The herald., 1894-07-28
A CHICK TO STOCK WATERING.

The question OF watering stocks which
have been capitalized ct a figure which
represents the actual outlay involved in
creating the properties which they rep
resent ia attracting a great deal of at
tention of late, and it is bound to at
tract more. A number of radical changes
are certain to be enforced in the near
future. The late strike has accentuated
the fact that there are other persons in
the controversies between capital and
labor than employers and employees.
The great public itself is interested, and
it is beginning to discover this fact
with great celebrity.
Perhaps the most conspicuous in.
stance OF stock watering. on a gigantic
scale. which has occurred recently is re-
ported from Massachusetts. The Bell
Telephone company is corporation Or
ganized in the Bay state. and its stock
was originally capitalized at $50. .000, 900.
As everyone knows it's earnings are pro-
digious. 1t, therefore, applied to the
legislature of Massachusetts to be al
lowed to double its capital stock, in
cressing it to $50, 600, 900. A large sum
of money paid ont in dividends on $780,
600. 900 would not look so excessive as if
paid out on only $3C. 100000. The prin-
ciple underlying this application is that
by giving the Bell telephone holders of
stock dividends in stock the wool could
be drawn over the eyes Of the good pub
lie. and the apparent yearly dividend
reduced in magnitude.
Massachusetts. it seems, has retained
strong grip on the corporations created
under its laws, and this stock watering
operation could not be accomplished
without special act Of the legislature.
However. in this instance, that body
proved complaisant, and both houses
passed the enabling act. The Bay state,
however, has governor who seems to
have some regard for the rights OF the
public, and he promptly vetoed the bill,
his message containing some very whole.
some doctrine on such Jeremy Diddlsr
attempts.
The wrongs to which the people of the
United States have been subjected in
this line are almost incredible. Perhaps
one OF the most striking of these is EN-.
bodied in the history Of the New York
Central railway. That road was orig
inally capitalized at $2S. S.O0O,OOO On
this sum it paid q dividend OF per
cent. 1t had great equipment fund,
and immense amounts were expended
in perfecting its road beds and service
in all lines. Yet still the income
mounted high. There was never the
slightest rratonse at Any tIHs III any
department OF the New York Central
road that any concession should be
made to the people. The earnings,
though swelling month by month, were
regarded az strictly no more than the
Central was entitled to. no matter what
figure they might reach. The result W as
that even at SUCH an early date as 1872
the stock of the Central had been wat
cred until it had been increased to
SIP, 900, ,000-just four times its original
capitalizstion-and at the date named
it was paying yearly dividend of seven
per cent. If the stock had not been
watered the public would have been
restive under the payment of twenty
eight per cent dividend. There would
have been an inevitable demand for
lower freights and fares with such an
object lesson under their eyes at each
quarterly meeting Of the board of direct
ors at which dividends were declared.
1t is just possible that the spirited
action of Governor Greenhalge will
mark new era in the financial history
of the United States, and that the wat.
ering pot will not be allowed TO come
into play so much in the future. For
this nation to endure, we must some
time or other get down to the line of
common honesty.