MICHIGAN ROADS AND FORESTS. 



OAful Organ of The MKh.g.n Road M*km Aw 

 SUITE 1*06 MAJESTIC BUILDING 



*nd Michigan Forcitry Atsocuboo 

 DETROIT. MICHIGAN 



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WHEN THE BLIND LEAD THE BLIND. 



(From the Michigan-Investor,) 



A fair sample of the information which is 

 being handed out in print in some quarters in 

 this country nowadays, intended to affect the 

 popular judgment upon grave questions at 

 issue, is to be found in the current number of 

 Everybody's Magazine in an article which is 

 one of a series, "Where Did They Get It?" 

 This article purports to give a history of the 

 comparatively recent movement towards the 

 reorganization of traction companies in this 

 country. It takes the late Mr. Yerkes' opera- 

 tions in Philadelphia as a text and his associa- 

 tion with Messrs. Widener and Elkins, who 

 helped Yerkes finance his earlier Philadelphia 

 enterprises, as, indeed, they did his later ones 

 in other parts of the country. This process 

 was accomplished by the purchase of the dis- 

 connected and separately operated horse rail- 

 ways in Philadelphia and their eventual con- 

 solidation into a single system, which had to 

 be rebuilt and renovated and adapted .to 'a 

 mechanical power system, which was duly in- 

 stalled. The writer describes the process to 

 be one of purchase of .individual properties, 

 the mortgaging of the same to procure funds 

 for renovation and modernizing, and the 

 eventual consolidation in which the bonds, 

 originally based upon small portions of the 

 system as security, were later on called in and 

 replaced by bonds of a consolidated issue 

 which had the entire property as their secur- 

 ity. The process was identical with that which 

 has been used in every great consolidation, 

 whether of a transportation or an industrial 

 nature that has been accomplished in this 

 country since consolidation began. 



The writer in the magazine makes his story 

 read that Yerkes , Widener and Elkins so man- 

 aged their financing that they eventually got 

 control of upwards of 400 miles of street rail- 

 ways in Philadelphia without the investment of 

 a single dollar of capital! In other words he 

 fails to connect with the reorganization of th* 

 enterprise the immense amount of capital that 

 was induced into them through the medium of 

 the bond issues, and affects to treat, that as 

 body of capital that was wheedled into them 

 by some manner of false pretenses. To the 

 extent that great bond issues preceded the 

 stock holding interests upon these properties 

 in their claims for earnings and preference in 

 the distribution of assets, Messrs. Widener, 

 Klkins and Yerkes did not control the Phila- 

 delphia traction interests.. Until they had 

 earned the interest and sinking fund require- 

 ments of the bondholders they were the ser- 

 vants, yea, the slaves of the mortgage holders, 

 even in greater degree than the mortgage;! 

 farm-holder is the servant of the mortgage 

 owner until he has paid off his debt. 



The writer in Everybody's Magazine is one 

 of a class of writers who are feeding the pub- 

 lic today with distorted statements of facts. 

 We do not believe these writers are at heart 

 vicious so much as they are ignorant, and, at 

 that, they would probably prefer being charged 

 with viciousness rather than ignorance. They 



assume to discuss finance while ignoring its 

 most ordinary canons. One tenet of their 

 faith, whether it be the writer in Everybody s 

 Magazine or the writer in a Detroit local pa- 

 per who is making the statement, has to do 

 with the ease with which the captains ol 

 finance are able to put worthless bond issues, 

 or issues the face of which is double the valu': 

 of the security, into the hands of innocent bond 

 buyers. The fact of the matter is that the 

 acceptance of a bond issue by the bond-buying 

 Dublic is prima facie" evidence that the secur- 

 ity, and the physical security at that, is worth 

 at least as much and oftentimes more thai, 

 the face of the bond issue. The people who 

 buy bonds are not a set of fools. They arc 

 extremely scrupulous about the kind of secur- 

 ty they get and they never put their good 

 money on wind and water as a security. It i- 

 easier for the man of moderate means to se- 

 cure a mortgage on his holdings from his local 

 savings bank or money-lender than it is to put 

 out an issue 'of bonds that is not as well se- 

 cured. Let the writers in these popular pub- 

 lications, who talk so glibly about the ease 

 with which operators in public service corpor- 

 ation securities can exchange their beautifully 

 printed bonds for other pe.ople's good money, 

 ask some of the gentlemen who are endeavor- 

 ing to promote really worthy enterprises' how 

 they are getting along with their bond-selling 

 in the present market. Let one of them him- 

 self acquire a line of franchises for an inter- 

 urban electric railway or a set of easements 

 for a water power development, or an option 

 on a good-going gas or lighting proposition 

 which needs new money for extension and 

 development, and let him try for himself to 

 sell a bond issue and he will right speedily get 

 some information that he can add to his edu- 

 cational equipment. We do not hesitate to 

 say that after a single experience he will never 

 again write about the ease with which pro- 

 moters and financial operators can unload bond 

 issues upon an unsuspecting public in amounts 

 greater than the physical' value of the security. 

 If the popular magazines were to give their 

 readers a course of articles on finance, dealing 

 with actual facts, methods and experiences, 

 they would be rendering a public service of 

 inestimable value. But then, perhaps, they 

 might cease to be popular. The doings of 

 honest men are always too prosaic to be inter- 

 esting. The rogue in the pillory, whether ho 

 be actualy a rogue or not, always draws the 

 crowd. 



THAT STANDARD OIL FINE. 



There has been so much editorial and public 

 discussion of the $29,000,000 fine imposed upon 

 the Standard Oil Company of Indiana by Judge 

 Landis, sitting in the United States Court at 

 Chicago, that any addition to the body of com- 

 ment upon that fine may seem like surplusage. 

 However, there is one phase of the matter that 

 does not seem to have been discussed at all and 

 to it The Investor calls attention. That is, the 

 effect which Judge Landis' fine will have, if en- 

 forceable, upon the entire corporate structure of 

 this country. 



The merest tyro knows the reasons for the ex- 

 istence of corporations. They are formed for 

 the purpose of assembling bodies of capital, con- 

 tributed by a small or great number of persons, 

 each limiting himself to a definite !>esponsibility. 

 the amount of which responsibility is advertised 

 to the world in the making of the corporation. 

 The limitation of liability to the amount which 

 the subscriber for corporate stock indicates in 

 his subscription is the primary basis of corpora- 

 tions. If the subscriber for or holder of stock in 

 a corporation may be made liable for any greater 

 amount of the debts of the corporation, in the 

 absence of fraud, than the amount of his stock- 

 holding interest, then the corporation form ceases 

 to perform its function and the corporation be- 

 comes a simple partnership, in which the liability 

 is unlimited. 



In the case at bar in Chicago, the Standard Oil 

 Company of Indiana, a corporation duly organ- 

 ized under the laws of that state, and capitalized 



..i $1,000,000, was declared indebted to the United 

 States for violation of its laws in the sum of 

 ^>^'J, 000,000. Under all our earlier theories of 

 corporate responsibility, that debt to the United 

 States, like any other debt, would be enforceable 

 omy to the limit of the property of the corpora- 

 tion. It happens that in the case of the Standard 

 Oil Company of Indiana, although its capitaliza- 

 tion is but $1,000,000, it has property ol the value 

 of nearly $10,000,000, which property is subject 



10 levy and execution for any and ail of its debts 

 and, as we maintain, even for debts to the United 

 states in the nature of fines for the violation of 

 law. Yet Judge Landis has laid down the abso- 

 lutely novel doctrine, that because the stock of the 

 Standard Oil Company of Indiana is owned by a 

 very much richer person, to-wit, the Standard 



011 Company of New Jersey, he may overleap 

 the boundaries of limited liability and declare his 

 line collectable out of the property of ^he stock- 

 holders. 



The case is identical with one in which the 

 holders of stock of a railroad, having incurred 

 greater liabilities than the total of their stock, 

 might be held to the payment of those liabilities, 

 even in the face of the fact that each and all of 

 ihem had paid for his stock at par and in his 

 stock had limited his liability to the amount sub- 

 scribed. If a debt due to the United States, which 

 the $:i9,000,000 line really is, proves to be in ex- 

 cess of the assets of the Standard Oil Company 

 of Indiana, the capital stock of which has been 

 mlly paid up, and if that excess can be collected 

 from the stockholders in addition to their orig- 

 inal full payment of stock, then it matters not that 

 these stockholders are the Standard Oil Com- 

 pany of New Jersey and persons representing it, 

 or that they are other individuals not under the 

 Dan which seems to attach to the Standard Oil 

 Company of New Jersey. 



One of the points which President Roosevelt 

 has been making in his rather lurid declamations 

 of late has been that there is one law for all per- 

 sons in 'the United States, and, that being the 

 case, it would seem to be reasonably interpretable 

 that there is but one law for natural and for 

 artificial persons artificial persons being corpora- 

 tions organized under the law and subject to its 

 limitations. If the Standard Oil Company of 

 New Jersey, as the stockholder in the Standard 

 Oil Company of Indiana, can be mulcted for a 

 sum in excess of its declared liability as a stock- 

 holder, then Mr. John Jones, of Oswego, or Mr. 

 Peter Smith, of Paw Paw, can also be mulcted 

 in the same way if each or both of them happens 

 to be a stockholder in a corporation which has 

 run into debt in excess of its capital responsi- 

 bility. If Judge Landis' fine, which is a matter 

 wholly apart from the conviction of the Standard 

 Oil Company of Indiana for violation of the law, 

 be held to be collectable, such a ruling by the 

 court of last resort means the wiping out of every 

 vi-stigc of limitation of liability, which is the 

 basis of corporate system. We do not believe 

 that the Supreme Court is ready to do that yet. 



Developing another phase of the subject, the 

 present agitation against the Standard Oil Com- 

 pany, which is very apt to become an agitation 

 against all forms of capital in the United States, 

 seems to be based .upon an insufficient knowl- 

 edge of the facts. The Standard Oil Company is 

 being held out by the administration as an or- 

 ganization that is making too much money out of 

 the people of the United States, as the result 

 of the monopoly, or practical monopoly, which it 

 possesses in the business of manufacturing and 

 distributing the products of petroleum. The 

 Standard Oil Company is capitalized at $100,000,- 

 000, of which practically the whole amount has 

 been issued. For several years back it has paid 

 an average annual income of forty per cent. This 

 iiH-ome has been derived from the operations of a 

 world wide business. Possibly half of it, if the 

 facts were known, has been derived from the 

 sale of nearly $80,000,000 worth of its products 

 annually to the people of foreign countries. Cer- 

 tainly, the Standard Oil Company, regardless of 

 the American law, may go on doing business 

 with the people of foreign countries and earning 

 profits from them, to be brought back and re- 

 invested in this country. 



Assuming that half of the divided income of the 



