactly the
situation."
"Oh, dear me!" said the Major, fishing for his pocket handkerchief
to wipe the tears from his eyes. "Dear me! It makes me think of our
district attorney's lemon story. Did you ever hear it?"
"No," said Montague, "I never did."
"It was one of the bright spots in a dreary reform campaign that we
had a few years ago. It seems that our young crusader was giving his
audience a few illustrations of how dishonest officials could make
money in this city.
"'Let us imagine a case,' he said. 'You are an inspector of fruit,
and there is a scarcity of lemons in New York. There are two ships
full of lemons on the way, and one ship gets in twenty-four hours
ahead. Now the law requires that the fruit be carefully inspected.
If you are too careful about it, it will take more than twenty-four
hours, and the owner of the cargo will lose a small fortune. So he
comes to you and offers you a thousand or two, and you don't stop to
open every crate of his lemons.'
"The district attorney told that story at a meeting, and the next
morning the newspapers published it. That afternoon he happened to
meet a fruit inspector, who was an old friend of his. 'Say, old
man,' said the inspector, 'who the devil told you about those
lemons?'"
The next morning Montague called at Price's office.
"Mr. Price," he said, "a matter has come up in my discussions with
Mr. Haskins about which I thought it necessary to consult you
immediately."
"What is it?" asked Price.
"Mr. Haskins informs me that it is understood that the Hill
Manufacturing Company is to be favoured in the matter of contracts."
Montague was watching Price narrowly, and he saw his jaw set grimly,
and a hostile look come upon his features. Price had been lounging
back in his chair; now, slowly, he straightened himself up, as if to
receive an attack.
"Well?" he asked.
"Is Mr. Haskins correct?" asked the other.
"He is correct."
"He also stated that you are interested in the company. Is that
true?"
"That is true."
"He also stated that the company did not manufacture, but simply
sold. Is that true?"
"Yes, that is true."
"Very well, Mr. Price," said Montague. "This is a matter about which
we must have an understanding without delay. In my preliminary talks
with you I was informed that it was your wish to find a man who
should run the road honestly. The situation which you have just
outlined to me does not seem to me consistent with that programme."
Montague was prepared for an angry response, but he saw the other
make an effort and control himself.
"You must realise, Mr. Montague," he said, "that you are not very
familiar with methods in the railroad world. This company of which
you speak possesses advantages; it can secure better terms--" Price
stopped.
"You mean that it can purchase goods more cheaply than the railroad
itself can?" demanded Montague.
"In some cases," began the other.
"Very well, then," he answered. "In any case where it can obtain
better terms, there can be no objection to its receiving the
contract. But that does not agree with what Mr. Haskins told me; he
gave me to understand that we were to prepare to pay a much higher
price because it would be necessary to give the contracts to the
Hill Manufacturing Company; and that was my reason for coming to see
you. I wish to have a distinct understanding with you upon this
point. While I am president of the Northern Mississippi Railroad,
everything that is purchased by the road will be purchased in fair
competition, and the concern which will give us the lowest price for
the quality of goods we need will receive our order. That is a
matter about which there must be left no possible room for
misunderstanding. I trust I have made myself clear?"
"You have made yourself clear," said Price; and so the interview
terminated.
