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The practice of stock-watering did not end with the days of Gould and Drew. In this connection Professor Farrand mentions the statement of a railroad magnate that "in Republican counties he was a Republican, and in Democratic counties he was a Democrat, but that everywhere he was for the railroad." Development of the United States, p. 290.
But it is almost equally important to remember that without good laws it is also impossible to reach the proper solution. It is idle to hold that without good laws evils such as child labor, as the over-working of women, as the failure to protect employees from loss of life or limb, can be effectively reached, any more than the evils of rebates and stock-watering can be reached without good laws.
The remedies proposed were severely definite in comparison with the vague plank which had been offered by the Republicans: they included publicity as to the affairs of corporations doing an interstate business; the prohibition of stock-watering and attempts at monopoly; and the use of all the constitutional powers of Congress over interstate commerce and the mails for the enactment of comprehensive and effective legislation.
The effect of such sharp dealing on investors, the railroad or the public seems not to have entered into the calculation. Indeed, the Erie and many another road was looked upon by its owners merely as a convenient piece of machinery for producing fortunes. Gould, Drew and other railroad men of their time were also expert in the practice of "stock-watering."
As the Astors and other rich families were perfectly willing, in 1867, to allow Commodore Vanderbilt to assume the management of the New York Central on the ground that under his bold direction their profits and loot would be greater, so the lackadaisical Vanderbilts of the present generation perhaps likewise looked upon Harriman, who proved his ability to accomplish vast fraudulent stock-watering operations and consolidations, and to oust lesser magnates.
Stock-watering and other vicious practices, involving the ruin of corporations themselves by the few holders of a majority of the shares, in order to re-purchase the property for next to nothing, contributed to this hostility; as did the presence in many great corporations of foreign capital and capitalists, and also the mutual favoritism of corporations, showing itself, for instance, in special freight rates to privileged concerns.
Others thought that the proportion of water was greater. In any case the unnecessary burden upon business to provide dividends for the watered stock was an item of some magnitude. The investor, however, looked upon stock-watering with other eyes. The building of a new road was a speculation; the profits might be large, to be sure, but there might in many cases be a loss.
When the stock is watered so that the innocent investors suffer, a grave wrong is indeed done to these innocent investors as well as to the public; but the public men, lawyers and editors, to whom I refer, do not under these circumstances express sympathy for the innocent; on the contrary they are the first to protest with frantic vehemence against our efforts by law to put a stop to over-capitalization and stock-watering.
He foresaw the immense profits which would accrue to him if he could get control of the Erie Railroad; how he could give the road a much greater value by bettering its equipment and service, and how he could put through the same stock-watering operations that he did in his other transactions. Tens of millions of dollars would be his, if he could only secure control.
But it is almost equally important to remember that without good laws it is also impossible to reach the proper solution. It is idle to hold that without good laws evils such as child labor, as the over-working of women, as the failure to protect employees from loss of life or limb, can be effectively reached, any more than the evils of rebates and stock-watering can be reached without good laws.
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