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WHO OWNS THE RAILROADS?

BY SOLOMON HUEBNER.

[Solomon Huebner, economist; born Manitowoc, Wis., March 6, 1882; educated at the Universities of Wisconsin and Pennsylvania; instructor in commerce and insurance at the University of Pennsylvania; member of the editorial committee of the American Academy of Political and Social Science; appointed a collaborator for the Carnegie institution to prepare a history of America's foreign trade; author of various monographs on economic topics.]

Copyright 1903 by American Academy of Political and Social Science

In a study of the distribution of stockholdings in American railways we touch upon a question which, as associated with the fundamental institution of private property, has a most important bearing upon our social, economic, and political life. The ownership of property tends, above all, to create a sentiment favoring conservatism. The greater the number of individuals participating in the ownership of property, the greater will be the number interested in promoting the safety and conservatism of property, and the advancement of industry. The effect of the diffused ownership of stockholdings, for example, upon our economic life may be readily observed. Being owners in a great enterprise, the large number of smaller holders are thus prompted by self interest to view economic questions from the standpoint of an employer. In the industrial struggles between labor and capital, widely diffused ownership of stock may be of the greatest importance in molding public sentiment with reference to the demands of the contending parties. The holding of a single or a few shares in a large corporation may not only cause the holder to feel a greater interest in the welfare of his particular concern, but may cause him, in a general way, to observe and feel as a member of the employing class. Moreover, a large corporation by widely distributing the ownership of its stocks and bonds, especially if it be among an influential class, will thereby safeguard its interests and privileges through an increased political constituency. Railways, for example, whose stocks and bonds are held by thousands of holders may be expected to

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exert a powerful influence in the legislatures of their respective states.

These and other considerations point to the conclusion that the economic and social effects, resulting either from a wide diffusion or a high degree of concentration in the ownership of stockholdings, are both numerous and important. Yet, significant as a study of the distribution of stockholders in American railways may be in this respect, we find ourselves confronted with all the difficulties which beset the question of the distribution of wealth in general. As Professor MayoSmith has remarked: "Almost all statistical analyses of the actual distribution of wealth break down on account of the imperfections of the statistics." And it is especially in the study of the distribution of railway stock, probably more so than in the case of wealth in general, that we find the materials at our disposal not only very incomplete, but also extremely limited. In fact, reliance had to be placed almost wholly upon individual statements concerning certain particular roads, and upon the statements of the amount of capital stock issued and outstanding, and the total number of stockholders for the various roads at the date of the last election of the directors, as collected under the authority of the railway commissioners of the various states. This latter source, however, is by no means complete. In many states, especially the southern, with the exception of Alabama, Louisiana, and Virginia, the railway commission reports furnish no information whatever on the subject; and in no case do the reports give the exact distribution of the capital stock among the holders. This absence of conclusive material determines largely the mode of treatment to be followed, and fixes in a general way the limits of the conclusions. The attempt is made, therefore, to present, briefly, the distribution of stockholdings in those few railways where the evidence is direct and conclusive; and to present tables showing respectively those important railways whose stock is owned by a comparatively large number of stockholders, those where concentration is apparent; and, lastly, those important railways whose stock is concentrated in the hands of a few holders. Despite the many defects in the materials, it is believed that

a compilation of the data presented in the railway commission reports, if supplemented by such considerations as are necessarily involved in a statistical treatment of this kind, cannot fail to add something to our knowledge of the subject under discussion.

Passing now to an examination of specific railways, we find that the Illinois Central stands out most prominently in the effort to diffuse the ownership of its stock among small holders, especially its employees. According to Mr. Cressey, "No other railroad has adopted a plan to this purpose approaching in extent or liberality that devised by President Stuyvesant Fish. Other roads, however, have made commendable efforts in this direction, and among these may be mentioned the Chicago Great Western system. Of the 6,526 stockholders of the Illinois Central in 1900, 705 were officers and employees of the company, other than directors, and held stock to the amount of 2,554 shares. Three thousand eight hundred and sixty eight of these stockholders, owning 346,207 shares, were residents of the United States; 2,543, owning 198,616 shares, were residents of Great Britain; 115, owning 55,125 shares, were residents elsewhere. Excluding one large block of 40,000 shares held by a Dutch syndicate for thirty years, and itself divided among hundreds of holders, the average number of shares per holder is eighty five and one half. According to the books of the company there are "5 holdings of 5,000 shares or over; 85 of 1,000 shares or over; 93 of 500 shares or over; 694 of less than 500, but more than 100; 455 of exactly 100 shares each, and 5,194 of less than 100 shares." Approximately thus 80 per cent of the stockholders own less than one hundred shares each, and the fact is emphasized that it is the 5,194 small stockholders who own by far the majority of the stock.

Equally favorable appears to be the distribution of stock in the Boston and Albany and the Boston and Maine railways. The capital stock of the Boston and Albany, aggregating $25,000,000, is distributed among 8,434 stockholders. The largest of these stockholders owns but 3,000 shares, while at least 4,645 holders, or 54 per cent of the total number, hold less than ten shares each. As regards the Boston and Maine rail

road, the annual report for 1899-1900 places the number of shares of that company at 250,345, and the number of stockholders at 7,148. Of this number of stockholders 4,575, residing in Massachusetts, owned 124,030 shares; 1,515, residing in New Hampshire, owned 29,212 shares; 599, residing in Maine, owned 18,349 shares; 459, residing elsewhere, owned 60,678 shares, while 18,076 shares of common stock were owned by the company itself. From this report it also appears that approximately 7 per cent of the largest stockholders of the company owned 26 per cent of the stock.

Another illustration of the wide diffusion of stock ownership in some of our great railways is afforded in the Atchison, Topeka and Santa Fé railway. This road, the most important of the southwestern roads, and the greatest of the "independent systems," has its capital stock of $233,468,000 distributed among 13,147 stockholders. The two facts according to Mr. Thomas F. Woodlock that distinguish this road from other large western roads are: (1) "That alone of all transcontinental lines it extends from Chicago to San Francisco," and (2) "That there is no dominant stockholding interest or combination of interests in control of the property. . . . And it is the only large system in the west that nobody in particular owns or specially controls." According to Mr. Woodlock, "the ownership of the Atchison road became thoroughly scattered in the reorganization and afterwards." "I am credibly informed," he writes, "that Messrs. Baring and the interest known as the 'Berwind Pool' are at present the only examples of concentrated ownership in the company, and that all three combined are a relatively small percentage of the whole."

Directing our attention next to an examination of the distribution of the capital stock of railways other than those just considered, reliance had to be placed upon the data furnished by the latest available state railroad commission reports, namely those of 1900 and 1901. In the following four tables an attempt has been made to group this data. Table I. includes those important railways whose stock is owned by a large number of stockholders. Table II. presents those important railways whose number of stockholders is not unusually small, but where concentration in stockholding is ap

parent. Table III. comprises those important railways whose capital stock is owned by a comparatively small number of stockholders, while Table IV. shows the distribution of stock in New England railways with a capital stock of $1,000,000

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