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New Scripophily Discovery

One of the great pleasures of collecting stocks and bonds is the excitement of discovering issues previously unknown to the collecting fraternity. I recently had the pleasure of making one of these discoveries when a small group of Louisville, Cincinnati & Charleston Rail Road bonds, all dated 1838, crossed my desk.

Preliminary research quickly indicted that no examples of stocks, or bonds from this railroad have been reported in the auction records of R. M. Smythe & Co., or in Stocks and Bonds of North American Railroads (Cox, BNR Press 1995). Knowing that very few stocks or bonds from any rail roads dated in the 1830’s are readily available to collectors, I began to wonder whether or not these Louisville, Cincinnati & Charleston Railroad bonds might not, in fact, be the earliest railroad bonds known to collectors. I immediately contacted Terry Cox, who was kind enough to provide me with a list of the seven earliest railroad bond issues he knew of:

• Tioga Navigation Company 1838
• Williamsport & Elmira Rail Road 1839 (2 different issues)
• Canajoharie & Catskill Rail Road 1840
• Mexican Gulf Rail-Way 1840
• New York State in Aid of the New York & Erie Rail Road 1841
• Harrisburg, Portsmouth & Lancaster Rail Road 1841

I further investigated the Tioga Navigation Company bond reported by Cox, and found that the example cited was printed in 1838, but not actually issued until 1840 (hand written date over the printed date). Thus the Louisville, Cincinnati & Charleston Rail Road bonds were the earliest reported, but I then began to wonder why they been issued.

In the late 1820’s and early 1830’s the success of the Erie Canal created an atmosphere conducive to promoting and building more canals, and railroads as well. While small railroads could be financed though the sale of shares to private investors, long railroads required the cooperation, and the financial backing of larger entities.

The State of South Carolina was one of the first to realize the economic benefits that could be gained by aiding the construction of railroads, and the State loaned $100,000 to the fledgling South Carolina Canal & Railroad Company (chartered in 1827) to build a 136-mile road from Charleston to Hamburg, which was completed in 1833. It was then the longest line in America. In 1835, hoping to further improve the transportation of cotton from the Deep South northward, a new railroad was chartered, the Louisville, Cincinnati & Charleston. In 1838, to encourage the expansion of the road to the state capital, Columbia, the State of South Carolina agreed to guarantee the issue of 200,000 Pounds of 5% Sterling Railroad Bonds for every $500,000 worth of shares sold. The bonds, due in 1866, were to be sold in Europe through the Agency of the Bank of the United States. These are the first known state guaranteed railroad bonds. Because of the steadily worsening condition of the Bank of the United States, a second group of bonds was issued through a different agency, of the House of Mess. Palmer, Mackillop, Dent & Co. of London. In his capacity as State Comptroller, William E. Hayne signed the back of each bond. His father, Robert Young Hayne, signed as president of the railroad. Robert Young Hayne (1791-1839) was U. S. Senator from South Carolina (1823-1832) and Governor of South Carolina (1832-1834). He was noted for his brilliant debate with Daniel Webster over the Nullification Doctrine in the Tariff Controversy of 1832.

There were four varieties of the Louisville, Cincinnati & Charleston Railroad bonds discovered:

1. Louisville, Cincinnati & Charleston Rail Road. July 1, 1838 500 Pounds Sterling Series A. (Agency of the Bank of the United States). Draper, Topan, Longacre.
2. Louisville, Cincinnati & Charleston Rail Road. July 1, 1838 250 Pounds Sterling Series B. (Agency of the Bank of the United States). Draper, Topan, Longacre.
3. Louisville, Cincinnati & Charleston Rail Road. December 31, 1838 500 Pounds Sterling Series C. (House of Mess. Palmer, Mackillop, Dent & Co. of London). Draper, Topan, Longacre.
4. Louisville, Cincinnati & Charleston Rail Road. December 31, 1838 250 Pounds Sterling Series C.(House of Mess. Palmer, Mackillop, Dent & Co. of London). Draper, Topan, Longacre.

As time went on the financial climate did not favor the cooperation of other states in expanding South Carolina’s railroads. In 1844 the LCC became part of the South Carolina Railroad, which assumed the debt of the earlier company. The Confederate War prevented the South Carolina Rail Road from making interest payments, and in January of 1866 the bonds came due. Neither the State, nor the railroad could pay the principal. Instead, the bond holders were put off until 1871, and were asked to accept various oddly denominated Certificates of Indebtedness for any past due or future interest.

The following Certificates of Indebtedness were discovered along with the bonds:

1. South Carolina Railroad. $7.50. Certificates of Indebtedness. April 1, 1866. ABN.
2. South Carolina Railroad $87.50. Certificates of Indebtedness. April 1, 1866. ABN.
3. South Carolina Railroad $175. Certificates of Indebtedness. April 1, 1866. ABN.

In 1871 the South Carolina Rail Road issued 500,000 Pounds of new sterling bonds, and exchanged them for the issues described above. The old bonds were cancelled and lay hidden for over a century until the recent discovery of a small group, said to have been brought in to the U.S. early in the last century from a European source.