% n-J %.. IMAGE EVALUATION TEST TARGET (MTO) ki° t 1.0 II u 1.25 'JflM IIM - IIM ill 2.2 IAS lllll 2.0 1.8 1.4 1.6 h:;^ V] V c-: '^l "-y /^ £? ^■^ .# ^ .#^^ 4 y^ <* ^ ^0? '(V' ^\y 23 WEST MAIN STREET WEBSTER, N.Y. 14580 (71*; 872-4503 CIKM/ICMH Microfiche Series. CIHM/ICMH Collection de microfiches. Canadian Institute for Historical Microreproductions / Institut canadien de microreproductions historiques ^ O \ 1981 Technical and Bibliographic Notes/Notes techniques et bibliographiques The Institute has attempted to obtain the best original copy available for filming. Features of this copy which may be bibtiographically unique, which may alter any of the images in the reproduction, or which may significantly change the usual method of filming, are checked below. r^^ (meaning "CON- TINUED"), or the symbol V (meaning "END), whichever applies. Les exemplaires originaux dont la couverture en papier est imprimde sont film6s en commenqant par ie premier plat et en terminant soit par la dernidre page qui comporte une empreinte d'impression ou d'illuetration, soit par le second plat, selon le cas. Tous les autres exemplaires originaux sont filmds en commenpant par la premiere page qui comporte une empreinte d'impression ou d'illustration et en terminant par la dernidre page qui comporte une telle empreinte. Un des symboles suivants apparaitra sur la dernidre image de cheque mic/ofiche, selon le cas: le symbols —^ signifie "A SUIVRE", le symbols V signifie "FIN". Maps, plates, charts, etc., may be filmed at different reduction ratios. Those too large to be entirely included in one exposure are filmed beginning in the upper left hand corner, left to right and top to bottom, as many frames as required. The following diagrams illustrate the method: Les cartes, planches, tableaux, etc., peuvent dtre filmds A des tuux de reduction diff^rents. Lorsque le document est trop grand pour dtre reproduit en un seul ciich6, il est film6 d partir de Tangle sup6rieur gauche, de gauche d droite, et da haut en bas. en prenant le nombre d'images ndcessaire. Les diagrammes suivants illustrent la mdthode. 1 2 3 l\ 1 2 3 4 5 6 MR. POTTER'S LETTER ON Canadian Railways, REVIEWED, In an Official Communication Addressed to the HON. ALEXANDER MACKENZIE, pREjV1IEF( or THE Poj^IjMION. BY O. J". B E, "Y^ ID a- E s. OTTAWA. 1875. i 3!^^^JSB^i»>m-^. m Railway DiiPAKrirENT, \ Montreal, 5th June, 1875. Hon. a. Mackenzie, Minister of Public Works. Sir, —In compliance with the iustrucbious wliich I i-ecoivod from you, I have carefully read Mr. Potter's letter, dated 13th Apiil lar t, to the London Times, upon the subject of Canadian Eailways. In accordance with the instructions which you gave me, I carefully examined the statements made and compared them with the figures whica I found in the reports of the different Companies dealt with in Mr. Potter's letter. I now enclose y;->u the result of the review wliich I have made of Mr. Potter's letter— the figures in the main being taken from the reports of the Companies themselves. The cost of the different sections of the Grand Trunk Eoilway, I obtainenuMit Mortgage Bonds pro- "l>OHod by tho Int*; Cominittco (of shareholders.) T do not, however, re- " commend that those powers ln) wholly or even partially made use offer " the present." He gave liis reason for thus recommending thr-t, for the present, no further capital Im! expended, U^cause in his opinion, the exist- in'' facilities were sutficient for the work to be done. The accoimtj to the 31st December, 1802, subsequently submitted to the Shareholdei-s, showtid that to that date tliere had l>ccn expended £12,- 000,000, of which .£3,112,r)<)U had been provided by the Governnwnt of Canada. At the same time a further simi of ui)wanLs of .£3,000,000 was charged to capital for interest jxi id io Bond and Shareholders dninuj tha construction of the vjorhs, l)ut not one farthing of this amount was evorex- peiidod upon the Railway. The only money raised and spent upon the lluilway since 1862 was as follows : — Etiuipment Bontls, umler Act of 1802 £ 500,000 2nd. E(|uipment Bonds, authorized in 18(57 500,000 i'roceeds of £7,500,000 of shares placed at 19 pc. realizing in cash 1,425,000 Proceeds of £650,000 of dehenturc stock, under Act of 1874, and issued at about 12 pc. discount, say 575,000 Total, £3,000,000 Tlie al)Ove is the total amount of new capital raised and spent upon the railway since 18G2, only £1,500,000 of which is a liability upon the Company for interest, and the balance was taken simply as a lottery. The real capital of the Company is therefore to-day for cash actually expended, £15,000,000 instead of £37,000,000, and of the smaller amount £3,112,500 or upwai'ds of 20 per cent., is provided free of all present cost to the Company by Canada. Hoav far the course pureued by the Grand Trunk Company will affect the futui'e position of the loan may become a very serious and important question. The accounts of the Company for the year 1862, shew that they earn- ed a profit from the working of the Railway of upwards of £150,000. The accounts for the year 1874 shew that the profit earned had increased to up- wards of £460,000, so that the profit in 14 years 'jad increased in a much larger ratio than the new capital mised and expe^ led. It is necessary now to consider what the reai cost of the railway has beenincash. - -. -.- --,.■ -- ,•>...,. ^ _, , .^.-, ; .i. Beginning at the west, tlm contniot for building the line from Detroit to Port Huron wtia £420,000. 'PLiH ituliuleil iron rails, Htoiu> :uivere constructed by Cana- dian contractors, who never complained that the foregoing sums did not loiivt; them a fair profit on their work. The next section from Toronto to Montreal, 333 miles, was built by Peto tSi Co., at a contract price of £8,000 a mile. It was not such heavy work as the Hne from Toronto to Sarnia, and it is a fact that the Canadian contractore who built the western section.? of 25 1 miles offered l^eto ife Co. £1,000 a mile for their contract, which was refused. It i.s hanlly fair iifler that, and the fact that the contract wa.^ for £500 a mile nunc than the western sections, to talk of tlie Company having anything to do with any loss which the English contractors may have .stated they sustained. The line from llichmond to Quebec was contracted for and built at £8,000 a mile for 90 miles. Tl, Riviere da Loup line cost £8,000 a mile for 118 miles. The Three Rivci-s line cost £210,000 for 35 miles. The line from Montreal to Portland, 292 miles, was built by local companies and was assumed and leased by the (Irand Truiifc Company. The real cost wa.s less than £8,000 a mile. For the lea.se of the Portiaud line the Grand Trunk Company assumed very onerous terms, amounting to a rent charge of £105,000 a year. The Company also leased the Buffalo and I^ake Huron line 161 miles long — the actual cash cost of v, ach did not reach £7,000 a mile, or £1,- 127,000 for which the Grand T.-unk now pay a rental of £66,000 a year, or 6 per cent, on its cash cost. The Company also lease the Champlain lines 83 miles long which cost about £6,000 a mile, or a total of about £500,000 for which a rent is now paid of about £25,000 a year, or about 5 per cent, on its cost. Tlie Gait branch was also purchased and has cost, for 13 miles, about £50,000. ... ■■- -. - - ... ,-^-.....^- .. ^,..-,_-. - .-. -^^-,- m ^M ■ m 11 8 The Coinpany has also biiilt the Victoria Bridge at Montreal, at a cost of £ 1 ,400,000 — also the International Bridge at BufTalo, at a cost of lees than £300,000. It has })rovided additional rolling stock, ballasting 'signals, statioi^g, sidings and other facilitie«, at a cost of about £1,500,000. And it has changed its guage at a cost of about £1,000,000. From the foreging statements, its cost can be accm-ately stated as follows : — Detroit Ijne Sarnia and Toronto . . London Eranch 22 Toronto and Montreal . . 333 Richmond and Quebec . , 96 Riviere du Loup Line . . 118 Three Eivera Line 35 Portland Line 29'2 Buffalo Line 161 Champlain Line 83 Gait Branch 13 Victoria Bridge 2 (50 miles £ m „ ' 1337 420,000 1,379,000 176,000 2,664,000 768,000 944,000 210,000 2,336,000 1.127,000 500,000 50,000 1,400,000 300,000 International Bridge Additional Rolling Stock, sidings, &c 1,500,000 Change o^ Gauge 1,000,000 £14,770,000 This sum of £14,770,000 is the actual cost to the Company, inoludi'ig eighteen months' average interest paid by the contractors, during its con- struction, of the eutire line between Riviere du liOup and Deti'oit. The total length now operated is 1,387 miles, so that the average cash cost per mile is not quite £11,000. That this is correct, is proved by the fact that the average cost of the present n;ileage of 798 miles of the Grv .^t Western Railway, (mcluding all its branches, as in the cap' of the Grand Trunk,) is not quite £11,000 a mile, with its gauge changed, a superabundant supply of rolling stock and sidings, and its entire line nearly all relaid v-ith steel rails. The cost of the Intercolonial Railway, built: by the Government of Canada, with stone and iron bridges throughout, steel rails, and in every respect the best built road upon the ocntinent of America, will be about £8,500 a miie. The real cash cost of the Grand Trunk Railway ia therefore more than represented by the sum above named of nearly j£15, 000,000. It could be built in first-class shape to-day for less than that amount. Of the actv il cost of £14,770,000, £3,112,500 was advanced to the Company by the Government, leaving the actual cash outlay of the proprietors of the Com- pany £11,657,500, or, in round figures, say £12,000,000. Upon the actual outlay 4 per cent, is £466,000. The Company's own accounts for 1874 show that they earned a net profit of about £460,000, so that they nearly earned a full 4 per cent, upon their actual outlay. Their own statements also announce th? ^ when their line is fully relaid with steel, they will increase the net revenue of 1874 by a large amount, making the actual return nearer 5 per cent, than 4 per cent, ixpon the real cash cost of the line. The truth about the Grand Trunk, then, is that, upon tho real cash cost of the line, it is earning more iuan the avei-age return of English railways. But it has chosen to add to its capita) very lar^o paper dividends, — to issue bond^} and shares at an enormous discount, — and to pay away its large net earnings of nearly £500,000 a year in pi-eferontial dividends at high rates upon portions of its capital, thus unduly benefitting certain holders of its securities at the expense of otheis, and so preventing a fair and average return upon the whole. The Company in 1862 agreed for 10 years, to pay dividends upon its bonds by an issue of fi'esh bonds for which no money passed into the cofiers of the Company. It has thus added several millions to its nominal capital, but not one farthing of this fictitious amount has ever been paid or ex- pended as pai't of tl cost of the Road. The present yearly profit of nearly half a million sterling is derived from the traffic of Canada, and the trade tributary to the Railway. Mr. Potter's charge against Canada of not rendering a fair return upon the capital actually expended upon the building of the Grand Trunk, is therefore absolutely false. It pays a Itiir interest upon its real cost, — the cause of its present difficulties being mainly the onerous bai gains which the Company itself made with the lines it leased — the unwise pajier additions to its cap'tal for money which was never received !or ex})ended, — and the lottery system which was adopted in issuing enormous masses of securities at a frightful and ruinous discount. The Grand Trunk will pay upon its cost, if its capital account is made 10 to honestly represent its real cash outlay, but it can never be anything but a. bye-worJ in financial circles in Canada or England so long as it retains a fictitious and worthless capital account upon which it falsely complains of not earning interest or dividends. Tlie original estimate of the traffic expected on the Grand Trunk was less than £1,500,000 per annum. In June, 1874, it exceeded £2,130,000, but the cost of working a Canadian Railway has proved to be much greater than its original promoters anticippted. Mr. Potter makes the extraordinary statement that his Railway is uncompeted with along the whole line from Riviere du Loup to Quebec, Montreal and Toronto. Is it possible that the President of the Grand Trunk Railway is ignor- ant of the fact, that his Railway runf5 almost within sight, for the entire distance he names, of Lake Ontario and the River Hi. Lawrence, the finest system of inland water commimication in the world ] Mr. Potter's next statement that the only sum earned by the Company and divided amongst the shareholdei's in the year 1874 was £80,000, is is equally untrue, as it has been shown that the profit derived from the working of the Railway daring 1874, was .£4fi0,000, equal to an average of nearly 4 i)er cent, upon the entire cash cost of the Railway contributed by the English j)roprietors. So much for the Grand Trunk. The next large Canadian Comj)any which Mr. Potter attempts to crush in his statement is the Great Western. The capital of that Company is now about £8,500,000, not including some of the branches it works. It was opened in 1854, when it was 230 miles long, and its capital was less thaa £3,000,000. Its length now, in- cluding branches, is nearly 800 miles. Its capital has been mainly raised at par, and comparatively speaking but little interest during construction has been charged to capital. To the end of 1874 it has been in operation for 21 years. During that period it has paid out of its net earnings for interest upoA its bonds a total of £2,191,850, or an average of £104,373, for each of the 21 years it has been running. It has never been in default for an ho\ir in one farthing of the interest due upon its bonds. It has also, during the 21 years, paid out of its nett earnings, upon '•I its oi'dinary and preference shares, a total amount in diviclencla of £2,450,089, or an average for each of the 21 yeai-s of £116,670. It has thus i)aid oo its I'ond and shareholders, during 21 years, out of its net earnings, an average sum yearly of upwards of £321,000 sterling. It is quite true that the financial panic in the United States which took place in 1873, )>rostrated the trade of this country, from which no revival has yet taken place, and consequently the shareholders received no dividend in 1874. Cut the bonds have all been paid in full. The same thing happened in 1859, caused by the gi-eat panic of 1857- 58. Then the bonds, as now, regularly received their interest. But the shares for 18 consecutive months went witliout any dividend. When the I'esults of that panic passed away, and trade resumed its ordinary con- dition, dividends upon the shares were resumed, and begianiSig at about 2 per cent., rose to 6 and 6 A per cent., until the panic of 1873 again tem- porarily vastly depressed the trade and traffic of this continent, and has again caiised a suspenpion of dividends. The same circumstances have affected American railways, many of which have been compelled to let their bonds go to protest, and some have even been placed in the charge of officers appointed by Courts of Law. But the inevitable revival of trade will again make tlie Great Western Conpany, as was the case after 1859, a remunerative undertaking. The next subject of attack by Mr. Potter is the Canada Southern, a line 0}>ened for traffic at the ^ery time that the great panic of 1873 oc- curred. That Company has had no time yet to i)rove what it is worth. It has certainly not been the cause of the depi"ession in tlio Great Wfstern \ip to the present time at any rate. » ; ^ '^ ? ■ Its capital has been raised almost entirely in Canada and the United States, only about £200,000 of xts bonds having been taken in England. But tlie Pre.sident of the Grand Trunk is wonderfully ignorant upon this as well as many other ma^tei-s refeiTed to in his letter. He states that the charter was gi-anted " to a Canadian gentleman. who may be fairly called a dealer in charters." Is it possible that Mr. lUchard Potter is ignorant that the charter for that line was fii-st granted by the old Parliament of Canada, as fiir back as April, 1835, the Great Western Railway itself being only chartered in 1845, or 10 years afterwards? The Canada Southern, under varying names, had its charter amended and extended in 1847, in 1851, in 1855, in 1858, and in 1859. H 12 In fact it was a struggle in the early history of the Great Western Railway, if that line, as now actually constructed going down to the level of Lake Ontai'io, should be built, or the old chartered line, now the Canada Southern, keeping on the level of Lake Erie, should be the one adopted. It is probably mainly the delay which the Great Wefitern Company peimitted to take place in supplying the country south of it with railway accommodation, which caused the building at last of the Canada Southern, The Parliament of Canada simply gave the needful authority for i,he can'ying out of charters wliich hail for upwards of 35 years been on its statute book — the Government gave no aid to the line — but the country through which it ran evinced its desire for its construction by making large grants of municipal bonds as free gifts to the company. The wisdom of building it may be questioned, but that is for the parties who found the money to settle for themselves, and certainly no grounds exist for the attack which ^L". Potter has thought it his interest to make upon the credit of Canada and its Govei'nment. The next important line which Mr. Potter attacks is the Northern of Canada. To that company the Government lent £450,000 sterling, upon which for the last 15 yeai-s it has received no interest at all, and has now agreed to accept £100,000 in full payment of principal and all arrears of interest. This cei-tainly Ls not a ground for Mr. Potter to attack the credit of Canada upon. He then statea that " the original share capital (of the Northern Company) " has also been Aviped out " by a reconstruction act.'' Unfortunately for Mr. Potter's accuracy, it happens that the stock, so far from having been " Aviped out " is now a great question, as regards its value, between the holders of it and the company. The latter desire to buy it up at a discount, and the former decline to take less than par. It is also a fact that the Northern Company is regularly paying the interest upon its bonds, all of which are held in England, but has not paid dividends upon its share capital, nearly all of which is held in Canada. The truth about the Northern Railway is therefore a direct and com- plete condemnation of the wild and reckless statements of Mr. Potter. Two s.nall lines next draw forth Mr. Potter's severe blows. One, the Prescott and Ottawa, he states was built with English capital which '* has proved a total loss." The facts are that the Railway was built by muni- 13 # cipal bonuses issued by the counties through which the line runs and by- private subscriptions of shaies in Canada. An English iron firm supplied the rails for 54 miles, about 6,000 tons, and worth £50,000, for which they took first mortgage bonds. They also bought, or advanced £25,000 on, the same class of bonds. Those bonds went to default, and by legal process the English holders were made sole owners of the pi'operty, wiping out, to use Mr. Potter's expression, all the sums advanced by the municipalities and private share- holders in Canada. The iron firm refern^d to, now own the property which cost them, for the original rails, and for what they have subsequently advanced, about £125,000. It is a fact that very recently they refused to sell the pro- perty for £200,000, and the line is now being v/orked at a steady and increasing profit. It is in this case the Canadian capital which has been wiped out, and the English capital which is receiving and will secui-e in the future all the profit. The history of the next line Mr. Potter refers to — the Canada Central — is almost identical, the Canadian capital has been " wiped out," and the firm that supplied t^e iron originally, sold its intei-est for about £180,000. But the most extraordinary of Mr. Potter's attacks is reserved " for " two short 3 ft. 6 in. narrow gauge lints from Torouto, called the Toronto, ** Grey & Bruce, and Toronto & Nipissing, whicli have been opened now " for two years." With the exception of £1,500 a mile, on the Toronto, Grey &, Bruce, for which bonds were sold in England, the whole of the capital for these two lines was raised in Canada. The interest upon the bonds of both lines has been scrupulously and regularly paid as it became due. This fact, Mr. Potter himself admits, but in the same sentence that he does so, he thinks it consistent with the dig- nity of the President of a great Railway Company, to sneer at the pros- pects of two Companies which yield him a considerable and increasing traffic, and to insinuate doubts upon the credit of the Companies, one of which he has used to endeavour to aid liim in his competition with his western rival for the trade of the Counties of Bruce and Grey. Nothing more paltry than this, is to be found throughout Mr. Potter's 14 j lii l<5 II m m extraordinary attack upon the credit of the country, from which his own Connpany dei'ives its jirofits, — from whicli it has ah*eady asked and received many most vahiable favors, — and wljich it doubtless will again come to for favors in the future. It is only necessaiy to refer to one more instance of Mr, Pottei-'s virulent attack. In speaking of the Intei'colouial lie settles to his own satisfaction the loss which that line is to involve in working. But, as the Ime is not yet ojien, Mr. Potter's statement al)out it may be classed with his remarkable sneei-s at the credit of his allies, the naiTow gauge railways. Mr, Potter is perhajjs ignorant of the fact that for years his Com})any has been urgently pressing upon Canada the construction of the Inter- colonial Eaihvay, in the belief and hope that it would be a valuable feeder to the traffic of the Grand Trunk Railway, with which it connects at Kiviere du Loup. He cannot be ignorant that the whole cost of its con- struction, as such feeder to his Company, has been found by Canada, amounting to between £4,000,000 and £5,000,000, and that the buildmg of it was made obligatory upon Canada by the terms of the Confederation Act, passed by the Imperial Parliament in Muich, 1867. Why Mr. Potter should 'make this outlay by the (Government, which the reports of his own Company and by his own recorded speeches treat as a most valuable adjunct to the future prosperity of the Grand Tmnk, a gromid of violent attack upon the ci'edit of Canada, is incomprehensible, but would seem to be an important question for the consideration of the iiolders of the securities of the Grand Trunk Company itself. It is no part of this paper to deal with the particular Company, the defeat of which wiis the object of Mr. Potter's violent attack upon Canada, and all its railway undertakings. But it is a duty to expose the unfair, unjust, and false statements which Mr. Potter, the President of the Grand Trunk Railway, has ven- tured to make. It has been proved from the reports and documents of his own Com- pany, that the statement that upwards of £30,000,000 of English capital has been hopelessly sunk in his railway, is not true. It has been shewn that the actual cash sent from England and expended in building and completing the line ha.s been less than £12,000,000, and that a net profit was earned in 1874 of £460,000, or 4 [)er cent, upon the actual cash expenditure upon the Grand Trunk Railway. I! !l! A« }» 15 It ha.s been proved that the statement that only £80,000 was divided amongst the English shareholders in 1874, was not time, the amount of X460,000 having been earned and paid according to the Company's own statements. It has been proved that the Great Western Company has paid from its net earnings during 2 1 years, an aggregate amount, for interest on bonds, and dividends on shares, all held in England, of no less than S^ 1,642,000, or an average of £221,000 a year. It has been proved that the Northern .- ilway has riot *f wiped out " its ahai'e capital, — that it is regularly paying -he interest upon its bonds which are all held in England — and that any portion of its capital whicli is not being paid upon, is almost entirely held in Canada. It has been shewn that the two short lines mentioned by Mr. Potter, — tlie Prescott and Ottawa and the Canada Central, — have had their Canadian and not their English capital " wiped out." That all the money found by Canada for tlie construction of those lines has been sunk for the exclusive benefit of the English fiiins who supplied the rails and took bonds thereof in payment. It hiis been shown that the two narrow gauge lines, the capital for which has almost entirely been found in Canada, have thus far honestly paid their interest as it became due, and it is hoped will continue to do so, despite Mr. Potter's sneers and insinuations against their credit. That an attack so violeat, so unnecessary, and so generally unwise, should have had so absolute a want of foundation to rest upon, seems almost incomprehensible. The attack has been so obviously false and overdone, that it can only recoil upon its author, aud unfortunately must do so, also upon the Com- pany of which he is Piv^sident. With the recovery of the trade of this Continent from its present depression, Canada will provide a fair rate of interest upon the actual cash outlay expended by English capitalists in constructing railways by private companies. The construction of local lines, now in progress, are almost entirely being built by Canadian capital and credit, — they are nearly all feeders to existing lines — and if they are in some cases being constructed in advance of actual wants they are opening up important districts of country for settlement, and developing for the benefit of the whole country and its industries, the population and wealth of Canada. Canada has already expended, at her own cost, ahout -£12,000j)00 in aid of existing private railways, and in constructing feeders to their traffic She is now also expending large sums annually for railways into her new Western Territory, and in furtherance of Brit^i policy on this continent by a railway connection between the Atlantic aad Pacific oceans. And despite the attacks upon her credit by Mr. Richard Potter, the President of the Grand Trunk Railway Company, she will continue to advance in prosperity, and in offering a home to those, who .eek her shores to better the position in which they find themselves, m the country which Canada delights to honor and respect, and whose policy and interests, conjointly with her own, it is her highest aim to promote and develop on the continent of America. i«lt I u III ,000 ;heir into this 3an3. the 110 to t her mtry rests, •p on