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

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СКАЧАТЬ and so on.⁶⁸ Capital and earnings are counted in terms of the money unit. Counted in these terms, the earnings (industrial output) are also increased by the process of iflation though credit, since the competitive Use of funds spoken of acts to bid up prices of whatever products are used in industry, and of whatever speculative property is presumed to have some eventual industrial use. But the nominal magnitude (value) of the earnings is not increased in as large a ratio as that of the business capital; since the demand whereby the values of the output are regulated is not altogether a business demand (for productive goods), but is in great part, and indeed in the last resort mainly, reducible to a consumptive demand for finished goods.⁶⁹

      Looking at credit extension and its use for purposes of capital as a whole, the outcome which presents itself most strikingly at a period of liquidation is the redistribution of the ownership of industrial property incident to the liquidation. The funds obtained on credit are in great measure invested competitively in the same aggregate of material items that is already employed in industry apart from the use of loan credit, with the result that the same range of items of wealth are rated at a larger number of money units. In these items of wealth - which, apart from the use of credit, are owned by their nominal owners - the creditors, by virtue of the credit extension, come to own an undivided interest proportioned to the advances which they have made. The aggregate of these items of property comes hereby to be potentially owned by the creditors in approximately the proportion which the loans bear to the collatcral plus the loans. The outcome of credit extension, in this respect, is a situation in which the creditors have become potential owners of such a fraction of the industrial equipment as would be represented by the formula: ⁷⁰

      loans/capitalization (=collateral + loans)

      In a period of liquidation this potential ownership on the part of the creditors takes effect to the extent to which the liquidation is carried through.⁷¹

      The precise measure and proportion in which the industrial property of the business community passes into the hands of the creditors in a period of liquidation can, of course, not be specified; it depends on the degree of shrinkage in values, as well as on the degree of thoroughness with which the liquidation is carried out, and perhaps on other still less ascertainable causes, among which is the degree of closeness of organization of the business community. It is, however, through the shrinkage of market values of the output and the industrial plant that the transfer of ownership to the creditor class takes place. In case no shrinkage of values took place, no such general transfer of ownership to the creditors as a class would become evident.

      In point of fact, the shrinkage commonly supervenes, in the course of modern business, when a general liquidation comes; although it is conceivable that the period of acute liquidation and its attendant shrinkage of values need not supervene. Such would probably be the case in the absence of competitive investment in industrial material on a large scale. Secondary effects, such as perturbations of the rate of interest, insolvency, forced sales, and the like, need scarcely be taken up here, although it may be well to keep in mind that these secondary effects are commonly very considerable and farreaching, and that they may in specific instances very materially affect the outcome.

      The theoretical result of this summary sketch of loan credit so far seems to be: (a) an extension of loan credit beyond that involved in the transference of productive goods from their owners to more competent users is unavoidable under the regime of competitive business - credit expansion is normally in some degree "abnormal" or "excessive"; (b) such a use of credit does not add to the aggregate of industrially productive equipment nor increase its material output of product, and therefore it does not add materially to the aggregate gross earnings obtained by the body of business men engaged in industry, as counted in material terms of wealth or of permanent values;⁷² (c) it diminishes the aggregate net profits obtained by the business men engaged in industry, as counted in such terms, in that it requires them to pay interest, to creditors outside the industrial process proper, on funds which, taken as an aggregate, represent no productive goods and have no aggregate productive effect; (d) there results an overrating of the aggregate capital engaged in industry, compared with the value of the industrial equipment at the starting-point, by approximately the amount of the aggregate deposits and loans on collateral; (e) the overrating swells the business capital, thereby raises the valuation of collateral, and gives rise to a further extension of credit, with further results of a like nature; (f) commonly beginning at some point where the extension of credit is exceptionally large in proportion to the material substratum of productive goods, or where the discrepancy between nominal capital and earning-capacity is exceptionally wide, the overrating is presently recognized by the creditor and a settlement ensues; (g) on the consequent withdrawal of credit a forced rerating of the aggregate capital follows, bringing the nominal aggregate into approximate accord with the facts of earning-capacity; (h) the shrinkage which takes place in reducing the aggregate rating of business capital from the basis of capital goods plus loans to the basis of capital goods alone, takes place at the expense of debtors and nominal owners of industrial equipment, in so far as they are solvent; (i) in the period of liquidation the gain represented by the credit inflation goes to the creditors and claimants of funds outside the industrial process proper, except that so much as is cancelled in bad debts is written off; (j) apart from secondary effects, such as heightened efficiency of industry due to inflated values, changes of the rate of interest, insolvency, etc., the main final outcome is a redistribution of the ownership of property whereby the creditor class, including holders and claimants of funds, is benefited.

      Since the modern industrial situation began to take form, there have been two principal forms of credit transactions current in the usage of the business community for the purpose of investment: the old-fashioned loan, the usage of which has come down from an earlier, day. and the stock share, whereby funds are invested in a joint stock company or corporation. The latter is a credit instrument, so far as touches the management of the property represented, in that (in earlier usage at least) it effects a transfer of a given body of property from the hands of an owner who resigns discretion in its control to a board of directors who assume the management of it. In addition to these two methods of credit relation there has, during the late-modern industrial period, come into extensive use a third class of expedients, viz. debentures of one form and another - bonds of various tenor, preferred stock, preference shares, etc., ranging, in point of technical character and degree of liability, from something approaching the nature of a bill of sale to something not readily distinguishable in effect from a personal note. The typical (latest and most highly specialized) instrument of this class is the preferred stock. This is in form a deed of ownership and in effect an evidence of debt. It is typical of a somewhat comprehensive class of securities in use in the business community, in the respect that it sets aside the distinction between capital and credit. In this respect, indeed, preferred stock, more adequately perhaps than any other instrument, reflects the nature of the "capital concept" current among the up-to-date business men who are engaged in the larger industrial affairs.

      The part which debenture credit, nominal and virtual, plays in the financing of modern industrial corporations is very considerable, and the proportion which it bears in the capitalization of these corporations apparently grows larger as time passes and shrewder methods of business gain ground. In the field of the "industrials" proper, debenture credit has not until lately been employed with full effect. It seems to be from the corporation finance of American railway companies that business men have learned the full use of an exhaustive debenture credit as an expedient for expanding business capital. It is not an expedient newly discovered, but its free use, even in railway finance, is relatively late. Wherever it prevails in an unmitigated form, as with some railway companies, and latterly in many other industrial enterprises, it throws the capitalization of the business concerns affected by it into a peculiar, characteristically modern, СКАЧАТЬ