Commission in connection with the physical valuation report of the Northern Pacific, in which it is shown that the proceeds received from the Northern Pacific Railway Co. and its predecessor from the sale of the granted lands are given as follows:

But these figures need a brief explanation. Before stating the net proceeds to June 30, 1917, there was charged off by the Northern Pacific $14,035,797.86 for expenses and $7,007,740.56 for taxes, or a total of $21,043,538.42. On June 30, 1917-the date to which this report refers-the Northern Pacific had on hand 5,800,000 acres of land.

The company estimated the gross receipts from the sale of these lands

The CHAIRMAN (interposing). You say "it is estimated"?
Mr. McGowan. No.

It estimated the gross receipts from the sale of these lands would be $19,010,000, or $7,410,000 more than the estimated net proceeds. It will be seen, therefore, that the gross receipts (actual and estimated) from the sale of the lands to June 30, 1917, were $136,118,533.14. These figures were based upon a land grant of approximately 40,000,000 acres, and are exclusive of any unsatisfied deficiency in the grant. They do not include the 2,500,000 acres of land within the national forests.

Now, as to the total receipts from the sale of the lands in the grant, obviously the $136,118,533.14 are incomplete. They can not possibly cover the entire value of the grant, for the reason that there are many items that are not reported in those figures to the Interstate Commerce Commission.

You will recall that a few days ago questions were asked Mr. Kerr with reference to the Northwestern Improvement Co.

The CHAIRMAN. It is 12.30, Mr. McGowan. The committee will stand adjourned until 2 o'clock.

(Whereupon, at 12.30 o'clock p. m., a recess was taken until 2 o'clock p. m. this day.)

AFTER RECESS

The subcommittee reassembled at 2 o'clock p. m., pursuant to

recess.

The CHAIRMAN. The subcommittee will come to order.

Mr. RAKER. Mr. Chairman, before you proceed, may I offer another paper in connection with those which I offered this morning? I had it this morning, but I forgot about it. I found it down under my papers.

This is the answer in the case of Samuel Eby versus Northern Pacific Railroad Co., in which the company was sued

The CHAIRMAN (interposing). That is the case in Howard?

Mr. RAKER. No, sir; this is another case but of similar purport. This and several others will be presented to show the course of the company, and I want to read a couple of paragraphs and then let it be printed.

The CHAIRMAN. You might tell Judge Driver what it is.

Mr. RAKER. This is the answer filed by the Northern Pacific Railroad Co. under the reorganization of 1875.

Mr. DRIVER. In what proceeding?

Mr. RAKER. In a suit by Samuel Eby versus Northern Pacific Railroad Co. in the city and county of Philadelphia. I haven't the complaint, but if it is desired we will get it. It is entitled "Samuel Eby versus Northern Pacific Railroad Co. C. P. 4, Dec. T. 1878, No. 159."

Charles B. Wright, being duly sworn doth depose and say as follows:

I am president of the Northern Pacific Railroad Co. as now existing and have been since its organization September 30, 1875. The said corporation, of which I am president and which has been sued in this case by a service upon me of the writ therein has a full and true and perfect defense to the whole of the plaintiff's claim of the following nature and character: Plaintiff's claim, as appears by the copies of coupons filed in this case, is against the Northern Pacific Railroad Co. as formerly organized and not against the corporation now existing, and of which I am president.

Then it goes on to recite the organization of the Northern Pacific Railroad Co. as originally constituted and incorporated under the act of Congress of July 2, 1864-" Said act was successively amended by joint resolutions of Congress of May 7, 1866; July 1, 1868, March 1, 1869, April 10, 1869, and May 31, 1870," and by the joint resolution they gave the mortgage. It follows on down with the proceedings:

The said purchasers were a committee of bondholders selected at a meeting of bondholders called for the purpose, who bought on behalf of themselves and all other holders of bonds and coupons secured by said mortgage who should come in and desire to participate in the benefits of the purchase.

Subsequently on the 30th day of September, 1875, said purchasers proceeded in due form with those bondholders who took part with them, to organize themselves as a corporation vested, by virtue of said mortgage foreclosure and sale, with all the franchises and property of the Northern Pacific Railroad Co. including its franchise to be a corporation and its corporate life, name, style, and title.

The corporation as now organized and existing consists of the bondholders and stockholders who have come in under the scheme of reorganization adopted, a copy whereof is hereto annexed for the information of the court.

May this be printed right following the other matters this morning, so as to make it connect?

The CHAIRMAN. Yes.

(The paper referred to appears in full in the morning session of this day and at p. 1984.)

TESTIMONY OF D. F. M'GOWAN-Resumed

Mr. McGOWAN. Mr. Chairman, may I make a short statement in connection with that? My statement will follow this.

The CHAIRMAN. Yes.

Mr. McGOWAN. Judge Raker, in connection with that thought, I find in going through Smalley's Book of Reference for the stockholders of the Northern Pacific-and the book I am now referring to is not Smalley's History of the Northern Pacific Railroad-an extract the substance of which is as follows:

Mr. RAKER. What page are you reading from?

Mr. McGoWAN. What I have here is an extract from that book:" July 18, 1877. Colonel Gray, the company's counsel, made a statement of his defense in the Wheeler suit that the new organization of the Northern Pacific

Railroad Co. was not responsible for the debts or liabilities of the old organization, and the judgment of the St. Louis district court in Minnesota sustaining this point of law, and the plaintiff's offer to take what our counsel had originally offered in settlement. It was resolved that the settlement offered by the counsel be approved.

That is in line with the other cases that after 1875 it was a different organization, and it might be of interest to you to call for it.

Mr. RAKER. All right, we will try and get it. What court is that in?

Mr. McGOWAN. This says "St. Louis district court in Minnesota." Probably it was St. Louis County. Right in that connection we have referred to Smalley's History of the Northern Pacific Railroad several times, and I think it should be in the record that Mr. Smalley was a Northern Pacific man, because this book of reference shows that on February 16, 1882, the president of the Northern Pacific reported a temporary engagement with Mr. E. V. Smalley to write for various publications concerning the company, its lands, business, and general interests, at a salary of $250 per month and his actual traveling expenses. This appointment with its pay was approved and confirmed from February 1, 1882. So I take it that what Mr. Smalley says in his history of the Northern Pacific Railroad will perhaps have a little closer connection with the railroad than that of the ordinary biographer or historian."

Mr. RAKER. What are we to gather from your statement? Your contention is that he was an employee of the railroad and writing through their eyes?

Mr. McGowAN. Just how far I could go on that, Judge, I don't know, but the fact is that Smalley was on the Northern Pacific pay roll and did write this history of the Northern Pacific Railroad, and I take it as my conclusion that this was written for the Northern Pacific Railroad Co.

The CHAIRMAN. He was a railroad official?

Mr. MCGOWAN. Yes.

Mr. RAKER. I did not get your question, Mr. Chairman.
The CHAIRMAN. He was a railroad official?

Mr. McGowan. At the noon adjournment, Mr. Chairman, I was discussing the figures as reported by the Northern Pacific to the Interstate Commerce Commission in 1917, in which it was shown that the gross receipts from the sale of the lands in the grant amounted to $136,118,533.14, against a construction cost of the railroad of not to exceed $70,000,000. The figures with reference to the $70,000,000, however, that I have used were not filed by the company in connection with that report and the figures which I referred to were figures taken by me from the reports of the Northern Pacific. In this report to the Interstate Commerce Commission the company charged off $14,035,797.86 for expenses and $7,007,740.56 for taxes, or a total of $21,043,538.42. Just what was included in those items I have not been advised, and as to whether or not they were proper charges I think that would be a matter for the committee to look into if it sees fit. But coming back again to the $136,000,000, in round figures, that they say they received from the sale of the lands in the grant, I am sure that those figures do not approach the value this grant has been to the Northern Pacific Railroad Co., for the reason that there were several companies that were controlled by the Northern Pacific,

which participated either directly or indirectly in the receipts from the sale of the lands in the grant. You will recall just the other day that the attention of the committee was brought to the Northwestern Improvement Co., one of the land-holding companies of the Northern Pacific, in which it was shown that in 1908 the Northwestern Improvement Co. paid from its accumulated surplus directly to the stockholders of the Northern Pacific a dividend equal to 11.26 per cent of the capital stock of that company, meaning the Northern Pacific Railway Co. If it is true that the Northern Pacific Railway Co. owned 100 per cent of the stock of the Northwestern Improvement Co., I submit that while the figures submitted to the Interstate Commerce Commission were perhaps technically correct, they were morally wrong, for the reason that they do not show what this Northwestern Improvement Co. got from the sale of these lands.

In addition to that company there was the Lake Superior & Puget Sound Co. The extent to which this company profited I have not the figures, but Cleveland and Powell in their book of 1912, entitled "Railroad Finance," say this:

SPECULATIVE LAND COMPANIES

In many instances promoters have formed land companies for the purpose of carrying on their speculative operations. Upon the St. Joseph & Denver City there was the Kansas & Nebraska Land Co., and upon the Northern Pacific the Lake Superior & Puget Sound Co. so sapped the resources of the railroad company as to contribute materially to its downfall in 1873.

Now certainly if this company was sapping the resources of the Northern Pacific there was undoubtedly a diversion of the funds from the purposes that Congress had in mind when it made this land grant to aid in the construction of the Northern Pacific Railway.

And again there was the Oregon and Transcontinental Co., the Tacoma Land Co., the Oregon Improvement Co., the Northwestern Improvement Co., the Northwest Construction Co., the Montana Improvement Co., the Northern Pacific Coal Co., the Northwestern Equipment Co., the Western Land Association, and probably others. I think it would be within the province of the committee to inquire into the activities of all of these companies for the purpose of ascertaining what their activities were with relation to the Northern Pacific Railroad Co. and the Northern Pacific Railway Co., and the lands that were granted by Congress under the act of July 2, 1864, and the joint resolution of May 31, 1870.

In my statement before the House committee, and here to-day, I stated that the cost of constructing the Northern Pacific Railroad did not exceed $70,000,000. That statement was based upon a compilation made by me from the reports, the annual reports of the Northern Pacific Railroad Co., and I wish to incorporate the itemized figures into the record. This statement is as follows:

Statement covering the cost of constructing the Northern Pacific Railway from Ashland, Wis., to Wallula, Wash.; from Pasco, Wash., to Tacoma, Wash.; and from Portland, Oreg., to Tacoma, Wash.

These figures are from Northern Pacific annual report, 1885.

1These figures are from Northern Pacific annual report, 1872. See also Pacific Monthly for March and April, 1909. The mileage claimed in 1872 was 519 miles made up of 453 miles from Lake Superior to Missouri River and 66 miles from the Columbia River to Puget Sound. The cost of this construction, including surveys, rolling stock, machinery, etc., and harbor improvements at Duluth, is given as $15,804,374. The rate per mile for this work would be $30,451.58.

The figures covering the 12 miles from Ainsworth to Wallula are mine and are based on the average costs per mile covering the road from Sandpoint to Ainsworth.

These figures are taken from the Northern Pacific annual report for 1885. In the Northern Pacific annual report for 1886 it is stated that the cost of the 75.5 mile stretch over the mountains, including the Stampede tunnel and switchblock, would be $3,500,000, and that the total cost of the road from Pasco to Tacoma would be $8,000,000, averaging $31,620 per mile for the 253 miles.

Add these to get average per mile.

These figures are from Northern Pacific annual reports of 1877 and 1878. Originally 31 miles of road were built from Tacoma eastward to the Wilkeson coal fields as a coal road. Later, on March 26, 1884, a map of definite location was filed on 25 miles of this road from Tacoma to South Prairie and this 25 mile stretch claimed as main line by the Northern Pacific. The 31 miles of coal road from Tacoma to Wilkeson cost $562,732.17, or $17,830.07 per mile. Twenty-five miles of this stretch at this rate would be the figures set up, to wit, $445,751.75.