I is volume was not part of the lection at time of its purchase, remains the property of Pro- ssor Seligman ■ MAY, 1930 PAST TtKD PRESENT VIEWS OE RAILWAYS. ALEXANDER GORDON, Esq. TEIIPUS OMNIA KEVELAT. LONDON: W. H. DALTON, COGKSPUR STREET. imcccr™. {One Shilling.) PAST AND PRESENT VIEWS OF RAILWAYS. I BELIEVE I am the only member of the Institu¬ tion of Civil Engineers who, from the time of the introduction of Railways in this country for passen¬ ger traffic, has entertained, and who still entertains, opinions adverse to the introduction and progress of the system which has been established by unpre¬ cedented monopoly, maintained by millions of money, and is now tottering to its fall, because people find that they have not only been disap¬ pointed, but have been desperately duped. My position in this matter has been one to try any man’s moral courage, and it has been main tained with a determination which many of my esteemed friends have called obstinacy. My opinions on railway matters have always been much fortified by those of Mr. Thomas Grahame, the successful contender for canal in¬ terests when so much injured by railway mono¬ polies. At the outset I had the encouragement of that great and sound engineer, the late Mr. Tel- ford; and having stood alone as an engineer for so long a time, I am now enabled to make obvious the soundness of mj opinions, and to exhibit, in naked truth, “ the enormity of the deception.” A reference to the following quotations, ex¬ tracted from my statements printed and published, some of them as many as seventeen years ago, will shew that I am entitled at least to credit for con¬ sistency. Let my writings and the present condition of railways he examined hj any candid inquirer, and it will he found that seventeen years ago, and again fifteen years ago, I shewed that the reported suc¬ cess of the Liverpool and Manchester Railway (which has been swallowed up by amalgamation in the London and North Western) was the principal foundation of the monstrous evils from which the countrv now looks for relief; that the Directors of that far-famed Company deceived themselves, paid dividends out of borrowed money, increased their capital, “cooked their accounts;” and that I de¬ clared that debt would ere long “swamp the w'hole” railway affair. Other views, more properly belonging to an engineer’s inquiry, were broadly advanced, and will yet obtain attention, but it is sufficient here to refer to those features which are more strictly political and commercial, and which have, during so many years, been almost entirely neglected, not only by pro¬ moters of railways, but by the legislature, and even 5 by the Railway Commissioners, whose duty it was to watch over them. “ I have never overlooked or undervalued the See “ Gordon real benefits which may and must arise fi'om edge Moonpoiiesand railways, when established under those peculiar, sures,” p. 4i. but rarely-occurring, circumstances, to which they “ ’ ai’e especially applicable.” Neither have I over¬ looked the political, moral, and commercial bear¬ ings of the matter. It is more than seventeen years since I wrote, with reference to the Liverpool and Manchester Railway, “We care not for dividends—they are often de-See“joumai . oil n 1 • n 1 of Elemental ceptive: nor tor what they call their prohts—they Locomotion,” ^ , p. 16. 1832. are olten made up in an erroneous way by com¬ panies, and can only be ascertained by the public after a long course of time.” The Company say, “ the interest of money invested is not an expense.” We contend that it is. A great part of it has to be paid for borrowed money, and “The railway will not last for ever, and proprietors will not receive dividends for ever.” We “ Caution the id. 18.32, public how they embark their capital in what will inevitably result in loss and disappointment" The following quotations from my former puh- lications will more clearly shew both my position and that of the public as regards railway mat- From “Gordon “So ardent are railroad projectors, that railway on Locomo- schemes are now promulgated which will require an ex- EMon.pS^ Tegg, 1834. 6 penditure of thirty millions,* if the mania be not checked. We cannot enumerate the various lines; but point to the ‘Cramford and High Peak Eailway,’ as a memento. Jfone of ‘the great commerce announced in the first account has ever passed on it for the whole distance, and no carriage whatever, except that which conveyed the committee on their triumphant tour at its opening; all the trade having been confined to that of a little coal at the southern end.’ “The line between Liverpool and Manchester cer¬ tainly presented a combination of circumstances more favourable than any other line of communication in the kingdom, where goods and travellers pass in both direc¬ tions. Liverpool may be considered second only in com¬ mercial importance to London; and Manchester teems with a busy and industrious manufacturing population. The productions of other countries arrive at the one, are manufactured at the other, and returned over the same line for exportation to every quarter of the world. Such constant passage of goods demanded the best and quickest mode of inland communication; and a splendid line of railway was the consequence. How far that railway, favourably circumstanced as it is, has been profitable, cannot be gathered from the published accounts of a company. That it has not been profitable to the degree which would warrant an outlay of 1,200,000Z. upon thirty- one miles of line, is sufficiently proved by the knowledge that their dividends of 8 per cent per annum are not larger than the profits which horse coach-masters made upon the turnpike-road, even after paying a heavy duty to Government; and who are beat out of the field of competition by a company, with the advantage of * Fifteen years afterwards Parliament had authorised the raising of 334,287,595/.!!! 7 an immense capital, lenient taxation, and a secure monopoly. “ We shall not find, however, that this corporation have, had any sufficient success to warrant a payment of 8 per cent; and as this is the point of conviction with the larger portion of the community, it may be well to examine It. “ The anticipated and the actual cost of construction may he compared thus:— “In December 1825 the prospectus was published, with an estimate of cost, allowing for all possible con¬ tingencies, of 510,000/. “ In April 1826 the estimates were sworn to as more than amply sufficient in the House of Lords. “ In May 1826 the first Report was issued, wdien the Committee informed subscribers that the work may be done for much less than 510,000/., the sum estimated. In the beginning of 1829 Government advanced the Company 100,000/. on loan, at ^ per cent interest, on security of the three last instalments. “ In March 1828 a Report was issued, when the Directors state that the railway will cost something more than estimated, but that there is no doubt that the wliole will be completed out of the capital, 510,000/., and the 100,000/. loan, in all 610,000/. “On the 18th of March, 1829, the Directors report that they liad obtained powers, by Act of Parliament, to raise 127,500/. in shares, ‘ to provide arrangements for carrying on a road proportionate to the magnitude of the anticipated traffic; that having expended, in forming the road and works, all the first seven calls, and the 100,000/. borrowed from Government, they had applied to be allowed to expend the remaining three calls, on which the Government loan was secured; that they had got one of the calls relieved, but that after consulting Mr. Telford 8 as to the future cost of the work, which Mr. Telford reported would require much beyond the resources of the Company, Government had refused to relieve the remain¬ ing two calls.’ They characterised Mr. Telford’s Eeport as ‘ a Document than which one more abounding with in¬ accuracies and erroneous statements can hardly be con¬ ceived!!’ They state, however, that they had despatched a deputation to London, when they explained ‘ the in¬ accuracies in Mr. Telford’s Eeport,’ and got the ninth instalment relieved. “ In August 1829 the Directors report that the work may probably be finished within the cost, and that it will not he necessary to call up the last 10 per cent, either on the road subscription of 510,0001., or on the carrying- trade subscription of 127,5001. Is the Eeport such as to prove the gross ‘ inaccuracies’ of Mr. Telford’s Eeport, and to justify the comments of the Committee on the conduct of that celebrated engineer? It is as follows:— ‘ The funds at the disposal of the Directors will be suffi¬ cient for this purpose (to form a double line of railway between Manchester and Liverpool), without calling for the last 10 per cent, either on the original capital or on the quarter shares, until it he required to provide such moving power on a large scale, as, after ample experi¬ ment, shall be deemed the most eligible for purposes of the railway; and as a revenue from the carrying of passengers, and, to a certain extent, of merchandise and coal, will accrue in the mean time, it will remain for the proprietors to determine how far the funds so derived shall be appropriated to supersede the necessity of call¬ ing for the whole of the subscribed capital. The cost of the railway and its carrying establishments was, there¬ fore, on 10th of August, 1829, limited to 673,750/., or at the very utmost, supposing an enormous trade (ten times greater than has been realised), a sum of 735,500/. 9 “In March 1830 the Directors report, that instead of 673,750Z. sterling, they find the railway and works will cost 820,000Z., in consequence, as they state, of the estimate being erroneous, and below the amount at which it had ‘ been found practicable to execute the work.’ “In June 1830 Mr. Booth, the treasurer, gives the details of how the 820,000Z. had been, and was to he expended, as follows:— 1st, Expended till 31st May, 1830 . £739,165 5 0 2d, Outstanding debts . . . 7,500 0 0 3d, to be outlaid on railway, engines, waggons,warehouses,inachinery,&c. 73,334 15 0 £820,000 0 0 “ In March 1831 the Directors state that they Intend to raise altogether 865,000/. “In April 1831 the Directors recommend the making of a new tunnel at Liverpool, which, they say, will cost 100,000/., and state that thereby the omnibus establish¬ ment may be saved, and that this saving will he equal to the interest of the 100,000/. to be laid out; and were authorised to apply to Parliament for power to raise this sum. “ In 1832 the Directors announce that they have given up omnibus establishments, but are still to proceed with the tunnel; the interest upon the cost of which was to have been paid out of the saving thus already efiected. They say nothing of the capital account, but by a state¬ ment appended it appears that instead of 820,000/. or 865,000/. they have expended on the railway and works 992,054/. 3s. 6rf., besides outstanding and unpaid debts. “ Such is a retrospect of the outlay of the Liverpool and Manchester Kailway affairs, taken from their own 10 printed Reports, up to the end of the year 1831. It is now stated that the capital expenditure amounts to nearly 1 , 200 , 000 /. “ But it is my duty also to shew, that there has been an error of magnitude in the calculations for the annual expense of conveying the estimated traffic on the rail¬ way. “ Mr. Walker, civil engineer, and Mr. Eastrick, civil engineer, from documents handed to them by the Direc¬ tors, calculated, on a regular trade of 4000 tons of pas¬ sengers and goods, cattle and coals, passing thirty miles along the railway daily, or 1,248,000 tons conveyed along the line annually, upon the 313 working days of tlio year, and reported that the outlay requisite to accom¬ plish this would he,— Outlay for a speed of ten miles per hour £90,963 14 0 Requiring an annual expenditure of.... 58,000 0 0 Mr. R. Stephenson and Mr. J. Locke, engineers, in the employment of the Railway Company, calculated and estimated that the same work, for a speed of twelve miles per hour, would require an outlay of only... 36,817 9 0 And an annual expenditure of only .... 20,307 18 0 “ The difference of opinion was immense, and there¬ fore the actual amount of goods transported, and tlie actual cost of the transport, must now he referred to. “After three years’ experience of this railway, it ap¬ pears that the whole amount of goods and passengers transported only amounts to about one-third of what it was calculated to he in a single year, whilst tlie cost of transport has been, for that fractional part, eight times greater than Mr. R. Stephenson and Mr. J. Locke calculated:— 11 In 1831, 125,184 tons t were conveyed £20,062 11 0 1832, 145,914 „ [at an annual' 22,237 11 0 1833, 170,395 „ J expense of.... ( 27,101 4 0 3 yeaiV traffic 441,395 Total cost.. 69,401 6 0 or 3s. per ton. “This amount of 441,395 tons does not include the coals conveyed, which is hut little, and cannot he easily included, as the coal owners furnish and pay for three- fourths of the locomotive power necessary for the trans¬ port of coals. “Thus the anticipated and the actual result of this famed railway, as regards outlay and current expenses, and also as regards calculated traffic and work actually done, have been strikingly different. But we must not expect such facts will be received by the public as con¬ clusive against the general railway system. Large divi¬ dends paid by directors to shareholders will prevent their coming to such a conclusion, even although it can he shewn beyond doubt that such dividends must have been paid Old of capital, or out of borrow'ed money. “ In January 1833, the capital invested was £1,024,375 Of which there was advanced in shares £796,875 And loans. 227,500 £1,024,375 The interest paid for the year was 10,5221. 10s. Gd. “ In January 1834, the capital in¬ vested was . £1,101,057 6 5 Of which there was advanced in shares 796,875 0 0 And loans, viz. as last year .... £227,500 0 0 And apparently a new loan of... 76,682 6 5 - 304,182 6 5 £1,101,057 6 5 12 “The interest paid for the year was 10,507/. 18s. l^/., being- a smaller interest upon a larger debt, and to be accounted for by the good credit which the Company must be in, by reason of their large dividends. “The amount of receipts and outlays is stated by the Directors’ Reports to be as follows;— 1 Tear 1831. Tear 1832. Year 1833. Gross receipts. & 155,502 £ 155,808 £ 183,305 Gross disbursements.. 84,404 94,936 109,260 71,098 60,872 74,055 “ From these sums the interests and dividends are, or ought to he, paid, but the Directors seem to borrow' money for the purpose; at least w’e must suppose so when we find by their own accounts that, upon 30tb June, 1833, they ordered immediate payment of dividends to the ex¬ tent of 33,864/., when the same accounts shew that they had only in hand 13,332/., wherewith to pay them. Money was borrowed in order to do it; and this circum¬ stance, added to others of a financial nature, together with facts before adduced, lead us to the belief, that the di¬ vidends are paid from borrowed money,—that borrow-ed money is thrown into the capital account,—and that, in fact, dividends are thus paid out of capital. “ It is difficult to say why promoters of other railways neglect the abundance of facts which they might obtain as to the working of the general railway system up to the present time.” lip. 232. “ But, enough. I venture to affirm that a short time 13 will see the general railway system, as pursued in this country, deprecated as commercially, agriculturally, and politically hurtful.” “ Nothing is more common than for railway proprietors From Gordon’s to rest their decision upon the success of the Liverpool and Manchester Kailway; but nothing is more rare than and Turnpike for such parties to adduce the vast current expenditure for repairs, and the debt iclikh threatens to swamp the whole affair . “ But when the public mind is possessed by an illu¬ sion, time alone can show forth the enormity of the deception. The reported success of existing railway companies lias induced too many to embark their capital in such speculations. Now, of all the railways for general purposes and the carriage of passengers, there are but three which pay any dividend. The Liverpool and Man¬ chester Company, having an unequalled locality, pays nine, sometimes ten per cent; the Stockton and Darlington Company pays six per cent; and the Greenwich Company pays three per cent; and the reported dividends of those three companies form the real foundation upon which the deluded shareholders rest, in patient expectation that the numerous and boundless railway projects of the day are to yield them fortunes. I say the deluded shareholders —for they depend on the opinion of others, and these others either have not the power or the honesty to en¬ lighten their followers. I cannot help saying, that in many cases the leaders and led are equally infatuated. If they considered—not the reports of parties, who, by wishing to obtain, fancy that they can obtain, certain portions of the passenger trade,—but the statistical facts of the country, they would find that the whole passenger trade of the country, in one year, only equals 19,000,000 persons conveyed thirty-one miles (say the length of the Liverpool and Manchester line); that the Liverpool and 14 Manchester Company have ^Uth part of this trade; and that, in the common course of commercial probabilities, the remaining fort}--foiir parts are all that will be left for division amongst the hundreds of other railway schemes, not to speak of the 19,000 miles of turnpike-road in Eng¬ land and Wales, which cannot he altogether superseded by these Utopian projects! “ It may therefore be presumed, that the individuals engaged in railway speculation will be losers; and if they do lose, the public lose. iS^othing is more absurd than to maintain that the public can gain by the loss of indivi¬ duals, ‘ as if the aggregate capital of the country could be increased by the loss of a portion of it.’ “ Whether the three railways just mentioned do pro¬ perly declare their dividends, is perhaps not necessary to say here. “ But even supposing that general edge railway spe¬ culations should succeed to the satisfaction of the pro¬ moters, the success is attained by means of monopoly, and the diversion of trade from long-established and well- peopled lines to those whereon public competition cannot exercise its wholesome checks. “ jS*o general railway ever was made, or attempted, which was not trumpeted forth as an undertaking for public good; as if the mercantile and other directors, together with their entire bodies of shareholders, were pure patriots; as if this grand monopoly were above the custom of even the most high-minded of the individual members of the body—men who, in their trading specu¬ lations, consider the ‘ profit and loss account,’ and sell their goods, labour, or commodities, at as high a price as they can. The ‘ public good’ and ‘ public trust’ make a fine stalking-horse; but all the shares of such companies are a speculation, and the owners and directors of them are influenced, so far as their shares are concerned, by the customs of a trading community; their aim is to 15 make money. Would not the directors of such a com¬ pany he induced to struggle on, as the managing partners of any smaller copartnery would, to maintain their credit, and to continue their business even when in a state of insolvency ? “ It ought not to be forgotten that the mere com¬ mencement of schemes so pi-omising of bitter disappoint¬ ment, by estranging capitalists,—who are often in such investments the followers of the multitude, and the sup¬ porters of the delusion,—will paralyse the improvement or advancement of such other modes of communication as would be of high moral, political, and commercial value to the country.” As the monster monopolies advanced. Parlia¬ ment found it necessary to vest their supervision in the Government, and in January 1844, the officers of the Railway Department of the Board of Trade reported that “ The objects which an effective super- “ Gordon on vision ought to embrace may be classed under three heads,—1. Statistical; ^2. Protection of Public In- terests; 3. Providing for Public Safety.” I observed distinctly at that time that the de¬ partment “ suggested no remedy which can reach the radical evil.” I also said that the Government id, p. 24. control, “ if vigorously applied, may allay the more visible irritations, but the seeds of the evil are still p- there, and the public will, ere long, denounce tbe skin-deep and troublesome application, and call more loudly for a radical cure.” And has that supervision, which has now ex- 16 isted. eight years and a half, been effective? No. The statistics may occupy volumes of blue books, but certainly the supervision has not prevented the squandering of many millions of capital during that time; and it has proved to he insufficient for the “protection of public interests” and does not appear to have provided for “ public safety ” in any effectual manner. The Railway Commission might have seen that, by means of cooked or falsified accounts, investments were sanctioned by Parlia¬ ment in schemes for intercommunication to the ex¬ tent of nearly one-tenth part of the nation’s esti¬ mated property, in projects which I shall proceed to show, by a commercial view of the grand profit and loss account, are now losing annually to the proprietors upwards of 4,000,000^. sterling. Why did Parliament allow this ? Why did the Commis¬ sioners not announce it ? Railway travelling has not increased so much since I wrote {vide quotation on p. 13) as to make it more than 30,000,000 passengers carried thirty miles per annum by railway companies. These companies have expended considerably more than 200,000,000?. sterling;* the annual interest of which, at 51. per cent, amounts to 10,000,000?.— just 2 toC?. for each passenger per mile; and this is part only of the total sum to he debited to the transport account in railway profit and loss. Thus * Return by tlie Commissioners of Railways, dated May 1849. 17 it will be seen that the passengers are carried at a much lower mean price than is required to cover the intei’est alone! This last very alarming view I have recentlv communicated verbally to a Noble Lord, of the Upper House of Parliament, whose attention has been drawn to the evils of the railway system; and I must thank that Noble Lord for the attention and courtesy with which he received my communica¬ tion. His Lordship will, I fear, find no small difilculty in proposing further legislative interference. The grand profit and loss account of railways, in June ISl-S, may be thus stated;-— Dr. To interest at 5 per cent on a capital of 200,000,000 sterling . £10,000,000 Working expenses, estimated by rail¬ way authorities at 40 per cent, as per contra . 3,973,420 By total amount re¬ ceived for passen¬ gers, parcels, and goods, in year ending 30th June, 1848, as returned by the Commis¬ sioners of Rail¬ ways . . £9,933,550 Balance, being the loss on this year’s business, without making any al¬ lowance for re¬ placement ofcapi¬ tal . . 4,039,870 £13,973,420 £13,973,420 18 But railway partisans will reply, that lines might have been made for much less, and that one half of the capital expended has been sunk, and that the value of the property is now considered to he only 100 , 000 , 000 /. Total receipts for a year- . . . £9,933,000 Tlie interest is 5,000,000?. and working expenses 3,973,000?. .... 8,973,000 The profit for the year would then only be . . £960,000 Thus the grand railway account would not show quite oxE per cent per annum from which to pay dividends. And still there is no provision made for replacement of capital. It is strange that the Railway Commissioners take no notice of the prodigious mischief which I have seen growing for the last seventeen rears. Either I must have been wrong from the beginning, or the Commissioners must he wrong. My opinions on these matters have been before the public, and are again earnestly m’ged upon the nation’s atten¬ tion, the more so that in the very last Report of the Railway Commissioners, dated 1st May, 1S49, they laud the schemers and squanderers of the nation’s industn- in the following manner;— “ It is to the enterprising spirit of these capi¬ talists that the rapid spread of railways over this conntry, in spite of the difficulties offered by local oppositions and parliamentary forms, is to be at- 19 tributed; and to the energy, commercial knowledge, and habits of business of these men, the public are indebted for the prompt developement of a system of railway management adapted to the wants of the community.” That would be an interesting Report from the Railway Commissioners which attempted to shew the “ enterprising spirit,” “ the energy and com¬ mercial knowledge,” and “ the habits of business,” and “the railway management,” which they find so well “ adapted to the wants of the community! ” What wants ? I should have called them “ the ele¬ ments of gambling.” The Commissioners certainly, in the same Report, inform the country that the matter “ is now under the careful consideration of a select committee of the House of Lords, from whose Report valuable suggestions with regard to the financial matters may speedily be expected.” After which, no doubt, the valuable suggestions will appear with all the freshness of a reprint in another of the Com¬ missioners’ blue books. So much for the disease and the doctors. My object is at present to arrest attention hy the state¬ ment I have made of results w'hich, in no respect, surprise me. With regard to a remedy which, while it would preserve railway intercommunication, would be rendered fairly productive to shareholders, that is a question too large for treatment at this moment, but I do venture to warn the public that. 20 pending the requisite remedial measure, the owners and representatives of‘ the 200,000,000/. are not term- tied partners, but fluctuating shareholders, whose best chance of escaping from the dilemma is by keeping up the apparent value of the shares till some other parties take their places. My numerous warnings in years past were un¬ heeded, perhaps uucomprehended, by the thousands who were scheming, sharing, and transferring, or by the tens of thousands w'ho were w'atching the daily issue of new railway scrip,—denounced as absurd by my estimable colleagues of the Institution of Civil Engineers,—and they may continue to be so by such members of our legislature as owe their wealth and their position to the “ high-blown bladder ” which must ere long hurst beneath them. ALEXANDER GORDON. •22 Fludyer Street, Westminster, June 1849. LONDON Printed by G. BiRCLii, Castle St. Leicester Sq.