84 NATURE OF CAPITAL AND INCOME [Cuar. V 
purpose of minimizing this risk, but it cannot eliminate it 
altogether. 
§ 12 
The principle that a creditor of a concern is a risk-taker 
has two important corollaries. The first is that, when 
bankruptey occurs, though the nominal liabilities exceed 
the assets, their actual value does not. We may say that 
so far as their actual value is concerned, the value of the 
liabilities of a company can never be greater than the 
assets, for they derive their value from these assets. A com- 
pany which can pay only fifty cents on the dollar must have 
its obligations classified as “bad debts,” worth only half 
their nominal amount. This fact does not, of course, 
justify the intentional repudiation of debts. Some states 
of the United States have, it is true, attempted to reduce 
the burden of their debt by offering to buy up their 
own bonds at their market price, when this price was 
below par, owing to a lack of confidence in their ultimate 
redemption. Such an operation is evidently a species of 
repudiation. 
On the other hand, we must not regard it as an unfor- 
givable sin for the bona fide bankrupt not to pay his debts 
in full. So long as the creditor understands in advance 
the nature of the risk he is taking, he must abide by the 
result. Nowadays, in the case of investments in large 
corporations, this is perfectly well understood. Many 
railroads have been bonded for almost their entire cost, the 
bondholder realizing fully that he could obtain nothing 
unless the road was a success. This participation in risk 
is particularly evident in the case of income bonds, which 
specifically pay interest only so long as the road’s income 
is adequate. 
The principle that the true value of the liabilities isderived 
from the assets and can never exceed them may seem to 
have an exception in the case of a person who succeeds 
in borrowing money “without capital.” It is clear, how-