第18章

Thestockmarketinterestofthosemenwhohavethemanagementofindustrialcorporationsisawideandmultifariousone。Itisnotconfinedtotheprofitablepurchaseandsaleofpropertieswhosemanagementtheymayhaveinhand。Theyarealsointerestedinmakingormarringvariousmovementsofcoalitionorreorganization，andtothisulteriorenditisincumbentonthemto“manipulate“securitieswithaviewtobuyingandsellinginsuchamannerastogaincontrolofcertainlinesofsecurities。(24*)Henceitisaruleofthisclassofbusinesstraffictocultivateappearance，-toavoid，orsometimestocourt，theappearanceofsin。Sothatunderthisleadershipthecourseofindustrialaffairsis，ingreatmeasure，ifnotaltogether，guidedwithaviewtoaplausibleappearanceofprosperityorofadversity，asthecasemaybe。Undergivencircumstancesitmayaswellbecometheaimofmenincontroltomakeanadverseshowingasafavorableone。Thehigherexigenciesofthecaptainofindustry’spersonalfortunes，asdistinctfromthoseofthecorporationcontrolledbyhim，mayfromtimetotimebebestsewedbyanapparent，ifnotanactual，mismanagementofindustrialaffairs。Aconvincingappearanceofdeclineordisasterwilllowertheputativeearning-capacityoftheconcernbelowitsrealearning-capacityandsowillaffordanadvantageousopportunityforbuyingwithaviewtofutureadvanceorwithaviewtostrategiccontrol。Variousotherexpedientslookingtothelikeoutcomearewellknowntothecraft，besidesbonafidemismanagement。Agivenlineofsecuritiesmaybetemporarilydepressedbylessheroictactics；butthepointinquestionhereisthefactthatunderthissystemofcorporationfinancetheaffairsofthecorporationareingoodpartmanagedfortacticalendswhichareofinteresttothemanagerratherthantothecorporationasagoingconcern。 Whatwassaidinspeakingofcreditextensionwithoutadeterminatetimeinterval(25*)appliestothisclassofbusiness，withaslightchangeofphrase。Inthishigherdevelopmentofcorporationfinance，inthemanipulationsofvendiblecapital，theintervaloftheturnoverspokenofabovebecomesanindeterminatefactor。Thegainsofthebusinesscometohavebutanuncertainandshiftyrelationtothelapseoftimeandcannotwellbecalculatedpercent。pertime-unit。Thereis，therefore，onthesehigherlevelsofbusinessmanagement，properlyspeakingnoascertainableordinaryrateofearnings。Thecapitalwhichmaybedistinctivelyregardedasoperativeinthebusinessofmanipulation，thevaluableitemsspecificallyemployedinthetrafficinvendiblecorporatecapital，ismadeupoftheoperator’sgood-willandhisfinancialsolvency。Solvencyonalargescaleisrequisitetocarryingontrafficofthisclass，butthecollateralonwhichthisextensivesolvencyconstructivelyrestsistobutapartialextentdrawnintothebusinessasabasisforanactualcreditextension。Whatcountsinthecaseisthesolvencyoftheoperatorratherthananoutrightresorttothecreditextensionwhichthissolvencymightafford。Theworkingcapitalinvolvedinthesetransactionsisaccordinglyofapeculiarlyelusivecharacter，andthetimeelementintheuseofthiscapitalishardtodetermine，ifsuchatimeelementcanproperlybesaidtoenterintothecaseatall。 Moreindetail，thebusinessmaninpursuitofgainalongthislinemust，intheordinarycase，bepossessedoflargeholdingsofproperty，thisbeingthebasisofthesolvencynecessarytothebusiness。Theseholdingsarecommonlyintheformofsecuritiesintheconcernwhosevendiblecapitalisthesubjectofhistraffic，aswellasinothercorporations。Thesesecuritiesrepresentcapital，tangibleandintangible，whichisalreadyemployedintheordinarybusinessoftheconcernbywhichtheyhavebeenissued；thecapital，therefore，isalreadyinusetothefullextentandispresumablyyieldingtheordinaryrateofearnings。Butthesolvencyforwhichtheownershipofthiscapitalaffordsabasismayfurtherbeusefulinenablingtheownertocarryonatrafficinvendiblecorporatecapitalwithoutwithdrawinganyappreciableportionofhisholdingsfromthelucrativeinvestmentsinwhichtheyhavebeenplaced。Inotherwords，heisable，undermoderncircumstances，tomakeasecondaryuseofhisinvestmentsforthepurposeoftradinginvendiblecorporatecapital；butthissecondaryuseofinvestmentsbearsnohardandfastquantitativerelationtotheinvestmentsinquestion，nordoesitinanydeterminatewayinterferewiththeordinaryemploymentofthisinvestedcapitalinthecommonplaceconductofthecorporations’businesstraffic。Thecapitalemployed，aswellasthepotentialcreditextensionwhichitaffordsforthepurposesofthishigherbusinesstraffic，isthereforeinapeculiardegreeintangible，and，inrespectofitsamount，highlyelusive。 Muchthesameistrueofthegood-willemployedinthistraffic。Itisalsoingoodpartgood-willwhichalreadyservesthepurposesofthecommonplacebusinesstrafficofthecorporationsonwhosesecuritiesthebusinessmaninquestionrestshissolvency。Sothatinthishigherbusinesstrafficthegood-willengagedisalsohereturnedtoasecondaryuse。Thebusinesseconomieswhichareinthiswaymadepracticablebyareduplicationofusesandmadetoinuretothegreaterbusinessmen’sprofitareofgreatmagnitude；butthemagnificentadditionswhichareinthiswaymadetothebusinesscommunity’scapitalizableforcesneedscarcelybedweltonhere。 Theelusiveandflexuouscharacteroftheelementsofwealthengaged，aswellastheabsenceofanascertainableordinaryrateofearningsinthislineofbusiness，hasledeconomiststospeakofthistrafficinvendiblecapitalasa“speculative“ business。Themerebuyingandsellingofstocksbyoutsidersforariseoradeclineisofcourseaspeculativebusiness；itisatypicalformofspeculativebusiness。Butinsofarassuchbuyingandsellingiscarriedonbythemanagersofthecorporationswhosesecuritiesarethesubjectofthetraffic，andespeciallywherethesecuritiesareboughtandsoldwithaviewtothecontrolofthecorporationsinquestionandtheirmanagementforprivate，tacticalends，acharacterizationofthebusinessas“speculative“isinadequateandbesidethepoint。 Thishigherreachofcorporationfinancieringhaslittleifanymoreofaspeculativecharacterthanwhatbelongstothecommonplacebusinessmanagementofanyindustrialenterprise。Inallbusinessenterprisethatstandsinrelationswiththemarketanddependsonvendibilityofitsoutputthereismoreorlessuncertaintyastotheoutcome。(27*)Inthissenseallindustrialbusiness，aswellascommercialbusiness，hassomethingofaspeculativecharacter。Butitislittletothepurposeonthataccounttolumpindustrialenterprisesandcorporationfinancieringtogetheras“speculativebusiness“anddealwiththemasifthisweretheirmostsalientandconsequentialbearing。Whatspeculativeriskthereisintheselinesofbusinessisincidental，anditneitheraffordstheincentivetoengaginginthesepursuitsnordoesitboundthescopeoftheirbearinguponeconomicaffairs。Thespeculativeriskinvolvedisnogreater，relativelytothemagnitudeoftheinterestsinvolved，inthislargertrafficthatdealsinvendiblecapitalthanitisintheordinarylinesofbusinesstrafficthatdealinvendibleproducts。Inbothcasestheremaybespeculation，butinbothcasesitisasideissue。Indeed，asnearasonemayconfidentlyholdanopiniononsodarkaquestion，thecertaintyofgain，thoughperhapsnottherelativeamountofit，seemsrathermoreassuredinthelarge-scalemanipulationofvendiblecapitalthaninbusinessmanagementwithaviewtoavendibleproduct。 Whatmayobscurethequestionisthefactthatthemanipulationsinvolvedinthistrafficinvendiblecapitalcommonlyimposeincreasedrisksuponthebusinessconcernsengagedinindustry-thecorporationswhosecapitalisinvolved，aswellasotherfirms。Theeverydaybusinessofthecorporationswhosesecuritiesareinvolved，aswellasofotherbusinessconcernsengagedinrivalorrelatedlinesofindustry，isrenderedmorehazardousthanitmightbeintheabsenceofthisfinancieringtrafficinvendiblecapital。Themanipulationscarryrisk，notsomuchtothemanipulatorsassuch，astothecorporationswhosepropertiesarethesubjectofmanipulation； butsincethemanipulatorscommonlyownbutarelativelysmallproportionofthepropertiesinvolvedortouchedbytheirmanipulations，theriskswhicharisedonotfallchieflyonthem。 Tothisistobeadded，asofprimeimportanceforthewholequestion，thatthemanipulatorshavetheadvantageofbeingable，ingreatpart，toforeseethenature，magnitude，andincidenceoftheriskswhichtheycreate。Rightlyseen，this，ofcourse，goestosaythattheincreasedspeculativeriskduetothetrafficinvendiblecapitaldoesnotfallonthattraffic，butonthebusinessenterpriseengagedabouttheoutputofvendiblegoods。 Thetrafficinvendiblecapitalisnotwithoutitsspeculativerisks，buttheriskswhichitcreatesfallwithrelativelygreaterweightuponthebusinessmenwhoarenotimmediatelyconcernedinthistraffic。Indeed，sosecureandlucrativeisthisclassofbusiness，thatitischieflyoutofgainsaccruing，directlyandindirectly，fromsuchtrafficinvendiblecapitalthatthegreatmodernfortunesarebeingaccumulated；andboththerateandthemagnitudeoftheseaccumulations，whethertakenabsolutelyorrelativelytothetotalincreaseofwealth，surpassallrecordedphenomenaoftheirkind。Nothingsoeffectivefortheaccumulationofprivatewealthisknowntothehistoryofhumanculture。 Theaimandsubstantialsignificanceofthe“manipulations“ ofvendiblecapitalherespokenofisaneverrecurringrecapitalizationofthepropertiesinvolved，wherebytheeffectivecapitalizationofthecorporationswhosesecuritiesarethesubjectofthetrafficisincreasedanddecreasedfromtimetotime。Thefluctuations，orpulsations，ofthiseffectivecapitalizationareshownbythemarketquotationsofthesecurities，asnotedabove。(28*)Itisoutofthesevariationsincapitalizationthatthegainsofthetrafficarise，anditisalsothroughthemeansofthesevariationsofcapitalizationthatthebusinessmenengagedinthishigherfinanceareenabledtocontrolthefortunesofthecorporationsandtoeffecttheirstrategicworkofcoalitionandreorganizationofbusinessenterprises。Hencethistrafficinvendiblecapitalisthepivotalanddominantfactorinthemodernsituationofbusinessandindustry。(29*)Ithasbeennotedabovethatwhatmaybecalledtheworkingcapitalonwhichthishighercorporationfinanceproceedsismadeup，chiefly，oftwoelements:thesolvency(andconsequentpotentialcredit)ofthemenengaged，andthe“good-will“ofthesemen。Bothoftheseelementsareofasomewhatintangibleandelusivecharacter，resting，astheydo，somewhatindirectlyandshiftilyonelementsalreadyelsewhereengagedinbusinessenterprise。Thesolvencyinquestionrestsinlargepartonthecapitalofthecorporationswhosecapitalizationissubjecttothefluctuationsinducedbythetrafficinvendiblecapital。Itisthereforenecessarilyasomewhatindeterminateandunstablemagnitude。Tothisistobeaddedthe“floatingcapital“andbankingcapitalatthedisposalofthesemen。Ifacommon-senseviewbetakenofthebusiness，thegood-willengagedmustalsobeaddedtotheassets。Thereisinvolvedaveryconsiderableandveryvaluablebodyofgood-will，appertainingtothefinanciersengagedandtothefinancingfirmsassociatedwiththem。(30*)Thisgoodwillandthissolvencyiscapital，forthepurposeinhand，aseffectuallyasthegood-willandsecuritiesincorporatedinthecapitalizationofanycorporationengagedinindustrialbusiness。 Buthithertothisparticularcategoryofgoodwillhasnotbeenformallycapitalized。Theremaybepeculiardifficultiesinthewayofreducingthisgood-willtotheformofafund，expressingitintermsofastandardunit，andsoconvertingitintoquotablecommonstock，ashasbeendonewiththecorrespondinggood-willofincorporatedindustrialenterprises。 Soalsoasregardsthebodyofsolvencyengaged，-thepotentialcredit，orcreditcapacity，ofthepromotersandfinanciers。 Perhapsthislatterhadbestalsobetreatedasanelementofgood-will；itisdifficulttohandleunderanyother，moretangible，conception。Itmaybedifficulttostandardize，fund，andcapitalizetheseunstablebuthighlyefficientfactorsofbusinessenterprise；butthesuccessfulcapitalizationofgood-willandcreditextensionsinthecaseofthemodernindustrialcorporationsarguesthatthisdifficultyshouldnotbeinsurmountableincaseanurgentneed，-thatistosay，theprospectofaprofitablyvendibleresult，-shouldpressforaformalcapitalizationofthesepeculiarelementsofbusinesswealth。Therecanbenoquestion，e。g。，butthatthegood-willandlargesolvencybelongingtosuchafirmasJ。P。MorganandCompanyforthepurposesofthisclassofbusinessenterpriseareanextremelyvaluableandsubstantialasset，asisalso，andmoreunequivocally，thegood-willoftheheadofthatfirm。Theseintangibleassets，immaterialgoods，should，inallconsistency，bereducedtostandardunits，funded，issuedascommonstock，andsoaddedtothestatisticalaggregateofthecountry’scapitalizedwealth。