第13章

Thefundsobtainedoncreditareingreatmeasureinvestedcompetitivelyinthesameaggregateofmaterialitemsthatisalreadyemployedinindustryapartfromtheuseofloancredit，withtheresultthatthesamerangeofitemsofwealthareratedatalargernumberofmoneyunits。Intheseitemsofwealth- which，apartfromtheuseofcredit，areownedbytheirnominalowners-thecreditors，byvirtueofthecreditextension，cometoownanundividedinterestproportionedtotheadvanceswhichtheyhavemade。Theaggregateoftheseitemsofpropertycomesherebytobepotentiallyownedbythecreditorsinapproximatelytheproportionwhichtheloansbeartothecollatcralplustheloans。Theoutcomeofcreditextension，inthisrespect，isasituationinwhichthecreditorshavebecomepotentialownersofsuchafractionoftheindustrialequipmentaswouldberepresentedbytheformula:(17*) loans/capitalization(=collateral+loans) Inaperiodofliquidationthispotentialownershiponthepartofthecreditorstakeseffecttotheextenttowhichtheliquidationiscarriedthrough。(18*) Theprecisemeasureandproportioninwhichtheindustrialpropertyofthebusinesscommunitypassesintothehandsofthecreditorsinaperiodofliquidationcan，ofcourse，notbespecified；itdependsonthedegreeofshrinkageinvalues，aswellasonthedegreeofthoroughnesswithwhichtheliquidationiscarriedout，andperhapsonotherstilllessascertainablecauses，amongwhichisthedegreeofclosenessoforganizationofthebusinesscommunity。Itis，however，throughtheshrinkageofmarketvaluesoftheoutputandtheindustrialplantthatthetransferofownershiptothecreditorclasstakesplace。Incasenoshrinkageofvaluestookplace，nosuchgeneraltransferofownershiptothecreditorsasaclasswouldbecomeevident。 Inpointoffact，theshrinkagecommonlysupervenes，inthecourseofmodernbusiness，whenageneralliquidationcomes； althoughitisconceivablethattheperiodofacuteliquidationanditsattendantshrinkageofvaluesneednotsupervene。Suchwouldprobablybethecaseintheabsenceofcompetitiveinvestmentinindustrialmaterialonalargescale。Secondaryeffects，suchasperturbationsoftherateofinterest，insolvency，forcedsales，andthelike，needscarcelybetakenuphere，althoughitmaybewelltokeepinmindthatthesesecondaryeffectsarecommonlyveryconsiderableandfarreaching，andthattheymayinspecificinstancesverymateriallyaffecttheoutcome。 Thetheoreticalresultofthissummarysketchofloancreditsofarseemstobe:(a)anextensionofloancreditbeyondthatinvolvedinthetransferenceofproductivegoodsfromtheirownerstomorecompetentusersisunavoidableundertheregimeofcompetitivebusiness-creditexpansionisnormallyinsomedegree“abnormal“or“excessive“；(b)suchauseofcreditdoesnotaddtotheaggregateofindustriallyproductiveequipmentnorincreaseitsmaterialoutputofproduct，andthereforeitdoesnotaddmateriallytotheaggregategrossearningsobtainedbythebodyofbusinessmenengagedinindustry，ascountedinmaterialtermsofwealthorofpermanentvalues；(19*)(c)itdiminishestheaggregatenetprofitsobtainedbythebusinessmenengagedinindustry，ascountedinsuchterms，inthatitrequiresthemtopayinterest，tocreditorsoutsidetheindustrialprocessproper，onfundswhich，takenasanaggregate，representnoproductivegoodsandhavenoaggregateproductiveeffect；(d)thereresultsanoverratingoftheaggregatecapitalengagedinindustry，comparedwiththevalueoftheindustrialequipmentatthestarting-point，byapproximatelytheamountoftheaggregatedepositsandloansoncollateral；(e)theoverratingswellsthebusinesscapital，therebyraisesthevaluationofcollateral，andgivesrisetoafurtherextensionofcredit，withfurtherresultsofalikenature；(f)commonlybeginningatsomepointwheretheextensionofcreditisexceptionallylargeinproportiontothematerialsubstratumofproductivegoods，orwherethediscrepancybetweennominalcapitalandearning-capacityisexceptionallywide，theoverratingispresentlyrecognizedbythecreditorandasettlementensues；(g)ontheconsequentwithdrawalofcreditaforcedreratingoftheaggregatecapitalfollows，bringingthenominalaggregateintoapproximateaccordwiththefactsofearning-capacity；(h)theshrinkagewhichtakesplaceinreducingtheaggregateratingofbusinesscapitalfromthebasisofcapitalgoodsplusloanstothebasisofcapitalgoodsalone，takesplaceattheexpenseofdebtorsandnominalownersofindustrialequipment，insofarastheyaresolvent；(i)intheperiodofliquidationthegainrepresentedbythecreditinflationgoestothecreditorsandclaimantsoffundsoutsidetheindustrialprocessproper，exceptthatsomuchasiscancelledinbaddebtsiswrittenoff；(j)apartfromsecondaryeffects，suchasheightenedefficiencyofindustryduetoinflatedvalues，changesoftherateofinterest，insolvency，etc。，themainfinaloutcomeisaredistributionoftheownershipofpropertywherebythecreditorclass，includingholdersandclaimantsoffunds，isbenefited。 Sincethemodernindustrialsituationbegantotakeform，therehavebeentwoprincipalformsofcredittransactionscurrentintheusageofthebusinesscommunityforthepurposeofinvestment:theold-fashionedloan，theusageofwhichhascomedownfromanearlier，day。andthestockshare，wherebyfundsareinvestedinajointstockcompanyorcorporation。Thelatterisacreditinstrument，sofarastouchesthemanagementofthepropertyrepresented，inthat(inearlierusageatleast)iteffectsatransferofagivenbodyofpropertyfromthehandsofanownerwhoresignsdiscretioninitscontroltoaboardofdirectorswhoassumethemanagementofit。Inadditiontothesetwomethodsofcreditrelationtherehas，duringthelate-modernindustrialperiod，comeintoextensiveuseathirdclassofexpedients，viz。debenturesofoneformandanother-bondsofvarioustenor，preferredstock，preferenceshares，etc。，ranging，inpointoftechnicalcharacteranddegreeofliability，fromsomethingapproachingthenatureofabillofsaletosomethingnotreadilydistinguishableineffectfromapersonalnote。Thetypical(latestandmosthighlyspecialized)instrumentofthisclassisthepreferredstock。Thisisinformadeedofownershipandineffectanevidenceofdebt。Itistypicalofasomewhatcomprehensiveclassofsecuritiesinuseinthebusinesscommunity，intherespectthatitsetsasidethedistinctionbetweencapitalandcredit。Inthisrespect，indeed，preferredstock，moreadequatelyperhapsthananyotherinstrument，reflectsthenatureofthe“capitalconcept“currentamongtheup-to-datebusinessmenwhoareengagedinthelargerindustrialaffairs。 Thepartwhichdebenturecredit，nominalandvirtual，playsinthefinancingofmodernindustrialcorporationsisveryconsiderable，andtheproportionwhichitbearsinthecapitalizationofthesecorporationsapparentlygrowslargerastimepassesandshrewdermethodsofbusinessgainground。Inthefieldofthe“industrials“proper，debenturecredithasnotuntillatelybeenemployedwithfulleffect。ItseemstobefromthecorporationfinanceofAmericanrailwaycompaniesthatbusinessmenhavelearnedthefulluseofanexhaustivedebenturecreditasanexpedientforexpandingbusinesscapital。Itisnotanexpedientnewlydiscovered，butitsfreeuse，eveninrailwayfinance，isrelativelylate。Whereveritprevailsinanunmitigatedform，aswithsomerailwaycompanies，andlatterlyinmanyotherindustrialenterprises，itthrowsthecapitalizationofthebusinessconcernsaffectedbyitintoapeculiar，characteristicallymodern，positioninrelationtocredit。Whencarriedoutthoroughlyitplacesvirtuallytheentirecapital，comprisingthewholeofthematerialequipment，onacreditbasis。Stockbeingissuedbytheuseofsuchfundsaswillpayforprintingtheinstruments，aroadwillbebuiltoranindustrialplantestablishedbytheuseoffundsdrawnfromthesaleofbonds；preferredstockorsimilardebentureswillthenbeissued，commonlyofvariousdenominations，tothefullamountthatthepropertywillbear，andnotinfrequentlysomewhatinexcessofwhatthepropertywillbear。Whenthelattercaseoccurs，themarketquotationsofthesecuritieswill，ofcourse，roughlyadjustthecurrenteffectivecapitalizationtotherunofthefacts，whateverthenominalcapitalizationmaybe。Thecommonstockinsuchacaserepresents“goodwill，“andinthelaterdevelopmentitusuallyrepresentsnothingbut“good-will。“(20*) Thematerialequipmentiscoveredbycreditinstrumentsdebentures。Notinfrequentlythedebenturescoverappreciablymorethanthevalueofthematerialequipment，togetherwithsuchpropertyasusefulpatentrightsortradesecrets；insuchacasethegood-willisalso，tosomeextent，coveredbydebentures，andsoservesasvirtualcollateralforacreditextensionwhichisincorporatedinthebusinesscapitalofthecompany。Intheidealcase，whereacorporationisfinancedwithdueperspicacity，therewillbebutaninappreciableproportionofthemarketvalueofthecompany’sgood-willleftuncoveredbydebentures。Inthecaseofarailwaycompany，forinstance，nomoreshouldbeleftuncoveredbydebenturesthanthevalueofthe“franchise，“andprobablyinmostcasesnotthatmuchactuallyisuncovered。 Whethercapitalizedgood-will(including“franchise“ifnecessary)istoberatedasacreditextensionisanicequestionthatcanapparentlybedecidedonlyonalegaltechnicality。Inanycasesomuchseemsclear-thatgood-willisthenucleusofcapitalizationinmoderncorporationfinance。Inawellfinanced，flourishingcorporation，good-will，indeed，constitutesthetotalremainingassetsafterliabilitieshavebeenmet，butthetotalremainingassetsmaynotnearlyequalthetotalmarketvalueofthecompany’sgood-will；thatistosay，thematerialequipment(plant，etc。)ofashrewdlymanagedconcernishypothecatedatleastonce，commonlymorethanonce，anditsimmaterialproperties(good-will)，togetherwiththeevidencesofitsindebtedness，mayalsotosomeextentbedrawnintothehypothecation。(21*) Whathasjustbeensaidofthepartbornebygood-willanddebenturesinthecapitalizationofcorporationsshouldbetakeninconnectionwithwhatwassaidabove(pp。100-104)astothenatureofthesecuritiesofferedascollateralinprocuringacreditextension。Thegreatcrpartofthesecuritiesusedascollateral，andso“coinedintomeansofpayment，“areevidencesofdebt，atthefirstremoveorfartherfromtheirphysicalbasis，instrumentsofcreditrecordingapreviouscreditextension。 Intheearlierperiodofgrowthofthisdebenturefinancieringinindustry，as，e。g。，intherailroadfinancieringofthethirdquarterofthenineteenthcentury，theprocessofexpansionbymeansofdebenturecredit，inanygivencase，wasworkedoutgradually，overamoreorlessextendedperiodoftime。Butasthepossibilitiesofthisexpedienthavegrownfamiliartothebusinesscommunity，thetimeconsumedinperfectingthestructureofdebenturesineachcasehasbeenreduced；untilitisnownotunusualtoperfectthewholeorganizztion，withitsloadofdebentures，attheinceptionofacorporateenterprise。Insuchacase，whenacorporationstartswithafullyorganizedcapitalanddebt，theownersoftheconcernarealsoitscreditors；theyare，atthestart，theholdersofbothcommonandpreferredstock，andprobablyalsoofthebondsofthecompany-soaddinganotherincrementofconfusiontotherelationbetweenmoderncapitalandcredit，asseenfromtheold-fashionedpositionastowhatcapitalizationanditsbasisshouldbe。 Thissyncopatedprocessofexpandingcapitalbythehelpofcreditfinanciering，however，isseenatitsbestinthelatter-dayreorganizationsandcoalitionsofindustrialcorporations；andasthisclassoftransactionsalsoillustrateanotherinterestingandcharacteristicallymodernfeatureofcreditfinanciering，thewholemattermaybestbesetoutinthewayofasketchofwhattakesplaceinacaseofcoalitionofindustrialcorporationsonalargescalesuchasrecentindustrialhistoryhasmadefamiliar。 Theavowedendoftheselatter-daybusinesscoalitionsiseconomyofproductionandsaleandanamicableregulationofintercorporaterelations。Sofarasbearsonthefunctioningofcreditintheattendantbusinesstransactions，thepresenceorabsenceofthesepurposes，ofcourse，doesnotaffectthecourseofeventsortheoutcome。Theseavowedincentivesdonottouchthecreditoperationsinvolved。Ontheotherhand，theneedoflargecreditinconsummatingthedeal，aswellasthepresumptivegainstobedrawnfromthecreditrelationsinvolved，offerinducementsoftheirowntomenwhoareinapositiontoeffectsuchacoalition。Inducementsofthiskindseemtohavebeenofnotableeffectinbringingonsomeoftherecentoperationsofthisclass。 Creditoperationscomeintothesetransactionsmainlyattwopoints:inthe“financing“ofthedeal，andintheaugmentationofdebentures；andatbothofthesepointsthereisachanceofgainontheonehandtothepromoter(organizer)andthecredithousewhichfinancestheoperation，andontheotherhandtothestockholders。Thegainwhichaccruestothetwoformeristhemoreunequivocal，andthisseemsinsomecasestobethedominantincentivetoeffectthereorganization。Thewholeoperationofreorganizationmay，therefore，bestbetakenupfromthepointofviewofthepromoter，whoistheprimemoverinthematter。