Union Pacific that traffic on which it lived. Thus, practically, the surplus earnings. of the company, after the payment of reasonable dividends to the stockholders, constituted a fund which was regularly applied to the railroad development of the neighboring region, furnishing what was imperatively needed and at the same time giving. to the Union Pacific the bulk of its most remunerative traffic. The Thurman act superseded this plan. The money which had theretofore been turned into the business and made of inestimable service in developing the country was, by the operation of that act, diverted to a sinking fund. In place, therefore, of supplying Nevada, Utah, Wyoming, and Idaho with railroads, and insuring large profits to the Union Pacific, this money was placed where it has, as the record shows, failed to be of use to any one. In the sinking fund it has not earned 2 per cent. interest, instead of the 50 per cent. which it would have earned had it been applied according to the policy of the management. Neither have the people of the interior got the railroads they needed. The plan of the directors was to continue the system I have described. They believed that by the year 1894, when the Goverument debt would become due, the assets in the company's treasury, representing its auxiliary system, would be at least $80,000,000, and not improbably $100,000,000. The company would then have been in a position to meet the Government and offer it this large railroad property as security for its debt. That it would have been ample security I do not question. I think that no railroad man familiar with the situation would question it. Had the Government then declined to renew its loan upon this security at a reduced rate of interest, it would have been possible for the company to go into the money market, and, placing a mortgage upon the whole property, to raise the sum necessary for paying the Government off. As I have said, under the operation of the Thurman act it was not possible to continue this policy of the directors. The sinking fund was substituted in its place, and the course of events has proved the sinking-fund plan a failure.

It only remains to endeavor to devise some new policy which shall enable the company to meet its obligations. This question is now before Congress, and I do not propose to discuss it. Meanwhile, it is right and proper that the Government should understand that, in future, the company will not be able to carry out the sinkingfund policy, or even the semi-annual policy if imposed upon it by law, and also to develop its auxiliary system. The money which would suffice for the latter purpose will have to be devoted to the former. This seems to me, from every point of view, most unfortunate. Only by building up its auxiliary branch system could the Union Pacific accomplish what should have been its destiny. It ought to have supplied the interior of the continent with that railroad system which must be supplied to it from some source before development is possible. I believe that, with the assistance of the Union Pacific auxiliary system, even in its present incomplete form, the Government is reasonably sure of receiving back what the company owes it. Nevertheless, the larger and more publicly useful plan which the management of the company had devised has been destroyed. Every step to protect itself which the Government has hitherto taken has resulted, according to my best judgment, simply in depriving the interior mountain region of the continent of its railroads, and diminishing the security for the repayment of the Government debt.

This view, I know, is one not commonly taken. Newspaper critics especially will, I presume, treat it with derision. Nevertheless, that it is true is a thing of which I feel myself the most absolute assurance, although I had no share in that original policy which I have described. I think, also, it will be found that those most competent to offer an opinion would agree with me. In any event, it seems to me proper that this aspect of the question should be placed on record and brought to the notice of members of Congress.

I remain, &c.,

EXHIBIT C.

CHARLES F. ADAMS, JR.,

President.

BOSTON, December 26, 1884.

MY DEAR SIR: Inquiry has of late reached me from several different quarters as to what the Union Pacific Railway Company now desired, or was endeavoring to obtain, in the way of legislation at Washington.

As very erroneous statements on this head are often met with in the columns of the daily press, it may be well to explicitly define what the position of the company really is. I will, therefore, say that the Union Pacific Railway Company at this time has no scheme in regard to meeting its Government obligations which it is endeavoring to have incorporated into law. The original policy of the company in this matter I have endeavored to describe in another communication. Its policy was, in brief, to treat the debt it owed to the Government as it would any other debt. When the debt

sibly in Montana. In this event rates will probably neither decrease nor increase, but the already meager business will simply be divided.

The Burlington and Northwestern roads will represent in cost and indebtedness much smaller proportionate amounts than the Union Pacific. This renders them even more formidable competitors than they would otherwise be. If the Union Pacific represents an excessive indebtedness (for which financial conditions at the time the road was built and less adequate facilities as compared with now are partly the cause), this competition must tend to reduce its earning capacity as compared with its competitors.

The Chicago, Burlington and Quincy Railroad system, according to Poor's Manual, represents a cost (its cash and available assets not being deducted) of $54,118 per mile. Its officially reported cost of construction and equipment (Poor's Manual) is $30,293 per mile. The Chicago and Northwestern system, according to the same authority, represents in total liabilities $38,281 per mile, and in fixed property cost $37,973 per mile. The Union Pacific, about 4,400 miles, upon the basis of its reported indebtedness, as shown by the books of the company, represents, excluding stock, $44,480 per mile, and including stock, $53,080 per mile. In none of these cases are available or other offsetting assets excluded or considered. The main subsidized lines of the Union Pacific, however, upon which the Government holds its security reports a cost for construction and equipment of $86,343.03 per mile. (Report Commissioner of Railroads, 1883, p. 280.) But the local traffic and resources of the two former systems named, and which go to swell their average cost per mile, are not to be compared with those of the Union Pacific. The larger proportions of their respective systems are in the very heart of a country that affords the greatest and most valuable kind of local traffic.

On the other hand, it is understood that those portions of their respective lines which compete specifically and most seriously with the Union Pacific as regards its local and also its through traffic to a greater or less extent do not and will not represent a cost of to exceed $15,000 to $20,000 per mile.

That this and the bonded and stock indebtedness of the Union Pacific are important, even vital, features to be considered in this connection, is shown by reference to the report of the Commissioner aforesaid.

The surplus earnings of the branch lines of the Union Pacific for 1883 are shown by said report to be $2,442,821.72, against which the annual interest charge is $2,510,160. The deficit is $67,338.28. From the same report it appears that the deficit in the operation of the subsidized lines of about 1,830 miles, including dividend April 1, 1884, for the five months ending May 31, 1884, was $729,414.56. On this basis, and excluding dividends, the annual surplus of the subsidized lines would be $727,528.62 only, from which is to be deducted the deficit of the branch lines, $67,338.28, leaving $660,190.34. (But the subsequent and more economical operation of the road, as heretofore appears, shows an improved condition, and the fact that interest charges are upon bonds, a portion of which are held by the Union Pacific, renders the deficit to some extent apparent rather than real.)

The net earnings of the Union Pacific Company for the year ending June 30, 1883, were $12,154,960.47. For the year ending June 30, 1884, they were $8,817,592.44. The decrease was $3,337,368.03. The total interest charge upon the bonded indebtedness of the entire system is $8,986.714.23. If there has been excessive bonding of the lines composing the system, which the records show as to the branch lines, so far as

country, and ultimately to the United States. It would be such a measure as this that the company would advocate, did it now advocate any measure at all. Meanwhile, it does not see its way to doing so. Its attitude, accordingly, is an expectant one. It waits to see what rule Congress in its wisdom shall impose, and when that rule is imposed it will live up to it, if it can. If upon a fair trial the burden exceeds the company's strength, we do not doubt that, in the interest of all concerned, Congress will modify it.

Trusting that I have made myself clear in the above explanation,

I remain, yours, very truly,

COLGATE HOYT, Esq.,

CHARLES F. ADAMS, JR.,

President.

Chairman Union Pacific Board of Government Directors.

arbitrarily maintained, which embrace every feature of extortion. This fact is recognized and deprecated by none more fully and earnestly than the present management itself. And while it is true that the management is addressing itself most seriously to this feature and most vigorously to the correction of these evils, self-preservation compels it to condone or practice them.

Investigations preliminary to such changes and reductions as may in justice to the interests of the company be made, are being instituted with as much energy and dispatch as circumstances permit. But the very nature of things indicates that progress in this direction must be slow and unsatisfactory, until remedial legislation shall come to its assistance.

So far as the State of Nebraska is concerned, its transportation interests are almost entirely in the hands of the Union Pacific, Chicago, Burlington and Quincy, and Chicago and Northwestern Railways-principally in those of the two former. These roads pool or maintain rates at all competing points. These points secure perhaps occasionally, but not generally, somewhat better rates than non-competing. But the advantages secured in that regard are not material.

At Denver, Ogden, Salt Lake, &c., other lines enter the field and other factors and complications operate upon rates. At these points, rates are comparatively lower and the difficulty of maintaining them is very great.

THE POSTAL CLAIM.

The questions involved in the controversy between the Government and the Union Pacific are so complex that it is almost impossible to deal with them intelligently without the intervention of some officer or Department of the Government directly familiar with the conduct and management of the company's affairs.

The company has interposed a claim for the transportation, during a long series of years, of postal-route agents, at passenger rates.

The Government directors have very decided convictions as to the equity of this claim. But as it is one of the items of controversy in the case now pending between the Government and the company, in the Court of Claims, comment here would not, perhaps, be regarded permissible.

NET EARNINGS.

There is equity in the claim, in the opinion of the Government directors, that in arriving at net earnings, there should be deducted such sums as are properly and necessarily expended in improvements and betterments. The high degree of excellence, of speed, and assurances of safety demanded in present railway management dictate the justice of this policy within reasonable limits. It is only by its operation that the Union Pacific could stand to day, as it does, in the very front rank of first-class roads. In fact, the Supreme Court has affirmed this view. It says:

We think the true interest of the Government is the same as that of the stockholders, and will be subserved by encouraging a liberal application of the earnings to the improvement of the works. It is better for the ultimate security of the Gov

ernment.

If the view of the Government directors is correct, however, the argument and decisions of courts that whatever, without some defined limit, may be expended in betterments is an addition pro tanto to the security of the Government, is fallacious. The original excessive cost of the