not create an obligation to pay its face value, nor does that face represent its money value as a share. The value varies with the development of the property as a whole." And later, ... the certificates [of no par value] simply indicating the proportionate or preferential claims of the holders upon assets and upon such profits as might from time to time be earned." The personnel of the Railroad Securities Commission needs no recommendation. It was presided over by no less an authority than Dr. Arthur T. Hadley.

Let us examine, too, the practical application of Blue Sky Laws, with especial reference to the Michigan Securities Commission, from whose decision in the Dodge Brothers case (since reversed by the judgment of the securities market) we are asked to derive comfort. The Michigan Securities Commission, it will be remembered, refused to permit the offering in the State of Michigan of the securities issued in connection with the acquisition of this company. It may interest the public in general to know just what are the experiences of investment bankers, when they encounter on the battle-field these legislative provisions for the protection of investors from "whitecollar bandits," when they encounter the governmental bodies which strive to administer these laws. It is the experience of investment houses that if an irresponsible firm wishes to sell a worthless security, it first dresses up that security in such a way that it will pass through the theoretically constructed sieve of Blue Sky Laws. To such a firm the merits of the security are, of course, nothing; all that matters is that the security

should meet the technical requirements of the Blue Sky Laws. A reputable banking house on the other hand is not concerned with the Blue Sky Laws until the last moment. It is concentrated on the merits of the enterprise and of the security itself, and, having evolved that form of security and balance-sheet which meet the situation as it is, it very often finds that the security it has evolved cannot get by the Blue Sky Commissions for some purely technical reason. This is especially the case in Michigan, and a number of bankers make no attempt to qualify their securities under the Michigan laws; with the result that Michigan dealers lose much good business in perfectly sound securities, while Michigan investors, if it were not for the glorious institution of free trade in securities which enables them to buy anything they like in another State, would lose many profitable opportunities of investment.

The second of Professor Ripley's articles is largely concerned with the question of the adequacy of corporate reports. This is essentially a matter of judgment and opinion. It is impossible to lay down the law. Those who are charged with the preparation of a corporate report or balancesheet for publication are influenced by a by a number of

number of considerations. First and foremost, they must not obscure the main picture which they have to present by over-emphasis of unimportant detail. Second, they have to consider the interest of their stockholders as stockholders as to what matters should be made public. Third, it is vitally important that when they give prominence to any particular feature they should not give either

the worst half or the best half of the story. They must try so to present the matter that a true judgment can be reached in the shortest possible time. It is extremely difficult to lay down, within the confines of a few paragraphs, all the considerations which govern the preparation of a corporate report; just as difficult as it is to write books about future wars. It is simpler to go fight the war itself. All that can be said is that it is just as improper to understate the case as it is to overstate the case. But again, just what constitutes understatement or overstatement is a matter of judgment and opinion. It is one of the most difficult things in the world to determine. The greater the experience of a certified accountant, the more loath he becomes to express a positive opinion on a question of accounting principle.

There are many who prefer that kind of report which tells its story in the minimum of words and figures. For instance, the very brevity of diction of the president of the Baldwin Locomotive Works, which Professor Ripley condemns, is considered by some to be one of the strongest recommendations for the securities of that company. Brevity of diction suggests a man who attends to business, who is not a talker but a doer. But on the whole question of adequacy of corporate reports, we might appropriately ask ourselves these questions: What will the average stockholder of the Pennsylvania Railroad do, what action is he qualified to take, what can he contribute to the situation as a whole, supposing that he is sufficiently alert to detect a declining tendency in the "net ton miles per train hour" as to

which item that corporation's annual report is carefully specific? Even if a stockholder is qualified to draw any inferences at all from figures of this kind, and even supposing that they produce in him a feeling of uneasiness, he is not likely to wait until the next annual meeting and then violently cast his vote. He is much more likely to sell his stock. And at the very moment that he does so, the buyer of that same stock expresses, by his very act in buying, a contrary opinion on its merits.

The Battle-field of Morality

And now let us meet the major issue involved, the concentration of control and possibly of perpetual control of an enterprise in the hands of a small minority, who have little or no financial stake in it. The army of attack objects in principle to the issue of non-voting stock. It states, in effect, "He who pays the piper must call the tune." It argues that the stockholder must have the right to recall the management. Even if he never exercises this right, he must have the power to do so.

Let us first consider the question of perpetuation of control. The principal argument of the defenders in respect to this point is the fact that it is impossible to dissociate the condition of a company from the price at which its securities are selling in a free market. The attacking force overlooks the fact that the great body of the holders of a company's stock are not permanent stockholders. The stock of the company is continually changing hands. In practice, the point at which it becomes desirable in the public interest

or in the stockholders' interest to change the control of a company, in almost any particular case, does not become apparent until disaster has overtaken the company; and until this has become an accomplished fact, the question whether it is desirable to change the control is not a matter of absolute fact but of opinion. The weight of opinion will be reflected in the price of the stock, and at any given moment the general opinion of the market may be wrong. Stocks go up and down, and frequently when the affairs of the company look blackest to all outward appearances, it is on the very verge of turning the corner. When the disaster has become an accomplished fact, the situation lies in the hands of the courts for remedy; and "all previous bets" as regards the rights or restrictions of particular securities can be called off by the court. But until disaster is an accomplished fact, it is nearly always possible for the small stockholder to express his opinion by selling his stock-in which case he sells it to some one who holds a contrary opinion. And even before disaster becomes an accomplished fact, it is by no means always necessary to resort to the courts for the cancelation of "previous bets." In practice, the very force of circumstances is often sufficient to compel the management to change its course or even to hand over the control, in spite of its legal right to retain that control. But on what basis is the whole practice of concentrated control of corporations attacked? Is it upon the ground of morality, of public interest, or of the interests of the stockholder? In Professor Ripley's

articles there appears to be a certain amount of confusion of thought among all three; or rather it might be more nearly correct to say that there is some confusion of thought as to whether the attack should be made on the basis of the interest of the public, or the interest of the stockholders, while the professor recognizes morality as an effective weapon to back up his argument. He speaks as if in the public interest; he actually illustrates in detail the stockholders' interest; while in the background he holds the powerful threat of an abstract morality which appears to be indifferent to circum

stances.

If the objection is based on the ground of the interest of the public, then may it not be said that the horse has been put into the shafts facing the cart? For public interest demands efficiency of management before it demands satisfactory dividends. It only requires satisfactory dividends for a secondary purpose; namely, the stimulation of effort and saving by guaranteeing security of private property. From the point of view of public interest, the question that should be asked is not, "Hasn't ownership a right and duty to share in management?" but rather, "Won't it stimulate efficiency of management if management is allowed to share the fruits of ownership?" In the public interest, the question of whether it is desirable that control of a particular company should be tied up in the hands of a particular individual or group of individuals, should be decided solely upon grounds of what will result in the most efficient management. And in considering the interests of

the public, it is a truism that the degree of the public's interest will vary with the size of the company and the nature of its business. To apply the kind of argument which covers the case of the Pennsylvania Railroad Company to such companies as Dodge Brothers, Inc., the Coca-Cola Company, and the Charles E. Hires Company is a progressive reductio ad absurdum.

If, on the other hand, the objection is made on the ground of the interest of the stockholder, the answer is that in a free market this feature is "all included in the price." Provided there is no misrepresentation or concealment of material facts, the stockholder knows what he is getting when he buys the stock. If he does not like to buy a non-voting stock, he need not do so. It is difficult to see that any criticism can arise of investment banking houses who sincerely believe they are offering their customers a good investment when they offer them at a price the non-voting common stock of a given enterprise. And it is to be remembered that the stockholders of a number of those enterprises whose practices have been called in question by Professor Ripley are satisfied, and have good reason to be satisfied, with their investment. There is no need to send a policeman into another man's house to arrest as a burglar one who is a welcome and honored guest.

Finally, there is the overshadowing question of morality. Men will pass judgment on this feature of the problem according to their several philosophies. On the extreme right will stand those of the orthodox school who rigidly accept an abstract code of morality upon authority and tra

dition alone. On the extreme left will stand the cynical agnostic, who seeks no sanction for his actions except the ability to "get away with them." In the center will stand more humble folk who do not boast that any revelation of abstract morality has been vouchsafed to them, save in relation to sincerity of purpose. Those who take this central ground will first make up their minds whether they can trust a man, and will then suffer their judgment of him to be tested by the passing of time.

We must not, of course, close our minds to the dangers inherent in oneman power. A threat to liberty is entailed in the creation of an oligarchy of business efficiency; unless that oligarchy is an aristocracy—an aristocracy in the real sense of the word—a government of the best. In considering what "best" means, let us not forget that the greater the man, the more will his actions be governed by his sense of responsibility. Here, then, is the heart of the matter. Our problem is to promote, not discord, but union between liberty and efficiency. The way out lies, not through carping criticism of alleged mistakes of detail, but through grasp of principle; and in working toward a solution, let us not place too much faith in the possibility of making men honest by act of Congress.

Confessio Fidei

In conclusion, as it is the philosophy which animates "big business" which has really (through inadvertence and inaccuracy) been called in question, let us try to summarize

what this philosophy must inevitably be, from the very nature of things. For from this philosophy, whatever it may be found to be, must necessarily be derived the morality of all incident in the sphere which it governs. In all fields of human endeavor-and the profession of investment banking is no exception-real success is practically synonymous with continuity-with “staying in business" in a particular place over a long period. It is well nigh impossible to "stay in business" unless the business is built upon a foundation of knowledge and integrity, and above all a sense of responsibility; knowledge arising out of hard work and experience, integrity which is so big as to be utterly scornful of telling lies, and a sense of responsibility which inspires men to stand up and be shot at on account of the acts of their subordinates and associates. When a man is committed to the responsibilities of a great position and is clothed with the authority which that responsibility warrants, it nearly always happens that it is possible for him to exercise that authority only by delegation, not alone of executive powers, but also of a large measure of decisions on policy. To this end, he functions by "hiring and firing" his immediate subordinates. This, in a great enterprise, is as far as he can go. It frequently happens that such an enterprise is brought to the brink of disaster, or even comes to grief, through failure of coördination between two or more of its separate functions. The executive acts of the subordinates in charge of those respective functions are almost certain to be the cause of such lack of coördination.

But who is responsible? The man at the top! If the enterprise fails, he is the man who will be blamed. All men in responsible positions are continually blamed, sometimes with justice, sometimes without, for the acts of others.

It is further the case that great businesses are conducted upon the principle-and this is a matter about which it is easy to be flippant—that responsibility, authority, and profits constitute an inseparable trinity. Wise men will not accept responsibility unless they are clothed with the authority which will enable them to live up to it. If they accept responsibility they are entitled, and public opinion will willingly accord to them, profits in proportion to the responsibility which they assume. Just what constitutes a proportionate share of profits, it is impossible to determine by any theoretical reasoning. The only test available is the empirical test, that of trial and error. Provided the trial is made in good faith, without misrepresentation, no question of morality arises. The buyer, by the mere fact of buying, accepts the situation in toto, and so approves the profit. In considering what constitutes an appropriate profit, let us remember, too, that the profit-motive is the mainspring of business; it is at the root of all endeavor. We cannot say that it is an improper motive any more than we can say that it is improper for a baby to want its bottle. It is instinctive.

To what is all this leading? Does it not point to the principle that it is in the acceptance of responsibility that the real justification for the possession of wealth lies? This indeed