The assumption which has been made throughout this chapter that capitalization may be rightfully adjusted to whatever figure within reason the organizers or directors of a corporation may think proper, applies to manufacturing and trading companies, but does not apply to financial companies or to most public utility companies. Financial companies are in this respect in a class by themselves, for the reason that they are themselves dealers in cash and in credit and it is essential that their financial position should be at all times clear and easily ascertainable; consequently, they do not enter good-will on their accounts, not because it does not frequently exist, but because to do so would involve questions of judgment and of motive which they cannot afford to have raised. For that reason their balance sheets ordinarily show only assets the value of which can readily be determined by examination, and as to which no debatable question is likely to arise.

The case with public utility companies differs because of public sentiment which has been aroused against "overcapitalization," which is believed by many people to be injurious. In this respect the English practice is even more severe than in this country. The policy of Parliament and also of the Board of Trade of the United Kingdom has been to grant power to railway and tramway companies to raise an amount of capital estimated to be sufficient for their immediate requirements; in granting capital powers to gas companies, the Board of Trade usually endeavors to estimate the requirements of the company for a term of 12 to 15 years. It is clear that the intention is to maintain a strict governmental control and to see to it that every cent of capital is represented by a corresponding amount of cash or of assets purchased with the shareholders' cash. In the United States, public service commissions are following much the same policy. In New York State the output of stocks and bonds by utility corporations is carefully regulated to such an extent that it has proved really a difficult matter in some instances to secure permission to obtain capital that was urgently needed. For some years there has been agitation to apply the same principles of regulation to interstate railroads, but no definite action has as yet been taken.

We may conclude, then, that in general the capitalization of public utility companies is more strictly in accord with the legal theory of a correspondence between capitalization and capital assets than is true in other forms of enterprise. Public utility companies are among the enterprises above referred to, the earnings of which can generally be attributed almost wholly to their tangible assets. As a practical matter, therefore, it is not inconsistent with the practice of most of the well-managed companies to require that they should issue capital stock only for the purpose of acquiring cash or tangible assets fully equivalent to the nominal value of the stock.