lvania Railroad.

Both freight and passenger charges, however, were still maintained at an
unprofitable rate, and, after the death of John W. Garrett, the credit
of the Baltimore and Ohio continued to decline. Dividends were gradually
reduced and by 1888 were omitted entirely. As is usually the case, the
cessation of dividends awakened the sleeping stockholders. They began
an investigation to ascertain the whereabouts of that remarkable surplus
which had been reported from year to year and which, according to
official report, had shown a constant growth.

This investigation disclosed a startling state of affairs. Instead of
a surplus, the company had been piling up deficits year after year, had
been borrowing money right and left on onerous terms, had been charging
up millions of dollars of expenses to capital accounts--and as a matter
of fact, instead of making money, it had for the most part been losing
it. Now the company urgently needed cash, and the only way it could
obtain that essential commodity was by selling its express, telegraph,
and sleeping-car business.

During the entire administration of John W. Garrett, extending over more
than two decades, current expenditures of enormous amounts which should
have been deducted from the income had been credited to the surplus;
many millions which would never be returned had been advanced to
subsidiary lines, or had been spent, and therefore should have been put
down in the books as losses. When these facts became public, the capital
stock of the Baltimore and Ohio, which for generations had been looked
upon as one of the most secure of railroad investments, dropped to
almost nothing, and the most strenuous financial efforts were required
to keep the company out of bankruptcy.

These disclosures, towards the end of 1887, ended the first period of
active Garrett management in the Baltimore and Ohio. The directors
then turned to New York bankers for the cash that was needed to put the
affairs of the company on a sound basis. Samuel Spencer, who afterward
became a partner in the banking house of J. P. Morgan and Company, was
elected president and active manager. He introduced radical reforms,
entirely revolutionized the organization, and adopted modern methods. He
wrote off the books a large amount of the much vaunted "surplus" and he
took important steps toward the general improvement of the property.

Had the new interests been allowed to continue their efforts unmo