CHAPTER XIII.

PUBLICITY.

WHILE it would be idle to suppose that publicity is a specific for all kinds of irregular or defective administration, it is, to a certain extent, rightly associated in the investor's mind with open and straightforward management. The kind of discrimination which has incited pub lic sentiment to favour drastic legislation against railroads would have been in a great measure restrained by the action of publicity, if applied in due time and by wellchosen methods. A judicious and business-like tariff, framed not necessarily by Railroad Commissioners but by skilful and responsible railroad officials, would of course have failed to give universal satisfaction; but it would have afforded all sections of the public the same kind of chance within certain well-understood conditions and limitations. Thus, for example, the right of a transporting company to recognize a distinction between wholesale and retail business, between large quantities of freight delivered at regular intervals, and small quantities uncertain or capricious in point of delivery, would only need the condition of publicity to make it work fairly. It would soon come to be understood that, in pursuance of established commercial canons, the wholesale regular shipper has an intrinsic right to better terms of transportation than the small and irregular shipper. If I want a single dinner provided for me by a restaurant keeper three

days in a week, but am not sure on which days in the week or at what hour in the day I shall require it, a business man will arrange to supply me at a reasonable price. But, if I extend my order to fifty dinners a day of the same quality, to be ready certain at two o'clock every day for three months, it is plain that I have a right to expect more favourable terms. The difference between wholesale and retail interchange is a recognized factor in all departments of supply and demand; and it is difficult to see why transportation-considered as a commodityshould be exempted from the rule, except in cases where it becomes part of an organized national service, like the Post-office or the Telegraph in England. Obviously the making of profit is not essential to a public service of the latter kind, but merely incidental to it. If a profit is made, so much the better. But, if loss accrue, the ratepayer is in the last resort responsible for a deficit. If a public service established on this basis chooses to ignore the distinction between wholesale and retail business, it is of course at liberty to do so. It is not so clear that a State has any right to compel a trading company to ignore this distinction, when it has specifically recognized its position as a trading company, and has accepted a large valuable consideration in exchange for powers conferred under a charter. The advantage of publicity in such a case would be to make quite clear to everybody the terms on which a transporting company could effectually do its business. It would accentuate the proposition referred to above, that it is no part of the business of the purveyors of transportation to equalize at their own expense the inevitable difference between the strong and the weak trader. The wisdom or unwisdom of embarking in a particular line of industry ought to be judged of by each individual trader

on his own responsibility, with direct reference to his own business aptitudes, capital and environment, and not by the transporting companies of whose services he desires to make use.

While in the case of soundly administered companies a yearly report is found sufficient for all practical purposes, it cannot be seriously supposed that such a mechanism is an adequate protection to the average investor. Let us suppose the case of a speculative administration which, with the aid of its outside friends, has decided to put up the stock. Their track and equipment are badly run down and need large outlay to restore them to average working condition. But their gross receipts are actually, and their net earnings apparently, large; and as the party in control have decided to put up the stock, it is thought desirable to pay a dividend on preference shares in aid of the projected boom. The day for an annual report is approaching. What is to be done about the floating debt? It is nominally stated at (say) three or four millions of dollars. But the equipment needed for the new "boom" will run it up to (say) six or seven millions. Now, suppose all the rolling stock and equipment that is needed be procured by means of paper maturing after the date of the official report. These are of course engagements and liabilities which must some day be met, but they are not strictly debts, because the paper has not matured. Our imperfectly informed enquirer may well imagine the annual statement to represent the condition of the floating debt, and may invest freely. But when the next annual report is made he discovers that he knew very little about the true condition of the floating debt at the time of making his investment. Here again it is not impossible that publicity derived from quarterly statements might conduce to the

protection of the investor. A financial coup in a speculative stock needs a reasonable time for incubation, and the intervention of publicity at short intervals is very unfavourable to the successful manipulation of such coups. Of course cases occur in which the party who control the speculative road and temporarily own the majority of its stock contend that they do not desire aggressive publicity, but prefer to run their own business in their own way. That might be a conclusive answer to any thing that the casual investor could say, if it were not for the fact that he and his class are precisely the people upon whom the securities of the speculative company will be presently unloaded.

The prevalent divergence in the method of keeping railroad accounts is a matter which will probably be sooner or later dealt with by Congress. It may, for the present, be dismissed with the remark that nothing short of inside knowledge will enable the enquirer to pursue this subject with appreciable advantage. If this question, coupled with that of Inter-State commerce, be subjected to a new and special type of regulation, the effect of publicity will be very largely increased. It is thought possible by some observers that the formal legalization of pools would produce satisfactory results, in the direction of publicity and a clear understanding of the subject by all classes. But on this point no forecast can at present be made with any approach to confidence. It may be prudent however to note in passing that, when railroad companies hold substantial interests in various kinds of property not immediately connected with the purpose of their corporate existence, a very sanguine view is apt to be taken in official reports of the market value of collateral assets. There may be, for instance, included in the list of assets

large blocks of securities connected with leased lines, or with property which it is thought may some day be valuable for terminal facilities, or perhaps coal or mineral land, or real estate in projected new towns. The business of a transporting company is, as a rule, most effectually conducted, when attention is exclusively given to the matter in hand and not to collateral undertakings. In these days it is a sufficiently difficult task for a railroad company to conduct its proper business on a paying basis. A transportation company cannot, in the long run, profitably become the owner of the produce which it is its business primarily not to produce but to transport. Exceptional cases will of course occur in which it may be possible to run under the same "umbrella" all kinds of incompatible elements. But, from the investor's point of view, business of this kind is a fertile source of mistake and confusion. The railroad, which spends a good deal of time and energy in hauling about material which it produces, may make a good show on paper; but inferences derivable from a superficial view of its nominal earnings are very likely to be illusory. Again, the valuation of collateral assets only indirectly connected with the business of a transporting company is very apt to be sanguine and excessive. Nothing is more common than to find that, if an effort were made to realize them in discharge of floating debt, their immediate market value would turn out to be merely nominal, and their prospective value altogether too remote to deserve the confidence of an intending investor. New acquisitions, new construction, new additions to mileage or accommodation form the proper subject-matter for an enlightened increase of funded debt at a reasonable rate of interest. When extraordinary weight is attached to them, as a set-off to an