Grand Forks herald. [volume] (Grand Forks, N.D.) 1916-1955, 1922-01-25
BANK AND RAILROAD GUARANTEES.

Advocates OF a government guaranteed price
.for farm products frequently cite the alleged guar
.antee Of railroad earnings by the government, and
occasionally it is also alleged in support OF the pro-
posed assurance that the government guarantees
the earnings of federal reserve banks.
In the case of the railroads, as has often beer
pointed out, there is no guarantee given except tot
the short period following the transfer Of control
back from the government to the lawful owners.
Theawhole theory of government regulation of rail-
road rates is based on the fact that the railroad bust
ness is essentially monopolistic in character, and,
as such, must be subject to some sort of public reg
%ulation in the interest of the entire population. Two
railroads cannot cover quite the same territory.
The community which is served, by a particular
road depends on that road for its very existence.
Without the restraining hand of the state it would
be possible for a railroad management to discrim-
mate among the communities which it reaches, and
among individual patrons in such a way as to build
up one mans fortune at the expense of another man.
and to build cities or wipe them off the map at
pleasure The state has therefore assumed juris-
diction over the. roads in order to insure equality OF
treatment. 1t has also assumed a general supervi-
sion over the roads in the matter of service and
rates, and more recently in the matter of wages
paid. The railroad is required by law to operate
trains at certain times and in a certain manner. 1t
may not charge more than certain specified rates.
1t must pay certain specified wages. And the law
now provides that in fixing rates the commission
must proceed on the assumption that the earnings
III kAS SAdil S40dt q lLANu ldlS Oi IS lhNSot-
ment. That rate is not guaranteed. The road is
permitted to derive that net income ii it can while
complying with all the conditions of service. If it
falls short its stockholders suffer the loss. If the
yield exceeds the prescribed rate the excess is dis
tributed, part going directly to the government and
the remainder going into a fund for betterments.
In the case of the banks no guarantee is given.
The bank, like the railroad, is required to meet GER
tain specified conditions. Those conditions are in
tended to protect the interest of the. stockholders.
The stockholders have a weighty responsibility.
1.-THE management is incompetent or unfortunate.
and there are losses which exhaust the banks CAPT
tai, the stockholders. who have already paid face
value for their stock. must double their investment
before they are relieved, and not until the 100 per
cent assessment is exhausted do the depositors sui
fer loss. There are people in most communities
who have acute recollections Of the responsibility Of
owning stock in shaky banks under the banking
methods of a few years ago.
The central banks of the reserve system are
given no guarantee. They are permitted to set
aside profits, if profits are made, until they have
acquired reserves for which provision is made.
After that their profits, if any, go to the. govern
ment. They exist for security and f1exibi1ity, and
not for profit.
In neither of these cases is a guarantee provid-
ed. If it were the situation would still not be COM
parable 10 that Of the Individual engaged in a purely
private business. agricultural OF otherwise. No
law governs the operations Of the farm OF restricts
the liberties of the farmer. He plows and sows and
ssreaps as he pieases and as the elements favor him.
NO board or commission tells him what to plant. or
when, or how much. What is true of this business
is true OF private business in general. The govern
ment eNacts nothing in service or in product from
the individual. There is therefore no basis on
y which to compare the guarantee of such unregulat-
ed business with d guarantee for railroads or banks.
even II the latter guarantees were given.