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Last evening in Sever 11, under the suspices of the Finance club, Mr. Edwin H. Abbot of Minwaukee, delivered an address on "Stocks and Bonds in Railroad Organization and Control."
He said that first the terms "railroad" and "stocks" need to be carefully defined. A railroad may be considered a property of the nature of a "going concern" as the law books put it. All the paraphanalia of a railroad the locomotives, cars, etc.- are useless except when in motion. There are two general types of railroads-the eastern and the western, the old and the new. The eastern railroad was built for the purpose of carrying traffic already waiting to be moved, while the western railroad was built for the purpose of creating traffic. The differences in the purposes of building these two types of railroads must be kept in mind to understand the differences regarding stock sharing and stockholders. It is a falacy to suppose that the United States gave away land at the time of the formation of western railroads without getting any return for it.
Western railroad stocks represented at first a certain profit to the stock holders but the actual money received did not amount to much. The stockholders of western roads have little by little grown to be eastern men, and thus it is that stockholders and the actual running and controlling powers have separated-a state of affairs which cannot fail to be disastrous. The bond holders are the real owners of western railroads.
Another thing to be noticed is the fact of railroad bonds being heavily mortgaged. In the case of real estate, the real estate must almost always be worth two or three times as much as the amount of the mortgage. But with railroads it is different; for the real estate of a railroad is generally but a fraction of the mortgage value. Hence it is that the value of the mortgage depends almost entirely upon the earnings of the railroad.
The speaker said that the railroad systems of America were fast assuming gigantic proportions and it is of the highest importance that they should be conducted on economic principles. Mr. Abbot denied the justice of universal suffrage as applied to voting of stockholders and deprecated the prevailing tactics, thoroughly gambling tactics, of foroing up the price of shares of railroads in order to buy up the votes which represent the control of the railroads. As an example of this scheming, Mr. Abbot instanced the great Oregon Trans-continental fight of last May.
Bonds in railroad affairs represent conservatism, while stocks represent enterprise. The two great aims of the railroad reformer is how to allow each of these two farces, conservatism and enterprise to assume their relative positions in the best manner possible. The speaker then spoke of the building of the Wisconsin Central road to Lake Superior by eastern capitalists some years ago, their large bonded debt, the attempt of a few of the largest stockholders to depreciate the value of the stock and buy it up at their own price, and their failure. Mr. Abbot thought too that a railroad foreclosure was a barbarous way of settling the difficulties of a road.
In conclusion Mr. Abbot spoke of the Wisconsin Central scheme as a model one and expressed his approbation of a responsible standing committee as the governing power of a railroad corporatlon. With such a governing power, it would be impossible for a few men either rapidly to assume control of a road or to wreck it.
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