Page:Walter Renton Ingalls - Wealth and Income of the American People (1924).pdf/229

Rh revelation of these figures is that the increase in dividends was so little, having been far out of proportion to the increase in either the gross or net national income. This leads directly to the questions—Did the corporations accumulate great surpluses and if so what did they do with them? The matter of corporate surpluses is controversial and I must therefore go into it to some length.

It is indisputable, of course, that the accumulations as corporate surplus in any year are a part of the gross income of that year. The controversial questions are: (1) Is such surplus net income; (2) if it be net income is it an addition to the wealth of the country if it be retained by the corporations; and (3) how should it be figured in estimates of the division of income.

Before going any further, let us summarize the forms in which corporate surplus commonly exists. These are (a) cash, (b) negotiable securities, (c) outstanding accounts, (d) inventoried goods, and (e) additions to plant. Of these, (a) and (b) may be classed as liquid, (c) and (d) are viscous, so to speak, and (e) is solid.

The purpose of accumulating corporate surplus is (a) to insure regularity of dividends; and (0) to increase dividends by increasing the earning power of the corporation.

The ultimate purpose of a commercial corporation is the payment of dividends to its stockholders. If more money is earned in a year than is paid out, the stockholders do not derive benefit from the surplus until it is paid out. It is true that an individual stockholder, or the whole body of stockholders, may dispose of their holdings at an appreciation in price, but if they do so they are simply anticipating the dividends to come.