The Saint Paul globe. (St. Paul, Minn.) 1896-1905, 1898-09-17

| dred years resisted the efforts of parliament
! to remedy the evils which they created; but
! little by little the courts of this country nave
| established the principle, that where the leg
| islature creates artificial body and endows
| It with certain powers placing 1t in posi-
uon where the public are compelled to deal
with it, of necessity it has the authority and
right to limit its power and regulate its
aS2!Rgs Win The ss PHe2!!e e. ~ o,,,. .,,,;a
described which at this time seams feasible,
is in the honest and fearless administration
Of law. If public officers are independent,
honest and intelligent. the people of this
country will be protected.
EVILS OF WATERED STOCH.
One of the greatest difficulties which is
met with in an attempt to regulate rates
comes from watered stock Watered stock
is term used to describe this condition of
! affairs: A corporation has property of the
actual value, for instance of 500 5000; it
fixes its capital stock at 5000, 600 and thus
gives fictitious value to its property. The
men who form the corporation and who put
into II property of the value of $780, 900, there
fore hold stock for $500, 600. Now if they can
make that property earn enough money so
that dividend can be paid on 100000 Of
| stock, the stock will be quoted in the mar
ket at its par value and so by this manip-
ulation the owners of 100000 worth Of prop
erty have succeeded in apparently doubling
its value In addition 1t has been the uni
Yersal custom Of large transportation cor
Poratlons to mortgage their properties for
of the form in which these mortgages are
made this is known as issuing bonds.
When the principle was established that
the state had the right to regulate railroads,
and II was apparent that the people would
insist on such regulation, the RAILROAD COM
panies Immediately claimed that even if the
state had right to regulate their rates they
must not make their rates so low that the
roads could not be operated at a profit, and
SO the question at once arose on what basis
should earnings be estimated Should the
hA
placed at what il cost to construct and equip
the road? Should it be placed at the par
value of its capital stock and should there
be considered also the amount of the bond
ed Indebtedness of the road?
Right here Is where the evil to be appre-
hended from watered stock appears Ordina-
rily 1t would be matter of Indifference to
the public whether the stock was watered
or not, but if the railroad company has
right to so fix its rates that it shall obtain
a profit on this fictitious valuation of its
property, the public is vitality interested.
This question, upon what valuation rates
shall be fixed is today practically an open
question. and while the supreme court of the
state Of Minnesota has taken advanced
ground upon 1t, as will be hereafter shown,
other courts have differed, and it is, there
fore true that one of the most important
questions today is, shall railroad cOmpan-
les be compelled to fix their rates that
they shall earn a fair profit on the actual
value of the property held by them, or shall
they be allowed to accumulate earnings on
fictitious valuations watered stock?
A CASE IN POINT.
This question affects all the peopIe-the
citizens Of the cities as vitality INTEREST,"
ed in the general prosperity of the state as
are the residents of the rural districts; but
the residents of the cities have a peculiar
interest In the question because of street
car travel. The application of electricity as
a motive power has revolutionized the ccndi-
lions of life in our large cities; people live
at a greater distance from their places Of
hIYcf hn OpIf CfAfu
keep horses the livery business has been al
most extinguished and the great evil OF
the modern city. the department store, has
been made possible by the increased facilities
for street car travel.
The bonded indebtedness and capital stock
of the Twin City Rapid Transit company,
which owns the street car lines of st. Paul
and Minneapolis. is about $50, COG, coo. No
one will claim that the property could not
be reproduced for one-fourth of that sum.
Thus without going into the question of
taxation or other similar matters, it will be
seen how important is the question whether
or not the street car company has a right
to earn dividends and interest upon $50, 0G0-
coo, or a fair profit on the actual value of
its property.
When actual value Is spoken of. the fran
chise or right to use the streets is not in
Guided as it would be appalling to say that
the people should first give a valuable right
to a corporation and then let that right be
used as means to build up fictitious val
ue upon which the same people who made the
gift should pay q profit.
THE STEVENSON CASE.
AS has already been said the supreme
court of the state of Minnesota has taken ad-
vanced ground upon this important question,
and rendered on Oct.2O, 1897, a most important
decision in the case of Stevenson VS.. Great
Northern Railway company. That case is re-
ported in the Seventy-secOnd Northwestern
Reporter page 713
Elias STEVENSON, a resident Of the northern
part Of the state, filed a complaint with the
railroad and warehouse commission against
the Great Northern Railway company, claim
ing that company charged excessive and I'M
reasonable freight rates. The Northern Pa
cifc Railway company which owned parallel
lines asked leave to be allowed to take part
in the controversy upon the ground that it
was interested for this reason-that il the
| Great Northern was compelled to reduce it's
rates the Northern Pacific in order to get its
share of the freight would be compelled to
! reduce the rates on its road also. A hearing
| was had and the commission ordered the rates
! reduced to a certain extent The railroad
| companies appealed to the district court and
| the district court held that the commission
| was wrong. Attorney General Childs, on be-
| half of the state. took an appeal from the de-
! csion of the district court to the supreme
court.
The question came up squareIy In the SUI
preme court as to whether or not the rail-
road companies should be allowed to charge
on the basis of the par value Of their capital
stock. in connection with which should be
considered the bonded indebtedness of the
company, or whether the rates should be so
fixed to allow a fair profit on the actual
value of the property used in the operation
of the road The decision of the supreme
court was unanimous. The main opinion was
written by Justice Canty and Justices Mitch
ell and Collins wrote concurring opinions
One paragraph from the syllabus of the case
is all that 1t is necessary to give at this time
1t Is as follows:
1.-The question whether the rates for trans
portatiOn fixed by the state railroad and ware
house commission are unreasonable and con-
fscatory is not determined by the fact that
the income under the rates as so fixed will
not pay the amount of the fixed charges of
the railroad. Neither can the amount at
which railroad sold years ago on mortgage
foreclosure sale be taken as the basis on
which to determine what are reasonable rates.
| but that question is determined by ascertain
| ing what, under all the circumstances is a
reasonable income on the cost of reproducing
| the read at the present time"
While large number of other questions
| were argued to the court and discussed by it
| in its opinion 1t is not necessary to refer to
| them. The object being at this time to point
| out the stage which has been reached in the
| state of Minnesota in this contest between
| organized monopoly and the peoples rights.
This decision of the supreme court while
| saving to the settlers along the line Of the
! Great Northern railroad, vast amount of
! money per annum, estimated at about 81 600
! GEO, Is still more important because II is a
| step in the direction of adjusting the re-
| spective rights Of the people and transporta-
| ton companies.
| APPEAL TO THE PEOPLE.
The highest court Of our state rendered its
! decision Oct. 20, 1897 and now an appeal has
! been taken to the people of the state and II
! upon this question.
Three of the five judges who rendered this
! judgment are before the people this fall for
reelection. The Democraticsparty renominat-