what technical it may be well to summarize brief definitions of the main expressions so as to make the meaning entirely clear to all readers:

A certificate of stock is essentially a receipt for a certain amount of capital paid into a company to enable it to carry on business. This capital is divided into shares, usually of $100 each, and the certificates of stock stand for a certain number of shares. It is ordinarily supposed that the certificates of stock represent capital paid in cash or an equivalent of cash, so that ten shares of stock would represent $1,000 in cash or an equivalent of cash. If stock is issued only for cash, there is little likelihood of injustice being done, or of either the investors in the stocks or those who are doing business with the company being deceived with reference to the terms on which the business is organized.

In most cases, however, when a company is organized, considerable amounts of property need to be purchased, either land, or buildings, or tools, or property in some other form, adapted for carrying on the business. In many cases persons who wish to invest their money in the organization are themselves the owners of this desired property. In consequence, it is a matter of convenience that shares be issued directly or indirectly for this property instead of for cash. Sometimes to avoid the appearance of issuing stock for property,

stock receives any dividend. It has also a prior claim on the assets in case of dissolution of the company. Often its dividends are cumulative, if unpaid when due, so that all back dividends on preferred stock must be paid before any can be paid on common stock.

An underwriter is a corporate body or human person, usually a bank, which guarantees the sale of issues of stocks, bonds, and the like at a certain price agreed upon.

A promoter is a person who especially assists (by securing capital or otherwise) in starting or forwarding (promoting) a financial, industrial, or commercial enterprise, as a joint stock company, or one who makes this his business.

the managers of the company agree upon a price in stock at par value at which a special piece of property will be purchased. The managers then go through the form of handing their checks to the property owners for the sum agreed upon, and receiving in turn the checks for an equal amount of the owners of the property for stock issued then and there. In one case certified checks of a leading Trust company were used to pay for the properties—a loan for the amount for one day having been made for that purpose and the checks of the mill-owners paid the loan the next day. If the property is tangible, such as land or buildings, and the estimate placed upon its value is conservative and fair, there seems to be no reason why the shares should not be issued directly for this property, if there were no danger of injury to any person.

Likewise, if the property is intangible, as a patent or a copyright, or possibly the good-will of a business, its value may be as great as that of land or buildings. Naturally the inventor and the promoter are hopeful of large profits, and will therefore set a high price upon the patent. If, as is often the case, the invention proves a successful one, the patent may prove to be worth more capital than was estimated at the beginning, and shares of stock therefore issued in payment for it will be worth more than their par value in cash. On the other hand, if the undertaking proves a failure, there will be no tangible property left against which the shares were issued, and the shares themselves may become valueless. In a case like this, where the organization is founded chiefly on hope, there are great opportunities, and the temptations are also very great, to

issue stock to large amounts, even though the hopes are not well founded.

It may be that in other cases the services of some individual peculiarly skilled in the business may be taken in lieu of cash. Under the partnership form of doing business, it is not infrequently the case that one partner contributes capital in the form of cash or tangible property equivalent to cash, while another partner contributes his skill and time in the form of services, the two partners dividing the profits equally. Likewise in the formation of a corporation: one individual, whose knowledge or skill or services are thought to be peculiarly valuable to the business, may have allotted to him in the organization of the company a certain number of shares of stock for the services which he is to perform for the organization in the future; or, if he is a promoter whose work has been of special service in putting the organization into a situation to earn large profits, stock may be issued to him in payment for services already performed. Some of our states forbid the issuance of stock for services; others permit it. It is readily seen how a skilful promoter, who may have succeeded in bringing together a large company whose profits, on account, it may be, of some monopolistic feature, bid fair to be large, may readily assume that his services have been of great value to the company, and receive a large amount of stock in consequence. Here again, however, the stock is issued largely on hope, and its value may partake of the fleeting nature of its foundation.

If a business is so profitable that it can earn considerably more than the rate of interest common in the lo

cality upon well-secured loans, it may be wise for its managers to borrow money to enlarge the business. If a firm or corporation can earn 10 to 20 per cent. upon capital invested, it is surely profitable for it to increase business so long as these earnings continue. Even though a half of the capital required to furnish these earnings may have been borrowed at 6 per cent., there has been a net gain of 4 to 14 per cent. When the expansion of a business, or even perhaps its present success, depends, therefore, upon the handling of comparatively large sums of money, it is the usual custom to borrow a considerable portion of this capital. Indeed it is not unusual for public service corporations, such as railroads, gas companies, and other like institutions, which possess some natural monopoly, or which have the grant of some franchise that practically gives a monopoly of a certain line of business, to borrow enough capital to pay the entire cost of building the plant, whether railroad or factory. If the establishment can pay anything more than the regular interest on the debt thus created, all of the surplus may go as profits to the stockholders, the persons in whom the legal title of the road rests. It is not at all uncommon for our street railways or our railroads to be in debt-that is, to be bonded-to an amount fully equal to the entire cost of the road and its equipment. It is customary also in such cases for stock to be issued to an amount at least equal to the cost of building, so that the railroad thus built, which can pay the interest on its bonds and pay dividends on its stock, gives to the first holders of the stock a pure profit to the extent of whatever the money value of the stock may come to,

as well as a regular annual profit of whatever dividends may be paid. This issuance of stock beyond the cost value of the road is, of course, what is generally known as stock watering.

The new industrial combinations, which are believed by many of their organizers and promoters to be able so to control the conditions of the business that they may possess a virtual monopoly, are also in many cases in a position to borrow in some form or other a large part of the capital needed for the creation and carrying on of the business, and to leave their stock partly or wholly as a bonus in the hands of those who have organized the company, to draw dividends upon, provided the company can earn more than the interest upon its bonds and a small amortization fund, with which gradually to pay off the face value of the bonds.

Under the laws of our states, of course, a firm or corporation which fails to pay the interest on its debts is adjudged insolvent, and is placed in the hands of a representative of its creditors, to be managed in their interest. If a business is more or less speculative in its nature and is heavily indebted, there is always danger that in some period of depression it may fail to pay interest on its bonds, and may thus have the management taken out of the hands of its directors. In consequence of this danger, it has been customary of late years for those organizing the somewhat speculative industrial combinations to issue certain classes of preferred stock in lieu of bonds. For example, a company, the cost value of whose plants was not less than $500,000 might issue preferred stock, to the extent of $500,000, representing substantially cash to that amount. If the busi