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Home -> Burton J. Hendrick -> The Age of Big Business, A Chronicle of the Captains of Industry -> CHAPTER V

The Age of Big Business, A Chronicle of the Captains of Industry - CHAPTER V










The streets of practically all American cities, as they appeared
in 1870 and as they appear today, present one of the greatest
contrasts in our industrial development. Fifty years ago only a
few flickering gas lamps lighted the most traveled thoroughfares.
Only the most prosperous business houses and homes had even this
expensive illumination; most obtained their artificial light from
the new illuminant known as kerosene. But it was the mechanism of
city transportation that would have looked the strangest in our
eyes. New York City had built the world's first horse-car line in
1832, and since that year this peculiarly American contrivance
has had the most extended development. In 1870, indeed,
practically every city of any importance had one or more railways
of this type. New York possessed thirty different companies, each
operating an independent system. In Philadelphia, Chicago, St.
Louis, and San Francisco the growth of urban transportation had
been equally haphazard. The idea of combining the several street
railways into one comprehensive corporation had apparently
occurred to no one. The passengers, in their peregrinations
through the city, had frequently to pay three or four fares;
competition was thus the universal rule. The mechanical equipment
similarly represented a primitive state of organization. Horses
and mules, in many cases hideous physical specimens of their
breeds, furnished the motive power. The cars were little
"bobtailed" receptacles, usually badly painted and more often
than not in a desperate state of disrepair. In many cities the
driver presided as a solitary autocrat; the passengers on
entrance deposited their coins in a little fare box. At night
tiny oil lamps made the darkness visible; in winter time
shivering passengers warmed themselves by pulling their coat
collars and furs closely about their necks and thrusting their
lower members into a heap of straw, piled almost a foot deep on
the floor.

Who would have thought, forty years ago, that the lighting of
these dark and dirty streets and the modernization of these local
railway systems would have given rise to one of the most
astounding chapters in our financial history and created
hundreds, perhaps thousands, of millionaires? When Thomas A.
Edison invented the incandescent light, and when Frank J. Sprague
in 1887 constructed the first practicable urban trolley line, in
Richmond, Virginia, they liberated forces that powerfully
affected not only our social and economic life but our political
institutions. These two inventions introduced anew
phrase--"Public Utilities." Combined with the great growth and
prosperity of the cities they furnished a fruitful opportunity to
several particularly famous groups of financial adventurers. They
led to the organization of "syndicates" which devoted all their
energies, for a quarter of a century, to exploiting city lighting
and transportation systems. These syndicates made a business of
entering city after city, purchasing the scattered street railway
lines and lighting companies, equipping them with electricity,
combining them into unified systems, organizing large
corporations, and floating huge issues of securities. A single
group of six men--Yerkes, Widener, Elkins, Dolan, Whitney, and
Ryan--combined the street railways, and in many cases the
lighting companies, of New York, Philadelphia, Chicago,
Pittsburgh, and at least a hundred towns and cities in
Pennsylvania, Connecticut, Rhode Island, Massachusetts, Ohio,
Indiana, New Hampshire, and Maine. Either jointly or separately
they controlled the gas and electric lighting companies of
Philadelphia, Reading, Harrisburg, Atlanta, Vicksburg, St.
Augustine, Minneapolis, Omaha, Des Moines, Kansas City, Sioux
City, Syracuse, and about seventy other communities. A single
corporation developed nearly all the trolley lines and lighting
companies of New Jersey; another controlled similar utilities in
San Francisco and other cities on the Pacific Coast. In
practically all instances these syndicates adopted precisely the
same plan of operation. In so far as their activities resulted in
cheap, comfortable, rapid, and comprehensive transit systems and
low-priced illumination, their activities greatly benefited the
public. The future historian of American society will probably
attribute enormous influence to the trolley car in linking urban
community with urban community, in extending the radius of the
modern city, in freeing urban workers from the demoralizing
influences of the tenement, in offering the poorer classes
comfortable homes in the surrounding country, and in extending
general enlightenment by bringing about a closer human
intercourse. Indeed, there is probably no single influence that
has contributed so much to the pleasure and comfort of the masses
as the trolley car.

Yet the story that I shall have to tell is not a pleasant one. It
is impossible to write even a brief outline of this development
without plunging deeply into the two phases of American life of
which we have most cause to be ashamed; these are American
municipal politics and the speculative aspects of Wall Street.
The predominating influences in American city life have been the
great franchise corporations. Practically all the men that have
had most to do with developing our public utilities have also had
the greatest influence in city politics. In New York, Thomas F.
Ryan and William C. Whitney were the powerful, though invisible,
powers in Tammany Hall. In Chicago, Charles T. Yerkes controlled
mayors and city councils; he even extended his influence into the
state government, controlling governors and legislatures. In
Philadelphia, Widener and Elkins dominated the City Hall and also
became part of the Quay machine of Pennsylvania. Mark Hanna, the
most active force in Cleveland railways, was also the political
boss of the State. Roswell P. Flower, chief agent in developing
Brooklyn Rapid Transit, had been Governor of New York; Patrick
Calhoun, who monopolized the utilities of San Francisco and other
cities, presided likewise over the city's inner politics. The
Public Service Corporation of New Jersey also comprised a large
political power in city and state politics. It is hardly an
exaggeration to say that in the most active period, that from
1880 to 1905, the powers that developed city railway and lighting
companies in American cities were identically the same owners
that had the most to do with city government. In the minds of
these men politics was necessarily as much a part of their
business as trolley poles and steel rails. This type of
capitalist existed only on public franchises--the right to occupy
the public streets with their trolley cars, gas mains, and
electric light conduits; they could obtain these privileges only
from complaisant city governments, and the simplest way to obtain
them was to control these governments themselves. Herein we have
the simple formula which made possible one of the most profitable
and one of the most adventurous undertakings of our time.

An attempt to relate the history of all these syndicates would
involve endless repetition. If we have the history of one we have
the history of practically all. I have therefore selected, as
typical, the operations of the group that developed the street
railways and, to a certain extent, the public lighting
companies, in our three greatest American cities--New York,
Chicago, and Philadelphia.

One of the men who started these enterprises actually had a
criminal record. William H. Kemble, an early member of the
Philadelphia group, had been indicted for attempting to bribe the
Pennsylvania Legislature; he had been convicted and sentenced to
one year in the county jail and had escaped imprisonment only by
virtue of a pardon obtained through political influence. Charles
T. Yerkes, one of his partners in politics and street railway
enterprises, had been less fortunate, for he had served seven
months for assisting in the embezzlement of Philadelphia funds in
1873. It was this circumstance in Yerkes's career which impelled
him to leave Philadelphia and settle in Chicago where, starting
as a small broker, he ultimately acquired sufficient resources
and influence to embark in that street railway business at which
he had already served an extensive apprenticeship. Under his
domination, the Chicago aldermen attained a gravity that made
them notorious all over the world. They openly sold Yerkes the
use of the streets for cash and constantly blocked the efforts
which an infuriated populace made for reform. Yerkes purchased
the old street railway lines, lined his pockets by making
contracts for their reconstruction, issued large flotations of
watered stock, heaped securities upon securities and
reorganization upon reorganization and diverted their assets to
business in a hundred ingenious ways.

In spite of the crimes which Yerkes perpetrated in American
cities, there was something refreshing and ingratiating about the
man. Possibly this is because he did not associate any hypocrisy
with his depredations. "The secret of success in my business," he
once frankly said, "is to buy old junk, fix it up a little, and
unload it upon other fellows." Certain of his epigrams--such as,
"It is the strap-hanger who pays the dividends"--have likewise
given him a genial immortality. The fact that, after having
reduced the railway system of Chicago to financial pulp and
physical dissolution, he finally unloaded the whole useless mass,
at a handsome personal profit, upon his old New York friends,
Whitney and Ryan, and decamped to London, where he carried
through huge transit enterprises, clearly demonstrated that
Yerkes was a buccaneer of no ordinary caliber.

Yerkes's difficulties in Philadelphia indirectly made possible
the career of Peter A. B. Widener. For Yerkes had become involved
in the defalcation of the City Treasurer, Joseph P. Mercer, whose
translation to the Eastern Penitentiary left vacant a municipal
office into which Mr. Widener now promptly stepped. Thus Mr.
Widener, as is practically the case with all these street railway
magnates, was a municipal politician before he became a
financier. The fact that he attained the city treasurership shows
that he had already gone far, for it was the most powerful office
in Philadelphia. He had all those qualities of suavity,
joviality, firmness, and personal domination that made possible
success in American local politics a generation ago. His
occupation contributed to his advancement. In recent years Mr.
Widener, as the owner of great art galleries and the patron of
philanthropic and industrial institutions, has been a national
figure of the utmost dignity. Had you dropped into the Spring
Garden Market in Philadelphia forty years ago, you would have
found a portly gentleman, clad in a white apron, and armed with a
cleaver, presiding over a shop decorated with the design--"Peter
A. B. Widener, Butcher." He was constantly joking with his
customers and visitors, and in the evening he was accustomed to
foregather with a group of well-chosen spirits who had been long
famous in Philadelphia as the "all-night poker players." A
successful butcher shop in Philadelphia in those days played
about the same part in local politics as did the saloon in New
York City. Such a station became the headquarters of political
gossip and the meeting ground of a political clique; and so
Widener, the son of a poor German bricklayer, rapidly became a
political leader in the Twentieth Ward, and soon found his power
extending even to Harrisburg. A few years ago Widener presided
over a turbulent meeting of Metropolitan shareholders in Newark,
New Jersey. The proposal under consideration was the transference
of all the Metropolitan's visible assets to a company of which
the stockholders knew nothing. When several of these stockholders
arose and demanded that they be given an opportunity to discuss
the projected lease, Widener turned to them and said, in his
politest and blandest manner: "You can vote first and discuss
afterward." Widener displayed precisely these same qualities of
ingratiating arrogance and good-natured contempt as a
Philadelphia politician. He was a man of big frame, alert and
decisive in his movements, and a ready talker; in business he was
given much to living in the clouds--a born
speculator--emphatically a "boomer." His sympathies were
generous, at times emotional; it is said that he has even been
known to weep when discussing his fine collection of Madonnas. He
showed this personal side in his lifelong friendship and business
association with William L. Elkins, a man much inferior to him in
ability. Indeed, Elkins's great fortune was little more than a
free gift from Widener, who carried him as a partner in all his
deals. Elkins became Widener's bondsman when the latter entered
the City Treasurer's office; the two men lived near each other on
the same street, and this association was cemented when Widener's
oldest son married Elkins's daughter. Elkins had started life as
an entry clerk in a grocery store, had made money in the butter
and egg business, had "struck oil" at Titusville in 1862, and had
succeeded in exchanging his holdings for a block of Standard Oil
stock. He too became a Philadelphia politician, but he had
certain hard qualities--he was close-fisted, slow, plodding--that
prevented him from achieving much success.

For the other members of this group we must now change the scene
to New York City. In the early eighties certain powerful
interests had formed plans for controlling the New York transit
fields. Prominent among them was William Collins Whitney, a very
different type of man from the Philadelphians. Born in Conway,
Massachusetts, in 1841, he came from a long line of distinguished
and intellectual New Englanders. At Yale his wonderful mental
gifts raised him far above his fellows; he divided all scholastic
honors there with his classmate, William Graham Sumner,
afterwards Yale's great political economist. Soon after
graduation Whitney came to New York and rapidly forged ahead as a
lawyer. Brilliant, polished, suave, he early displayed those
qualities which afterward made him the master mind of
presidential Cabinets and the maker of American Presidents.
Physically handsome, loved by most men and all women, he soon
acquired a social standing that amounted almost to a
dictatorship. His early political activities had greatly
benefited New York. He became a member of that group which, under
the leadership of Joseph H. Choate and Samuel J. Tilden,
accomplished the downfall of William M. Tweed. Whitney remained
Tilden's political protege for several years. Though highbred and
luxury-loving, as a young man he was not averse to hard political
work, and many old-timers still remember the days when "Bill"
Whitney delivered cart-tail harangues on the lower east side. By
1884 he had become the most prominent Democrat in New
York--always a foe to Tammany--and as such he contributed largely
to Cleveland's first election, became Secretary of the Navy in
Cleveland's cabinet and that great President's close friend and
adviser. As Secretary of the Navy, Whitney, who found the fleet
composed of a few useless hulks left over from the days of
Farragut, created the fighting force that did such efficient
service in the Spanish War. The fact that the United States is
now the third naval power is largely owing to these early
activities of Whitney.

Certainly all this national service forms a strange prelude to
Whitney's activities in the public utilities of New York and
other cities. Had he died, indeed, in his fiftieth year, his name
would be renowned today as a worker for the highest ideals of
American citizenship. What suddenly made him turn his back upon
his past, join his former enemies in Tammany Hall, and engage in
these great speculative enterprises? The simplest explanation is
that, with his ability and ambition, Whitney had the luxurious
tastes of a Medici. At the height of his career his financial
success found expression in a magnificent house which he
established on Fifth Avenue. Its furnishings were one of the
wonders of New York. Whitney ransacked the art treasures of
Europe, stripped medieval castles of their carvings and
tapestries, ripped whole staircases and ceilings from the repose
of centuries, and relaid them in this abode of splendor, and here
he entertained with a lavishness that astounded New York. This
single exploit pictures the man. Everything that Whitney did and
was his house, his financial transactions, his Wall Street
speculations, the rewards which he gave his friends assumed
heroic proportions. But these things all demanded money. The
dilapidated horse railways of New York offered him his most
convenient opportunity for amassing it.

But Whitney had not proceeded far when he came face to face with
a quiet and energetic young man who had already made considerable
progress in the New York transit field. This was a Virginian of
South Irish descent who had started life as a humble broker's
clerk twelve or fourteen years before. His name was Thomas
Fortune Ryan. Few men have wielded greater power in American
finance, but in 1884 Ryan was merely a ruddy-faced, cleancut, and
clean-living Irishman of thirty-three, who could be depended on
to execute quickly and faithfully orders on the New York Stock
Exchange--even though they were small ones--and who, in
unostentatious fashion, had already acquired much influence in
Tammany Hall. With his six feet of stature, his extremely slender
figure, his long legs, his long arms, his raiment--which always
represented the height of fashion and tended slightly toward the
flashy --Ryan made a conspicuous figure wherever he went. He was
born in 1851, on a small farm in Nelson County, Virginia. The
Civil War, which broke out when Ryan was a boy of ten, destroyed
the family fortune and in 1868, when seventeen, he began life as
a dry-goods clerk in Baltimore, fulfilling the tradition of the
successful country boy in the large city by marrying his
employer's daughter. When his father-in-law failed, in 1870, Ryan
came to New York, went to work in a broker's office, and
succeeded so well that, in a few years, he was able to purchase a
seat on the Stock Exchange. He was sufficiently skillful as a
broker to number Jay Gould among his customers and to inspire a
prophecy by William C. Whitney that, if he retained his health,
he would become one of the richest men in the country.
Afterwards, when he knew him more intimately, Whitney elaborated
this estimate by saying that Ryan was "the most adroit, suave,
and noiseless man he had ever known." Ryan had two compelling
traits that soon won for him these influential admirers. First of
all was his marvelous industry. His genius was not spasmodic. He
worked steadily, regularly, never losing a moment, never getting
excited, going, day after day, the same monotonous dog-trot,
easily outdistancing scores of apparently stronger men. He also
had the indispensable faculty of silence. He has always been the
least talkative man in Wall Street, but, with all his reserve, he
has remained the soul of courtesy and outward good nature.

Here, then, we have the characters of this great impending
drama--Yerkes in Chicago, Widener and Elkins in Philadelphia,
Whitney and Ryan in New York. These five men did not invariably
work as a unit. Yerkes, though he had considerable interest in
Philadelphia, which had been the scene of his earliest exploits,
limited his activities largely to Chicago. Widener and Elkins,
however, not only dominated Philadelphia traction but
participated in all of Yerkes's enterprises in Chicago and held
an equal interest with Whitney and Ryan in New York. The latter
Metropolitan pair, though they confined their interest chiefly to
their own city, at times transferred their attention to Chicago.
Thus, for nearly thirty years, these five men found their oyster
in the transit systems of America's three greatest cities--and,
for that matter, in many others also.

An attempt to trace the convolutions of America's street railway
and public lighting finance would involve a puzzling array of
statistics and an inextricable complexity of stocks, bonds,
leases, holding companies, operating companies, construction
companies, reorganizations, and the like. Difficult and
apparently impenetrable as is this financial morass, the
essential facts still stand out plainly enough. As already
indicated, the fundamental basis upon which the whole system
rested was the control of municipal politics. The story of the
Metropolitan's manipulation of the New York street railways
starts with one of the most sordid episodes in the municipal
annals of America's largest city. Somewhat more than thirty years
ago, a group of New York city fathers acquired an international
fame as the "boodle aldermen." These men had finally given way to
the importunities of a certain Jacob Sharp, an eccentric
New York character, who had for many years operated New York City
railways, and granted a franchise for the construction of a
horse-car line on lower Broadway. Soon after voting this
franchise, regarded as perhaps the most valuable in the world,
these same aldermen had begun to wear diamonds, to purchase real
estate, and give other outward evidences of unexpected
prosperity. Presently, however, these city fathers started a
migration to Canada, Mexico, Spain, and other countries where the
processes of extradition did not work smoothly. Sharp's enemies
had succeeded in precipitating a legislative investigation under
the very capable leadership of Roscoe Conkling, who had little
difficulty in showing that Sharp had purchased his aldermen for
$500,000 cash. In a short time, such of the aldermen as were
accessible to the police were languishing in prison, and Sharp
had been arrested on twenty-one indictments for bribery and
sentenced to four years' hard labor--a sentence which he was
saved from serving by his lonely and miserable death in Ludlow
Street Jail. In the delirium preceding his dissolution Sharp
raved constantly about his Broadway railroad and his enemies; it
was apparently his belief that the investigation which had
uncovered his rascality and the subsequent "persecutions" had
been engineered by certain of his rivals, either to compel Sharp
to disgorge his franchise or to produce the facts that would
justify the legislature in annulling it on the ground of fraud.

Though the complete history of this transaction can never be
written, we do possess certain facts that lend some color to this
diagnosis. Up to the time that Sharp had captured this franchise,
Ryan, Whitney, and the Philadelphians--not as partners, but as
rivals--had competed with him for this prize. At the trial of
Arthur J. McQuade in 1886, a fellow conspirator, who bore the
somewhat suggestive name of Fullgraff, related certain details
which, if true, would indicate that Sharp's methods differed from
those of his rivals only in that they had proved more successful.
Thirteen members of the Board of Aldermen, said Fullgraff, had
formed a close corporation, elected a chairman, and adopted a
policy of "business unity in all important matters," which meant
that they proposed to keep together in order to secure the
highest price for the Broadway franchise. The cable railroad,
which was the one with which Mr. Ryan was identified, offered
$750,000, half in bonds and half in cash. Mr. Sharp, however,
offered $500,000 all in cash. The aldermen voted in favor of
Sharp because cash was not only a more valuable commodity than
the bonds but, to use Alderman Fullgraff's own words--"less
easily traced." That Whitney financed lawsuits against the
validity of Sharp's franchise appears upon the record, and that
Ryan was actively promoting the Conkling investigation, is
likewise a matter of evidence. Sharp's victory had the great
result of bringing together the three forces--Ryan, Whitney, and
the Philadelphians--who had hitherto combated one another as
rivals; that is, it caused the organization of the famous
Whitney-Ryan-Widener-Elkins syndicate. If these men had inspired
all those attacks on Sharp, their maneuver proved successful; for
when the investigation had attained its climax and public
indignation against Sharp had reached its most furious stage,
that venerable corruptionist, worn down by ill health, and almost
crazed by the popular outcry, sold his Broadway railroad to Peter
A. B. Widener, William L. Elkins, and William H. Kemble. Thomas
F. Ryan became secretary of the new corporation, and William C.
Whitney an active participant in its affairs.

This Broadway franchise formed the vertebral column of the New
York transit system; with it as a basis, the operators formed the
Metropolitan Street Railway Company in 1893, commonly known as
the "Metropolitan." They organized also the Metropolitan Traction
Company, an organization which enjoys an historic position as the
first "holding company" ever created in this country. Its
peculiar attribute was that it did not construct and operate
street railways itself, but merely owned other corporations that
did so. Its only assets, that is, were paper securities
representing the ownership and control of other companies. This
"holding company," which has since become almost a standardized
form of corporation control in this country, was the invention of
Mr. Francis Lynde Stetson, one of America's greatest corporation
lawyers. "Mr. Stetson," Ryan is said to have remarked, "do you
know what you did when you drew up the papers of the Metropolitan
Traction Company? You made us a great big tin box."

The plan which Whitney and his associates now followed was to
obtain control, in various ways, of all the surface railways in
New York and place them under the leadership of the Metropolitan.
Through their political influences they obtained franchises of
priceless value, organized subsidiary street railway companies,
and exchanged the stock of these subsidiary companies for that of
the Metropolitan. A few illustrations will show the character of
these transactions. They thus acquired, practically as a free
gift, a franchise to build a cable railroad on Lexington Avenue.
At an extremely liberal estimate, this line cost perhaps
$2,500,000 to construct, yet the syndicate turned this over to
the Metropolitan for $10,000,000 of Metropolitan securities. They
similarly acquired a franchise for a line on Columbus Avenue,
spending perhaps $500,000 in construction, and handing the
completed property over to the Metropolitan for $6,000,000. In
exchange for these two properties, representing a real
investment, it has been maintained, of $3,000,000, the inside
syndicates received securities which had a face value of
$16,000,000 and which, as will appear subsequently, had a market
cash value of not far from $25,000,000. They purchased an old
horse-car line on Fulton Street, a line whose assets consisted of
one-third of a mile of tracks, ten little box cars, thirty
horses, and an operating deficit of $40,000 a year. At auction,
its visible assets might have brought $15,000; yet the syndicate
turned this over to the Metropolitan for $1,000,000. They spent
$50,000 in constructing and equipping a horse railroad on
Twenty-eighth and Twenty-ninth Streets and turned this over to
the Metropolitan for $3,000,000. For two and a half miles of
railroad on Thirty-fourth Street, which represented a cash
expenditure of perhaps $100,000, they received $2,000,000 of
Metropolitan stock. But it is hardly necessary to catalogue more
instances; the plan of operations must now be fairly evident. It
was for the members of the syndicate, as individuals, to collect
all the properties and new franchises that were available and to
transfer them to the Metropolitan at enormously inflated values.
So far, all these deals were purely stock transactions--no cash
had yet changed hands. When the amalgamation was complete, the
insiders found themselves in possession of large amounts of
Metropolitan stock. Their scheme for transforming this paper into
more tangible property forms the concluding chapter of this
Metropolitan story.*

* In 1897 the Traction Company dissolved, after distributing
$6,000,000 as "a voluntary dividend" among its stockholders.

Nearly all the properties actually purchased and transferred in
the manner described above, had little earning capacity, and
therefore little value; they were decrepit horse-car lines in
unprofitable territory. The really valuable roads were those that
traversed the great north and south thoroughfares-Lenox, Third,
Fourth, Sixth, Eighth, and Ninth Avenues. Many old New York
families and estates had held these properties for years and had
collected large annual dividends from them. Naturally they had no
desire to sell, yet their acquisition was essential to the
monopoly which the Whitney-Ryan syndicate aspired to construct.
They finally leased all these roads, under agreements which
guaranteed large annual rentals. In practically all these cases
the Metropolitan, in order to secure physical possession, agreed
to pay rentals that far exceeded the earning capacity of the
road. What is the explanation of such insane finance? We do not
have the precise facts in the matter of the New York railways;
but similar operations in Chicago, which have been officially
made public, shed the utmost light upon the situation. In order
to get possession of a single road in Chicago, Widener and Elkins
guaranteed a thirty-five per cent dividend; to get one
Philadelphia line, they guaranteed 65 1/2 per cent on capital
paid in. This, of course, was not business; the motives actuating
the syndicate were purely speculative. In Chicago, Widener and
Elkins quietly made large purchases of the stock in these roads
before they leased them to the parent company. The exceedingly
profitable lease naturally gave such stocks a high value, in case
they preferred to sell; if they held them, they reaped huge
rewards from the leases which they had themselves decreed.
Perhaps their most remarkable exploit was the lease of the West
Division Railway Company of Chicago to the West Chicago Street
Railroad. Widener and Elkins controlled the West Division
Railway; their partner, Charles T. Yerkes, controlled the latter
corporation. The negotiation of a lease, therefore, was a purely
informal matter; the partners were merely dealing with one
another; yet Widener and Elkins received a fee of $5,000,000 as
personal compensation for negotiating this lease!

But this whole leasing system, both in New York and Chicago,
entailed scandals perhaps even more reprehensible. All these
leased properties, when taken over, were horse-car lines, and
their transformation into electrically propelled systems involved
reconstruction operations on an extensive scale. It seems
perfectly clear that the chief motive which inspired these
extravagant leases was the determination of the individuals who
made up the syndicate to obtain physical possession and to make
huge profits on construction. The "construction accounts" of the
Metropolitan in New York form the most mysterious and incredible
chapter in its history. The Metropolitan reports show that they
spent anywhere from $500,000 to $600,000 a mile building
underground trolley lines which, at their own extravagant
estimate, should have cost only $150,000. In a few years untold
millions, wasted in this way, disappeared from the Metropolitan
treasury. In 1907 the Public Service Commission of New York began
investigating these "construction accounts," but it had not
proceeded far when the discovery was made that all the
Metropolitan books containing the information desired had been
destroyed. All the ledgers, journals, checks, and vouchers
containing the financial history of the Metropolitan since its
organization in 1893 had been sold for $117 to a junkman, who had
agreed in writing to grind them into pulp, so that they would be
safe from "prying eyes." We shall therefore never know precisely
how this money was spent. But here again the Chicago transactions
help us to an understanding. In 1898 Charles T. Yerkes, with that
cynical frankness which some people have regarded as a redeeming
trait in his character, opened his books for the preceding
twenty-five years to the Civic Federation of Chicago. These books
disclosed that Mr. Yerkes and his associates, Widener and Elkins,
had made many millions in reconstructing the Chicago lines at
prices which represented gross overcharges to the stockholders.
For this purpose Yerkes, Widener, and Elkins organized the United
States Construction Company and made contracts for installing the
new electric systems on the lines which they controlled by lease
or stock ownership. It seems a not unnatural suspicion that the
vanished Metropolitan books would have disclosed similar
performances in New York.

The concluding chapter of this tragedy has its setting in the
Stock Exchange. These inside gentlemen, as already said, received
no cash as their profits from these manipulations--only stock.
But in the eyes of the public this stock represented an enormous
value. Metropolitan securities, for example, represented the
control and ownership of all the surface transit business in the
city of New York. Naturally, it had a great investment value.
When it began to pay regularly seven per cent dividends, the
public appetite for Metropolitan became insatiable. The eager
purchasers did not know, what we know now, that the Metropolitan
did not earn these dividends and never could have earned them.
The mere fact that it was paying, as rentals on its leased lines,
annual sums far in excess of their earning capacity, necessarily
prevented anything in the nature of profitable operation. The
unpleasant fact is that these dividends were paid with borrowed
money merely to make the stock marketable. It is not unlikely
that the padded construction accounts, already described, may
have concealed large disbursements of money for unearned
dividends. When the Metropolitan was listed in 1897, it
immediately went beyond par. The excitement that followed forms
one of the most memorable chapters in the history of Wall Street.
The investing public, egged on by daring and skillful stock
manipulators, simply went mad and purchased not only Metropolitan
but street railway shares that were then even more speculative.
It was in these bubble days that Brooklyn Rapid Transit soared to
heights from which it subsequently descended precipitately. Under
this stimulus, Metropolitan stock ultimately sold at $269 a
share. While the whole investing public was scrambling for
Metropolitan, the members of the exploiting syndicate found ample
opportunity to sell. The real situation became apparent when
William C. Whitney died in 1904 leaving an estate valued at
$40,000,000. Not a single share of Metropolitan was found among
his assets! The final crash came in 1907, when the Metropolitan,
a wrecked and plundered shell, confessed insolvency and went into
a receivership. Those who had purchased its stock found their
holdings as worthless as the traditional western gold mine. The
story of the Chicago and Philadelphia systems, as well as that of
numerous other cities, had been essentially the same. The transit
facilities of millions of Americans had merely become the
instruments of a group of speculators who had made huge personal
fortunes and had left, as a monument of their labors, street
railway lines whose gross overcapitalization was apparent to all
and whose physical dilapidation in many cases revealed the
character of their management.

It seems perhaps an exaggeration to say that the enterprises
which have resulted in equipping our American cities and suburbs
with trolley lines and electric lighting facilities have followed
the plan of campaign sketched above. Perhaps not all have
repeated the worst excesses of the syndicate that so
remorselessly exploited New York, Chicago, and Philadelphia. Yet
in most cases these elaborate undertakings have been largely
speculative in character. Huge issues of fictitious stock,
created purely for the benefit of inner rings, have been almost
the prevailing rule. Stock speculation and municipal corruption
have constantly gone hand in hand everywhere with the development
of the public utilities. The relation of franchise corporations
to municipalities is probably the thing which has chiefly opened
the eyes of Americans to certain glaring defects in their
democratic organization. The popular agitation which has resulted
has led to great political reforms. The one satisfaction which we
can derive from such a relation as that given above is that,
after all, it is representative of a past era in our political
and economic life. No new "Metropolitan syndicate" can ever
repeat the operations of its predecessors. Practically every
State now has utility commissions which regulate the granting of
franchises, the issue of securities, the details of construction
and equipment and service. An awakened public conscience has
effectively ended the alliance between politics and franchise
corporations and the type of syndicate described in the foregoing
pages belongs as much to our American past as that rude frontier
civilization with which, after all, it had many characteristics
in common.

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