ceiving any protests, at the time, from stockholders and creditors injuriously affected by these transactions.

We have done very little in the United States in the regulation of the capitalization, or the other conditions of promotion, of ordinary industrial corporations. Some states, however, now exercise a fairly rigid control over the new security issues of railways and other public service corporations. This regulation, however, does not have as its primary motive the protection of minority stockholders. It is to be interpreted as part of a general attempt to limit the earnings of such corporations to a fair return upon a reasonable capitalization.

It has been suggested 1 that in order to guard against the very prevalent misunderstanding of the real nature of corporation shares, the "dollar mark” should not appear on them, or, in other words, that they should have no "par value." They would then become, in form as in fact, merely certificates of the ownership of certain fractional equities in a corporation's business. There is much that is attractive about this proposal. If the issue of securities is to be as unregulated as it has been in the past, it would be better to make it impossible for investors and the general public to attach any fictitious importance to the amount of a corporation's capitalization. But if we are to have the regulation of promotion and capitalization that we need, there would be nothing gained by the change suggested. And the "dollar mark" on stock certificates is convenient in many ways.

Form of Capitalization. A significant feature of recent development in corporation finance is the multiplicity of types of corporate securities. It is no uncommon thing, for example, for the equities in a railway corporation (in addition to the floating debt, or accounts payable) to be divided among a dozen or twenty varieties of bonds and two or three varieties of stock. This multiplicity of securities is of advan.age to the corporation in that it enables it to offer to investors and speculators a carefully graded assortment of risks, and this makes the total selling value of a corporation's securities greater than it would otherwise be. This complex kind of capitalization has, however, some undesirable features. If the owners of a particular securitythe common stockholders, perhaps control the corporation,

1 Most recently by the very able federal Railroad Securities Commission of 1911. The state of New York now permits the issue of corporate shares without par value.

they may desire to increase the value of their securities for speculative purposes by the payment of unearned dividends, a proceeding which would be opposed to the interests of the holders of all the other securities of the corporation. Or the holders of preferred stock may wish to put some of the earnings of the corporation back into improvements in its plant, so as to safeguard its future earning capacity, while the holders of common stock may prefer that all the earnings be paid out in dividends. Moreover, in cases of insolvency and reorganization, it is a difficult matter to untangle and to adjust equitably the rights of the holders of the different kinds of securities.

In times of prosperity corporations often pay for extensions of their plants from the proceeds of bond sales, because it is estimated that the earning power of such extensions will more than suffice to pay the interest on the bonds and will afford a handsome surplus for the stockholders. Corporations thus accumulate in prosperous times an unwieldy load of fixed charges in the form of interest on bonds, a fact which is apt to be a source of difficulty in less prosperous years. In periods of financial stringency these fixed charges are a common cause of insolvency, receiverships, and consequent reorganizations, from which the bondholders are apt to emerge as stockholders, and in which the stockholders are apt to lose their holdings. The legal restriction of the securities issued by any one corporation to one kind of stock and three or four varieties of bonds is both feasible and desirable. Nor should the bonded debt usually be allowed to exceed the amount of the paid-up capital stock.

Corporation Management. -The management of business corporations is, as a rule, in the hands of boards of directors, elected by the stockholders from among their own number. The details of management are in the hands of officers, chosen usually by the directors. In principle this system achieves something like representative government of the affairs of the corporation. In practice, in the larger corporations, some of the directors are apt to be "dummy directors," - men exercising no real power or responsibility, made directors in order to complete the number prescribed in the charter, or are the representatives of great

financial interests, and often of competing interests. Directors of this latter sort are not primarily concerned with the management of a corporation in the interests of its stockholders and bondholders. They are directors for the purpose of guarding special interests, and in many cases for the purpose of preventing competition from becoming anything more active than an armed peace. In some cases the real direction of a corporation's policies is in the hands of an " executive committee " or " finance committee" of three or more directors representing the person or persons in actual control of the corporation.

The proper adjustment of the rights and duties of the various members of a corporation is a matter of general public concern. This is partly because the shares in a corporation are freely transferable. A new member cannot protect himself by making special contracts with the other members, but must accept the conditions fixed by the by-laws of the corporation and by the laws of the state which chartered it. Moreover, the ordinary shareholder in a large corporation has little opportunity to participate in any way in the conduct of the affairs of the corporation, even for the purpose of protecting his own interests. The general theory upon which the law of corporations is based is that the corporation is a democracy with a representative government. That is, the directors are supposed to represent the interests of the stockholders. For many small local corporations this theory undoubtedly corresponds fairly well with the facts. But large corporations, with hundreds or thousands of stockholders, living in different parts of the country, and even in different countries, cannot accurately be pictured as representative democracies. Outside of a group of holders of large blocks of stock, the stockholders, whether a minority or a scattered majority, are likely to be not only powerless but voiceless. It is difficult and probably undesirable to change this general situation. The growth of large corporations means necessarily the growth of widespread participation in large business undertakings. But the participators, whether stockholders or bondholders, are to be regarded as investors rather than active partners. What is needed in our corporation

statutes, therefore, is a frank recognition of this situation. In many cases directors cannot, in any real way, "represent the stockholders. For this reason their responsibility as trustees for the stockholders should be emphasized in our laws.1

Advantages of the Corporation as a Form of Business Organization. From the point of view of the business man the corporation presents decided advantages over the partnership for all undertakings of considerable size. Some of its points of superiority are: (1) Stockholders usually have no personal liability for the corporation's obligations except so far as the full par value of their stockholdings has not been paid up.2 (2) The relative permanence and stability of the corporation are of decided advantage, especially in undertakings requiring large investments of capital in relatively fixed and permanent forms. (3) The concentration of executive power in the hands of directors and officers leads to efficiency in management. (4) The transferability of corporation securities makes it possible for stockholders to enter or leave the undertaking at pleasure. (5) The division of the securities into small units and into different grades and classes affords opportunities to all kinds of investors, the small and the large, the conservative and the venturesome. (6) All of the advantages named make it easier for the corporation to attract and to use efficiently large amounts of capital, furnished by many different investors. Social Aspects of the Growth of Corporations. That corporations do possess desirable features, from the point of view of

1 On this account the recent development of "express trusts" as business organizations, especially in Massachusetts, is of particular interest. These have "trust deeds" in place of articles of incorporation, "trustees" in place of directors, and "beneficiaries" in place of stockholders. In simplicity, adaptability, and in the protection of investors and creditors, this form of business organization has some real advantages over the corporation. But it has not yet been subjected to adequate public control, and there are some minor difficulties in its working. It may prove to be, however, the germ of an important development in business organization.

2 Exception should be made of banking and insurance corporations, in the case of which "double liability" on the part of the stockholders is common. A few states impose some measure of personal liability upon the stockholders of all corporations organized under their laws.

business interests, is a fact clearly evidenced by the unprecedented growth of this form of business organization. In the main, efficiency for business purposes, for money-making, means efficiency from the social point of view, productive efficiency also. But, nevertheless, the two points of view are not identical, and what is desirable from one point of view is not always desirable from the other.

The gap between money-making and service to society (never quite identical things) is distinctly widened when those in control of a corporation's policies subordinate the profits to be obtained by the sale of its products to the profits to be obtained by speculation in its securities. Many of our greatest corporations are directed by men to whom fluctuations in capital values (as represented in the prices of securities) are a much more important source of personal income than are the net earnings of such corporations. The payment of unearned dividends, the nonpayment of earned dividends, the direction of a corporation's policy for the benefit of the holders of one kind of security among the different ones issued by the corporation, the effecting of corporate combinations and reorganizations that will affect the stock exchange rather than the produce market, these are some of the more obvious results of the unfortunate relation between corporation management and speculation in corporation securities.

It should also be noted in this connection that the growth of corporations is bringing with it a subtle but very significant change in the nature of the institution of private property. So far as a large and increasing proportion of productive wealth is concerned, we are losing that direct relation of ownership between men and goods which Arthur Young had in mind when he said, "The magic of property turns sand into gold." We often have, instead, several layers of corporation securities interposed between the ultimate owners and the ultimate objects of ownership. The effect of this will undoubtedly be to bring about the more thorough domination of business principles in the business world. Sentiment, the honored traditions of long-established firms, the "pride of ownership," the joy of workmanship (which may be felt by the employer who turns out a good product, as