Business & Economics Collection: Thorstein Veblen Edition (30+ Works in One Volume). Thorstein Veblen
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involved in this traffic in vendible capital commonly impose increased risks upon the business concerns engaged in industry - the corporations whose capital is involved, as well as other firms. The everyday business of the corporations whose securities are involved, as well as of other business concerns engaged in rival or related lines of industry, is rendered more hazardous than it might be in the absence of this financiering traffic in vendible capital. The manipulations carry risk, not so much to the manipulators as such, as to the corporations whose properties are the subject of manipulation; but since the manipulators commonly own but a relatively small proportion of the properties involved or touched by their manipulations, the risks which arise do not fall chiefly on them. To this is to be added, as of prime importance for the whole question, that the manipulators have the advantage of being able, in great part, to foresee the nature, magnitude, and incidence of the risks which they create. Rightly seen, this, of course, goes to say that the increased speculative risk due to the traffic in vendible capital does not fall on that traffic, but on the business enterprise engaged about the output of vendible goods. The traffic in vendible capital is not without its speculative risks, but the risks which it creates fall with relatively greater weight upon the business men who are not immediately concerned in this traffic. Indeed, so secure and lucrative is this class of business, that it is chiefly out of gains accruing, directly and indirectly, from such traffic in vendible capital that the great modern fortunes are being accumulated; and both the rate and the magnitude of these accumulations, whether taken absolutely or relatively to the total increase of wealth, surpass all recorded phenomena of their kind. Nothing so effective for the accumulation of private wealth is known to the history of human culture.
The aim and substantial significance of the "manipulations" of vendible capital here spoken of is an ever recurring recapitalization of the properties involved, whereby the effective capitalization of the corporations whose securities are the subject of the traffic is increased and decreased from time to time. The fluctuations, or pulsations, of this effective capitalization are shown by the market quotations of the securities, as noted above.107 It is out of these variations in capitalization that the gains of the traffic arise, and it is also through the means of these variations of capitalization that the business men engaged in this higher finance are enabled to control the fortunes of the corporations and to effect their strategic work of coalition and reorganization of business enterprises. Hence this traffic in vendible capital is the pivotal and dominant factor in the modern situation of business and industry.108 It has been noted above that what may be called the working capital on which this higher corporation finance proceeds is made up, chiefly, of two elements: the solvency (and consequent potential credit) of the men engaged, and the "good-will" of these men. Both of these elements are of a somewhat intangible and elusive character, resting, as they do, somewhat indirectly and shiftily on elements already elsewhere engaged in business enterprise. The solvency in question rests in large part on the capital of the corporations whose capitalization is subject to the fluctuations induced by the traffic in vendible capital. It is therefore necessarily a somewhat indeterminate and unstable magnitude. To this is to be added the "floating capital" and banking capital at the disposal of these men. If a common-sense view be taken of the business, the good-will engaged must also be added to the assets. There is involved a very considerable and very valuable body of good-will, appertaining to the financiers engaged and to the financing firms associated with them. This goodwill and this solvency is capital, for the purpose in hand, as effectually as the good-will and securities incorporated in the capitalization of any corporation engaged in industrial business.
But hitherto this particular category of goodwill has not been formally capitalized. There may be peculiar difficulties in the way of reducing this good-will to the form of a fund, expressing it in terms of a standard unit, and so converting it into quotable common stock, as has been done with the corresponding good-will of incorporated industrial enterprises. So also as regards the body of solvency engaged, - the potential credit, or credit capacity, of the promoters and financiers. Perhaps this latter had best also be treated as an element of good-will; it is difficult to handle under any other, more tangible, conception. It may be difficult to standardize, fund, and capitalize these unstable but highly efficient factors of business enterprise; but the successful capitalization of good-will and credit extensions in the case of the modern industrial corporations argues that this difficulty should not be insurmountable in case an urgent need, - that is to say, the prospect of a profitably vendible result, - should press for a formal capitalization of these peculiar elements of business wealth. There can be no question, e.g., but that the good-will and large solvency belonging to such a firm as J.P. Morgan and Company for the purposes of this class of business enterprise are an extremely valuable and substantial asset, as is also, and more unequivocally, the good-will of the head of that firm. These intangible assets, immaterial goods, should, in all consistency, be reduced to standard units, funded, issued as common stock, and so added to the statistical aggregate of the country's capitalized wealth.
It is safe to affirm that this good-will of the great reorganizer has in some measure entered in capitalized form into the common stock of the United States Steel Corporation, as also into that of some of the other great combinations that have latterly been effected. The "good-will" of Mr Carnegie and his lieutenants, as well as of many other large business men connected with the steel industry, has also no doubt gone to swell the capitalization of the great corporation. But good-will on this higher level of business enterprise has a certain character of inexhaustibility, so that its use and capitalization in one corporation need not, and indeed does not, hinder or diminish the extent to which it may be used and capitalized in any other corporation. The case is analogous, though scarcely similar, to that of the workmanlike or artistic skill of a handicraftsman, or an artist, which may be embodied in a given product without abating the degree of skill possessed by the workman. Like other good-will, though perhaps in a higher degree of sublimation, it is of a spiritual nature, such that, by virtue of the ubiquity proper to spiritual bodies, the whole of it may undividedly be present in every part of the various structures which it has created. Indeed, the fact of such good-will having been incorporated in capitalized form in the stock of any given corporation seems rather to augment than to diminish the amount at which it may advantageously be capitalized in the stock of the next corporation into which it enters. It has also the correlative spiritual attribute that it may imperceptibly and inscrutably withdraw its animating force from any one of its creatures without thereby altering the material circumstances of the corporation which suffers such an intangible shrinkage of its forces.
There can be no question but that the good-will of the various great organizers and their financiering houses has repeatedly been capitalized, probably to its full amount, in the common stock of the various corporations which they have created; but taken in the sense of an asset belonging to the financing house as a corporation, it is not known that this item of immaterial wealth has yet been formally capitalized and offered in quotable shares on the market or included in the schedules of personal property.
The sublimation of business capital that has been going forward in recent times has grave consequences for the owners of property as well as for the conduct of industry. In so far as invested property is managed by the methods of modern corporation finance, it is evident that the management is separated from the ownership of the property, more and more widely as the scope of corporation finance widens. The discretion, the management, lies in the hands of the holders of the intangible forms of property; and with the extension of corporation methods it is increasingly true that this management, again, centres in the hands of those greater business men who hold large blocks of these intangible assets. The reach of a business man's discretionary control, under corporation methods, is not proportioned simply to the amount of his holdings. If his holdings are relatively small, they give him virtually no discretion. Whereas if they are relatively large, they may give him a business discretion of much more than a proportionate reach. The effective reach of a business man's discretion might be said to increase as the square of his holdings; although this is to be taken as a suggestive characterization rather than as an exact formula.
Among the holdings of industrial property that count in this way toward control of the business situation, the intangible assets (represented by common stock, good-will,