THIRD APPROXIMATION

to become a separate class. When enterprises came to beorganized in corporate form, this classification of inves-tors was recognized by dividing the securities into stocksand bonds, the stockholder being the person who assumesthe risk and, theoretically at least, guaranteeing that thebondholder shall be free of all risk. Which person shallfall into the class of risk-takers and which not is deter-mined by their relative coefficients of caution , 4 as wellas by the relative degree of risk which an enterprise wouldinvolve for the various individuals concerned. The sameenterprise may be perilous for one and comparatively safefor another because, of superior knowledge on the part ofthe latter, and the same degree of risk may repel oneindividual more than another, owing to differences intemperament or, most important of all, to differences inamount of available capital . 5

This shifting of risk from those on whom it bears heav-ily to those who can more easily assume it disclosesanother motive for borrowing and lending besides thosewhich were discussed in a previous chapter. Borrowingor lending in corporate finance usually indicates notsimply a difference in time shape as between two incomestreams, but also a difference of risk.The object of lend-ing which was emphasized in earlier chapters, before therisk element was introduced into the discussion, was toalter the time shape of the income stream, the borrowerdesiring to increase his present income and decrease hisfuture, and the lender desiring, on the contrary, to de-crease his present income and add to his future. But theordinary stockholder and bondholder do not differ in thisway so much as they do in respect to risk. They are both

4 See The Nature of Capital and Income, Chapter XVI, §6.

* Ibid., Appendix to Chapter XVI, p. 409.

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