the vested interests and the common man-第16章

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corporation　finance　habitually　handle　the　matter　in　that　way；　but　
the　same　view　is　accepted　by　those　public　authorities　who　are　
called　in　to　review　and　regulate　the　traffic　of　the　business　
concerns　governed　by　these　captains　of　finance。　The　later　
findings　are　apparently　unequivocal；　to　the　effect　that　when　once　
a　run　of　free　income　has　been　capitalised　and　docketed　as　an　
asset　it　becomes　a　legitimate　overhead　charge；　and　it　is　then　
justly　to　be　counted　among　necessary　costs　and　covered　by　the　
price　which　consumers　should　reasonably　pay　for　the　concern's　
offering　of　goods　or　services。　
　　　　Such　a　finding　has　come　to　be　a　fairly　well　settled　matter　of　
course　both　among　the　officials　and　among　the　law…abiding　
investors；　so　far　as　regards　those　intangible　assets　that　are　
covered　by　vendible　securities　carrying　a　fixed　rate；　and　the　
logic　of　this　finding　is　doubtless　sound　according　to　the　
principles　of　the　modern　point　of　view；　which　were　put　into　
stable　form　before　the　coming　of　corporation　finance。　There　may　
still　be　a　doubt　or　a　question　whether　valuable　perquisites　of　
the　same　nature；　which　continue　to　be　held　loosely　as　an　informal　
vested　interest；　as；　e。g。；　merchantable　good…will；　are　similarly　
entitled　to　the　benefit　of　the　common　law　which　secures　any　owner　
in　the　usufruct　of　his　property。　To　such　effect　have　commonly　
been　the　findings　of　courts　and　boards　of　inquiry；　of　Public　
Utility　Commissions；　of　such　bodies　as　the　Interstate　Commerce　
Commission；　the　Federal　Trade　Commission；　and　latterly　of　divers　
recently　installed　agencies　for　the　control　of　prices　and　output　
in　behalf　of　the　public　interest；　so；　for　instance；　right　lately；　
certain　decisions　and　recommendations　of　the　War　Labor　Board。　
　　　　Any　person　with　a　taste　for　curiosities　of　human　behavior　
might　well　pursue　this　question　of　capitalised　free　income　into　
its　further　convolutions；　and　might　find　reasonable　entertainment　
in　so　doing。　The　topic　also　has　merits　as　a　subject　for　economic　
theory。　But　for　the　present　argument　it　may　suffice　to　note　that　
this　free　income　and　the　business…like　contrivances　by　which　it　
is　made　secure　and　legitimate　are　of　the　essence　of　this　new　
order　of　business　enterprise；　that　the　abiding　incentive　to　such　
enterprise　lies　in　this　unearned　income；　and　that　the　intangible　
assets　which　are　framed　to　cover　this　line　of　〃earnings；〃　
therefore；　constitute　the　substantial　core　of　corporate　capital　
under　the　new　order。　In　passing；　it　may　also　be　noted　that　there　
is　room　for　a　division　of　sentiment　as　regards　this　disposal　of　
the　community's　net　production；　and　that　peremptory　questions　of　
class　interest　and　public　policy　touching　these　matters　may　
presently　be　due　to　come　to　a　hearing。　
　
　　　　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。　
　　　　It　will　also　be　recalled　that；　as　a　matter　of　routine；　each　
successive　consolidation　of　ownership　involved　a　recapitalization　
of　the　concerns　so　brought　together　under　a　common　head；　and　that　
commonly　if　not　invariably　the　resulting　recapitalisation　would　
be　larger　than　the　aggregate　earlier　capital　of　the　underlying　
corporations。　Even　where；　as　sometimes　has　happened；　there　was　no　
increase　made　in　the　nominal　capitalisation；　there　would　still　
result　an　effectual　increase；　in　that　the　market　value　of　the　
securities　outstanding　would　be　larger　after　the　operation　than　
the　value　of　the　aggregate　capital　of　the　underlying　corporations　
had　been　before。　There　has　commonly　been　some　gain　in　aggregate　
capitalisation；　and　the　resulting　increased　capitalisation　has　
also　commonly　proved　to　be　valid。　The　market　value　of　the　larger　
and　more　stable　capitalisation　has　presently　proved　to　be　larger　
and　more　stable　than　the　capitalisation　of　the　same　properties　
under　the　earlier　r間ime　of　divided　ownership　and　control。　What　
has　so　been　added　to　the　aggregate　capitalisation　has　in　the　main　
been　the　relative　absence　of　work　at　cross　purposes；　which　has　
resulted　from　the　consolidation　of　ownership；　and　it　is　to　be　
accounted　a　typical　instance　of　intangible　assets。　The　new　and　
larger　capitalisation　has　commonly　made　good；　and　this　is　
particularly　true　for　those　later；　larger　and　more　conclusive　
recombinations　of　corporate　ownership　with　which　the　so…called　
era　of　trust…making　in　the　steel　business　came　to　a　provisional　
conclusion。　The　U。S。　Steel　Corporation　has　vindicated　the　wisdom　
of　an　unreserved　advance　on　lines　of　consolidation　and　
recapitalisation　in　the　financing　of　the　large　and　technical　
industries。　
　　　　For　reasons　well　understood　by　those　who　are　acquainted　with　
these　things；　no　one　can　offer　a　confident　estimate；　or　even　a　
particularly　intelligent　opinion；　as　to　the　aggregate　amount　of　
overhead　burden　and　intangible　assets　which　has　been　written　into　
the　corporate　capital　of　the　steel　business　in　the　course　of　a　
few　years　of　consolidation。　For　reasons　of　depreciation；　disuse；　
replacement；　extension；　renewal；　changes　in　market　conditions　and　
in　technical　requirements；　the　case　is　too　intricate　to　admit　
anything　like　a　clear…cut　identification　of　the　immaterial　items　
included　in　the　c