pany incur certain obligations, varying in stringency with the legislation in force, with regard to the preparation of a balance-sheet, the terms of their "prospectus" or invitation to the public, and other such matters.

84. Economic Features of the Joint-Stock Company. In what we may regard for the present as the typical joint-stock company-such a concern as one of the big English railway companies-the system operates to produce an almost complete divorce between the control of the business and the ownership of the capital embarked in it. The direction of general policy is left almost completely in the hands of the Board of Directors, remunerated by fee, some of whom may only give a small portion of their time and attention to the affairs of the company, while others-in England the Chairman and one or two more bearing the title of Managing Director, in America the President-are expected to devote to its service a large part or even the whole of their business energies. The detailed operation of the company is in the hands, under the directors, of a salaried general manager, beneath whom, works a hierarchy of salaried officials. It is true that the shareholders have the right to attend meetings and to vote upon proposals put before them by the directors, and on occasions they may take more or less coherent measures to protect their own interests. In some companies there are one or two eccentrics who can be relied upon to cut up rusty at general meetings and complain that they have been betrayed; in many there are shareholders of business experience who take a serious interest in the company's affairs, and exercise some sort of check, even if only of a latent and negative

kind, on the actions of the directors. But in the main the positive government of the company is left in the hands of the directors and under them of its salaried staff.

Two or three influences which help to increase the concentration of power in the hands of directors are worth particular notice. First, the prevalence of the joint-stock system has brought investment to a fine art: it is the aim of the investor to distribute his risks widely, so as "not to have all his eggs in one basket." In consequence, not merely is every considerable company owned by a number of different persons, but every considerable investor is part-owner of a number of different companies; and it is out of the question that he should give any great measure of thought and attention to them all. Secondly, in many businesses secrecy is still, or is still thought to be, an important factor in success; and when the business is a company it becomes necessary that secrets should be kept from those who own them, since otherwise, by the purchase of a small share, a member of a rival business could easily gain access to them. Thirdly, if the directors are going to be responsible for policy, they must have the means to carry it out; it therefore falls largely within their discretion how far the profits of the company are distributed as dividends to shareholders, and how far they are set aside in one form or another of reserve fund. Thus there emerges a new and very curious form of differentiation, the full implications of which have not yet been generally grasped-the division of function between those who take decisions about saving and those who undergo the abstention from present enjoyment which saving involves.

The main economic merits and defects of the jointstock company as compared with the private firm are fairly obvious. On the one hand, by concentrating the savings of many in the hands of a few, it makes it easy to reap the advantages of large-scale organization to an extent which without it would have been quite impossible. Further, the joint-stock company does not die: thus, not merely are the tiresome legal rearrangements involved by the death or retirement of a partner in a private business avoided, but there is a much better chance that the energy and vitality of the whole concern will survive that of any individual member of it, however prominent. Finally, by offering an honorable and successful career as a salaried official to persons without capital or connections of their own, the joint-stock company mobilizes in the service of industry much business ability which might otherwise have remained undiscovered or undeveloped.

On the other hand, there is reason to think that a company, especially as it advances in age, tends to become less elastic, less adaptable, less strenuous than a private business. It is apt to suffer in an acute form from the defect of all large organizations, that many things have to be done in accordance with a stereotyped routine which might be better done if they could be left to the unfettered decision of the moment. That the system should be workable at all is evidence of a very great advance in the standards of business integrity; the deliberate deception and plunder of shareholders has become rare, and, whatever may be said of some of the more ornamental members of Boards of Directors, the whole-time officials of a typical company do appear on the whole to administer its affairs with about as much

thought and zeal as though they were the sole owners of the concern. But the very fact that they are in the position of trustees for others, and take that position seriously, has its disadvantages. A trustee is bound to abstain from taking risks with other people's money which he would take with his own, and there is a danger therefore of the policy of a company becoming less enterprising and more stagnant than that of a private business with regard to such matters as the adoption of new technical methods and the organization of new markets. And there is said also to be a contrary danger that a large company will pursue in some directions too ambitious a policy, for that out of vanity or desire for promotion its officials will press for the integration of subsidiary processes which would better be left in the hands of separate firms.

85. The Machinery of Investment.-Stock Exchanges. The growth of the joint-stock company of the type described above, while it has led to a further concentration of industrial power in the hands of a relatively few individuals, has led at the same time to a great diffusion and democratization of the rights and risks of ownership. The proportion of the population of a modern country which can be called in any serious sense capitalists is still small: but it is larger than it would be if everybody aspiring to become a capitalist had to set up in business for himself. The machinery of joint-stock does at least provide an avenue by which the saver of a few dollars can, if he chooses, acquire rights of ownership over the most complicated and expensive instruments of production. And this avenue is made broader by the existence of three devices which

can conveniently be considered together the limitation of liability, the grading of industrial securities, and the emergence of organized markets on which these securities can be bought and sold.

Under the

The man who ventures his capital in business for himself is obliged to assume four separate risks-the risk of losing it altogether, the risk that the income it yields him will be a fluctuating one, the risk that he will not be able to lay hands on it if at any moment he wants to use it in some other way, and finally the risk that if anything goes wrong he may be called upon to throw good money after bad. joint-stock system this last risk is entirely eliminated by the principle of limited liability; as has already been stated, the shareholder who has paid for his share has no further liability for the debts of the company.1 The two first risks can be whittled away to almost any extent that the investor chooses. We have already noticed the difference between the position of the debenture holder, who has legal security for the payment of a fixed rate of interest and for the ultimate safety of his capital, and that of the shareholder who has not. But the shares of a company themselves are usually graded, the broad distinction being between "preference" shares, which carry a right, if the magnitude of the profits permits, to be accorded a certain fixed rate of dividend before the other shares get anything at all, and the other or

1 Some shares are "not fully paid-up," i. e., the original holder has only been called on to pay a sum less than their full price, and he or any subsequent holder is therefore liable to pay up the difference if required; but this liability is quite definite and limited in amount. The legislation of 1855-64, establishing the principle of limited liability, was the prelude to an immense expansion of joint-stock enterprise in Great Britain.

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