Business & Economics Collection: Thorstein Veblen Edition (30+ Works in One Volume). Thorstein Veblen

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СКАЧАТЬ time-saving industrial processes. Improvements of industrial plant and industrial processes having this in view are gaining in importance in the later developments of business, since a closer attention is now given to the time element in investments, and great advances have been made in this direction.⁵⁵ A second expedient for accelerating the rate of turnover is the competitive pushing of sales, through larger and more urgent advertising and the like. It is needless to say that this means of accelerating business also receives due attention at the hands of modern business men.

      But the magnitude of the turnover, "the volume of business," is of no less consequence than its rapidity. It is, of course, a trite commonplace that the earnings of any industrial business are a joint function of the rate of turnover and the volume of business.⁵⁶ The business man may reach his end of increased earnings by either the one or the other expedient, and he commonly has resource to both if he can. His means of increasing the magnitude of the turnover is a resort to credit and a close husbanding of his assets. He is under a constant incentive to increase his liabilities and to discount his bills receivable. Indebtedness in this way comes to serve much the same purpose, as regards the rate of earnings, as does a time-saving improvement in the processes of industry.⁵⁷ The effect of the use of credit on the part of a business man so placed is much the same as if his capital had been turned over a greater number of times in the year. It is accordingly to his interest to extend his credit as far as his standing and the state of the market will admit.⁵⁸

      But on funds obtained on credit the debtor has to pay interest, which, being deducted from the gross earnings of the business, leaves, as net gain due to his use of credit, only the amount by which the increment of gross earnings exceeds the interest charge. This sets a somewhat elastic limit to the advantageous use of loan credit in business. In ordinary times, however, and under capable management, the current rate of business earnings exceeds the rate of interest by an appreciable amount; and in times of ordinary prosperity, therefore, it is commonly advantageous to employ credit in the way indicated. Still more so in brisk times, when opportunities for earnings are many and promise to increase. To turn the proposition about, so as to show the run of business motives in the case: whenever the capable business manager sees an appreciable difference between the cost of a given credit extension and the gross increase of gains to be got by its use, he will seek to extend his credit. But under the regime of competitive business whatever is generally advantageous becomes a necessity for all competitors. Those who take advantage of the opportunities afforded by credit are in a position to undersell any others who are similarly placed in all but this respect. Speaking broadly, recourse to credit becomes the general practice, the regular course of competitive business management, and competition goes on on the basis of such a use of credit as an auxiliary to the capital in hand. So that the competitive earning capacity of business enterprises comes currently to rest on the basis, not of the initial capital alone, but of capital plus such borrowed funds as this capital will support.

      The competitive rate of earnings is brought to correspond with this basis of operation; the consequence being that under such competitive employment of credit the aggregate earnings of an enterprise resting on a given initial capital will be but slightly larger than it might have been if such a general recourse to credit to swell the volume of business did not prevail. But since such use of credit prevails generally, a further consequence is that any concern involved in the open business competition, which cannot or does not take recourse to credit to swell its volume of business, will be unable to earn a "reasonable" rate of profits. So that the general practice drives all competitors to the use of the same expedient; but since the advantage to be derived from this expedient is a competitive advantage only, the universality of the practice results in but a slight, if any, increase of the aggregate earnings of the business community. Borrowed funds afford any given business concern a differential advantage as against other competitors; but it is, in the main, a differential advantage only. The competitive use of such funds in extending business operations may, incidentally, throw the management of some portion of the industrial process into more competent or less competent hands. So far as this happens, the credit operations in question and the use of the borrowed funds may increase or diminish the output of industry at large, and so may affect the aggregate earnings of the business community. But, apart from such incidental shifting of the management of industry to more competent (or less competent) hands, this competitive use of borrowed funds has no aggregate effect upon earnings or upon the industrial output.

      The current or reasonable rate of profits is, roughly, the rate of profits at which business men are content to employ the actual capital which they have in hand.⁵⁹ A general resort to credit extension as an auxiliary to the capital in hand results, on the whole, in a competitive lowering of the rate of profits, computed on capital plus credit, to such a point as would not be attractive to a business man who must confine himself to the employment of capital without credit extension. On an average, it may be said, the aggregate earnings of the aggregate capital with credit extension are but slightly greater than the aggregate earnings of the same capital without credit extension would be in the absence of a competitive use of credit extension. But under modern conditions business cannot profitably be done by any one of the competitors without the customary resort to credit. Without the customary resort to credit a "reasonable" return could not be obtained on the investment.

      To the extent to which the competitive recourse to credit is of the character here indicated - to the extent to which it is a competitive bidding for funds between competent managers - it may be said that, taken in the aggregate, the funds so added to business capital represent no material capital or "production goods." They are business capital, only. they swell the volume of business, as counted in terms of price, etc., but they do not directly swell the volume of industry, since they do not add to the aggregate material apparatus of industry, or alter the character of the processes employed, or enhance the degree of efficiency with which industry is managed.

      The "buoyancy" which a speculative inflation of values gives to industrial business may indirectly increase the material output of industry by enhancing the intensity with which the industrial process is carried on under the added stimulus; but apart from this psychological effect the expansion of business capital through credit extension has no aggregate industrial effect. This secondary effect of credit inflation may be very considerable and is always present in brisk times. It is commonly obvious enough to be accounted the chief characteristic of a period of "prosperity." For a theory of industry this indirect effect of credit inflation would be its main characteristic, but for a theory of business it occupies the place of a corollary only.

      To the view set forth above, - that borrowed funds do not increase the aggregate industrial equipment, - the objection may present itself that all funds borrowed represent property owned by some one (the lender or his creditors), and transferred, in usufruct, by the loan transaction to the borrower; and that these funds can, therefore, be converted to productive uses, like any other funds, by drawing into the industrial process, directly or indirectly, the material items of wealth whose fluent form these funds are.⁶⁰ The objection fails at two points: (a) while the loans may be covered by property held by the lender, they are not fully covered by property which is not already otherwise engaged; and even if such were the case, it would (b) not follow that the use of these funds would increase the technical (material) outfit of industry.

      As to the first point (a): Loans made by the financial houses in the way of deposits or other advances on collateral are only to a fractional extent covered by liquid assets;⁶¹ and anything but liquid assets is evidently beside the point of the present question. An inconsiderable fraction of these loans is represented by liquid assets. The greater part of the СКАЧАТЬ