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

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СКАЧАТЬ position in relation to credit. When carried out thoroughly it places virtually the entire capital, comprising the whole of the material equipment, on a credit basis. Stock being issued by the use of such funds as will pay for printing the instruments, a road will be built or an industrial plant established by the use of funds drawn from the sale of bonds; preferred stock or similar debentures will then be issued, commonly of various denominations, to the full amount that the property will bear, and not infrequently somewhat in excess of what the property will bear. When the latter case occurs, the market quotations of the securities will, of course, roughly adjust the current effective capitalization to the run of the facts, whatever the nominal capitalization may be. The common stock in such a case represents "goodwill," and in the later development it usually represents nothing but "good-will."⁷³ The material equipment is covered by credit instruments debentures. Not infrequently the debentures cover appreciably more than the value of the material equipment, together with such property as useful patent rights or trade secrets; in such a case the good-will is also, to some extent, covered by debentures, and so serves as virtual collateral for a credit extension which is incorporated in the business capital of the company. In the ideal case, where a corporation is financed with due perspicacity, there will be but an inappreciable proportion of the market value of the company's good-will left uncovered by debentures. In the case of a railway company, for instance, no more should be left uncovered by debentures than the value of the "franchise," and probably in most cases not that much actually is uncovered.

      Whether capitalized good-will (including "franchise" if necessary) is to be rated as a credit extension is a nice question that can apparently be decided only on a legal technicality. In any case so much seems clear - that good-will is the nucleus of capitalization in modern corporation finance. In a well financed, flourishing corporation, good-will, indeed, constitutes the total remaining assets after liabilities have been met, but the total remaining assets may not nearly equal the total market value of the company's good-will; that is to say, the material equipment (plant, etc.) of a shrewdly managed concern is hypothecated at least once, commonly more than once, and its immaterial properties (good-will), together with the evidences of its indebtedness, may also to some extent be drawn into the hypothecation.⁷⁴

      What has just been said of the part borne by good-will and debentures in the capitalization of corporations should be taken in connection with what was said above (pp. 100-104) as to the nature of the securities offered as collateral in procuring a credit extension. The greatcr part of the securities used as collateral, and so "coined into means of payment," are evidences of debt, at the first remove or farther from their physical basis, instruments of credit recording a previous credit extension.

      In the earlier period of growth of this debenture financiering in industry, as, e.g., in the railroad financiering of the third quarter of the nineteenth century, the process of expansion by means of debenture credit, in any given case, was worked out gradually, over a more or less extended period of time. But as the possibilities of this expedient have grown familiar to the business community, the time consumed in perfecting the structure of debentures in each case has been reduced; until it is now not unusual to perfect the whole organizztion, with its load of debentures, at the inception of a corporate enterprise. In such a case, when a corporation starts with a fully organized capital and debt, the owners of the concern are also its creditors; they are, at the start, the holders of both common and preferred stock, and probably also of the bonds of the company - so adding another increment of confusion to the relation between modern capital and credit, as seen from the old-fashioned position as to what capitalization and its basis should be.

      This syncopated process of expanding capital by the help of credit financiering, however, is seen at its best in the latter-day reorganizations and coalitions of industrial corporations; and as this class of transactions also illustrate another interesting and characteristically modern feature of credit financiering, the whole matter may best be set out in the way of a sketch of what takes place in a case of coalition of industrial corporations on a large scale such as recent industrial history has made familiar.

      The avowed end of these latter-day business coalitions is economy of production and sale and an amicable regulation of intercorporate relations. So far as bears on the functioning of credit in the attendant business transactions, the presence or absence of these purposes, of course, does not affect the course of events or the outcome. These avowed incentives do not touch the credit operations involved. On the other hand, the need of large credit in consummating the deal, as well as the presumptive gains to be drawn from the credit relations involved, offer inducements of their own to men who are in a position to effect such a coalition. Inducements of this kind seem to have been of notable effect in bringing on some of the recent operations of this class.

      Credit operations come into these transactions mainly at two points: in the "financing" of the deal, and in the augmentation of debentures; and at both of these points there is a chance of gain on the one hand to the promoter (organizer) and the credit house which finances the operation, and on the other hand to the stockholders. The gain which accrues to the two former is the more unequivocal, and this seems in some cases to be the dominant incentive to effect the reorganization. The whole operation of reorganization may, therefore, best be taken up from the point of view of the promoter, who is the prime mover in the matter.

      A reorganization of industrial concerns on a large scale, such as are not uncommon at the present time, involves a campaign of business strategy, engaging, it is said, abilities and responsibilities of a very high order. Such a campaign of business strategy, as carried out by the modern captains of industry, runs, in the main, on credit relations, in the way of financial backing, options, purchases, leases, and the issuance and transfer of stock and debentures. In order to carry through these large "deals," in the first place, a very substantial basis of credit is required, either in the hands of the promoter (organizer) himself or in the hands of a credit house which "finances" the organization for him.

      The strategic use of credit here involved is, in effect, very different from the old-time use of loan credit in investments. In transactions of this class the time element, the credit period, is an inconspicuous factor at the most; it plays a very subordinate and uncertain part. The volume of credit at the disposal of a given strategist is altogether the decisive point, as contrasted with the lapse of time over which the incident credit extension may run. The usefulness of the credit extension is not measured in terms of time, nor are the gains which accrue to the creditor in the case proportioned to the length of time involved.

      This follows from the peculiar nature of the work which these great captains of industry have in hand, and more remotely, therefore, from the peculiar character of the earnings which induce them to undertake the work. Their work, though it is of the gravest consequence to industry, is not industrial business, in that it is not occupied with anything like the conduct of a continuous industrial process. Nor is it of the same class as commercial business, or even banking business, in that there is no investment in a continued sequence of transactions. It differs also from stock and produce speculation, as that is currently conceived,⁷⁵ in that it does not depend on the lapse of time to bring a change of circumstances; although it has many points of similarity with stock speculation. In its details this work resembles commercial business, in that it has to do with bargaining; but so does all business, and this peculiar work of the trust promoter differs from mercantile business in the absence of continuity. Perhaps its nearest business analogue is the work of the real estate agent.

      The volume of credit involved is commonly very great; whereas the credit period, the lapse of time, is a negligible factor. Indeed, if an appreciable credit period intervenes, that is a fortuitous circumstance. The time element in these credit operations is in abeyance, or at the best, it is an indeterminate magnitude. Hence the formula shown above (p. 95, n. 3) is practically not applicable to business of this class. So far as bears upon the credit operations involved in these transactions СКАЧАТЬ