Chapter 4

In this state of affairs grafters find their opportunity. Prices in a boom camp are always above any sort of industrial warrant. There were literally millions of dollars poured into Goldfield and Tonopah for claims which never had any careful examination by competent men. Fortunes were made by local promoters and "operators" out of claims which could not show ten feet of actual work. Sometimes the entire capitalization was sold out, and the promoters put the money in their pockets. One operator of this kind sold $130,000 worth of stock, and omitted the precaution of putting even ten per cent. of it in the treasury. Fortunately, he got into the penitentiary. Many of his fellows never had actions brought against them except under the postal laws, which naturally are inefficient. There was one shaft of a hundred feet which cost twelve thousand dollars, charged up to the stockholders, the names of dead men being used on the pay rolls as "laborers." The mine boss and the local officers got big salaries to keep their mouths shut. The real mine was in the savings banks of America, in the pockets of non-residents. In Nevada alone, in the past four years, more than twenty million dollars have been invested in WORTHLESS properties. One engineer with a government certificate could have saved the clerks, stenographers, widows, washwomen, and orphans of America fifteen million dollars at the cost of, say, five thousand. Would that have been a good investment? What could a dozen do? What could an efficient corps do? Is there here yet one more future task for our patient and long-suffering United States Army? What police work would pay better dividends?

THE PROMOTER AND THE CREAM

Even when the mine wins, the small stock-holder rarely wins. The promoters often take the cream. Suppose a company is organized for three million shares. One million is put in the treasury for sale. Of this million shares, say, two hundred thousand are offered at twenty-five cents. This raises a working capital of fifty thousand dollars. Let us be very glowing, and suppose that, with this fifty thousand dollars, we really uncover five million dollars' worth of ore. The net profit would not exceed three million dollars; so that the man who put in twenty-five cents might, after a long time, get back a dollar. In the meantime, two million dollars would have gone to promoters, in "commissions," and so forth. There are thousands of such cases, and still the people continue to bite on such bait.

THE PUBLIC = THE MINE

Instances of actual Nipissing rises caught in time by the lamb are very rare. I rom first to last, the PUBLIC is the mine, AND THE RETURNS COME OUT OF THE SAVINGS BANKS. In some mines "high grading"--the carrying away of valuable pieces of ore by the miners themselves--is fought as sternly as the diamond stealing by the Kaffirs in a Kimberley mine. In yet other mines, far more numerous, high grading is encouraged among the miners. The report gets out that the ore is so rich that the miners steal it in their dinner pails. That booms the stock. WALL STREET MAKES THIS MONEY OUT OF THE MARKET AND NOT OUT OF THE MINE.

In spite of all warning and all examples, the average American will to a certain extent persist in gambling in mining stocks. Supposing this to be true, it is of value for the investor to learn something of the theory of mines, something enabling him to pass on the natural value of any mining stock which is offered to him. What, then, is a mine? What are some of the inevitable features in developing a mine?

In the first place, there must be prospecting. This is sheer and unavoidable risk on the face of it, and it is attended with economic waste which cannot be avoided. Of a hundred prospectors, ninety-nine die poor. The failures must be charged off to industrial waste attendant upon inherent conditions of the mining industry.

Again, in the development of a mine after it is located and proved in part, there is more unavoidable economic waste. The rock is blank and silent. It can only be explored by means of expensive drifts and drillings. In one mine at Bisbee, Arizona, a shaft was sunk which had drifts at the 600-and 900-feet levels, all without result. Later on they found a blanket of copper between those two levels, from which six million dollars were taken. Even in old established mines there is something of a chance, and there are often unwittingly false standards of values. Which is no argument for making all gamble that which originally was part gamble.

Any mine, no matter how rich, or how large, begins to be exhausted from the time the first pick is stuck into the ground and all its profits ought to be figured on the basis of diminishing deposits. When your deposit is drawn out, your bank does not honor your check. A mine is the reverse of a mortgage or a bond. The security does not remain stable nor increase in value, but, on the contrary, CONTINUALLY DECREASES in value. In a mortgage, six per cent. is wisdom; in a mining return, it is folly. A mine, instead of being figured on the basis of a mortgage, ought to be figured on the basis of a term annuity. That is to say, on the basis of a wiping out date. When the mine is done paying dividends, there is no return of the face of the principal invested. Yet the great and gullible public forgets this all-important fact, which differentiates mining from every other form of business.

CRACKER-BOX INVESTORS

There is every probability that the average investor never heard of a proper "amortization charge" in the management of a mine. Until he shall have heard of it, until he shall have learned something of the terms of life annuities, he ought never to invest a cent in any mining stock. After he actually has learned the theory of amortization, he will observe that ALMOST EVERY MINING STOCK LISTED IN PUBLIC PRINTS IS SELLING AT AN INFLATED VALUE. That is to say, even the best and most stable of mines are overrated, not to mention the purely wildcat ventures. Some mines may naturally be long-lived, others short-lived; yet, if either pays a good, stiff dividend, THE PUBLIC MAKES NO DISTINCTION BETWEEN THE TWO and will buy the stock of either. In this investing, the public has no protection on the part of the government, on the part of honest publicity, or on the part of its own careful education.

In the MAJORITY of cases, a mine ought to pay annually perhaps twenty per cent. of the investment, to be profitable. That is to say, the actual value of any mine is rarely over five times actual dividends paid after expenses of operation. How many mines are capitalized on any such real basis as that? The answer lies in our own ignorance, and in the shrewdness of the men who sell us mining stocks. Stocks that are the best dividend-payers often sell at TEN or TWELVE times the face of the annual dividends. Let the mine hit a brief streak of bonanza, and the stocks will climb yet higher. We buy such stocks, or worse; but even a fundamental acquaintance with the theory of mines would show us that such an investment is usually a bad one. In a mortgage we do not look to the interest to pay us back our principal; in a mine we MUST look to DIVIDENDS to pay us back our PRINCIPAL AND INTEREST also. When the mine is done, our principal is gone. But how many mining investors ever thought of that? And how many, when offered a ten per cent. "guaranteed dividend" for five years on their money, ever stop to reflect that, for instance, I could take your money and put it in a cracker box, and myself make money by paying it back to you, ten per cent. a year for nine years--and then explaining what had happened to the cracker box! Now, most of us are just such cracker-box investors. We pay out millions and millions annually, just that foolishly. And our nation, our states, allow us to do it. They even--as recent legal proceedings prove--allow the "inside" operating stockholders to borrow money to pay dividends to the "outsiders." That keeps up the "values" in the market. It does not enhance the real value in the mine.

ENGLISH VS. AMERICAN MINE REPORTS

Again, granted even a valid and a well-managed mine, how much information regarding it does the average investor in the stock secure? In a general way, he knows in advance that all mining, whether placer or quartz, is very expensive. Beyond that, he gets the annual report of the officers, which will tell perhaps the names of the men who are spending his money, the total earnings, the total output, the balance sheet, the statement of capital stock issued--and little else. All of which means nothing!

A well-regulated English company is obliged to go much farther than this. A good annual report will show the advertisement of the general meeting of stockholders, the list of directors and officers, reports of directors, giving details of the condition of property, including the development work, the tonnage of production, the values recovered from such tonnage, the costs of operation, the profits for the period covered, the balance sheet of accounts, the profit and loss statement, including a working cost estimate, the appropriation list showing what has been done with all the earnings, the reports of managers giving details of the development work, the estimated values of ores EXPOSED ON THREE SIDES, the probable values of ores not so well exposed, the working expenses, the construction account, general remarks on the physical condition of the property, and a map of the property itself.

What American promoter would trouble himself to make such a showing as that to the American sucker? Even if such detailed information existed in the records of the average American mining concern, the sucker could not get access to the books even did he have the temerity to demand it.

Professor H. S. Munroe, of the Columbia School of Mines, when asked whether such a thing as general supervision of mining investment could be possible, answered: "Yes, if some philanthropist will give us ten millions to endow such an institution, and maintain a corps of engineers in the field who will do work similar to that accomplished by J. Curle under the auspices of the London Economist. Such work should, of course, cover all incorporated mining companies, not merely a few hundred of the more prominent gold mines; and it should be continuous and not spasmodic. Such a plan is of course Utopian, but I feel that anything less would be likely to do little good. Even Curle's opinions began to lose their value within a month or two after they were written, and are of less value every year. Mining can never be put on the same basis as agriculture, for the reason that the risk of failure is infinitely greater, and that it is impossible to prove the value of any mine or mining region without spending a large amount of capital, the greater part of which will inevitably be lost in this work of initial development."

Those are the sober words of an expert who spends his life in studying the theory and practice of mining. If such words shall teach us a little wisdom, so much the less need for laws. But let us consider what the laws ought to do in order to protect you for the sake of your family, and for the sake of society, and for the sake of the savings which lie back of the prosperity of this country.

Let us agree that no government can guarantee the safety of any investment. Let us admit that digging gold can never be put on the same amortization basis with digging potatoes, for instance, because the soil remains for more potatoes, whereas the ore of a mine is exhausted and does not raise more ore. Nevertheless, although the industries of potato growing and ore digging are not the same, the principles lying back of them ought to be precisely the same; and our governments, both state and national, ought to see to it that they are kept precisely the same, and controlled on the same plane legally. If it be true that no government can watch after every mine, none the less any enlightened government can establish general conditions for engaging in mining or engaging in the sale of mining stock; and, perhaps with yet better results, it can establish a general supervision over the mining intelligence of the public, just as it does over the agricultural intelligence of that public.

NEEDED: A FEDERAL BUREAU OF MINES

The enactment of good mining laws, punishing the proved intent to commit a fraud as well as the fraud itself, and seeing to it that capital stock shall be paid up, seeing to it also that all moneys spent by a mining corporation shall be traceable from start to finish, is the natural first step toward the purification of American mining methods. Beyond that, the national government could take a hand in the game through a federal Bureau of Mines. There must be some clearing-house of intelligence and of values in this country, some place from which our intelligence may start and to which it may return. The public must have accessible reports of engineers, state or federal, of a sort entitled to confidence.

The nest of vermin in our large cities, inhabited by those who make a living out of the ignorance and eagerness of small investors, must be smoked out once and for all. In this work, state and national governments, popular education and intelligence, and the aid of the better class journalism of America, all must be enlisted. The pages of our press might well be far cleaner than they are. The publication which prints the advertisements of a fake-mining enterprise is itself a party to the fraud. A Bureau of Mines chief can sit behind the desk of every advertising manager in the counting-rooms of every newspaper and magazine in America. The press of this country, when it likes, can, by taking thought, somewhat dim the splendor of the mahogany in many an elegant suite of offices in New York, Boston, or elsewhere. It can reduce the reckless and senseless expenditure of ill-gained wealth which is making civilization a mockery in America, and branding our republican form of government as a failure.

We will have a different way of life, or another form of government. We will have a better administration of law in the United States or we will have another political party, possibly another political system. We will clear up this rotten society, or we will try how we like a different organization of society. The people of America are beginning to murmur. The burden of the murmur is that they have long enough been betrayed. Unspeakable injustice has been done the people of America under the forms of law and government. It is coming to be said that our law and government have not an even hand for all, that a few are allowed to despoil the many. When a people murmurs, let a government beware. Meantime the more that certain unspeakable things are reduced in, and eliminated from, Wall Street and the other "financial centers," the better for our schools, our taxes, our farming, our industry, our living, our CHARACTER, our country.

After all, the government of this country, as we now have it organized, depends on the CHARACTER of its average individual citizen. The end of this abuse of fake-mining enterprises begins now, here, with you and me, in OUR intelligence, in OUR love of a square game. By taking thought we can add a cubit to our OWN stature, and so add to the stature of OUR laws and of our national morality.

WHAT YOU AND I CAN DO

As for you and me, when next we see the flaming advertisement advising us that the Madre d'Oro, Montezuma's fabled Mother Vein of Gold, has once more come to the surface of the earth on Manhattan Island or near Plymouth Rock; when next we read counsel that because mining pays in Michigan it ought to pay in Nevada; when next we are advised to get into the game at once because this is our LAST CHANCE--we might at least ask to see the report of the engineer, likewise the record and antecedents of the engineer; and many, many other things. Perchance we might write and ask the mining promoter what, in his belief, is the proper amortization charge in his particular mine. At which the average mining promoter would probably fall dead.

***************************************************************** Vol. XXIII No.1 JULY 1910

HOW THE MAN CAME TO TWINKLING ISLAND {page 64-73} By MELVILLE CHATER

OUT of the great world came a man to the wooing of Susanna Crane. From the vague southwest he came, now skirting the chimneyed towns and elm-bordered village streets, now exchanging the road for the bright rails and perhaps the interior of a droning freight-car, now switching anew through the edge of odorous pine woods, yet leaving behind him always a wary, broken trail.

The man was tall and strong, with hair that gleamed red in the sun, and eyes of a reddish brown. He walked with the free swing of a world wanderer, yet always his heart strained for a glimpse of the Canadian border; for some hundreds of miles behind him lay the Vermont marble quarries whose dust still faintly blanched his clothes, and there, in a drunken flight, he had killed a man. He did not know that in fleeing from justice he was rushing into the arms of love; he did not even know that he was in the Ragged Woods, with Twinkling Island just off the coast; he only studied the tree bark and snuffed the breeze, and knew that the sea was near. At length, well satisfied with the distance he had come since dawn, he cleared a space among the pine cones, then lay down, and, lulled by the ancient whisper of the wind in the treetops, closed his eyes.

He was of the Ulysses breed, this man, a wanderer of the earth, acquainted with many cities, one whose shipwrecks and misfortunes had but whetted his love of life; and even while he slept, there came upon him, as of old Nausicaa came upon Ulysses, a woman. She, too, was straight and strong; her dark face was framed by a blue-checked sunbonnet; she carried a large basket filled with blackberries, and her lips as well as her hands were stained. She saw the man lying in a shaft of the sunset, and started back, then, tiptoeing past, bent forward slightly to examine his face. In that lingering gaze a twig cracked beneath her foot. He sat up instantly, tense, expectant; then for a silent space their eyes caught and clung. Thus the first pair might have gazed when Adam wakened to find her who was bone of his bone, flesh of his flesh, standing over him.

"Did I scare you, Miss?" at length asked the Man. "I thought--well, I didn't know who you might be at first." His gaze deepened into unconcealed admiration. "I wouldn't scare YOU for anything!"

"I ain't so easy scairt," the girl returned defiantly. "Ef I was," she went on in her fresh, young voice, full of queer, upward inflections, "I wouldn't be a-berryin' in Ragged Woods after sundaown."

She marched onward, her head thrown well back. Twenty steps later the Man was again at her side.

"Pardoname, little one!" he said. "But, seein' you ain't scared, an' thar bein' no blaze in these yere parts, maybe you'd put us on the trail. Guess I'd a-gone on siesterin' till midnight if you hadn't a-happened by--gracias a Dios!"

Her glance shot suspicion at him as though she scented banter in the strange, foreign phrases; then she said:

"Ef you mean you wanter git to Potuck, whar the railroad starts, you've got to walk three miles back to the Potuck Road; then it's three miles west to Potuck taown."

"An' what lies on ahead, whar you're goin'?" he asked.

"Why, nothin'," she returned with a child's surprised simplicity. "Nothin' but Twinklin' Island an' father an' me."

There was silence then, but the Man watched the strong, straight lines of her face, her keen black eyes, her wealth of black hair tumbled into the back-fallen sunbonnet. At length he said quietly:

"Think I'll g'long over with you to your island, camarada. Maybe your father's got a bite o' something for a hungry man. I pay the freight, sabe? 'Twon't take me more'n a couple o' hours to make the railroad to-night."

To this she vouchsafed nothing, but swung onward, shifting her heavy basket from one hand to the other; then a strong grasp intervened, and she found herself burdenless. In the village streets of Potuck and Nogantic, shamefaced lads had offered such help a hundred times, and she had accepted it, flattered by their homage; but the quick, silent action of this big, red-haired man thrilled her with strange anger.

"I don't want no help," she said proudly, "I kin carry that."

"Not while I'm here, chiquita mia!" He smiled downward, and his body seemed to loom over her like a shield. "Say, when I woke up an' seen you, do you know what come into my head? A little Navajo squaw I knowed once. Her name was Moonlight Water, but the fellers called her Little Peachey. But she was twenty-five, and you--well, now, how old might you be?"

"Goin' on eighteen," she would have answered nonchalantly to any one else; for him there woke from the depths of her nature a fierce retort:

"Give us that basket! I ain't a-goin' to let you carry it a speck further."

"ALL right," he acquiesced with broad, kind humor, vet without relinquishing his burden. "ALL right, chiquita mia! Never you mind me, Little Peachey!"

They gained a bare tongue of land lapped by water. She stepped into a canoe, the Man following. Very quickly he took the paddle from her and put forth with strong, practiced strokes, cheering himself onward with snatches of a queer, guttural burden which he had picked up from a negro chantey-singer on some Southern cotton-wharf.

Straight ahead lay the island, breasting the Atlantic swell. Seen from the distant hills, the red sunset strikes its outpost cliffs for a moment's splendor, and so it is called Twinkling Island. The girl said not a word, nor indeed was it necessary. He found the beach without trouble, helped her ashore, and carried the canoe up the slope on his back. A hundred yards onward they encountered a low, rambling house and the vague shape, in the twilight, of an elderly man smoking his pipe on the steps.

The stranger set down the canoe and gave an account of himself. But even as the great Ulysses was wont to name a false lineage and give a feigned story to his hosts, so this man said his name was McFarlane--which it was not--and told a wily tale of having been directed to a logging camp where hands were needed, of alighting at the wrong station and losing his way in an attempted short cut through the woods. Meanwhile his listener, a man of weather-beaten face and a great shock of gray hair, observed him with shrewd attention. At length he replied:

"Thar's few strangers git to Twinkling Island; but so long as you're here, you're welcome to our plain victuals. The money's neither here nor thar. Git supper, daughter. Seems you're mighty particular to git that canoe high an' dry to-night."

The girl wheeled abruptly and strode indoors, flashing at the stranger a covert, half-defiant glance.

"Gals are queer cattle," mused old Crane, drawing off his fisherman's boots. " 'Pears to give 'em a kind o' satisfaction to set a man to work. Her mother was just the same, before her."

The guest said nothing; but the realization that the girl who had grudged his taking her basket had afterward suffered him to carry her canoe quite an unnecessary distance, seemed to yield him no unpleasant thoughts.

They sat down to supper in a low'ceiled room of smoked rafters. The stranger ate hungrily and with few words, yet always his gaze followed the girl's slim figure as she moved to and fro, waiting on the board. As the food disappeared, the talk sprang up. The girl brought in a huge pitcher of cider and left the men by the fireplace, while she passed back and forth, clearing away the dishes. Crane set out a decanter of whisky, which spirit he mixed sparingly with his cider, as did also his guest--none too sparingly.