Capital stock

“ The stock which is lent at interest is always considered as a capital by the lender. He expects that in due time it is to be restored to him, and that, in the mean time, the borrower is to pay him a certain annual rent for the use of it. The borrower may use it either as a capital, or as a stock reserved for immediate consumption. If he uses it as a capital, he employs it in the maintenance of productive labourers, who reproduce the value, with a profit. He can, in this case, both restore the capital, and pay the interest, without alienating or encroaching upon any other source of revenue. ”

“ A fund may be seeking for productive employment, and find none, adapted to the inclinations of its possessor: it then is capital still, but unemployed capital. Or the stock may consist of unsold goods, not susceptible of direct application to productive uses, and not, at the moment, marketable: these, until sold, are in the condition of unemployed capital. Again, artificial or accidental circumstances may render it necessary to possess a larger stock in advance, that is, a larger capital before entering on production, than is required by the nature of things. ”

“ Land and capital stock are the two original sources of all revenue, both private and public. Capital stock pays the wages of productive labour, whether employed in agriculture, manufactures, or commerce. The management of those two original sources of revenue belongs to two different sets of people; the proprietors of land, and the owners or employers of capital stock. ”

“ Any desired capitalization above a minimum of one thousand dollars may be fixed. Capital stock may be paid for in cash or by property. If it is paid for in cash, it may be paid for in full or by instalments, and a machinery has been created for protecting the corporation against the failure of the subscribers to stock to pay the balance of their subscriptions. If stock is paid for by property, the incorporators and not the State are to pass upon its value. ”

“ The capital stock of said society or firm shall not be less than four millions of dollars; to be divided into shares of fifty dollars each; and may be increased to any amount, at the discretion of the Directors. ”

“ The phenomena of the stock-market, where such things are most actively bought and sold, and where they appear as differential portions of the capital values of securities, doubtless first called attention to them—though the item of "good will" as a business asset, for which a money-price is paid when businesses change hands, is doubtless older and wider than modern corporation finance. The capitalization theory applies to them most readily and obviously, as compared with other elements in the static theory of prices. ”

“ It pays dividends of eighteen per cent., and could pay more, if allowed to do so by its charter. The surplus is used to increase the capital stock, so that in addition to its enormous dividends, every little while it presents its stockholders with new blocks of this exceedingly profitable stock. ”

“ The fluctuations in the price of the funds, which were frequent in those unsettled times, presented an irresistible temptation to buying and selling for the account—a process by means of which a small capital may be made to represent fictitiously an enormous amount of stock: no transfers being required, and in fact no sales created, the real stake being the difference between the buying and the selling prices. ”

“ So long as every dollar of stock issued by a corporation is represented by a dollar of property, no harm can result to individuals or the public from distributing stock to stockholders.... All that can be required in any case is that there shall be an actual capital in property representing the amount of share capital issued. ”

“ When stocks have attained a reasonably high level of value as a result of the recovery [105] of a country’s industry, the chances for the speculator to profit by a continuous rise are of course gone, and he seeks in other directions to turn his capital to account; but the example we have given illustrates perhaps the most legitimate of all forms of speculation in Stocks, provided always the operator knows his business, and allows a sufficient margin for contingencies. ”

“ Dangers of the new system of business; promotion of unprofitable enterprises.—The appeal of joint stock companies to the public through the medium of the stock exchange proved to be so effective in gathering capital that a great many worthless undertakings were floated. When times were good, that is, when enterprises had proved successful, when people had saved money for investment and looked with confidence to the future, almost anything in the shape of a158 company could get subscribers to its stock. ”

“ The facilities which these Joint Stock Companies offer for the investment of capital, even of the smallest amount, the temptations which the prospect of large profits hold out, and the low interest obtained on national stock of every description, have attracted a vast body of capitalists, small and great, who have subscribed to these undertakings with the real intention of investment. ”

“ It may be noticed, too, that sales of "rights," of puts and calls and straddles, and other contract rights, are regular factors in the organized exchanges. Wherever profits are to be made by leveling values as between different places or different times, speculation arises, and, with dynamic change, this means everywhere, in every business, and all the time! The shifting of labor and capital from industry to industry, leveling returns to capital and labor, involves an enormous amount of trading that would not occur in a "normal equilibrium." Much of this the Stock Exchange does. ”

“ A company that earns twenty-five per cent of its real capital per annum may have its stock diluted with four parts of water and pay only five per cent in dividends on its capitalization. This looks like interest and is apt to be treated as such by those who receive it. It is, therefore, not a more favorable income from which to make accumulations of capital [Pg 356] than is the interest on real capital. The sudden gains which promoters and manipulators of consolidated companies make are, indeed, transient gains and may be largely added to capital. ”

“ There are now six industrial companies with an aggregate capital of 171,927,540 shares outstanding; and from the side lines it looks as if there ought to be time enough to start another boom when the stock market gets over its present case of indigestion.
In the final analysis the following essentials should be constantly borne in mind: The stock and grain markets are always capable of playing new tricks on you—of doing things you never dreamed of. ”

“ The holders of common stock in a corporation are always entrepreneurs, and they are also capitalists if the stock represents any real capital actually paid in. If the bonds and the preferred stock represent all the real capital that there is, any dividends that may be paid on the common stock are a pure entrepreneur's profit. ”

“ The older economists doubted whether anything but banking and insurance could be carried on by joint stock enterprise: now every conceivable industry, down to baking and milk-selling, is successfully managed by the salaried officers of large corporations of idle shareholders. More than one-third of the whole business of England, measured by the capital employed, [32] is now done by joint stock companies, whose shareholders could be expropriated by the community with no more dislocation of the industries carried on by them than is caused by the daily purchase of shares on the Stock Exchange. ”

“ From this exhibit a dividend on the invest- ments or capital stock is declared. The profit or loss of each department, of course, is shared equally by the stockholders.
We aim to furnish every person employment, wishing to work; and pay as high wages as possible mostly in home products. The past two or three years we have paid our employees five-sixths in home products and one-sixth in imported merchandise, amounting in aggregate, at trade rates, to about 160,000 (one hundred and sixty thousand) . ”

“ The holding company has a sinister perfection in its mode of giving to a minority of capital the control over a majority. It is possible that the actual capital of the original corporation may be mainly a borrowed fund and may be represented by an issue of bonds, while the stockholders may have contributed little to the cost of their plants and their working capital; and yet this common stock may confer on its owners the control of the entire business. The corporation that buys a bare majority of this common stock may have an absolute power over the producing plants and their operations. ”

“ Suppose that the information afforded by public quotations on the stock and produce exchanges were wiped from the slate of human knowledge. How would the average man, how even would a man with the intelligence and foresight of a Pierpont Morgan, determine how new capital should be invested? ”

“ The society sells its goods at the current rates charged by retail merchants, thus avoiding the direct underselling of shopkeepers, and withholding the profits of their system from non-subscribers. Buyers are given metal tokens, representing the value of the cash they pay in. Quarterly stock is taken, and the rate of profit ascertained; then, after paying subscribers to capital their interest at five per cent, per annum, buyers are paid in cash, or credited in the ledger, as they choose, with the amount of their dividends, computed on the tokens brought in. ”

“ Meanwhile, the treasures of the Great West offered irresistible attractions to new enterprise and settlement. The demand for more railroads was insistent; then came the devices of stock-watering and overcapitalization as inducements to new capital. Roads were often built entirely on bonds; and stock, having little or no value except for voting, was given away as a bonus with the bonds, or used for various purposes, often in speculation, and such stock frequently found its way back to the original promoters at bargain if not waste-paper prices. ”

“ The investor lends his money on perfectly safe security to the aid of commerce and industry, expecting a comparatively small return, but that a safe one. By so doing he is encouraged in thrift, whilst commerce and industry enjoys the benefit of the capital, and the Stock Exchange is the medium of it all. The speculator, less conservative, risks money, the loss of which he is perfectly well able to afford, in the furtherance of experiments in commerce and industry, be it the trial of a patent or the opening up of a mine. ”

“ In both such cases a frequent method of raising working capital is for the stockholders to donate to the corporation a pro rata portion of their holdings of stock to enable it to secure the needed working capital by selling the stock. ”

“ Two-thirds of American industry is concentrated in a few hundred corporations, and actually managed by not more than five thousand men. More than half of the savings of the country are invested in corporation stocks and bonds, which have been made the sport of the American stock markets. Fewer than three dozen private banking houses, and stock-selling adjuncts in the commercial banks, have directed the flow of capital within the country and outside it. Economic power is concentrated in a few hands. ”

“ Capital then takes hold cheerfully; there is a market for the new securities and a proper basis for fresh commercial development, because investors and speculators have learned from the published daily quotations of these Stock Exchange securities that there is good warrant for the flow of capital into such channels, and that a reasonably safe return will follow an investment in them. ”

“ Persons who wonder at the magnitude of Stock Exchange transactions, and who jump to hasty conclusions as to the actual capital involved, may well reflect upon the manner in which this method reduces to a minimum the stockbroker’s drafts upon the banks. ”

“ Critics are invited to remember that the Stock Exchange does not buy or sell anything; it merely acts as a market-place through which, among other things, capital may be directed from channels where it is least needed into those where it may be most beneficially and profitably employed. ”

“ Secondly after the great outlay already expended here is not any likelihood in the future prospect as to its success. Lastly they are on an increase of at least 50 Pr.Ct., the holder of them must in the course of 5 years increase the capital of stock at least 150 Pr.Ct. ”

“ The main classes of joint stock companies which have answered are three:—1st. Those, in which the capital is used not to work the business but to guarantee the business. Thus a banker's business—his proper business—does not begin while he is using his own money; it commences when he begins to use the capital of others. An insurance office in the long run needs no capital ”

“ If a line of road cost $2,000,000, and the company owning it can by any means make it pay dividends on three or four millions, they can issue to themselves stock representing this increase. Having thus increased their stock, under the pretense that they wish to construct more road, or improve or repair what they already have, they issue their bonds to the amount of the increased stock (sometimes to an amount equal to more than their entire capital) and put them upon the market. ”

“ But securities for which there is always a ready market are such thoroughly good collateral for loans that bankers are glad to get them.
The stockbroker is, in a way, a dealer in merchandise. Whether he buys for investment or for speculation—and remember that the boundary line between investment and speculation is often shadowy and indistinct—he pays cash for everything he buys. He then seeks advances of credit upon his wares just as the merchant does, supplementing his own capital and the deposits (margins) of his customers with call or time money from the banks. ”