The Portland daily press., 1875-02-18
StOck.Watering.

The lecture by Mr.. Adams in Boston, Fri
day evening, related to railroad stock watering.
Of this great deal had been said-and not
very intelligently said-east and west, during
the past eight years. The question was by no
means so simple as was commonly supposed.
The practise was defined to be the issuing to
stockholders in railroads of additional evil
dences of value representing no additional in
vestment of their capital. At this point ar
gument generally stopped and dehuheiiaattffooHa
began. In reality, however, as a matter of
Justice, with this definition the difficulty be.
gan.
Almost all railroads have passed through Pc
riods of depression, when every dollar of earn
ings had to be devoted to operating or devel-
oping the property. Were profits fairly earned
during such periods, but never divided and de-
voted TO construction, to be considered as addi-
tional capital invested by the stockholders?
Under the statutes of Massachusetts they
were not. The early laws and charters were
referred to as throwing light on that question.
In view of the existing confusion OF the ac-
counts of railroad companies, and the impOssi
bilty of dividing profits from operating ex-
penses through series of years, the statute of
this state which cuts of the whole question by
practically declaring that no past profits could
be capitalized was justifiabe. In principle,
and under a proper system, there is no reason
why undivided profits should not be capitalized
as we'll as new money. Stock issued strictly
to represent this was not, therefore, watered
stock, as it did repre- sent an additional invest
meut of capital.
The next form of fictitious stock was that
which was given away as an incident to the
sale of bonds. This was pure water, and al
most the whole of it had most properly been
wiped cut in bankruptcy. The last form was
that which represented the increased values of
land; this was wholly unjustifabe, as the rail-
roads hold this land for public uses alone, and
not for purposes of speculation.
Vast amounts of railroad stocks had been is
sued under each of the forms described. What
had been the result? Apparently, after all,
only fair average had ensued. Under the op-
Grafton of natural laws, the fictitious stock did
not more than offset the instruments which had
been wiped out by bankruptcy. In New York,
the profits of 10000 miles of railroads making
return just paid per cent, not on their pa
per cost, but on the low estimate of $40,0 900 per
mile, including double tracks, stations and
equipment
Or $500 miles in Ohio, on the same basis of
computation, the profit was just per cent. A
rude average has thus resulted, under which
the community had paid far profit only on
the whole capital which had actually been in
vested IN its railroad system. The strong lines
had made good the deficiencies of the weak
ones.
The lecturer then disputed the statement
that, in such case, the burdens of increased
dividends ON the strong lines fell on
the movement of commerce from west
to the sea-board. Competition did and
would prevent its falling there, aud force that
carriage down to cost. That burden fell on the
local business of the great lines, and showed
itself in keeping those lines but little better off
than their neghbOrs.
The question was simply one of law and ac-
counts. The issue of railroad stock should be
freely permitted, but Only under public super
vision. The difficulty was in the unwillingness
of the people to be logical. They want the
railroad to be at once public institution and
is to be public institution it must in so far be
under public supervision. How long it will
take to draw this line the lecturer could not
say; we were as community just closing the
work of railroad construction and entering up
on the study of railroad administration.