"ordinary" shares, which take what is left after all expenses have been met, debenture interest and preference dividends paid, and the advice of directors with regard to the accumulation of reserves adopted. Thus the investor is enabled within limits to shoulder as much or as little of the uncertainty of business as he chooses: within limits, because it would be a perilous mistake to assume that all debentures are absolutely safe investments, and because the important risks of loss arising out of changes in the purchasing power of money rest most heavily on those who have contracted to receive a fixed money interest.

1

The third risk-the risk of being unable to disentangle one's capital from the meshes of industry if one requires it suddenly to finance an operation for appendicitis or some other exceptional item of expenditure-is obviated by the existence of an organized stock exchange, where the securities of all the leading companies can be freely dealt in. The specialized dealer in stocks 1 does not perform such direct and obvious services in the cause of production as the specialized dealer in produce (p. 46). There is no question here, as with wheat or cotton, of inducing economy in the consumption of some commodity of which the world will presently find itself short: if the shares of a company never changed hands for twenty years, nobody would be tempted to eat them or make them into clothes. Nor is there any question of enabling manufacturers to get rid of their risks by dealing in the speculative market. Nevertheless the professional dealings in shares do

'In England we have to distinguish further between the "broker,” who deals on behalf of the outside public, and the "dealer" or "jobber," who deals only on his own account.

smooth the path of industry in certain definite ways. First, like the dealings in produce, they give some indication of the lines which production ought to follow. If there is a boom in oil shares, there is a presumption that society needs more oil-wells sunk, and that there is a living to be made by anyone who will sink them: though of course this presumption is often not so well founded as it appears to be, owing to the wild and irresponsible nature of much of the dealing in this class of share.

Secondly, which is the point that concerns us more immediately, the machinery of the stock exchange affords the investor a reasonable expectation of being able to get rid of his securities quickly and without heavy loss if he wants to, and thereby encourages many people to invest who would otherwise be unwilling to do so. And by affording similar facilities to the banks, the stock exchange indirectly benefits industry; for if they are to perform their services to industry efficiently, the banks must keep part of their resources in an easily realizable form; and the purchase of easily saleable securities, and still more the loan of resources for very short periods of time to specialized dealers who use them in the purchase of easily saleable securities, serves this purpose well.

Finally, the stock exchange helps to remove from the genuine investor some of the risks of loss and of wildly fluctuating returns. A new industrial stock is probably bought and sold chiefly by the professional dealers; but after they have tossed and bandied it about among themselves for a time, the general public comes in: and it is only because the professional dealers have subjected the stock to this shaking and sifting process, and

have arrived at some provisional conclusion about its earning power, that the general public feels justified in coming in. Thus the dealers share with the financial houses and underwriters the function of the initial provision of capital for industry, and at the same time their operations give the public confidence in assuming responsibility for the permanent provision of capital.

Thus, by one device and another, the service of providing capital is partially divorced from the service of bearing the uncertainties of business: and this partial divorce is a great feather in the cap of the principle of differentiation, for it tempts into the service of industry a far greater volume of resources than would ever find their way thither if every investor had to take unlimited risks.

CHAPTER VI

FINANCE AND INDUSTRY

"And that's the way" (he gave a wink)
"By which I get my wealth."

Through the Looking-glass.

§ 1. The Specialization of Industrial Initiative. The prevalence of the joint-stock company leads to the emergence of yet one more class of specialist which merits our attention. Just as we have distinguished between the initial and the permanent provision of capital for a business, so we may distinguish between the initial display of energy and resource and organizing power necessary to set a business on its legs and the detailed control of its policy and management in the years that follow. In the days of the one-man business or the private partnership these functions were combined in the hands of the "captain of industry": but in the joint-stock era the first is frequently specialized off into the hands of the individual known as the company promoter. The gifts needed for managing successfully a going concern are not precisely the same as those needed for descrying the directions in which new applications or new combinations of capital, labor and enterprise are required, for overcoming preliminary difficulties and for turning a project into an accomplished fact: and it is in these gifts of "push and go" that the successful company promoter excels. It is his profession to . detect new wants or new opportunities of satisfying old ones, and to lend a receptive but critical ear to the

hawkers of new inventions: and having made up his mind to jump, to secure financial support for his venture immediately from the underwriters and ultimately from the general public, and to effect the combination of productive resources necessary for the success of his task. Sometimes his scheme involves not the foundation of a brand-new business, but an amalgamation of already existing businesses in the same trade, or a working alliance between businesses in different trades; and in that event much of his time and skill will be spent in the galvanization of sleepy or recalcitrant firms, the composition of mutual jealousies and the valuation of existing properties.

The term company promoter, like speculative dealer, has an ill sound: and there have been many foolish and fraudulent promotions, the memory of which dies, and should die, hard. But to anyone who has grasped the central problem of modern industry-the right distribution of resources between the different occupations clamoring for their use it will be evident that the company promoter is seated very near the heart of things. The "invisible hand" which is supposed to guide the productive forces of society into those channels where they will contribute most effectively to the satisfaction of wants may almost be said to receive in him a visible embodiment. "There are few who do more to increase the efficiency of labor in creating material wealth than the able and upright company promoter: he forecasts coming developments, and he aids the public to invest their resources in those fields of industry which will yield the best harvest in coming years." 1

1 Marshall, Industry and Trade, p. 331.