第16章

Asabusinessproposition，“capital“meansafundofmoneyvalues；andsincethecrediteconomyandcorporationfinancehavecometobetherulingfactorsinindustrialbusiness，thisfundofmoneyvalues(takenasanaggregate)bearsbutaremoteandfluctuatingrelationtotheindustrialequipmentandtheotheritemswhichmay(perhapsproperly)beincludedundertheold-fashionedconceptofindustrialcapital。(1*) Capitalhasbeenspokenofasthecapitalized(aggregated) costofindustrialequipment，etc。，(2*)aviewwhichhaditssignificanceforeconomictheoryahundredyearsago；butsincecorporationfinancehascometopervadethemanagementofbusinessthisviewisnolongerofparticularuseforatheoreticalhandlingofthefacts。Toavoidthetediumofargumentitmaybeconcededthatundertheolddispensation，ofpartnershipsandindividualmanagementinbusiness，thebasisofcapitalizationwasthecostofthematerialequipmentownedbyanygivenconcern；andsofarasthemethodsofpartnershipandprivatefirmsstillprevailssuchmaystillbethecurrentmethodofcapitalization，especiallydejure。Butinsofarasbusinessprocedureandbusinessconceptionshavebeenshapedintheimageofthemodemcorporation(orlimitedliabilitycompany)，thebasisofcapitalizationhasgraduallyshifted，untilthebasisisnownolongergivenbythecostofmaterialequipmentowned，butbytheearning-capacityofthecorporationasagoingconcern。(3*) Agivencorporation’scapitalis，ofcourse，dejureamagnitudefixedinthepastbyanactoflegislaturecharteringthecompany，orbyanissuanceofstockbythecompanyunderthetermsofitscharteroroftheactswhichenableit。Butthisdejurecapitalizationisnominalonly，andtherearefew，ifany，casesinwhichtheeffectivecapitalofacompanycoincideswithitsdejurecapital。Suchcouldbethecaseonlysolongasallthesecuritieswhichgotomakeupthecompany’scapitalwerequotedatparonthemarket。Theeffectivecapitalizationofanymoderncompany，thatistosay，thecapitalizationwhichiseffectiveforcurrentbusinesspurposesasdistinctfromtheformalrequirementsofthecharter，isgivenbythequotationsofthecompany’ssecurities，orbysomesimilarbutlessovertmarketvaluationincasethecompany’scapitalisnotquotableonthemarket。Theeffective(business)capitalization，asdistinctfromthedejurecapitalization，isnotfixedpermanentlyandinflexiblybyapastactofincorporationorstockissue。Itisfixedforthetimebeingonly，byaneverrecurringvaluationofthecompany’sproperties，tangibleandintangible，onthebasisoftheirearning-capacity。(4*) Inthiscapitalizationofearning-capacitythenucleusofthecapitalizationis。notthecostoftheplant，buttheconcern’sgood-will，socalled，ashasappearedinthelastprecedingchapter。(5*)“Good-will“isasomewhatextensibleterm，andlatterlyithasamorecomprehensivemeaningthanitoncehad。 Itsmeaninghas，infact，beengraduallyextendedtomeettherequirementsofmodernbusinessmethods。Variousitems，ofverydiversecharacter，aretobeincludedundertheheadof“good-will“；buttheitemsincludedhavethismuchincommonthattheyare“immaterialwealth，““intangibleassets“；which，itmayparentheticallyberemarked，signifiesamongotherthingsthattheseassetsarenotserviceabletothecommunity，butonlytotheirowners。Good-willtakeninitswidermeaningcomprisessuchthingsasestablishedcustomarybusinessrelations，reputationforuprightdealing，franchisesandprivileges，trade-marks，brands，patentrights，copyrights，exclusiveuseofspecialprocessesguardedbylaworbysecrecy，exclusivecontrolofparticularsourcesofmaterials。Alltheseitemsgiveadifferentialadvantagetotheirowners，buttheyareofnoaggregateadvantagetothecommunity。(6*)Theyarewealthtotheindividualsconcerneddifferentialwealth；buttheymakenopartofthewealthofnations。(7*) Itisintheindustrialcorporationsthatthiscapitalizationofgood-willisseentothebestadvantage-including，undertheterm“industrialcorporations，“railwaycompanies，ironandsteelconcerns，mines，etc。，aswellaswhatareknowninthestockmarketspecificallyas“industrials。“Thecorporationis，ofcourse，nottheonlyformofbusinessconcernintheindustrialfield，butitisthetypical，characteristicformofbusinessorganizationforthemanagementofindustryinmodemtimes，andthepeculiaritiesofmodemcapitalarethereforebestseeninthesemoderncorporations。Manyofthesecorporationshavegrownoutofpartnershipsandfirmspreviouslyexisting，andsuchisstillthegenesisofmanyofthecorporationsthatcomeforwardfromtimetotime。Insuchacaseofconversionfrompartnershiporfirmtocorporationtheruleisthatthenewcorporationtakesoverabodyofgood-will，underoneformandnameoranother，previouslypertainingtothepartnershipwhichitdisplaces。 Conversely，whenaflourishingpartnershiporsimilarprivatefirmhasgainedanassuredfootingofgood-will，inthewayofanyoralloftheitemsenumeratedunderthattermabove，itslot，asprescribedbymodernbusinessexigencies，istogoupintoacorporation，eitherbysimpleconversionintothecorporateformorthroughcoalitionwithotherfirmsintoalargercorporatewhole。Thereisinthismatternohardandfastrule，ofcourse。Ontheonehand，theapprovedmethodsofcorporationfinancemayinsomemeasureberesortedtobyaprivatefirm，Withoutformalconversionoftheconcernintothecorporateform；andontheotherhand，anincorporatedcompanymaycontinuetocarryonitsbusinessafterthemannerusualwithprivatelyownedconcerns。Buttakenbyandlarge，itwillbefoundthatwiththeassumptionofthecorporateformisassociatedamoremodernmethodofcapitalizationandafreeruseofcredit。Theadvantageswhichthecorporateformoffersintheserespectsarecommonlynotneglected。Themorearchaicformsoforganizationandbusinessmanagement，inwhichrecourseiscommonlynothadtothecharacteristicmethodsofcorporationfinance，prevailchieflyinthose“backward“linesofindustryinwhichmonopolyorotherdifferentialadvantagesofanintangiblenaturearenotreadilyattainable；such，e。g。，asfarming，fishing，localmerchandising，andtheminormechanicaltradesandoccupations。Inthisrangeofindustrieslarge(corporate) organizationhashithertobeenvirtuallyimpracticable，andhereatthesametimedifferentialadvantages，ofthenatureofgood-will(asindicatedabove)，arerelativelyscantandprecarious。Whereextensivedifferentialadvantagesofthiskindcomein，thecorporateformoforganizationisalsolikelytocomein。 Thecasesarealsofrequentwhereacorporationstartsoutfull-fledgedfromthebeginning，withoutderivationfromapreviouslyexistingprivatefirm。Wherethishappens，thestartiscommonlymadewithsomesubstantialbodyofimmaterialgoodsonwhichtobuildupthecapitalization；itmaybeafranchise，asinthecaseofarailway，telegraph，telephone，street-car，gas，orwatercompany；oritmaybethecontrolofpeculiarsourcesofmaterial，asinthecaseofanoilornaturalgascompany，orasalt，coal，iron，orlumbercompany；oritmaybeaspecialindustrialprocess，patentedorsecret；oritmaybeseveralofthese。Whenacorporationbeginsitslifehistorywithoutsuchabodyofimmaterialdifferentialadvantages，theendeavorsofitsmanagementareearlydirectedtoworkingupabasisofgood-willinthewayoftrade-marks，clientele，andtradeconnectionswhichwillplaceitinsomethingofamonopolyposition，locallyorgenerally(8*)Shouldthemanagementnotsucceedintheseendeavorstogainanassuredfootingonsomesuch“immaterial“ground，itschancesofsuccessamongrivalcorporationsareprecarious，itsstandingisinsecure，anditsmanagershavenotaccomplishedwhatislookedforattheirhands。 Thesubstantialfoundationoftheindustrialcorporationisitsimmaterialassets。 Thetypicalmodernindustrialcorporationisaconcernofsufficientmagnitudetobeofsomethingmorethanbarelylocalconsequence，andextendsitstraderelationsbeyondtherangeofthepersonalcontactofitsdirectiveofficials。Itspropertiesanditsdebtsarealsocommonlyowned，inpartatleast，bypersonswhostandinnodirectpersonalrelationtotheboardofmanagers。Inanup-to-datecorporationofthischaracterthetypicalmake-upofthecorporatecapital，orcapitalization，issomewhatasfollows:Thecommonstockapproximatelycoverstheimmaterialpropertiesoftheconcern，unlesstheseimmaterialpropertiesaredisproportionatelylargeandvaluable；incaseofarelativelysmallandlocalcorporationthecommonstockwillordinarilysomewhatmorethancoverthevalueoftheimmaterialpropertyandcomprisesomethingoftheplant；incaseofthelargerconcernstheconverseislikelytobetrue，sothatheretheimmaterialproperty，intangibleassets，ismadetoserveinsomemeasureasabasisforothersecuritiesaswellasforthecommonstock。Thecommonstock，typically，representsintangibleassetsandisaccountedforbyvaluabletrade-marks，patents，processes，franchises，etc。Whatevermaterialproperties，tangibleassets，areinhandortobeacquiredarecoveredbypreferredstockorotherdebentures。Thevariousformsofdebenturesaccountforthematerialequipmentandtheworkingcapital(thelatteritemcorrespondingroughlytotheeconomists’ categoriesofrawmaterials，wagesfund，andthelike)。Ofthesedebenturesthepreferredstockisthemostcharacteristicmoderndevelopment。Itis，dejure，countedasaconstituentoftheconcern’scapitalandtheprincipalisnotrepayable；inthis(legal)respectitisnotanevidenceofdebtoracreditinstrument。(9*)Butithaslittlevoiceinthedirectionoftheconcern’sbusinesspolicy。(10*)Inpracticethemanagementrestschieflyontheholdingsofcommonstock。Thisisdueinparttothefactthatthepreferredbearsastatedrateofdividendsandisthereforetakenupbyscatteredpurchasersasaninvestmentsecuritytoagreaterextentthanthecommon。Inthis(practical) respectitamountstoadebenture。Itspracticalcharacterasadebentureisshownbythestatedrateofdividends，andwhereitis“cumulative“thatfeatureaddsafurtherstepofassimilationtotheordinaryclassofdebentures。Indeed，inpointofpracticaleffectpreferredstockisinsomerespectscommonlyamorepronouncedcreditinstrumentthantheordinarymortgage；italienatesthecontrolofthepropertywhichitrepresentsmoreeffectuallythantheordinarybondormortgageloan，inthatitmaypracticallybeadebtwhich，byitsownterms，cannotbecollected，sothatbyitsowntermsitmayconveyacreditextensionfromtheholdertotheissuingcorporationinperpetuity。Itseffectistoconveythediscretionarycontrolofthematerialpropertieswhichitisheldtorepresentintothehandsoftheholdersofthecommonstockoftheconcern。Thediscretionarymanagementofthecorporatecapitalis，bythisdevice，quiteaseffectuallyasbytheuseofordinarycreditinstruments，vestedinthecommonstock，whichisheldtorepresentthecorporation’sgoodwill。Thediscretionarydisposaloftheentirecapitalvestsinsecuritiesrepresentingtheintangibleassets。Inthissense，then，thenucleusofthemoderncorporatecapitalizationistheimmaterialgoodscoveredbythecommonstock。(11*) Thismethodofcapitalization，therefore，effectsasomewhatthoroughgoingseparationbetweenthemanagementandtheownershipoftheindustrialequipment。Roughlyspeaking，undercorporateorganizationtheownersoftheindustrialmaterialhavenovoiceinitsmanagement，andwherepreferredstockisalargeconstituentofthecapitalthisalienationofcontrolonthepartsoftheownersmaybe，bysomuch，irrevocable。Preferredstockis，practically，adeviceforplacingthepropertyitrepresentsinperpetualtrustwiththeholdersofthecommonstock，and，withcertainqualifications，thesetrusteesarenotanswerablefortheadministrationofthepropertytotheirtrustors。Thepropertyrelationoftheownerstotheirpropertyisatthispointattenuatedtoanextremedegree。Formostbusinesspurposes，itshouldbeadded，thecapitalcoveredbyotherformsofdebenturesisinmuchthesamepositionasthatcoveredbythepreferredstock。(12*)