result must lower dividends, where they are not paid in part out of capital, the purchaser of the present day will only consent to pay a price corresponding to the actual profits of the united concern.

I was anxious to have light thrown on a practice which seemed utterly at variance with the provision of the Act of 1844; and in the report which, as Chairman, I drew up, and which was by mistake printed with the evidence, and has been distributed, though, from the close of the session before it could be submitted to the Committee, it did not, of course, receive their sanction,* there occurs the following passage:-"It is established by the most saisfactory evidence that, in the case of many Companies, large additions have been made to the nominal capitals, beyond what has been required by the actual outlay, through the creation of shares, not at the current market price, but at par. To take one of the most common operations of the successful Companies, if, for instance, shares being at cent. per cent. premium, a million were required for an undertaking, and to raise that million, shares for a million were created, in order to enable the proprietors to divide among themselves another million in the shape of premiums, it is clear that the nominal capital exceeds by £500,000 that of which the actual outlay required the creation; and consequently, that a dividend is made on a sum exceeding by so much that outlay. In this way the object of parliament, in subjecting Companies to a revision of fares when the dividends should equal or exceed 10 per cent., could always be defeated. Mr. Hudson, a member of your Committee, specified several * See p. 158.

instances in Companies with which he was connected, where large additions were made to the nominal capitals, by these and other means. For instance, he states that by an arrangement between the Great Northern* and the Great North of England Railway, it was stipulated that the latter should receive 10 per cent. on every £100 share till 1851, when they had a claim to be paid off in 4 per cent. stock, at £250 a share; thus creating a new nominal capital of £250 for every £100. He states also that to meet a purchase by the Newcastle and Darlington Company, new shares were issued to the proprietors at par, when they were at a premium of £20. It is obvious that the money required could have been obtained by a much smaller issue of shares, had the £20 premiums, as well as the £25 shares, been applied to the purposes of the Company, and not divided as a bonus among the proprietors. This practice of swelling the nominal amount of stocks beyond the actual outlay on the Lines, which has extensively prevailed, was recently noticed, in reports presented by Mr. Ellice, from the Select Committee on group 58 of Railway Bills, in which it is stated, that in the Hull and Selby Purchase Bill, the actual outlay and estimates for further works is £955,363, while the money to be raised by the Bill is two millions, exceeding the outlay and the engagements of the Hull and Selby proprietors by the large sum of nearly a million; and that in the Great North of England Railway Purchase Bill, the actual outlay and estimate for additional works is £1,496,796. 18s. 4d.; the proposed capital £4,000,000; exceeding the actual outlay

* Sic in Minutes of Evidence, p. 251. Instead of Great Northern, read Newcastle and Darlington, the Company alluded to.

D

and engagements of the Great North of England proprietors, by the sum of £2,503,003. 1s. 8d." After referring to the evidence of Mr. William Reed, who stated that the French Government rejected the application of the Paris and Rouen Railway to be allowed to raise money by the issue of new shares to the proprietors at par, on the ground that the rights of the future proprietors would be compromised by the issue of shares at par, when at a premium, the report proceeds to notice the defence set up for the practice, by some of the Railroad proprietors in this country, that it is immaterial whether the money required by the Companies be raised by the creation of new stock or by loans, and whether the shareholders receive increased dividends on smaller capitals, or smaller dividends on larger capitals. "If," says the report, "the rate of dividend is to determine whether the scale of fares shall be subjected to revision by the Government on behalf of the public, it is of the very first consequence that the capitals should correspond with the original outlay. It may be the same thing to permanent proprietors, whether they pocket large bonuses, and increase their capitals by sums exceeding the money laid out on the roads, by the amount of such bonuses, and receive proportionably smaller dividends; but it is a very different thing to the public, if the scales of fares are to be governed by the rate of dividend, whether they pay high fares or low fares."

Much evidence was given to show the immense importance of low fares with reference to the industry of the country; and it appeared that in not a few instances Railways had found it for their interest to submit to considerable reduc

tions. The object of the Railway proprietors when unchecked by parliamentary restrictions, is of course to adopt that scale which shall afford to them the highest return without reference to any other interests than their own ; the object of the legislature ought to be to enforce the adoption of the lowest scale compatible with a suitable return on the capital invested. But here we are met by the difficulty to which I alluded in the publication of 1846: the criterion by which the title to remuneration is to be determined. A Company have laid out their money injudiciously, their purchases have been ill advised, more economical processes in constructing Railways have been discovered since they completed their undertaking; difficulties, which at one time could only have been overcome at great expense, are now surmounted with comparative ease at much less cost-in fact, a Line which cost £50,000 a mile, may now be constructed for 15 or £20,000. It may happen that a Company could obtain a sufficient return from low fares, calculating on an outlay of £15,000 or £20,000, but not on an outlay of £50,000 per mile. But this is only what is constantly taking place in everything else. The manufacturer, for instance, always assumes the probability of mechanical improvements, which will cheapen the cost of production, and he knows that his original outlay will not enable him to command a higher price for a commodity than can be obtained by a rival, who at much less outlay can produce it equally good. On this point, Mr. Robert Stephenson, in his evidence,* observes very significantly, "It may be said, that

* Second Report Railway Acts Enactments, Min. of Ev. p. 197.

the cost of the Railway has, in one point of view, nothing to do with the fares; but in another point of view, it has a great deal to do with the fares. I will take the London and Birmingham Railway, that has cost £50,000 a mile; if it could have been made for £25,000 a mile, if labour and other things had been half the price, there is no doubt that they could have afforded to carry passengers much cheaper. But having spent £50,000 a mile in constructing the Railway, when once it is opened, the question, what the fares shall be to produce the maximum result, is a totally different thing, irrespective altogether of the cost; because you increase your income, by diminishing your fares up to a certain point; and beyond that point, if you go on diminishing the fares, you diminish your income." During the late crisis, Companies were obliged to raise money to pay their contractors, at from 10 to 30, and even in some instances, it is said 50 per cent. discount. Is this to be a ground for raising fares? The South Eastern Company, have, it is said, expended £7,934,876 up to July last. It may be that their funds have been expended very injudiciously are we to make no distinction between wise and imprudent expenditure? When Mr. Macgregor, the Chairman, gave his evidence in 1846, They charged, he said, by ordinary trains for the first class, 2.05d. per mile; for the second class 1·36d.; for the third class, 82d. of a penny. From the circuitous nature of their Lines, these fares, though apparently

low, were in many cases actually high. Thus, for instance, Maidstone, which, by the coach-road, is only 34 miles from London, is 56 miles by the South Eastern. But to take Dover at Mr. Macgregor's then rates, the ordinary