Evening star., 1934-08-18
To the Editor of The Star:

To the Editor of The Star:
Recently you published a copy
righted article signed %. L." under
the heading, Government Power
Deal Costs Investors Seven Billions" "
have no idea who Sd. L." may be
or why his article was copyrighted,
but I at once recognized 1t as a spe-
cies of the propaganda the public
utilities, power companies and rail-
roads have always used to boost rates
on the capital investment. The in
vestigation of the power trust by the
Federal Trade Commission has fully
disclosed this insidious method of
propaganda. I desire to reply to con-
clusions in that article, but first I
want to state the economic back
ground for my reply.
The wealth increase of our country
in its whole history, including the
value of all new territory and every
other item that makes up property
value has been at rate Of less than
4 per cent year if we follow along
a level of normal values. If we go to
the bottom of the present depression
it would be less than 8 per cent per
year. This wealth increase is the net
income Of our country. It is all that
Is left after operating expenses and
living expenses are paid. Warren and
Pearson give the rate Of increase as
4.7s per cent per year for the IS years
before the war, but that was greatly
n nf
and 4 per cent is the highest figure
we are warranted in using.
It is specifically said that booming
Of stock values in the stock eNdhange
is an index of American prosperity.
This statement is an intellectual fraud
of the greatest magnitude and deepest
import. If you will look at the balance
sheet of any corporation you will find
its capital stock listed on the liability
side of the account, where it belongs.
This stock is a charge against the
whole community, and the boosting of
its value means an increase in the
burdens of the community and usually
means the creation of bubbles that
will surely burst. Such great pro-
portion of American business Is
transacted through corporations that
there can be no stability in business
as long as the imitation Of these
bubbles is permitted.
With this background let us examine
Mr.. D. LIS complaint against the
Tennessee Valley Authority and his
wall about the ownership of utility
securities by savings banks, insurance
companies, hospitals, colleges and
investors generally. He says these
investments are menaced by this
Federal policy; but let us ask if the
insult investments were not only
menaced but literally blown up before
the T. v. A. was ever established.
Are not all utility investments con-
stantly menaced by extracting swollen
returns from the public which the
public cannot afford to pay? II in
vestors in utilities are to lose $7,000,-
O00, 900 because the governmental
policy is now squeezing the water out
of their capitalization, the public at
large will gain all that these investors
lose, and the investors were never
entitled to this valuation.
1t is true that many poor widows
and orphans were induced to buy
these inflated securities, but they own
cnly a small fraction Of them, and the
principal owners are still the guilty
promoters. The Government could
better afford to pension these poor
widows and orphans than to permit
the continuance of this inflated
capitalization in power companies.
These investments were sold to the
innocent purchasers through fraudu-
lent pools, syndicates and groups in
the stock exchanges and through the
even more fraudulent operations of the
investment bankers. Everybody would
favor legal recourse for the widows
and orphans against all Of these
exploiters.