Evening star., 1939-05-15

had a somewhat legaliStic approach,
keeping the idea of concentration of
economic power within rather mar
row areas of business practice, such
as grow out of patent monopoly or
price fixing. This angle might be
pursued for years without revealing
much more than the existence of
two opposite schools, which believe
In amended antitrust laws and ag-
greSSive competition, on the one
hand, and the establishment of Gov
ernment cartels or regulation of
price levels on the other
This week, however, the commit
tee in effect comedies that all ele-
ments of competition, fair and un-
fair, and all characteristics of
monopoly, quaSi-legal or unlawful.
are directly related to the method
by which capital is accumulated and
distributed.
Something basically different from
anything which used to happen
before 1890 has come into the pic
ture of capital flow. The old meth
ods of floating issues of common
stock to make capital avail
able to large enterprise, and even,
to large extent, the old ways of
floating large bond issues, have been
modified, if not reduced to rela-
lively small operation.
Public Issues Are History.
Today, big business gets its cap
ital from its own surpluseS and re-
serves or sells privately large issue
of securities to an insurance COM
pany, and the days of numerous
so-called public issues have passed
into history.
The investment banking machin-
cry lies idle, and, so far as small
business is concerned, it never had
any means of getting capital except
by the hard way of finding individ-
ual capitalists here or there, or oc-
casionally, and very occasionally,
by persuading local banks to make
three to five year capital loans.
The reasons why investment bank
ing machinery is idle have never
been scientifically penetrated by a
public inquiry There will be some
bankers in New York, for instance,
who will insist that no confidence"
prevails and hence large issues can
not be offered to investors except
now and then in a few gilt-edge
cases. Other financial men will say
that the rigid terms of the Securities
and Exchange Act are at bottom re-
sponsible and that corporations
fear to take the risks Of the racket
eering lawsuits that might follow
II their directors have to take per-
sonal responsibility for signing the
prospectuses on which loans can be
issued
Won't Discuss Remedies.
Certainly, the Securities and Ex-
change Commission itself, which is
conducting the inquiry before the
Temporary National Economic Com
mittee, is not inclined to put itself
or the present law on trial on these
points, so the main purpose of the
commissions counsel doubtless will
be to get at the facts of capital op-
Grafton without discussing remedies
at this time.
The study of capital flow is not
sudden affair. Peter Nehemikis, jr.,
one of the able counsel of the S. E.
C.'s staff, who is director of invest
ment studies, has been working for
several months now to get an objec-
tive survey made on what is actually
happening to American capital in re-
spect to large and small business.
Witnesses from Wall Street invest
ment banking houses will describe
past and present practices with par
ticular reference to the custom that
has grown up among big corpora
tions of avoiding the investment
bankers altogether by having a direct
private deal between a big bank or
insurance company and the cor
poration in question, practice that
is allowable under present law.
If the private deals mean that cor
porations save money by getting
their issues cheaper, there can be no
objection, because this is merely ap-
plying the rules of competition to the
capital market. But, if it turns out
that many of the corporations which
do not have an opportunity to get
the securities of their particular
types of business into insurance COM
pany portfolios are unable to have
issues foated at all, the inquiry
might we'll examine the underlying
causes
Machinery May Need Repair.
1t may be that investment bank
ing machinery itself needs an over
hauling and that some changes in
the laws will be helpful, or that the
investment trust or group idea of
selling securities of many smaller
companies through single finance
institution or intermediate credit