An idea of the rottenness of the Erie management may be had from the
fact that the courts at one time ordered its president to restore to the
company $9,000,000 of diverted securities, which order was complied
with. Vast private fortunes were amassed by nearly all the men who
directed the affairs of the road, and the mismanagement became in time
so notorious that the legislature of the State of New York was appealed
to, to remove the directors of the road for the protection of its
stockholders, and to reduce the capital stock of the company to the
amount actually paid for it. This movement failed, however, because it
was opposed by the very stockholders whose interests were supposed to
have suffered by directorial mismanagement. They preferred to continue
to draw dividends on the face value of stocks which they had purchased
at 20 cents on the dollar. The capitalization of the company has since
been increased to $163,679,825, and it is by no means a secret among
those familiar with railroad values that the bonded indebtedness of the
Erie road represents alone many millions more than the total amount that
was ever invested in the property.

The principal competitor for through traffic of the two companies whose
financial operations we have just reviewed is the Pennsylvania Central
Company. It has often been asserted by the managers and friends of this
company that its capital is free from water; but this is not true. In
1864 a dividend of $4,130,760 was made out of the surplus earnings of
the road. This dividend was payable in capital stock and was equal to 30
per cent. of the then outstanding capital. Similar surplus dividends,
each equal to 5 per cent. of the company's outstanding stock, were
declared in 1867 and 1868. The people were thus taxed to pay dividends
on a capitalized surplus which had been derived from excessive charges
previously imposed on them. I shall not attempt here to determine
whether the capital represented by the Pennsylvania Railroad Company has
been honestly invested. A committee of Congress has expressed the
opinion that the capitalization of its main line exceeds the amount of
the actual cost of the property by more than eleven million dollars.
There is, however, a system of inflation practiced by the Pennsylvania
Railroad Company which is simply a new form of bond and stock watering.
More than one-half of the capital of this company has been invested in
the stocks and bonds of other corporati