Chapter 14

by Upton Sinclair

　　Montague returned to New York and plunged into his work. Theelection at which he was scheduled to become president of theNorthern Mississippi was not to come off for a month. Meantime therewas no lack of work for him to do. It would, of course, be necessaryfor him to return to Mississippi to live, and he had to close up hisaffairs in New York. Also he wished to fit himself for the work ofsuperintending a railroad. Through the courtesy of General Prentice,he was introduced to the president of one of the great transcontinentallines, and made a study of that official's office system. He went Southagain to inspect the work of the surveyors, and to consult with theengineers who had been selected for the work.

　　Price went ahead with his arrangements to take over the control ofthe road, without paying any attention to the old management. Hesent for Montague one day, and introduced him to a Mr. Haskins, whowas to be elected vice-president of the road. Haskins, he said, hadformerly been general manager of the Tennessee Southern, and was apractical railroad man. Montague was to rely upon him for all thedetails of his work.

　　Haskins was a wiry, nervous little man, with a bad temper and asarcastic tongue; he worshipped the gospel of efficiency, and in theconsultations with him Montague got many curious lights upon themanagement of railroads. He learned, for instance, that aconspicuous item in the construction account was the money to beused in paying local government boards for right of way throughtowns and villages. Apparently no one even considered thepossibility of securing the privilege by any other methods. Montaguedid not like the prospect, but he said nothing. Then again, the roadwas to purchase its rails and other necessaries from the MississippiSteel Company, and apparently it was expected to pay a fancy pricefor these; it was not to ask for any of the discounts which werecustomary. Also Montague was troubled to learn that the secretaryand treasurer of the road were to receive liberal salaries, and thatno questions were to be asked, because they were relatives of Price.

　　All that he put up with; but matters came to a head about ten daysbefore the election, when one day Haskins came to his office withthe engineers' estimates, and with his own figures of the probablecost of the extension. Most of the figures were much higher thanthose which Montague had worked out for himself.

　　"We ought to do better on those contracts," he said, pointing tosome of the items.

　　"I dare say we might," said Haskins; "but those contracts are to goto the Hill Manufacturing Company."

　　"I don't understand you," said Montague; "I thought that we were toadvertise for bids."

　　"Yes," replied Haskins, "but that company is to get the contracts,all the same."

　　"You mean," asked Montague, "that we are not to give them to thelowest bidder?"

　　"I'm afraid not," said the other.

　　"Has Price said anything to you to that effect?"

　　"He has."

　　"But I don't understand," said Montague; "what is this HillManufacturing Company?"

　　And Haskins smiled. "It's a concern that Price has organisedhimself," he said.

　　Montague stared in amazement. "Price himself!" he gasped.

　　"His nephew is president of the company," added the other.

　　"Is it a new company?" Montague asked.

　　"Organised especially for the purpose," smiled the other.

　　"And what does it manufacture?"

　　"It doesn't manufacture anything; it simply sells."

　　"In other words," said Montague, "it's a device whereby Mr. Priceproposes to rob the stockholders of the Northern MississippiRailroad?"

　　"You can phrase it that way if you choose," said Haskins, quietly;"but I wouldn't advise you to let Price hear you."

　　"I thank you," responded Montague, and brought the interview to anend.

　　He took a day to think the matter over. It was not his habit to actupon impulse. He saw that the time had come for him to speak, but hewished to be sure of his course of action before he began. He haddinner at the Club that evening, and, seeing his friend MajorVenable ensconced in a big leather chair in the reading-room, hewent and sat down beside him.

　　"How do you do, Major?" he said. "I've got another case that I wantto ask you some questions about."

　　"Always at your service," said the Major.

　　"It has to do with a railroad," said Montague. "Did you ever hear ofsuch a thing as a railroad president organising a company to sellsupplies to his own road?"

　　The Major smiled grimly. "Yes, I have heard of it," he said.

　　"Is it common?" asked Montague.

　　"Not so common as you might suppose," answered the other. "Arailroad president is commonly not an important enough man to bepermitted to do it. If it happens to be a big road, and thepresident is a power in it, why, then he may do it."

　　"I see," said Montague.

　　"That was Higgins's trick," said the Major. "Higgins used to goaround making speeches to Sunday schools; he was the kind of manthat the newspapers like to refer to as a model citizen and a leaderof enterprise. His brothers, and his brothers-in-law, and hiscousins, and all his family went into business in order to sellthings to his railroads. I heard of one story--it has never comeout, but it's very amusing. Every year the road would advertise itscontract for stationery. It used about a million dollars' worth, andthere'd be long and most elaborate specifications published--columnsand columns. But sandwiched away somewhere in the middle of aparagraph was the provision that the paper must all bear a certainwatermark; and that watermark was patented by one of Higgins'scompanies! It didn't even own so much as a mill--it sublet all thecontracts. When Higgins died, he left eighty million dollars; butthey juggled the records, and you read in all the newspapers that heleft 'a few millions.' That was in Philadelphia, where you can dosuch things."

　　Montague sat thinking for a few moments. "But I can't see why theyshould do it in this case," he said. "The men who are doing it ownnearly all of the stock of the road."

　　"What difference does that make?" asked the Major.

　　"Why, they are simply plundering their own property," said Montague.

　　"Tut!" was the reply. "What do they care about the value of theproperty? They'll unload it before the public finds out; and in themeantime they are probably manipulating the stock. That's the schemethey're working with the street railroads over in Brooklyn, forinstance; the more irregular the dividends are, the more violentlythe stock fluctuates, and the better they like it."

　　"But this is the case of a railroad that is being built," saidMontague; "and they are putting up the money to build it."

　　"Yes," said the Major, "of course; and then they are paying it backto themselves by this dodge; and they'll still have the stock, andwhatever they can get for it will be profit. And if the StateLegislature comes along and asks any impertinent questions, they canopen their books and say: 'See, we have spent this much forimprovements. This is the cost of the road; and if you reduce ourfreight-rates, you will cut off our dividends and confiscate ourproperty.'"

　　And the Major gazed at Montague with a mischievous twinkle in hiseye. "Besides," he said, "another thing. You say they are putting upthe money. Are you sure it's their own money? Commonly the greaterpart of the cost of railroad building is paid by bonds, and theywork those bonds off on banks and insurance companies and trustcompanies. Have you thought of that?"

　　"No, I hadn't," said Montague.

　　"I know very few men in Wall Street who use their own money," theMajor added. "Take the case of Wyman, for instance. Wyman's railroadkeeps a cash surplus of twenty or thirty millions, and Wyman usesthat in Wall Street. And when he has made his profit, he takes itand salts it away in village improvement bonds all over the country.Do you see?"

　　"I see," said Montague. "It's a bad game for the small stockholder."

　　"It's a bad game for the small man of any sort," said the Major."When I was young, I can remember, a man would save a little moneyand put it into an enterprise of some sort, and whatever the profitswere, he would get his share of them. But now, you see, the big menhave got control, and they are greedier than they used to be. Thereis nothing hurts them so much as to see the little fellow get anyshare of the profits, and they've all sorts of schemes for doing himout of it. I could take a week off and tell you about them. You aremanufacturing soap, we will say. You find there are too many soapmanufacturers and too much soap, and so you propose to combine, andput your rivals out of business, and monopolise the soap market.Your properties are already capitalised at twice what they cost you,because you are naturally hopeful, and that is what you expectedthey would earn; but now for this new combination you issue stock tothe amount of three times this imagined value. Then you fill thestreet with rumours of the wonders of your soap combination, and allthe privileges and monopolies that you've got, and you unload yourstock on the public, we'll say at eighty. You may have sold all yourstock, but you've still got control of the corporation. The publicis helpless and unorganised, and your men are in. Then the Streetbegins to hear disturbing rumours about the soap trust, and yourboard of directors meet and declare that it is impossible to pay anydividends. There is great indignation among the stockholders, and anopposition is organised, but you set the clock an hour ahead, andelect your ticket before the other fellow comes around. Or perhapsthe troubles have already knocked the stock down sufficiently low tosatisfy you, and you buy a majority of it back. Then the publichears that a new interest has purchased the soap trust, and that anew and honest administration is to be elected; and once more thereis hope for soap. You buy a few more plants, and issue more stocksand bonds, and soap begins to boom, and you sell once more. You canwork that regularly every two or three years, for there is always anew crop of investors, and nobody but a few people in Wall Streetcan possibly keep track of what you are doing."

　　The Major paused for a while, and sat with a happy smile on hiscountenance. "You see," he said, "there are floods and floods ofwealth, pouring into Wall Street from all over the country. It comesto me like a vision. The crops are growing, the mines and the millsand the factories are working, and here is all the money. Peopledon't like to take it and hide it up their chimneys--few people havechimneys nowadays. They want to invest it; and so you prepareinvestments for them. Take the street railroads here in New York,for instance. What could be a safer investment than the streetrailroads of the Metropolis? An absolute monopoly, and trafficgrowing so fast that construction can't keep up with it. Profits aresure. So people buy street railway stocks and bonds. In this caseit's the politicians who organise the construction companies; that'stheir share, in return for the franchises. The insiders have a newscheme--the best yet; it's like a Gatling gun against bows andarrows. They organise a syndicate, and get the franchises fornothing, and then sell them to the company for millions. They'veeven sold franchises they didn't own, and railroad lines that hadn'tbeen built. You'll find some improvements charged for four or fivetimes over, and the improvements haven't yet been made. First andlast they have paid themselves about thirty million dollars. And, inthe meantime, the poor stockholder wonders why he doesn't get hisdividends!"

　　"That's the investment market," the Major continued after a pause;"but of course the biggest reservoirs of wealth are the insurancecompanies and the banks. It's there the real fortunes are made;you'll find you lose the greater part of your profits, unless you'vegot your own banks to take your bonds. I heard an amusing story theother day of a man who was manufacturing electrical supplies. Heprides himself on being an honest business man, and having nothingto do with Wall Street. His company wanted to extend its business,and it issued a couple of hundred thousand dollars' worth of bonds,and went to the Fidelity Insurance Company and offered them atninety. 'We aren't buying any bonds just at present,' said they,'but suppose you try the National Trust Company.' So the man wentthere, and they offered him eighty for the bonds. That was the besthe could do, and in the end he had to take it. And then the trustcompany turns the bonds over to the insurance company at par. Icould name you half a dozen trust companies in New York that aresimply syndicates of insurance people for the working of that littlegame."

　　The Major paused. "You see it?" he asked.

　　"Yes, I see," Montague replied.

　　"Is there a trust company by any chance back of this railroad youare talking of?"

　　"There is," said Montague; and the Major shrugged his shoulders.

　　"There you have it," he said. "By and by they will find their firstbond issue inadequate to meet the cost of the proposed improvements.The estimates of the engineers will be found too low, and there willbe another issue of bonds, and your president's company will getanother contract. And then the first thing you know, your presidentwill organise a manufacturing enterprise along the line of his road,and the road will give him secret rebates, and practically carry hisgoods free; or else he'll organise a private-car line, and make theroad pay for the privilege of hauling his cars. Or perhaps he'salready got some industrial concern, and is simply building the roadas a side issue."

　　The Major stopped. He saw that Montague was staring at him with anexpression of perplexity.

　　"What's the matter?" he asked.

　　"Good heavens, Major!" exclaimed the other. "Do you know what roadI've been talking about?"

　　And the Major sank back in his chair and went into a fit oflaughter. He laughed until he was purple in the face, and he couldhardly find breath to speak.

　　"I really thought you did!" Montague protested. "It's exactly thesituation."

　　"Oh, dear me!" said the Major, fishing for his pocket handkerchiefto wipe the tears from his eyes. "Dear me! It makes me think of ourdistrict attorney's lemon story. Did you ever hear it?"

　　"No," said Montague, "I never did."

　　"It was one of the bright spots in a dreary reform campaign that wehad a few years ago. It seems that our young crusader was giving hisaudience a few illustrations of how dishonest officials could makemoney in this city.

　　"'Let us imagine a case,' he said. 'You are an inspector of fruit,and there is a scarcity of lemons in New York. There are two shipsfull of lemons on the way, and one ship gets in twenty-four hoursahead. Now the law requires that the fruit be carefully inspected.If you are too careful about it, it will take more than twenty-fourhours, and the owner of the cargo will lose a small fortune. So hecomes to you and offers you a thousand or two, and you don't stop toopen every crate of his lemons.'

　　"The district attorney told that story at a meeting, and the nextmorning the newspapers published it. That afternoon he happened tomeet a fruit inspector, who was an old friend of his. 'Say, oldman,' said the inspector, 'who the devil told you about thoselemons?'"

　　The next morning Montague called at Price's office.

　　"Mr. Price," he said, "a matter has come up in my discussions withMr. Haskins about which I thought it necessary to consult youimmediately."

　　"What is it?" asked Price.

　　"Mr. Haskins informs me that it is understood that the HillManufacturing Company is to be favoured in the matter of contracts."

　　Montague was watching Price narrowly, and he saw his jaw set grimly,and a hostile look come upon his features. Price had been loungingback in his chair; now, slowly, he straightened himself up, as if toreceive an attack.

　　"Well?" he asked.

　　"Is Mr. Haskins correct?" asked the other.

　　"He is correct."

　　"He also stated that you are interested in the company. Is thattrue?"

　　"That is true."

　　"He also stated that the company did not manufacture, but simplysold. Is that true?"

　　"Yes, that is true."

　　"Very well, Mr. Price," said Montague. "This is a matter about whichwe must have an understanding without delay. In my preliminary talkswith you I was informed that it was your wish to find a man whoshould run the road honestly. The situation which you have justoutlined to me does not seem to me consistent with that programme."

　　Montague was prepared for an angry response, but he saw the othermake an effort and control himself.

　　"You must realise, Mr. Montague," he said, "that you are not veryfamiliar with methods in the railroad world. This company of whichyou speak possesses advantages; it can secure better terms--" Pricestopped.

　　"You mean that it can purchase goods more cheaply than the railroaditself can?" demanded Montague.

　　"In some cases," began the other.

　　"Very well, then," he answered. "In any case where it can obtainbetter terms, there can be no objection to its receiving thecontract. But that does not agree with what Mr. Haskins told me; hegave me to understand that we were to prepare to pay a much higherprice because it would be necessary to give the contracts to theHill Manufacturing Company; and that was my reason for coming to seeyou. I wish to have a distinct understanding with you upon thispoint. While I am president of the Northern Mississippi Railroad,everything that is purchased by the road will be purchased in faircompetition, and the concern which will give us the lowest price forthe quality of goods we need will receive our order. That is amatter about which there must be left no possible room formisunderstanding. I trust I have made myself clear?"

　　"You have made yourself clear," said Price; and so the interviewterminated.