|Chronicles of America:The Age of Big Business|
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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.