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.

Busi

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. ness 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

lished and its methods of management are well known, this contention is largely true. On the other hand, when new corporations are organized, and only those who are closely connected with the management know on what terms properties are purchased for which stock is issued, there is great opportunity for deception. Even a public statement of actual earnings of different corporations for a series of years past may be so arranged that the results will be decidedly misleading. Average profits over a period of five years might well be 10 per cent., when if a period of seven years were taken the average would be not more than five. Even the profits of the last two years might be nil. The ordinary investor, who has not had the opportunity of studying the details of organization, is unable to judge.

Even capitalization at the reproduction value of the plants may be as misleading in many ways as capitalization on supposed earning capacity, because unskilful management or a changing state of the market may either double the value of the plant or halve it within a year or two, if we are to take as the basis of value what it might actually bring in the market,

which depends again, as has been intimated, on its earning capacity.

There can be no doubt, too, that a high capitalization brings pressure to bear upon officers of corporations to raise prices of their products. Payment of dividends is likely to seem their first duty, and they push prices as high as the market will bear.

The only just method of preventing the evils which are likely to come through the capitalization of any establishment, is to place clearly and fully before all investors, at the time of the organization, the plan of organization itself, the amounts actually allowed for all and each of the properties taken into the establishment, with as complete information as possible regarding these properties, so that a fair judgment can be made regarding both their cost and their earning capacity. In like manner the condition of the business from year to year must be impartially set before the public, so that its earning capacity can be fairly known. Whatever capitalization is then made at the beginning, the value of its stock will in the main be based upon its fair probable earning capacity, while the changing conditions of business from year to year being

made fully known would determine with even justice among the different parties concerned the changing values.

The chief evils of our over-capitalization in recent years have appeared in those organizations that have issued stock far beyond any reasonable likelihood of dividends on the common stock, short of monopoly, and whose promoters have been primarily, not business men, but gamblers.

A proposition has been made to avoid all evils connected with capitalization by providing that shares of stock, representing dollars as their par value, should not be issued, but that a plan reported by a committee of the New York State Bar Association should be adopted, which it was thought would afford a remedy for all these evils. The proposition is as follows:

"To permit the formation of a distinct class of business stock corporations, whose capital stock may be issued as representing proportional parts of the whole capital without any nominal or money value.

"The effect of such amendment would be to provide for the measurement of the interest or shares of the members of such a corporation