THE BURDEN OF OVERCAPITALIZATION
The Burden of Overcapitalization Every American Family Pays $100 Yearly as Tribute to "Watered" Stock OVERCAPITALIZATION OF OUR INDUSTRIES is not only one of the prime causes of the present high...
...You are not going to strap upon their backs the burden of these enormous overcapitalizations, which is the cause of this increase in the cost of living...
...Applause...
...Why should it not be the same with a corporation...
...Babson states that he is "unalterably opposed to large, inflated, fictitious capitalization, and this includes many of the common industrial stocks listed on our stock exchanges, which corporations in turn control the prices of necessities of life and do much toward making the cost of living so high...
...The Burden of Overcapitalization Every American Family Pays $100 Yearly as Tribute to "Watered" Stock OVERCAPITALIZATION OF OUR INDUSTRIES is not only one of the prime causes of the present high cost of living, but it is also a "most important" cause of the present unsatisfactory conditions of labor...
...Mr...
...And Mr...
...I have been here but a few months...
...To quote: "When considering wealth apart from capital, it must be recognized that wealth—so far as it is dependent on good-will— is really of value purely by public sufferance and because you, I and the rest of the ninety million people in this country are willing to permit it certain privileges...
...This is the text of an illuminating article in The Saturday Evening Post by Roger W. Babson, who assures his readers that, "What's more, I'm not an Insurgent, as you may think...
...President, there is not a dollar of 'water' or inflation in the capitalization of the railroads of this country that does not impose burdens upon the consumers and producers of this country...
...If a conservative bank will not consider good-will in the statement we render, why should we consider good-will in the statements our corporations render...
...In other words, who owns the good-will...
...In 1912, in a speech at Chicago, Senator La Follette said: "Justice is going to be done by the people of this country...
...In a speech against the Steel Trust's scheme to pump water into the capitalization of its proposed Lake Erie and Ohio River Ship Canal with a government pump handle, Senator La Follette said: "The Chicago & Alton was capitalized at $30,000,000...
...It goes to the heart of this whole matter of government regulation of industries...
...Fictitious capitalization is one of our great national evils...
...Babson concludes: "I feel, therefore, that the efforts being made by a handful of honest men in this country to-day to limit capitalization to actual property are in the interests of us all, and represent the far-sighted desire of the most thoughtful and unselfish students of American conditions...
...He addresses his remarks to the stockholder as well as to the consumer, because "the most successful corporations to-day are those whose capitalization is bona fide and legitimate, representing only real money invested...
...On this stock, dividends of about $1,500,000,000 each year are being paid, amounting to about $18 a person or nearly $100 an American family...
...A voice: "You bet...
...and when we are to-day proposing to charter a canal company to construct a canal through which shall move all the lake commerce of that great inland sea, can any Senator interpose a fair and reasonable objection to a proposition which simply requires the government to stand guard over this capitalization and see that it is not excessive...
...From studies I have made of this question based upon both this and other reports of the United States Commission, together with published figures of the National Corporation Tax Returns," says Mr...
...It requires no socialist to tell that the Astor estate did not make its holdings valuable, but rather that the people of New York made the holdings of the Astor estate valuable...
...Mr...
...Astor showed wisdom and ability in making his original purchases, and we all are glad to admit this fact...
...but if so he and his descendants have been paid one hundred times over for this wisdom and business foresight...
...If so, is there any doubt as to overcapitalization's being one reason for the increased cost of living...
...Is it the buyer, or the seller...
...Personally, I believe that from a moral point of view it is the buyer rather than the seller...
...Now, is it just to posterity for us to allow a corporation to mortgage this good-will, which mortgage our children and grandchildren must pay through a constantly increasing cost of living...
...At that time his statement that the railroads of the country were collecting unreasonably, and therefore unlawfully, high charges, because of "watered" stock, was received with amusement by the press, and his plea for physical valuation of the railroads met with derision...
...In 1906 Senator La Follette lifted his voice against it in his railroad speech in the Senate...
...This is a question of great importance to our nation to-day...
...In his speech before the Periodical Publishers' Association at Philadelphia a month later, he said: "It will take time to pull down this false structure of illegal capitalization of the trusts, but it is now the greatest menace to prosperity...
...Babson, "I conclude that probably about $30,000,000,000 of stock is outstanding to-day which was issued for other than real property...
...Babson in writing his article, and The Saturdoy Evening Post in printing it, have performed a distinct public service and are right in feeling that "the efforts being made by a handful of honest men in this country to-day to limit capitalization to actual property are in the interests of us all...
...It may be said that Mr...
...If you or I go to a bank and desire to borrow money we are compelled to submit a tabulated inventory of our actual property, showing real estate, accounts receivable, cash and other tangible assets...
...Certainly to pay these dividends and force this tax of $100 a family on the American people means either that wages are being held down abnormally low or that prices are being raised artificially high, and personally I feel that the latter is the case...
...There has been much wild talk," said President Roosevelt in a speech at Indianapolis in 1907, "as to the extent of the overcapitalization of our railroads...
...In short, there is no reason why the people of this country should tolerate laws which permit corporations to overcapitalize or issue watered stock, representing no actual capital, while the people themselves in order personally to obtain credit must include only actual property in their tabulated statement...
...Later, in a statement to the progressives of the country, he said: "The trusts and combinations, the railroads, the steel trust, the coal trust, all are scheming to secure some action by the government which will legalize their proceedings and sanction their fictitious capitalization...
...When turned over to the purchasing syndicate in 1899 it was capitalized at $94,000,000...
...I do not know...
...If these figures are correct—and I grant that they are purely estimates —it means that an average family in this country is paying a tax of $100 a year in supporting the overcapitalization of our industries...
...But if this legislation has not been contended for here before, you will hear more of it in the near future...
...A bank cares not how much we value our goodwill, for its credit man knows that good-will to-day may be bad-will to-morrow...
...The situation is critical...
...Mr...
...Possibly this is new doctrine in this chamber...
...He doubts very much "if good-will is ever justly entitled to capitalization...
...Since that time, in speeches in the Senate and on the public platform, Senator La Follette has exposed the "watered" condition of the railroads and trusts...
...Here is an article which touches upon one of the most important problems confronting the American people to-day...
...These men are doing something, moreover, that will prevent some future drastic measures which otherwise may rock our nation to the foundations...
Vol. 4 • August 1912 • No. 31
