The Washington times., 1914-07-03
THE PUBLIC OWNERSHIP
REPORT.

Congressman Crosser, reporting
for the majority of the House Dis,
trict Committee in favor of the
measure for public ownership OF
street railway lines, expressed the
opinion that these properties are
worth just about half the sum for
which they are capitalized. On the
other hand, the officers cf the cor
porations had expressed, during the
hearings, the rather general con-
viction that the lines were worth just
about the figures at which they were
capitalized.
Gentlemen dealing with such sit
uations are not given to admitting
overcapitalization. There is a
familiar line of academic argument
about capitalization, which proceeds
on the theory that the capitalization
is unimportant at best; it is quite
immaterial whether a thing has a
capitalization double its value, or
exactly equal to its value, or half
its value; the quotations of the
shares will reflect about the true
valuation. Standard Oil is often
referred to in proof of this theory.
When that corporation had only
S100, 10000 capital it used to pay
dividends up to near S5o,000, 900, and
everybody understood that it
possessed property comfortably
worth a billion dollars The fact
that its capitalization was small did
not convince anybody that its valu-
alton was low; and conversely, the
fact that the capitalization, for in
stance, of the International Mer-
camille Marine is large, has never
convinced anybody that international
Mercantile Marine is very valuable
security.
But when a public service concern
is involved, the rule about relation
of capitalization to value is diff
ferent. The shares of a public
utility are worth whatever earning
capacity can be injected into the
property. 1t is not a question of
physical value, but Of the public's
willingness to permit earnings. For
example, Mr.. Crosser thinks the
Washington railways are worth
about S24,000,000. The street car
people think the same properties are
worth about $50,0O0,0OO.
The difference is in the valuation
placed on franchise. The franchise
is worth just what the community
permits it TO be worth. If the COM
munity is good-natured and easy,
and is willing to pay rates of fare
that produce returns on S24,000,000
of physical and s26, 900, 900 of fran
chise value, then the street car Of
fcials are right; the property is
worth to them s5O,O00,0O0 if the
town is willing to give them earn
ings of s5O,O 200.
Mr.. Crosser doesn't think it is
good business or sound morals for
the community to be so liberal as
that. Rather, he thinks the actual
invested value should be the basis
on which the concerns should earn
returns. So he charges overcapi-
talization. The managers Of the
properties admit nothing of the
kind. Managers never make such
admissions. They simply stretch the
franchise value" or Intangible
value" enough to cover the gap be-
tween value and capitalization, and
announce that there is no "over-
capitalization"
1t will be interesting to study the
minority report opposing municipal
ownership, that is going to be pre-
sented by the Johnson -Winslow end
of the District Committee. 1t will
be yet more interesting to learn
whether these gentlemen will be
able to prevent a vote on the cues
tion of public ownership. That is
the one way they can defeat the
proposition: In the present House
and the present Senate the measure
will carry if it goes to a vote.