The Washington herald., 1922-12-19
FINANCE.
AND
RUSINESS.
Dy d. G. FORBES.

Are manufacturers entitled to
charge the highest prices they
can possibly get for their prod
ucts?
Is everyone entitled to dispose
of his product at the biggest
profit he can realize?
/ criticized last week the cur
rent mania for declaring stock
dividends by every conceivable
kind of a company in the coun-
try.
]. G. Donly, jr., of New York,
an authority on securities and
corporate finances, disagrees
with my presentation of the facts
and explains, quite clearly, how
most surpluses are created, how
they have benefited both work
ers and consumers as well as
stockholders, and how Americas
whole industrial and financial
structure has been strengthened
and developed through the ac-
emulation Of surpluses.
Mr.. Donly writes:
Usually / find myself in COM
plete agreement with your view
point, but your column, with the
quoted letter from a workman
and your opinions as to stock
dividends and their relation to
capital and labor and the wages
of labor, has stirred me with the
convection that your laboring
friend has gone wrong in his
thinking and that you have con-
fused a question of policy con-
cerning the possible sentimental
effect of numerous stock divi-
dend declarations with that of fl
nancial principles.
Your workman correspond
ent refers to stock dividends as
something that never vas a part
of the investment of the corpo-
ration and is worse than water
You speak of wholesale in
flation' and of the 'ladling out
of hundreds and hundreds of mil
lions of dollars in stock divi-
dends.'
IF | had all of the statistics
available. l could prove that,
with perhaps a very few excep-
tions, recapitalization has not
involved watering, and that
there has been no wholesale in
flation'-both of which infer
ences would take to mean an
increase in capital stock dis
proportiOnate to and unwarrant-
ed by increases in capital assets.
Moreover, | feel that your refer
ence to the ladling out of dol
lars in stock dividends is liable
to mislead those of your readers
who may not stop to think that
a dollar of stock, a dollar of par
value is something quite diff
ferent from a dollar of hard
cash. Corporations have not been
ladling out dollars; they have
simply been issuing an increased
number of stock certificates to
take the place of others repre-
senting the stockholders interest
in the property, which has in no
wise been added to by the process
Of engraving pieces of paper.
"All the stock dividends that |
know about have been based on
earned surplus, which is nothing
other than the savings of capital.
But these savings are only to a
very small extent the form of
cash in bank; they are mainly in
the form Of fixed investments in
plants and machinery which
serve to give greater employ
ment to workmen. Capitals
ability to earn this money, save
it and reinvest it in plants is
what makes the great difference
between the workers opportunity
In America and his lack of op-
portunity in Russia.
Let me tell the workman who
fears for his wages what lies
behind just one of these stock
dividends. Each holder of a S10O
par value share Of National Bis
cult common stock recently re-
ceived seven new shares of S25
par value in exchange for his old
stock, making a total par value
Of s175, or a stock dividend of
70 per cent. About S22, 1000, 900
par value was thus added to the
amount Of stock outstanding.
Before the distribution of
this stock dividend National Bis
cult had, according to its latest
balance sheet, a profit and loss