PACIFIC RAILROAD FUNDING BILL. 
 
 SPEECH 
 
 OF 
 
 Hon. JAMES McLACHLAN, 
 
 OF CALIFORNIA, 
 
 HOUSE OF REPRESENTATIVES, 
 
 JANUARY 9, 1897. 
 
 WASH INGTON. 
 1897.
 
 SPEECH 
 
 OF 
 
 HON. JAMES McLACHLAN. 
 
 The House being in Committee of the Whole on the state of the Union, and 
 having under consideration the bill (H. R. 8189) to amend an act entitled 
 "An act to aid in the construction of a railroad and telegraph line from the 
 Missouri River to the Pacific Ocean, and to secure to the Government the use 
 of the same for postal, military, and other purposes," approved July 1, 1862; 
 also to amend an act approved July 2, 1864, and also an act approved ilay 7 , 
 1878, both in amendment of said first-mentioned act. and other acts amenda- 
 tory thereof and supplemental thereto, and to provide for the settlement of 
 claims growing out of the issue of bonds to aid in the construction of certain 
 railroads, and to secure the payment of all indebtedness to the United States 
 of certain companies therein mentioned 
 
 Mr. McLACHLAN said : 
 
 Mr. CHAIRMAN: In the brief space allowed me for the discussion 
 of this bill there is not time to refer but briefly to the history of 
 the railroads under consideration. Under the law of 1862 the 
 right of way was granted these railroads, 12,600 acres of land given 
 for every mile to be built, and subsidy bonds issued at the rate of 
 $16,000, $32,000, and $48,000 per mile, according to the character 
 of the country through which the roads were to be built. These 
 bonds were to constitute a first-mortgage lien upon the property 
 and were to be repaid in thirty years. 
 
 This was a princely donation, but the originators realized that 
 they could do better, and took no active steps for two years, when 
 the land grant was doubled, the lien of the Government subordi- 
 nated to a second place, and a first mortgage allowed to be placed 
 upon the property equal to the original grant of subsidy bonds, 
 amounting to about $64,000,000. 
 
 Then the gentlemen comprising the original projectors of this 
 scheme, whose combined capital was insignificant, built the Cen- 
 tral Pacific for $58.000,000, capitalized it at $189,000,000, and di- 
 vided the profits and Government subsidy among themselves. The 
 Union Pacific was manipulated in a like manner through the Credit 
 Mobilier. and as a result $324,000,000 was paid to stockholders of 
 the Pacific companies. In addition to the $64,613,000 of bonds re- 
 ceived, there were 31,900,000 acres of land granted. But notwith- 
 standing these princely fortunes accumulated by reason of the 
 fabulous liberality of the United States Government, from the 
 very inception of the enterprise there seems to have been a steady 
 design on the part of those who had grown rich by this liberality 
 to prevent the Government from ever realizing anything upon the 
 advances it had made or the obligations it had assumed. From 
 being the lessors of the Southern Pacific Railroad lines in Cali- 
 fornia, New Mexico, and Arizona, the Central Pacific was placed 
 under control of the latter company and its earnings practically 
 limited to a 2 per cent guaranty. 
 
 2533 3
 
 The roads were completed on May 10, 1869, and the Government 
 delivered the last of the bonds. Five years later, when the rail- 
 road companies were asked to account for the 5 per cent of their 
 earnings provided by law to be paid the United States, they denied 
 that the roads were completed. This point was decided against 
 them by the United States Supreme Court, and they then insisted 
 that there were no earnings, because they had been expended in 
 building branch lines upon which the Government had no legal 
 claim. They denied the rights of the United States to a lien on 
 the terminals and the Omaha bridge, and these questions are now 
 pending in court. Both companies brought exorbitant charges 
 against the Government for carrying mail and troops, and these 
 were disallowed by the Court of Claims. They denied the right 
 of the Government directors to meet with the directors of the 
 Union Pacific Railroad Company. The Union Pacific, with an 
 original mileage of 1,821.86 miles, now has 7,672.09, the difference 
 being built out of the profits of the original grant, but upon which 
 the Government has now no legal lien. 
 
 These railroad companies went openly into politics and put out 
 railroad tickets in the Western States. So notorious did this 
 become that when the Credit Mobilier scandal was exposed but 
 little surprise was' manifested. Then came the Wilson investiga- 
 tion of 1873; and the reports of that committee present a. most 
 astounding state of affairs. Then the Thurman Act of 1878 was 
 passed, requiring the roads to pay in all of their earnings from trans- 
 portation of mail, troops, munitions of war, and 25 per cent of their 
 net earnings, which constituted a sinking fund. The railroad com- 
 panies at once tested the constitutionality of this law. It was sus- 
 tained by the United States Supreme Court, and suddenly, in 1880, 
 seventeen years before the debt became due, the railroad companies 
 started an active effort to have their indebtedness to the Govern- 
 ment funded. There had been no intimation of insolvency prior 
 to that time by either company. Their stock ranked high in the 
 market; dividends were paid with clock-like regularity, but sud- 
 denly it developed that they were " about to become insolvent," 
 according to their own claims. 
 
 In 1887 another commission reported, and this report, as in case 
 of the Wilson committee, charged gross frauds from the inception 
 of these companies. Acting upon these reports, the Fiftieth Con- 
 gress passed a law authorizing the Executive and Attorney-Gen- 
 eral to proceed to foreclosure in case the indebtedness was not 
 paid. Every Congress since that time has been besieged by these 
 companies. Is their past record such as to inspire confidence in 
 the stability of any agreement they might make in the future? 
 
 The first thing that a prudent man does when entering upon a 
 contract is to put in figures just what he obligates himself to pay 
 and what the other party is obligated to pay or do. 
 
 It is a well-known fact that United States bonds can not be 
 floated bearing a less rate of interest than 3 per cent. 
 
 This bill provides that the Central and Union Pacific shall pay 
 2 per cent interest on the uncanceled portions of their debts to the 
 Government. In addition they are to pay ' ' installments of princi- 
 pal " aggregating $730,000 a year for the first ten years, $1,000,000 
 a year for the next ten, and $1,500,000 annually thereafter until 
 the debt is "paid." 
 
 The principal of the debts amounted on the 1st of the present 
 month to about $121,140,942.39. 
 
 2593
 
 The fimding bill provides for certain offsets which reduce this 
 figure slightly. 
 
 The first annual payment made by the Central and Union Pacific 
 will ba $2,422,818.84 for interest and 730,000 for "installment," or 
 $3,152,818.84 in all. After that the railroads will pay less and less 
 for ten years, when they \7ill be paying for interest and install- 
 ment combined $3,021,418.84, or 2.5 per cent. 
 
 During all this time the Government will be paying its own 
 creditors on an equal amount of debt $4,239,932.98 a year in 
 interest, none of which will be counted as an installment on the 
 principal. In this period of ten years the railroads will have 
 reduced the principal of their debt by $7,300,000, and yet they will 
 lack $11,528,141.43 of having paid the Government as much for 
 interest and pi'iucipal combined as it will have paid its creditors 
 for interest alone on the money it has been obliged to borrow by 
 reason of the nonpayment of this railroad debt. 
 
 The next year the ' ' installment " will increase to a million dollars, 
 and that will bring up the total railroad payments for the year, 
 including interest, to $3,276.818.84, or 2.7 per cent on the original 
 debt. 
 
 From this point thev will decline for ten years more, until in 
 the tenth year they will amount to $3,096,818.84, or 2.56 per cent. 
 In this period of ten years the total railroad payments for interest 
 and principal combined will lack $10,531,141.43 of meeting the 
 cost of similar loan to the Government for interest alone. 
 
 The railroads will then owe the Government $103,840,942.39, 
 which they will pay off at the rate of $1,500,000 a year until it is 
 all extinguished. 
 
 The first year this "installment," plus interest at 2 per cent, 
 will amount to $3,576,818.84, which will be equivalent to 2.95 per 
 cent on the original debt. That is the largest payment that will 
 ever be made in any one year during the whole course of the liqui- 
 dation, and it will fall short by $663,114.14 of the amount the 
 Government will have to pay its creditors for interest alone dur- 
 ing every one of the eighty-nine years the process will last, and 
 every year thereafter until it chooses to pay the principal in full. 
 
 These installments will clear off the entire debt in about sixty- 
 nine years more, making about eighty-nine years from the begin- 
 ning. 
 
 The last full year's payment for interest and installments com- 
 bined will amount to $1,540,000, or 1.27 par cent on the original 
 debt, and about $2,700,000 less than the Government charges for 
 interest alone on a similar debt. 
 
 The state of the account at the end of the process will be this: 
 In the first ten years the Government will have paid its creditors 
 in interest on the money it has been obliged to borrow by reason of 
 the nonpayment of this railroad debt $11,528,141.43 more than it 
 will have received from the roads for interest and principal com- 
 bined. In the next ten years its excess of payments will reach 
 $10,531,141.43. 
 
 In the remaining sixty-nine years it will pay $117,025,125.64 more 
 than it will receive. By the time the railroads have ' ' extinguished " 
 their debt their aggregate payments to the Government for inter- 
 est and principal combined will lack $139,084.408.50 of the Govern- 
 ment's payments for interest alone, taking .no accoimt for interest 
 on interest. And while the railroads will then be free of the debt, 
 the Government will still owe the whole original principal, amount- 
 2502
 
 6 
 
 ing to $121 ,140,943. Its total loss from the funding operation , there- 
 fore, will be $260,225,350. The total amount of the payments for 
 principal and interest under the provisions of this bill will amount 
 to about 2.3 per cent on the principal debt for eighty-nine years, 
 and at this rate would leave the principal debt still unpaid and 
 due the Government. 
 
 This is not a proposition for the railroads to pay the United 
 States Government, but purely and solely for the United States 
 to present it with millions of dollars more than they have already 
 received. 
 
 There is not a railroad company in the United States that would 
 not pay liberally to have its indebtedness funded for ninety years 
 at 2 per cent. No such proposition was ever made before, and I 
 venture to say that no such proposition would ever be entertained 
 for a moment by any money lenders in the world under similar 
 circumstances. 
 
 That it should have received the indorsement of the committee 
 is astounding, and I can not think that thej' ever carried the fig- 
 ures out and learned what the proposition actually meant. 
 
 This bill in effect provides that the companies shall be given a 
 clear receipt for all they have obligated themselves to pay, and. in 
 addition to that, be presented with a further subsidy. 
 
 It has been well stated in one of the minority reports that it is 
 not shown this is the best we can do, and on the face of the propo- 
 sition it is evident that it is the worst we could do. 
 
 The bill provides that the companies shall double the amount 
 of the present first-mortgage indebtedness, and, in return for this 
 reducing the present value of the security to the Government, 
 collateral lines are included, all of which are heavily mortgaged. 
 Are they worth the amounts they are already mortgaged for 
 Are they not already mortgaged for more than they are worth 
 We have no information upon that subject. In fact, the bill 
 shows that the committee possesses no information. It in terms 
 makes a contract in ignorance of the facts upon which it rests, 
 and makes it the duty of the Secretary of the Treasury to ascer- 
 tain the facts after the contract is made. He is not empowered 
 to change the contract, should the facts show it to be a bad one. 
 It makes the contract absolutely without the facts, and calls upon 
 the Secretary of the Treasury to ascertain them afterwards. Can 
 such a dealing in the dark be justified? 
 
 But it is said, and emphasis given to the statement on the floor 
 of this House, that something must be done, and the time is short 
 in which to do it. The question must be settled. Why must 
 something be done? The time is short in which to do what? Has 
 not the question been settled? 
 
 The United States Government at enormous expense formed a 
 commission composed of three of the ablest lawyers in America. 
 They heard testimony which fills ten immense volumes. They 
 rendered their decision. That decision was ratified nine years 
 ago by the Congress of the United States with the evidence before 
 it, and after long, exhaustive debates upon every phase of the ques- 
 tion. Congress acted and passed a law. 
 
 Under the act of March 3, 188T, the President is authorized to 
 direct the Secretary of the Treasury to ''redeem or otherwise 
 clear off such (any) paramount lien, mortgage, or other incuin- 
 brance " on these roads prior to that of the United States "by pay- 
 ing the sums lawfully due in respect thereof out of the Treasury." 
 2392
 
 He is also authorized to direct the Attorney-General "to take all 
 such steps and proceedings in the courts and otherwise that shall 
 be needful to redeem such lien, mortgage, or other incumbrance, 
 and to protect and defend the rights and interests of the United 
 States in respect of the matter in this section mentioned, and to 
 take steps to foreclose any mortgage or liens of the United States 
 on any such railroad property." 
 
 Congress has declared that the matter should be settled in the 
 only branch of Government where all of the law and equity can be 
 adjusted the judicial. Who has ever objected to this very proper 
 mode of collecting this indebtedness, the only one which a private 
 individual or a corporation would ever think of adopting through 
 their attorneys? Have there been any protests, any demands 
 upon Congress that it should independently of the courts and the 
 duly constituted legal authorities of the United States take this 
 matter out of their hands? Have the people expressed a lack of 
 confidence in the Executive and the Attorney-Genei'al? With 
 the plenary power to make such settlement as will best subserve 
 the interests of the people given by this law. has anyone accused 
 the Attorney-General of inconapetency to fulfill the duty imposed 
 upon him? It is a matter of personal knowledge to every member 
 of this House that there have been no such protests from 70,000,- 
 000 people. They are not only satisfied to let the law take its 
 course, but through the columns of the press, in political conven- 
 tions, in mass meetings, and by petitions they have demanded 
 that the law take its course. For whom is the time short? Not 
 for the Government, for this is not a proposition to effect a set- 
 tlement, but to extend the time for a century and to burden an 
 already bankrupt Treasury with great additional obligations. 
 Whose interests are in jeopardy? To say that those of the Gov- 
 ernment are is a reflection upon the Executive and the Attorney- 
 General. Whence, then, comes this clamor? From the debtors 
 only. Usually it is the creditors who insist that a debt shall be 
 adjusted, but every session of Congress since that which placed 
 the whole matter in the law department, \v here it properly belongs, 
 Congress has been besieged by emissaries of these railroad com- 
 panies, claiming that the people's interests demanded that a set- 
 tlement be made of a debt that was not due. Are they afraid the 
 courts will do justice, and do they believe they can influence Con- 
 gress to prevent justice being done? The proposition is an insult 
 to every member of this body, but it is the only legitimate expla- 
 nation of the constant presence of the Pacific railroad lobbies. 
 
 In this case the Government is the creditor, the railroad compa- 
 nies the debtors. Nine years ago the creditor placed this entire 
 matter in the hands of its attorneys, with full power to protect the 
 interest of the Government, and the debtors were notified of that 
 fact. Ever since that time the debtors have been importuning the 
 creditor to take the matter out of the hands of its attorney with- 
 out even consulting him and settle it without the assistance of 
 legal counsel. No course of that kind would ever be justified in 
 case of an individual or a private corporation, and should not be in 
 case of the Government. What will be the result if Congress fails 
 to act? Why, there will be a full hearing in a court of competent 
 jurisdiction and a decree rendered in accordance with the law and 
 facts, protecting so far as possible the interests of all concerned. 
 Is such a course a calamity calling for the hasty interposition of 
 Congress? 
 
 2592
 
 8 
 
 I use the word "hasty" intentionally, for it would be hasty, to 
 use the mildest term, for this Congress, without the assistance of 
 a judicial commission and without exhaustive sworn testimony, to 
 overrule the decision of the Fiftieth Congress, which had the ben- 
 efit of those aids, and that, too, when no one except the railroad 
 companies objects to the decision then reached. What will be 
 the result if we do pass this bill? We must receive less than we 
 pay out, relinquish even what control we have of these compa- 
 nies, and tax posterity for the next ninety years a monument of 
 folly! Is this result so desirable that we will be chargeable with 
 neglect of duty if we allow the law to take its course and thus fail 
 to provide this legacy of debt to our children and our children's 
 children? 
 
 But this has been likened unto a composition with creditors by 
 which time is extended. It shows no such phase as presented in 
 this Congress. Robbed of all superfluous verbiage, it is simply a 
 proposition that one creditor the Government pay the debts of 
 the other creditors at 100 cents on the dollar, reduce the rate of 
 interest more than one-third below actual cost of carrying, turn 
 tne property over to the debtors, allow them to retain all of the 
 profits, and their remote descendants will pay the principal in 
 case they feel so disposed. Any court in the United States would 
 appoint a guardian over any man who would accept such a prop- 
 osition, and treat him as non compos mentis upon the applica- 
 tion of any relative. It has not even the advantage of being 
 ingenious. 
 
 It is objected that only one-seventh of these systems are em- 
 braced in the main lines upon which the Government liens rest, 
 and that with these branches in the hands of the companies the 
 main line can not do business. While I am not inclined to dispute 
 that the tail may wag the dog, yet if the tail is cut off I do not 
 think the dog will die and the tail continue to wag. As these 
 branches are feeders to the main lines, they can only be operated 
 in connection with the main lines, not in competition with them. 
 The branches may represent more mileage and be more profitable 
 than the main lines, but the former can not be operated at all 
 without the latter, and as the more they carry the more profitable 
 they are, they will carry just as much to the main lines if they 
 pass out of the hands of the owners as they do now. At any rate, 
 the insolence of the argument is too great for it to be accorded 
 much respect. The railroad companies say: " You advanced the 
 money and we built the lines. Out of the profits we bought and 
 built branch lines that belong to us and not to you. Our roads 
 that we bought with the profits of your roads are more profitable 
 than your roads; therefore, as you can not do anything with your 
 roads without ours, you ought to give them to us." 
 
 The prospect that the Government may have to buy in the roads 
 frightens some people. It is not necessary that the Government 
 should buy them in if that course does not appear desirable. Nor 
 will the court confirm a sale where the price bid is grossly inade- 
 quate. Take judgment as in any other foreclosure suit, and let 
 the railroad be run by receivers until an adequate bid is received. 
 The fact that his client did not want to buy a railroad would not 
 deter a lawyer from proceeding to collect a debt against one. 
 
 The "bogy man" of the Government ownership of railroads has 
 seemingly been conjured up by the railroad people to frighten 
 timid legislators, and every time it is mentioned there are loud 
 cries of ' ' Paternalism ! " It has not usually been supposed th at the
 
 Governments of France, Germany, Belgium, and Bavaria were 
 paternal. These are the prominent countries that have tried the 
 Government ownership of railroads. In all of them it has been a 
 success. There have been no failures to record against the system 
 in Europe. Charles Francis Adams, jr., a former Government 
 director of the Union Pacific Railroad, and subsequently president 
 of that company, wrote a treatise against the Government owner- 
 ship of railroads, taking the ground that an entirely different 
 state of affairs existed in the United States from that found in 
 Europe. But he was honest enough to make the following state- 
 ments. I quote from his book: 
 
 To satisfy everyone always is a result not likely to be attained under any sys 
 tern or in any country. Meanwhile it may, with tolerable safety, be asserted 
 that the Belgium system is as satisfactory to the people of Belgium as the 
 nature of things human permits that it should be. Certainly the public feel- 
 ing points very distinctly toward the acquisition of the remaining lines of 
 the system by the Government, while the sale of the Government lines to 
 promote corporations has never been urged by any considerable party. 
 Financially the undertaking has proved a decided success. 
 
 As to France he says: 
 
 Though not especially enterprising, the companies are, as a rale, solvent' 
 impartial, and reliable. Indeed, those managing them look with simple 
 astonishment on the wild fluctuations in the railroad tariffs incident to the 
 American method of operation, and they do not hesitate to say that if any 
 similar outrages were perpetrated on the French people and business public 
 by them the question of the state ownership of railroads would immediately 
 assume a new shape. Such proceedings would not be tolerated. 
 
 I do not intend to discuss at length the prog and cons of the 
 question of Government ownership or operation of railroads, or 
 to take any grotmd upon that question as an independent proposi- 
 tion. Bnt under the existing conditions of these Pacific railroads 
 and their relations to this Government, rather than pass this bill 
 I would prefer to see this Government try the experiment of the 
 Federal ownership and control of these roads, charging the people 
 only sufficient for freight and passengers to pay the running ex- 
 penses, keeping the roadbed in repair, and paying the interest on 
 whatever debts might exist against them, together with a reason- 
 able sinking fund to pay off the existing debt, and giving the peo- 
 ple the benefit of the lowest possible rates. 
 
 The whole nation is clamoring to-day for the building of the 
 Nicaraguan Canal under the control and management of the 
 Government. Upon the same theory and under the existing con- 
 ditions of these roads, I would like to see the experiment tried of 
 this Government owning and controlling one transcontinental 
 railroad from the Pacific to the Atlantic Seaboard. Such a rail- 
 road would tend to regulate the rates of all transcontinental rail- 
 roads, and might successfully solve one of the most difficult and 
 complex questions that now confront the American people. 
 
 To the extent that the right of way ia conferred upon railroad 
 corporations it is a delegation of sovereignty, and such delegations 
 are always dangerous. They are not amenable to all the laws con- 
 cerning corporations. The courts make them a class unto them- 
 selves on the ground that they are quasi public corporations. It 
 must be admitted that this quasi public character has operated in 
 favor of the railroad companies and not of the public. 
 
 So universal has this idea become that railroads are operated 
 
 against the interests of the people that it is notorious that in 
 
 the courts American juries will mulct railroad companies in the 
 
 heaviest damages possible. Every attorney who represents a rail- 
 
 2502
 
 10 
 
 road company has had frequent cause to complain of the preju- 
 dice existing against that class of corporations. The American 
 people love justice. In no country do juries bring in as fair ver- 
 dicts as a rule as in the United States. The love of Americans 
 for fair play is proverbial. Bankers, manufacturers, merchants, 
 are all accorded justice by juries, and the fact that railroad com- 
 
 Ranies alone encounter as an obstacle to the obtaining of their 
 ?gal rights a universal prejudice is proof conclusive that the 
 people have suffered at their hands. And among such offenders 
 the Pacific railroad companies have never been backward. They 
 have oppressed the farmers by extortionate charges, by insuffi- 
 cient service, and by granting low rates to favored shippers until 
 the fertile country through which their lines pass is almost 
 ruined. The farms are mortgaged, corn is burned for fuel, and 
 wheat and fruit rot because they will not bring a price that will 
 pay for shipment to market. That I am teJling the truth will be 
 borne out by every man familiar with our Western States. This 
 has caused, more than everything else combined, the spirit of 
 unrest that is found throughout that section. Throughout the 
 States where these railroad lines pass there has been for years a 
 general demand that the Government control. Now Congress has 
 an opportunity, without incurring a dollar of extra expense, to 
 allow the experiment to be tried in the very section where the 
 demand for it is strongest. 
 
 It would in the past have saved the $324,000, 000 paid in dividends 
 by these same roads, even though they had not been conducted 
 more honestly than these companies operated the lines. That 
 saving to the producers along these roads would have rendered 
 them independent and prosperous. Their i'arnis would not now 
 be so heavily mortgaged and they be suffering for the necessities 
 of life. If the experiment proved a failure, the railroads could be 
 sold. It will cost nothing to try it, and it will settle one way or 
 other this widespread popular demand. It will not do to predict 
 a failure ex cathedra. It is successful in Europe and has never 
 been tried in the United .States. It is true that Illinois, Indiana, 
 Massachusetts, Pennsylvania, and Georgia have tried it in a very 
 limited way. It has not been altogether satisfactory nor alto- 
 gether unsatisfactory, but there are difficulties in the way of a 
 State operating a railroad that do not exist as against the United 
 States, for the States can not regulate shipments from or into 
 other States. 
 
 In this case the people furnished the money, and I believe they 
 have a right to demand that they, through their Government, 
 shall have control of the property, at least till this debt is paid. 
 
 I therefore oppose any funding scheme, believing that the 
 Attorney-General should act in accordance with the terms of the 
 act of 1887 and buy in the property for the people. 
 
 But if any funding bill is passed, certainly the arrangement 
 should be the best one possible. It is admitted that the Union 
 Pacific can afford to offer better terms than the Central, and here 
 is what Creed Haymond, attorney of the latter company, stated 
 his company could do: 
 
 The company could without any difficult; , and without assuming a burden 
 nearly as great as is now upon it for interest, pay into, the United States 
 Treasury four millions annually, which would pay off the last dollar of this 
 indebtedness long before the expiration of forty years. This indebtedness 
 could be made to constitute a mortgage upon the property, and it would be 
 a first mortgage readily available to the Government or to any person who 
 desired to use the security. 
 2592
 
 11 
 
 If Congress is to act at all, it should only do so after a thorough 
 examination of all the facts and the law and equities of the case. 
 We have nothing before us but the reports of the committee, of 
 which there are three, all of them stating the facts differently, 
 and the bill reported, leaving the facts for the Secretary of the 
 Treasury to learn. If the members of the committee who heard 
 the evidence can not agree upon a statement as to the facts sub- 
 stantiated , how can those members who did not hear the evidence 
 base any conclusion upon these reports? We know that the Cen- 
 tral and Union Pacific railroad companies will owe the United 
 States Government some money as to how much, we have differ- 
 ent statements. We know that no effort has been made by the 
 law officers to collect it. We are informed by the debtors that 
 they are insolvent, but we do not know that this is true, while we 
 do know that they have not always been truthful in the past. 
 We have no schedule of assets and liabilities that would be ac- 
 cepted by any court as such, or acted upon in any creditor's 
 meeting. 
 
 We know from the reports of the Pacific railroads commission 
 in 1887, the Wilson commission in 1873, the reports of the Govern- 
 ment directors of the Pacific railroads each year for the past 
 twenty years, and the messages of Presidents Harrison and Cleve- 
 land, that extensive frauds have been charged; that it is claimed 
 there have been diversions of funds; that immense sums have 
 been paid to stockholders, and that the companies are charged 
 with gross violations of the provisions of their charters. We are 
 told that there is not enough property to pay the first-mortgage 
 bondholders and the United States, too, but there is no sworn 
 statement or appraisal of the property. We have no evidence 
 that there is not enough, except the statement of the debtors them- 
 selves. Taking for granted that this is true; going further, and 
 taking it for granted that there is not more than enough property 
 to pay the first-mortgage liens, as a matter of law, there are still 
 some important questions to consider. What is the value of the 
 equities? That is a matter a statute-making body can not inquire 
 into properly or reach. It can be determined only by the judiciary. 
 
 It is a well-settled principle of law that the statute of limitations 
 does not run against the Government; hence a judicial inquiry 
 would probe the frauds, if any existed, and every commission 
 ever appointed has charged that extensive frauds were perpetrated. 
 These frauds must have been to the injury of the United States, 
 and the courts would follow all funds diverted by fraud and give 
 judgment for their recovery. Pass this bill and we condone these 
 alleged frauds without a legal investigation, cut off the possibility 
 of reaching them in the future, give the railroads a clean record 
 up to the date of its passage, and hereafter we must be governed 
 by the provisions of this bill alone. These companies had prac- 
 tically no money except that furnished by the United States. Does 
 this create a resulting trust in favor of the United States in all 
 property purchased with money belonging to the United States? 
 It is a well-settled principle of equity that where property is bought 
 with funds of another, the title being taken in the name of the 
 purchaser, the owner of the funds has a resulting trust in the prop- 
 erty so purchased. Is this a case within that rule? If so, every 
 dollar of the Government money can be recovered. Has there 
 ever been an attempt made to bring this case within this well- 
 known rule of equity? Never. 
 
 An attempt was made to hold the stockholders of the Central 
 2593
 
 12 
 
 Pacific liable under the California statute. This failed, the United 
 States Supreme Court holding that they were not liable under 
 that statute because it was a Federal and not a State corporation. 
 That being true, the liability of the stockholders is under the Fed- 
 eral law. What is that law? The statutes being silent, would 
 not the common law prevail, and the stockholders be liable under 
 the common law? If the common-law liability coxild be enforced, 
 every dollar of the indebtedness to the United States could be re- 
 covered. Has there been any attempt to enforce it? None what- 
 ever. Should the courts hold that either of these principles 
 applied, the debt could be collected in full, even though there was 
 not a dollar's worth of property available under direct legal pro- 
 ceedings. 
 
 In connection with foreclosure proceedings, a bill of discovery 
 could be filed, setting forth the allegations of fraud that have been 
 made. Congressional committees have tried in vain to get the 
 books, or information as to what they contained. If a subpoena 
 duces tecurn is not powerful enough to bring them forth, a writ 
 of sequestration, coupled with the authority of the courts to 
 imprison for contempt, would secure the evidence. The hearing 
 before Congressional committees has largely been ex parte. We 
 have only the evidence of the defendants. We know nothing 
 about the strength of our own side of the case. There is not a 
 lawyer in this body who would risk his legal reputation by writing 
 a legal opinion upon the intricate legal and equitable questions 
 involved with the confused and conflicting statements of facts 
 before us for consideration. According to the provisions of this 
 bill, even the amount of liabilities to be assumed is left for the 
 Secretary of the Treasury to ascertain after the bill has passed. 
 
 If the decision of the court was against the United States on all 
 of these points, no fraud was proved, no funds had been diverted, 
 and the stockholders were not liable, we would be in no worse 
 position than we are now. We could still fund the debt if thought 
 best. It may be feared that the present foreclosure suits would 
 be pushed and not await the action of Congress. Making the 
 parties to the present suits party defendants will hold them in 
 court; and if the judgment be adverse to the United States, and 
 the Government does not want to purchase the property, and the 
 first-mortgage bondholders refuse to wait until Congress acts, 
 a suit for the annulment of the charter, for which there is ample 
 grounds if reports are true, will bring the first-mortgage bond- 
 holders to terms at once. Let us have a judicial determination of 
 the facts, a schedule of assets and liabilities, with proper appraise- 
 ments, a determination of the questions of law and equity; then 
 we will have information upon which we can act intelligently. 
 Until then, theories and opinions are absolutely valueless, for we 
 know nothing about the case. 
 
 Let us go into the courts, where the stockholders, the unsecured 
 creditors, the bondholders, the Government, all, can be heard. 
 Let us have a decision upon the merits of the case. Let us probe 
 the charges of fraud to the bottom. Let us recover the funds that 
 have been diverted, if any. Let us determine whether the stock- 
 holders, who have grown enormously wealthy, can not be made 
 to account for a portion of their dividends. I believe we will col- 
 lect all of our money. If not, we will be in no worse position than 
 we are now. 
 
 It is evident from the clamor about insolvency these debtors 
 have made, and their desperate efforts to effect a long-term com-
 
 13 
 
 promise before their debt is due, that they are afraid of the courts; 
 but the United States has nothing to fear from its judiciary. If, 
 as they claim, they have nothing to pay with as corporations, and 
 are not individually liable, why should they object to legal inves- 
 tigation? Is it purely and wholly a proposition for their advan- 
 tage, and only a plan to induce the Government to pay their debts 
 and allow them to continue in control of the property? If it is, 
 Congress has no right to consider such a proposition for a moment. 
 If not, it is inexplicable that they should keep up an expensive 
 lobby in order to prevent the present law from being carried out. 
 
 While I am opposed to this funding bill, I can see how others 
 might be earnestly in favor of funding this debt. But I can not 
 see how any member of this House can favor funding at a rate of 
 interest below the actual cost to the Government of carrying the 
 debt. Nor can I see how any member can favor taking action 
 until the courts have passed upon the important questions in- 
 volved, with all parties in interest in court. When that is done, 
 the conclusions can be entered upon the records as a decree of 
 court, all creditors and parties in interest would be bound by it, 
 and Congress would know just what the Government's rights are 
 and what the companies could afford to do. I believe that the 
 strongest friends of this bill will vote against it if they give care- 
 ful consideration to the lack of definite facts and of judicial inter- 
 pretation upon which we can act. 
 
 Are we justified in overruling these commissions and Con- 
 gresses when every political convention and every mass meeting 
 of citizens that has acted upon the subject has indorsed what they 
 have done? Let me beg of the members of this House to remem- 
 ber that we are considering the question of collecting a debt. It 
 has already been placed in the hands of the Attorney-General for 
 collection, and he has not reported that it is uncollectible. We 
 dp not know whether or not the holders of the senior liens will 
 bid enough to enable us to realize something upon our claims. 
 We do not know whether or not other bidders can be secured. We 
 only knovy that if we do not resort to legal proceedings our debt- 
 ors, who, it is claimed, have persistently defrauded us in the past, 
 agree to continue in control, provided we pay their preferred 
 creditors. Two Congresses have favored compelling the collec- 
 tion of the debt; two commissions have reported against both the 
 insolvency and good faith of our debtors; three Congresses have 
 refused to entertain similar offers of compromise to that niaile 
 now. The conduct of these debtors in the past has not been such 
 as to command our confidence that they will carry out even the 
 liberal provisions of this bill. They have strained every point 
 in former enactments against the Government and have grown 
 rich. While they have amassed fabulous fortunes by the liber- 
 ality of the Government toward them in the past, they have 
 studiously avoided making preparation against this day of settle- 
 ment. 
 
 Let us now deal with them as with an ordinary individual 
 under similar circumstances. Let the law take its course. Let 
 exact justice be done to all, and we shall have done our duty. 
 
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