itself, was conspicuously bad. To pay for property several times what it is worth, to engage in grossly unwise enterprises, are errors of which no conservative directors should be found guilty; for perhaps the most important function of directors is to test the conclusions and curb by calm counsel the excessive zeal of too ambitious managers. But while we have no right to expect from bankers exceptionally good judgment in ordinary business matters; we do have a right to expect from them prudence, reasonably good financiering, and insistence upon straightforward accounting. And it is just the lack of these qualities in the New Haven management to which the severe criticism of the Interstate Commerce Commission is particularly directed.
Commissioner Prouty calls attention to the vast increase of capitalization. During the nine years beginning July 1, 1903, the capital of the New York, New Haven & Hartford Railroad Company itself increased from $93,000,000 to about $417,000,000 (excluding premiums). That fact alone would not convict the management of reckless financiering; but the fact that so little of the new capital was represented by stock might well raise a question as to its conservativeness. For the indebtedness (including guaranties) was increased over twenty times (from about $14,000,000 to $300,000,000), while the stock outstanding in the hands of the public was not doubled ($80,000,000 to $158,000,000). Still, in these days of large things, even such growth of corporate liabilities might be consistent with “safe and sane management.”
But what can be said in defense of the financial judgment of the banker-management under which these two railroads find themselves confronted, in the fateful year 1913, with a most disquieting floating indebtedness? On March 31, the New Haven had outstanding $43,000,000 in short-time notes; the Boston & Maine had then outstanding $24,500,000, which have been increased since to $27,000,000; and additional notes have been issued by several of its