New-York tribune., 1918-06-12
Why Starve the
Public Utilities? ?
Financial Editor, The Tribune.

Sir: In last Fridays Tribune you
discuss part of Mr. Paul M. Warburg's
address before the National Confer
ence on War Economy concerning the
public utility situation, and quote
,, Mr.. Warburg as saying that the War
Finance Corporation expects to deal
only with concerns that are solvent
and able to provide bankers guar
antee" And further, shat Except
| where the public interest absolutely
, requires the corporation will rot con-
slider itself warranted in making ad-
vances to companies on the brink of
| insolvency without such guarantee"
(. You say "that would seem to be the
proper position for the War Finance
Board to take. There is no good rea-
/ son why the corporation should under
take to provide funds for bankrupt or
near bankrupt properties"
| You then say, But what Of the COM
panies that have been placed in
dangerous position through no fault
of their own? 1t would clearly
be against the public interest to per
nit bankruptcy on Wholesale scale
+ 1t would not be surprising if
the Finance Corporation should dis
cover many cases in which public in
terest would require direct loans, with
out the guarantee of bankers"
In his annual report the Hon. John
Shelton Williams, Controller of the
Currency, said "the continued and in
creasing efficiency of these corpora
tions is important for the successful
conduct of the war"
In letter to the President, Secre-
tary of the Treasury the Hon. William
G.. McAdoo said our public service
utilities are closely connected and are
an essential. part Of our preparations
for and successful prosecution of the
war"
The President, in his reply TO the
Secretary of the Treasury, said: ~
fully share the views you express re-
garding the Importance Of public utili-
ties as part of our national equipment,
especially in wartime. It is essential
that these utilities should be main
tanned at their maximum efficiency and
that everything reasonably possible
should be done with that end in view"
Subsequently the War Finance Cor
poration was created and organized,
and you have quoted Mr.. Warburg as
saying that the corporation now tex
poets to deal only with concerns that
are solvent and able to provide
bankers guarantee"
1t is apparent that the continued
and increasing efficiency, and, conse-
quently, the solvency of the public
utilities of the country, are essential
to the prosecution CT the war. The in
ability OF the utilities TO meet their
maturities and to respond by expan-
sion to the unusual industrial demands
for motive power and transportation
is not due to anything inherent in that
industry, but is due to two conditions
altogether resulting from the war,
namely:
(a) Increases in all the elements
entering into the costs Of operation,
including materials, labor and cap
ital, with the possibility of further
increases which may outrun the OBJ
tainable increases in rates.
(b) The government financial op-
erations monopolizing to a large ex~
tent the activities and resources of
bankers and making large demands
upon the investment funds of the
country.
These two conditions are war con-
ditions, brought about entirely by the
war and must be considered and
treated in relation to the war.
Utility companies, which would have
been bankrupt had there been no war,
are not entitled to consideration be-
cause war conditions exist; but public
utilities, which, because of the war,
are unable to maintain their efficiency
and their solvency, must be protected
as a war measure. Neither the bank
ers nor the investors of the country
can assume that costs Of opera
ton will not be higher. or that
rates will be increased to Offset higher
operating costs. The banks and trust
companies of the country, whose solv-
ency is so necessary to war financing
and the country's financial stability,
cannot be asked or permitted to lock
up their funds in securities at least
temporarily unmarketable.
The continued operation and SOW
ency of the utilities Of the country are
essential to the prosecution of the war
and any impairment of their efficiency
would tend to reduce the industrial
output of war materials; the further
Impairment of their credit or their
general default and insolvency would
have disastrous effect upon the fin
ancial structure of the country. The
efilciency of the utilities and their
solvency must both be assured as war
measures, as we'll as their necessary
expansion for the increasing demands
of war industries.
The assumption by the government,
OF an agency. cooperating with the