Financial Legislation and its Limitations. 23 



prises over which they had little or no control, and with which ^^^^""^1^^^^^. 

 they had no connection, except the important fact that, under the '■^*'°"j^°^ f^^ 

 corporation sanction they had contributed to them their capital, investment, 



.,.,.. ,1 . ,1 and conse- 



The idea that responsibility for management was all too strictly quent abuses, 

 associated with shares in funds was awakened by the circum- 

 stance that many of the subscribers were women and minors, 

 persons that were not supposed to be fully competent in busi- 

 ness matters, and therefore deserving of the protection of the 

 law. Consequently, a general course of legislation was entered 

 upon in all countries, tending to render the associates in a busi- 

 ness enterprise free from responsibility for failure or mismanage- 

 ment beyond the sums which they had severally paid in or 

 promised, or, as in the United States national banks, beyond a 

 limited multiple of such sums. 



Thus, the legislative encouragement towards the laying together 

 "of capitals was followed by a separation of economic interests 

 from economic trust and confidence ; and out of the consequent 

 weakening of individual responsibility sprang up bad manage- 

 ment, incapacity, flagrant abuse, and peculation. The attempt 

 to cure the second series of evils was not met by removing the 

 original cause,-** namely, the privileges and immunities whereby 

 the associates were induced to come together. Doubtless that 

 could not be done. The world needs large capitals, and in the 

 event of the failure, say of the United States Steel Corporation, 

 it would seem ridiculous to sequestrate the little remaining prop- 

 erty of a man of small means simply because he owned a share 

 or two in that corporation.-^ 



However, enlightened legislation should look partly in that 

 direction. If the responsibility of the shareholder were greater, 



■° Parallel with this remedying of the evils of limited liability of stock- 

 holders by a system of checks and balances, is the remedying of the evils 

 of note inelasticity by a mechanical note-redemption enactment. The 

 requirement of a pledge of bonds made the notes inelastic. The radical 

 cure lies in the repeal of the requirement, as proposed in the Fowler bill. 

 Cf. note 24, p. 138, infra. 



" Limited liability an outcome of the corporation method of business. 

 Fisher, Capital and Interest, 83. 



