the vested interests and the common man-第10章

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has　come　in　evidence　in　this　later　time　is　traceable　to　the　fact　
that　other　things　have　not　remained　the　same。　The　odious　outcome　
has　been　made　by　disturbing　causes；　not　by　these　enlightened　
principles　of　honest　living。　Security　and　unlimited　discretion　in　
the　rights　of　ownership　were　once　rightly　made　much　of　as　a　
simple　and　obvious　safeguard　of　self…direction　and　self…help　for　
the　common　man；　whereas；　in　the　event；　under　a　new　order　of　
circumstances；　it　all　promises　to　be　nothing　better　than　a　means　
of　assured　defeat　and　vexation　for　the　common　man。　
　
Chapter　4　
　
Free　Income　
　
　　　　Industry　of　the　modern　sort　　mechanical；　specialised；　
standardised；　drawn　on　a　large　scale　　is　highly　productive。　
When　this　industrial　system　of　the　new　order　is　not　hindered　by　
outside　control　it　will　yield　a　very　large　net　return　of　output　
over　cost；　　counting　cost　in　terms　of　man　power　and　necessary　
consumption；　so　large；　indeed；　that　the　cost　of　what　is　
necessarily　consumed　in　productive　work；　in　the　way　of　materials；　
mechanical　appliances；　and　subsistence　of　the　workmen；　is　
inconsiderable　by　comparison。　The　same　thing　may　be　described　by　
saying　that　the　necessary　consumption　of　subsistence　and　
industrial　plant　amounts　to　but　an　inconsiderable　deduction　from　
the　gross　output　of　industry　at　any　time。　So　inordinately　
productive　is　this　familiar　new　order　of　industry　that　in　
ordinary　times　it　is　forever　in　danger　of　running　into　excesses　
and　turning　out　an　output　in　excess　of　what　the　market　　that　is　
to　say　the　business　situation　　will　tolerate。　There　is　constant　
danger　of　〃overproduction；〃　So　that　there　is　commonly　a　large　
volume　of　man　power　unemployed　and　an　appreciable　proportion　of　
the　industrial　plant　lying　idle　or　half　idle。　It　is　quite　
unusual；　perhaps　altogether　out　of　the　question；　to　let　all　or　
nearly　all　the　available　plant　and　man　power　run　at　full　capacity　
even　for　a　limited　time。　
　　　　It　is；　of　course；　impossible　to　say　how　large　the　net　
aggregate　product　over　cost　would　be　　counting　the　product　in　
percentages　of　the　necessary　cost　　in　case　this　industrial　
system　were　allowed　to　work　at　full　capacity　and　with　free　use　of　
all　the　available　technological　knowledge。　There　is　no　safe　
ground　for　an　estimate；　for　such　a　thing　has　never　been　tried；　
and　no　near　approach　to　such　a　state　of　things　is　to　be　looked　
for　under　the　existing　circumstances　of　ownership　and　control。　
Even　under　the　most　favorable　conditions　of　brisk　times　the　
business　situation　will　not　permit　it。　There　will　at　least　always　
be　an　indefinitely　large　allowance　to　be　reckoned　for　work　and　
substance　expended　on　salesmanship；　advertising；　and　competitive　
management　designed　to　increase　sales。　This　line　of　expenditures　
is　a　necessary　part　of　businesslike　management；　although　it　
contributes　nothing　to　the　output　of　goods；　and　in　that　sense　it　
is　to　be　counted　as　a　necessary　deduction　from　the　net　productive　
capacity　of　the　industrial　system　as　it　runs。　It　would　also　be　
extremely　difficult　to　make　allowance　for　this　deduction；　since　
much　of　it　is　not　recognised　as　such　by　the　men　in　charge　and　
does　not　appear　on　their　books　under　any　special　descriptive　
heading。　In　one　way　and　another；　and　for　divers　and　various　
reasons；　the　net　production　of　goods　serviceable　for　human　use　
falls　considerably　short　of　the　gross　output；　and　the　gross　
output　is　always　short　of　the　productive　capacity　of　the　
available　plant　and　man　power。　
　　　　Still；　taken　as　it　goes；　with　whatever　handicap　of　these　
various　kinds　is　to　be　allowed　for；　it　remains　patently　true　that　
the　net　product　greatly　exceeds　the　cost。　So　much　so　that　
whatever　is　required　for　the　replacement　of　the　material　
equipment　consumed　in　production；　plus　〃reasonable　returns〃　on　
this　equipment；　commonly　amounts　to　no　more　than　a　fraction　of　
the　total　output。　The　resulting　margin　of　excess　product　over　
cost　plus　reasonable　returns　on　the　material　equipment　is　due　to　
the　high　productive　efficiency　of　the　current　state　of　the　
industrial　arts　and　is　the　source　of　that　free　income　which　gives　
rise　to　intangible　assets。　The　distinction　between　tangible　
assets　and　intangible　is　not　a　hard　and　fast　one；　of　course；　but　
the　difference　is　sufficiently　broad　and　sufficiently　well　
understood　for　use　in　the　present　connection；　so　long　as　no　pains　
is　taken　to　confuse　these　terms　with　needless　technical　verbiage。　
　　　　To　avoid　debate　and　digression；　it　may　be　remarked　that　
〃reasonable　returns〃　is　also　here　used　in　the　ordinary　sense　of　
the　expression；　without　further　definition；　as　being　sufficiently　
understood　and　precise　enough　for　the　argument。　The　play　of　
motives　and　transactions　by　which　a　rough　common　measure　of　
reasonable　returns　has　been　arrived　at　is　taken　for　granted。　A　
detailed　examination　of　all　that　matter　would　involve　an　extended　
digression；　and　nothing　would　be　gained　for　the　argument。　
According　to　the　traditional　view；　which　was　handed　on　from　the　
period　before　the　coming　of　corporation　finance；　and　which　still　
stands　over　as　an　article　of　common　belief　in　the　certified　
economic　theories；　〃capital〃　represents　the　material　equipment；　
valued　at　its　cost；　together　with　funds　in　hand　required　as　a　
〃working　capital〃　to　provide　materials　and　a　labor　force。　On　this　
view；　corporation　securities　are　taken　to　cover　ownership　of　the　
plant　and　the　needed　working　capital；　and　there　has　been　a　
slow…dying　prejudice　against　admitting　that　anything　less　
tangible　than　these　items　should　properly　be　included　in　the　
corporate　capitalisation　and　made　a　basis　on　which　to　issue　
corporate　securities。　Hence　that　stubborn　popular　prejudice　
against　〃watered　stock〃　which　corporation　finance　had　to　contend　
with　all　through　the　latter　half　of　the　nineteenth　century。　
〃Watered　stock〃　is　now　virtually　a　forgotten　issue。　Corporation　
finance　has　disposed　of　the　quarrel　by　discontinuing　the　relevant　
facts。　
　　　　There　is　still　a　recognised　distinction　between　tangible　
assets　and　intangible；　but　it　has　come　to　be　recognised　in　
corporation　practice　that　the　only　reasonable　basis　of　
capitalisation　for　any　assets；　tangible　or　intangible；　is　the　
earning…capacity　which　they　represent。　And　the　amount　of　capital　
is　a　question　of　capitalisation　of　the　available　assets。　So　that；　
if　the　material　equipment；　e。g。；　is　duly　capitalised　on　its　
earning…capacity；　any　question　as　to　its　being　〃watered〃　is　no　
longer　worth　pursuing；　since　stock　can　be　said　to　be　〃watered〃　
only　by　comparison　with　the　cost　of　the　assets　which　it　covers；　
not　in　relation　to　its　earning…capacity。　The　latter　point　is　
taken　care　of　by　the　stock　quotations　of　the　market。　On　the　other　
hand；　intangible　assets　neither　have　now　nor　ever　have　had　any　
other　basis　than　capitalisation　of　earning　capacity；　and　any　
question　of　〃water〃　in　their　case　is　consequently　quite　idle。　
Intangible　assets　will　not　hold　water。　
　　　　Corporation　finance　is　one　of　the　outgrowths　of　the　New　
Order。　And　one　of　the　effects　wrought　by　corporation　finance　is　a　
blurring　of　the　distinction　between　tangible　assets　and　
intangible；　inasmuch　as　both　are　now　habitually　determined　by　a　
capitalisation　of　earning…capacity；　rather　than　by　their　
ascertained　cost；　and　it　is　difficult；　if　not　impossible；　to　draw　
a　hard　and　fast　line　between　that　part　of　a　concern's　
earning…capacity　which　is　properly　to　be　assigned　to　its　plant　
and　that　which　is　due　to　its　control　of　the　market。　Still；　an　
intelligible　distinction　is　maintained　in　common　usage；　between　
tangible　assets　and　intangible；　even　if　the　distinction　is　
somewhat　uncertain　in　detail；　and　such　a　distinction　is　
convenient；　so　long　as　too　sharp　a　contrast　between　the　two　is　
not　insisted　on。　
　　　　The　earning…capacity　of　the　tangible　assets　is　presumed　to　
represent　the　productive　capacity　of　the　plant；　considered　as　a　
mechanical　apparatus　engaged　in　an　industrial　process　for　the　
production　of　goods　or　services；　it　is　presumed　to　rest　on　the　
market　value　of　the　mechanical　output　of　the　plant。　The　plant　is　
a　productive　factor　because　and　in　so　far　as　it　turns　to　
practical　account　the　state　of　the　industrial　arts　now　in　use；　　
the　community's　joint　stock　of　technological　knowledge。　So　soon；　
or　so　far；　as　the　plant　and　its　management　falls　short　of　meeting　
the　ordinary　requirements　of　this　current　state　of　the　industrial　
arts；　and　fails　to　make　use　of　such　technological　knowledge　as　is　
commonly　employed；　the　whole　works　ceases　by　that　much　to　be　a　
productive　factor。　The　productive　efficiency；　and　the　productive　
value；　of　any　given　item　of　industrial　equipment　is　measured　by　
its　effective　use　of　the　technological　knowledge　current　in　the　
community　for　the　time　being。　So　also；　the　productive　value　of　
any　given　body　of　natural　resources　land；　raw　materials；　motive　
power　　is　strictly　dependent　on　the　degree　in　which　it　fits　
into　the　industrial　system　as　it　runs。　
　　　　This　dependence　of　productive　value　on　conformity　to　and　use　
of　the　state　of　the　industrial　arts　is　constantly　shown　in　the　
case　of　land　and　similar　natural　resources；　by　the　fluctuation　of　
rental　values。　Land　and　other　resources　will　be　more　valuable　the　
more　suitable　they　are　for　present　and　prospective　use。　The　like　
is　true　for　the　mechanical　equipment；　perhaps　in　a　more　
pronounced　degree。　Industrial　plant；　e。g。；　is　always　liable　to　
depreciation　by　obsolescence　in　case　the　state　of　the　industrial　
arts　changes　in　such　a　way　that　the　method　of　work　embodied　in　
the　particular　article　of　equipment　is　displaced　by　new　and　more　
suitable　methods；　more　suitable　under　the　altered　circumstances。　
In　such　a　case；　which　is　of　very　frequent　occurrence　under　the　
new　order　of　industry；　any　given　plant；　machine；　or　similar　
contrivance　may　lose　all　its　value　as　a　means　of　production。　And　
so　also；　on　the　other　hand；　a　given　plant；　as；　for　instance；　a　
given　railway　system　or　dock；　may　acquire　additional　productive　
value　through　changes　in　the　industrial　system　which　make　it　more　
suitable　for　present　use。　
　　　　Evidently　the　chief；　or　at　least　the　indispensable；　element　
of　productive　efficiency　in　any　item　of　industrial　equipment　or　
resources　is　the　use　which　it　makes　of　the　available　
technological　knowledge；　and　evidently；　too；　its　earning…capacity　
as　a　productive　factor　depends　strictly　on　the　same　fact；　　the　
usufruct　of　the　state　of　the　industrial　arts。　And　all　the　while　
the　state　of　the　industrial　arts；　which　the　industrial　equipment　
so　turns　to　account　for　the　benefit　of　its　owner；　continues　to　be　
a　joint　stock　of　industrial　knowledge　and　proficiency　
accumulated；　held；　exercised；　increased　and　transmitted　by　the　
community　at　large；　and　all　the　while　the　owner　of　the　equipment　
is　some　person　who　has　contributed　no　more　than　his　per…capita　
quota　to　this　state　of　the　industrial　arts　out　of　which　his　
earnings　arise。　Indeed　the　chances　are　that　the　owner　has　
contributed　less　than　his　per…capita　quota；　if　anything；　to　that　
common　fund　of　knowledge　on　the　product　of　which　he　draws　by　
virtue　of　his　ownership；　because　he　is　likely　to　be　fully　
occup