This Broadway franchise formed the vertebral column of the New York transit system; with it as a basis, the operators formed the Metropolitan Street Railway Company in 1893, commonly known as the "Metropolitan." They organized also the Metropolitan Traction Company, an organization which enjoys an historic position as the first "holding company" ever created in this country. Its peculiar attribute was that it did not construct and operate street railways itself, but merely owned other corporations that did so. Its only assets, that is, were paper securities representing the ownership and control of other companies. This "holding company," which has since become almost a standardized form of corporation control in this country, was the invention of Mr. Francis Lynde Stetson, one of America's greatest corporation lawyers. "Mr. Stetson," Ryan is said to have remarked, "do you know what you did when you drew up the papers of the Metropolitan Traction Company? You made us a great big tin box."

The plan which Whitney and his associates now followed was to obtain control, in various ways, of all the surface railways in New York and place them under the leadership of the Metropolitan. Through their political influences they obtained franchises of priceless value, organized subsidiary street railway companies, and exchanged the stock of these subsidiary companies for that of the Metropolitan. A few illustrations will show the character of these transactions. They thus acquired, practically as a free gift, a franchise to build a cable railroad on Lexington Avenue. At an extremely liberal estimate, this line cost perhaps $2,500,000 to construct, yet the syndicate turned this over to the Metropolitan for $10,000,000 of Metropolitan securities. They similarly acquired a franchise for a line on Columbus Avenue, spending perhaps $500,000 in construction, and handing the completed property over to the Metropolitan for $6,000,000. In exchange for these two properties, representing a real investment, it has been maintained, of $3,000,000, the inside syndicates received securities which had a face value of $16,000,000 and which, as will appear subsequently, had a market cash value of not far from $25,000,000. They purchased an old horse-car line on Fulton Street, a line whose assets consisted of one-third of a mile of tracks, ten little box cars, thirty horses, and an operating deficit of $40,000 a year. At auction, its visible assets might have brought $15,000; yet the syndicate turned this over to the Metropolitan for $1,000,000. They spent $50,000 in constructing and equipping a horse railroad on Twenty-eighth and Twenty-ninth Streets and turned this over to the Metropolitan for $3,000,000. For two and a half miles of railroad on Thirty-fourth Street, which represented a cash expenditure of perhaps $100,000, they received $2,000,000 of Metropolitan stock. But it is hardly necessary to catalogue more instances; the plan of operations must now be fairly evident. It was for the members of the syndicate, as individuals, to collect all the properties and new franchises that were available and to transfer them to the Metropolitan at enormously inflated values. So far, all these deals were purely stock transactions--no cash had yet changed hands. When the amalgamation was complete, the insiders found themselves in possession of large amounts of Metropolitan stock. Their scheme for transforming this paper into more tangible property forms the concluding chapter of this Metropolitan story.*

* In 1897 the Traction Company dissolved, after distributing $6,000,000 as "a voluntary dividend" among its stockholders.

Nearly all the properties actually purchased and transferred in the manner described above, had little earning capacity, and therefore little value; they were decrepit horse-car lines in unprofitable territory. The really valuable roads were those that traversed the great north and south thoroughfares-Lenox, Third, Fourth, Sixth, Eighth, and Ninth Avenues. Many old New York families and estates had held these properties for years and had collected large annual dividends from them.

The Age of Big Business Page 43

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