Evening star., 1936-02-11

secured Government ana corpora
tion bonds.
In case OF monetary imitation
fred return from such tnDest-
meats foould decrease In actual
ualue. Quoted prices OF common
stocks and similar equities. hop-
eper, tcould rise tn ratio to dollar
deuGluGtion.
By the Associated Press.
SAN JOSE, February 1.-THE men
ace Of possible imitation has arisen to
jeopardize endowed educational insti-
tutions, former President Herbert
Hoover testified yesterday as q Supe-
rior Court witness.
Currency imitation Is not "at the
moment more than a menace" but
widespread bank credit imitation" is
already at hand. he said.
Abandon 5o-Year Precedent.
Stanford University trustees, Of
whom the former President Is one,
are asking court approval on a pro-
posal to invest part Of the university's
funds in shares of stock, debentures
and other equities Admittedly, Hoo
yer asserted, this involves greater risk
and a departure from a 50-year-old
precedent.
Unless Stanford and other institu-
tions similarly dependent on income
from investment earnings are to be
crippled. the greater risk must be
taken, Hoover said. He appeared un-
heralded In the sparsely filled court
room.
The trustees contend numerous
prior court proceedings and judg-
ments give them the right to broaden
their investments but a conflrmatory
opinion Is desired.
Text Of Testimony.
The text Of testimony by Hoover
follows:
The trustees Of Stanford Univer-
sity, in consequence Of certain flnan-
cial policies, are now confronted with
a grave problem in the investments
Of the university endowment. That
problem Is the possible protection of
the endowment by investment Of the
funds In equities such as common
stocks and real estate instead Of ex-
clusively In bonds and mortgages as
hitherto.
The trustees of sister universities
over the country are many Of them
already taking action to protect their
endowments by investment Of at least
part of their funds into equities. The
trustees Of Stanford are in need Of
some clarification Of these powers tc
make such investments.
Capital Has Increased.
The problem has only recently
arisen. For so years both prudence
and wisdom have caused the trustees
to invest the endowment, now
amounting to some $24, 900 900, In sea-
Soned bonds and first mortgages. s
Not only has the original endow-
ment been maintained intact but en-
tirely aside from new gifts the trustees
have by wise investment increased the
capital. Common stocks Of real estate
or other equities have not been pur-
chased because Of the greater risks in
volved.
The devaluation Of the dollar, the
widespread bank credit imitation anc
the possible menace Of currency In.
fiation are the new factors with which
the trustees must deal. The theory oi
the devaluation of the dollar is that II
will increase prices of commodities
thus causing a rise in the cost OF liv-
ing and necessitating an increase oi
salaries.
Operating Cost to Rise.
The theory also implies a transfer
Of values from the bondholder to the
common stockholder. The practical
effect should be to increase the cos
of operating the institution. In sucf
case, If our income is to remain fixed
we shall need either to employ les
faculty or reduce the range Of instruc
ton or reduce the number Of students
The bank credit imitation is fac
tor independent Of devaluation, ant
has already caused Q large drop in in
terest rates. Many Of our bonds ART
being called and equivalent invest
ments can only be secured at lowe
rates.
More than two thirds Of our in.
vestments are subject to call or ma.
ture in the next i've years, and Il
these interest rates continue We shall
probably lose about one-fourth Of oul
endowment income. This would agair
necessitate reducing the service which
our institution gives to youth, ever
were devaluation not in action.
European Record Cited.
The question Of currency imitation
Is one of constant discussion In Gov.
ernment and the press, and while not
at the moment more than menace
it is one which cautious trusteeshir
should be in position to meet. The
record Of similar institutions in Eu-
rope under currency imitation Is be-
fore us, where their endowments are
largely wiped out.
Experience In similar occasions
shows that common stocks and real
estate and other equities ultimately
TlSc Ii t6luc 8O4ICWAak ~ P4ORO1 tAOAa
to the increase Of devaluation or in
fiation. While common stocks, real
estate and other equities are subject
to risk, yet this may be the lesser
risk than bonds and mortgages.
The gravity Of the matter Is clear
when we remember that Stanford has
trained thousands Of youths, q large
part of them without means Of their
own, and that q community Of nearly
10000 people are largely dependent
upon the institution.
Whatever view we take of the situ-
alton, the trustees should have the
freedom to protect the endowment as
best they can.