Difficulties of the Coal & Iron Company—McLeod’s policy of extension
—Collapse of this policy—Failure of company—Summary of
subsequent history.
With the year 1888 a new period in the history of the Reading began.
The long struggle to bring the company back to solvency was fairly
over, and for the first time in seven years the road saw before it a
chance for genuine prosperity. Unlike the reorganization of 1880–3,
that of 1884–7 succeeded in accomplishing the greater part of the
saving expected of it. According to the plan, interest charges were
to be reduced to $4,233,055;—in 1888 they were $4,516,433, and in
1889 $4,058,139; rentals were not to exceed $2,350,000;—in 1888
they were $2,882,582, and in 1889 $2,842,319. Other payments, it is
true, the necessity for which was passed over by the advocates of the
plan, raised the total which the road was obliged to meet, but did
not prevent a comfortable balance of over $2,000,000 for the Railroad
Company in 1888, and one of $1,444,000 for both Railroad and Coal
Companies combined. During the next few years large sums were spent in
improving the permanent way. By January, 1889, almost the entire line
between New York and Philadelphia had been relaid with 85 and 90 pound
rails; grades had been smoothed, bridges strengthened, and culverts
strengthened or rebuilt.
Less satisfactory than the results for the Railroad Company, however,
were those for the Coal & Iron Company. In this case profits of
$654,211 for 1887 turned into a loss of $806,222 for 1888, and in the
following year a weak demand for coal, combined with a high cost of
mining, increased the loss to $974,373. President Corbin felt called
upon to explain that prior to 1886 the deficits of the Coal Company
had been habitually met by inflating the capital account of the
Railroad Company; so that with allowance for this fact the showing of
the companies under his management had been relatively good.[232] In
November, 1889, a letter of Mr. Gowen’s was issued, hopeful as ever,
criticising the management for their refusal or neglect to give
authoritative information about actual earnings, but pointing to the
large expense for new coal cars, barges, and collieries, and explaining
the benefit which these would confer.[233]
The weakened position of its allied company pulled the Reading
down, and prevented it from attaining the secure position which had
seemed in sight. The payment of dividends only increased the general
dissatisfaction. In February, 1889, holders of a considerable amount
of second preference bonds circulated a petition objecting to the
official statement of net earnings applicable to these securities, and
demanded an examination of the books. After an investigation their
expert declared that a 7½ per cent dividend had been earned, but the
bondholders could not induce the company to increase its distribution.
The next year preference bondholders fared even worse. The managers
declared that the surplus over all fixed charges for the year was
barely $100,000, and that no dividends at all upon their holdings
could be paid. Again an investigation was demanded and accorded,
and Mr. Howard Lewis, the expert appointed, reported that there was
applicable to the payment of interest upon first preference bonds the
sum of $90,101, or ⅜ of one per cent; a sum which the company promptly
agreed to pay. Meanwhile even the stockholders were becoming restless.
In June, 1889, a suit was commenced in Philadelphia, praying that the
company’s voting trustees and the trust under which they acted should
be set aside, on the ground that the trust was to be exercised by five
voting trustees, whereas only four had ever been appointed. Later on
the matter was taken up by London stockholders, and became serious
enough to force a concession of two seats in the board of managers of
the company.
There was no question but that the trouble was caused by depression in
the anthracite coal business, for in the carriage of both passengers
and freight the Reading in these years made steady and substantial
gains. In the three years following 1887 the number of passengers
transported increased by 2,400,000 and the earnings from them by
$470,000; while the freight tons moved gained 1,500,000 and the freight
earnings $1,000,000. Only in coal was there a decrease, which appeared
for the Coal & Iron Company in the figures for sales and gross and net
receipts, and for the Railroad Company in the earnings from anthracite
transported. The result was an attempt to improve the situation:
first, by a combination among coal producing roads which should raise
the selling price of that commodity; and second, by extension of the
railroad into new markets, whereby an outlet for increased production
should be obtained. At the instigation of Mr. Gowen a syndicate was
formed to purchase a majority of the stock of the Reading Company,[234]
which bought much more than 50 per cent, even though Mr. Gowen, the
prime mover, died in the mean time. The existing managers showed no
desire to combat the movement, although the voting power lay entirely
in their hands. In June, 1890, President Corbin resigned, and Mr. A. A.
McLeod was elected in his place.
Mr. McLeod now began a vigorous policy of consolidation and expansion
with the lease for the second time of the Central of New Jersey. He
evaded a New Jersey law which forbade the lease of a domestic to
a foreign corporation by incorporating the Port Reading Railroad
Company and then executing a lease of the Central to this minor
corporation.[235] The Port Reading promised 7 per cent on the Central
stock for 999 years, plus one-half the surplus earnings above the
dividend up to 10 per cent, and secured a guarantee of the fulfilment
of these promises from the Reading Railroad proper. Finally, Mr. McLeod
leased the Lehigh Valley to the Reading direct, on a guarantee of 5
per cent on the stock until May 31, 1892; 6 per cent from that time
until November 30, and 7 per cent thereafter for the rest of the 999
years. So far as control over the coal supply was concerned this put
the Reading in a very favorable position. The Lehigh Valley tapped
the northern Wyoming field, and the Central of New Jersey the Mahanoy
and Shamokin deposits, and both had access to New York through New
Jersey. The Lehigh, moreover, extended to Buffalo; and with a line of
steamers to Duluth, Milwaukee, and Chicago, promised to command a large
proportion of east-bound traffic in other things than coal. Figures
for the coal industry show that the Reading, Central, and Lehigh
shipped in 1891 53.3 per cent of the total production of 40,448,000
tons; in 1890 55.5 per cent; and in 1889 57.75 per cent. In addition,
control of the Delaware, Lackawanna & Western was said to have been
acquired by the purchase of a majority of its stock, which added 15.1
percent more;[236] making a total of 68.4 percent for the year 1891,
or sufficient to give a considerable measure of control over prices.
But the terms were severe; quite as severe as in the case of the leases
earlier put through; and though the Reading was in better shape than it
had been five years before, full interest on its preference bonds was
not being paid, and so long as this continued no outside payments could
properly be made. The subsidiary companies, on the other hand, were
not earning the dividends promised on their stock by nearly one-third
of a million dollars; and it seemed unlikely that sufficient economies
could be secured to cover permanently the deficit. The question could
fairly have been asked whether the Reading had not bought a chance
to contribute an annual sum to the Lehigh Valley and Jersey Central
stockholders; and whether these roads had not deliberately entered into
a contract which was little likely to be carried out. The justification
of the arrangement lay in the control of coal prices which it made
possible, and in the advantages of close traffic arrangements and
connection with both Philadelphia and New York. “The main reason why
the combination failed,” said Mr. I. L. Rice before the Industrial
Commission, “was that there was not an understanding of the first
principles of an operation of that kind, _i. e._ that it must reduce
prices and not increase them. The anthracite coal combination was
killed because prices were immediately put up….
“Q. Mr. McLeod has testified before this commission that it was his
intention to effect such economies as should be reflected in lower
prices. Do we understand that you criticise the policy in that it did
not so reduce the prices?
“A. He did not do it, no matter what his intention was.”[237]
The situation was, however, as clearly understood by the public as by
the managers themselves. Even before the combination had begun to carry
out its policy, outcry was made, and as prices went up the agitation
became intense. In New Jersey an act to legalize the combination
which passed both houses was vetoed by Governor Abbot on the ground
of the effect upon the price of anthracite coal;[238] and in June the
Attorney-General applied for an injunction to dissolve the lease of
the New Jersey Central to the Philadelphia & Reading, alleging that
the tripartite agreement between these companies and the Philadelphia
& Reading was illegal. The court granted a temporary injunction,[239]
which it continued in August to a final hearing, with conditions to
make it more effective.
Prices did not go down, and in October Attorney-General Stockton of
New Jersey again appeared before Chancellor McGill. He now charged the
Philadelphia & Reading, the Central, and the Port Reading with having
conspired to advance the price of coal in defiance of the order of
the court, and asked for the appointment of a receiver to enforce the
former decree, and to restrain the company from further using the New
Jersey railroads for carrying any coal until the advanced price should
have been reduced.[240] The officers denied the allegations, but the
Chancellor sustained the Attorney-General on every point; and only
the official announcement of the abrogation of the lease prevented
the granting of the order.[241] The lease of the Lehigh Valley fared
better. In a suit brought by M. H. Arnot, a stockholder in the Lehigh
Valley, Judge Metzger of the Court of Common Pleas held that the
Reading and Lehigh Valley were not parallel and competing lines in the
sense contemplated by the law; and that mere incidental competition
between branches or spurs of two systems would not prevent the
consolidation of their main lines.[242] So much then of the original
programme was allowed to stand.
Meanwhile, in the search for new markets, the Reading had stretched
into New England, having chosen that territory in the hope of
increasing its tonnage without a desperate struggle with its
neighbors.[243] The most available subject for control was the Boston
& Maine, which reached from Northampton and Boston, Massachusetts, to
Portland, Maine, was independent of the large trunk lines, and had a
profitable local business of its own. Purchases of this railroad’s
stock were quietly made; and in October, 1892, the public was surprised
by the election of Mr. McLeod to the presidency, although, as it
subsequently transpired, an actual majority of Boston & Maine stock was
not secured.[244] It was obvious that nothing could be gained from
the new arrangement unless the gap between the Reading and the Boston
& Maine should be filled; and so, even before the purchase of stock in
the latter was begun, the lease of the Poughkeepsie Bridge across the
Hudson was put through,[245] and a controlling interest was bought in
the stock of the Central, New England & Western. The last-named road
extended from Hartford, Connecticut across the Poughkeepsie Bridge
to Campbell Hall, 145½ miles, and connected at this point with the
Pennsylvania, Poughkeepsie & Boston, a road controlled in the interest
of the Reading. This completed a through route from Philadelphia to
Hartford. Later the Central, New England & Western Railroad Company and
the Poughkeepsie Bridge Railroad Company were consolidated into the
Philadelphia, Reading & New England, with Mr. McLeod as president;[246]
and a controlling interest was purchased in the New York & New England
Railroad, which ran from Poughkeepsie via Hartford and Providence
to Boston,[247] and afforded another entrance into New England. All
this involved a very great extension of the Reading system. The lease
of the Lehigh Valley had connected it with Buffalo; the subsequent
consolidations brought it into every New England state, and gave it a
total mileage of, roughly, 5000 miles.
Danger lay in two directions. First, it was possible that even the
union of the Lehigh, Jersey Central, and the Reading might fail to
secure a profit for the mining end of the business, and second, the
financing of the New England deals might be so conducted as to put the
parent road into a very difficult situation.
Both these contingencies occurred. The early termination of the Jersey
Central lease weakened the control of the Reading over prices, while
the severity of the winter of 1893, though assisting to maintain
prices, so increased the expense of operating the mines that earnings
fell below fixed charges for the three months ending February 28,
1893, by the amounts of $933,443 for the Railroad Company and $468,362
for the Coal & Iron Company. Moreover, losses of $616,351 accrued
during the same time under the Lehigh Valley lease, and were met by
the Reading, contrary to expectation, and contrary to the express
provisions of the mortgage by which its income bonds were secured. In
order to accomplish the New England extensions shares were bought on
margin by President McLeod personally with collateral in part supplied
by himself, in part taken from the treasury of the company, and
consisting of general mortgage, collateral trust, and income bonds. “On
or about September 22,” said Mr. I. L. Rice, a representative of the
bondholders, who had been examining the books, “Mr. McLeod entered into
certain individual stock transactions which resulted in the purchase
of 24,036 shares of the stock of the Boston & Maine Railroad Company
and 32,000 shares of the stock of the New York & New England Railroad
Company. On October 15, 1892, he withdrew from the control of the
company, without having previously obtained the authority of the board
of managers therefor, and without expressing the purpose for which he
intended to use the securities, 30,000 general mortgage bonds of the
company, which as afterwards appeared were used at that time as margins
in the transaction. He subsequently withdrew from the control of the
company in the same manner and for the same purpose, between October 28
and December 1, 1892, $713,000 of collateral trust bonds, and $99,000
third preference bonds. No reference whatever is made to these stock
transactions on the books of the company except the mention of the
withdrawal of securities against the personal receipt of the president,
nor are they referred to on the minutes of the board of managers prior
to December 24, 1892. On the latter date the board of managers in a
resolution approved the transaction, calling for the use of $613,000 of
the company’s collateral, and indemnifying Mr. McLeod for advances made
for the same purpose to the extent of $400,000. On January 17, 1893,
Mr. McLeod deposited $250,000 additional collateral trust bonds as
margin, making a total of $963,000. On February 15 Mr. McLeod directed
that the account be transferred from his individual name to that of the
Leaving aside the matter of the propriety of Mr. McLeod’s action, it
is plain that the method which he employed was an extremely expensive
one, in that it raised the necessary cash by temporary loans at high
rates from brokers in New York and Philadelphia instead of by the sale
of stocks or bonds, or by the use of funds which the company might
have had on hand. According to President Harris, the average charges
paid on the floating debt in 1892, a large portion of which had been
accumulated in these operations, was 9 per cent. If the control over
the corporations acquired had been desired for temporary reasons the
operation would have been a stock speculation pure and simple, and
the Reading would have trusted to the possible rise in price of the
securities purchased to cancel the expense of advances to the brokers
who did the buying; but in this case the control was designed to be
permanent, not temporary, and Mr. McLeod expected results which could
be obtained only after a series of years.
This brings us to the beginning of 1893. Mr. McLeod had succeeded
in carrying out his plans for a combination of coal producing roads
and for the extension of the Reading into New England, but had seen
his first project bitterly attacked, and his second scheme become a
burden because of the insufficient funds behind it. Matters came to a
head in February with an attempt to borrow on $10,000,000 collateral
trust bonds. Speyer & Co. accepted the issue, but the Drexels refused
to handle it, and began to sell the company’s securities at any
price.[249] Quotations dropped from 46¾ to 40⅝ on February 17, and
continued to fall the two succeeding days, reaching 28 on February 20.
On this last day application was made to the United States Circuit
Court in Philadelphia, and Messrs. McLeod, Wilbur, and Paxon were
appointed receivers. “I am very sorry,” said President McLeod, “that we
were driven to the necessity for a receivership, but it was the only
thing to do. Our credit was attacked in a way which made it impossible
for us to meet our obligations, and we had the receivership established
before the property was further injured…. The trouble was brought
about by the fact that we were doing an enormous business on a small
capital, and when this attack was made … it hurt our credit so that
we could not borrow money.”[250] Lack of capital was the repeated cry
of the management. At a later date Mr. McLeod again said, “When I
leased the Lehigh Valley and the Jersey Central and took over their
coal operations … I found that I had $13,000,000 invested in coal and
in carrying the customers of the companies. The Reading did not have
that much capital, and I had to borrow $8,000,000 of that $13,000,000.
Then the panic of 1893 came on. I had arranged to fund that $8,000,000
of floating debt by selling securities, etc., giving me a working
capital of $17,500,000, but the parties who were to furnish the money
had six months in which to do it, and on account of that panic coming
on before I could get the money, there was nothing in the world for me
to do except to put the Reading in the hands of the receivers to save
its securities.”[251] The statements concerning the lack of capital
were a true explanation though not an excuse. Money had been tied up
in unsalable coal, acquired not only by the leases of the Lehigh and
Central, but also by purchases from independent operators[252] and by
production during the current year;[253] while whatever spare funds
the Reading had been able to provide had been put into New England
securities at high prices to carry out the road’s ambitious plans. In
the mean time the large purchases on margin made a fall in the price of
Reading securities of especial moment; and, as Mr. McLeod explained, it
proved impossible to liquidate the floating debt. The failure of 1893,
then, was caused less by a continued inability to meet fixed charges
than by an undue expansion of operations such as has ruined many a
solvent firm. Reading’s venture in the coal fields had not proved a
success, but the loss had not been sufficient to ruin it within a year;
its New England extensions had not brought all the results desired,
but they had not had a fair trial; the true cause for the failure was
the attempt to accomplish by means of stock speculation and temporary
loans at high rates more than the road could do out of its legitimate
resources, with the intent on the one hand to raise the price of coal
and on the other to secure fresh markets for the sale thereof.
After the failure the first impulse of the bondholders was to denounce
Mr. McLeod. A meeting of European creditors in London chose a committee
to represent them and solicited McLeod’s removal from the receivership
on the “serious ground” that the administration of their property
should not any longer be jeopardized by remaining under the control of
an official who had already brought it into its existing difficulties.
A New York general mortgage bondholders’ committee decided to act in
a similar direction, and Mr. Drexel represented to the president that
he should resign for the sake of the future of the company.[254] Mr.
McLeod unwillingly gave way. For successor the board of managers chose
Mr. Joseph S. Harris, a man of long experience in railroad affairs. Mr.
Harris had been for many years connected with the Lehigh Valley system,
and was the same man who, it will be remembered, had evaluated the
Reading coal properties in 1880. Following his election as president he
was appointed receiver in the place of Mr. McLeod.
The receivers’ statement came out in March and announced a floating
debt of $18,472,828, against which were held reported assets to the
amount of $15,779,784; but of these last $4,985,276 were in the shape
of coal, and $8,861,065 consisted of the items “due for freight,”
“tolls due from connecting roads,” “bills receivable,” “cash,” etc.,
a large part of which was probably of little worth. Both the current
liabilities and the current assets are instructive, and show that on
the one hand Mr. McLeod’s stock operations had involved the company in
heavy obligations to his brokers, and that on the other losses in the
coal business had necessitated current advances to branch lines from
which it was impossible to get return. It appears, for instance, that
the Coal & Iron Company had been unable to pay the sums charged it for
freight, and while the full amounts had been nevertheless included
in reported earnings, the actual result had been a swelling of bills
receivable by debts which the Railroad Company was quite unable to
The general lines of the policy to be pursued were now sufficiently
clear; the more pressing claims were to be met by the issue of
receivers’ certificates, expenses were to be cut down, payments under
leases were to be amicably reduced where possible, holdings of Boston
& Maine stock were to be sold, and on the side of the bondholders the
various interests were to agree on some scheme for raising cash and for
improving the general condition of the property. There was need for
some reduction of fixed charges, but not for such radical cuts as in
1880 or in 1884.
The receivers and managers carried out their part of the work first.
Application was made in March, and again in June, for permission to
issue certificates in settlement of the most urgent claims. In May
Mr. McLeod resigned the presidency of the Boston & Maine after a
large part of the Reading’s holdings had been sold, and the same month
President Harris inaugurated a policy of retrenchment by the retirement
of four out of the five vice-presidents which the Reading had been
accustomed to maintain. In July the receivers obtained permission to
dissolve the agreement with the Pennsylvania, Poughkeepsie & Boston
Railroad, and in August the appointment of a separate receiver for
the Philadelphia, Reading & New England marked, except for the minor
matter of the Poughkeepsie Bridge, the final abandonment of New England
extension. Meanwhile an arrangement had been made with the Lehigh
Valley, whereby the payments under the lease were reduced for two years
from 7 per cent to 5 per cent, on condition that the Reading should
make extra payments at the end of that time if the Lehigh proved to
have earned more than 10 per cent in the interval; and permission
had been obtained from the Circuit Court to surrender the possession
and operation of the Eastern & Amboy Railroad and the Lehigh Valley
Terminal Railroad, both lines belonging to the Lehigh Valley in the
state of New Jersey. The Lehigh lease, even as modified, aroused much
opposition from bondholders, who rightly maintained that payments
under it constituted a diversion of funds which should have gone to
the creditors of the Reading proper. Suit was begun before the Circuit
Court, and on August 8, 1893, a formal abrogation was obtained. This
incidentally caused the resignation of Mr. Wilbur, president of the
Lehigh Valley, from his position as receiver of the Reading, and the
appointment of Mr. J. Lowber Welsh in his place.
The more complicated task of the bondholders was at first undertaken
by two committees: one for the general mortgage bondholders, of which
Mr. J. Edward Simmons was chairman; and one for the income bondholders,
led by Mr. George Coppell. Three demands were at once made: first, that
Mr. McLeod retire from the receivership; second, that the lease of the
Lehigh Valley be abrogated; and third, that the books of the company
be examined by a railroad accountant. The first and second points were
complied with, though not altogether because of the insistence of the
committees, and in the end the third was also granted, and Mr. Stephen
Little was set to work.[256]
On May 27, 1893, the managers of the company brought forward a
reorganization plan, which estimated the floating debt at $19,991,941,
and proposed to cover it by the issue of $22,000,000 collateral trust
bonds at 95. These bonds were to be redeemable any time before maturity
at 110, and the trustee was authorized “to apply the surplus income or
the proceeds of sales … of any of the securities pledged until 1898,
and thereafter so much as might be determined from time to time by the
Railroad Company, to the purchase of the said bonds at the best price
obtainable, or, if necessary, to draw the same for redemption.” General
mortgage and first, second, and third preference bonds were to be
entitled to subscribe to the amount of 10 per cent of their holdings;
deferred income bonds to 4 per cent; and stockholders to 24 per cent;
while besides the $22,000,000 mentioned, $2,000,000 additional bonds
were to be issued each year for working capital and for the acquisition
of real and personal property. General mortgage bondholders were to
fund their coupons to and including January 1, 1898, and to receive an
equivalent amount of coupon trust certificates. The rental under the
Lehigh Valley lease was to be reduced, and the Reading stock was to be
transferred for seven years to a voting trust composed of Joseph S.
Harris, E. P. Wilbur, Thomas McKean, and two others to be afterwards
named.[257] Assents of 90 per cent of the general mortgage bondholders
and of 60 per cent of the stockholders were required by the 21st of
June to make the plan effective, and a syndicate was pledged to carry
out the provisions if such assents should be obtained.[258]
An issue of collateral bonds, a reduction in the Lehigh rental, a
funding of coupons, and a voting trust: these were the propositions
which President Harris and his associates presented for the
consideration of the bondholders. There was to be no disturbance of
existing securities, no assessment, not even a reduction of fixed
charges except as these were lightened by the lowering of rentals and
by the payment of the floating debt. It is to be presumed that the
attempt to extend the Reading into New England was not to be continued,
for no provision was made for the purchase of the shares of the New
England roads hitherto held on margin, and in fact large sales of
Boston & Maine stock had already taken place; but no formal mention of
the deal was made. The lease of the Lehigh Valley was to be continued
in the hope of better times, while the reduction of rental which the
plan required had already taken place. Under ordinary circumstances
any plan such as the one outlined would have been quite futile. Where
the failure of a road is due to deep-seated causes the remedy must be
fundamental; and when a piling up of indebtedness is due to inability
to pay fixed charges the situation must be met by a reduction of those
charges even though a foreclosure sale be a necessary preliminary.
In the present case matters were somewhat different: bankruptcy had
come, not from a long-continued drain, but from a rapid diffusion of
resources in an attempt to accomplish more than the finances of the
road would permit; and a change of policy was the thing most urgently
required. But this again was not a question with which a reorganization
plan had to deal, except in so far as such a plan might smooth the
difficulties which lay in the way; and any scheme which should restore
to the company the collateral imperilled in its rash campaign, fund the
floating debt at a reasonable rate of interest, and give the management
a chance to start again, was worthy of serious consideration. It may
be observed, however, that granting all of the above, the plan before
us did not go far enough. The extensions due to President McLeod had
been in the heart of the coal regions, as well as in New England, and
one of the most important of these, the Lehigh Valley, the managers
proposed to retain. This policy, it may be said, was of very doubtful
wisdom. The attempt to monopolize the production of anthracite coal had
already been fruitful of disaster, and the possession of the Lehigh
would have constituted a continual temptation to future purchases;
while it was far from certain that even under the reduced rental the
road could have been made to pay. What the Reading needed was a period
of quiet attention to its own business, undisturbed by meddling in the
business of other people; an attention which would be sure to result in
increased economies, and was the true remedy for the lack of prosperity
in the coal industry which had driven Mr. McLeod on his wild career. It
is to this latter judgment that we must in the end conform. The plan
of President Harris was not so inadequate as might at first appear;
it accomplished much that needed to be accomplished, and it gave an
opportunity to the management of the road to retrace many of the steps
of the previous two years; but on the other hand, it did not embrace
the chance to free the Reading from all its mistaken enterprises, and
passed by an occasion which could only again occur after much suffering
and loss.
Discussion turned, however, on other features. In a circular to
securityholders in June, President Harris said: “My deliberate opinion
is that the assistance asked for by the proposed plan … is none too
great, and that there is a good probability that if it is afforded and
the plan is carried out prudent and careful management may prevent the
recurrence of such a crisis. My judgment is that the securityholders
will make a very serious mistake if they do not accept the relief
offered them, for I see no probability that the necessary assistance
can hereafter be obtained except upon much more onerous terms. I
strongly advise that the plan shall be promptly accepted.”[259] “We
cannot but regard these terms as very easy,” said the _Financial
Chronicle_. “To be sure a new collateral trust mortgage for
$30,000,000, bearing 6 per cent, is to be created, but the greater part
of this goes to take up floating debt and other existing obligations,
and will involve no increase in fixed charges….”[260] On the other
hand, it was objected that the plan was formed entirely in the interest
of the floating debt holders, income bondholders, and stockholders;
and that the management under the arrangement would have the power
to pay dividends upon the income bonds, while at the same time the
coupons on the 4 per cent mortgage bonds were being funded.[261] In an
editorial urging foreclosure proceedings the London _Standard_ said:
“That [foreclosure] will prevent holders of pledged collaterals from
getting a market for their securities, and, at the same time, bring a
good many doubtful matters connected with the finances of the company
into the light of day. It should also tend to make the ‘floating debt’
swindle less popular with eminent American financiers. At present they
pile these debts up in the full assurance that they can easily arrange
matters so as to put them, when funded, before existing mortgages. It
is for the Reading general mortgage bondholders to act promptly for
their own interests.”[262] Finally, it was objected that the plan was
in the interest of the McLeod management, and that the voting trust
was to be a McLeod organization, which would either whitewash the
ex-president’s operations, or by keeping them in the background would
virtually outlaw them.
The plan failed because the time allowed for deposits was too short.
In spite of the objections raised 31,356 general mortgage bonds and
411,218 shares of stock were deposited in twenty-five days, and it
was maintained that additional securities would surely be obtained to
make up the percentages required. The managers alleged, however, that
extension was impracticable, and announced that the scheme could not go
The year following this attempt at rehabilitation was full of the
struggles of different interests, each jealous of any concession and
working devotedly for its own hand. Prominent at this time was Mr.
I. L. Rice, the same gentleman who has before been quoted in connection
with Mr. McLeod’s operations in New England stocks. Mr. Rice had
been a member of the syndicate which had put Mr. McLeod into the
presidency, and had served as foreign representative of the company
during his régime. He had been instrumental in forming the anthracite
coal combination, and at the time of the Reading failure had been in
England raising money to finance the coal holdings then acquired.[264]
Returning from Europe upon the appointment of receivers, he examined
the Reading books with the results which have been noticed, and now
appeared as the active enemy of everything connected with Mr. McLeod,
even to the receivers who had succeeded him. In May, 1893, he resigned
the seat which he had held on the Reading board, on the ground that
the management had condoned the use by Mr. McLeod of the company’s
securities in carrying on his private and personal speculations;
in September he resigned from the income bondholders’ committee,
and attacked in a circular the McLeod régime and the succeeding
receivership;[265] and in December he applied for the removal of the
receivers, alleging that they had grossly neglected their duties to the
stockholders, and had ignored the financial transactions of Mr. McLeod
prior to their appointment.[266]
In spite of his hostility to the existing régime, Mr. Rice hoped
to rehabilitate the company without foreclosure or, indeed, formal
reorganization. The action of others was inspired by a less optimistic
view. The original suit on which receivers had been appointed had been
brought by one Thomas C. Platt; but as early as March Alfred Sully and
A. B. Rand of New York, and John Lowrie of London, holders of first
and second preference income bonds, petitioned to intervene. In July
Judge Dallas dismissed the Lowrie suit, but the petition was renewed in
September, alleging that Mr. Platt “did not file his bill in good faith
on his own behalf, and on behalf of all other holders of bonds, but
at the request and for the benefit and protection of the men who were
then managers of the Philadelphia & Reading Railroad Company and the
Philadelphia & Reading Coal & Iron Company, and that the suit was not
being pressed with due diligence.”[267]
All this time the receivers had been busy on a plan, which they
presented in January, 1894. By leaving out of consideration some
$5,000,000 of car trusts they arrived at the figure of $12,500,000
for the floating debt. This they proposed to cover by the issue of
$6,000,000 in 6 per cent ten-year trust certificates, based on the
stock of coal on hand, and by $10,000,000 in 5 per cent collateral
trust bonds then in the treasury of the Reading Company. They hoped
that a balance of $2,500,000 would then remain available for working
capital or other purposes. General mortgage coupons were to be funded
for five years, although the receivers planned to have a syndicate
formed to purchase at par for cash the coupons as they matured, giving
to the bondholders in each case the choice between receiving money or
coupon trust certificates for the interest due. There was to be no
formal reorganization, no cuts in charges, nothing but a provision for
the floating debt and for a temporary funding of interest payments;
and this was the more feasible because the Lehigh Valley lease had
been by this time abrogated and the New England extensions definitely
abandoned.[268] It will be remembered that to the plan of May, 1893,
it had been objected that the provisions contrived to bring in the
floating debt ahead of previously existing liens, and were a premium
on a kind of financial juggling too common among American railroads.
This plan, therefore, avoided a new issue of bonds, and used only
what the treasury already possessed. The coal notes were obviously
unobjectionable, and served at the same time to utilize the unsalable
stock which the management had earlier accumulated. If their value
should prove small the loss would fall on the holders of the floating
debt and not on the owners of the general mortgage bonds; while the
return to the company was assured by arrangement with Drexel & Co.,
Brown Bros. & Co., and J. Lowber Welsh on the one hand, and the Finance
Company of Pennsylvania on the other. On the whole this plan was gentle
even to tenderness with the creditors of the road, and its failure
revealed clearly the bondholders’ state of mind. The holders of the
general mortgage refused to fund their coupons for five years, they
refused to fund them for two years, and they insisted that foreclosure
proceedings should be instituted unless they should receive immediate
payment of their interest. “In view of this,” the receivers were
forced to remark, “it would be idle for [us] to continue the efforts
to readjust the affairs of the company….”[269] The trouble with the
receivers’ scheme was not that it demanded large concessions,—much
larger had been asked and granted in 1887,—but that the general
mortgage bondholders felt that on the one hand the road was very nearly
earning fixed charges, so that in the contingency of a foreclosure
sale their interests would be reasonably safe; and on the other that a
demand for concessions so soon after a complete reorganization of the
property was an irritant which might well be resented even at the risk
of some pecuniary loss. Fortunately the assent of the bondholders was
not necessary to the issue of the coal trust notes, and the receivers
executed them under the authority of the court, practically as proposed.
In April, 1894, Mr. Simmons, chairman of the old general mortgage
bondholders’ committee, resigned his position, and Mr. Fitzgerald,
president of the Mercantile Trust Company, was chosen to succeed him.
The committee presently issued a notice which, after reviewing its
early activity, went on to say that it had believed it prudent to
give the receivers every opportunity to familiarize themselves with
the affairs of the company, but that in its judgment the time had
come for action to enforce the rights of the bondholders under the
mortgage.[270] In May, 1894, a new general mortgage committee was
organized, with Mr. F. P. Olcott as chairman, designed not directly
to oppose the Fitzgerald Committee, but to hasten the rehabilitation
of the property. The committee prepared a bondholders’ agreement
calling for the deposit of general mortgage bonds, and in a statement
of their position said: “Difficulties in the way of a foreclosure and
reorganization thereafter are exaggerated; if any danger is wrought by
such foreclosure it will fall upon the junior securities and not upon
us.”[271] Lastly, at this time, there was a committee headed by Mr.
Earle, president of the Finance Company of Pennsylvania.
The first matured suggestion after the failure of the receivers’ plan
appeared in what was known as the Olcott-Earle Agreement, published on
September 25, 1894, which seems to have been in many respects a revival
of that scheme. It proposed to cover the floating debt by the sale
to securityholders of $10,000,000 collateral trust bonds, heretofore
held in the treasury, and to fund coupons on the general mortgage 4s
for five years. A syndicate agreed to advance $9,000,000, or as much
thereof as might be needed, to buy the coupons as they should mature.
The stock was to be held and voted by the reorganization committee
until all the money advanced by the syndicate should have been repaid;
that is, till June, 1898; a second syndicate guaranteed the sale of the
collateral bonds at 70; and the preferred bondholders were asked to
forego any claims for interest until all the general mortgage coupons
should have been retired and cancelled. Certain other details are of
interest. The collateral bond issue was to be taken up by the preferred
bondholders and stockholders, each individual subscribing to 10 per
cent of the par value of his holdings; but the bondholder might, if
he preferred, pay 3 per cent of the par value of the securities he
owned and receive nothing, instead of paying 10 per cent and getting
a collateral bond. Securityholders were given 60 days in which to
assent, and if at the end of that time the number of assents did
not amount to practically all the interests involved, the committee
proposed to reorganize by foreclosure for the benefit only of those who
had assented to the plan; while for the future the committee was to
provide by agreement with the railroad company that the latter should
call an annual meeting of general and income mortgage bondholders and
stockholders, at which bondholders as well as stockholders should vote
in proportion to the par value of their holdings.[272]
It will be observed that the source of relief sought by this plan
was precisely that of the receivers’ plan earlier described. Certain
changes, however, of considerable importance were introduced. The
subscriptions to the collateral issue were made distinctly obligatory,
and an alternate assessment was provided; greater use was made of
syndicate assistance; some voting power was given to the bonds; and a
voting trust was added to ensure permanency of control to the designers
of the reorganization till their work should be complete. On the whole
there were still few concessions to creditors, and indeed could be
few. Ten coupons of the general mortgage were to be funded, though it
was made easy for the bondholder to get cash if he preferred it; the
provisions concerning subscriptions to the collateral bonds were rather
more burdensome than before; and the voting trust, while redounding to
the ultimate advantage of creditors, was only indirectly a concession
to their demands. The grant of voting power to the bondholders would
have been a great concession, but the wording of the clause was vague
and probably little practical effect would have ensued. As in the
previous plans, no particular attention was paid to the reduction of
fixed charges.
So much for the provisions of the plan. It was a hopeful innovation
for the suggestions it contained to come from holders of general
mortgage bonds, and seemed to give some evidence of a change of heart;
especially since the Olcott Committee did secure the assent of a larger
proportion of the issue than had accepted either of the propositions
before brought forward. The Fitzgerald Committee strenuously protested,
still insisting on the advisability of foreclosure; and further
objections came from Mr. Rice and from the Hartshorne Committee.
Nevertheless, the general mortgage as a whole gave its consent, and
ultimate shipwreck was due only to the abstention of the income
mortgage bonds.[273] It is not surprising that the income bondholders
should have felt that the plan had little in it for them. They had
been given no voice in its making,—their wishes had at no time been
regarded. During the whole reorganization the question had been of the
terms to which the general mortgage bondholders would consent, and
the only sign of the existence of junior liens had been an occasional
fearful inquiry as to what would become of them under foreclosure;
until now the combination of a voting trust with the expenses of a
syndicate reorganization, and an assessment upon them and upon the
stock, touched the limit which they would stand. There was, moreover,
at this time no question of the wiping out of the value of their
holdings. The preamble to the Olcott-Earle plan stated that the annual
charges were $10,477,560 and that the net earnings for 1891 had been
$10,977,398; thus showing that something was left for the junior
securities even after the payment of interest on all prior and general
mortgage liens. It seemed also barely possible that the difficulties of
a foreclosure, with the danger under the laws of Pennsylvania of losing
the coal properties of the company, might secure better terms for the
holders of junior obligations in case they should withhold their assent.
Early in January, 1895, the following official notice was issued: “The
plan of readjustment, dated October 1, 1894, has not been assented
to by a sufficient number of income bondholders and stockholders to
make the same effective. The committee now hold over a majority of the
general mortgage bonds, and have, in accordance with the bondholders’
agreement of May 7, 1894, and their circular of October 1, 1894,
notified the trustees of the general mortgage to bring suit for the
foreclosure thereof … as expeditiously as possible.”[274] Suit for
foreclosure was brought March 2 in accordance with the announcement,
and the Junior Securities Protective Committee, an organization with
purposes indicated by its name, was allowed to intervene.
Meanwhile the Fitzgerald and Olcott committees together prepared and
brought forward the final reorganization scheme. The conditions now
differed from those with which any previous plan had been confronted,
in that it was no longer necessary to seek for as little change as
possible, and a broader, more radical reorganization was in point.
“Unless,” began the scheme, “the managers shall decide to proceed
without foreclosure or sale, the properties of the existing Reading
companies will be sold and successor companies will be organized
under the laws of Pennsylvania, and the stock and securities of these
successor companies will be vested in a new company formed, or to be
formed, under the laws of Pennsylvania or of some other state.”
There were to be issued:
General mortgage 100-year 4 per cent gold bonds, $114,000,000
Non-cumulative, 4 per cent first preferred stock
(subject to an increase of $21,000,000), 28,000,000
Non-cumulative 4 per cent second preferred stock, 42,000,000
Common stock (subject to an increase of $21,000,000), 70,000,000
If at any time dividends of 4 per cent should have been paid on the
first preferred stock for two successive years the company might
convert the second preferred stock at par, one-half into first
preferred and one-half into common stock. These new issues were
ultimately to retire all outstanding securities, to provide for
expenses of reorganization, and to go for new construction, additions,
betterments, etc., in the succeeding years. Since, however, it was
obviously impossible to cancel prior liens before maturity, sufficient
general mortgage bonds ($44,550,000) were reserved from immediate
issue to retire these when they should fall due. This left new general
mortgage bonds with four classes of stock against old general mortgage
bonds with three classes of preferred bonds, common stock, and deferred
incomes; and, as might be expected, new general mortgage 4s were given
for the old general mortgage, second preferred and common stock went
for preference bonds, and new common stock for old common stock and
deferred income bonds. Certain cash payments were made on the general
mortgage, and $4,000,000 of the new issue were sold to a syndicate;
but on the whole we may say that the prior liens and general mortgage
bondholders occupied the same position in the new company which they
had occupied in the old; that the income bondholders exchanged a bond
with a lien on income for a stock with a right to dividends; and that
the floating debt, syndicate, and other expenses were given equal
rights with the general mortgage.
No additional mortgage was to be put upon the property, nor was the
amount of the first preferred stock to be increased, except with the
consent, in each instance, of the holders of a majority of the whole
amount of each class of preferred stock, given at a meeting of the
stockholders called for that purpose, and with the consent of the
holders of a majority of such part of the common stock as should
be represented at such meeting, the holders of each class of stock
voting separately; neither was the amount of the second preferred
stock to be increased, except in a similar way. These careful clauses
made some provision for future capital requirements necessary which
should be independent of the consent of the stockholders at any time;
and $20,000,000 general mortgage bonds were accordingly set aside,
to be issued in amounts not greater than $1,500,000 in any one year
for future construction, equipment, and the like. Additional general
mortgage bonds were provided to retire Philadelphia & Reading Terminal
and Coal & Iron Company bonds up to the sum of $21,000,000.
The floating debt, estimated at $25,150,000, was provided for in part
by assessment, and in part by the sale of securities to the syndicate
for cash; 20 per cent being levied on first, second, and third
preference income bonds, 20 per cent on the stock, and 4 per cent on
the deferred incomes; while the syndicate agreed to take $4,000,000
of the new general mortgage bonds and $8,000,000 of the new first
preferred stock. The assessment was expected to yield $20,862,289, and
the syndicate to contribute in cash $7,300,000; leaving an estimated
cash balance of $3,000,000. In addition, the syndicate (Messrs. J. P.
Morgan & Co., J. Kennedy Tod & Co., Hallgarten & Co., and A. Iselin
& Co.) undertook to underwrite the payment of the assessments on the
income bonds and stock, and to guarantee the extension or payment of
the improvement mortgage and Coal & Iron Company bonds, most of which
were to mature in the following two years. No great reduction of fixed
charges was of course to be expected. The cancellation of the floating
debt effected, nevertheless, a certain saving, so that charges for
the future were estimated at $9,300,000 as against net earnings of
$9,839,971 in 1894; while the refunding or extension of maturing bonds
was looked to for a reduction of $500,000.[275]
It is plain that this plan favored the general mortgage bondholders
to the last degree, and admitted them to the reorganized company with
absolutely no sacrifice save that of the addition of $4,000,000 to the
total general mortgage issue. They funded no coupons, they suffered
no diminution of interest and no shaving of principal; they paid no
assessment; and as an additional protection to them, the provision was
inserted that all classes of stock of the new company, except such
number as might be disposed of to qualify directors, were to be voted
by three voting trustees, of whom J. P. Morgan and F. P. Olcott were
designated in the plan. It has seldom happened in any reorganization
that a mortgage similar to the general mortgage in this case has been
able to take and hold so strong a position.[276] The secret lay in
the fact that the road had been earning the interest on the general
mortgage bonds; and that under these circumstances no interest or
combination of interests could force the holders to accept less than
payment in full of all their claims. The situation could never have
arisen in the earlier reorganization; it could never have occurred
where a reduction in annual payments was required for the salvation
of the property, or even where the amount of cash to be raised to pay
the floating debt was so large that junior securityholders would have
relinquished their holdings rather than pay the necessary assessments.
In this case none of these conditions existed, and all the burden
was thrown on the holders of junior mortgages and stock. It must be
remembered, also, that though in ordinary cases the difference between
the income bonds which the old first and second preference bondholders
surrendered and the preferred stock which they received would not have
been very great, yet here the provisions of the old income mortgage,
which forbade the deduction from net earnings of any interest on bonds
subsequently created until its interest should have been paid, rendered
the loss more serious.
To sum up, the holders of junior securities and stock paid the expenses
of reorganization, paid the floating debt, lost what right they had to
interest before the settlement of interest on subsequently created
claims, and got only stock, and for the most part second preferred or
common stock at that. The general mortgage bondholders got new 4 per
cent bonds, plus 12 per cent, or 2 per cent in cash, had no greater
interest charges ahead of them, and without paying any assessment or
making any concession, except to allow the immediate increase of the
amount of their issue by $4,000,000, and thereafter by $1,500,000 per
year, secured a lien on the assets of the company; a privilege which
was, moreover, extended to undeposited as well as to deposited bonds.
The company itself was dissolved, but the new corporation which took
over its assets enjoyed, with slightly decreased charges, freedom from
the old floating debt and from the extensions and combinations which
had caused the floating debt of the old management, and seemed besides
a strong financial backing.
In May, 1896, Judge Atchison of Philadelphia signed the decree for
the foreclosure and sale of the property of both the Railroad and the
Coal & Iron Companies, and on September 23 the sale took place, C. H.
Coster, of J. P. Morgan & Co., and Francis Lynde Stetson paying an
aggregate of $20,500,000 for the whole estate.[277] The sale ended
the life of the old Reading charter; and in view of the constitution
adopted for the state of Pennsylvania in 1871, which forbade any
railroad owning more than 30,000 acres of coal land, some device had
to be sought whereby the Philadelphia & Reading Railroad and the
Philadelphia & Reading Coal & Iron Companies could hold together.
Diligent search revealed the existence of the “National Company,” a
corporation chartered in 1871 by special act of the legislature of
Pennsylvania at the very time when the new constitution was under
consideration. This company, originally the Excelsior Enterprise
Company, had power “to purchase, improve, use, and dispose of property
to contractors and others and for other purposes,” with privileges
fully as broad, it was said, as those enjoyed by the Reading before
foreclosure.[278] The National Company now changed its name to the
Reading Company, called a special meeting, increased its stock to
the amount required by the plan of reorganization, and, jointly with
the Coal & Iron Company, authorized a mortgage to secure bonds up to
a possible amount of $135,000,000; to be secured on the property of
both companies, including the stock and bonds of the Railway Company.
Meanwhile the Philadelphia & Reading Railway Company had been organized
to succeed to the property and franchises of the old Philadelphia &
Reading Railroad Company,[279] with a capital stock of $20,000,000 in
$50 shares. The charter of the Coal & Iron Company was preserved in
spite of the foreclosure sale.[280] The next step was for the Reading
Company to exchange its bonds and stock for the general mortgage bonds
and stock of the two minor companies in the proportions already agreed
upon, and to deposit the securities so obtained in its treasury;
leaving the prior liens the only direct obligations of either company
in the hands of the public. This meant, of course, absolute control
of both companies by the Reading Company; and in the future, when
the prior liens should mature, it was to mean the replacement of all
outstanding obligations by the obligations of the holding company.
Both the Railway and the Coal & Iron Companies retained their separate
organizations; the belief was that there was no merger which might be
attacked before the courts; that it only happened that one corporate
individual had invested in both Railroad and Coal Company shares and
proposed to vote this stock, as was lawful, to further the policies of
which it approved.[281]
Representatives of the reorganization managers laid an elaborate
defence of the legality of these operations before Attorney-General
McCormick of Pennsylvania, and on January 2 secured an opinion
confirming the validity of the charter of the Reading Company. “After
due consideration,” said Mr. McCormick, “I reach the conclusion,
most reluctantly, that the Commonwealth of Pennsylvania cannot now
successfully attack the chartered rights of the Reading Company…. My
view of the whole matter is that the charter of the company authorized
it to do the kind of business in which it engaged prior to January 1,
1874, which business was of the same general character as that in which
it proposes to engage for the purpose of controlling the stocks of the
Railway Company and the Coal & Iron Company.”[282]

Like the Baltimore & Ohio and the Erie, the Reading has benefited
largely from the favorable business conditions of the last decade.
The combined income of the three Reading companies has grown from
$48,422,971 in 1898 to $95,715,088 in 1907.[283] Earnings on the
Philadelphia & Reading Railway alone are now nearly as great as the
combined income of the three companies at the earlier date. Net
receipts were $13,586,710 in 1898 and $29,190,316 in 1907; and the
surplus over all payments rose from $1,376,420 to $8,741,454 between
those years. It is important to notice that this showing does not
depend primarily upon the anthracite business. Not only has the
carriage of general merchandise increased until it affords to the
railway a return almost equal to the earnings on coal, but in the coal
business itself bituminous has assumed an importance nearly as great
as that of its harder rival. The Coal & Iron Company still concerns
itself almost entirely with anthracite, and has accordingly been more
affected by special causes. The strike of the miners in September
and October, 1900, and again from May to October, 1902, checked the
growth in production for a time; but the increased demand for domestic
consumption has made possible an increase in output from 4,849,002
tons in 1897 to 10,034,713 in 1907. Increasing business has stimulated
improvements. Over $15,300,000 have been withdrawn from income by the
Philadelphia & Reading Railway Company for this purpose between 1896
and 1907; and over $10,000,000 have been invested from earnings by
the Coal & Iron Company during the same time in colliery improvements
alone. Maintenance charges have been ample. Whereas $1300 to $1500
per mile of single main track are sufficient for normal repairs upon
a trunk line, the Philadelphia & Reading Railway has spent over $2600
per mile of line for the last seven years, and over $1700 for the three
years preceding. As much as $73 has been spent in a single year for
average maintenance per freight car, $609 in maintenance per passenger
car, and $3244 in maintenance per locomotive. In consequence of these
repairs and of renewals upon a considerable scale, the average value of
all locomotives has increased between December 1, 1896, and June 30,
1906, from $4906 to $8393; the average value of freight cars producing
revenue from $383 to $622; the average value of steam colliers and tugs
from $41,533 to $55,451; and the average value of barges from $7930 to
$21,074. The average freight train load was 194 tons in 1897 and 403
tons in 1907. Ton-mileage has increased during the period 159 per cent
and freight train mileage only 27 per cent.
It is true that no great sums have been spent from capital account.
$5,137,825 in car trust certificates were outstanding on June 30,
1907, and $5,608,000 in general mortgage bonds have been sold and
the proceeds invested principally in new equipment, but this is all.
Improvements have been made mainly from earnings, and fixed charges
have not had to be increased. In fact, the voting trustees stated at
the expiration of their trusteeship in 1904 that, eliminating the fixed
charges created since December 1, 1896, on account of the acquisition
of additional properties and interest upon the additional mortgage
bonds issued for the purchase of equipment, the fixed charges of the
Reading system were $1,018,065 less for the fiscal year ended June 30,
1904, than they were for the fiscal year ended November 30, 1896.[284]
It thus comes about that the finances of the Reading, while not as
secure as could be desired, are yet in better shape than they have been
for thirty years. Fixed charges, taxes, and operating expenses[285]
took 86 per cent of gross income in 1907, but a decline of nearly
$12,000,000 in net earnings must precede a default on any bonds
outstanding. To this margin should be added the considerable amount
by which maintenance expenses now surpass normal figures. An initial
dividend was declared on the Reading Company first preferred stock in
August, 1900; on its second preferred in October, 1903; and on its
common in February, 1905. Four per cent is now being paid upon all
classes of stock.
Large amounts of Reading stock are held by the Baltimore & Ohio and by
the Lake Shore. The Reading has again bought control of the Central
of New Jersey, and owns besides a steamship line and something under
500 miles in other subsidiary roads. Its large earnings, its troubles
with its mine employees, its influence over the supply of a necessity
of life, and the possibility of discrimination which its control of
both railroad and coal properties affords, have made it a target for
legislative attack from state and national governments. Action was
begun by the Department of Justice in 1907 to dissolve the merger
between the Reading and the Central of New Jersey. In June of the
previous year the so-called “commodity clause” of the Hepburn Act
forbade any railroad company to transport in interstate commerce any
article except timber and the manufactured products thereof which it
should have produced, or in which it should have any interest, except
those products necessary and intended for its own use in its business
as common carrier. The legality of the Reading’s position in these
matters is yet to be decided by the courts. The student may well doubt
whether legislative action will ever succeed in preventing the common
ownership of the Reading railroad and mining interests. What is more
probable is that a strict governmental control will come to be imposed.
Against this proper development no appeal to legal technicalities will