第33章 Chapter 5(7)

To some, this manner of presenting the case may seem unfamiliar, and it may therefore be to the purpose to restate the upshot of this account in the briefest fashion: Capital -- at least under the new order of business enterprise -- is capitalised prospective gain. From this arises one of the singularities of the current situation in business and its control of industry; viz., that the total face value, or even the total market value of the vendible securities which cover any given block of industrial equipment and material resources, and which give title to its ownership, always and greatly exceeds the total market value of the equipment and resources to which the securities give title of ownership, and to which alone in the last resort they do give title. The margin by which the capitalised value of the going concern exceeds the value of its material properties is commonly quite wide. Only in the case of small and feeble corporations, or such concerns as are balancing along the edge of bankruptcy, does this margin of intangible values narrow down and tend to disappear. Any industrial business concern which does not enjoy such a margin of capitalised free earning-capacity has fallen short of ordinary business success and is possessed of no vested interest.

This margin of free income which is capitalised in the value of the going concern comes out of the net product of industry over cost. It is secured by successful bargaining and an advantageous position in the market; which involves some derangement and retardation of the industrial system, -- so much so as greatly to reduce the net margin of production over cost.

Approximately the whole of this remaining margin of free income goes to the business men in charge, or to the business concerns for whom this management is carried on. In case the free income which is gained in this way promises to continue, it presently becomes a vested right. It may then be formally capitalised as an immaterial asset having a recognised earning-capacity equal to this prospective free income. That is to say, the outcome is a capitalised claim to get something for nothing; which constitutes a vested interest. The total gains which hereby accrue to the owners of these vested rights amount to something less than the total loss suffered by the community at large through that delay of production and derangement of industry that is involved in the due exercise of these rights. In other words, and as seen from the other side, this free income which the community allows its kept classes in the way of returns on these vested rights and intangible assets is the price which the community is paying to the owners of this imponderable wealth for material damage greatly exceeding that amount. But it should be kept in mind and should be duly credited to the good intentions of these businesslike managers, that the ulterior object sought by all this management is not the 100 per cent of mischief to the community but only the 10 per cent of private gain for themselves and their clients,So far as they bear immediately on the argument at this point the main facts are substantially as set forth. But to avoid any appearance of undue novelty, as well as to avoid the appearance of neglecting relevant facts, something more is to be said in the same connection. It is particularly to be noted that credit for certain material benefits should be given to this same business enterprise whose chief aim and effect is the creation of these vested rights to unearned income. It will be apparent to anyone who is at all familiar with the situation, that much of the intangible assets included in the corporate capital of this country, e.g., does not represent derangement which is actually inflicted on the industrial system from day to day, but rather the price of delivery from derangement which the businesslike managers of industry have taken measures to discontinue and disallow.

A concrete illustration will show what is intended. For some time past, and very noticeably during the past quarter-century, the ownership of the large industrial concerns has constantly been drawing together into larger and larger aggregations, with a more centralised control. The case of the steel industry is typical. For a considerable period, beginning in the early nineties, there went on a process of combination and recombination of corporations in this industry, resulting in larger and larger aggregations of corporate ownership. Commonly, though perhaps not invariably, some of the unprofitable duplication and work at cross purposes that was necessarily involved in the earlier parcelment of ownership was got rid of in this way, gradually with each successive move in this concentration of ownership and control. Perhaps also invariably there was a substantial saving made in the aggregate volume of business dealings that would necessarily be involved in carrying on the industry. Under the management of many concerns each intent on its own pecuniary interest, the details of business transactions would be voluminous and intricate, in the way of contracts, orders, running accounts, working arrangements, as well as the necessary financial operations, properly so called.

Much of this would be obviated by taking over the ownership of these concerns into the hands of a centralised control; and there would be a consequent lessening of that delay and uncertainty that always is to be counted on wherever the industrial operations have to wait on the completion of various business arrangements, as they habitually do. There is circumstantial evidence that very material gains in economy and expedition commonly resulted from these successive moves of consolidation in the steel business. And this discontinuance of businesslike delay and calculated maladjustment was at each successive move brought to a secure footing and capitalised in an increased issue of negotiable corporation securities.