The Topeka state journal., 1909-01-27

the value of the property The court
has further decided that the railways
| have no right to charge excessive
rates to the public and as the courts
! or legislative commissions began to
| limit the amount that railways might
| charge the people, the managers of
| the railway corporations began to
/ initiate the value of the property by
so that overcapitalization has become
] the greatest evil, not only of railway
| management, but of modern business
| development.
Valuation and capitalization.
There is no limit to the amount of
4 poration may issue. If it can secure
revenue to pay interest and dividends
! upon It's capitalized Indebtedness, then
| the stocks and bonds will sell in the
| market. If a railroad company is
| bonded for $4,000. $4,000 or $780,
! 900 a mile and a rate controversy
arises between the people and the cor
| poration, the company will contend
/ that it has right to charge rates that
4 will provide operating expenses. inter-
| est upon its bonded indebtedness and
| a reasonable dividend upon its stock
| The cost or physical value of a rail-
road has nothing whatever to do with
| the amount of bonds and stocks the
company may be carrying. The value
| of the stocks and bonds depends al
most wholly upon the roads earnings,
| and its earnings depend upon the vol
ume of business and the rates that it
| is permitted to charge. The decision
| of the supreme court gives the rail-
roads the right to earn returns on their
value, but distinctly says that they
have no right to charge unduely high
rates in order that they may pay in
terst on excessive bond issues or ficti-
tious capitalization. That is. that
roads have the right to earn returns
on their value; not on their capitaliza-
ton. That the. interstate commerce
commission may know upon what
amount the corporation is entltled 10
earn interest and dividends, it is neces-
sary that the value of the property be
known. The valuation of public serv-
ice corporations is, therefore. one of
the vital questions in American poll
tics and provisions should be made for
ascertaining their value at the earliest
possible date.
The Alton case.
1.-The methods resorted to by rail-
way magnates in overcapitalizing rail
road property is one of the most
amazing develepm entS of modern bust
ness life. 1t is very forcibly illustrat-
ed in what is commonly known as the
Alton case. For many years, the AL
ton railroad was controlled by Mr..
T. B. Blackstone, it's president. Dur
ing that time, it paid dividend of :.
per cent per annum on its cap1tai
stock and paid for necessary improve
ments out of it's earnings. In 1898
and 1899, E. H. Hartman, Mortimer
L. Schiff, Geo. j. Gould, and Jas. Still
man acquired control of the property,
paying in round numbers $39, 1000
for SO per cent of the stock. The prop
erty was valued at $40,000,000. 1t
had outstanding Indebtedness of
bonds and stocks amounting to $33,-
100000. These men retained the con-
troll of the property for about seven
years, and during that time its IN
debtedness was advanced by them
from $33.00e,O00g to $114, 900,
making a net increase of about $S1,-
in actual improvements and additions
to the property about 100000,
leaving an increase in the Indebtedness
of the railroad of over S62, 100000 or
the company received nothing what
ever. The proceeds rrom the sale of
this $62,000,000 of increased indebted |
ness was appropriated to the personal |
use of the syndicate, and the methods |
by which the property was loaded with |
this debt and it's revenues looted is |
very interesting.
The Process of SpoIiation.
THE first move in the process of
spoliation was to place 100000 addi- |
tional bonds on the property. This $40,- |
100000 of bonds were sold to the stock |
holders, the four men named owning 9S
per cent of the stock, at 65 cents on the |
dollar. These stockholders then sold
through their agents. $40, 100000 of these !
bonds to the New York Life Insurance
company for 96 cents on the dollar, and |
the remaining bonds were sold at from
88 to 90 cents. The syndicate received |
personally the difference between 65 |
cents, that for which they sold the |
bonds to themselves as stockholders, |
and the amount they received for the /
bonds from the New York Life Insur- |
ance company and others. This rep
resented their first installment of loot |
and aggregated something over $8,000,- |
600. The syndicate then, out of. the |
proceeds of the 65 cents on the dollar, |
y 1f,I,
for the bonds, voted a dividend of 80
per cent to themselves. From this |
source they received about $7,oOO0o0 as
the second installment of loot.
Syndicate Makes $56,OOO,OOO
prior to 1853, there was a mort
gage on the road which was fore |
closed. This obligation was after
ward paid. An amount had been ex-
pended in paying this debt and for |
improvements. out of the earnings of |
the company up to the time Mr.. |
Hartman secured possession of the |
$12, 100000. Hartman capitalized |
these expenditures and appropriated !
the proceeds to the use of the syndi-
cate. That is, he capitalized money |
that had been earned and spent 80 |
years before he acquired possession
of the road. The syndicate then
organized new corporation known
as the Chicago & Alton Railway COM
pany- 1t mad formerly been railroad
company. To this new corporation,
through an agent, the syndicate sold |
all of the stock it held in the old |
company and received in exchange
therefor stock in the new company |
aggregating $4,000 shares, or more |
than two shares in the new company |
for every one that they owned in the
old. Then, Mr.. Hartman, who con-
trolled the Union Pacific railroad,
proceeded to sell 10000 shares of
the stock of the new company to the
Union Pacific railroad for $3.50 per
share. The remainder of this stock