It seems to have been the purpose of the corporation law of Massachusetts, and of some other States and countries, to secure capitalization on this basis. The new law for Puerto Rico, lately passed by Congress, takes this position, and shows how conservative it has tried to make its action on this subject. In Massachusetts, not merely must the directors or organizers of a corporation, part of whose stock is issued against property, make oath that the property has been received at its actual cash value, and that the stock is issued at this rate at par, but the Commissioner of Corporations of the State must also certify that he is satisfied that this is the case. Let us note just what this means. This is the capitalization of the plant and running capital, not necessarily that of the business as a going

concern.

On the other hand, most business men are of the opinion that the value of any property depends upon its earning capacity, its value as

a going concern," and that it is wise and just to issue stock of a corporation upon that basis. In the case of corporations, such as those mentioned in the paragraph above, the probability is that the reproduction value of the establishment

would correspond closely with the capitalization of its earning capacity at current interest rates. On the other hand, it must be remembered that much higher rates of profit can often be made, either (a) in times of more than usual business prosperity, or (b) under exceptionally skilful management, or (c) with the possession of considerable monopolistic power, from whatever source derived, whether the possession of patents, or of exceptional good-will, or of a very large capital. Mr. Bryan's dictum that "only in the case of monopoly can you secure dividends upon stock that does not represent money invested" is not always strictly accurate; but it is so generally true that it ought carefully to be noted. The times of prosperity when this can be done without monopoly may be fleeting. The exceptional skill or the monopolistic power are likely to endure for a longer season. Under those circumstances, with any of these advantages, the corporation might readily pay dividends of the usual rate of interest on a capitalization twice or three times more than the reproduction cash value of the plants.

Attention is frequently called to the case of a newspaper with a tangible property of, say,

$100,000. Such a newspaper, ably edited, with a strong constituency of subscribers and a large advertising patronage, might readily pay good dividends on $1,000,000 or more. Why should the capitalization not be placed at $1,000,000, regardless of what the plant might cost? The earning capacity may be due largely to the skill of the editor, or to the fact of connection with some political party, or to the peculiar business skill of its advertising manager, or to the good will gained through many years of skilful catering to the public taste. Why, it is asked, should not the capitalization be made upon its earning capacity rather than with reference to the cost of the plant?

Most business men, as has been intimated, prefer capitalization on the basis of earning capacity. In the first place, if the dividends. declared seem to be at about the normal rate of interest, it conceals the actual state of the business from all persons not so situated that they either know the details of the business of this special establishment, or know that kind of business so well that they may readily judge the profits from external signs. This concealment of large profits lessens the temptation to rivals

to enter the business, and lessens also the danger of popular disapproval, which is often expressed against those who make large profits upon capital invested, even though such profits may have been made more by the special individual skill of the manager than by the advantage that comes from the possession of capital. A prominent stockholder in a large gas company lately expressed the fear that it might be necessary soon to lower the price of his gas. The profits were becoming too large to please the public, and it seemed difficult to find an excuse for issuing more stock, though such excuses in the past had been found and for a time had served to conceal the rapidly increasing profits.

Again, a large capitalization is more advantageous, provided the stockholders wish to sell. If in any line of securities, for example, the stock of corporations that regularly pay dividends at 6 per cent. stand at par, those of similar nature and class of which the dividends are regularly 3 per cent. will usually stand at more than 50. People seem to like to deal in large figures, and there is also a greater element of speculation present perhaps in the latter case, though either motive is probably largely an un

conscious one.

But, because they will sell for more usually, a large capitalization is often desired, even by conservative business men.

Still more is this the case if the business is speculative in its nature. Doubtless the stocks of many industries which have been largely overcapitalized are more pleasing to speculators on that account. They may not pay dividends; it cannot be expected that they will pay dividends in the near future; but on account of the instability of the business, their fluctuations up and down are more readily affected by rumors or by other slight influences on the stock market- and speculation flourishes on fluctua

tions.

It is claimed by many that the public is little affected by stock watering, and has little interest in the basis of capitalization. If the capitalization is high, the value of the stock will be correspondingly low, and vice versa. Business men will invest their money, it is thought, on the basis of actual values, as shown by earning capacity, regardless of the par value of the stocks, and neither prices nor investors are materially affected, whatever the basis of capitalization. After a business has been long estab