第20章

cap’=cap+cap/n>cap，inwhichcap’isthenominalcapital，asincreasedbythecreditelementcap/n。

mat’=mat+(1/n)(cap/n)>mat，inwhichmat’isthecurrentvalueofthematerialequipment，asincreased(overmat)bythecompetitivedemandforequipmentduetothecreditelementcap/n。

Oneofthesubstantialsecondarybenefitstobenotedasflowingfromthesemodembusinessexpedientsistheeffectofcorporationfinanceupontheaggregatenominalwealthofthecommunity。A

givencommunity，possessedofagivencomplementofmaterialwealth，isricherincapitalifalargeproportionofitsindustrialequipmentiscapitalizedandmanagedbycorporationmethods，quiteapartfromanyincreaseinthematerialitemsofwhichthecommunityispossessed。(Cf。TwelfthCensusoftheUnitedStates，“Manufactures，“pt。I。p。xcvi)Wealthmayinthiswaybeincreased(abouttwofoldonanaverage)，inexpensively，bythesimpleexpedientofincorporatingthecommunity’sbusinessconcernsintheformofjoint-stockcompanies。Themorehighlyinvolvedandthemorewidelyextendedthecorporationfinancieringis，thericher，instatisticaltermsofcapital，isthecommunity，otherthingsequal。Amongtheseotherthingsarethematerialfactsofthecase。

Thecommoditiesboughtandsoldinthegoodsmarketaretheoutcomeofaprocessofproductionandareusefulforamaterialpurpose；thoseboughtandsoldinthecapitalmarketaretheoutcomeofaprocessofvaluationandareusefulforpurposesofpecuniarygain。

Cf。Marx，Kapital(4thed。)bk。I，ch。IV。

Effectivecapital=currentmarketvalueofnominalcapital=

presumptiveearningcapacityxpurchaseperiod，neglectingfortuitousandincalculableitemswhichmayaffectanygivencase。

Ifnominalcapital=cap，effectivecapital=cap’，presumedannualearnings=ea’，andthepurchaseperiodofcapitalizedproperty(years’purchase)=yp=1/interestrateperannum，wehavecap<>cap’=ea’xyp=ea’/int。

Thisequationbetweencap’andea’isdisturbedbythepresenceinanygivencaseofvariablefactorswhichcannotbeincludedintheequation，butitremainstrueafterallqualificationhasbeenmadethatcap’=f(ea’/int)。

20。Somethingofthiskindistheusualgroundoftheobstinateresistancewhichmostbusinessmenopposetopublicityofaccounts。Inlinesofbusiness，as，e。g。railroading，inwhichaccountsarereadilyandeffectuallysophisticated(“doctored“)，theobjectionstopublicityarecommonlylessstrenuous。

Cf。，e。g。，Eberstadt，DeutscheKapitalismarkt。

Thecapitalofanyindustrialconcernunderthe“moneyeconomy“is，ofcourse，alsovendible，butwithrelativedifficulty；whilethereadiervendibilityofmoderncorporatecapitalissocharacteristicandconsequentialafactorinbusinessandcontrastssobroadlywiththeold-fashionedbusinessmethodsthatitmayfairlybespokenofasvendibilityparexcellence。The“holdingcompany“isthematuredevelopmentofthistrafficinvendiblecapitalinindustrialbusiness。

onp。95above)becomes，underthecircumstancesofthemoderncorporationfinance，ingreatpartaquestionoftheintervalbetweenthepurchaseandsaleofthecapitalengagedinindustryontheonehand，andofthemagnitudeofthediscrepancybetweenactualandputativeearning-capacityontheotherhand，ratherthanaquestionoftheperiodoftheindustrialprocessandthemagnitudeoftheoutputanditsprice。

Theformulathereshownbecomes:——

turnover=capital/time(actualearningcapacity/n=putativeearningcapacity-actualearningcapacity)

inwhichcapitalistheamountoftheoperator’sinvestmentintheconcern’ssecurities，thetimeistheintervalbetweenpurchaseandsaleofthesecurities，andtheputativeearningcapacityistakentoexceedtheactualearningcapacitybyanindeterminatefractionofthelatter。

Cf。Emery，“PlaceoftheSpeculatorintheTheoryofDistribution。“ProceedingsofthetwelfthannualmeetingoftheAmericanEconomicAssociation；also“Discussion“followingMrEmery’spaper。

WellshowninMrEmery’spapercitedabove。

Asistrueofgood-willandcreditextensionsgenerally，sowithrespecttothegood-willandcreditstrengthofthesegreaterbusinessmen；itaffordsadifferentialadvantageandgivesadifferentialgain。Inthetrafficofcorporationfinancethisdifferentialgainisthrownimmediatelyintotheformofcapitalandsoisaddedtothenominalcapitalizedwealthofthecommunity。Whatitgivestoitsholdersinthiscapitalizedformisaclaimtoaproportionateshareintheexistingwealth。Ifotherthingsaresupposedtoremainthesame(whichmaynotbethecase)，theclaimsoenforcedbythegreatfinanciersonthebasisofgood-willandcreditextensiondeductsthatmuchfromthewealthheldbytherest，thepreviousholders，ascountedintermsofmaterialwealth；ascountedintermofmoneyvalue，ofcourse，theholdingsofpreviousholdersdo(orneed)notsuffer，sincethenewclaimtaketheformofaneditiontothenumberofcapitalizedvalueunits，althoughtheincreasedaggregatenumberofvalueunitsconstitutesaclaimonthesameaggregatemassofwealthasbefore。Theproratareductionofthematerialmagnitudeoftheseveralsharesofwealthisnotfeltasanimpoverishment，becauseitdoesnottaketheformofareductionofthenominalvalueoftheshares。

Thiscapitalizationofthegainsarisingfromadifferentialadvantageresultsinalarge“saving“andincreaseofcapital。

Thewealthsodrawninbythefinanciers(entrepreneurs)isnearlyallheldascapital，verylittleofitbeingconsumedincurrentexpensesofliving。Ithasbeencogentlyarguedthattheprofitsoftheundertakersisthechiefandnormalsourceofcapitalizedsavingsinthemodernsituation，andthemethodhereindicatedseemtobethemethodbywhichsuchsavingischieflyeffected。Anextremelysuggestivediscussionoftheundertaker’sgainsinthisconnectionoccursinapaperbyL。V。Birck(“DriftsherrensGeviust“)，readbeforetheDanishEconomicAssociation，December1901。MoreimmediatelytothepointstillisV。Schou’sdiscussionofMrBirck’spaper。(SeeNationalokonomiskTidsskrift，January-February1902，pp。76，78-80)J。B。Clark，inlectureshithertounprinted，followsalineofanalysissomewhatcloselyparallelwithSchou，thoughnotcarriedtoquitethesamelength。

Thisprocessofcombinedrecapitalizationandsavingmaybestatedformallyasfollows:Theinitialvalueofthepropertiessubmittedforcoalitionandrecapitalization，cap，isinthenormalcaseaugmentedbytheincrementdelta，makingtheeffectivevalueoftheproperties=cap+delta，ineffectiveunits，Uc。Thisaugmentedeffectivevalueoftheproperties=

Uc(cap+delta)iscapitalizedatanominalvalueofcap’=

Un(cap+delta)，innominalunits，Un，nominallyequivalenttoUc。Intherecapitalizationthenumberofunitsofcapitalizationisincreasedbyanelementofintangibleassetsassignedtheownersonaccountofapresumedincreaseofearning-capacityduetothecoalition。Thiselementofgood-willduetocoalitionmaybecalledco。Furtherthereisaddedthebonusofthepromoter，takenasablockofstockinthenewcapitalization，pro。HenceUn(cap’)=Un(cap+delta)=Un(cap+co+pro)。Un(pro)=Un(cap’-cap-co)=Un(delta-co)isevidentlyasecuregaintothepromoterofUc(delta-co)，whichisafractionoftheeffectivevalueUc(cap+delta)。Thisissavedbyhiminthecapitalizedform。Theaccountoftheformerownersofthepropertieswillthenstandasfollows:Uc(cap+delta-pro)<>

Uc(cap)accordingasUcdelta<>Uc(pro)。Thenominalgainoftheowners，co，mayormaynotbearealgainaccordingastheeventmayprovethatthepromoter’sbonushasnotorhasabsorbedtheentireeffectiveaugmentationofvalue，delta，duetothecoalition；itisthereforeaproblematicalgain，whichmayormaynot，intheevent，provetobeaneffectiveelementofcapitalizedsavings。

Theconstitutionofdeltawilldecidewhatistheultimatesourceofthesavingseffectedbythistransaction。Ifdeltaconsistsentirelyofeconomiesofproduction，thecapitalizedsavingsheldbythepromoterandformerownersasaresultofthetransactionrepresentnewvaluesaddedto，orsavedto，theaggregatewealthofthecommunity。Ifdeltaconsistsentirelyofgood-willintheshapeofmonopolyadvantage，thesavingiseffectedatthecostofthecommunityandforthebenefitofthepromoterandowners；itisthenaninvoluntaryorsubconscioussavingonthepartofthecommunity，wherebyapartofthecommunity’swealthatlargepassesintothehandsoftherecapitalizedcorporation。Wheredeltaismadeupofthesetwoconstituentstogether，theresult，asregardsthepresentpoint，shouldbeplainwithoutdiscussion。If，ontheotherhand，delta=0，sothatcap’=cap，thenthepromoter’ssavings；pro，aresecuredatthecostoftheformerowners；Uc(cap’-pro)=Uc(cap+(delta=0)-pro)=Uc(cap-pro)。WhereasifUc(pro)=

Uc(delta)，Uc(co)=0，leavingtheownerswithouteffectiveprofitorlossinspiteofanynominalincreaseofthecapitalization。

Good-will“inthisfieldofenterprisemostfrequentlytakestheformofalargeabilitytohelporhinderotherfinanciersandfinancinghousesinanysimilarmanoeuvresinwhichtheymaybeengaged，oranabilitytoputtheminthewayoflucrativefinancingtransactions。Theguildoffinanciersiscommonlysplitupintomoreorlesswell-definedfactions，eachcomprisinganextensiveramificationoffinancinghousesandfinanciersfurtheringoneanother’sendeavorsundermoreorlesssettledworkingarrangements。Theseworkingarrangementsarealargepartofthefinanciers’“good-will。“

Thiscategoryofgood-willstandsinarelationtothecreationofvendiblecapitalsimilartothatwhichthecorporategood-willofanindustrialbusinessconcernbearstothecreationofvendibleproducts。

Parentheticallyitmayberemarkedthatthefailuretocapitalizesuchitemsofgood-willislikelytoinvolveavirtualevasionofthetaxonpersonalproperty，andmay，therefore，bequestionableonmoralgrounds。

ThecaseofJ。P。MorganandCompanyis，ofcourse，notherecitedasbeingauniqueorpeculiarinstance，butsimplyasatypicalandstrikingillustrationofwhathappensandofwhatmightbeaccomplishedinanumberoflargeandveryconsequentialcasesofthesameclass。

Thisdissociationofthebusinesscontrolfromworkmanlikeefficiencyandfromimmediatecontactwithorownershipoftheindustrialplantgivestheexistingsituationasuperficialresemblancetothefeudalsystem，insofarastouchestheimmaterialityofthecaptain’sconnectionswiththeeverydaylifeandinterestsofthecommunityofwhoseaffairsheismaster。Itgivesacertainplausibilitytotheattemptedinterpretationoflatter-dayeconomicdevelopmentsinfeudalisticterms-SeeGhent，OurBenevolentFeudalism。

TheTheoryofBusinessEnterprisebyThorsteinVeblen1904

TheTheoryofModernWelfareBeforebusinessprinciplescametodominateeverydaylifethecommonwelfare，whenitwasnotaquestionofpeaceandwar，turnedontheeaseandcertaintywithwhichenoughofthemeansoflifecouldbesupplied。Sincebusinesshasbecomethecentralandcontrollinginterest，thequestionofwelfarehasbecomeaquestionofprice。Undertheoldregimeofhandicraftandpettytrade，dearth(highprices)meantprivationandmightmeanfamineandpestilence；underthenewregimelowpricescommonlymeanprivationandmayonoccasionmeanfamine。Undertheoldregimethequestionwaswhetherthecommunity’sworkwasadequatetosupplythecommunity’sneeds；underthenewregimethatquestionisnotseriouslyentertained。

Butthecommonwelfareisinnolessprecariousacase。Theproductiveefficiencyofmodernindustryhasnotdoneawaywiththerecurrenceofhardtimes，orofprivationforthoseclasseswhoseassuredpecuniarypositiondoesnotplacethemabovethechancesofhardtimes。Distressmaynotbesoextremeinmodernindustrialcommunities，itdoesnotreadilyreachthefaminemark；butsuchadegreeofprivationasisimpliedintheterm“hardtimes“recursquiteasfreelyinmoderncivilizedcountriesasamongtheindustriallylessefficientpeoplesonalowerlevelofculture。Theoscillationbetweengoodtimesandbadisaswideandasfrequentasever，althoughtheaveragelevelofmaterialwell-beingrunsatahighermarkthanwasthecasebeforethemachineindustrycamein。