h open and concealed, is the shareholders' exclusive
property. But realities have a way of differing from forms, and just
as in political affairs it is common to regard the State as a very
different thing to the people who compose it, as a sublime entity with
a separate existence of its own, so directors are apt to distinguish
between the company and the shareholders. It is the company to which
they owe allegiance. To pay away in dividends to shareholders money
which they could employ in extending the business or strengthening the
position of the company appears to some directors a necessity hardly
less unpleasant than an increased wages bill, or an Excess Profits
Duty. Concessions must indeed be made to the shareholders' rapacity:
but when something has been done in this direction, dust can easily be
thrown in their not very observant eyes. Reserves, which within
limits are a necessity of sound finance, can be accumulated beyond
those limits, and, when the further limits of an extreme but just
arguable conservatism have been passed, there remain the innumerable
devices, known to every resourceful Board, of hidden reserves, the
secret of which is unmenaced by the meager information of a
balance-sheet. In all this the shareholder, as the directors
occasionally assure themselves, has no real grievance, for he will
gain in the long run, from the appreciation in the capital value of
his shares, all and perhaps more than all that he foregoes in the
meantime in the way of dividends.

In the long run the shareholder is not injured; but in the meantime he
is in effect compelled, without any consciousness of the proceeding,
to save and to reinvest in the company a portion of the dividends,
which he might otherwise have spent. The reserves which are
accumulated are not allowed to lie idle: they are employed either in
what are really capital extensions of the business, or in the purchase
of outside securities, and in either case they represent an increase
in the total supply of capital. The principal which these proceedings
represent is capable of indefinite extension.

But however possible it might be to secure a supply of capital without
the inducement of a rate of interest, that rate is indispensable for
dealing with the demand. It is no good saying, "Three per cent seems
a fair rate of interest; let us try and limit it to that." Given the
amount of savings which are supplied, the rate of interest must be
allowed to reach wha