STOCK DIVIDENDS 
15 
and war materials and supplies of every description. The entry of 
the United States into the struggle in 1917 intensified enormously the 
demand for such commodities. Scores of new plants were erected 
3nd, Fyndreds of others enlarged or reconstructed to produce these 
goods. 
The financing resulting from this war-time demand required great 
outlays of capital. While a large amount of the funds were doubtless 
obtained by the sale of securities, the ever-increasing demand for goods 
rendered large reinvestments from earnings necessary as well as profit- 
able. This condition was further accentuated by the war loans, to 
which corporations liberally subscribed. 
Some idea of the increase of the reinvestment of profits in this 
period may be gathered from the figures of 2,971 corporations which 
paid one or more stock dividends in the 14 years from 1913 to 1926, 
inclusive. As of about January 1, 1913, the entire net worth of these 
2,971 corporations amounted to $2,936,196,358. In the succeeding 
seven years these corporations reinvested in the budiness over two 
billion, representing an increase of over 70 per cent in seven years.! 
(Table 8, p. 12.) 
Other factors in the situation which contributed to the reinvestment 
of profits in this period were the excess-profits taxes on corporation 
incomes and the heavy surtaxes on individual incomes. For the last 
three years of the period from 1913 to 1919, inclusive, corporation 
incomes were subjected to high war and excess-profits taxes, varying 
directly with the rate of return on the invested capital. The high 
rates of these taxes furnished a strong inducement to keep the invest- 
ment large in order to reduce the amount of taxes. Any distribution 
by way of cash dividends necessarily involved reduction in the invest- 
ment, since it reduced the corporate surplus which constituted a part 
of the invested capital on which the amount of the tax was based. 
Beginning in 1917 heavy surtaxes ? were also imposed upon individual 
incomes of over a few thousand dollars. These taxes increased pro- 
gressively with increases in individual incomes, and reached very 
high rates in the higher-income classes. From 1917 on, therefore, 
large cash distributions were not favorably regarded by large share- 
holders, because of possible heavy increases in surtaxes. Since the 
stockholders subject to high surtaxes were most likely to be the 
larger shareholders, and especially influential in corporation financial 
management, it is a fair assumption that this situation likewise 
militated against the distribution of cash dividends and tended to 
cause the retention of the large war-time profits in the business. 
From the standpoint of the corporation, however, it was generally 
immaterial, so long as its invested capital was high, whether this 
investment was represented by surplus or capital stock. So far as a 
corporation was concerned, therefore, there was no objection such as 
existed in the case of cash distributions, to the payment ofliberal 
stock dividends, because this involved merely the transfer of surplus 
to capital stock account, and did not affect the amount of the invested 
1 This is subject to some qualification with reference to the fact that Plans and properties were in many 
instances reappraised at a higher value than appeared on the books at the beginning of the period. It is 
also likely, however, that certain of the more conservative corporations charged off against surplus during 
1919 some of their investment partictiaciy unadaptable to peace-time production. It may be assumed, 
Bowerer, that Toes in investment through reappraisal were much greater than any similar reductions 
prior to Jan. 1, 1920. 
1 Surtaxes were also’imposed by both the 1913 and 1916 acts, but these taxes were relatively very low.