The nature of capital and income

Bibliographic data

Monograph

Identifikator:: 102659555X

URN:: urn:nbn:de:zbw-retromon-82920

Document type:: Monograph

Author:: Fisher, Irving http://d-nb.info/gnd/118533541

Title:: The nature of capital and income

Place of publication:: New York

Publisher:: The Macmillan Company

Year of publication:: 1923

Scope:: XXI, 427 Seiten

Digitisation:: 2019

Collection:: Economics Books

Usage license:: Get license information via the feedback formular.

Chapter

Document type:: Monograph

Structure type:: Chapter

Title:: Part I. Capital

Collection:: Economics Books

80 NATURE OF CAPITAL AND INCOME [Car V other methods of stock-watering are possible. A common one is to allow the plant to run down; 7.e. to fail to make proper repairs, while retaining its old book value in the balance sheet. A railway may be “skinned” in this way, by diverting to dividends what should be paid to a depre- ciation account. This operation, however, is not com- monly called stock-watering, but mismanagement. It is sometimes said that stock-watering is not wrong, as long as all the terms and conditions are known. This is much like saying that lying is not wrong, provided every- body knows that it is lying; for a false balance sheet is only one form of a false statement, and, ordinarily, a false statement is made with intent to deceive. The object may be, for instance, to mislead intending bondholders by making them believe that there is a larger security for their loans than actually exists. We see here one reason why honest men often undervalue their assets. They prefer, if there is any error in their valuations, that the error shall be against themselves rather than in their favor; in other words, that their representations as to finan- cial strength shall be well within the truth. Yet it not infrequently happens that undervaluations of assets may, like overvaluations, serve the purposes of dishonesty, — to “bear” the speculative market, for instance. Many attempts have been made to prevent the frauds which result from stock-watering. For instance, the State or National governments compel publicity of accounts in the case of insurance companies, national banks, and inter- state railways. The stock exchanges require similar pub- licity in regard to “listed” securities. Any company whose securities are listed on the New York Stock Exchange must publish its assets and liabilities at stated intervals. But this rule is too general to be very effective. In some cases the law requires the entire nominal capital to be paid into the company, in cash or securities at their market value, as in the case of national banks.! 1 Revised Statutes, § 5140 (Act June 3, 1864, § 13).

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