March 14, 1911

LIB

Wilfrid Laurier (Prime Minister; President of the Privy Council)

Liberal

Sir WILFRID LAURIER.

This applies to bonds only, and not to the stock of a company.

Topic:   WAYS AND MEANS-GRANTS TO VETERANS.
Subtopic:   CAPITALIZATION OF RAILWAYS.
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IND

William Findlay Maclean

Independent Conservative

Mr. MACLEAN (York).

Topic:   WAYS AND MEANS-GRANTS TO VETERANS.
Subtopic:   CAPITALIZATION OF RAILWAYS.
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?

Hon. A@

Hadley,

President Yale University,

^ New Haven, Conn.

Under the provision of section 16 of the Act of Congress approved June 18, 1910, en-

Topic:   WAYS AND MEANS-GRANTS TO VETERANS.
Subtopic:   CAPITALIZATION OF RAILWAYS.
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"5239 COMMONS


titled ail 'Act to create a commerce court,' and to amend the Act entitled an 'Act to regulate commerce,' approved February 4, 1887, [DOT]as heretofore amended and for other purposes, I hereby appoint you chairman of a 'Commission to investigate questions pertaining to the issuance of stocks and bonds by 'Tailroad corporations, subject to the provisions of the Act to regulate commerce, and the power of Congress to regulate or affect the same.


WM. H. TAFT.


-Professor Hadley, of A ale, is known as *one of the ablest publicists of the United -States. Associated with him are other able publicists, and the commission are now dealing with this question. They have had hearings all over the country, and, as far as I can judge, the evidence is all to one effect, and that is that it is absolutely *in the interest of the railroads themselves, of the corporations, of the investors, to have complete regulation and control of securities issued by railroad companies. If you ask me what the ' insurgent ' movement in the United States means, I say it *means a rebellion of the people against -the excessive charges of the railroads and a determined effort to bring about reform. They have come to the conclusion that, to strike the evil at its root, there must be regulation of the finances of the railway. And in the United States it is harder to regulate corporations than it is here; for it is provided under the constitution that in-*vestors must be allowed a fair return on their investment; you cannot injure a man's investment, and if there has been an extravagant issue of securities, the IRailway Commission in the United States is limited by this provision that a reasonable return must be allowed on the investment. No such law obtains here in Canada fortunately and our commission can Tegulate, but in all fairness the investor ought to be protected and ought to get a reasonable return on his investment. However, before that security issues, it ought to be shown that it is absolutely in the interest of the undertaking, not of some stock operator or Harriman or some one -who wants to make a fortune out of what is called the reorganization of a company. The reason ought to be given and has now to be given in the State of New York, and there is every prospect that the Congress of *he United States will add to the general railway law of that country provisions which will secure control of all railway capital. The same thing has been dealt with by other eminent men in the United States, among them Mr. Woodrow Wilson. "Mr. Woodrow Wilson, Governor of New Jersey, is one of the new type of public men who are coming up in the United "States and Canada ought to watch with "the greatest interest the rise of these new public men in the United States who de-Mr. MACLEAN. vote themselves to public service; I am glad to say that the legal profession is furnishing the greatest number of these men. Governor Wilson is an excellent sample of this type. At his inauguration as Governor of New Jersey the other day he said that the first thing to which he would devote himself in connection with the legislature of New Jersey would be the regulation of the capitalization of companies chartered in that state. Everybody knows that the State of New Jersey has been abused by men getting corporate powers of every kind with enormous capitalization. The State of New Jersey would give any power to any corporation and give capital by the millions, which onl.t meant water. He is of the opinion that the regulation of the capital of railways must be handled in a scientific way by a well-trained commission, and all the leading magazine articles in the United States dealing with the grievances of the people of the United States in connection with railways have taken the ground that the first essential is the regulation of the capitalization of railways. They have seen that the railway grievance has its origin there, and have come to the conclusion, as was expressed by Mr. Kuhn of the great firm of Kuhn, Loeb & Company, who backed Harriman more than any one else, that the regulation of capital lias got to come. The day when one man like Harriman or the Vanderbilts could reorganize a railway with an enormously increased capital and put the increased stock in his own pocket is over. Harriman's last act in reorganizing the railways of Southern California" and the west was to make such an increase in the stock that the orange and fruit men of California have to-day to pay $12,000,000 of increased railway rates because of his reorganization of the railways he acquired. He accumulated an enormous sum in the four or five years by what he called reorganizing companies, getting control, making a great bond issue which he gave to the public who bought them and then putting the money in his pocket. That is the idea of his gigantic financing for his own benefit, but he had also a good idea of reconstructing and reorganizing railroads and his policy and the policy carried out by his successors has had the effect of greatly improving (ho railways, but at the same time greatly increasing the rates on these railroads so that they have become a public grievance to-day. Now to bring the case right home to us in Canada and to the people who are served by the Canadian Pacific railway in the east or in the west, I would point out that the Canadian Pacific railway in its original charter was allowed to issue I think $25,000,000 of capital. It has now, according to its statement, $150,000,000 of capital out. It received from the Governor in Council not long ago authority to issue $50,000,000 more capital and $30,000,000 of that has been issued. The Canadian Pacific railway has to-day a capital stock of $180,000,000. It has of 4 per cent preference stock $55,000,000, and of 4 per cent consolidated debenture stock $136,000,000, or about $200,000,000 in stock and $200,000,000 in debentures and bonds. It still has a right to issue $20,000,000 more under authority given to it by the Governor in Council, two or three years ago. My contention is that a great corporation like the Canadian Pacific railway to-day can finance itself and build every mile of railroad it requires on the issue of 4 per cent debenture stock on which only 4 per cent has to be earned. But they are issuing stock on which 14 per cent has been paid for several years now and that is a tiling which should not be allowed. The Canadian Pacific railway is paying by dividends and bonuses to stockholders on the issue of new stock below the market price, as I can prove by stockholders and the market reports, more than 14 per cent a year on their capital stock. Why should not that money or any new money required by the Canadian Pacific railway be obtained by the issue of 4 per cent debentures if they can float them, and that they can float them is evidenced by the experience in the past. The Canadian Pacific railway is in such a good position to-day that it can put out 4 per cent debentures and get all the money it wants, but instead of doing that it asks to have power to increase its stock. Let me tell you what has happened in regard to this last issue of stock. They came to the Governor in Council and got authority to issue $50,000,000 of stock. If there had been a commission here with full power to investigate, as in New York, they would have gone lo the commission and said: 'We want $50,000,000,' 'What for? For the undertaking? ' ' Yes.' ' Wholly for the undertaking and no one else?' ' Yes.' When they had proved that that amount was necessary for the undertaking and wras to be devoted to the undertaking, they would ask what form the security was to be in. The road might say: ' Oh, we would like it in stock.' Stock? What about 4 per cent debentures? You have a great many out now and the public are satisfied with them, the investor is satisfied. You must put the securities in the form of 4 per cent debentures or bonds. Under existing conditions they said: ' We want stock and the government of the day ir the innocence of their hearts, and I knov they are not fully informed as they hav< many things t.o attend to, although the would have avoided the whole responsibi' ity if they had had a public service coir mission, gave them authority to issue $50 000,000 of stock some two years, $30,000,001. of that stock was put out on the market a short time ago, and it was all allotted to their own shareholders. Every shareholder had a right to take his proportionate share of this new stock. I raised considerable row about it in this House although I had little support, but my complaint had this effect that the Board of Directors of the Canadian Pacific railway decided to make some concession to public opinion and decided at last to issue to their own shareholders at $125, although the market price then was $175, and the law in England is as it is in the state of New York, that if a company issues stock it must issue it at the market price It is considered a cripie in this country to compel a railway or any corporation that proposes to issue new stock to put it out at the most money it will bring. So, the Canadian Pacific railway which today serves more of the people of Canada than any other railway, is allowed by a law of this kind to sell its shares to its own shareholders at $125 for a hundred dollar share when on the market those shares would be worth $175 each. As a consequence the $30,000,OCX) of shares that were issued put $37,500,000 into the treasury of the company but put $15,000,000 into the pockets of the shareholders as a bonus. That $15,000,000 should have gone into the treasury and been devoted to the purposes of the undertaking. It wTas a breach of public trust, it was a violation of the rights of the people, it was a violation of the rights of the farmers of the west, who are to-day complaining of the freight rates, that that $15,000,000 should be switched away from the purposes of the undertaking and put into the pockets of the shareholders. What is the result? The stock of the Canadian Pacific railway is worth $215 for a hundred dollar share. Why? Because a rumour has gone abroad that another melon is to be cut, that this remaining $20,000,000 of stock is to be issued at an amount below the mar-ktt value and that that money is going to the shareholders as a bonus instead of being concentrated to the reduction of the rates charged by the Canadian Pacific railway to the people of Canada for the transportation of their products. It is a crime against the consumer. It is the man who has to pay for what is transported over the railway, the farmer of the west, the man who raises the grain, or the man who buys it to use it, who has to suffer. He has to pay for this money 'hat the Canadian Pacific railway share-lrlders have unfairly, unjustly, and most mproperly been allowed to put in their *n pockets. I have here a statement * bich I read in the House once before, md which I can read again, in which a shareholder of the railway said that he had



found that his Canadian Pacific railway investment had netted him more than 14 per cent per annum for the last five years. That has got to be stopped, and if the Canadian Pacific Railway Board now propose to issue that stock, under the present state of affairs and in view of the cry of the people of the. west that they have a grievance both with regard to the operation of the railway and freight charges, and if they have a grievance that we can regulate, I say that it is the duty of this House to compel the Canadian Pacific railway when they issue that new stock to Dut every dollar of it into the treasury and to devote every dollar of it to the undertaking, either to the building of neV lines or to the reduction of rates. The Canadian Pacific railway, to-day has such enormous profits and resources that it has $20,000,000, or $30,000,000, or $40,000,000 of deposits in the banks of this country. It has even been in a position to lend money to the government of this country. It has become in one case the banker of the government. I do not know whether the people of Canada are aware of that fact. Here is a great corporation which we have created in order to serve the public which has accumulated so much money in the carrying out of its undertaking that it has millions and millions of deposits in the banks. There is no other railway in America that is in the same position. There is no other railway in America but is seeking to borrow money. The Canadian Pacific railway has so much money in its treasury that it could build every line that it requires in the west without issuing another dollar of stock or another debenture. I was in the railway committee to-day, and I found this company applying to issue debentures for branches in the west to the extent of $30,000 a mile, an altogether unnecessary amount. It makes this proposal notwithstanding the immense sums that it has in its treasury, its land grants and all that. My contention is, as I said on the floor of this House the other day, that these enormous assets,, these accumulations, should go back to the people in the shape of reduced rates, and that there should be no issue of capitalization hereafter unless it can be absolutely justified by the facts after it has been laid before a railway commission competent to deal with such a question. Now, we have undertaken to regulate the rates of the railways in this country. Surely it is a reasonable inference from) that to say that we must regulate the capitalization of the railways. That is the line of argument upon which they are proceeding in the United States to-day, and that is the line of argument to which Mr. MACLEAN. We ourselves must come. My motion is to the effect that the issue of securities by the railways of this country should first be approved of by a commission. It is not fair to put this duty on the Governor in Council. I do not know whether it was the present or the preceding government that gave that power to the Governor in Council. I am not criticising any one who gave it or criticising any exercise of it that has taken place so much as I am asserting that it must cease, and that in connection with the issue of this $20,000,000 of new stock the scandal shall not be allowed to continue. It is a great scandaUthat the proceeds of stock issued to the public for the benefit of the undertaking should be switched into the pockets of the shareholders. No wonder the stock of the Canadian Pacific railway is going up. No wonder the Dutch investors think this is the greatest investment in the world. But it is at the expense of the people who pay the freight rates of Canada that thev are enabled to cut melons, not only giving these men 7 _per cent on the face of their stock, but giving them a bonus of 7 per cent for five years instead of applying this 7 per cent for the benefit of the people of Canada by way of a reduction in rates. Why, this is a fine investment. No wonder that the Canadian Pacific railway has a fine standing in the money centres of the world. But this is based on a false doctrine, on an unfair procedure, and it discriminates against the public who have to pay the railway rates. The Canadian Pacific railway to-day, by reason of its accumulations, could reduce passenger rates to 2 cents a mile. They could reduce their express rates, they could reduce their telegraph tolls, and they could reduce their freight rates. The freight rates, the telegraph tolls, the express charges, and the passenger rates in the Canadian west and the Canadian east are a great grievance, and they should not continue. Their finances are in such a condition that they could reduce their rates to a very large extent. In fact, I am told that they would like to reduce them only the bogey has been set up in this country that if you reduce the rates of one railway you have to reduce them on all, and as it would hurt some you must not reduce them on any. I do not subscribe to that doctrine. The Canadian Pacific railway is under more absolute control than the others because that wa)s provided for in the original charter. Hereafter there must bs regulation of the issue of securities. My hon. friend the Minister of Railways and Canals gave me, some time ago, an engagement that h.e woujld look into the matter. Perhaps he has got more light on the subject since. But, it is in the interest of the transportation of this country and in the interest of lower rates that the regulation of the issue of securities must be taken up and be taken up in the scientific way in which it has been taken up in the United -States, in the way in which it has been taken up by the State of New York, and in the way President Taft proposes to take it up when he gets this report from the specal commissioners who have been appointed to investigate the subject. I have come to the conclusion that if thfi people of the west wish to have their grievances reduced the first thing for them to do is to insist on parliament placing the control of the capitalization of these railways within the hands of our railway commission. I am quite satisfied that this commission which the government has created, is more competent than either the government itself or a promiscuous body like the railway commission of this House to deal with such a matter. I believe we should follow what is done in England where all securities that are issued are put up to competition and are not left to the whim or advice of company directors to say how they are to be placed. When the Grain Glowers' were here from the west they mentioned incidentally that there were railway grievances in the west although the principal thing they came to complain about, was the tariff, and yet the other day I had to stand up in this House alone fighting for the rights of the people of the Canadian west with the members from that section of the country indifferent to my appeal. However, I got a letter from the west which is one little green spot in a very dark outlook.


LIB

Wilfrid Laurier (Prime Minister; President of the Privy Council)

Liberal

Sir WILFRID LAURIER.

Hear, hear.

Topic:   WAYS AND MEANS-GRANTS TO VETERANS.
Subtopic:   WM. H. TAFT.
Permalink
IND

William Findlay Maclean

Independent Conservative

Mr. MACLEAN (York).

The Prime Minister says ' hear, hear,' but I remember a time when he too was in the wilderness and had not many supporters at his back. I am to-day in the wilderness when urging the rights of the people of the west but the little letter I got was a solace to me and while I read it, I will particularly ask hon. gentlemen who represent western constituencies to listen:

Topic:   WAYS AND MEANS-GRANTS TO VETERANS.
Subtopic:   WM. H. TAFT.
Permalink

THE NORMANTON GRAIN GROWERS' ASSOCIATION, SASKATCHEWAN.


March 1, 1911. Sir,-I am directed to forward to you this resolution, which was passed at the last meeting of this association: Resolved, we the Normanton Grain Growers' Association, wish to set on record our appreciation of your recent address on the floor of the Dominion parliament, on the excessive freight rates now in fore?, and wlii'st assuring you of our admiration and support, note with regret that you received no support, not even from the western members. Yours truly, W. J. LAWLESS, Secretary. W. F. Maclean, Esq., M.P., Ottawa. The people of the west have grievances against the railways and the root of these grievances is to be found in the system of capitalization which it is time for this parliament to regulate, especially in the case of railroads who are coming along now looking for charters and power to issue capital. My proposal is to put the power of fixing the capital, whether it be stock, bonds, or any other security, under the control of our railway commission, for I believe that the regulation of the capitalization of the railroads is only a complement to the regulation of the rates. We have adopted the principle of regulating railroad rates and as a complement to that, it is absolutely necessary to regulate the caption so that the traffic may not be too much burdened with excessive dividends and excessive returns of other kinds on the stock. Now, I would like to have some supporters for the motion I am about to present to the House; I do not Dresent it as a motion of want of confidence, I urge it solely in the interests of the people of Canada. I move: That before the said motion pass, this House desires to express the opinion that the control of the capitalization of the railways of Canada should be within the jurisdiction of the Board of Railway Commissioners.


LIB

George Perry Graham (Minister of Railways and Canals)

Liberal

Hon. G. P. GRAHAM (Minister of Railways and Canals).

I have been much interested in the remarks of my hon. friend concerning' the capitalization of railways, and which of course, will apply to the capitalization of all companies. I do not think it can be denied that capitalization has a great deal to do with the rates charged and what we might call the necessary cost of operating and managing these utilities. The hon. gentleman has made a comparison between tariffs and transportation and they are connected in a sense. The problem of transportation properly solved will do a great deal to minimize the evils which may come through a tariff or the lack of a tariff, depending upon the poipt of view you look at it. In Germany the state-owned (railways are used in large measure as an adjunct to the tariff. If a German manufacturer is in competition with a foreign manufacturer outside of Germany, I am told he is given very cheap rates on his products to the confines of the German Empire, and conversely if a foreign manufacturer is competing with him in the German market, the state owned railway

-puts almost prohibitive freight rates on that foreign manufacturer's goods. In that way the railway rates are made to assist German manufacturers and are an adjunct to the tariff. That may prevail to a certain extent in Canada at the present time, but that is a point I shall not discuss. However, a great deal of fear has been expressed in many quarters that any.,, international board that might have the power to deal with two local rates, one on each side of the line, and making one through Tate, might interfere in a measure with certain privileges that the railways on both sides have, in regard to high or low rates on products coming in or going out of the country.

Topic:   WAYS AND MEANS-GRANTS TO VETERANS.
Subtopic:   THE NORMANTON GRAIN GROWERS' ASSOCIATION, SASKATCHEWAN.
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CON

Haughton Lennox

Conservative (1867-1942)

Mr. LENNOX..

Is it a fact as rumoured that the government has abandoned the idea of an international railway board?

Topic:   WAYS AND MEANS-GRANTS TO VETERANS.
Subtopic:   THE NORMANTON GRAIN GROWERS' ASSOCIATION, SASKATCHEWAN.
Permalink
LIB

George Perry Graham (Minister of Railways and Canals)

Liberal

Mr. GRAHAM.

My hon. friend asks me a very pointed question, and I would not care to answer him ' yes,' or ' no,' on that particular point. At the present time the question of an international arrangement is not being discussed and is not actively engaging the attention of the government.

Topic:   WAYS AND MEANS-GRANTS TO VETERANS.
Subtopic:   THE NORMANTON GRAIN GROWERS' ASSOCIATION, SASKATCHEWAN.
Permalink
CON

Haughton Lennox

Conservative (1867-1942)

Mr. LENNOX.

That is a Lair answer.

Topic:   WAYS AND MEANS-GRANTS TO VETERANS.
Subtopic:   THE NORMANTON GRAIN GROWERS' ASSOCIATION, SASKATCHEWAN.
Permalink
LIB

George Perry Graham (Minister of Railways and Canals)

Liberal

Mr. GRAHAM.

My hon. friend (Mr. Maclean) has referred to rates in western Canada. During a recent trip in the west, I had prepared for me a comparative table of rates on farm products from the interior of western Canada to Port Arthur and Fort William, and of rates from the interior of the western states to Duluth and these were the rates I was discussing in the House when I said that the farmers of the Canadian west had cheaper rates on their products to the Great Lakes than had the farmers of the western states, and I have no reason to change, my mind on that.

Topic:   WAYS AND MEANS-GRANTS TO VETERANS.
Subtopic:   THE NORMANTON GRAIN GROWERS' ASSOCIATION, SASKATCHEWAN.
Permalink
IND

William Findlay Maclean

Independent Conservative

Mr. MACLEAN (York).

In special instances.

Topic:   WAYS AND MEANS-GRANTS TO VETERANS.
Subtopic:   THE NORMANTON GRAIN GROWERS' ASSOCIATION, SASKATCHEWAN.
Permalink
LIB

George Perry Graham (Minister of Railways and Canals)

Liberal

Mr. GRAHAM.

I took a list covering the whole of the west, of rates from the large farm product shipping centres and I found that the Canadian farmer had a cheaper rate on his wheat and oats to the Great Lakes at Fort William and Port Arthur than had the American farmer to Duluth.

Topic:   WAYS AND MEANS-GRANTS TO VETERANS.
Subtopic:   THE NORMANTON GRAIN GROWERS' ASSOCIATION, SASKATCHEWAN.
Permalink
IND

William Findlay Maclean

Independent Conservative

Mr. MACLEAN (York).

Did that include coal?

Topic:   WAYS AND MEANS-GRANTS TO VETERANS.
Subtopic:   THE NORMANTON GRAIN GROWERS' ASSOCIATION, SASKATCHEWAN.
Permalink

March 14, 1911