134 TWELFTH REPORT. 



of market opportunity. The financial columns of newspapers and maga- 

 zines tell of "melons" grown in the corporate field, and of frequent stock 

 dividends. But financial melons and dividends on stock dividends are 

 costly. These market op})ortunity rents are elements of business ex- 

 pense as are wages and interest; and, therefore, financial melons and 

 rising prices are not unrelated phenomena. It is i)erhaps unnecessary 

 to give examples of the capitalization of nuirket opportunities. The 

 United States Steel Corporation paying dividends on both common and 

 preferred stock is well known. A recent estimate in regard to the Pull- 

 man Company shows that the cash and stock dividends paid during the 

 last twelve years aggregates 422 per cent on the capital outstanding in 

 1898. A conservative magazine has given this example of over-capitali- 

 zation in the case of a public service corporation which serves several 

 villages in the suburban zone of Greater New York. The aggregate 

 plant, including all machinery, is capitalized at |32,000,000 ; but it is 

 not actually worth over |2,00b.000. The consumers of its products are, 

 however, paying for dividends declared upon the entire amount. 



In a neighboring city about ten ye<irs ago, a telephone plant was in- 

 stalled. The plant was financed in the usual way. A |1,000 five per 

 cent bond was sold for |850 ; and, as a bonus, ten shares of the stock 

 of the company, — par value i>er share, |100 — were given to the pur- 

 chaser. Tlie interest on the bonds has been regularly paid; and the 

 stock — all water — has been paying dividends since the end of the third 

 or fourth year in the life of the company. The dividend rate is six per 

 cent. This company is cited as a typical case. 



An official investigation made last year in the State of New York 

 furnishes some tangible evidence as to high prices. The largest company 

 furnishing milk and cream to the people of the city of New York had 

 Issued stock to the amount of |20,00(»,000. Tangible assets to the amount 

 of approximately |5,000,000 were uncovered; the remaining |15,000,000 

 was declared to be water, — good will, market opportunities, monopoly 

 privileges, etc. This concern was paying six per cent dividends on its 

 preferred stock and ten per cent on its common stock. The price of 

 milk had been raised from eight to nine cents per quart because the 

 company "could make no money" at eight cents. Another and a smaller, 

 company paid fifteen i)er cent dividends in 1008 on its capital, — three- 

 fifths of which was declared to be water. These companies are not pub- 

 lic service corporations bulwarked by franchises; they are not gigantic 

 trusts; they sell a highly i>erishable conanodity which is a necessity. 

 Lawson Purdy estimates that the increase in the value of the naked 

 land in Greater New York in the three years, 190G-1909, was over 

 1500,000,000 or about flOO for every man, woman and child residing 

 in that city. This increase is but the capitalized value of the increase 

 in rentals, present and prospective; and these rentals must be paid for, 

 no matter what theory of the relation of rent to price we may see fit 

 to accept.^ If the interest rate be five per cent., the increase in the 

 naked land values in New York City in the ])ast three years has caused 

 an increase of |25.000,000 in the total annual exjiense of living and of 

 doing business in that city. A real estate comininy is responsible for 

 the statement that during the fifteen years from 188.1 to 1900 the ad- 



iCarlton, "The Relation of Marginal Rents to Price.'" Quart. J. of Econ.. Aug.. 1906. 



