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two instances only throughout the varied financial history of our American railroads have the equipment bondholders been compelled to assume possession and resell the actual physical equipment itself.56 But eve nin these instances the holders of equipment obligations suffered no loss, the underlying rolling stock being sold for enough to pay the outstanding certificates. This is a remarkable record for any class of corporate securities. It is even more remarkable, for the protection afforded to the bondholder, than the record of municipal and state bonds.

The strength of equipment obligations is evidence, too, of the importance of "use" value in measuring credit. Reduced to the simplest terms, the reason why railroad receivers and reorganization committees honor the equipment loan above all other forms of permanent debt is that the road cannot operate without its rolling stock and the owners can remove it physically from the possession of the road. Long ago the holders of first mortgage railroad bonds learned that their lien could be emasculated through the willingness of the Court to issue receiver's certificates under the authority of the mandate of public necessity. They cannot remove, physically, their road from the jurisdiction of the Court; they cannot even force the receiver to operate the line were he

original bonds were issued, the reorganization managers were exceedingly liberal to the holders of the outstanding obligations.

56 The case is of the Detroit, Toledo and Ironton. The road passed into the hands of receivers and the latter, finding the business inadequate for the total equipment and the equity of the road in a certain car trust relatively slight, decided to allow the holders of the trust to exercise their legal rights and take physical possession of the rolling stock. The trust certificates were practically all owned by two interests which bid in the equipment itself. Aside from interest on interest, the holders of the equipment obligations lost nothing, as the new owners were able to "peddle out" the equipment for more than the face of the certificates remaining outstanding.

The other notable case is that of one of the issues of the Buffalo and Susquehanna Railway. This was a very unfortunate venture which, reorganized as the Wellsville and Buffalo Railroad, proved such a failure that it was closed Nov., 1916, and dismantled. The old Buffalo and Susquehanna Railway had four issues of equipment obligations, A, B, C, D. Three were assumed by an allied company, the Buffalo and Susquehanna Railroad Corporation, which has now (April, 1917), paid all of them except $30,000 and these will be paid in August. The fourth equipment trust, Series B, was not assumed. After considerable negotiation the equipment covered by it was sold to a syndicate of Buffalo men. This syndicate subsequently sold the equipment, and in order to give a free title, deposited with the trustee a sum equivalent to the unpaid certificates and their interest to maturity.

disinclined. No matter what the road cost, no matter what its replacement value may be, they are helpless to enforce their lien. But the equipment bondholders can strangle the operation of the road by removing the equipment beyond the jurisdiction of the receiver. It is this necessity of its use that makes the rolling stock so substantial a basis for credit.



General Works, Theory and Its History

Distributive Justice. The Right and Wrong of our Present Distribution of Wealth. By JOHN A. RYAN. (New York: The Macmillan Company. 1916. Pp. xviii, 442. $1.50.) In Professor Ryan's first book, A Living Wage, published in 1906, he applied the principles of moral theology to the determination of the minimum of justice in wages; in this, his latest work, he applies the same principles to all four shares in distribution: rent, interest, profits, and wages. There is here practically no examination of the basis and justification of rights, but rather a series of deductions from generally accepted rules of justice. There is little dogmatism, however, in Professor Ryan's admirable treatment of the subject; for, as he points out, neither the principles of industrial justice nor the constitution of our socio-economic system are simple, and it is impossible to give to ethical conclusions anything like mathematical accuracy. All that he claims is that his moral judgments are fairly reasonable and the proposed remedies fairly efficacious.

The chief rules of distributive justice are the canons of equality, needs, efforts and sacrifices, comparative productivity, scarcity, and human welfare. Among these the primacy is given to the canon of human welfare, although Professor Ryan does not say that the other canons are derived from it, nor does he clearly trace the relationship between them. All have more or less validity, and any theory of distributive justice which runs counter to any of them is necessarily inadequate.

The right to the "workless incomes" of rent and interest is based chiefly on the canon of social welfare. The taking of rent is just, because private ownership is the best system of land tenure. The taking of interest is right, because it encourages saving and investing as opposed to spending and hoarding. Still, Professor' Ryan gives a more hearty approval to rent than to interest-taking, a position quite the reverse of that of most modern economists, who would protect and cherish the loan capitalist long after they had thrown the landowner to the wolves.

Professor Ryan, as is well known, is no socialist, nor even a single taxer. Socialism is impracticable. The single tax system would be much inferior to private ownership of land. Private land ownership, therefore, is a natural right, based on its social

utility. However, it is a limited right, giving no claim to rent until the tenant of average efficiency on a normal holding has first obtained a decent living. The tenant's claim to a decent living is based primarily on "needs," but it is not effectual without a minimum of efficiency. Similarly, the right of other business men to living profits is conditioned upon efficiency.

A more complicated case arises when the tenant employs agricultural laborers, who, because of their needs, are as much entitled to a decent living as the tenant himself. Against whom then, is their claim valid? Professor Ryan offers a very ingenious solution of this puzzle. The right of the laborers to a decent living, based, as it is, on their worth and dignity as human beings, takes precedence, not only of the workless incomes of rent and interest, but also of any surplus profits over and above a decent living for the tenant himself. The tenant, as an employer, is one of society's paymasters, and the laborer's claim is valid primarily against him. He must, therefore, pay living wages, even at the expense of interest in his own capital. He has no right, however, to deduct interest from the loan capitalist from whom he may have borrowed, as the loan capitalist is under no obligation to lend to a borrower who cannot pay interest regularly. Nor may the tenant withhold rent from the landlord, as such a practice would be subject to grave abuse, and the landlord is under no obligation to forego his rent in order that the tenant may employ laborers. Besides, such withholding of rent and interest is quite impracticable, and could not be enforced. Therefore, the duty of paying living wages devolves upon the tenant, or any other employer. If the burden and responsibility is too great, he may go out of business, but while he remains he must pay living wages, even at the expense of surplus profits and interest; and, if he is landowner, at the expense of rent also.

This is a nice point in casuistry, but the solution is not altogether satisfying. The employer may be society's paymaster or agent, but he can hardly be expected to bear the whole burden without substantial support from his principal. If, accidentally, he operates with land and capital of his own, his obligation to pay living wages out of rent and interest is surely not greater than that of the mere landlord or loan capitalist, even though he may realize the obligation more keenly than they. Again, in case he could not shift the burden to the consumers, he might be justified in paying less than a living wage, especially if he were a poor man

whose profits yielded him no more than a decent living. Of course, he might evade the obligation by ceasing to employ, but the laborers' condition could not be bettered in that way. Evidently, the case proves that the obligation to provide a decent living for all poor people devolves upon all who have superfluous incomes. It suggests, also, that the obligation is one of charity, rather than strict justice; unless we are to take the view that, in the last analysis, charity and justice are identical.

Although Professor Ryan approves of the private ownership of land, he recognizes certain defects in the existing land system which call for reform. Among the measures which he favors are the leasing of timber and mineral lands, public ownership of urban lands, state loans to small proprietors, increment taxes, supertaxes on large holdings, and the gradual though partial transfer of other taxes to land, in order to absorb a large part of the future increment. All of these measures find their justification in the canon of social welfare and the canon of needs. Until all the poor have a decent living the right to workless incomes is suspended.

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Professor Ryan's discussion of interest is exceedingly interesting. He shows how the medieval prohibition of interest taking was gradually modified to suit the changing economic conditions of modern times. At first arose the theory of "lucrum cessans," then that of "praemium legale," and finally the theory of "virtual productivity," which was only "lucrum cessans" in another form. All the authoritative ecclesiastical declarations indicate that interest on loans is today regarded as lawful because a loan is the economic equivalent of an investment. This, as Professor Ryan well says, "is good logic and common sense." The standard arguments of abstinence and productivity he considers unsatisfactory, and he finds the real justification of interest in its contribution to social welfare. He discusses at considerable length the question as to whether any particular rate of interest above zero is necessary, and arrives at no definite conclusion. Still, it may be that the suppression of interest would cause a considerable decline in saving and investment; and, assuming this, the state is justified in permitting interest, even as the Catholic Church has concluded to permit the taking of interest without definitely approving of it. From this conclusion, it is but a step to the position, which in effect Professor Ryan takes, that interest is justified as an essential part of the system of private property, and that any particular rate of interest is justified if it is a competitive and not a monopoly rate.

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