Evening star. [volume] (Washington, D.C.) 1854-1972, 1907-06-15

or restrict oyer-capltaiiZatlon In the future.
He says, We are unalterably determined
to prevent wrongdoing in the future; but
we have no intention of trying to wreak
such indiscriminate vengeance for wrongs
done in the past would confound the In
nocent with the guilty. Our purpose Is to
build up rather than to tear down"
1t is commended that the over-capitalizatiol
reports have been very much exaggerated,
and If that is true the railway interests
should encourage rather than resist such
an investigation. 1t is also claimed that
whatever overcapitalization may have oc-
CURED has done no injury to the public.
The only persons who have suffered are
the stockholders in the railways and other
corporations I lie patrons, the shippers,
have not suffered at all. 1t is alleged that
freight rates will today average Is per
cent lower all over the country than they
were ten years ago, notwithstanding the
watered stock, and that the dividends OF
railways and industrial corporations have
very largely increased, and that the earn
ings have been divided among more people
because there are more shares to pay divi-
dends upon. If this is true the railways
and other corporations will be greatly BEN
Gifted, and their managers and man1pula-
tors will have their regulations restored or
improved If the facts can be laid before the
public in an official form.
Concerning Capitalization.
There has been much more over-capita-
ization in the industrial companies than in
the railroads, and particularly in the Or
ganization of the great trusts. The usual
procedure in the consolidation of indus
tries has been to sell bonds enough to
buy up the property desired and offer
stock as a bonus to the purchasers of the
bonds. the stock being practically worth
less at the beginning, but likely to increase
in value as business improves. Everybody
knows how such things have been worked.
Everybody knows also that it is customary
to build railroads with money secured by
the sale of bonds and nv the sale of
stocks. The stock represents no invest
ment of actual money. 1t is simply vel
vet which may become valuable because
its holders have the control of the prop
erty. If the stock increases in value and
the property earns enough to pay dlvi-
dends upon it after the interest on the
bonds has been paid. well and good If the
scheme fails, as has been the case many
times, the stock remains worthless and the
concern goes into the hands of receiver
and is reorganiZed. The bonds represent
the physical properties; the stocks repre-
sent the control the goodwill and the
equity, which have values that cannot be
easily estimated.
People who are accustomed to deal in
such matters use the common experience OF
the farmer of the west for illustration.
They say that a homesteader takes up
piece of government land for practically
nothing and builds house, barn and
fences and makes other improvements. Or
he buys farm for dollar and a quarter
an acre and improves it in a similar man
ner In course of time, as the country
around him. becomes settled, he sells the
farm for fifty, eighty or hundred dollars
acre, including the improvements, which
represent only one-fourth or one-third OF
that amount. The improvements CORE
spond to the bonds of railroad or other
corporation. The land corresponds to the
stock. No one questions the proprety or
the honesty of the proceeding. The diff
ference between the price that the farmer
paid for the land. plus the cost of improve
no he received for the
property when he sold 1t, represents water,
just as the stock in railway that has
been built by the sale of bonds represents
water, and the question Is whether the
farmer has any right to enjoy the usufruct
any more than the stockholders Of rail-
road.
Congress to Know All.
The facts, however, will be ascertained
and the report Of the experts will show
exactly what has been expended by the
different railroads In construction. equip
ment and for their physical property and
how much these same investments have
advanced in value; how much they are
worth now. The President will send this
information to Congress with recommen-
dations as to legislation to prevent the
abuse of public confidence by the man.
ayers of railways and other corporations.
The President argues that the average
shareholder in a corporation knows very
little about it's physical value. He is not
able to judge from the reports, and the
President feels it to be the duty of the
government to protect him for the same
reason that the stockholders and deposi-
tors in national banks are protected under
the banking laws of the United States:
There are more than 5000 shareholders OF
the Pennsylvania railroad: there are 34,oO)
or more in the New York Central system,
and many of them are women and orphans
whose money has been invested in the
shares by their guardians trustees. The
President argues that there should be no
limitation to the power of the interstate
commerce commission to ascertain ana
make public all the facts concerning the
physical value of the properties owned by
corporations whose stock is sold to the
people, and their earnings and expenses,
and that there should be laws to protect
such owners from such impositions as
have been common in the past.
Work in the States.
Some of the state legislatures have al
ready undertaken to ascertain the amount
of over-capitalization of railways within
their limits. committee of the Mime
sofa legislature has recently made a
port on the value of each of the railways
in that state as compared with it's capt.
tai. In reaching a conclusion the commit
tee has taken into consideration: The
original cost of construction, cost of i'm
proyements, betterments and equipment
added since, cost and character of lines
the earnings under existing rates, stocks
and bonds and the water therein geogra-
ply of the line and the judgment dis
played in it's location.
The report of the committee represents
that the actual value of all the railways
in Minnesota is se15,000,0O0. while the
capital stock and bonds represent $780,
100000 The roads cost on average
$4,000 mile, and are capitalized at an
average of $4,000 mile. The commit
tee argues that the difference represents
water, which amounts. to total of $685.
100000. or an average of $4,000 a mile,
much of it represented by bonds which
the interest has to be paid before the
stockholders get anything
At the interstate commerce commission
very little confidence is placed in this re-
port because it is said to be the work of
amateurs and not of experts.
Honors Awarded st. James Students
HAGERSTOWN Md, June 15.-The six
tieth commencement of st. James School,
Washington county, was held yesterday