ever, only starts this portion of his productive machinery running when he needs money to build a new line, or to reduce grades, or to excavate tunnels, in order to reduce the cost of train movement. His business is to transport passengers and freight, not to make pig iron or cotton cloth. The raising of new capital by the sale of bonds or stocks is incidental and contributory to his main business. It is difficult to imagine a situation where it will be advantageous for a corporation, unless its own stock-holders are able to supply its need for new money, to offer its securities direct.

The conclusion, from the standpoint of the investor's interest, is plain. Whenever the investment-banker will buy, the corporation with bonds for sale will sell them to the investment-banker. Only when the banker will not purchase, or, as shown above, when the stock-holders of the company desiring to raise new capital are willing to add to their investment, will any other method than sale to the investment-banker be adopted. If, now, we find that the investment-banker will buy only the best bonds for sale to his clients, it is a safe conclusion that if the investor wishes good securities, he can rely upon getting them nowhere

else than from the bankers whose business it is to select such securities and to sell them.

A moment's consideration of the case will suffice to show that the success of the investment-banker depends upon the quality of the bonds which he offers for sale. He expects his business to be permanent with every client. When a man has saved $1,000 and purchased a bond, it is a reasonable presumption, from the banker's standpoint, that he will repeat the operation many times, and the banker intends that, as far as possible, he shall supply the investments for the succeeding thousands also. Again, if the banker sells a bond maturing in ten or twenty years, he has a record of that sale, and when the bond is paid off he expects to have a new bond ready to take the place of the old one. He aims to cultivate, therefore, by every means in his power, the good-will of his customers. The number of investors, considered in relation to the total population, is small. Competition for their money is very keen. When once a prospect has been converted into a customer, the banker has the strongest possible motives of selfinterest to keep him for a permanent customer.

The basis of the customer's good-will, the foundation upon which a large security-selling business

must be erected, is the high quality, the impregnable security, of the bonds which the bankinghouse offers for sale. In his literature, in his advertisements, and through his salesmen, the banker lays strenuous emphasis upon the safety of his wares. He recommends them to his customers. Usually he has bought them for himself before he offers them for sale. His constant endeavor is to protect his customers against loss. He will carry this solicitude for the customers' good-will so far, in some cases, as to repurchase bonds concerning whose value questions may have been raised, or whose reputation has been blown upon. He has been known to undertake, at his own risk, the work of reorganizing bankrupt companies whose bonds have passed through his hands, so that they may, without loss to the creditors, be started anew.

A man in such a business cannot afford to recommend to his customers bonds concerning whose soundness there may be any question. To depart from this rule means the ultimate destruction of his business. He may, as some bankers have done, sell a large amount of doubtful bonds or stocks during a period of business prosperity, when all enterprises, both bad and good, were

making money. He may trade upon the confidence of his clients and temporarily enrich himself at their expense. But when a business depression overtakes these shaky enterprises which he has financed they go down in ruin, and with them goes the good-will of the banker's business.

We arrive, then, at this conclusion: since it is to the interest of corporations having bonds for sale to sell them through investment-bankers, and since it is to the interest of the investment-banker to purchase only safe bonds, it follows that safe bonds of new companies, those which are offered at attractive prices, can be purchased, as a rule, only through the investment-banker.

VI

THE RELIABLE INVESTMENT-BANKER

THE question is often asked, Does the investment-banker guarantee the securities that he sells? His literature abounds with assurances that any one who purchases his wares will not lose. The investment-banker, by his own representations, deals in securities. Whoever intrusts his money to him may sleep soundly, undisturbed by fears of loss. These representations are, moreover, true. Only a small, almost negligible fraction of the bonds placed through banking-houses of the first class are ever in trouble.

Still, losses and defaults sometimes occur. I have before me a circular letter addressed to the bond-holders of a manufacturing concern, now in receivers' hands, by a protective committee, inviting deposit of bonds for mutual defense and protection. The St. Louis and San Francisco bond-holders are making similar appeals. Such cases of default are fortunately rare. They do occur, however, and the investor who is thinking about the purchase of bonds will do well to have