THE PROBLEM OF PROFITS 157

substantially accepted and acted upon by the shareholders
and their board of directors. The responsibility becomes
theirs, they suffer reduction of dividends or loss of capital if
the policy be unsuccessful, and to them accrue the advantages
of a successful policy in increased dividends and appreciation
in value of their shares.
A question arises whether the risk-taking function), over
the whole field of industry, secures any distinct distributive
share of the product. Some bodies of shareholders gain,
Others lose. Is it necessary for gains to outweigh losses in
order to ensure that capitalists will take risks? Capitalists
can avoid some risks in investing their capital, by selecting
those investments which carry a minimum of risk. Government
 bonds, debentures, or even preference shares, involve less
tisk than ordinary shares of industrial enterprises. Is there
anything more involved, in the selection of the latter rather
than the former, than a disposition to take risks, and a willingness
 to take them if they bring a right of control with them?
lt seems probable that some residual compensation for risktaking
 is necessary, that if ordinary shares are to have the
Same capital value as mortgage debentures of the same
business, the probable return on the former must exceed that
on the latter. If large sums were invested in a wide variety
of these two kinds of securities, the average netted on the
Shares would be somewhat higher, in all probability, than
that secured on the debentures, the difference representing
the valuation of the risk, the remuneration for risk-taking :
in this case the more exact mode of expression would be to
refer, not to the risk-taking absolutely, but to the difference
between the risk-taking in the two classes of investments.
It has been stated above that the right of control and the
Assumption of risks of management go together. So far as
the risk is one which wise management can reduce, the
association is quite natural. Risks are associated with all
kinds of investments, and the investor can secure some
Compensation for selecting his risks wisely in a higher return
aS the result of that selection, The ordinary shareholder
10t only takes the risk of what may happen to the property
of the concern whose shares he buys, but has at any rate a