The Hopeful Outlook 261 
senior securities. That is, the common stock absorbs 
the advantage which bonds, because of their fixed 
return in dollars, cannot absorb. The common stock 
will go up to the extent that the bonds and preferred 
stocks cannot go up. 
A Public Schooled in Borrowing 
There had been an initial rise in the value of 
common stocks because the dollar had depreciated 
in purchasing power during the war, and here again 
common stocks, because of this equity principle, 
absorbed the lion's share of increased dollar earn- 
ings. It was not until the general public realized 
that stock prices should rise even faster and higher 
than the rise in the post-war level of commodity 
prices that the great boom in common stocks 
began. 
Investment had also been encouraged by the war 
“drives” to promote the sale of government bonds. 
The public had been trained to “borrow to buy 
bonds” and from that it was but a step to borrow- 
ing to buy common stocks. 
After the war and post-war inflation and deflation 
came the stabilizing of all prices on a higher level, 
and on top of this stabilization came the marvelous 
increase in the rate of production, with resultant 
rises in earnings and in the rate at which earnings 
were plowed back into business. All this justified 
the expectation of prosperity and boosted the stock 
price level still higher. Industry had found that in 
its research laboratories, staffed by scientists from