The Minneapolis journal. [volume] (Minneapolis, Minn.) 1888-1939, 1903-07-16
But WHAT IS WATER
The Wall Street Journal Discusses
MINI. Bankers Attitude on
Corporations.
Approves Their Idea but Says They
Should Have Been More
Explicit.

Inc one section of the report of the
resolutions committee of the state conven-
ton OF lhe Minnesota Blankets association
in ST. Paul which awoke discussion was
one reciting that many corporations cHe
Issuing stocks and bonds far in excess Of
the value and cost Of the property which
tney represent, and that in order to pay
dlvidendsSons over issues of securities they
charge exorbltant prices for transportation
and for manufactured articles. It pro-
posed that all corporations be put under
control OF the bureau of corporations of the
new department of commerce and labor
RMS would require the bureau to certify
70 the payment of capital, the issue of
stocks and bonds not in excess of the
value OF the property they represent
. !, a. y. stephens Of st. Cloud argued that
the bankers had never gone outside their
line In the adoption of resolutions and
moved that this section be stricken out
O. DE- Griffith of Sleepy Eye, it's sponsor.
showed that no subject should so interest
the bankers at the present time as this
matter OF %overcapitalization
Inc wal Street Journal says that such
a, resolution adopted by SO important a
state as Minnesota is worthy of utmost re-
spect.
Should Have Gone Farther.
The Wall Street paper in its ding
article says, however, that the bankers
We're not explicit enough It adds:
having gone as far they did in this matter.
Ineys could have proceeded further, and appointed
committee to make the proper investigation
stitutes stock watering There is great diff
ferehee Of opinion on this subject. Stock water
Ing, IS spoken Of as If it had been made the sub
5ect of afprecise definition And yet very few, If
any, have any definite idea as to the exact
point where legitimate capitalization stops, and
where 1llegittmate capitalization begins. The
minnesota bankers seem to have the idea that
there should be no Issuing of stocks and bonds in
excess of the value and cost of the property
| which they represent What, it may be asked
do these bankers mean by the value and cost OF
| the property? Do they mean past value, presen,
value or the anticipated value? Is it propert
| that capitalization shall in every case be re
1 stricted to the amount Of actual cost of the
| property, or shall it be permitted to represent
| the earning capacity of the company? If it is
allowable to capitalize the earning capacityrof
company,s is 1T. then permissible to go still fur
| ther and capitalize the prospective earning ca
;, 80. os~ Some Notable Watering.
| President MeKinley's Industrial commission
which made AN Investigation Of this subject, re
ported that many trusts had been financed upor
i the basis of an issuance of $500 of stock fo
every 500 of cash tangible property owned
and of this stock issued, fourth went to tht
promoter, 6one.third to the sellers entering thu
| combination, and the remainder to the under
writing syndicate. James B. Dill, who is al
authority on this subject, having organized man.
i 2compa MES and written largely in regard to tn
| muttcr has said that when companies capital
lied for, say, $3OOOo.O00, represent plants wortl
only one-sixth of that amount, the difference
in no sense true value, but simply water
| That many companies have been foated who's
| stock represented far more water than value
| is unauestionable. The Wall Street Journal ha
| no desire to defend that evil or to minimize it
! demoralizing effect. It seeks only to emphasiz
! the principle that when an influential body o
business men like the Minnesota bankers start II
to suggest legislation on this subject, the!
il shouldsgive tj,hazy generalization, but som
| definite and clear idea to the exact line
\ IF neasufe1e to- be- appliedI IN capitalizing
| company.
4 Stock for Promoters.
r It will have to be granted that even issuanc
7 Of stocks to promoters and underwriting syndl
Gates has large basis of justice in 1T. Promo1
ers and underwriting syndicates perform impol
tant and, indeed, indispensable services, service
ing the highest rates of remunera ton; and
the promoters and underwriting syndicates ar
willing to accept stock in lieu of actual cas-
4 for their services certainly a proper issue q
| stock to represent such services is justifable.
1t is time, especially as the bureau of corpora
ton has now entered upon its career Of trus
regulation, and as this whole subject of stoc
watering is so largely before the public, an
SO likely to become the object of legislation ths
I q few fundamental principles should be form,
lated on which intelligent opinion and efectiv
Gand Just action may be founded. AS 1t Is. "
are drifting in a fog without a compass. TheI
should beF;a commission of experts to determir
Etiust exactly what stock watering" is