The Indianapolis times. [volume] (Indianapolis [Ind.]) 1922-1965, 1935-03-30
Liberal Viewpoint
by DR.. HARRY ELMER BARNES

DACK in $780, when stocks were not so very
ID high compared with what they had been
year before, I purchased some stock of we'll
known holding company in the electric utility
line. I paid sos share for it.
few years later I was invited to surrender
it. when it was selling for about So a share, and
receive back a new issue of stock, of which l was
to get one share for each two 1 surrendered.
Otherwise, l could hang on to my old stock which
would have no value The new stock is now SELL
ing for about SIS share.
Some friends of mine bought stock in this
company back in the summer of 1929 at more
than 5000 share. Their investment today would
be worth just about one-hundreth part of what
they put into it in 1929.
Yet, only the other day, received letter
from this company urging me to use my inf1u-
ence to stop the passage Of the nefarious
Wheeler Rayburn bill which would put end
to such companies after five years. Naturally, I
did not write my Congressman.
But the individual losses, frightful as they
have been, are not the worst aspect of these hold
ing companies. Without rendering any impor
tant service to the electric utility industry, they
exact a tremendous toll in raking off the cream
from the earnings of the operating companies
that actually generate and distribute electricity.
These holding companies are not more than
legazed associations for looting, to the detrment
of the electric utility business and the public
alike Were it not for their parasitic milking OF
the operating companies there would be little
basis for any drive for public ownership or opera
ton. The operating companies could earn
handsome profit and still sell electricity at rates
which would be a bargain to the consumer.
TT is generally admitted, even by realistic
L friends of capitalism that the great defect of
our present economic system and the major rea-
son why our economic order went PROSTATE in
1929 were the depredations of finance capitalism.
This finance capitalism is the greatest enemy
that industrial capitalism has ever known, and
its chief instrument is the holding company. AS
John T. Flynn remarks, THE holding companies
are the machine guns in the hands OF corporate
promoters"
Given the motive of immediate financial
profits, the holding company makes lootlng rather
than efficient management almost inevitable 1t
is through the holding company and various
allied devices of legal subterfuge that small
clique can gain control Of a great industry with
but slight investment.
We used to learn in our college courses in
corporation finance-and, God forgive me-
once taught it myself-that to control great
corporation or holding company one must own
at least 81 per cent of the stock. But the tacts
are quite contrary to this pious generalization
based on book-learning.
In our great holding companies it is rare Tor
the governing clique to own as much as per
cent of the stock, great deal of which may be
water anyway. And, believe it or not, there are
at least two billion dollar corporations In winch
the controlling group own only one-tentn OF
per cent Of the stock.
TOW this comes about has been well descrloeo
Il i by Benjamin Mandell: by means OF 'pyra-
miding' ownership through chain OF ho!olng
companies and subsidiary corporations, by lSSu-
ance of non-voting stock, by the utilization OF
proxies, voting trusts and other legal legeroe-
main, the stakeholder has been reduced TO the
role of a rubber stamp, while control remains
firmly in the hands of small group represent
ing an insignificant proportion OF stock owner
ship or invested capital"
What is the natural and inevitable result OF
this state Of affairs? If the governing Clique.
owning. let us say to be generous, per cent OF
the stock of the holding company, runs the
business efficiently and manages the properly
competently they get only per cent OF the re-
suits through increased earnings and divldenos.
If however, they rob and loot from the INSIDE
they get 95 per cent Of the proceeds OF the legal
lied pilfering. They can never be saddled Win
more than per cent of the losses as stock-
holders.
Given human nature as it is and the prollU
motive, few men will be honest and efficient IN
business sense when they can make 90 per cent
more b. graft and mismanagement The hold
ing company is a standing invitation TO graft
in business and finance capitalism has maze the
most of the opportunity
One might inquire why. if this is the case, all
big business has not been ruined? The answer
is that much of it has been. That is what one
means. fundamentally when he talks about the
depression. One Of the greatest living corpora
ton lawyers once observed that he had witnessed
over half Of the major corporations of the
country pass into receivexships.