Evening star., 1923-05-27
COURT RULING BOON
TO ALL RAILROADS
Phone Case Finding Said to
Assure Fair Returns to
Nations Carriers.
BIGGEST EVENT OF WEEK
Significance 0verlooked-Danger
Signals Noted-Less Fear
of Congress.
BIGGEST EVENT OF WEEK
BY GEORGE II. HUGHES.
Special Dispatch to The Star.

BY GEORGE II. HUGHES.
Special Dispatch to The Star.
NEW YORK, May 26-The event
Of the week of major Importance 10
the securities markets received COM
paratively little attention. 1t was OF
the utmost significance from any long
range standpoint, and probably was
the unrecognized influence which
initiated the recovery in the stock
market. This is a sweeping state
ment, but 1t can be justified.
For months past, dred OF political
interference with the railways has
held back both investors and specu-
lators from commitments in railroad
securities. Even after Congress had
adjourned the agitation for lower
rates on the railroads and for lower
lower rates. was persistently kept up.
and for that matter, is still being
kept up.
Court Ruling Far Reaching.
Monday last the Supreme Court Of
the United States handed down a de
cision in the case of the Southwest
ern Bell Telephone Company of
Missouri, which was of the greatest
significance to both the public util-
ity companies and the railroads. The
day reproduction costs were an essen
tial element In determining whether
rates are confiscatory and so uncon-
.stitutional.
GRAFTON involved a public utility, the
principle applies TO railroads as well,
and II has two vital consequences.
First, under this principle of rate
cannot be deprived of fair return
on their investment, provided bust
ness and economic conditions make
the earning Of such fair return posi-
BILE. Second, il makes impractical the
taking over of the railroads by the
government because of the almost
prohibitiye cost involved
These, of course, are the conclus-
ions of a layman and it may be that
the legal mind can find some other
Interpretation. The best opinion
however, is that the Supreme Court
in this decision has done more 70
utility investment values than any
other development OF the year.
Less Fear of Congress.
The action of the market confirmed
this view. This was particularly the
case with the second-grade railroad
bonds, obligations of solvent roads
making good earnings, but selling TO
give large returns. 1t is hard to ex-
plain the good buying of these bonds,
as we'll as OF good railroad stocks on
any other theory.
The explanation that the market
was beginning to take notice of in
creasing car loadings does not suf
fee. Car loadings have been increas
ing for months. Earnings statements
have been almost uniformly favor
able, but the market paid no atten-
ton to them. There was always the
fear that some new form of regula-
tion would be devised by the radicals
in Congress which would render in
vestment in railroad securities even
more hazardous than the natural
risks which any business involves.
This fear the Supreme Courts de-
cision has done much to relieve.
Railroad Outlook Brighter.
All of this is far from saying that
the railroads have all their troubles
behind them. They still have to con
tend with the ebb and flow of bust
ness, the competition of other forms
OF transportation and the changing
trade routes.
AS far as the first point is con
cerned, the outlook is good. There
is every indication of an enormous
freight carrying business in the fall
The competition of the motor truck
is still very serious, practically to
such roads as the New Haven. with
their short hauls and large terminal
costs. The transcontinentaI lines
have also to face the threat of di-
version of traffic to the Panama
canal. This has been a very serious
matter to such a road as the South
ern Pacific. All these, however, are
problems that every business execu-
tive has TO face.
Another dereIopiGent of prime i'm
portance this week was the official
announcement of j. p. Morgan & Co.
of their intention to offer to the
the new Austrian loan. Not only Is
this significant of confidence on the
part of bankers in the eventual re
habilitation of Europe. but it indi
Gates faith in the future Of the Sc
curities markets in general.
Foreign Situation Better.
OF these two points the more i'm
portant is that relating to AFFAIRS
abroad. For a long time now the
dealt in in this market have been
firm to strong, regardless of the dis
patches from the other side. This
favorable sentiment seems to be.
growing. Many well informed Amer :,
lean bankers express the opinion
privately that turn for the better
in the reparations tangle between
France and Germany is near at hand.
The concrete facts on which this
opinion is based are not available
and it is interesting to observe that.
the only note of caution comes from
London, where the situation does not
seem TO De viewed as COmplacently
as it is in New York
Financially speaking, the most in
teresting event of the week was the
increase in gold reserves shown In
the weekly statement of the Fedora
Reserve Board. For the weelc gold
reserves increased $5,40o,0oo and now
stand at $3,093.300.0 900, a new high
total for the system.
This excessive supply of gold must
act as a brake on any substantial
decline in prices, even If it does not
encourage imitation. AS to the latter,
the warnings, official and unofficjai
seem TO have been pretty we'll needed.
Danger Signal Noted.
In fact, ii looks as IL the warning
business had been overdone There
is no doubt that the business pace
was perceptibly slackened by all these
predictions of disaster unless a con-
servative course were pursued. 1t
was not only the stock market which
took cognizance of the danger signal
but merchants and manufacturers
were beginning to hesitate and to
doubt.
And SO the federal reserve board
advisory council at the conclusion
of it's Washington meeting the other
day, announced business is progress
sing conservatively and on a sound
basis" Can 1t be that at last there
has been discovered an artificial
means of curbing too great optimism
In prosperity and too great peSsinl-
ism in depression?
Ma