MASTER NEGATIVE NO 91-80207-1 TvllCROFILMED 1992 COLLMBl A UNIVERSITY LIBRARIES/NEW YORK 5 as part of the 'Foundations oi' Western Civilization Preservation Project ^5 Funded by the NATIONAL ENDOWMENT FOR THE HUMANITIES Reproduciions mav not he made without permission from Columbia Universiiy Library COPY^ (GHT STATEMF '^-■'^^ The copyngnt la^A' of the United States - Title 17, United Slates Code ~- concerns the making of photocopies or other reproductions o^copvrighted niatenal... Columbia Universitv Librarv^ reserves the right to refuse to accept a copy order if. m its judgement, fulfillment of the order would mvolve violation of the copyright law. AUTHOR: YALE UNIVERSITY. SHEFFIELD SCIENTIFIC TITLE: EVERY-DAY ETHICS PLACE: NEW HAVEN DA TE : 1910 COLUMBIA UNIVERSITY LIBRARIES PRESERVATION DEPARTMENT BIBLIQGRArillC MICIlOrORr^I TARGET Original Material as Filmed - Existing Bibliographic Record Mastqr Negative It Yale university. Shemd scientific school scientific school^at^niv^^^^^^^ versity press; [etc., etc.j 1910. -Haven, Yale um- 3 p. 1., ISO p.^^lj-. $125 Prouty.-Speculation, by H. C. Emery ^ ""'P°"^"°"' ^y C. A. „P;ou.y. Charles Azro. 18Si- v. Jn,ery. Hy.lry'-ay.fe "°'" "" Library of Congress ' ,^) HF5386.Y15 ^^^^^ Copyright A 261034 . Restrictions on Use: TECHNICAI MICROFORM DATA. REDUCTION KATIO: FILM SIZF: 0.1) _»vii^!y IMAGRPi.ACFMLNT: lA © m IIB DATE FiLMi-n: ^fSlf-qi INITIALS HLMFDBY: RESEARCH PUBLICATIONS. INC WOODDRIDGE. CT ik <>^ n Association for information and Image Management 1 1 00 Wayne Avenue, Suite 1 1 00 Silver Spring. Maryland 20910 301/587-8202 Centimeter 12 3 4 5 liii| | ||t[l m ilin iiiiiiiiiiiiiiiiiiiiiiii IT I Inches iiiiii 6 7 inilmtlmiliii Tl I T 1.0 I.I 1.25 10 11 liiiiiiiiili iiiiiiiii 12 1 1^ III 2.8 150 163 ■M II II I 3.6 4.0 1.4 2.5 2.2 2.0 1.8 1.6 13 iiilii 14 15 mm iliii Mill ^ MRNUFflCTURED TO flllM STRNDflRDS BY RPPLIED IMfiG^. INC. aM *.— tf.Jj.faitaiuh.atfiafl fcf * ft > Ni J ..— .>,.«■^l.t■■^u.-.■■.>.■a^^^.iu■■.Jt»^■,^V'J^JJ;T■.-^.^.:«A^.=,hJ^■■..^■■^..-.■^a.,u,^i«.lM:a^^.ll.■A.g»■■ ■'•■*■■■»..„-'.. *!,"' \TV ^^\^ Columbia Itnittcreitit Kf VIXVV^ GIVEN BY This book is due two weeks from the last date stami below, and H not r^n^ at o. before that time a fine o *. . ,i'>\- irill be nicurred. ivc cents a (ui>_ ^m*' '-'"- .t^v.^ I I EVERY-DAY ETHICS ■ tm 4 EVERY-DAY ETHICS & ADDRESSES DELIVERED IN THE PAGE LECTURE SERIES, 1909, BEFORE THE SENIOR CLASS OF THE SHEFFIELD SCIENTIFIC SCHOOL, YALE UNIVERSITY n t 'i NEW HAVEN, CONNECTICUT YALE UNIVERSITY PRESS London: HENRY FROWDE OXFORD UNIVERSITY PRESS 1910 Copyright, 1910, by Yale University Press Published, February, 1910 |74 V? 1911 t '# i I 4 I CONTENTS JOURNALISM . ACCOUNTANCY • • • • • PAGE Norman Hapgood 1 Joseph E. Sterreit 16 ^ LAWYER AND CLIENT . . . John Brooks Leavitt 41 TRANSPORTATION .... Charles A. Prouty 70 SPECULATION Henry C. Emery 107 ^-^ Printed in the United States 'i' I * JOURNALISM BY NORMAN HAPGOOD Men have very different ways of approaching ethical questions. There is an absolute type of mind which fixes a standard of exactly what it ^ thinks ought to be, and judges severely, according . to that standard. Then there is the more relative ^ or historical approach, which judges a thing good or bad, according as it surpasses or falls beloWJrl what has gone before, or what is the general level '\ of the time. In discussing the ethics of journalism, should we look upon a newspaper as fulfilling its duty if it is as accurate and conscientious as an individual whom we should deem a good man? Or should we say, ''The public looks to the news- paper for the truth — for the trustworthy facts. If it does not give the facts it fails in its duty. It ^ fails in its obUgation. It deceives the people. It is untrue to a trust.'' If any of you hears a state- ment from one of your friends, or from a man in the street, or from me, or from a professor, you accept it with reservation. You know that we may be biassed, or inspired by malign motives, or carelessly repeating hearsay. The man who believes every- thing he is told is fit for nothing except food for 1 JOURNALISM JOURNALISM the classes that prey. My own opinion is that, in judging newspapers, we should bear in mind both of these standards. If a newspaper is at least more accurate than you or I, we should give it credit for that accuracy. If it is more unbiassed, more likely to give the facts on a side in a controversy, while supporting the other side itself, we should recognize this fairness, in so far as it makes for progress. Wliat- ever we may find in it to condemn, we should at the same time reahze that, without the newspapers as they are to-day. Democratic government would I I be an impossibility. Such concessions need in no way interfere with our holding at the same time a stricter standard before the press. If I hear that John Smith, of 111 Harlem Avenue, has been arrested for drunkenness, and repeat it, and the actual fact is that it was another John Smith, of 113 Harlem Avenue, I am certainly less blame- worthy for speaking without absolute knowledge ^ than a newspaper would be. This is the kind of inaccuracy for which a newspaper is constantly forced to atone in money, although, usually, not in adequate publicity. There is a vaguer sort of inaccuracy — the unjust criticism, the inadequate quotation, the unfair implication which the news- papers are constantly making, and never rectifying. I come to you fresh from an experience which has too much in it that is typical. I happen to believe in direct nominations, and spoke a few days ago in favor of them at Albany. I had written nothing I ahead, except a few hundred words of outline, all the points in which were taken up in the speech, with many others, and the sound of the speech was made more emphatic by the answers which I gave to questions from the members of the legis- lature before whom the hearing was given. The New York Sun opposes direct nominations. Its idea of journaUstic ethics was to print, on two separate occasions, the statement that I wrote a long and violent speech which I was afterward afraid to deliver. This slight incident is an example of what goes on with discouraging frequency. In some instances interviews are forged entire. Not all the distortion or suppressr6n of views, however, is so flagrantly wrong in motive. There are cases, fairly numerous, where the papers suppress news from a genuine, although mistaken, view of duty. When yellow fever existed in the South, certain newspapers thought it helpful and patriotic to he about it; and the same position was taken by vari- ous Pacific coast papers at the time of the bubonic plague. Papers in New York and elsewhere have frequently misrepresented industrial conditions in order to give prosperity a boost. The mistake of these newspapers is in looking upon themselves as the protectors of limited business interests, instead of as trustees for the whole people. It is a safe rule to trust the truth when the danger that threatens is merely a money loss. Of course there are cer- tain things which are true which ought not to be !l w w \ \ -*\ V •A I 4 JOURNALISM exploited, but they are of an entirely different class; they are the ugly, demoralizing facts of life — crime, and vice, and dissipation, which are popular, but popular through their appeal, not to anything good in man, but to his most wide-spread weak- nesses. There is also a suppression of the truth /which is sometimes brought about by the very concrete appeal of individual large advertisers. This suppression can be accomplished more often by the big department stores than by any other interest, because of the very large amount of space they use. Generally, it has been private facts they have suppressed; but frequently, some needed in- vestigation—let us say into the welfare of shop girls, or some light on the way the tariff regulations are enforced. In the same group of inaccurate statements come a large number of pieces of gossip, which may not perhaps be injurious to the individual mentioned, but are lamentable because they encourage in the public carelessness about accuracy. We will sup- pose that a President's daughter is reported, in large type, to be engaged one day, and the next day the story is denied. Newspapers, from the temptation "-to make their columns interesting, too often play up mere rumors, even when they realize the probable untruthfulness, with the same emphasis they would play up the fact if it were really ascertained. One respect in which the ethics of journalism badly need improvement is in recognizing the proper JOURNALISM I Una between privacy and publicity.^ Most of them, even of the better class, print much gossip that has nothing of the proper quality of news. The yellow papers, with their vaunted Democracy, dote upon details in the private life of the con- spicuous and rich, and most of the sober papers [ / regularly maintain society columns. Any news- ' paper which should undertake to ignore all these • f private matters would accept a great obstacle to large circulation. This position is taken by a few newspapers already, but they are not papers of much popularity, and the reform, while it is one to work for, will undoubtedly be slow in accomplish- ment. We can work for greater accuracy with more hope than we can at present work for elimina- tion of the private and the frivolous. The yellow papers are the greater although by no means the only sinners in this field. In matters of higher importance we come to a place where there is a sharper parting of the ways between the conserva- tive and the yellow press. At the time of the Spanish War, a conspicuous New York paper pub- Ushed a statement that the Seventh Regiment of New York had taken Havana. A friend of mine asked the editor how he was led to beheve this had been done. ''We had no reason,'' he said, 'Ho believe Havana had been taken by the Seventh Regiment, but our principal rival [he named the paper] had been pounding the Seventh Regiment, and w^e thought it good policy to give it a Uttle credit.--- I I 6 JOURNALISM This editor, and the owner of his paper, proceed upon the principle that you may tell as many lies as you like in the ne\vs colunin*^, and print such other degrading material as you choose, provided your editorial columns carefully tell the people they must be good. There are degrees, of course, in this principle of throwing the blame on the public, of refusing to be responsible for anything so long as it is what the people want. Now, the people want cocaine; selling it to them is a profitable business. Many States, however, imprison the indi- viduals who, in this way, give the people what they want. The people want to go to gambling houses and other places of dissipation more than they are allowed to. They willingly support lot- teries, but lotteries are forbidden. They hke quack doctors, fraudulent medicines, get-rich-quick de- vices, and many another quackery, yet more and more these things are regulated. The newspapers have no more right to do everything that is popular than a business man has, or a poUtician, or a clergy- man. At the same time we must sincerely recognize that no paper can be entirely independent of its environment. WTien I was speaking at the Uni- versity of Missouri this season, somebody in the audience asked me how many papers there were in which the editorial policy was entirely independent of the business poUcy, and I answered none — none, that is, if you emphasize the word '^ entirely." JOURNALISM For instance, I happen to be of the opinion that a large number of the breakfast foods so much advertised are inferior to good old-fashioned oat- meal, or cornmeal mush, in the nourishment to be had for a given amount of money, or a given amount of labor by the stomach. I should be unwilling, however, to write an editorial, picking out all break- fast foods of which I disapproved, and advising people not to use them. The Uttle good that might be done would be more than offset by the tremendous loss to any paper which might carry the editorial, a loss which would probably be inflicted on it imme- diately by a class of very large advertisers. On the other hand, no amount of money would make a conscientious journalist print an advertisement recommending what was actually wrong. The line is drawn between fraud and ^actual; indisputable harmfulness on the one hand, and on the other hand, the mere question of whether the buyer is buying wisely. The standard, fortunately, is con- stantly being raised. Only this year a certain pubUcation, for the first time in its history, and, I think, for the first time in the history of journalism, sent back to its advertisers, voluntarily, a large amount of money because its circulation last year had fallen below the statement which it had given out. Only a few years ago the same publication threw out patent medicine advertising, from a new realization of the harm that patent medicines were doing, and of the fact that they depended 8 JOURNALISM JOURNALISM 9 almost entirely on the press for existence. Doubt- less, almost every succeeding year will find some similar advance in the general standards of reputable papers. Those publications which lead, ethically, to-day will, I hope, seem undeveloped as we look back upon them ten years hence. It is by no means always easy, however, with the best intentions, to form a clear, intellectual conception of what ought and what ought not to be admitted. Let us take as illustration the results of a furtive but important industry. There exist in the United States a num- ber of agencies for the dissemination of special ideas under the guise of news. These news bureaus can be employed by a water company, for instance, or a gas company, or an oil company, or a private individual, to send out material to newspapers all over the country, in which the special points desired by these employers are mixed up with real news, and thus taken by the reader as impartial state- ments of fact, instead of as the special pleading of interested persons. This is wrong, no doubt, but is ' the corporation or special interest to have no hear- . ing before the pubUc! In attacking this 'tainted ^ news," as it is called, it has been suggested that the proper method for seeking a hearing from the public is for the corporation to state its own case over its own name, using if necessary the advertising columns. When this advice is followed, difficulties arise for the newspaper. To what extent will it allow in its advertising columns statements which it believes to be erroneous and misleading? It seems to me that a Democratic paper ought cer- tainly to be willing to publish an advertisement by the Republican party, provided it is clearly marked advertising; or by the Socialist party; or the Prohibition party. x\lso if a newspaper ob- jected to the granting of a certain privilege to a certain gas company, it ought to allow the argu- ments of the gas company to appear in its adver- tising columns. When you come to the case of an insurance company offering a kind of policy which a newspaper has attacked, you approach the line of difficulty; and, of course, the general rule against anything fraudulent or immoral will account for a large part of the exclusions. It will never be entirely easy, however, to settle a considerable num- ber of the cases, because it will not be perfectly obvious where the line is drawn between the honest contention, which ought to be given a hearing, and a statement which is so misleading and unfounded that a newspaper ought not to publish it. One criticism of this duty of a newspaper to allow its opponents to buy space and state their views is, that it is presenting for money a position that it refuses to allow free in its news or correspondence. This objection, however, although plausible, is unsound. We are dealing with a wide-spread method of reaching public opinion, and we are asking cor- porate and other interests to spend their money for honest statements of their position, rather than J^ «1 10 JOURNALISM for statements disguised and put out without tlieir names. It would certainly be impractical to expect newspapers to print every side of every question at their own expense. They would soon have space for nothing else. They often do print both sides of a question when they think both sides ought to be considered by their readers, or are strongly desired by their readers. When some person says ^'We don't agree with you; we think our side ought to have further hearing," it is fair enough to refer that person, especially if he is one with a business VV-nnterest to sustain, to the advertising columns. \ ^ In this connection may be considered the tendency of periodicals toward guaranteeing the truthfulness of their advertising. Most of the guarantees thus far have been mere baits, not put forward in good faith; but there are genuine guarantees, and will be more. Such guarantees, however, do not of course mean the publication agrees in all the estimates which the advertisers put on the value of their products. All the pubUsher does is to guarantee that nothing appears which can fairly )e called fraudulent. Such a position eliminates a large element of the financial advertising which is everywhere so rife at present. This financial adver- tising is one of the departments in which the papers illegitimately make the largest amount of money. Patent medicines and quack doctors represent another part. There is a third, which is diminish- ing, but still flagrant in some papers, the so-called JOURNALISM 11 "personal,*' which conceals appeals obviously vi- J cious. A prominent paper was not long ago fined $25,000 for this sort of pubUcation, and altogether n\ lost indecent advertising estimated at $80,000 a \\ year. Notable offenders at present are two news- papers owned by a man very conspicuous in pohti- cal and social life; but I beheve this man is about * ^ to yield to necessity and omit this advertising. Certain kinds of advertising are being cut from many publications, not because of the conscience of the editors, but because of the opinions of the readers. Liquor advertising, for instance, has been \\ thrown out in cases where the editors and publishers did not reach the conclusion that it was wrong for the various brands to advertise themselves. They were not convinced that such advertising increased the drinking habit, but their readers were indignant and the advertising therefore simply did not pay., A similar reason has excluded cigarettes from pub- lications where the men responsible did not believe that any boys were led into the cigarette habit by what they read in newspapers and magazines. Sometimes a persistent class of readers will make an assault along such Unes with energy but insuffi- cient numbers. There are devotees of peace who object to advertising firearms. Firearms are neces- sary in the present state of the world, and the fight- ing habit is not to any degree at all appreciable kept up by advertisements. Sometimes, perhaps, people who carry their arguments to such a fine 'x ■ x, ^'^ 10 JOURNALISM for statements disguised and put out without their names. It would certainly be impractical to expect newspapers to print every side of every question at their own expense. They would soon have space for nothing else. They often do print both sides of a question when they think both sides ought to be considered by their readers, or are strongly desired by their readers. When some person says ''We don't agree with you; we think our side ought to have further hearing/' it is fair enough to refer that person, especially if he is one with a business T Y i nterest to sustain, to the advertising columns. \ ^ In this connection may be considered the tendency of periodicals toward guaranteeing the truthfulness of their advertising. Most of the guarantees thus far have been mere baits, not put forward in good faith; but there are genuine guarantees, and will be more. Such guarantees, however, do not of course mean the publication agrees in all the estimates which the advertisers put on the value of their products. All the publisher does is to guarantee that nothing appears which can fairly ►e called fraudulent. Such a position eliminates a large element of the financial advertising which is everywhere so rife at present. This financial adver- tising is one of the departments in which the papers illegitimately make the largest amount of money. Patent medicines and quack doctors represent another part. There is a tliird, which is diminish- ing, but still flagrant in some papers, the so-called JOURNALISM 11 "personal," which conceals appeals obviously vi- \/ cious. A prominent paper was not long ago fined $25,000 for this sort of pubUcation, and altogether n lost indecent advertising estimated at $80,000 a \ year. Notable offenders at present are two news- papers owned by a man very conspicuous in pohti- cal and social life; but I believe this man is about "^ 1 to yield to necessity and omit this advertising. Certain kinds of advertising are being cut from many publications, not because of the conscience of the editors, but because of the opinions of the readers. Liquor advertising, for instance, has been thrown out in caies where the editors and pubhshers did not reach the conclusion that it was wrong for the various brands to advertise themselves. They were not convinced that such advertising increased the drinking habit, but their readers were indignant and the advertising therefore simply did not pay. A similar reason has excluded cigarettes from pub- hcations where the men responsible did not beheve that any boys were led into the cigarette habit by what they read in newspapers and magazines. Sometimes a persistent class of readers will make an assault along such lines with energy but insuffi- cient numbers. There are devotees of peace who object to advertising firearms. Firearms are neces- sary in the present state of the world, and the fight- ing habit is not to any degree at all appreciable kept up by advertisements. Sometimes, perhaps, people who carry their arguments to such a fine ■"V '\ 12 JOURNALISM point cause reactions through their unreasonable- ness. A recent incident will illustrate the truth that a higher standard of ethics is becoming more dominant in the publishing field. One of the writers for a certain publication came to the proprietor recently and pointed out that a firm of advertisers was quo- ting from one of the articles printed in that publica- tion, and quoting it in so mangled a way as to give an entirely false impression. The pubUsher^s first intention was to punish the advertising firm at law, for forgery. He discovered, however, that the firm had "since ceased to advertise in his paper, and he then realized that if he took any action it might be looked upon as an attempt to force back the busi- ness of the delinquent firm. He therefore refrained from this step, which he would have taken had it been open to no false interpretation. Such genu- inely enlightened standards of action have increased materially in the fifteen years during which I have been more or less familiar with the newspaper and magazine field. One of the ethical changes which have taken place of recent years bears on the attitude a journal- ist should take toward his own profession. There used to be an idea that all journalists should stand \\ by all other journalists. A newspaper might expose anything it liked, so long as it did not expose another paper. Such criticism was called fouling one^s own nest, with the obvious implication that it JOURNALISM 13 would be better to foul the nest of some one else. An idea has started now, and is likely to grow, that there is on the newspapers no clearer duty at present than the duty of lessening their own faults, and the duty of raising their own standards, and these ends can be reached largely by tolerant but at the same Vji' time severe professional criticism of one another. >^ Another respect in which the ethics of journalism have in recent years markedly improved is in freedom of thought, as between political parties.}^ Twenty years ago a paper was Republican or Democratic, and every measure before the pubUc was judged from a partisan standpoint. These mere mouthpieces are becoming fewer every day. The average paper thinks for itself. The effect on the general intellectual competence of the people of this increase in open-mindedness would not easily be overestimated. For this advance we must give considerable credit to '' yellow journalism.'' The faults of these news- papers are obvious and serious. Their merits and accomplishments are not always so clearly seen by the ''respectable'' and property-owning classes. In the past, the masses had no newspaper organs.^ These papers, which set out to acquire vast circu- lations by appealing to the largest numbers in the community, have used many wrong methods of seeking popularity. They have abandoned truth, proportion, taste. Their tone is often one to poison the air, to pervert the minds of readers. The 14 JOURNALISM JOURNALISM 15 picture they present of the world is ugly and demor- alizing. They have, however, done good, in under- mining class prejudices and narrow interests. Tliey have been independent, not only of party, but of specially limited influences. They have largely destroyed the false conserv^atism which is merely ihe selfishness of property. They have forced con- servative newspapers to be much more liberal and progressive. At the same time, the yellow papers are "themselves becoming more responsible, and less loud and reckless, partly because the people are becoming educated, but largely because a one-cent newspaper cannot pay except through its adver- tising, and the best class of advertisers will not patronize a paper which does not have a class of readers who can afford to buy articles of some value. We therefore see, every day in the United States, the conservative papers becoming less hide-bound, and the yellow papers becoming less outrageous. The standards of journaUsm have also been raised by the influx of educated men, and this state- ment may be made without forgetting the fact that Vrc. Hearst comes from Harvard. Twenty years ago, college men were looked upon with suspicion. To-day it is difficult to secure a position on a metro- politan daily without a university education. This method of recruiting for all journalistic positions, from reporter to editor-in-chief, ought to have a decided influence toward checking the more reck- less tendencies of newspapers, and toward giving # them a large outlook on matters of the moment. The American people are eager to be guided. They have an instinctive wish to see things from high aspects. Nothing, therefore, is required, except ability, for men who conduct newspapers to put into them their best ideals, and at the same time receive favorable hearing from the public. :iii ACCOUNTANCY A Lecture Delivered before The Sheffield Scientific School of Yale University, May 6, 1909 BY J. E. STERRETT, C. P. A. In considering the ethics of any particular busi- ness or profession the natural course would seem to be first to determine what special problems, arising in conducting it, are likely to give occasion to ethical questions not common to all business or to all walks of life. In the present imperfect state of commercial morality, however, there is a further inquiry as to w^hat standard of ethics we may fairly apply to the profession as a whole when questions arise, and the answer depends upon how high are the aims of the profession and the quali- fications of its members. In an ideal state all useful labor would be equally honorable and the same ethical standards would be set for all men. To-day, however, we recognize that thovse worthily engaged in some occupations are necessarily endowed with greater mental gifts or greater responsibiUty than is called for in other occupations, and may therefore justly be held to a higher standard. We expect a judge or a physician 16 ACCOUNTANCY 17 to aim higher in his ideals than a coal heaver or a street cleaner. In discussing these questions in relation to the older professions much might be taken for granted, but of the new or business professions, which have developed as a result of the commercial growth during recent years, accountancy is perhaps the youngest and least understood. It seems necessary, therefore, in connection with the subject of the Ethics of Accountancy to discuss at some length the questions. What is accountancy? Is it a pro- fession serving a real public purpose? Does its proper conduct call for a high order of ability and efficiency? and may we fairly impose a high standard of ethics upon its members? The modern concept of business differs radically from that in the days when business was connected but loosely and consisted mainly of barter. In like manner the methods of business administration and control have changed. Once business was in- dividual, every man for himself, now it is specialized and representative. The stockholders of many of our great corporations would, if brought together, form a large city, and Uke a city they are organized and governed upon a representative basis. Many of these stockholders seldom or perhaps never see the property in which their funds are invested, but their interests are none the less vital. In this age of specialization the welfare of the community and the happiness of the individual are enhanced by /' lo ACCOUNTANCY this representative form of business administration which allows the chemist to pursue his chemistry and the financier his finance, each man following the course indicated by his peculiar talents and each secure in the thought that his other important though collateral interests are in the care of men specially quaUfied for their various trusts. It is upon this principle of cooperation and specialization that our modern social structure is founded, and the successful outworking of this plan is mainly limited by two considerations — the knowledge necessary for effective control upon the part of administrators in whatever capacity, and dishonesty or that care- less ignorance that is akin to dishonesty. The profitable maintenance of business, and still more its development and expansion, are dependent upon effective control, and there is a fast growing recognition of the fact that control in the final analysis is largely a problem of good accounting. Again profits may be earned and yet those interested therein fail to share in equitable proportions. Through moral obUquity or through ignorance those in control may, and as we all know sometimes do, fail in their treatment of investors. It is the twofold function of accountancy to assist in the extension of business and the increase of profits and to ensure the full and fair statement of financial position and operating results. It is the peculiar province of the accountant to act at once as a counselor and a judge. While he f ACCOUNTANCY 19 can never assume a superiority to legally established judicial procedure, it is nevertheless true that he often acts in a judicial capacity in circumstances under which the law courts could provide no effect- ive remedy, and even in matters before the courts, involving questions as to business facts and practice, the judgment of the accountant is often a deter- mining factor. As we study some of the problems that face the accountant in the practice of his profession we will find that more is required than mere skill. To properly discharge his duties he needs a cultivated mind and a well-developed sense of justice, as well as a fund of knowledge covering a wide range of business, economic, legal, and accounting subjects. Moreover, having all these, his success in his call- ing will depend upon the measure of his tact and common sense. The relations sustained by a professional man toward his associates in the same calling are worthy of a careful study from an ethical standpoint, but as it is a topic of more especial interest to those in or about to engage in practice we will pause only to note that the good opinion of one's professional brethren is a most desirable possession and one worthy of careful cultivation. As a general rule the professional man who does not command the confidence of his colleagues does not deserve the confidence of the public. The jealousies engendered in an active practice, and rivalries for place and I ll # 20 ACCOUNTANCY power, occasionally becloud unjustly the reputation of a man, but if he is of sterling worth the consensus of opinion in his own profession will not long con- tinue to run against him. Every accountant then should strive to acquire and retain in the largest measure the confidence and esteem of his fellow- accountants. Practices that estrange his associates are almost certain to be unworthy, and if they are unworthy, even though temporarily successful, they will not long deceive the pubUc, and worse than all else will react upon the man's own character. In considering next the relations between the accountant and his client emphasis must first be laid upon the utmost candor and good faith. These qualities are obviously essential to fair dealing in all relations of life, but it must be remembered that the degree of good faith required of a professional man is necessarily higher than that demanded in other occupations. For instance, I visit an oculist who examines my eyes and tells me that the glasses I am now wearing meet every requirement. Clearly his profit is less than it would be if he advised me to come again for further examination and a pre- scription for new glasses. Next I enter a clothing store. Does the salesman there advise against a. purchase on the ground that the clothes I am wear- ing are in good condition? Not at all. He must not misrepresent the goods he has to sell, but his duty is to sell to those who are wiUing or who may be persuaded to buy. It is quite evident that the ACCOUNTANCY 21 same rule does not hold good in the case of the oculist. His duty is not to induce men to w^ear glasses or to change those they are wearing even though to do so is directly to his immediate personal advantage. On the contrary the oculist must sink all motives looking to present gain and content himself on the pecuniary side of the transaction with the hope of future income that may result from increased practice accruing to him through an established reputation for fair dealing. In all professional work, and in none more than in accountancy, the client must rely upon the coun- \ sel that he seeks, and the safeguards upon which \ he must depend to protect him from the selfishness and even the cupidity of his adviser are the ethical standards of the profession and the personal charac- ter of the individual. The rule of conduct that requires us to maintain the same attitude toward the rights of others that we demand for our own, finds no broader application than is laid upon the members of the several professions. Nor must this requirement be met in any but the frankest and fullest manner. It is not a counsel of benevolence but one of justice, that requires not only an adequate consideration of others, but that this consideration be extended in courtesy and kindliness of manner. In all his dealings with his cHents the accountant must realize that he is for the moment at least the custodian of the cUent's interests, involving in many instances not only his goods but his honor I...- » 'X. * ".. t. ^ I 99 ACCOUNTANCY ACCOUNTANCY 23 I as well. This trusteeship is frequently a task of difficulty and of delicacy. The client may be actuated by unworthy motives, he may be swayed by prejudice or by fear and may wish to evade responsibility or avoid an issue, and to these the accountant must not lend himself, but must with candor and tact endeavor to persuade the client into a right course. Industry and appUcation are two qualities that every client has a right to expect. If the accountant has engagements that for any reason interfere he should frankly state that he is unable to accept instructions in the new matter, but once an engage- ment is accepted it must be prosecuted with all diligence and fidelity. In passing it may be well to pause for a moment to outline briefly the organi- zation of an accountant's office in order to better understand the application of the rule of conduct now under discussion. Accountancy belongs to that class of professions that require a somewhat extensive organization containing individuals of varying degrees of skill and experience. Other instances are found in the professions of engineering, architecture, and to some extent in law. In a relatively small practice the accountant's organization will usually be found to consist of one or two members of the firm who may be spoken of as principals, with a staff of say a dozen assistant accountants and one or two stenog- raphers, while in the larger organizations there are usually four and often more principals, with staffs containing some men of a very high order of abiUty, and others grading down to what are known as ^^ junior assistants,'' and altogether numbering from fifty to two hundred or in some cases even more. Usually these large organizations are not maintained at any one point but are divided among several offices of the same firm in different cities. These complicated organizations are necessary for the conduct of a large practice, but they add many difficult problems to the burden of the principals of the firm. There are of course many individual practitioners and many small firms in which the attention of a principal is given to all the details of every case coming into the office, but necessarily such cases must be small or at any rate exceptional. In a large office there is a danger that too much may be left to the judgment of an assistant who, while fully competent up to a certain point, is hable if left to himself beyond this point to jeopardize the interests of the client and the reputation of his firm. The large staffs and extended organizations found in accountants' offices provide a means for a divi- sion of labor but not for a division of responsibility. There must be no abatement in the measure of individual responsibility resting upon the principals. They may use assistants, but for the work of these the principal is just as responsible to the client as he is for work personally performed. The client is yum' 24 ACCOUNTANCY ACCOUNTANCY 25 entitled to the accountant's utmost learning and ability and any use of assistants that interferes with this right must be avoided, while on the other hand w^ork that can as well be performed by an assistant should not ordinarily be done by a principal because of the increased cost to the cUent. Whether the office is conducting a large practice or a small one, and whether the case is one requiring the use of many assistants or of none, the rule to be followed in all cases is one of full responsibility and entire fideUtv. In all professions there is constant danger of a failure to recognize the true significance of things appearing to be of little importance. The physi- cian makes an examination and diagnoses a com- mon cold and prescribes accordingly, failing to note the early symptoms of a virulent disease that may thus unchecked at the outset exact the patient's life as its toll. A lawyer or an accountant may accept a case, but because of its seeming lack of importance fail to give it careful attention. This is not honest, and whether the client suffers or not the reaction upon the professional man is certain; good work thereafter is less easy, and a tendency of this kind is soon observed by others. In this connection the experience of every successful man show^s that connections arising through matters seemingly of little moment are often the most enduring and profitable. Our range of vision is too narrow to determine the ultimate results of any action, but if all are performed in uniform good faith and with a nice regard for the interests com- mitted to our keeping they will, like bread cast upon the waters, eventually bring their reward. The confidences of the client must be held in- violable. The accountant is the repository of much knowledge that must be held in secrecy, not neces- sarily that it is discreditable to the client (as a matter of fact it seldom is), but it has been dis- closed to the accountant in confidence and he has no right to divulge it to others without the full knowledge and consent of the cUent. This require- ment of privacy is equally obligatory upon the part of the members of an accountant's staff, and to the credit of these men it may be said that ulterior com- munications relative to a cUent's affairs are practi- cally unknown, although doubtless there have been many instances when a strong temptation has been insinuatingly offered to an accountant's assistant to induce him to disclose information in his posses- sion or available to him. In order to safeguard the affairs of his chents an accountant is under obUgations to maintain a filing department in which to keep all working and other papers and reports, and to provide that access to these papers is limited to those who have a right to examine them. A careful guard must be kept by both principal and assistant against questions of a leading nature relative to the affairs of any client that may be put 26 ACCOUNTANCY ACCOUNTANCY 27 by those not entitled to information. Sometimes these questions emanate from another client in the same line of trade who wishes to know about his competitor. Whatever the ultimate purpose, the questions at first are usually of such a nature that there may seem to be no harm in answering them, but it is seldom safe to do so as an answer is likely to serve as an invitation to further questioning. A tactful changing of the subject w^ill usually be a sufficient indication that the accountant declines to yield to importunity; but if this is not sufficient he should plainly state that he is not at liberty to discuss his client's affairs. Another phase of this subject that is the cause of some concern to accountants is the position in which an accountant is placed when called to the witness stand by another than his client and asked to testify as to matters of fact coming within his knowledge through confidential professional rela- tions. To some extent other professions are pro- tected and can plead that any knowledge possessed by them was acquired in the form of ''privileged communications." But as yet the right of pro- tection to communications between a cUent and an accountant has not been granted in this country by statute, and w^iile the courts would probably be loath to insist that a professional man should violate his obligation to guard the secrets of his client, it is altogether possible that in the near future some judge will give an accountant the i! I 'V choice of testifying or going to jail in contempt of court. Unless the orders of the court are exphcit and the accountant is convinced that a proper sense of pubhc duty requires him to testify, he should refuse to do so and take the consequences, however unde- sirable. An accountant's responsibility is always to be measured by the moral standard rather than the legal, and while he should adopt the first with- out any coercion arising through fear of the penalties of the latter, he should maintain it regardless of any consequences growing out of a temporary con- flict of the two. As in other professions the question of compen- sation is not altogether a simple matter. Obviously the interests of cHent and accountant are not here the same. Both are subject at least to motives of personal interest that do not obtain in their other relations. Fortunately both must be fully aware of this situation and thus the opportunity for the abuse of confidence by the accountant, were he so disposed, is to a large extent removed. As a rule the question of remuneration is settled in advance either by an agreement as to the rate or by naming a fixed fee. The matter would scarcely require discussion were it not that what are known as 'jcon- tingent fees" — a subject of long-standing discus- sion among the members of the legal profession — are not unknown among accountants. And, like the lawyers, accountants are not fully agreed as to 28 ACCOUNTANCY ACCOUNTANCY 29 the attitude to be adopted toward this form of compensation. In some instances contingent fees would seem to be almost if not altogether free from reasonable objection, and sometimes it would appear that justice requires an arrangement of this sort. How- ever, we are not discussing exceptional cases and the propriety of any course of conduct is to be deter- mined upon the basis of the consequences arising from its general adoption. An agreement to accept a contingent fee at once changes the relations that ordinarily exist between the accountant and his chent; the former no longer maintains an attitude of impartiahty but becomes m partner with his client. Inasmuch as a judicial attitude is de- manded of an accountant as a prime condition of his profession, he should not without grave reason adopt any practice that makes him an interested party to the question at issue. It is fair to consider that as a lawyer, who is professedly an advocate, is Umited strictly in the acceptance of contingent fees, the hues must be drawn much more rigidly by the accountant because unlike the lawyer his view-point is judicial. Furthermore a contingent fee is frequently an unfair one. If the chances for success are remote the accountant throws away his time and his talent, while if success is reasonably sure the fee is likely to be in excess of the value of the services rendered. It is one thing for a pro- fessional man to abate his charge by reason of the poverty of his client, and this is often done in all professions, but it is an altogether different thing to take advantage of a chent's poverty or his igno- rance to secure a compensation not warranted by the services rendered or the responsibihty assumed. An eminent judge in discussing from the bench the subject of contingent fees said: ''It is not a practice to be generally commended, exposing honorable men not unfrequently to misapprehen- sion and iUiberal remark, and giving the apparent sanction of their example to conduct which they would be among the first to reprehend.'' It would be an unhappy day for the business coBomunity that saw the acceptance of contingent fees generally adopted by any profession, and accountants in particular should be most circum- spect in this matter. If they are asked to under- take a case upon the basis of a contingent fee they should never agree to it when by so doing their interests are brought in any degree in conflict with ^ those of their cUent or of the public. Another duty every accountant owes to his clients is that of constant study of the Hterature. of his profession. Accounting is a progressive science and constant reading and study are required to keep abreast of it. Then again any man who does not study withers up. The springs of our knowledge must be replenished from without if our own experiences are to become the source of sound judgment. No one man can have a personal 30 ACCOUNTANCY ACCOUNTANCY 31 experience so comprehensive that he can afford to disregard the views of other members of his pro- fession, and to the last he should make an earnest effort to keep in close touch with the best thought of his profession. To the young accountant this thought should appeal with especial force, as by this means he can best equip himself for the task of dealing with the larger questions that he hopes will arise later in his career. Incidentally it may be said that an accountant should not confine himself to the literature relating to his own profession, but should use every avail- able opportunity to cultivate a taste for the best books in a much wider range of reading. No better means of rational enjoyment can be found, and the reading of good books not only stimulates the mind to a more able discharge of the duties of the present, but it helps to postpone the day when mental vigor becomes impaired through advancing years. In perhaps no other profession do relations with clients become so closely intermingled with the interests of the general public, and any treatment of the ethics of accountancy is inadequate that fails to give a prominent place to the responsi- bilities of the accountant to the public in the dis- charge of his usual and ordinary duties. A glance at the nature of a few of the leading lines of an accountant's activity is perhaps necessary to show the full force of the responsibility resting upon him. The practice of having an independent audit of the accounts of corporations made annually or more often is rapidly growing in this country and is obligatory under a statutory enactment in England. It is interesting to note the advanced position taken by the English law in respect to accounts and matters more or less closely related thereto, such as the form of prospectus that must be used in offer- ing new issues of securities to the public; but as the requirements thereunder add only to the legal requirements laid upon the accountant and increase little if at all his moral obligations, a discussion of this subject is not within our present purpose. I would, however, commend the subject to your further consideration. Custom usually precedes legislative enactments, and what is now a growing practice in America will probably before long be made obligatory. The appointment of the auditor with us is gener- ally made by the officers or the board of directors. In Uke manner when an accountant is instructed to investigate the accounts of a company and report upon its earnings during a period of years, his instructions usually come from the banker who is bringing out the securities. In one case the account- ant's report and certificate are addressed to the board of directors, while in the second instance these go to the banker. In both cases the account- ant's real cHent is the public or that portion of it that is now, or may be in the future, interested in fl 32 ACCOUNTANCY ACCOUNTANCY 33 the securities of the concern whose accounts are reported upon. At this point I may be permitted to digress for the purpose of once more emphasizing the fact that a balance sheet, or other general statement of the accounts of any large enterprise, is necessarily to a large extent an expression of opinion. To those who have not given the subject any extended con- sideration a balance sheet is thought to be merely an expression of facts the ultimate truth of which can readily be determined upon investigation. Reflection, however, will show that values can be finally ascertained only upon liquidation, and liqui- dation in a going concern is as impossible as it is undesirable. If, then, ft& accountant's certificate to a balance sheet or a profit and loss account is not a certificate to a set of fully determined facts, but is rather a statement of his opinion as to a position of affairs that is not and for the present cannot be entirely disclosed, we see that the respon- sibility assumed is vastly increased, and to meet this responsibility he must bring to bear upon the problem a range of talent much more comprehen- sive than would be necessary if accounts were in themselves final statements of fact. Mere skill is not suflScient but must be coupled with a well- trained sense of justice. In fact, even at the risk of reiteration, it must be said that the culture of justice is the accountant's first duty and in it all others are comprehended. 4 In every audit and in every examination there are possible rights of some present or future stock- holders, or other investors, that will be affected whether favorably or adversely by the accountant's certificate or report, and the rights of these perhaps unknown individuals should be his concern quite as much as the rights of those whom he may regard r'^as his immediate cUents. The adherence to this I rule may result in a conflict of opinion between the Y accountant and the management of a company, ^-^n practice such differences in views frequently develop and the situation then ensuing is one that requires not only good judgment as to the account- ing and financial questions involved, but also a dis- play of due consideration for the opinions of those who have in charge the management of the business. Unless evidence to the contrary exists it is to be assumed that these men are honest in their views and in their intentions. To be sure they are not disinterested, but on the other hand they are Ukely to be well informed upon the business in question and the branch of trade to which it belongs, and moreover, as directors they are clothed with a large measure of discretionary power. Under such circumstances it would seem that the right course to pursue is for both sides to calmly discuss the questions at issue with a view to finding a common ground u^pon which to meet. Such an effort can scarcely do harm, while on the other hand great harm to all the interests concerned may 34 ACCOUNTANCY ACCOUNTANCY 35 be done by premature opinions expressed by the accountant. For the very reason that the account- ant is supposed to be not only independent but in- telUgent as well, an injudicious statement made by him, or an unnecessary reservation or qualification in his certificate, may work an injury fully as great as the one he is seeking to avoid or prevent. At the same time he must not allow another to become the keeper of his conscience. His own judgment must be his final guide in writing his report or in framing his certificate. While giving due weight to the opinion of others he must never forget that it is his signature that is to be aflSxed, and in the event of criticism he cannot plead immunity on the ground that he relied upon someone else for knowl- edge that should have been his own. If after thoughtful consideration of all the cir- cumstances in the case and after he has patiently satisfied himself as to every essential fact, there still exists a conviction in the mind of the account- ant that is opposed to the views of the management, the accountant must tactfully but none the less firmly maintain his ground even though the unme- diate result is the loss of a valued client. When the conditions of his engagement call for a full report upon the accounts of a company the account- ant has an opportunity to state his views in full, giving his reasons therefor; but when, as more fre- quently happens, he is desired to give a certificate attesting to the accuracy of a balance sheet or a profit and loss account, it is his duty either to decUne to give any certificate where the accounts are in such a condition that he cannot honestly do so, or to make such qualifications in his certificate as w411 call the attention of the careful investor to the weakness the accountant sees in the accounts. Certificates should always be framed in simple language and in hke manner any qualifications therein should be straightforward and to the point. At the same time it is necessary to avoid over- shooting the mark and the accountant should weigh his words most carefully with a view to the effect they are Ukely to produce upon the mind of the investing pubUc. The pubUc is hkely to attach perhaps more meaning to a qualification in a cer- tificate than it is the intention of the accountant to convey, and a careless use of words has more than once caused unnecessary alarm. Qualifications in a certificate are scarcely ever necessary concerning minor matters, at least so long as these do not affect the substantial truthful- ness of the accounts, and a condition or an amount that will impair the truthfulness of the accounts in a small business may have no practical effect upon the accounts of a large enterprise. The question of what is of suflScient importance to require a qualification in a certificate becomes, aside from any intrinsic significance in the item itself, purely a matter of relation between the amount in question and the total of the accounts. 'It 36 ACCOUNTANCY So that an item that might in one case call for a distinct qualification might safely be passed in another without any question whatever. This whole matter of certificates is one that requires clear thinking and cool judgment, and a failure to observe ethical conduct as well as to correctly interpret the accounting and financial principles involved may result in a wide-spread wrong. As I have already intimated the accountant must maintain an attitude of absolute impartiality. A contingent fee, for instance, should never be the basis of compensation to the accountant in a case where the successful flotation of an issue of securi- ties is at stake. No matter how honest at heart a man may be he cannot avoid being swayed to some extent by his personal interests. If he is to receive a handsome fee when certain securities have been sold to the public, he at least exposes himself to the risk of giving a certificate to the accounts that is more favorable than it would be if his fee were not hanging in the balance. If the pubhc is to rely upon the certificates of public accountants it must be because these certificates are signed by men whose eye is single and whose judgment is free from any taint of self-interest. Even if the accountant's fee is not a contingent one, his judgment, in cases involving the flotation of securities, is open to attack in another dkection. Quite often his professional relations secure for him an opportunity to buy securities for himself ACCOUNTANCY 37 f upon a basis that is not open to the general pubHc. But even such a practice as this, though perhaps entirely legitimate for another man, should not be accepted by the accountant. Neither should securities issued by a client be bought or sold by the accountant in anticipation of an immediate rise or fall in market value, and he should carefully refrain from buying securities of companies with which he may be professionally connected that are of a highly speculative character. By a rigid adherence to these rules the accountant wdll not endanger his impartiality and in the long run will be likely to fare as w^ell financially as he w^ould if he were to subject himself to the distractions of speculation. Another field in which the public accountant has to some extent entered, and in which it is altogether probable he will in the future be an important ^v.^,^^^^^^^ factor, is in relation to municipal and other goveruT ' mental accounts. Special investigations have been' made by accountants of several of the departments of our national government, resulting in recom- mendations that have led to substantial reforms in the accounting systems and the methods of administration; while a considerable number of ... \ American cities have availed themselves of account- \ ants' services to remodel their accounting methods and from time to time to audit the accounts and certify as to the correctness of the financial state- ments appearing in the annual reports. As we all know, the conditions existing in public offices are 1 38 ACCOUNTANCY I distinctly different from those obtainint^, in corpora- tion or other business offices; for instance, instead of centraUzed authority there is in most cases a division of authority and responsibiUty. It is true that the executive officers have certain powers, but generally these are hedged about with restrictions imposed by legislative or other bodies, and altera- tions and improvements that could speedily be effected in a business office are often the subject of lengthy discussion and uncertain action on the part of legislators, many of whom are quite unable to grasp accounting problems, while others are deterred from granting consent by reason of politi- cal cross currents. In spite of its difficulties, howwer, this field of accounting affords opportunities for large pubUc service, and as our citizens gradually awake to the importance of the business problems involved in governmental functions the accountant is almost certain to exercise a widening influence. Of those accountants who undertake government service either by way of special engagement or to fill appointive or elective offices the profession must /evev demand that they maintain the highest stand- ards of professional honor and integrity. Such men are subject to temptations that do not in the same way assail men in other walks of life, and they are surrounded by difficulties that call for the largest measure of patience and of firmness. In order that accountancy as a profession may I i ACCOUNTANCY 39 assume the position of public usefulness that it should occupy, accountants must feel a responsi- bility resting upon them to act as leaders in public thought upon questions of honest finance and busi- ness morals. The accountant occupies a position that is at once intimate and independent from which he can view the questions of administration as well as the problems of finance. With a mind trained to observe and interpret significant factors in the course of business events, and trained also in the accurate expression of conclusions deduced, the accountant should, and I beUeve wdll, become increasingly a leading factor in the development of business morality and stability. But this result wall come only through the acceptance of full per- sonal responsibility and the constant cultivation of those habits of mind which lead unerringly to right conclusions. The accountant has no right to shirk his individual responsibility whether by hiding his identity under a corporate form of man- agement as in the so-called Audit Company, or in any other manner, but he should stand forth as a professional man seeking the honors of his profession and accepting the burdens laid upon him. Time has not permitted an extended discussion of the ethical requirements devolving upon the accountant in his intimate relations with his pro- fessional brethren, which in the last analysis fur- nish the surest index to the true character of any professional man, but emphasis has, however, been / 40 ACCOUNTANCY laid in passing upon the value of the good opinion of the members of the profession, the possession of which can be attained only through the constant exercise of right principles of conduct. An effort has been made to speak of at least some of the relations of the accountant to his clients and to the public, and of the ethical considerations attached thereto. What I have said will, I hope, be suggestive to you, and may I also express the further hope that the picture I leave in your minds of this new profession of accountancy is that of a calling by no means free from problems that may discourage or defeat, but yet a life of noble possibilities. In the realization of these there is need of ability coupled with indomitable energy, tact, and courage, and the rewards are to be found in the respect and confidence of the community and lu lUe conscious- ness of a life devoted to useful purposes a!..l lii^h uiruls. I LAWYER AND CLIENT In discussing the relation of attorney and client it is my aim to be practical rather than rhetorical. The subject has indeed its temptations. When we remember that it is one of the three sacredly con- fidential relations, classified under the phrases, priest and penitent, physician and patient, counsel and chent, and note with what zealous care the law puts a seal upon the mouths of priest, physician, and counsel as to information which they gain from penitent, patient, and client in the course of their ministrations in respect of the souls, bodies, and rights of those who ponfide in them, it is not easy to forego an attempt at oratorical flight. We are told, however, to resist the devil and he will flee from us. So I shall confine myself to the prosaic task of setting before you various rules which per- tain to the subject in hand. I want to send you out of this room, not with a hazy idea that the lecturer has made a fine speech, but with certain principles lixed in your minds so firmly that you will not forget them at a time when you may need to apply them in your own affairs. You are a l)0(ly of young men, fitting yourselves for the serious business of life. This lectiu*eship has been founded 41 42 LAWYER AND CLIENT for use, not ornament. A few of you may become lawyers, but the majority will be clients. Not necessarily in litigation. May Heaven spare you from the unsatisfactory fate of spending your time, your money, your nervous force upon a legal lottery. I have practised law for nearly forty years, and have had my triumphs as well as defeats, but it is my deliberate judgment, based upon observation of others as well as experience of my own, that litiga- tion is more than ever a toss-up. It is an old-time proverb that no one can tell what twelve men in a box will do. In these latter days a corollary should be added: Still less, what one man, or three men, or five or seven or nine will do on a bench. There is more disagreement between judges as to questions of law than among juries over questions of fact. A discussion of the reasons would take us too far afield. I have often wondered how the system^ of enforced unanimity by means of temporary im- prisonment and partial starvation would work if applied to appellate courts. You may be fortunate enough to be able to keep out of court, but you can hardly hope to be so lucky as not to be compelled to go into a law office. In a nation composed of some fifty different commonwealths, whose com- merce is not, but whose jurisprudence is, bounded by state lines, in a nation whose citizens are apply- ing the socialistic principle of associated activity as never before, the need for a lawyer at elbow is greater than ever before. Hence it is desirable LAWYER AND CLIENT 43 that you should be possessed of the rules of the game. My problem is to put before you those rules in a way that will be interesting, and it has occurred to me that this may be done if we work them out together in the light of actual occurrences. History has been said to be philosophy teaching by example. That is the reason why to most persons history is of greater interest than philosophy. These rules were not laid down in advance by enacting authority. At one time mankind was taught to believe that on a particular day at a particular place a particular man, by name Moses, received from the Creator of the universe certain tables of stone, on which had been engraved certain rules, called the Ten Commandments. This is not usual teaching now. In all probability no such occurrence ever actually took place except in spirit- ual vision. Like other rules of conduct, the ten commandments were the result of experience, which demonstrated their necessity long before the days of Moses. Morality is a matter of evolu- tion. Our subject is a branch of the Science of Applied Morality. Therefore, instead of my assuming the role of lecturer and speaking to you from the height of greater age and experience, let us get at the rules by imagining the various transactions which call for their application. This room shall serve as my office. I am at my desk; each of you is a client, 44 LAWYER AND CLIENT LAWYER AND CLIENT 45 who has come for a consultation. This personal way of putting things may smack of the egotistical, but it is adopted as the best method of bringing the subject home to you. Now, first of all, my dear sir, how did you come to me? Why to me, rather than someone else? The pertinency of this question may be illustrated by the following occurrence, which happened here in Connecticut. A farmer, served with a writ, went into town to employ a lawyer to defend him, and thinking one lawyer to be as good as another, dropped into the first office he saw and stated his errand. The lawyer looked at the writ and found his own name on it as attorney for the plaintiff and told the farmer he could not take the defence, The farmer then asked what he should do, and the lawyer replied that he would give him a letter of introduction to a friend. The letter was written, sealed and handed to the farmer, who departed. On his way to the second lawyer it occurred to him that it might be just as well to know what the one had written to the other. So he tore the letter open and read the following words: ''Here are two ^/m geese, I will pluck one and you can pluck the /' other.'' One day a woman walked into my office, a stranger without any letter of introduction, and wanted me to defend her in a suit. I asked her how she had come to me? She replied to the effect that she had seen my name somewhere. I told her this was a very poor way to select a lawyer, that she had no guarantee whatever that I would serve her either faithfully or well, and as she ought not to take me, I could not take her, without inquiry, and she must therefore bring me a letter of intro- duction. If a man should not put himself in the position of seeking the advice of another, without inquiry as to his experience and integrity, it is obvious that the lawyer's employment should not be the result of his own soHcitation. The business of advising another man is a deUcate and responsible matter. If I volunteer my advice, if I proffer my services, if I push myself upon your attention, what guarantee have you that I am worthy of your confidence? Thus we get the rule which should govern the crea- tion of the relation. Let it be called Rule I. The lawyer should be sought hy, and not a seeker of, the client, / The next question is, what are the facts upon which an opinion is needed? Is it not clear that if you do not tell me the facts as they really are, I can- not give you the advice which I really should? Let me give you an illustration which happened in my own office recently. A client of mine, a non- resident, was lately sued on a stale claim, growing out of transactions when he had hved in New York fifteen years ago. The statute of limitations, as to the morality of which I shall have something to say later on, was only a doubtful defense, in view of his removal from the State. He told me, however. kljl 46 LAWYER AND CLIENT LAWYER AND CLIENT 47 that he did not owe the money, and knew nothing about the claim. Relying on this, I put in an answer not only alleging the statute of limitations as a de- fense, but pleading a denial of the indebtedness. When it came to the trial, the plaintiff produced letters from my client written at the time, acknowl- edging the justice of the claim and promising to pay if time were given. The result was that the plaintiff got judgment for the full amount. Had my cUent told me the truth, my advice would have been to settle rather than fight. He thought that by deceiving his lawyer he might be able the better to deceive a jury. His untruthfulness to me cost him several hundred dollars, which might have been saved for him on a settlement. Thus we arrive at Rule II. The client should tell his lawyer the truth, the whole truth, and nothing hut the truth. That is what the cUent swears to do when he takes the witness stand. If it is his duty to tell the truth to the jury in public, how can it serve his interests not to tell it in private to his lawyer? There is, however, a qualification to be made at this point.' If a client is charged with crime, and is guilty, it is not to his interest to confess it even to his lawyer, and under the principle that no man is bound to criminate himself, he is not under a duty to do so. His defense will, however, be em- barrassed if his lawyer is in doubt as to his innocence. A guilty man must be defended by technicalities, and technicalities are the ruination of an innocent man. One of the most important responsibiUties resting on a lawyer in a criminal case is in advising his client as to going on the witness stand. Once I had that responsibility in a murder case. The prisoner stoutly denied his guilt, and I had no positive belief about it, one way or the other. The moment came when I had to advise him as to being a witness in his own behalf.. I was puzzled what to do, and finally told him that I did not know whether he was guilty or not, but he knew, and my advice was, that if he was innocent to take the stand, and if guilty to keep off. We need not spend time on this, for that none of you will ever be in such a predicament. The last rule requires another. It is the very foundation of such a relation, that whatever you say to me is confidential and under no set of cir- cumstances can I be allowed to reveal it. No argument is needed in favor of such a proposition. I cannot give you good advice unless you tell me truly the facts. You cannot tell me truly the facts, unless you know that your confidence will be re- spected. Thus, out of the necessities of the situation arises Rule III. A lawyer can neither be compelled nor allowed to disclose the communications, which his client makes to him in the course of a professional employment. This does not mean that all inquiry of a lawyer is barred, when he chooses to utter the If If 48 LAWYER AND CLIENT magical phrase "attorney and client." There is a difference between transactions of the client in the past, which under the seal of secrecy he tells his lawyer in order to obtain advice as to his conduct in the future, and present transactions carried on by both. The principle that no man can be com- pelled to criminate himself may protect each for himself, but it does not protect either against the other, as to doings of both, except in so far as that neither can be forced to tell anything against the other that would involve himself. The protection being personal, either may waive it, and if so, the whole affair be divulged. One of the best safe- guards against joint wrong-doing is that none of the wrong-doers have any guarantee that some one of them will not confess. Now it would be a queer sort of jurisprudence which would permit a man determined to perpetrate a wrong, alnd unable to do so w^ithout confederates, to hire lawyers as con- federates, and then be protected against their evi- dence by the rule that communications between lawyer and cUent are sacred. There is such misconception on this subject, both in and out of the profession, that I am going into it a Uttle farther. It is especially important, in view of the increasing employment of lawyers on boards of directorates. In a case some years ago, which attracted much public attention, a man who was both lawyer and director of a certain corpora- tion actually urged the professional relation of LAWYER AND CLIENT 49 attorney and client between him and a co-director as a bar to all inquiry as to their joint doings. Strange to say, he was upheld by the court. An incident in my own practice will illustrate the point, and show how a lawyer lost a case for a client through misconception of this rule. A couple of horses had been sent by their owner to New York for sale and placed at a certain livery stable. They were not sold for a year or more. The bill for their keep had mounted up, and when the livery man sold them he claimed that the proceeds of sale were not enough to pay his bill, and brought suit for the difference. His lawyer fell ill and I was brought into the case. The defendant's attorney served on me a demand for a bill of items, showing how much each horse had been sold for, the date of sales, and the names and addresses of the pur- chasers. My client asked me if he was required to give the information. I advised him that when one man sells another man's property, he must always tell, when asked, to whom, when, and how much. He then gave me names, addresses, dates and amounts, which I gave to the defendant's counsel in a formal letter. At a consultation on the eve of the trial, my client informed me that he had not given me the true names of the purchasers. I asked him why not. He replied that he did not want the defendant to go to them. I told him that that was the very reason why the law required an agent to give such information to his principal, 50 LAWYER AND CLIENT that he had put me in the position of having lied to the other side, and I would not have anything more to do with his case. So I gave him his papers and a consent for substitution, and sent him away. I had no right to volunteer to the other side the information that my client had been guilty of this deceit, but I supposed as a matter of course that the defendant, having ascertained that the informa- tion was false, would, on learning that I had with- drawn, put two and two together and infer my reason, and would subpoena me as a witness, to prove that the He was my chent's and not mine. I considered the question, and reached the con- clusion that my cUent's statement to me not having been given to me as a secret in order to enable me to advise him, but for me to communicate it to the other party, it was not privileged. The trial came off. I was not called. Meeting the other lawyer a few days after, I asked him the result, and he repUed that a verdict had been given for the plain- tiff. On my saying that I had supposed he would subpoena me to prove that it was my client who had given me the names, which I had transmitted, he replied that he thought that it was privileged. Of course I could not be allowed to testify to my client's second communication to me that his first was false. But to say that a communication, made to a lawyer in order to be told to someone else is privileged, is absurd. No client has any right to have his lawyer lie for him. Neither has a client LAWYER AND CLIENT 51 any right to engage a lawyer to join him in a crimi- nal transaction, with the expectation that the law will seal the lawyer's mouth. You can see how important it is to have right notions about the scope of this rule. It is known that members of legislative bodies are often bribed by emissaries of corporations. It seems to be generally forgotten, but years ago, a certain lawyer, now a distinguished man, was the lobbyist for a certain great railroad company, and his experi- ences as a go-between would throw a flood of light upon the way in which legislation is obtained or thwarted. He could not be compelled to criminate himself in respect of those transactions, but if he were willing to turn state's evidence, the rules which we are considering could not be invoked to stop him from criminating his cUents. As testators who have their lawyers witness their wills thereby break the seal of secrecy, so likewise do corpora- tions who make their lawyers directors. A lawyer cannot be a confidential adviser of a corporation iX and its director at one and the same time, for the purpose of shielding his client behind this rule. Having found your lawyer by a careful process of selection, having told him the truth as to the facts concerning which you wish his advice, having done so with the knowledge that he can never reveal them to anyone else, what is it that you ask from him? Do you want his real opinion, or do you want him to say something to please you? / 52 LAWYER AND CLIENT LAWYER AND CLIENT 53 You may want him to say a smooth thing, but what is it that you need? Let me illustrate. A client once consulted me as to his course in respect of his wife, from whom he had separated. My opinion as to what he should do was not what he wanted to do, and he grew angry at me. I asked him what he had come to me for, my opinion or his opinion from my lips; that as I understood it, he was paying for my opinion, and it was my duty to give what he paid for. He was not bound to take it, but I could not consent to let him pay for his opinion from my lips as if it were mine. He saw the point and his good humor returned. Thus we reach Rule IV. As the client must he sincere with the lawyer as to the facts, so the lawyer mnst he sincere with the client as to his opinion. But is the client to be bound by what his lawyer says? Not at all. His lawyer is not the court; he has no right to dictate what course the client shall pursue. 1 h is simply the adviser. His client como^ to get his advice, pays for it, and having oi)t:ii!if'il it can do with it as he can with anything else of hi- own. \ow just as it is liunuin nature U)V a fli' nt to gel angry if his law> rr\s advice is un|)alai:i})le, so a lawyer does not relish his advice l)oinu; rejected. A moment's reflection will convince u< that aim. !• « I! hi>^ part is equally out of place. Thus we g('i iliile W If a client does not act in accordance with his lawyer's advice, the latter has no right to he displeased. This in turn involves a correlative rule, which I can best bring out by giving you an actual case. Last year a lady called on me to take up a case for her which had been in the hands of several lawyers, one after another. She had grown dissatisfied with each of them and had made a change. I soon found that my advice to her was as likely to be dis- tasteful as that of my predecessors. So I told her at the outset that unless she was willing to be guided by it, I should have to ask to be reUeved from the responsibility of conducting her case. I told her that it was in a sad tangle and I could not undertake the responsibility of piloting the ship unless my directions were to be followed, and if she intended to order the pilot, she would hav^e to employ one who was willing to be commanded. So we parted on good terms. It is not, however, always necessary for a lawyer to take this position. It sometimes happens that it is quite compatible with his self-respect, and also with his responsibilities, if he continues in his chent's employ, even though his client may not take his ^ advice on all points. Every man must determine v such a question for himself. Yielding to a client does not always mean subservience. The question is whether in the lawyer's opinion it will imperil his chent's interests if he does not take the course advised, and whether the lawyer must stand re- sponsible for the course the client persists in taking against his advice. 54 LAWYER AND CLIENT LAWYER AND CLIENT 55 Hence Rule VI. The lawyer, though not always bound to decline to act for his client against his own judgment, has the right to do so, and the client has no right to be displeased at his lawyer if he takes the position that the client must follow his advice or get another adviser. At this point an interesting question arises. What part has morality to play in the advice which a lawyer gives? Take the case, to which I referred a moment ago, of the client who w\as sued on a stale claim. Have I any moral right to advise my client, who is sued on a just claim, that he can get out of it by pleading the statute of limitations, as it is called? That statute prescribes the time within which suits must be brought. To answer this question we must see what it is concerning which the di' nt asks the advice. Suppose you come to me and say you have been sued on a promissory not(\ to which you liave no defense, but which was pivon more than six year.- ago, and you say that you are not able to pay the (lol)t. but that it will injure you very much to have a ju(|u;m(Mit ani it. Its real ol)ject is to pro- tect honest men from the prosecuuuu of unjust claims, where the lapse of years has resulted in loss of the evidence on wliich tli< ir defense rests. The law mu^t, howtn-er, be geiiiTa! in u.^ icnns. It can- not >a\- tliat honest men shall not be, and dishonest men may he. sikmI after six y(\ir<. It can only say that nciileet to -ur -haU hi' a drtVn^c for aU men. Whether a [)arti(ailar man -liaU plead it, is left for each man to determine for himself. It is an im- moral tiling for a man not to pay his debts, if he is able, and it is his duty to do all in his power, so that he may he able, whether it be in one year or ten. Tlien^ are. however, eircum^tanees which morally justify a debtor in putting in the defense that the suit was not brought in time. There is no doubt as to the justifiabiUty, where he does not owe the amount as claimed. But even if he does, it may be justifiable for him to claim the protection of the statute. Each case is Uke a tub, and must stand on its own bottom. The lawyer should have suf- ficient moral perception to discern what is the right thing to do, the courage to advise his client to do it, and the abihty to help him do it in a way to bring peace to his client without loss of honor. The right-minded client will in the end thank him, and for the wrong-minded he should not care. I am free to admit that this gets very close to what is called a counsel of perfection. This again brings us to another rule. I have no right to take you by the throat and compel you to follow my advice. Suppose the client refuses to take it and insists upon the lawyer putting in a defense which is legal, even though it may be im- moral, must the lawyer refuse to do so? Do you not see how it would break up the w^hole system, if the moral responsibility for an action is taken from the shoulders of the client and transferred to those of the lawyer? The latter has enough load to carry already. He must know the law. To do wdiich he must have studied it for years and must keep abreast of the decisions by which it has been and is being developed. Otherwise he is not competent to undertake the responsibility of advis- ing another man. To saddle him with the moral 58 LAWYER AND CLIENT LAWYER AND CLIENT 59 responsibility for the client's action would be unfair to him and highly inexpedient in our scheme of government. And so we have Rule IX. The moral responsi- bility for conduct as the result of legal advice rests upon the client and not upon the lawyer except as the latter participates therein, in which event the lawyer cannot divest himself of responsibility for what he himself does. This hrin^^s us to the most important of all the question.^ wiucli arise between lawyer and client, liow far may a lawyer go in the prosecution or defense of a cliont's rit^hts? It is often popularly I,ut iihrv lias fa.-^hlon: Is it justifiable for a lawyer todef(ni(l a r-liont whom he knows to be in the wrong? WIkmi thus put there can b(^ l)Ut one answer. ^ A client has a ritions of fact to the jury, of the judge to decide those of law, of the jury to pass on those of fact, and lastly, of the sheriff to execute the judg- ment on tlie verdict. As a scheme for the admin- istration of justice and the settlement of quarrels in court, which the parties have not been able to settle out of court, it is the best ever devised by the wit of man. It only fails to work perfectly because the man on the stand, at the bar, in the LAWYER AND CLIENT 63 box, and on the bench, are fallible human beings, like the clients whose controversies they are trying to end. As the witnesses must not become advo- cates, nor the judge invade the province of the jury, nor the jury refuse to take the law from the judge, so the advocate must not act as a witness, or a judge, or jury. Hence no lawyer can properly decide whether the story of his client or of the opponent is in accord with the facts. But there is a prelimi- nary question which the lawyer does have to decide, and that is as to the merits upon his client's own statement. If on that statement his client has no cause of action, or defense, it is his duty to say so and advise against bringing suit or making defense. Whether it is right for him to go on, after giving his client advice not to do so, is a mooted point on wdiich I cannot say that the ethics of my profession are settled. I can only state Rule X, as I think it ought to be. A lawyer may properly defend a person against a criminal or civil complaint, even though he believes the client to be in the wrong, but should not have anything to do with the prosecution of a plaintiff's cause if he is satisfied that it is devoid of merit, or has any good reason to believe that the client, in stating his case, does not tell the truth. Under that rule, a custom wiiich is growing up of bringing cases for no other reason than to induce a settlement is most reprehensible. So also is the custom, in w^hich some lawyers too often indulge, of criticising in public an adverse decision of judge or jury. This 64 LAWYER AM) ILIKXT very morning's papers contain a vulc^ar diatribe l)v \\\c c-uiiii.-el for a murrer against the jury whidi rofiviftod him. Criticism of a judge or a jui\ IS riti;ht enough wlitMi made in the proper place and at the proper time. No lawyer of good stand- ini: \\ill ever permit his zeal for his client, or his o\\ II self-love, to betray him into a public railing at judge or jur} l^ecause of his defeat. I have alluded to confidence as the foundation stone of the relation between lawyer and client. I have suggested that the moment that stone is removed, the edifice tumbles. WTiat then is to be sai 1 about the right to terminate the relation? You have come into my office freely, are you free to leave? Is my office a web? Am I a spider? Are you a fly? \Mien you enter my door, are you bound to me forever? Am I bound to you? To ask such questions is to answer them. It is against jjullic pohcy to allow either lawyer or client to hold the other against his will. So sacred is this right, in both, that it cannot be overcome V)y contract. Pul)lic poUcy stands in the way. It may well be that where the services of a lawyer are of a cleriml nature, and he has been engaged on a salary for a specified time, he may not be discharged before the time without liability for his salary in full as in the case of any emi)loyee. But in res])ect of services as an adviser or in the conduct of a litigation, ehlier may terminate the relation without I)ringin2; himself under any lia- LAWYER AND CLIENT 65 bility for payment, or for unperformed service. Ignorance of this rule cost a certain suitor in New York not long ago twenty-five thousand dollars. He had employed a lawyer to prosecute a claim of $500,000 for five per cent of the recovery. Before the suit was started he concluded to change his lawyer, and employed another. When the latter collected the claim, the discarded lawyer brought suit for the five per cent, on the theory that his client had broken a contract and by reason thereof he had sustained damages in the loss of the five per cent. Marvelous to relate, he succeeded. The defendant's counsel omitted to call the attention of the court to the right of a client to change his lawyer at any moment on the sole condition of pay- ing him the reasonable value of his services to the time of the discharge, and the court overlooked it, as also the point that no contract by a lawyer for a share of the recovery is rated except as a measure for payment of services actually rendered. The suit was defended on the ground that no agreement of employment had been consummated, the jury found it had, and the lawyer obtained twenty-five thousand dollars as compensation for services w^iich he had never rendered. Although the judgment w^as affirmed on appeal, — the points as to public policy being again overlooked, — and although the lawyer- plaintiff was an eminent man, I do not hesitate to assert that his suit was w^ithout any justification either in law or morals. The reason W' ill more fully 66 LAWYI:K AM) CLII'XT appear uiil' i ih^ la^t rule which I shall give you. Meantime iluie Xi may be stated. The relation of lawyer and client may he terminated by either upon reasonable notice, without giving any reason. The next and last rule concerns compensation. Here again the best ethics on the subject can be found by observing the interests at stake. You come to me for advice, you want my real opinion, you have told me the truth, knowing that I will respect your confidence, you expect me to advise you sincerely, you then purpose to weigh my advice, and if it pleases you to follow it, and if it involves conduct on my part, you wish me to act, and if I am to do so I must do it with the sole eye for your interests, but in doing so must act honorably, to the court, to my opponents, to every one concerned. Now, the very fact that a man, not being a good judge in his own cause, goes to an adviser in order to have a disinterested man at the helm, presents a controlling reason w^hy a lawyer should not have any pecuniary interest in the controversy. His mind should be kept clear of fogs, for that he is to steer the course. Self-interest does affect us, as iron affects the magnetic needle. So it has been held from very early times that lawyers should not be allowed to contract for an interest in the contro- versy, whether as compensation for their services, or as an investment, or as a speculation. Fifty years ago in our State and in most other States this salutary rule was departed from, and LAWYER AND CLIENT G7 because that departure was not properly safeguarded, the scandals now known as the abuses of the con- tingent fee have sprung up, and our profession is grappUng with their deteriorating influences, from which we must rescue ourselves or we shall become a perfect byword and scorn in the nation. This is not to say that contingent fees should be aboUshed. They are a necessity. The subject is, however, too large to go into here, and I shall con- tent myself with stating Rule XH. The lawyer is entitled to reasonable compensation for his services, and should refrain wherever possible from agreeing that his compensation should be by way of a share in the recovery. Stress should be laid upon the phrase, ''reason- able compensation.'' It is still the law, w^hatever may be the practice, that the compensation must be reasonable. There is much ground for complaint of late years that amounts demanded for legal ser- vices are too often unreasonably large. The vul- gar commercialism of the times has affected the law as much as medicine. Neither of the two pro- fessions has any standing to taunt the other for demanding exorbitant sums for ordinary service. Only the other day I knew of a doctor who, after rendering a reasonable bill to a wealthy man for one thousand dollars for six months' services, and his patient dying two months afterward, sent in a bill to the executor for services of the same kind for the two months and put the amount at nine 68 LAWYER AND CLIENT thousand dollars. It was a case where the doctor knew that the family would not contest his bill, and he took advantage of the fact. There is no standard by which unusual service, involving a high quality of brain work, can be measured, and in such a case an eminent counsel or physician can charge what he pleases. Being in general demand, he may refuse employment, and the client or patient knows in advance that his services will be costly. But the average lawyer or doctor, who renders what may be called routine service, has no moral right to demand exorbitant sums for his work, even though he may achieve as good results as his more distinguished brother. The reason is obvious. When a leader of the bar is retained, the client has a guarantee that he is getting the best service pos- sible. He has no such guarantee if he employs an humbler man. Why then should he pay as much? Reasonable compensation in every case means the amount which is fair for a man of given standing in the profession. The ordinary man is too apt to think more highly of himself than he ought to think, and should be careful to abstain fr iis making charges, wiiicii are entirely proper lui a. Uiuu ui liigher standing. And now a word in conclusion, as to the necessity vi moral perceptions on the part of a lawyer. The less keen are the moral perceptions of n oliont, the more should be those of his legal adviser. FliC aim of the latter should be not only to get his client out LAWYER AND CLIENT 69 of trouble, but to keep him out. In the long run this can only be done if morality is brought into the business. No doubt there have been lawyers called great, who put moraUty aside in attending to their client's affairs, but they were not truly great. The honorable practice of the law tends to make a man's moral perceptions more keen, rather than to dull them. Law is, as I have said, applied morality, and if one is to be a useful professor in that science, he must himself have a knowledge of good morals and ability and courage to apply them in a given case. No wise lawyer will ever advise a client to pursue a morally wrong course, nor countenance him in so doing. No cHent in whose service an upright adviser can continue with self-respect will ever be other than thankful for sound advice. No advice can in the long run prove sound that has not a moral basis. Such are the ethics of my profession according to an ideal standard; and no man, who does not mightily strive to hold fast to his ideals, can hope to lead a life, which shall satisfy his soul. In no of]] or way can the hungry soul be filled. I)r ^^^" m m TRANSPORTATION CHAiiLES A. PROUTY I AM asked to speak for an liour upon the Etliies of Traiis|)(»rtati(jii. Since the only transportation of wliich 1 have any special knowkni^e is by rail- road, I shall confine myself to that. The steam locomotive was first developed and steam railroads were first built in l^nn otherwise. The coun- try was new and in process of dev(^lopment. Rail- roads were an absolute necessity. Attempts by the states to build and operate railroads had proved disastrous. \\m(^i\ if th(^ railroad was actually built and oi)erated, thcM'e was little inciuiry at first as to the method or even as to the charge made for the service. Olcott V. The Supervisors, 10 Wallace 078, in which the Supreme^ Court of the United States laid down the doctrine that the railroad was the agent of the government in the performance of this i)ublic service, was decided in 1873. In 1876 TRANSPORTATION 73 came the Granger Cases, affirming the right of the state to establish the charges \vhich a railroad ^ might exact for its transportation services. Never- theless, this idea continued to be economic and legal jl rather than practical. Until comparatively recent times our railroads have been not servants, but masters. Only when the abuses became so glaring and their effects so important that they could no longer be overlooked, did the public give practical effect to this principle. To-day both the several states and the United States do in fact exercise a considerable measure of control over the charges and operations of railroads. This public character of the railroad must be thoroughly apprehended. There can be no com- prehension of the right and wrong of these matters otherwise. The railroad magnate, potent as he is, must acknowledge in the government of the United States a master. The railroad employee, w^hile his first allegiance is to the company which pays him, should also understand that he owts a certain duty H to the public. Even more important is it that the people themselves should realize that these railw^ays are their servants; that as such they should not be impeded and oppressed, but fostered and assisted. Keeping, then, always in mind the character of the service, let us consider the building and equip- ping of the railroad, including the getting of the money therefor. It is probably true that at no time in the world's 74 TRANSPORTATION TRANSPORTATION 75 history ha? the mere i)c)ssession of groat wealth mven\o its possessor the relative distinction which it does to-day. Isaac of York was an individual of o-reat conse(iu(Mice in his generation; but he moved in a (Htlerent sphere and was accorded a different sort of considcn-ation from that which his lineal descendants in Wall Street to-day receive. If one had undertaken 50 year^ ago to name our famous men he would liave designated the orator, the statesman, the author, the man of science; seldom the man of riches. To-day our nulhonaires are the notable and influential members of society. It i^ their movements in which the people take interest and which tlv^ newspapers record. And fur this there is a very substantial reason. The wealthy men of to-day have, as a rule, acciuired their riches bv various kinds of industrial and com- mercial activity. They have built railroads, con- structed factories, opened mines, given employment to thousands. They have been the active factors in the wonderful material development of this nation in recent years. We are to-day the foremost power in the world because we are the richest and greatest wealth-producing country in the world. It is natural that the masses should deify those men whose operations have made us great. There is inborn in most men a desire for fame and power. It is altogether natural that a young man standing as you do upon the threshold of life should inquire in what sphere of action he can exercise the most potent influence, and that, so inquiring, his attention should be turned to those occupations in which great wealth has been accu- mulated. In no other business have so many great fortunes been amassed as in the railroad world. In no other sphere have these enormous accumulations come into existence almost by magic as here. Those who have made the beginnings in other fields have multiplied their possessions by their operations in railroads and railroad securities, and by all this the young man is attracted to this sphere of activity. Now, I would not by any word of mine discourage young men from embarking in railroad service. There is probably no better field. It is the most important of all commercial industries. The charac- ter of the service is such that a high grade of ability Jj is required, for which a high compensation is paid, v The calling is a most honorable one. The very fact that it is quasi-public in its character; that more than any other business it immediately concerns the lives and the property of the whole community, renders it an occupation of the highest grade. But the young man should thoroughly understand that the conditions of yesterday are not the conditions of to-day and will be still less those of to-morrow. He should not enter that service with the idea of duplicating the experiences of the past, if he is to square his conduct with any proper notion of right and wrong. 76 TRANSPORTATION The railroad is a public servant. Its only income is derived from the charges which it imposes for the performance of its public duty, and those charges should be reasonable. If a railroad prop- erty pays an extravagant return, it is usually be- cause its rates are unreasonably high. No young man, certainly, should embark in that occupation with the expectation of imposing upon the pubhc unlawful and unjust charges and of accumulatmg by that means for himself or his stockholders great profits. He may properly expect a handsome com- pensation for his own services and a sure return upon the investment which he makes; he has not the same right to obtain here as in private business extravagant returns. i ^ t -. Still more to the point is this thought: Long ago when I was just entering upon the practice of my profession up in Vermont, I inquired of a legal friend whether his brother lawyer who had grown rich in the profession had made his monejr^.b^ practice. My friend replied, ^'By his (^actie^ The great fortunes which have been accumiflated by our railroad magnates have generally come, not as the product of railroad building, but from the various practices which have been rife m the past. There has been the construction company, watered stock, consolidation, reorganization, the manipula- tion of the stock market, and so on. It is by sucti means that these enormous fortunes have been accumulated. TRANSPORTATION 77 Consider those English captains of the sea who roved the main in the days of good Queen Bess. Sturdy men they were. They turned a stream of gold into the coffers of England ; they made the name of English seamen respected in all quarters of the world; their own names are embalmed in history as the potent men of that generation. Were these same gentlemen conducting these same operations to-day they would be promptly hung as pirates. So with our modern captains of industry. They have been energetic men; their work has been of great benefit to our country. It may be that in no other way, for instance, could our railroads have been built; but none the less many of them have been pirates upon the sea of finance, and the methods which they have practised will not be tolerated in time to come. These changed conditions must be fully appre- ciated by the young man who embarks in railroad service of any character. Our railroads have, for the most part, been built. The work of the future lies in the enlarging and perfecting of our present systems. For that a different kind of ability is required. The railroad magnate of the half century to come should be more a railroad operator, less a stock manipulator. Bearing in mind these changed conditions, let me indicate some of the rules which in my opinion should determine the right and wrong of building and financing a railroad. 1. No railroad should be built which is not neces- y 78 TRANSPORTATION sary. In the past railways have been constructed for various purposes besides that of operating at a profit. They have sometimes been built for the profit to some construction company from the build- ing. They have sometimes been built for the sole purpose of invading the territory of a rival, and thereby forcing down the value of the property of that competitor, so as to compel either a consolida- tion, a lease, or a sale upon terms unduly advanta- geous. In my opinion all operations of this sort are morally wrong. We are not considering the ethics of competition. If an individual sees fit with his private capital to construct a factory which can be of no benefit to him except in so far as it works injury to his rival, that may be his moral right. Certainly, that pos- sibility was an incident in view of which the invest- ment was made, and, as a rule, only the private capital invested is interested. With a railroad this is entirely different. Here is a public institution. The property invested in that enterprise is entitled to a fair return, and this return is derived from the charges which the public must pay. Generally, that particular road alone serves a given conmaunity and if the service be inadequate the whole community must suffer. It is a fundamental proposition that whatever tends to enhance the actual cost of performing this trans- portation service is detrimental to the pubUc which is served. TRANSPORTATION 79 Let us assume a railroad serving a certain terri- tory. The business of that territory is sufficient so that this railway can be operated in an efficient manner at reasonable rates and with a suitable return to its owners. A second railroad is con- structed parallel with the first. The advent of this second carrier does not increase the total busi- ness to be done; it simply divides that business between two competitors. Those expenses of opera- tion, which may be termed the fixed expenses of a railroad, the maintenance of its way, payment of a certain part of its employees, have been increased twofold. Broadly stated, twice the capital is now invested in serving this territory which is actually needed. One of three things must result. Either the ser- vice will degenerate, or the charges will be increased, or the owners of these properties will receive an inadequate return ; generally all three of these things happen in a degree. In private business competition with all its harsh features seems necessary. In no other way can the public be protected against the imposition of unreasonable prices; but with the railroad the gov- ernment itself can fix the charge for its service, which is the price of this commodity, and can pre- scribe the character of the service, which is the quality of the commodity. In the popular apprehension the more railroads the better. Such is not the fact. Every unneces- 80 TRANSPORTATION TRANSPORTATION 81 sary mile of railroad is a damage to the public. Sound thinkers have long since recognized the truth of this principle, and even the popular mind is beginning to grasp it. In one state at least no railroad can be constructed until public authority after intelligent investigation has determined that the public necessity requires it. The time will come when positive law will generally so provide; but meanwhile, without the inhibition of the statute, the promoter of a railroad should recognize and apply this truth, and wilful failure to do so is, in my judgment, a breach of good faith. 2. Every railroad should be honestly built. By this I mean that the railroad when completed should not stand the company which owns it at more than the actual cost of its economical con- struction. ^ i • i This would seem to be axiomatic, and is only referred to because of the very extensive prevalence of the contrary practice. Numbers of railroads have been built for the sole purpose of enriching .,a construction company. Even when the work is done by the railroad corporation itself there is too often graft in every direction: commissions to purchasing agents, purchases from concerns owned by railroad officials, numbers of devices all of which go to swell the cost of the property beyond what it should be. i • ^ f Similar practices are prevalent in all kinds of private business; but find their fullest expression k in railway operations. The capital of a railroad corporation is usually larger, the stockholders are more numerous, there is not the same sense of direct responsibility upon the part of the official, and his act is not subject to the same scrutiny as in case of a strictly private enterprise. I beUeve that we are working steadily to a higher plane in this respect; but even to-day there is altogether too much of this character. These things will cease when the pubHc not only regards them as wrong, but treats as wrong-doers those who have grown rich by these means. When you brand a man as a malefactor in high place in the morning, invite him to luncheon at noon, and call him into counsel upon the state of the nation in the evening, the moral effect of the whole performance is weak- ened. With respect to all these operations to which\^! I refer, when men are not only termed malefactors! but treated as malefactors, the thing will stop. 1 3. The capital account of a railroad corporation X should represent the amount of money actually invested. No dollar of stock or of bonds should be issued which does not stand for a dollar paid into the property. I do not mean that a bond may not be sold for less than its par value; for that may be unavoidable; but so far as possible the character of the security should be such and the rate of interest such that the bond will be handled sub- stantially at par. The object should be to make the capital account of a railroad represent the money 82 TRANSPORTATION which has been actually paid into that concern by outside individuals. All those devices by which rail- road stocks and bonds are issued without a present money consideration are wrong. This subject is too broad a one for discussion here; but I may say in a word that the reasons which support this proposition are of two classes. The first concerns the investing pubUc. The capitaUzation of a corporation does not of course affect the value of the property of that corporation. The market price of the stock usually recognizes the difference between the real value and the capitaUzation. If the value were accurately known so that buyers and sellers of these securities might understand the relation between that value and the amount of the outstanding stock, there would be no objection from the standpoint of the investor to overcapitalization. Ill fact, the value of a railroad is not known; the cost of constructing it is not known; even the earn- ing power of the property is an uncertain quantity and has been, in the past, subject to much manipu- lation. Nothing has contributed more to the improper and iniquitous operations upon the stock market than the ability to issue, ad libitum and without present money consideration, railroad stocks and securities. Nothing would do more to lend cer- tainty to the value of railroad stocks, to take them out of the domain of the speculative security and make them an investment security, which they TRANSPORTATION 83 properly are, than the inability to so manipulate them. The second reason arises out of the public charac- ter of the corporation. We have already seen that the private property invested in the performance of this pubUc duty is entitled to a fair return upon its fair value. It is often said by railroad representatives that rates cannot be fixed according to the amount of capital stock of a railroad; and this is true. The rates of a particular railway are often determined by conditions which that railway does not control; but, upon the other hand, railway rates as a whole should be largely based upon the fair value of the property used. When, as to-day, there is a general assertion upon the part of railroads as a whole that their rates must be advanced in order to yield a suitable income upon the investment, it becomes material to know what is the fair value of this property. The amount of money actually and hon- estly put into the enterprise does not of necessity fix its value; but the highest judicial authority has declared that this is one of the important elements which should be taken into account. The one thing in this complex problem which can be known with absolute accuracy from now on is the amount which is actually invested in the enterprise; and that thing should be known. It is urged that in fixing railway rates the inno- cent holder of these watered stocks must be con- 84 TRANSPORTATION TRANSPORTATION 85 sidered; and the Interstate Commerce Commission has so decided. He has bought in good faith, without notice that his stock represents no actual consideration, and it would be an act of injustice to take from him the value which he has honestly purchased. If a railroad stock sells upon the market for S500 a share, that is in a measure notice to the purchaser that the charges of that corpora- tion are excessive. They may not be. The rail- road may be so situated that upon reasonable rates it can make earnings which justify this value; but, in a way, the man who pays that price does so with notice. The transaction is entirely different when he buys without knowledge a share of stock four parts of which are water and pays $100 for it. In time the origin of these railroad stocks is for- gotten an 1 the stock itself is dealt with as it stands. I liave l)(M II engaged for a dozen years in con- sidering how railway rates can be fixed so as to do justice between the public and the railroad. If I were to name to-day that thing which in my opinion w^ould be of the most consequence in time to come I should say absolute control over the capital account of this public servant. When no security can be issued by a railway company without govern- ment sanction; when all new stocks and bonds must be sold at the market price; when every dollar received from the sale of securities or from the operation of the property must be used in operat- ing or unproving the railroad itself, there has been laid the foundation for a structure in time to come which will afford one reUable indication of the rate which the railway should be allowed to charge. Mr. Harriman says, ''You may regulate my charges if necessary; but you should let alone my financial operations.'' The most conclusive answer to this proposition is the history of some of the finan- cial operations of Mr. Harriman as exhibited in testimony taken before the Interstate Commerce Commission. We come now to the operation, and I need not say here, as I did in reference to the building, that the strictest honesty and economy should charac- terize every transaction. In the past the railroad has been the fair mark for any kind of plunder. People who would not be guilty of the slightest dishonesty in their deaUngs with private individuals will cheat a railroad; and this same notion is more or less prevalent among the oflScials and employees of the railroad itself. That all this is radically dishonest ; that the same rule should obtain in the treatment of this pul)lic service corporation which obtains in dealings be- tween private individuals, needs no confirmation, and without spending time in commenting upon it I bring to your attention two matters in connec- tion with the operation of the railroad. It is, in the first place, the duty of a railroad manager to operate his railroad for transportation 86 TRANSPORTATION purposes and to use his railroad funds and his rail- road employees for no other purpose. Owing to the public character of the service, railways are particularly interested in the acts of the government. The legislature may determine the appliances which the railroad shall use. It may fix the hours of service of its employees. It determines the kind and the amount of taxes which shall be imposed. It may even establish the rates which the railroad can charge. Plainly, therefore, it is of great importance that the railroad shall be able to control the action of the legislature. For this it has efficient means. Its money re- sources are large. Its employees are numerous. In tlii i)ast it has been able to afford free transpor- tation, a most potent means of political influence, and 1} concessions in its rates to ronfor the most important advantages. Thi^ poTTil/ination of inducemcnl and means has IimI the railroail to take an activo intoro^t in politics. It ha- (^!iart(Mi statutes, apixanted judges, elected governors, and vvrw ])rc-it nnjust assaults. The private individnal may un(lonl)t(Hlly contribute to legitimate politi<'al campaign expenses. It is possible that a privat(^ (■()r|)()ration whose property is |)rivate in it- u-i' and v.h<)-(> will is that of the majority of its stockholders may i)roperly contribute TRANSPORTATION 87 i *Sllii ;| ill!' in like manner. It may conceive that its pecuniary interest is so far involved in the success of a political party or a political idea that it is justified in using its funds to assist the party or promote the measure. This is a matter the ethics of which I am not now discussing. The court of final resort in New York has held that it is not a criminal act for the officers of an insurance company to pay out of the funds of that company a contribution to one of the national political parties. However that may be wdth a private corporation, a railroad company has no right to use its funds for such purposes. That corporation by reason of its public nature stands in a way as a trustee for the whole people. The funds themselves come from the people. The function of this public servant is transportation, not government. Some time ago in the course of testimony taken before the Interstate Commerce Commission under resolution of Congress, in reference to the proceed- ings of the Standard Oil Company, it turned out that that corporation, among other practices, was accustomed to buy space in newspapers, for which it paid at advertising rates and which it was allowed to fill with news matter. Sometimes this paid matter found its way into the editorial columns. To my mind, among all the devious practices upon the part of that so-called trust which were revealed in that investigation, none was more dangerous than this. To permit a concern like that to fill y 88 TRANSPORTATION TRANSPORTATION 89 the columns of the public press with statements of fact and statements of opinion supposed to be from disinterested sources is to poison the very fountams themselves. A railroad may properly state its case to the pub- lic, and, under many circumstances, should use its funds for that purpose; but let it be in the open over its own si business and where it shall be done; where coal shall be mined; where flour shall be ground; wliere cities shall be built. Had T the time it would be prohtable and TRANSP(3RTATI0N 93 perhaps more entertaining than my present subject if I were to show you by actual illustration and in greater detail the truth of these statements. I must, however, ask you to accept my statement that in the rate is centered the interest, in the main, both of the public and of the railway. Every one w^ho has given even superficial con- sideration to the matter of railway charges knows that they present themselves in two aspects. There is, first, the inquiry whether the rates are too high for the service rendered, without reference to the charges made for other similar services; and there is, in the second place, the question whether the relation between the charges imposed for the per- formance of similar services with respect to different individuals or difTerent commodities is just. We will consider first what may be termed the absolute rate; finally, the relative rate. Those of you familiar with the De Officiis of Cicero will recollect that he suggests several in- stances in which the owner of property ought not to exact for its sale the highest price obtainable. Whatever may be your opinion of the cases pro- poimded by this philosopher, certainly the general rule is quite otherwise. The private individual may ask for his property or his services whatever he lists. They belong to him and he may keep them or he may dispose of them, and to whomsoever and for whatever he sees fit. Not so with the railroad, which must serve all €14 TRANSPORTATION persons alike, whether it wills or not • and which must make for those services a reasonable charge. Plainly, therefore, it is opposed to good conscience to exact a rate which is unreasonable or discriminatory. While this statement is unexceptionable in the abstract, it is extremely difficult of application ^ the concrete for the reason that it is most difficult to determine what is an unjust and an unreasonable railway rate. The government sometimes fixes the charge, and thus in that mstance determines the matter; but formerly in all cases, and to-day with respect to the bulk of railroad transportation the carrier is free to fix, in the first instance at least, its own rates. By what standard can the justice of those rates be measured? If a railroad was constructed for the purpose of transporting a shigle commodity between two given points and wa^ . ugaged hi no other service, an an.wor to Has question would hv comparatively easv It would ho pn-iMo to dcUTiuiiii' tlie cost of ihe Dhint and the exprn^. of the oprratioii and in that'wuy to arrivo with iva^onable sati^fartioa at aiti^t rate. In artual |u-arlire this is m no wise thp r.^.. llaih-oads <^rnrTally enga-o m the trans- p.,,ation of both pa..cng(TS and property, ancUhe pn.perrv in partinilar is offered in every variety of form and undrr all ronditions. It i- sonu^tnn.s hoavv and otlicr unies light; sometimes of ^n.it and 'at otl.r timo. of littl. value. In bv nu niean*^ fancilul. We were upon the brin!; of it in tlio fall <.f lOOH and tlie winter of 11K)7, when crops were rottini:: uf)on the ground because thev eouKi not he carried to niark(^t and wlien people were frcM'zing because coal could not be transported to keef) them warm. This pliase of the matter is luu liule considered. TRANSPORTATION 105 If this government hopes to continue its present system; if we are to look in the future as in the past to private capital for the providing of our railroad transportation, it is fundamentally necessary that confidence in the fair treatment of that capital shall be established. It is often urged that the proper way in which to produce confidence is by stopping the regulation of railroads. It is urged that their attempted regu- lation has only resulted in confusion and disaster and that it never ought to have been undertaken. This is nonsense. Whoever controls the highways of a nation controls that nation. Regulation was inevitable, and without it a state of anarchy would have resulted. There must be regulation, and that regulation must be complete and effective; but it should be just and intelligent. The problem is how^ to secure the right kind of regulation. The naming of a railway rate or a railway rule which shall be followed for the future is a legislative func- tion, but none the less it cannot properly be dis- charged by the legislature itself. In all its essentials the act partakes more of the judicial than of the legislative. The problem presented is a new one, recjuiring a new kind of machinery. The only feasible way seems to be to create a tribunal in the nature possibly of the present com- missions; to make that tribunal as able, as dis- passionate, as honest, as is possible, and to leave with it the solution of these questions. Any such 106 TRANSPORTATION tribunal will make errors on both sides; but in process of time it will become, so to speak, educated to its duties. Just as the courts of England, acting through a series of years, evolved our common law, so in time there will grow up a system of rules applicable to this subject which will be reasonably just to both parties. There is grave probability that within the half century liit liiitcd States must consider the ques- tion of takinir over the operation of its railroads. No (Uht r ( Minplt'te solution of many questions whirb pri>uiiL thriii- Ives can be suggested. The tindency ovorywhfTo i^ thrit way. Uihcr gu\criimeiils are continually lunyinn m Ihat direction, and novor in the other dirrrt iou. Sneh an nutlrrtakiiiG: would, L'owever, be a tre- nienduiis one. It i> nni certain that the result would be unfortunate; but the experiment would be hazardous. Fnr nnc 1 would be glad to see remilation fairly trltMl l.rfon^ ownership is resort (h1 to. To thi- (aid tl>cri' i< necessary, upon tlu^ ])art of the public, intclliir accompanied by an intelligent understanding, and the business of speculation more than any other bu^ine^s, I think, offers peculiar illustrations ot two difficulties involved in the discussion of any ethical problem: 1. The necessity of knowing the facts regarding SPECULATION 109 the transactions in question, and not being caught by well-sounding phrases. 2. The necessity after the facts are ascertained of interpreting them broadly in relation to the whole social scheme, — that is, of judging any social prac- tice, or arrangement, or institution in the light of its function. As an illustration of my first point, I may take the very prevalent saying, that to '^sell short," — that is, to sell that which one doesn^t ow^n at the time of sale, — is '^ clearly ethically wTong." This sounds reasonable to one not familiar wdth business because it carries the implication to the uninitiated that the seller has deceived the buyer, — that he was pretending to own something which he didn't own. As a matter of fact, of course, the transaction carries no implication of that kind at all. The seller simply agrees to deliver a certain article at a future date, the buyer knowing perfectly wtII that he hasn't the article at the time of sale but is in a position to get it before the time of contract delivery. The payment is made on delivery. For example, I am at the present moment engaged in the fulhlment of a '^ short" contract. Director Chittenden some months ago offered me a certain price for one lecture on the Ethics of Speculation, to be delivered May 27, in this room. I had no such lecture and he probably knew^ it, but I made the contract with no moral qualms. He had con- fidence that I would make dehvery according to W 110 SPECULATION contract, and I luid confidence that he wonld pay the price. In the same \va\- a contractor agrees to dcdiver on a certain date a house IniiU accorcHn.o; to certain specifications. Ih' of course owns no sucli house, but can build it m tlu^ meantime. It may be uri^ed tliat in th(^lement of lluct uating prices which is at the basis of all speculation, but is also closelv involved hi all l)usiness. 1 shall explain this more fully later, but will simply suggest liere in passing that no one would ([uestion the propriety of the contractor U'or the house just mentioned) l)uy- ing his stone, bricks, and lumber to be delivered at latter dates; nor the propriety of the dealers in selling them for such future deliveries, even if they liaveift them in stock at the moment. Manufac- turers are regularly selling goods ahead which they haven't yet produced. This explanation was ])(>rhai)s unnecessary, but was introduced here to illustrate the first require- ment in such a discussion, viz., that we should avoid subscribing merely to catch phrases without a more careful examination of thcar meaning. The second requirement suggested was that every social practice that is brouglit up before the bar of moral judgment must be given a fair trial in the light SPECULATION 111 i of the function which it performs. It was suggested at the outset that there is danger in making men callous to criticism w^hen things which they know to be necessary are subjected to continuous con- demnation. To this many people — especially, I think, young people — promptly reply that if a thing is wrong it is not necessary, — that to hint otherwise is to substitute a base standard of expedi- ency for a high standard of righteousness. On the contrary it is the very desire to avoid the easy resort to expediency wdiich makes this consideration , important. When wx are once convinced that for n\ the welfare of society a certain institution is neces- 1 1 \ sary for the performance of a certain function, we 1 1 \ cannot then be heard to say that it is inherently ' \ wrong from the moral point of view. The thing j | to be desired is that we shall not afford the man of business the opportunity of identifying whatever is profitable with the things that are necessary; but this is exactly what we shall do if we do not recog- nize what things are necessary. You wall see what I mean by considering for a moment the institution on which our whole economic fabric rests, — private property. There are certain writers who believe the institution to be profoundly immoral. The Frenchman Proudhon answered the question ''What is Property?" with the words ''Property is Ro])bery." Wiat effective answ^er is there to this criticism? Such an answ^er must of course rest on the necessity of private property to \\ 112 SPECULATION stimiihiti^ that effort and aceuiiiulation on which the nuitcrial welfare of soci(^ty depends. We can all see certain evil filatures in a s\stcni based on tlu^ private pursuit of wealtli by mdividual effort, l)Ut if w^e aiv convinced that the important function of feed- in^t; and clothin.u; society is best piM'fornied by this institution we cannot morally condenni it. Similarly we must examine the economic func- tion of the Stock Exchan >'ou a i)arrel of iiour buys of the wholesaler and sells to you. There i- a normal difference^ of price hetw(H'n these two markets and from that ditiVrence come what may be called strict mercantile profit <. If the I)rice of flour at '^ the Minneapolis mills n^niained uniform for a year, there would still be reason for the activities of the grocers, both wholesale and retail. In the same way, if the price of wheat on the Chicago Board of Trade remained uniform tlii^re would still be occa- sion for the mercliants to get the wheat of Dakota into the markets of England, and in both cases the regular profits of the middh^nan might be expected. There would be certain risks involved, but they would not be ripread price fluctuation. But, as a matti^r of fact, prices of wheat do not remain uniform for any length of time. They are SPECULATION 117 Ui affected by the changing conditions of supply and demand over the whole world; and their fluc- tuations are entirely beyond control and, in large measure, even beyond prediction. Here, you see, entirely new risks arise. Large extra gains may be secured if the price goes up, or severe loss may be met if the price goes down. The merchant himself is largely helpless before the speculative risks of this kind. It is just here that the speculator comes in. He trades purely on these fluctuations which occur in a single market (or in all markets at the same time). If he is a speculator on the Chicago Board of Trade, he buys wheat in Chicago for delivery at some future time in Chicago, if he expects the price to rise, or he sells short for delivery at some future time if he expects the price to fall. It is not the difference between the price of wheat in Chicago and Liverpool that interests him, so much as the difference in price between May and September. I Now the question is whether this is a moral or justifiable thing for him to do. Does he do any good to anyone, or perform any service to the busi- ness world by such transactions; or is he merely a y parasite who has arisen because of these dangerous \\y^ fluctuations? To answer that, you must first recognize that he is at least a product of these \ conditions; that is, speculation of a professional kind is the result of very actual risks of price fluc- tuation in the markets of the world. Some people \ lis SPECULATION / think that spectihition is tlio chief ratise of fltictu- ation prices, but the laet is just the opposite. It ^s the ihicttiation which catises the speculation. If this were not so, specuUuion could be started in any commothty at \viU. Such attempts to create speculation artificially have, however, always failed. When the i)rice of any connnodity is relatively stable over any considerable period of time specula- tion does not arise. You can see this at a glance by considering what conunodities are dealt in on ,Ahe spectilative exchanges, -— wheat, corn, cotTee, cotton,- /.c, tlu- conunodities in which the con- ditions of demand or supply, or both, are very un- certain, of a world-wide nattire, and beyond the control of any single group of men. The speculators, then, are, in the first place, tak- ing- real risks arising from real lousiness. By doing so, are they relieving any one else of risk, or are they simply ailding to risks already existing? If the^ latter is tlie case I could make no moral or economic argument in favor of speculation. But what happens is that through -his assumption of I risks the merchant and miller are in large part relieved of the risks which otherwise they would have to run. The risks are tlu^re; some one must take them. As they have increased through the widening of the market into a world market, — there has been a ditlerentiation of dealers into two . classes, merchants and speculators. Instead of all merchants being obliged to speculate to some extent, SPECULATION 119 a new^ class has arisen to speculate on a large scale. Let me explainj^riefly how _this speci al c1a>s.s.-Qf. speculators js .Enabled to carry the risks which otherwise woulclhave to be carried by regular merchants in the case of such a commodity as wheat. A merchant whose function consists in getting wheat from the hands of the producer into the hands of the consumer wishes to make a regular mercantile profit from the difference in prices between the tw^o markets. If he is a conservative dealer, he washes to avoid so far as possible the risks which arise from fluctuation in prices over a period of time. By the practice known as ''hedging" he is now^ enabled to avoid these risks nearly altogether. Suppose a wheat merchant wishes to buy w^heat in Dakota for export to Liverpool. Under the old practice he w^ould have bought outright, shipped it to Liverpool, and have sold it there perhaps two or three months later. In the meantime the market might have changed so completely that the trans- action would involve a great loss. On account of this possibility the wheat merchant was formerly obliged to buy of the farmer at five or ten cents a bushel under the regular market price. Now a mer- chant can buy wheat in Dakota and instantaneously sell on the Chicago Board of Trade an equivalent amount of wheat for future delivery. He does not intend to deliver his Dakota wheat in Chicago under this contract, but as before washes to ship M ■•?■ I I f f 120 SPi:( ULATION it to T/iverpool. This he can now do with a sense of security, and the moment he sells his actual wheat in Liverpool he covers his short contract on the (1iica nuTely a parasite upon it. Without the great specuhitive market the distribution of commodities and tht^ investment of capital would be creaily hampered. I have devoted so nuich attention to the function of speculation because it happens to be al)out the only line of Inisiness of great size which is wid(4y thought to be immoral in its very essence. One lecturing on the Ethics of Manufacturing or the i:thics of Publishing does not need to explain that these lines of business are in tliemselves n(H'cssary or legitimate. ^ / But if I have succcHnled in showing that^specu- / lation may be perfectly moral in some cases, the / problem still remains ofj he moral evils which it / incurs. In the first place it may be asked, are not Y /'the methods of speculation ethically indefensil)le?3lt / / is not possible to go into the details of the technical ' methods and rules of the exchanges, but a word may be said on three objections raised. / 1. Short-selling. I spoke of that at the outset and need only remind you again that it is not necessarily ethic:dly wrong to sell goods for future delivery which you do not own at the moment. If specu- lation is permissibU^ f(»r the rise, it is permissible for the fall, and in fact, if there were no short-selling, there would be no speculative market. The hedg- \ ing in the whcnit market which I described before \ would be impossible without it. In fact, the short- seller is a most valuable man in the market. It A is he w^ho checks the reckless plungers who would drive prices to the panic point, and who, if a crisis does come, supports the market by his covering ^ ; purchases. 2. The method of delivery. It is thought by many that the speculative exchanges adopt immoral practices in this regard because they provide a method which makes settlement of contracts pos- sible without specific delivery in each case. It is claimed that this is therefore not real business, but mere betting on prices. There is, however, so far as I can see, nothing inherently wrong in the method itself. It is no more than a system of clearing. Every contract requires actual delivery of the goods or securities, and no one can avoid making the delivery save by contracting with another party to do it for him. Neither can a man avoid receiving the property except by selling or lending it to another party. Such a series of contracts may go through a long line and all be settled by a delivery by the first man to the last, but that is not inherently wrong. It is nothing more than what takes place among the banks. I give my check to you for SlOO for goods delivered. It requires the payment of cash by the bank. You prefer to deposit it with your bank and the two banks arrange an offset because of a similar claim which my bank holds against yours. No cash passes at all, and yet no one would venture to say that this is not actual V2\ SPECULATION SPECULATION 125 business. Cash is paid only on the necessary bal- ances, and the same is true as to commodities or securities on the exchanges. 3. Margin speculation. Much evil arises from this, but in itself there is no moral taint to it. So far as the rules of the exchange for the brokers are concerned, they simply provide for the deposit of a certain guarantee against loss, which is common enough in all business. When he deals on margin he is deahng on l)()rn)\vod capjtalA— i.e., he supplies say ten pir cent of the i)urclil^^rice and hypothe- cates the stock l( .r i he other lunety per cent. This is dangerous, perhaps, but it is not necessarily ethically wrong. 1 may buy a piece of real estate for ?10,000 and pay (.nly's'ilHJO, giving a mortgage for the ])al- ance. This is not necessarily immoral, though it may V)e reckless, or not, according to the conditions. It is, ho\vev(^r, the same principle as buying on a margni. To conclude this very brief statement as to methods, it appears tluit a contract made by a l)roker in regular manner on a reputable exchange is a bona-fide contract, which cannot, because modern credit and clearing methods are used, be called immoral in itself. It begins to look to you, I fancy, as if the opening remarks regarding the cliapter on Snakes in Ireland were going to be reversed, and that instead of show- ino- that there are no ethics in speculation, I was trying to prove that there is nothing in the whole system contrary to ethics. Let us see where we have arrived. Speculation we have seen to be an inherent part of rnodern business. It is an inevitable result of ihe fluctuations in the prices of private property. Somebody must bear these risks. A class of specu- lators has arisen ready to assume them. Specula- tive markets with organized machinery are the I resuU- The forms of contract and methods o Settlement are in themselves not wrong, nor are they as a matter of fact different in their essence from the ordinary transactions of business. It is obvious then that the final ethical question is, — Who are these speculators and how far are they morally justified in their transactions? There are three types in the speculative market. First there are the men who, possessed of large capital, devote themselves to it professionally. It is their function in the economic system to buy and sell solely with an eye to these fluctuating values. They assume the risks which other men do not care to assume. Such business seems to me entirely legitimate, provided it is carried on according to y. the ordinary rules of business honesty. The un- /\ [ fortunate thing is that the temptation to adopt devious methods is very strong. The point lies just here: It is profitable under the present con- ditions of business to use all the shrewdness one has in forecasting conditions and buying or selling on a large scale in anticipation of them. Indeed, a big speculative deal, if successful, is likely to be / 126 SPECULATION beneficial, and if unsuccessful is likely to be harm- ful to the community. But of coursp the profit comes in in being the only on^e to be right. This may be done honestly by ) superior inteUigence and information. On the other \ fl hand it may be done by manufacturing false news, ' 'by bribing the financial columns of the gress, by starting "lake rumors and the like. The history of specuIatlonT is unquestionably rife with instances of this kind. It is questionable if anything has been learned in this regard in two hundred years. A curious book published in 1719, ''The Anatomy of Exchange Alley,'' gives many illustrations of the practice. There is little to be said about it, save that it is wholesale deception, condemned by the moral sense of all honest men. It would be as need- less to biiuw its iniquity as to show the iniquity of lying and bribery in general. All business can show instances of e\ il methods, and just as there are dis- honest nitrc'iiants and manufacturers, so there are dishonest speculators. Unfortunately in both cases tho di-honest soiiietimes rise to wealth and power. It is, however, I think, customary to exaggerate this side of the picture, and though we are far from havini!; risen to a state of perfection, 1 am confident C.J ^ that a higher standard prevails now than formerly. We see freciuent scandals in these days, but many of thenn would have passed as normal episodes of business in earlier times. The stock exchange, obviously, offers one source SPECULATION 127 of evil which is iinpossible on the produce exchanges. The"extent of so-called manipulation is less than is commonly supposed in any case. This is not because of the wickedness of it but because of its difficulty. Some brokers will tell you that all prices are manipulated, but this is not true. If it were, the making of fortunes would be too easy to be amusing. As a matter of fact the record of failures far exceeds the record of successes, and many a great manipulator has gone down to ruin from the mistaken idea that he could do what he pleased with his rival speculators or with the public at large. A young and foohsh speculator will tell you that the big men can do anything. An old and wise one will tell you that in nine cases out of ten the man who underrates the pubhc will meet his Waterloo. All this is especially true of the produce exchanges, because nobody can long control the price of any great staple. In the case of the stock exchange, however, a man may be at once the guiding manager of a corporation and a speculator in its securities. In this case he has a divided interest, — his duty to his stockholders and his desire to make stock-jobbing profits. His obvious duty is to manage the prop- erty as well as he knows how and to be scrupulous that the stockholders get the benefit of his manage- ment. He may choose instead to manage it in such a way as to make the price fluctuate wildly, and under his control, while making big personal profits on the exchange from his knowledge of what he ,!> 128 SPECULATIOX is going to do. There have been cases where a eorporati(Mi president has wantonly wrecked a great enterprise, and thereby ruiiunl or crippled thousands of stuckliolders because he was short of the stock of his own company. This is al^out the most dastardly form of dishonesty known to man. Compared with such a mampulatur u >ah'-breaker is a respectable and courageous citizen. Such men are rare, and no one had a t!;ood word to say for them. But there are other groat managers who, while building up the property they control, use the speculative market as a means of securing for their own pockets the gains that should go to the stockholders. Sup- pose a man keeps secret the results of his own management, covers up the increased earnings, and is thus enabled to secure at low prices the stock of many shareholders. Then when he is ready for the coup, he reveals the conditions, declares a big dividend, and on the great rise on price sells out again at high profits. He has not caused any posi- tive loss; he has built up instead of tearing down; but he has none the less, by the devious use of the stock market, put into his own pocket the increased value, which morally belonged to the owners of the property. This may be high finance and some people admire it, but it is contrary not only to morals, but to the simplest legal principles of trusteeship. The moment a company director speculates in his owm shares, he is in grave moral danger and legal danger as well. His business is to make money for SPECULATION 129 his stockholders and not for himself. To those of you who are destined to become industrial leaders of the future, I can give no more earnest injunction than on this point. The danger is all the greater because such conduct often wins the enthusiastic applause of the ^'speculative crowd" and of an unthinking public. Some of our greatest financial geniuses have been guilty of it. Regarding inside speculation, I can only say again that I am optimistic enough to believe that the market to-day shows fewer and less flagrant cases v«^ than formerly and that a higher moral standard of the duties of directors is slowly but surely making itself felt. It is not conceivable that the scandals of the old Erie speculation should reappear to-day, and it is not too much to hope that some of the manipulation that has recently taken place in a great transcontinental line would be looked upon by our 1/ new generation, when they come to deal with busi- ness affairs, as beneath the standard of a thoroughly honorable operator. You have read probably a^good deal in the press about so-called %^ashed sales^^^hich is one of the devices sometimes resorted^to by manipulators to create a fictitious price for securities. The practice ^ is thoroughly dishonorable and is absolutely con- trary to the rules of the exchange. In fact, these rules state that any member found guilty of such conduct shall be expelled. The practice, however, is not so common as is sometimes supposed and can 130 SPECULATION SPECULATION 131 ( ") only be successfully carried out in the case of inac- tive securities. It consists of employing one set of brokers to buy and one set of brokers to sell the same security. If the brokers on both sides are acting for the same principle, obviously it makes no difTer- ence what the terms of the transaction are, and orders can be so given that the price may be put either up or down for the time being before independent dealers come into the market. This may be done by entirely innocent brokers or may be done by actual collusion on the part of the brokers who understand what they are being used for. In the latter case of course the brokers are as guilty as the original operator. A second class of speculators consists of men of some means and some judgment who, while regularly concerned with some other business or profession, are inclined to use a small part of their means in the attempt to make a good turn in the market. That is, they are not content with mere investment, but wish a speculative profit from changing values. The question of the morality of these is a question of circumstances, — that is, it is primarily a ques- tion of how far they act sanely and within their means, and how far they are hindered in doing their full duty to their major calling. Suppose, for instance, that a physician who has an extra 82000 at his disposal, which he does not especially need, and the loss of which would not be greatly felt, sees a railroad about to be built in his neighborhood and thinks that the price of near-by timber land will surely rise. A tract is offered him for $8000, which he buys, paying $2000 down and giving a mortgage for the balance. He buys it purely for the specu- lative turn. The venture may prove to be success- ful or disastrous, but in itself can scarcely be called immoral conduct according to accepted business standards. Obviously what he is doing, however, is speculating in real estate on a margin, and it is not necessarily immoral for him to speculate in the same way in securities. The real question as to specula- tion by men of this class — and by men of this class I do not mean simply physicians, but business men or professional men who at times have surplus funds with which they can afford to take risks — is what are the ultimate effects of speculation by such peo- ple ? If a man can afford some chance and prefers to put his money into risky undertakings with a chance of greater profit rather than invest in the most conservative securities, there is nothing in- herently wrong in such individual action. The danger lies in his being led more and more into speculations of this kind which he cannot properly afford. As a rough test of the morality or im- morahty of such conduct, I suggest that you watch the effect of such a course on a man's attitude toward his regular occupation. If his mind is so much on his speculative ventures that he does not put his full time, energy, and devotion into doing the very best work in his chosen profession, he has y 132 SPECULATION ( h) overstepped the limits both of wisdom and of the highest standard of right. If, when he comes into his home or into his office at the end of the day and is more concerned to get the market report to see whether stocks have closed up or down than he is to see what work there may be for him to attend to in his regular business, he is then in grave danger of faUing into the third class of speculators, to whom I will briefly refer now. This third class is made up of the men who have neither the character nor the means to take chances of this kind. It is the great class of small gamblers who are feverishly trying to get rich quick. In this class we find the most damnable indictment of the whole system. The very perfection of the ma- chinery which has been adopted to facilitate trade also operates as a keen incentive to the gambling spirit. I have always contended that from the economic point of view there is a very sharp distinc- tion to be made between speculation and gambling ) in the ordinary sense of the word; but when specu- lation is carried on by men who have not the means to afford the loss wdthout serious injury to them- selves and their families, and who have not the judg- ment which is necessary for this most dangerous of all business practices, such speculation becomes gambling from the moral point of view. Unfortu- nately, because it assumes the form of legitimate trade, it offers an opportunity under the cover of respectability for men who would be ashamed to SPECULATION 133 take such risks in any of the ordinary forms of betting. The evil is greatly intensified by the exist- tence of the so-called bucket shops, where the trans- actions are gambling pure and simple. In bucket shops there is no buying and selling of actual prop- erty, such as takes place on the exchanges, but by holding out great inducements and accepting trans- actions on the smallest margins, these parasites on the legitimate stock exchange are responsible for untold evil. But even a large part of speculation on the stock exchange itself partakes in some measure of this character. The long fist of ruined reputa- tions, the long line of convictions for embezzlement, are a tragic witness to this fact. Let me at this point give you a warning, which, although it may seem to you entirely unnecessary, is — I am convinced — one which every man should seriously consider. You, young gentlemen, what- ever you may think of your abilities, are perfectly confident of your own honesty. You cannot imagine a case arising in which you would make a misappro- priation of funds, and yet I have known men who started in life with chances equal to yours, with ambitions like your own, with the same confidence in their own integrity, who have been ruined and even been criminally convicted under this tempta- tion. No man who occupies a position of trust |j should ever take the risk which comes from oncelj yielding to^ the stock-gambling temptation. 1 liave known cashiers and treasurers who started out with y / I I 134 SPECULATION perfect honesty, but thought that they were justified in ''playing the market" with their own means. The terrible result has been that when all of their own means have been put up in margins, and the market for the moment had gone against them, they were so confident that, if they could tide over a few weeks more, everything would turn out favor- ably, that under the pressure they were tempted to ''borrow" money that was not theirs, being sure that they could make it good (without any one being the wiser) the moment the market changed. At first, even in taking this step, they have convinced themselves that they were not stealing but simply making a temporary loan. The inevitable crash fol- lowed, and the men who had started out with such promise found themselves convicted criminals. You may laugh at the idea of niy asking you to take such cases to heart, but I assure you in all serious- ness that no young man who holds a position of trust of this kind and begins to speculate in stocks on margin is free from this terrible possi- bility. I wish to recall to your minds at this point what I said at the outset regarding the relation between immoral practices and the necessary functions to be performed by the business world. You will see that speculation of this third class, apart from the moral opprobiiiiiji attaching to the individual, falls under tEe^ondemnation of this broader point of view, since it is destructive of standards of work and snaps the ■ SPECULATION 135 very spirit of industry on which economic welfare depends. Such are the three classes of speculators and the problems which each has to face. It would be hard to draw the line in any particular case in passing judgment upon another person, but I am sure if you keep these facts and principles in mind, that your own consciences will be able to tell when you individually overstep the danger line. It is not possible within the limits of this lecture to go far into a somewhat different problem, namely, into the ethics of brokerage rather than the ethics 5F speculation. The Trokerr on the exchanges, although they may also speculate on their own accounts, are primarily agents acting for other people. A man may be an active broker and never indulge in speculation himself. One reason why the discussion of ethics of brokerage is less important is because in this case the law regulating the relation between broker and customer is on such a high moral plane that it may almost be said that a broker who obeys the law can feel pretty safe as to the\\ morality of his conduct. The standard which the W law requires of agents acting for principals is a >v higher standard than many self-appointed moralists are able to set for themselves. Let me, however, briefly suggest four points: First It is hardly necessary to tell you that the strictest obedience to the rules of the exchange and 1/ 136 SPECULATION SPECULATION 137 ;/ I" to the rules of law on the part of the broker is the first essential from the ethical point of view. It may be well, however, to add to this injunction that a broker has the moral responsibility of keeping free from the slightest suspicion in his own mind even where he may seem to be technically correct. I have already referred, for instance, to the prac- tice of washed sales. No honest broker would consciously engage in such a practice. On the other hand, it is possible that he may be an innocent party to it through not being informed by his prin- cipal as to what is in the wind. But it frequently happens that without knowing definitely that some such operation is being carried out, the very move- ment of the market is an indication that there is something suspicious in the situation. An honest broker, under these circumstances, cannot be satis- fied in saying that he knows nothing about it and is simply there to carry out his orders. He cannot continue to do business when even the slightest suspicion of such an arrangement rests in his own mind. Second, The law is perfectly clear on the point that where a broker deals for a customer he is to receive nothing but his commissions and interest on money advanced. Every bit of the risk of the transaction falls upon the customer and every jot of the profit is morally and legally his due. Some brokers think that it is entirely proper, when they have received an order to sell at a certain price, and are able to carry out a transaction by which a higher price is secured, if they spUt this extra profit with the customer. It seems so reasonable for them to argue that when they might have satisfied the cus- tomer by simply fulfilling the letter of his instruc- tions, and then by special intelUgence or exertion have done better than the customer expected, that part of the profit is their due. Such an argument is equally fallacious in law and morals. The broker would never expect to share loss, if the case were reversed, and he is not entitled to a single penny of additional remuneration for having used his very best ability in the service of his client. Third, Every broker should recognize the grave danger of engaging in speculation himself. I w not say that it is necessarily wrong for a broker to speculate on his own account, but I remind you again of what I have just said regarding the danger to any one in a position of financial trust. A broker is in such position. He is responsible for large sums of money put in his hands by his customers to carry out their business. Without doing anything strictly illegal for the time being, the broker may become so involved in his own speculations as to seriously endanger the cUents who have trusted him. Some- times this comes to a crisis which offers a very severe temptation. Suppose a brokerage concern finds itself in a position where it fears for its own solvency, and at this juncture large sums come in from customers, which the firm thinks may be ve / .ill / 138 SPECULATION adequate to pull them through and establish them on a solid basis once more. It seems so desirable to take the money of the customers under these cir- cumstances, and it is so easy to convince themselves that the customer is not being endangered thereby. The law is not as yet sufficiently stringent in the matter of prohibiting the receipt of further deposits by a concern which cannot at the moment make good its own obligations. But even an elementary sense of morality should make a broker prefer the disgrace of insolvency to the abuse of a customer's confidence. Fourth, This suggests that, strict as the law is in these regards, there are certain matters where the only safeguard of the business public is the adoption of the strictest ethical standard on the part of the members of exchanges afi* their goVernmg~fcrodies. There are some things which cannot be regulated by law and there are some evils which never can be adequately reached by legal process. Most of these can be eliminated by the recognition of a duty toward the public on the part of all persons engaged in transactions of this kind. I think the one thing most needed at the present time, to lessen the evils of stock exchange gambling, is a resolve on the part of the brokerage fraternity that they will not simply take the business of any customer who comes, in order to swell their own commissions, but that they will recognize it to be immoral conduct to accept accounts from persons whom they well know to be SPECULATION 139 running serious danger by their indulgence in specu- lation. The evils of speculation on a small margin are such that I think the stock exchange might properly pass rules requiring a larger margin than is now given, and in any case the individual members should, so far as is possible, make themselves familiar with the condition of their customers, and even at the expense of losing some conmiissions themselves, refuse to be a party to the reckless gambling which in many cases leads to such utter disaster. I hope that you young gentlemen will carefully consider the propositions which I have given you. If you become brokers yourselves, above all do not take upon your consciences the burden of having acted as an agent for men who were engaged in ruining themselves; and if you become speculators, keep always before your mind the awful spectacle of that third class which I have described, and the danger that would threaten each one of you that you may in turn become a member of its tragic ranks. / INDEX Absolute Rates, 93-99. Accountancy, basis for ethical standards, 17; functions, the extension of business and fair financial statements, 18; organization of, as a business, 22-24; value of the balance sheet, 32; municipal and gov- ernmental accounts, 37-38; as a profession, 39-40. See also Auditing. Accountant, province of coun- selor and judge, 18-19; essen- tial quahfications, 19; rela- tions to associates, 19-20, 39-40; to staff, 22-24; com- pensation and contingent fees, 27-29, 36; reading and study, 29-30; responsibility to public, 30-37; should avoid speculation, 36-37; as a leader of honest finance, 39. Accountant and chcnt, rela- tions, 20-27; candor and good faitli, 20-21; justice and con- sideration, 21, 32; trustee- sliip of interest and honor, 21-22; industry and ai)plica- tion, 22; responsibility in unimportant eases, 24; con- fidences inviolable, 25-26; re- sponsibility on witness stand, 2t)-27; eonfliet of opinion Actions at law, five roles in a lawsuit, 62; to induce settle- ments reprehensible, 63. Advertising, influence of adver- tisers on the press, 4; editorials versus business poHcy, 6-7; press standards improving, 7-8, 12; a case of money refunded to adver- tisers, 7; patent medicines barred, 7; news bureaus and "tainted news," 8; Repub- lican advertisements in Demo- cratic papers, 9; right of corporations to influence pub- lic opinion, 9; distinction be- tween news and advertising, 9, 10; honest and fraudulent advertising, 9; periodicals guarantee, 10; the vicious "personal," 11; influence of public opinion on advertis- ing liquor, cigarettes, and firearms, 11; buying news space for advertising, 87- 88. , '> between, 33-35. "Anatomy of Exchange Alley, mentioned, 126. Anecdote of the farmer and the lawyer, 45. Attorney and client. See Law- yer and client. Auditing, English and Ameri- can corporation law, 31; ap- 141 142 INDEX INDEX 143 pointmont of auditor, 31; value of baUmro shoet, 32; rights of futuiv st(H'kholilers, 33-3.3; languam' and ciualifi- cations in certiiicates, 35-30. Balance sheet, an expression of opinion, not of facts, 32. Bigamy, King George IV'd trial for, G(M)3. Bribery, of legislative Ixxlies, 51; of press financial col- umns, 12i). Brokerage, "wash sales" prac- tice. 121)-130, 135; high stand- ard required by law, 135-13ti; risk and profit belong to customer, 13t>-137; danger of personal speculation, 137. Brougham, Lord, famous state- ment of a counsel's duty, 01. Bucket shop, practices, 133. Business, cooperation and spe- cialization in modern methods 17-18; effective control de- pendent on good accounting, 18; railroad rates determine location and kind, 92; inad- equate raiUvMy facilities cause of industrial paralysis, 104; difference between merchant and speculator, 110; specula- tion inherent in modern, 125. Business and professional ethics, how determine standards, 10; esteem and confidence of col- leagues essential, lU-20, 30- 40; diff(T(>nt standards for professional and business men, 20-21; confidences inviolable, between accountant and cli- ent, 25-20; between lawyer and client, 40-50; morality versus legality in (}uestions of law, 55-58; cjuestion of defending a guilty client, 58-03; of lawyers, 08-00; hindered by misaiiplied con- demnation, 107-lOS, 111; knowknlge of facts and broad interpretation of functions es- sential, 108-113; duty of corporation manager to stock- holders, 127-129; moral re- sponsibility of brokers, 135- 139. Campaign funds, ethics of indi- vidual and private corporation contributions, 80), 87; railroad contril)Utions, 87. Capital, cannot be forced to make investments, 103, 104; confidence in fair treatment necessary, 105. Capitalization, of railroads, 71, 72; value of C()ri)oration prop- erty not affected by, 82. Captains of industry, pirates of finance, 77. Caroline, Queen, suit against George I\' for bigamy, 00- 63. Certificates, accountant's re- sponsil)ility, 32, 35-30. Cicero, cjuoted on prices, 93. Cigarettes, advertisements ex- cluded from press, 11. Circulation of newspapers, af- fected by society cohmm, 5. Cities, growth iniluenced by railroad rates, 92. Client. See Accountant and client; Lawyer and client. Coal mining, influenced by rail- road rates, 92; discrimina- tion in freight rates, 90-97; relative freight rates, 99. Commercial Ethics. See Busi- ness and professional ethics. Compensation, of accountants, 27-29, 30; of doctors and law- yers, 07-08; of brokers, 130. Competition, moral right of private capital, 78; of rail- roads disastrous, 78-80; in private business necessary, 79. Confidences, inviolable between aceountant and client, 25- 20; lawyer and client, 40-50. See also Privileged communi- cations. Contingent fees, affect relations between accountant and cli- ent, 27-29, 3(); Ix^tween law- yer and client, 00-07. Corporation lawyers, as direc- tors and the question of privilege, 48, 51. Corporations, advertising rights, 9; modern form of business administration, 17-18; period- ical audit of accounts, 31. See also Railroads. Criminal law, no man bound to incriminate himself, 40, 58; defendant as witness in his own behalf, 47. Criminals, treatment of wealthy malefactors, 81. Delivery, speculative exchange methods not inherently wrong, 123. Democracy, dependent upon journalism, 2. Denman, Lord, counsel for Queen Caroline, 01. Direct nominations, New York Sun's inaccurate statement of Hapgood's address at Albany, 2-3. Discrimination in railroad rates, absolute rates, 93-98; rela- tive rates, 99-101. Dividends, seven per cent rea- sonable railroad rate, 98. Editorials, not independent of business policy, 0-7. Embezzling. See Misappropri- ation of funds. Employees. See Railroad em- ployees. England, public character of railroads, 72. Erie speculation, referred to, 129. Ethics, standards of judgment, 1; of journalism, 1-15; cheat- ing a railroad, 85; division of society into two classes, 108; expediency versus righteous- ness, 110-111. See also Busi- ness and professional ethics. ■I 1 ** 144 INDEX INDEX 145 Faiiii> !- Mun. i\'Iiitivo po.-itioii oi [tiillionaircs, 71. Finance. Sec Kailroad finance. Fitzhfih.Tt. Mi>., marriage to Geonic 1\', liO. Flour millinf;, influenced hy railroad rates, 92. Fluctuaiion of prices, basis and cau^e of speculation, 110, 11 .V 11 s . 1 2.3 , by manipula- tion, 1J7. Freight rates. See Railroad rates. Futures, in business transac- tions, 110; in wheat specula- tion, 117, iil>-120. Gambling. See Stock-gam- bhng. Gas Company, right of adver- tising, 9. George I\'. King, trial for big- amy 'And prrjury. 00-63. Government accounts, reforms, Government control of rail- roads, supreme court deci- sions, 71. 72. 7:); influence on competition, 79; state 'on- trol of (■n!np''tiTi\"c railway building, SO; ju.stirr in fixing rates, S4; rates ver.-^us finan- cial operation.^, So; rates, hours of servic(% and appli- anct-s, S(); manner of earnings regulated, Ss; cannot force capital to invest, 103, 104; juilicial not legislative prob- lem, 105. (lovernment ownersliip. forced 1>\ inadecjiiat*' facilities, not excessive charges, 104; grave probability, lOti. Graft, in railroad building, 80- 81. Granger cases, Supreme Court decision, 73. Ilapgood, Norman, New York Sun's inaccurate report of Direct Noiuinations speech, 2-3. Ilarriman, E. H., opinion of government regulation, 85. Hedging, to avoid risk, 119; de- pendent on short selling, 122. High finance, immoral, 128. History, philosophy teaching by example, 43. Industrial conditions, misrepre- sented in newspapers, 3; in- fluence of great wealth on material development, 74. Industries, influence of railroad rates in upbuilding, 92; r.iil- road's power over natural advantages. 1(^0. Inside speculation, IJ7 129. Insurance companies, exclusion of fraudulent a; court decision on eanip.iigu funds, 87. Interstate Commerce Commis- sion, watered stocks decision, 84; Standaid Oil ( o. proceed- ings, s7: Mr. iliU'- testimony on dividends, 98. Investments, railroad stocks and securities, 81-84, 98; railway investment cannot be with- drawn, 102-104; capital can- not be forced by legislation, 103-104; versus speculation, 82, 120-121. See also Secu- rities. Isaac of York and the modern idea of famous men, 74. Journalism, 1-15; responsibility for statements, 1, 2; demo- cratic government dependent upon, 2; interviews forged entire, 3; proper and improper suppression of facts, 3-4; influence of advertising, 4, 6-7; accuracy sacrificed to interest, 4; privacy, pubUcity, and circulation, 5; catering to popular demands, 6; edi- torial policy not independent of business policy, 6-7; hmit of responsibility in printing both sides, 10; greater free- dom of political thought, 13; influence of college men, 14- 15; bribing financial columns, 126. See also Advertising; Yellow journalism. Journalists, professional etliics changing, 12. Judges vs. juries, province in a lawsuit, 62, (J'S; criticism of. by counsel, ()3. Land grants to railroads, 72. La Voisier, murder trial, oi). Law. See Criminal law; Eng- lish law; Technicahties in law. Lawsuits. See Actions at law; Trials. Lawyer and client, confidential relations, 41, 64; choo'^ing a lawyer, 44-45; duty of cUent to tell the truth, 45-46; con- fidences inviolable, 46-47; question of privilege, 47-51; duty of lawyer in giving opin- ions, 51-52; client not bound to act on advice, 52; position of lawyer if advice is rejected, 53 ; legality versus morahty in giving opinions, 54, in advis- ing action, 55-56; where moral responsibility for action rests, 56-58; question of defending a guilty cUent, 58-63; coun- sel's duty stated by Lord Brougham, 61; riglit to ter- minate relations, 49-50, 53, 64-65. Lawyers, criticism of judge and jury reprehensible, 63; neces- sity of moral perceptions, 60. Lawyer's fees, compensation for unperformed services, 64-65; contingent fees, 66-67; rea- sonable compensation, 67-68. Legislation, obtained by bribery, 51. Liberty of the press, personal privacy versus publicity, 5; popular demands and press responsibility', 6. 140 INDEX INDEX 147 LimitMtions. See Statute of lim- itations. l.iiniliMl liability, to reduce ritik lu capital, 121, Mapazine^. S(h^ Periodicals. Manipulation of prices, nuth- ods. r2<>-130; by corporation officials, 128-129. Margin .^peculation, iint nccoa- siuily inunoial. 121, 131; lf:\, 127. Professional ethics. Se<' Busi- ness and professional ethics. Profit, fair and unlawful rail- way, 76, 83, 101-104; ethics of tra(Ung for, 112-113; in speculation, 125-126. Prop(^rty, economic functions, 111-113; speculation risks, 115. Proudlion, views of property and tiie stock exchange, HI, 112. Public Accountant. See Ac- countant. Public service corporations, ad- vertising rights, 9. See also Railroads. Publicity versus privacy in the press, 5. Railroad and state. See Gov- ernment control. Railroad building, various pur- poses besides operating at a profit, 78; graft in construct- ing, 80-81; opportunities for real estate speculation, 130- 131. Railroad employees, duty to public, 73, 89, 90, 91. Railroad finance, capitalization, public and private sources, 71, 72; fair and unlawful profits, 76, 83, 101-101; real value and capitalization, 81- 82, 98; speculation versus investment security, 82; ac- tual investment does not fix value, S3; watered stocks and the remedy, 84; seven per cent, dividends sufficient, 98; to impair value of stocks would punish innocent people, 102-103; extension and im- provements demand capital, 103; capital cannot be forced by legislation, 103-104. Railroad management, pohtical activity and influence, 85-87; legitimate newspaper adver- tising, 88; relation to the pubhc, SS-91; power of the voters, 90, 91; appeal to courts against legislatures and commissions, 90, 01; direct appeal to the people, 91; uncertainties of expense and volume of business, 99. Railroad rates, government reg- ulation, 72-73, 84, 86; com- petition increases, 79-80; based on fair valuation, not capital stock, 83; question of ethical limitations, 91-98; absolute rates, 93-99; discrim- ination unjust, 93-94; deter- mination of just standards, 94-96; '^what the traffic will bear," 96-98; provide for improvements of property, 98; relative rates and dis- crimination, 99-101. Railroading, opportunities and temptations as a calling, 75- 77. Railroads, public servants, 71, 76, 88, 101; ethics of build- ing and operating, 70, 77- 85; original idea of a public highway, not feasible, 70; 148 INDEX INDEX 149 pul)]i" << rvico but priviito capilul, 7()^-7J; (in i'"^' )' ' ' >^ 1^3, 1V4 ! ^T■ J>*i COLUMBIA UNIVERSITY LIBRARIES illM 1010663592 I M 1 i I / u