The great difference between bonds and stocks is that, while the former are a lien on property of one kind or another, the latter frequently represent nothing more tangible than earning capacity, good-will, and the hope of the future. These are sometimes assets of great, but always uncertain, value. As a rule, it is the hope of a rise in value which leads investors to purchase stocks, and this brings a speculative element into the transaction. Of course, stocks are not all equally speculative. Bank stocks, for example, with their sworn, published statements, and the safeguard of government inspection, are not to be classed with mining stocks, about which nothing published is ever true, and of which no inspection is ever disinterested.

Another vital difference between bonds and stocks is that the former is a promise to pay both principal and interest, which can be enforced by law, whereas stock promises nothing. In other words, the holder of a bond becomes a creditor of the makers of the bond, whereas the holder of stock becomes a part of the company issuing it, and to that extent a debtor for all the liabilities of the company. In some cases (notably in bank stocks) the holder of the stock is liable for as much again as the face amount of the stock.

Railway Stocks

Among stocks railways form the largest and most popular class. The total amount of them is slightly greater than that of railroad bonds, viz., $5,742,000,000 in 1899, while the dividends paid amounted to $109,000,000, or 1.90 per cent. In such a vast total there is, of course, great variety, grading all the way from first-class to worthless. Most of them are listed on the New York Stock Exchange - a fact which has both advantages and disadvantages from an investment standpoint. The chief advantage is that they can be readily sold, but this is outweighed by the fact that they can be as readily manipulated for stock-jobbing purposes. As a class, they cannot be recommended to investors who desire something that they can "go to sleep on." They require constant and intelligent watching, and only those who are capable of giving that to them should put their money into them.

"Trust" Stocks. - Another large class of stocks which has come into special prominence in the last few years is that known as industrials, which are chiefly the preferred and common stocks of the large corporations commonly called "trusts." The extravagant way in which most of these combinations have been capitalized has filled many conservative minds with vague forebodings of coming disaster - moral, financial, and national - as the final outcome of the movement. But we should not confound the manner of doing a thing with the thing itself. We may admit that the promoter's profit has been the chief motive in most of the combinations, that capitalization has been extravagant, that speculation has been overstimulated, and that great danger exists in the fact that the caution which should control the investor has already given place to the craze for large and quick returns. But the movement itself will outlive these accompaniments, if it is economically sound, and if it leads to the greater and easier production of wealth.

In my opinion the so-called trusts are here to stay. The college presidents may rage and the politicians imagine a vain thing, but no law can be formed which will make it a crime for any number of people to combine their capital and ability in any legitimate business. Laws have been and should be enacted for the regulation of the combinations, for greater safeguards to the investing public, and for the protection of competing smaller concerns against monopoly.

Compulsory publicity of the condition of the corporations will go a long way in the right direction; but all talk of stopping the movement is vain. It is clearly an economical evolution from the evils of excessive competition, and much can be said in its favor. Its tendency is toward economy of production by the saving of all wasteful and unnecessary expense; and this is in harmony with the spirit of the age, which is ever improving on old methods and machinery. Its tendency is always toward a larger ownership of the property represented by the corporation and a wider distribution of the profits. There are now thousands of owners where there were but hundreds.

Competition is now between nations as well as individuals. Consolidations have had their share in placing this country at least a neck ahead of our greatest competitors in the international race. How they will affect, or be affected by, hard times remains to be seen.* It is probable, however, that a few great vessels will weather a storm better than many small craft.

When great changes are going on it is natural to have some apprehension as to final results and easy to prophesy evil. When Rowland Hill's pennypost scheme had gained such support as to have its adoption proposed in Parliament, Sir Robert Peel, the greatest financial minister of his day, was its strongest opponent, and prophesied nothing but loss and failure as results. All the great movements in history were fiercely opposed by some of the ablest men of the time who were specialists on the particular matter in question. Looking back now, their opposition seems absurd. And so when our theoretical economists predict disaster from this movement, I say we must wait and see. None of the calamities has happened yet.

A great railroad resembles a modern trust in many respects. It is generally controlled by one man, but owned by thousands. It pays its stockholders better, serves the public better, advances national development better, and makes transportation vastly cheaper than a hundred small roads could do. In fact, the industries now being combined into large corporations are only following the example of the railroads. Of course, there is always the danger that things will be overdone and tendencies carried too far. But against this there is an intelligent public sentiment which will have to be reckoned with. I believe the so-called trusts will live; but they will live only by proving that their existence is a benefit to the people and not a curse. This, I think, they will be able and wise enough to do.

* The results of the financial depression of 1907-08 in the United States proved the wisdom of Mr. Forgan's forecast.

I submit, therefore, that the field for investment known as "industrials" should not be passed by with a timid epigram, but is fairly entitled to consideration. Here, even more than elsewhere, investigation of the facts, guided by common-sense, is a necessity. The common stocks composed entirely of water and given away as a bonus to help sell the preferred cannot be classed as investments and many of these preferred stocks represent such extravagant capitalization that they also should be avoided. But for investors capable of intelligent investigation before, and supervision after, purchasing their investments some of the preferred industrials offer a legitimate and profitable opportunity.

I have in mind a large company whose products are used in every household of the land. It is provided with sufficient working capital so that it is never a borrower, and it has no bonds, except a small amount existing on some of the plants before they were acquired, which cannot be paid until they mature. It has earned dividends on its preferred and common stock from the beginning, and is piling up a good reserve fund besides. It has a staple business and is excellently managed. I fail to see, therefore, why its preferred stock, or the preferred stock of any other "industrial" in like circumstances, is not a safe and legitimate investment for a business man capable of keeping an intelligent supervision of his affairs.