To take each example selected by Professor Ripley in support of his main theses would be tedious. It would result in dreary catechism. Let us try to lift matters back to the level of a discussion of the main principles involved.

Gentlemen of the Jury

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In the first of the articles, "From Main Street to Wall Street," the discussion centers upon the passing of responsibility in industrial enterprises. The special target of this article is the concentration of control in the hands of a small minority who have little or no financial stake in the enterprise. It seeks to arouse investors to a sense of the responsibility which their ownership of securities involves, and suggests the propriety of their taking a more intelligent and presumably a more active interest in corporate management. The second article, under the subtitle "The shareholder's right to adequate information," points to a part of the equipment which investors would require for this purpose, but wisely refrains from an attempt to define just what constitutes "adequate" information. The articles cite a number of instances purporting to show that "things are not what they should be," and follow the dangerous course of an "argument from the particular to the general." (Smith has an attack of indigestion; therefore, all the Smiths in the telephone-book are greedy.)

The dangers inherent in this method of reasoning are made obvious by a few statistics. "Moody's

ing detail some 22,000 corporations, railroad, industrial, public utility, and miscellaneous. For the purpose of the present argument, however, let us consider only those corporations whose stocks are listed on the New York Stock Exchange and the New York Curb Market. Their number is about 2000. Professor Ripley's first two articles refer to approximately forty-nine corporations whose stocks are listed on the above exchanges. Of these, twelve are mentioned favorably, and thirty-seven unfavorably. It is upon the corporations unfavorably mentioned that his general case against the present condition of corporate finance must lie. Of the thirty-seven corporations unfavorably mentioned, only three are treated in detail; namely, Associated Gas and Electric Company, National Biscuit Company, and Dodge Brothers, Inc. The remainder are dealt with-some one has has said "sworn at"-in more or less general terms. Professor Ripley himself admits that conditions in the Associated Gas and Electric Company are already in process of correction; the present satisfaction of the stockholders of the National Biscuit Company with their lot can be allowed to speak for itself; while the subsequent argument in this reply offers proof that the cardinal point of the Professor's argument against Dodge Brothers, Inc. (the only company treated in extenso) is not properly deducible from the facts; and, furthermore, his argument itself is unsound from the standpoint of economic theory, of which he himself is a Professor. I do not pretend

that "all God's chillun got wings"; but it is easy, far too easy, for a man of wide influence to give the impression that none of them has, by making a great deal of noise about a few whose wings can be made to appear atrophied.

But apart from the method of argument, let us concentrate on the problem itself the coöperation of stockholders in management. At first thought, there does not seem to be anything very much wrong with this. But let us think a little; perhaps there is nothing very much that stockholders can contribute toward management. Perhaps even the little that they can contribute will be more of a hindrance than a help. Let us examine the testimony of a few expert witnesses.

Mr. Harvey S. Firestone, president of the Firestone Tire and Rubber Company, in his book entitled "Men and Rubber," makes the following statement: "The corporate form of organization is only a method of defining the interests of investors. It is not a form of management, and when the stockholders vigorously help in the management, the business cannot prosper.' Mr. Firestone is a successful manufacturer, whose life-work has been a valuable contribution to a great industry. It is to be assumed that he is acceptable as an "authority." I offer his opinion as Exhibit A.

Mr. Sidney Hillman is found, in the proceedings of the Academy of Political Science, in April, 1925, to have expressed the following opinion: "It would be a misfortune if a large number of owners suddenly began to take their powers of ownership seriously. I question what might

happen when great numbers, inexperienced in management, proceeded to assume the functions of management.. Suppose they all assign their proxies following a campaign more or less like our political campaigns, in which we know that all issues but the essential ones are discussed. It may very well happen that, under such circumstances, management will suddenly be turned over to a group of people who have neither the knowledge nor the experience to run institutions with resources of over a billion dollars. I read recently the statement of a large insurance company of which I happen to be part owner. I note that it has resources of over one billion dollars. Imagine the consequences if a large group of stockholders should take charge of that billion-dollar institution. It is, I think, placing too much confidence in democracy to believe that such enterprises can be run without any preparation or experience." Mr. Hillman is a well known progressive labor leader. He can hardly be described as being in league with industrial despotism. I offer Mr. Hillman's opinion as Exhibit B.

Herr Walter Rathenau, banker, philosopher, manufacturer, statesman, and author, whose death by the hand of an assassin in 1922 was such a tragic blow to the spirit of German regeneration, has called attention, in a remarkable book entitled "In Days to Come," to the objective quality which a corporation tends to acquire as the size of the business increases. It becomes as it were an end in itself. A railroad corporation, for instance, exists objectively, irrespective of its stockholders, in order that passengers and freight may be moved about.

Finally, I would bring before the court a letter appearing in the "New York Times" on August 27, over the signature of Mr. George O. May, which especially stresses the fact that "No amount of regulation will make a dishonestly managed company a satisfactory investment."

It would be easy to multiply testimony. One might cite for instance Mr. Robert S. Brookings's treatise on "Industrial Ownership"; an article (which bears in every paragraph the stamp of seasoned knowledge) in "Commerce and Finance" for September 15, 1926, entitled "The "The Foolishness of Figures"; and many other instances of beliefs, forged by practical men in the fire of experience, which will help to show "where," in the opinion of competent authority, "we are, and whither we are tending"; a mass of evidence to show that the coöperation of stockholders in management is not only impracticable but also unfruitful.

The record clearly shows that, long ago, in the case of Corporate Management vs. Corporate Ownership, before Lords Justice Experience and Commonsense, in the Court of Life itself, a decree of divorce was pronounced upon showing of good and sufficient cause. In delivering judgment, their Lordships pointed out that the parties had not lived together for a long time, were drifting further apart, and evinced no spontaneous intention of coming together again; that moreover expert evidence had been introduced tending to show that one of the parties, to wit Ownership, was rapidly losing her powers through natural causes and

provision for the payment of alimony by Management, their Lordships observed that no machinery they could set up could possibly enforce this payment over a dishonest intention on the part of Management to evade it.

Now, after a great lapse of time, comes Professor Ripley, and seeks to intervene in the suit and stop the divorce, thus assuming the powers of a King's Proctor; weightily declaring, "Those whom God hath joined together, let no man put asunder."

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And now, gentlemen of the jury, let us dispose of the libel suit arising out of the King's Proctor's action. This is a short and simple matter. Brown, Jones & Robinson, investment bankers and members of the New York Stock Exchange, being aggrieved, depose and set forth and show unto the Court as follows: That they are engaged in a business, the very essence of which is telling the truth. That they cannot hope to remain permanently in business in the same place unless the guiding spirit of their business is integrity and sincerity of purpose. That King's Proctor, as a by-product of his intervention in matters whereof he must surely possess greater knowledge than he has been willing to disclose, has cited a number of instances of recent issues of securities made by investment banking houses. That it is impossible to criticize such issues without also criticizing indirectly the bankers who were responsible for those issues. It would be possible to quote several instances, but one will suffice. King's Proctor has publicly applied the term "prestidigitation" to the balance-sheet of

Dodge Brothers, Inc.-a balancesheet for which a syndicate, which included many of the leading investment banking houses of the country, has accepted responsibility.

The particular animus manifested against this company-and animus it appears to be, for the company is attacked in four separate places in the two articles-centers on the fact that "good-will" was represented in the balance-sheet at one dollar. He also objects to the "astounding feat of legerdemain" involved in placing, opposite the capital stock and surplus items on the liability side of the balance-sheet, figures which must inevitably follow from the figure at which good-will is entered among the assets. Plaintiffs-Brown, Jones & Robinsondeclare that the entry of good-will in the balance-sheet at the figure of one dollar was the only thing which could or should have been done under the circumstances. It was impossible to determine a valuation for all time; the balance-sheet not only frankly admitted this impossibility but boldly emphasized it. So far as the liability side of the balancesheet is concerned, will some one say what else could possibly have been done, once good-will had been entered among the assets at the figure of one dollar?

Plaintiffs further assert that a buyer of securities, acting upon recommendations made to him in good faith and without concealment of material facts, expresses, by his very action in buying, his approval of everything connected with the transaction. It is worth noting in passing, though it is of minor importance compared to the magnitude of

the moral principle raised, that in so far as the course of market prices can be held to pass judgment on the morality of the original flotation, the market has manifested so far no permanent tendency to be censorious. In fact, it has been the reverse of censorious. The block of securities which was originally sold to the public for $160,000,000 has fluctuated in market value, in the eighteen months which have elapsed since the flotation, between the figures $154,000,000 and $200,000,000; and now stands at approximately $160,000,000-the price of issue.

By placing their names on the prospectus of Dodge Brothers, Inc., a nation-wide syndicate of bankers threw its entire weight into a tremendous assertion of the principle that going concern value depends, first, last, and always, upon earning power-an assertion which those who lazily seek to base values solely upon original cost are unwilling to look in the face. Plaintiffs are proud to share the responsibility of this assertion. In support of its truth, plaintiffs call as expert witness any professor of economics, for instance the Professor of economics at Harvard University himself, and ask him to tell the Court whether it is not true that value in exchange derives from value in use, and from absolutely nothing else.

Gentlemen of the jury, plaintiffs rest their case.

A Skirmish with the Outposts

Among the matters of principle raised in Professor Ripley's articles is that of the issue of no-par-value stocks. He says, "With the advent

of no-par-value stock the doors are thrown wide open to all sorts of shenanigan." Now, is it not the case that the introduction of stocks without par value, while it constitutes a modification of previous practice, is merely an incident in financial evolution? Whether or no this particular phase of evolution is a desirable one is again a matter of opinion. There is something to be said on both sides. Under the system of stocks with definite par value, there was a definite presumption (by which the ignorant or the lazy might be lulled to sleep) that the issue of these stocks recorded the acquisition of assets equivalent in value to the total par value of the stock outstanding. Historically, in any given case, this might or might not have taken place; but even if it had, then, from the moment it had taken place, the value of the property would be determined not by history but by the fluctuating fortunes of the business. Reasoning based upon the history of the issue of stock might, therefore, result in unsound conclusions. "Calling a sheep a hog," as Lincoln said, "will not make it one." Now, what is stock without par value? Stripped of its par value, a share of stock is shown up in its birthday suit as an "aliquot part." This is nothing new. In earlier days, an enterprise requiring the combined capital of a number of individuals-such, for instance, as a shipping venture was handled by, say, thirty or forty persons taking shares in the enterprise. For example, the cargo might be divided into any number, say, seven, or two hundred and seven, equal shares "aliquot parts”—and each partici

pant in the enterprise took as many shares as he thought he could afford. So that in the first place, if we follow the reasoning through, there is some advantage in a form of security which offers no definite and partly misleading inferences as to value; which in fact puts it up to you to look into things and find out what the value is; which makes you think hard and work hard too. And there is a further interesting inference; namely, that no-par-value stocks involve nothing new, and there is, therefore, no reason why they should constitute a source of irritation to conservative minds on the score of being "newfangled." For the same form of financing existed long before business corporations were thought of. In fact, no-par-value stocks are really the protoplasm, the very Urschleim, of corporate securities. Their recrudescence today is but a manifestation of changing circumstances. Tempora mutantur, et nos mutamur in illis.

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On the question whether no-parvalue stocks, by permitting companies to record opposite the capital stock item a figure differing from that at which the stock was sold to the public, can be held to constitute a means of misleading the public, there are some pertinent passages in the report of the Railroad Securities Commission: "But in the case of stock, the fact that the certificate represents one hundred or one thousand dollars is far from being the determining factor. It is but one incident among many. Even in theory it purports merely to show that this was the amount originally paid by the subscriber when the road was built. It does