course, may be increased by
the advantages of amalgamation, but quite apart from that it is clear
that the market price of securities very often undervalues, as it
also, perhaps, still oftener overvalues, the real position of the
companies on whose earning powers they represent claims. In any case,
there is the fact that these capitalisations of reserve funds, which
make no real difference to the actual position of the company, are
universally regarded, in the language of the Stock Exchange, as "bull
points." It is assumed, of course, that the directors would not carry
out such an operation unless they saw their way to a higher earning
power in the future as a justification for the larger capital. In this
expectation the directors might be right or wrong, and, even if they
are right, that prospect of higher earning power, if market prices
could be relied upon to express the true position of a company, would
have been "in the price."

There is another kind of Bonus share, which is not exactly a Bonus
share, but carries a bonus with it. This comes into being when the
directors of a company sell new shares to existing shareholders at a
price below the terms which they might have obtained if they made a
new issue to the general public. The classical example of this system
is the Aerated Bread Company, that concern to which City clerks and
journalists and others owe so much as pioneers of cheap and simple
catering. It will be remembered that in the palmy days of this
company, before it had been severely cut into by competition, its L1
shares used to stand in the neighbourhood of L15. The directors used
then to make issues of new shares to existing shareholders at their
face value, that is to say, at L1 per share, although it was obvious
that if they had made a public issue inviting all and sundry to
subscribe they could have sold their new issues at or above L14
per share. This system put an enormous bonus in the pockets of the
existing shareholders at the expense of the company and its future
prospects. The directors practically gave to the existing shareholders
a present of L130,000 if they sold them 10,000 new shares for L10,000,
which they and the public would have readily subscribed for at
L140,000. There was nothing wicked about the process, but it was
extremely short-sighted. If the company had retained the monopoly
which its pioneer work as a cheap caterer for a long time secured
it, it might have kept its prosperit