but, on the other hand, the last, at any rate, might contain provisions which would remove the hostility of the better class of corporations, which would then themselves readily aid in the enforcement of the law, while if it were made optional, even if combined with the others, there certainly could be no charge of action which was hostile to the interests of capital legitimately invested and properly employed for the welfare of the public,

THE WORK OF THE PROMOTER.

BY EDWARD SHERWOOD MEADE.

[Edward Sherwood Meade, economist, born Medina, O., Jan. 25, 1874; educated at Oberlin college, DePauw university and the University of Chicago; fellow in economics, University of Chicago and University of Pennsylvania; instructor in commerce and industry, Wharton School of Finance and Economy since 1900. Author of Trust Finance, and of many monographs and articles in magazines on the economics of modern industry.]

Copyright 1902 by American Academy of Political and Social Science

Every week of the year deposits of minerals are discovered, franchises are obtained, patents are granted. Railway extensions are constantly bringing land, timber and coal into the market-increasing population offers a basis for water, light and transportation plants. New inventions stimulate new wants and these wants in their turn produce new means of satisfaction. The field for investment, either in new enterprises, or in the extension and diversification of established industries, is infinitely various. To take but one field, the production of power, we find a vast range of opportunity for profitable investment. We have first of all the mechanical draft and the mechanical stoke, the use of superheated steam to reduce condensation, the inside firing boiler to prevent radiation through the fire box, the steam turbine to utilize the direct pressure of steam, and the various devices which purify the water before it goes into the boiler, and to cleanse it for future use by condensing the exhaust steam. In other divisions of the field of power we have the development of electrical power transmission, which is bringing into the field of investment a large number of water powers which until recently were worthless and wasted, and we have the general introduction of the gas engine which promises not only to solve the question of the small power plant, but to double the efficiency of coal by using it in two forms, coke and gas. In other fields similar opportunities are multiplying. Improvements long since discovered are forcing themselves into general notice. New improvements are attracting instant attention. Never before in the world's industrial

history has man increased his conquest over nature at such a rapid rate and simultaneously in so many fields.

These opportunities for production of wealth are opportunities for the investment of money, since the investment of money is, in the vast majority of cases, either directly or indirectly the production of wealth. The investor buys $50,000 of railway bonds. With the proceeds the railroad replaces a wooden trestle with a steel bridge. Over this bridge it can run a heavier train load, which it obtains by the lower rate which the decrease in operating cost resulting from that heavier train load makes possible. The lower rate enables the farmer to turn a part of his grazing land into wheat, and so eventually and indirectly the $50,000 which was invested in the railway bonds has increased the supply of wheat on the world's market. This increased production of wealth, therefore, was made possible by the purchase of the bonds which the investor bought; because of its increased earnings the railroad could pay him 4 per cent. Without the investment of money increased production would be impossible. Upon the investor rests the responsibility of increasing the wealth of the world. As he directs his funds, this way or that, to railroads, cotton mills, irrigation or shipbuilding, the productive energy of society is exerted in this or that field of enterprise.

This office of investment is variously performed. Men may invest or capitalize their own savings. The farmer devotes $1,000, half the proceeds of his last wheat crop, to the purchase of nitrate fertilizer. The New England cotton manufacturer invests his surplus earnings in a South Carolina mill where cheap power, labor and material invite development. The Bessemer steelmaker adds an open hearth furnace to his equipment and takes advantage of a large supply of scrap iron. The Pennsylvania coal operator or lumberman buys the cheap coal and timber land of the south. Every producer is continually devoting his surplus funds to enlarge his enterprise along lines with which he is familar as the opportunity presents for greater profits or as competition forces. He may occasionally branch out into other fields, as when the farmers of a locality erect a flourmill or sawmill or open a

stone quarry, or where the carriage maker goes into the manufacture of automobiles, or a railroad may spend a portion of its surplus in purchasing a coal property along its line. In these investments, producers extend their business out of their profits and with their own funds. More new wealth is produced by this form of investment than by any other. Every industry is constantly growing from within, as the biologists would say, by intussusception, out of the profits of the past, the individual producers are making innumerable ventures of their money into untried fields in enterprises where they alone stand to win or to lose, and where they act from personal knowledge of the opportunity.

A second class of investors there is, which may include the members of the first class, but who are actuated by different motives and who act in a different way. These are also in possession of surplus funds from the employment of which they wish to obtain a profit and they are ready to buy the stock of any corporation which gives them an assurance of satisfactory return. They are in the market for any securities which they consider to be a safe and profitable investment. The members of this class are not, as a rule, in close touch with the industries whose securities they buy. A leather merchant invests in steel, a banker in railroads, a retail dealer in mining stock, not usually because he desires to identify himself with the business in which he invests, so far as to give it his close personal attention and to assist in its management, but solely that he may share in its profits. Included in this class are all investment institutions and managers of trust funds, who take no active part whatever in the numerous enterprises whose securities they hold. The importance of this vicarious interest in industry is steadily increasing, as production is carried on on a larger scale, and as it therefore becomes increasingly difficult for a few men to combine a sufficient amount of capital for the inauguration of a new enterprise, or the development of an enterprise already established. Twenty years ago timber was readily accessible and a few thousand dollars would build a sawmill. A half dozen farmers, by combining their savings, could start in the lumber business. To-day, a well equipped sawmill may cost $100,

000 and added to this must be the expense of perhaps twenty miles of railroad to reach the timber. The assistance of outside capital is becoming every year more essential to the development of any industry or the exploitation of any re

source.

The proprietors of this outside capital, as we just now observed, know little or nothing about the technical aspects of the industries into which they put their money. They are acquainted with these industries merely as sources of profit. If they can be given satisfactory assurances that profits will be forthcoming from a proposed development, they are willing to invest money to that end. They will not, however, devote themselves to searching out and preparing the propositions into which, when once discovered and prepared, they are willing to put their money. This attitude of mind of the general investor necessitates the promoter. The promoter, then, is the man who discovers and "assembles" the proposition for the investor, who then, if satisfied with the prospect of profit, provides the fund for its development. The promoter may be, and not infrequently is himself engaged in the industry which he proposes to extend or to develop in some other locality. In this case, his proposals are more favorably regarded by the investor who justly considers that the promoter is well qualified to judge of the merits of the proposition. Mr. John W. Gates, who was associated almost from the beginning with the wire industry of the United States, was a promoter of this class. In projecting the Federal Steel company and the American Steel and Wire company, he spoke with the voice of authority. On the other hand, and this is more often the case, the promoter may not be particularly conversant with the practical and technical affairs of the industry. The limitations of practical knowledge may be illustrated by those promoters who make a specialty of certain lines of industry, for example, street railways. A successful street railway promoter will usually have a very keen and trained judgment regarding street railway statistics. He will know the exact percentage which operating expenses ought to bear to total income under given conditions, and of the cost per mile for running cars, and he will be able to analyze with