8.—12

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which it may raise its capital; and in various ways a railway company is always treated as a sort of quasi-public undertaking. Therefore I should hold that the general principles apply even with more force in the case of railways than they would in the case of other undertakings. But I wish myself to place the case mainly on this ground : Whether it is not in the long-run more for the public interest to leave, and whether you are not likely to get more miles of new railway made by leaving, the existing railway companies in a moderately prosperous condition, than you would be by giving this adventitious assistance to speculators to attack them by new schemes. Now, I should be glad to give a practical illustration of how I think that works. Take the case of the railway of which I am the chairman—the Brighton Eailway. When I succeeded to the chairmanship, some fifteen years ago, the company was in a state of great distress—in fact, almost absolute bankruptcy; and it had been brought into that position very much by doing that which I am now arguing against— namely, payment of interest out of capital on new lines in course of construction. In that way a fictitious dividend of 6 per cent, had been maintained for several years, when, practically, the line had not been earning more than 2 or 3 per cent. 189. But it was illegal, was it not, to make such payments of capital ?—I am not quite sure how that may have been at the time to which I refer. lam not sure whether we had that Standing Order at the time ; it is fifteen years ago. 190. The date of the Standing Order is 1847 ; therefore it was done subsequently to the Standing Order being framed ?—Anyhow that had been done. The consequence was that a great number of poor people had been induced to invest money on the faith of its being a steady 6 per cent, line ; and, when the collapse came, for a whole year no dividend at all was paid, and for two or three years we had great difficulty in paying the preference obligations, and there was only 10s. or 15s. dividend, and for a considerable series of years the shares were at a heavy discount. The consequence was that the company was utterly unable to raise capital for any new works or extensions or improvements. Gradually we got over those difficulties; the traffic expanded, and we got up to paying 5 per cent, dividends or upwards ; the shares got to a premium, and consequently we were able to issue capital on advantageous terms. Under the pressure of public opinion, and from the wish to preserve our position and other causes, we then began to spend money very freely indeed; and during the last five years I find we have spent very nearly four millions of money, partly in making new lines through districts not accommodated, partly in improving the stations, doubling the lines, improving the rolling-stock, and in introducing all the latest appliances for safety, such as the block system, interlocking points and signals, and the Westinghouse brake. Practically, I say, we have spent four millions, and we are going on spending more, and should spend more, no doubt, in the years to come. On the other hand, suppose that in that same period of speculation, five years ago, by the aid of a clause allowing payment of interest out of capital, some speculative contractors and professional men had succeeded in floating a competing line to Brighton, undoubtedly it would have kept us back in a position where we should have been quite unable to raise this capital to make this expenditure and to make these new lines; and very likely the end of it would have been that the new line would not have been able to raise all its capital, but would have got into difficulties, and perhaps that line would not have been made, or, if made, perhaps we should have had to amalgamate with it, take on that load of useless capital, and so far deprive ourselves of the means of accommodating the public. My experience in railway matters, which is a very long one now, leads me to the conclusion that when a railway once get into a tolerably prosperous condition, and its shares are at a premium, by hook or by crook the public always get the lion's share of the benefit. There is constant pressure on us to make lines to accommodate districts, to reduce fares, and increase accommodation, and one thing and another, and the result is that we do a very great deal for their benefit. On the other hand, when these speculative lines are got up, I say that certainly in nine cases out of ten they are got up not to make, but to sell: they are got up on the speculation that the persons who get them up will be able to frighten the existing company into some sort of capitulation to take over the new line, and that then the contractors and professional men who run the risk of promoting such lines will get the benefit of it by obliging the existing company to take over these new companies loaded with very onerous contracts, while they themselves will make a large profit. That is a very fair speculation on the part of contractors. I have not a word to say against my friend Mr. Waring—who, I believe, gave evidence the other day— doing it; it is his business : but I submit that it is not a business that is conducive, on the whole, to the public advantage. I do not think that any special facilities, such as relaxing a Standing Order which has existed for so many years, and going in the teeth of what is recognized as a sound principle of finance, should be given for the special purpose of encouraging enterprises of that sort. I speak in the public interest, because, of course, the Committee look at these things in the public interest. I confess that I, for one, do not attach so much importance to what may be called the clergymen and widows aspect of the case; I think clergymen and widows must look out for themselves ; but I look at it in the broad view of the public interest. I do not think it is for the public interest that enterprises of that sort, which, in nine cases out of ten, are merely meant to be a tax on existing railways, and to burden them with useless capital, should get special encouragement in the way of such a relaxation of the Standing Orders as is now advocated. 191. You look upon this Standing Order 167 as a protection to the public against such enterprises ? —Yes ; there is no doubt that it does operate to a considerable extent in this way : When new lines of this sort are brought out I think it will be found that those who subscribe to them are generally more the speculating part of the public than the investing part; investors seldom come in until a line is completed, or well advanced towards completion; and the great inducement, no doubt, to a speculator to subscribe for a share in a speculative enterprise of this sort is the hope of being able to sell it again and get out of it. The payment of interest during construction no doubt facilitates that; it extends the period during which a man who has subscribed for his shares originally on speculation may hope to sell them in the market and get out of them. In that way, I fully