Evil of Speculative Capitalization

Mr. John Moody, of New York gave the third of the series of lectures on "The Social Problem and Its Remedies" yesterday afternoon. Mr. Moody's topic was "The Problem in Business."

"To know about business we must know about Wall Street. Now the present condition of business in Wall Street is unsatisfactory. Business men and capitalists are not making much money, and the future outlook is poor. Two reasons are given: over-production; and extravagance, luxurious living, and expenditure of savings--in other words, the high cost of living, and the cost of high living. Business men ascribe the depression to the latter, but the former is more nearly correct.

"Why is there a high cost of living? To understand this one must review the economic history of the country since the Civil War. The universal tendency has been to combine and form monopolies. Railroads, industrial corporations, and public-utility organizations have all joined into communities of interest, and have consolidated, usually by owning one another's stocks. Now what is the force at work to bring about trusts and combines in spite of all adverse legislation?

"All these trusts and railroads are over-capitalized, that is, all their stock is not backed up by real property. This is speculative capitalization.

"All these corporations have capitalized their earning power, their ability to secure profits. This earning power has been growing, as the country has been growing in population, in wealth, and in producing power.

"But a great deal of capital does not represent earning power, and so is highly speculative. Its value depends upon the corporation's ability to retain its monopoly, for the fundamental principle of all corporations is a monopoly. Without a monopoly, no over-capitalized corporation can be successful.

"Since a monopoly is the foundation of successful conbinations, all business men, followed by small investors, are trying to get in on some monopoly, or special privilege. The risk may be larger than in ordinary business, but the profits are enormous. So we are swamped with speculative securities, which take capital away from productive industries to tie it up in speculative, and so unproductive enterprises.

"Periodically people overdo this speculation and a panic ensues. The salient feature of business today is that the monopolies are growing, and with them over-capitalization, entailing an enormous amount of speculation and lying up capital in speculative enterprises. This question of monopolies will undoubtedly come up for settlement within the next decade or two, and it is the duty of all men, whether they believe in the theory or not, to study the question, and learn as much about it as possible."