by him, may from time to time be best sewed by an apparent, if not an actual, mismanagement of industrial affairs. A convincing appearance of decline or disaster will lower the putative earning-capacity of the concern below its real earning-capacity and so will afford an advantageous opportunity for buying with a view to future advance or with a view to strategic control. Various other expedients looking to the like outcome are well known to the craft, besides bona fide mismanagement. A given line of securities may be temporarily depressed by less heroic tactics; but the point in question here is the fact that under this system of corporation finance the affairs of the corporation are in good part managed for tactical ends which are of interest to the manager rather than to the corporation as a going concern.
What was said in speaking of credit extension without a determinate time interval 104 applies to this class of business, with a slight change of phrase. In this higher development of corporation finance, in the manipulations of vendible capital, the interval of the turnover spoken of above becomes an indeterminate factor. The gains of the business come to have but an uncertain and shifty relation to the lapse of time and cannot well be calculated per cent. per time-unit. There is, therefore, on these higher levels of business management, properly speaking no ascertainable ordinary rate of earnings. The capital which may be distinctively regarded as operative in the business of manipulation, the valuable items specifically employed in the traffic in vendible corporate capital, is made up of the operator's good-will and his financial solvency. Solvency on a large scale is requisite to carrying on traffic of this class, but the collateral on which this extensive solvency constructively rests is to but a partial extent drawn into the business as a basis for an actual credit extension. What counts in the case is the solvency of the operator rather than an outright resort to the credit extension which this solvency might afford. The working capital involved in these transactions is accordingly of a peculiarly elusive character, and the time element in the use of this capital is hard to determine, if such a time element can properly be said to enter into the case at all.
More in detail, the business man in pursuit of gain along this line must, in the ordinary case, be possessed of large holdings of property, this being the basis of the solvency necessary to the business. These holdings are commonly in the form of securities in the concern whose vendible capital is the subject of his traffic, as well as in other corporations. These securities represent capital, tangible and intangible, which is already employed in the ordinary business of the concern by which they have been issued; the capital, therefore, is already in use to the full extent and is presumably yielding the ordinary rate of earnings. But the solvency for which the ownership of this capital affords a basis may further be useful in enabling the owner to carry on a traffic in vendible corporate capital without withdrawing any appreciable portion of his holdings from the lucrative investments in which they have been placed. In other words, he is able, under modern circumstances, to make a secondary use of his investments for the purpose of trading in vendible corporate capital; but this secondary use of investments bears no hard and fast quantitative relation to the investments in question, nor does it in any determinate way interfere with the ordinary employment of this invested capital in the commonplace conduct of the corporations' business traffic. The capital employed, as well as the potential credit extension which it affords for the purposes of this higher business traffic, is therefore in a peculiar degree intangible, and, in respect of its amount, highly elusive.
Much the same is true of the good-will employed in this traffic. It is also in good part good-will which already serves the purposes of the commonplace business traffic of the corporations on whose securities the business man in question rests his solvency. So that in this higher business traffic the good-will engaged is also here turned to a secondary use. The business economies which are in this way made practicable by a reduplication of uses and made to inure to the greater business men's profit are of great magnitude; but the magnificent additions which are in this way made to the business community's capitalizable forces need scarcely be dwelt on here.
The elusive and flexuous character of the elements of wealth engaged, as well as the absence of an ascertainable ordinary rate of earnings in this line of business, has led economists to speak of this traffic in vendible capital as a "speculative" business.105 The mere buying and selling of stocks by outsiders for a rise or a decline is of course a speculative business; it is a typical form of speculative business. But in so far as such buying and selling is carried on by the managers of the corporations whose securities are the subject of the traffic, and especially where the securities are bought and sold with a view to the control of the corporations in question and their management for private, tactical ends, a characterization of the business as "speculative" is inadequate and beside the point. This higher reach of corporation financiering has little if any more of a speculative character than what belongs to the commonplace business management of any industrial enterprise. In all business enterprise that stands in relations with the market and depends on vendibility of its output there is more or less uncertainty as to the outcome.106 In this sense all industrial business, as well as commercial business, has something of a speculative character. But it is little to the purpose on that account to lump industrial enterprises and corporation financiering together as "speculative business" and deal with them as if this were their most salient and consequential bearing. What speculative risk there is in these lines of business is incidental, and it neither affords the incentive to engaging in these pursuits nor does it bound the scope of their bearing upon economic affairs. The speculative risk involved is no greater, relatively to the magnitude of the interests involved, in this larger traffic that deals in vendible capital than it is in the ordinary lines of business traffic that deal in vendible products. In both cases there may be speculation, but in both cases it is a side issue. Indeed, as near as one may confidently hold an opinion on so dark a question, the certainty of gain, though perhaps not the relative amount of it, seems rather more assured in the large-scale manipulation of vendible capital than in business management with a view to a vendible product.
What may obscure the question is the fact that the manipulations involved in this traffic in vendible capital commonly impose increased risks upon the business concerns engaged in industry - the corporations whose capital is involved, as well as other firms. The everyday business of the corporations whose securities are involved, as well as of other business concerns engaged in rival or related lines of industry, is rendered more hazardous than it might be in the absence of this financiering traffic in vendible capital. The manipulations carry risk, not so much to the manipulators as such, as to the corporations whose properties are the subject of manipulation; but since the manipulators commonly own but a relatively small proportion of the properties involved or touched by their manipulations, the risks which arise do not fall chiefly on them. To this is to be added, as of prime importance for the whole question, that the manipulators have the advantage of being able, in great part, to foresee the nature, magnitude, and incidence of the risks which they create. Rightly seen, this, of course, goes to say that the increased speculative risk due to the traffic in vendible capital does not fall on that traffic, but on the business enterprise engaged about the output of vendible goods. The traffic in vendible capital is not without its speculative risks, but the risks which it creates fall with relatively greater weight upon the business men who are not immediately concerned in this traffic. Indeed, so secure and lucrative is this class of business, that it is chiefly out of gains accruing, directly and indirectly, from such traffic in vendible capital that the great modern fortunes are being accumulated; and both the rate and the magnitude of these accumulations, whether taken absolutely or relatively to the total increase of wealth, surpass all recorded phenomena of their kind. Nothing so effective for the accumulation of private wealth is known to the history of human culture.
The aim and substantial significance of the "manipulations" of vendible capital here spoken of is an ever recurring recapitalization of the properties involved, whereby the effective capitalization of the corporations whose securities are the subject of the traffic is increased and decreased from time to time. The fluctuations, or pulsations, of this effective capitalization are shown
