242 EDWARD SHERWOOD MEADE 



as is consistent with the safety of his principal. As shown 

 above, he is not likely to concern himself with the active 

 management of those industries into which he puts his money. 

 How much less likely is he therefore, to abandon his regular 

 business or profession to roam about the country in search 

 of resources to develop. The investor of necessity assumes a 

 receptive attitude. He is the customer to whom the promo- 

 ter and the financier offer their wares. He buys on his opin- 

 ion not so much of the merits of the proposition as to the repu- 

 tation of those who offer it for sale. Even if the promoter 

 should be compelled to take a profit of only $10,000 instead of 

 $75,000 and should be required by law to leave $75,000 addi- 

 tional in the property, the investor would get no benefit. 

 Suppose that this should be done and note the consequences 

 to the investor. We must assume that the enterprise has 

 been fully equipped with machinery and working capital, 

 and with experienced and responsible promoters; in this class 

 of propositions this assumption would be generally correct. 

 We must assume, that is to say, that out of our 5,000 acres of 

 coal land, a well managed company is able to earn one year 

 with another, $50,000 per year, 10 per cent on the capital 

 stock, by an investment of $175,000. The law, however, 

 compels the promoter to invest $65,000 more for the benefit 

 of the company. This might be done in enlarging the scope of 

 the enterprise, taking in more land and working a second 

 shaft. The result of these enlarged operations, since the 

 same equipment could handle a larger output, might be a 

 total annual profit of perhaps $90,000 per year on the same 

 capitalization as before, viz., $500,000, or 18 per cent. If the 

 investor would pay — allowing the banker his profit — 70 for a 

 10 per cent security which the profit of $50,000 represented, 

 he will pay 126 for an 18 per cent security, represented by the 

 larger profit of $70,000 due to the sequestration for the benefit 

 of the company of the promoter's surplus. On the first in- 

 vestment, allowing the promoter to take what remains after 

 the proposition is fully equipped, the investor receives an 

 income of 14.2 per cent, and on the second investment, he re- 

 ceives the same amount, for the price which he will pay for 

 the stock rises with the rate of dividend which it yields. The 

 investor therefore could not profit by the curtailment of the 



