In this country the accumulation of surplus out of earnings is conceived almost wholly as a source of fresh capital. As such it is to be contrasted with the policy of paying out all, or nearly all, the earnings in dividends and relying upon fresh issues of securities in order to obtain new capital when needed.

The great advantage of securing capital through issues of securities is that it may be more quickly obtained and thus advantage may be taken of conditions which favor rapid development. Assume that two competitive corporations start to do business at about the same time with the same amount of capital, and that one corporation depends solely upon its accumulating surplus for the capital with which to finance extensions, while the other corporation distributes most of its earnings in dividends but is successful in raising fresh capital by the sale of securities. If both corporations are able to work side by side in a normal way, it is probable that in the long run the first-mentioned policy will prove sounder and more profitable and that the stockholders in this first corporation will eventually reap the benefits of their self-denial. But possibly both corporations cannot work side by side. As they expand, one or the other is certain to get the mastery, to capture the market, and to drive its competitor out of business. Under these conditions it may well be that the second corporation, through its policy of selling securities, may be able to raise needed capital more quickly and thus secure the dominating position which is the goal of both, before the first corporation has made a good start.

Somewhat similar conditions frequently exist. A corporation formed to manufacture and sell a new device may find it vitally necessary to cover its field before some other device can be brought out and introduced as an effective competitor. Or a company may have in hand a project which is peculiarly timely, such as accepting a new and profitable contract. In all cases where the element of time in developing a business is a factor of great importance, the advantage, as between the two methods of raising capital, rests with the method of issuing securities.

The great advantage, on the other hand, of securing capital through savings consists of the steadiness and soundness with which the business may in this way be developed. It will not suddenly spurt ahead - perhaps before adequate preparation has been made or before an effective organization can be brought together. It will grow, year by year, adding a new piece of machinery here, erecting an addition to its plant there, gradually increasing its organization until some day - almost to the surprise of its own founders - it finds itself a leader among its competitors. Something like this, as has already been intimated, was the history of the Carnegie Steel Company - in fact, this has been the history of probably 75% of the great industries of the country. The other 25% have been built up chiefly by the more rapid, more attractive, and more dangerous process of bringing together great sums of capital through the issuance of securities.

It has been remarked above that the effect of making additions to assets through the accumulation of savings is not only to increase earnings, but also to stabilize them. This is due chiefly to the operation of the general principle that a large volume of business spread over a wide range of territory is less subject to violent fluctuations than is a smaller volume of business.