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Updated: May 9, 2025
"You'll never come to any good without study. Now when I was your age..." I knew his history by heart, a common one in this country, although he made an honourable name instead of a dishonourable one. And when I contrast him with those of his successors whom I was to know later...! But I shall not anticipate. American genius had not then evolved the false entry method of overcapitalization.
If the business is very successful, its profits may pay a fair return on all this capital; if not, low dividends or none can be paid until the business slowly catches up with its overcapitalization. In all investment-as our industrial organization at present goes-there is risk; but to create a needless risk and deceive the public into taking it is plain dishonesty.
But he then proceeded to set forth the other side with equal vigor: There is a widespread conviction in the minds of the American people that the great corporations are in certain of their features and tendencies hurtful to the general welfare. It is true that real and grave evils have arisen, one of the chief of them being overcapitalization, with its many baleful consequences.
"You'll never come to any good without study. Now when I was your age..." I knew his history by heart, a common one in this country, although he made an honourable name instead of a dishonourable one. And when I contrast him with those of his successors whom I was to know later...! But I shall not anticipate. American genius had not then evolved the false entry method of overcapitalization.
To confer upon the National Government the power for which I ask would be a check upon overcapitalization and upon the clever gamblers who benefit by overcapitalization. But it alone would mean an increase in the value, an increase in the safety of the stocks and bonds of law-abiding, honestly managed railroads, and would render it far easier to market their securities.
Attempts to enforce the anti-pooling clause had led railroads to purchase competing lines, and when the United States Supreme Court pronounced this illegal, the situation became chaotic. The evils of overcapitalization also became an issue of the times.
Many great fortunes have been made in this way; such exploitation is so new to society that it has not yet awakened to its essentially criminal nature. Even if the business is able to pay good dividends on watered stock, the crime of overcapitalization is not lessened, though the harm done is now not to the investor but to the public.
Of these abuses, perhaps the chief, although by no means the only one, is overcapitalization generally itself the result of dishonest promotion because of the myriad evils it brings in its train; for such overcapitalization often means an inflation that invites business panic; it always conceals the true relation of the profit earned to the capital actually invested, and it creates a burden of interest payments which is a fertile cause of improper reduction in or limitation of wages; it damages the small investor, discourages thrift, and encourages gambling and speculation; while perhaps worst of all is the trickiness and dishonesty which it implies for harm to morals is worse than any possible harm to material interests, and the debauchery of politics and business by great dishonest corporations is far worse than any actual material evil they do the public.
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