Los Angeles herald., 1907-05-19
mitted than in the building, capitaliza-
ton and Operation of railroads.

|
| involving the reasonableness of rail-
road rates, the companies endeavor to
show that reduction would deprive the
security and stockholders of a reason
able income on the capitalization, and
hence they make a showing of what the
capital is by producing the records of
| the bonded indebtedness and of the
stock issued, and when the rates fail
to produce a reasonable income on the
whole sum the courts have held it to
| be in the nature Of confiscation. In no
case yet has the question of Watered
capitalization been inquired into. The
party attacking the reasonableness of
rates is unable to show to what extent
tho pretended capital invested is fraud
ulent, as the proofs are all in the hands
of the railroad company.
The object of lie appraisement is IN
fix the amount of capital on which a
reasonable income should be awarded
Appraisement based on present value
or present cost of reproduction is fair.
1t is a rule applied by insurance comma.
MES in adjusting losses. No property
that man has created is worth more in
money than the cost of reproducing it.
1t is not denied that appraisement on
that basis would have the effect in some
measure to squeeze the water out of
the nominal capitalization; nor that it
Is one of the ends to be reached.
1t was stated at the time of the re-
cent fall of prices in the Wall street
exchange that 5000, 100000 of water was
squeezed out of railroad stocks. Tenn
porarily that may have been SO. but
there was no reduction Of the volume Of
the stocks. Though prices receded, they
will be restored by taxing the public
through the imposition of rates that
will afford satisfactory increase to
the whole sum of the stock and securi-
ties. Appraisement of railroad proper
ties will have a permanent effect, for 1t
will cause reasonable income to be
based on property value instead Of
fungus capitalization.
TO this it is objected that to reduce
dividends on the full volume of stocks,
composed of water in large part, would
do injustice to innocent holders. A ma
jority of the stock of every railroad,
and In most cases large majority. Is
owned by a comparatively few men,
who had actual or implied knowledge
that large percentage was issued
without consideration, and they ac-
quired their holdings cum onere. If
they did not own the majority they
would not be able to elect the drecto-
rate, and other officers and retain con-
troll of the management. 1t may be
fact that stocks are held by people
who purchased them not knowing that
great frauds had been practiced in their
issuance, but 1t is fact notorious that
ignorance can hardly be presumed
If it be a fact that some were inno-
cent purchasers, 1t is also fact that
there is an innocent public that must
suffer from the issuance of fraudulent
stocks and bonds by charging unreason-
ably for carrier services in order to
make the watered stock and securities
good. If there be two innocent parties
In conflict, why make one submit to
bearing the whole burden for the bene-
fit of the other? Caveat emptor is a
recognized maxim of the modern COM
mon law. The purchaser of railroad
stock can protect himself by proper
investigation, but the public cannot
protect themselves, for they are under
compulsion to patronize the railroads If
they would travel or do business at all.
Advertisement of the railroads by pub
lie officials would establish one fact in
dubitably that enters into the question
as to what is a reasonable rate-the
fact of the value of the property en-
ployed by the carrier in his business.
The question is not how much he paid
for 1t, but how much is the property
worth? 1t is presumable that the courts
would hold that such valuation is prima
facie evidence of the capital to Which
a reasonable income should be AWARDED
1t is less difficult to discover the
necessary expense of conducting tne
business. Records shcw what they act
ually We're, and also the volume OF
traffic. Hence all the facts to pe con
sidered in determining the reasonable
ness of rates could more easily be pre-
sented to the courts. Keeping the prop
erty in repair would be embraced IN
operating expenses, and the Cost oI
improvements and extensions Woulu
simply be added to the capltanzatloii
when paid for by money not derlVeu
from the earnings of the property Ap-
praisement would simplify rate MAKING
by the interstate commerce comtllS-
sion.
It may and probably will be main
tafned that the patrons of railroads al
ready have the means of redress II
charged more than they should De,
through appeal to the courts. IL mas
already been pointed out that IN sults
for such purposes the shipper is piSceu
under great disadvantage, in thaI tne
proofs of the main facts are WnollS III
possession of the railroads. Suits IoI
redress against unreasonable cnarses
will in most cases be on a single ship
ment, and comparatively a small otie'
so that the shipper cannot anoro Ihe
expense of litigation. .ha
In the hearing of such case 5Lle
court and jury would be Obliged 70 ue
termine how much the single snlpIlentt
should contribute towards the paynenss
OF necessary operating expenses. anu
the income to capital as fixed by tne
official appraisement, among tne itt, Inti
lions of others, and in connection VIII an
the sums received from passenger trallc
and other sources. .s a,,-
No such trial could be completed 9u. -.
ing an ordinary term of court, anu t,at n
court is competent to determine tnat at
questionable human mind mas ho' yG yvGi
been sufficiently EXPANDED at- a,u
strengthened to make that matneI,aao rhan
icaI calculation. The NUMBER OF , SUI
ments would bewilder, especiaily "itsa tSa
the the varying lengths Of haul ana io1ne tne
great variety of commodities are taAei'
into consideration. o,,or e+-
No railroad traffic officer eyer lt az
temnts such a calculation. he nIss
makes an estimate Of the money neeueu
to meet operating expenses, the sums
reouired to pay fixed charges ana 10
award a satisfactory DIVIDEND on tne
stock issued, always making ngures s,tn Ir
resoivinr doubts against the public