by the market quotations of the securities, as noted above.107 It is out of these variations in capitalization that the gains of the traffic arise, and it is also through the means of these variations of capitalization that the business men engaged in this higher finance are enabled to control the fortunes of the corporations and to effect their strategic work of coalition and reorganization of business enterprises. Hence this traffic in vendible capital is the pivotal and dominant factor in the modern situation of business and industry.108 It has been noted above that what may be called the working capital on which this higher corporation finance proceeds is made up, chiefly, of two elements: the solvency (and consequent potential credit) of the men engaged, and the "good-will" of these men. Both of these elements are of a somewhat intangible and elusive character, resting, as they do, somewhat indirectly and shiftily on elements already elsewhere engaged in business enterprise. The solvency in question rests in large part on the capital of the corporations whose capitalization is subject to the fluctuations induced by the traffic in vendible capital. It is therefore necessarily a somewhat indeterminate and unstable magnitude. To this is to be added the "floating capital" and banking capital at the disposal of these men. If a common-sense view be taken of the business, the good-will engaged must also be added to the assets. There is involved a very considerable and very valuable body of good-will, appertaining to the financiers engaged and to the financing firms associated with them. This goodwill and this solvency is capital, for the purpose in hand, as effectually as the good-will and securities incorporated in the capitalization of any corporation engaged in industrial business.
But hitherto this particular category of goodwill has not been formally capitalized. There may be peculiar difficulties in the way of reducing this good-will to the form of a fund, expressing it in terms of a standard unit, and so converting it into quotable common stock, as has been done with the corresponding good-will of incorporated industrial enterprises. So also as regards the body of solvency engaged, - the potential credit, or credit capacity, of the promoters and financiers. Perhaps this latter had best also be treated as an element of good-will; it is difficult to handle under any other, more tangible, conception. It may be difficult to standardize, fund, and capitalize these unstable but highly efficient factors of business enterprise; but the successful capitalization of good-will and credit extensions in the case of the modern industrial corporations argues that this difficulty should not be insurmountable in case an urgent need, - that is to say, the prospect of a profitably vendible result, - should press for a formal capitalization of these peculiar elements of business wealth. There can be no question, e.g., but that the good-will and large solvency belonging to such a firm as J.P. Morgan and Company for the purposes of this class of business enterprise are an extremely valuable and substantial asset, as is also, and more unequivocally, the good-will of the head of that firm. These intangible assets, immaterial goods, should, in all consistency, be reduced to standard units, funded, issued as common stock, and so added to the statistical aggregate of the country's capitalized wealth.
It is safe to affirm that this good-will of the great reorganizer has in some measure entered in capitalized form into the common stock of the United States Steel Corporation, as also into that of some of the other great combinations that have latterly been effected. The "good-will" of Mr Carnegie and his lieutenants, as well as of many other large business men connected with the steel industry, has also no doubt gone to swell the capitalization of the great corporation. But good-will on this higher level of business enterprise has a certain character of inexhaustibility, so that its use and capitalization in one corporation need not, and indeed does not, hinder or diminish the extent to which it may be used and capitalized in any other corporation. The case is analogous, though scarcely similar, to that of the workmanlike or artistic skill of a handicraftsman, or an artist, which may be embodied in a given product without abating the degree of skill possessed by the workman. Like other good-will, though perhaps in a higher degree of sublimation, it is of a spiritual nature, such that, by virtue of the ubiquity proper to spiritual bodies, the whole of it may undividedly be present in every part of the various structures which it has created. Indeed, the fact of such good-will having been incorporated in capitalized form in the stock of any given corporation seems rather to augment than to diminish the amount at which it may advantageously be capitalized in the stock of the next corporation into which it enters. It has also the correlative spiritual attribute that it may imperceptibly and inscrutably withdraw its animating force from any one of its creatures without thereby altering the material circumstances of the corporation which suffers such an intangible shrinkage of its forces.
There can be no question but that the good-will of the various great organizers and their financiering houses has repeatedly been capitalized, probably to its full amount, in the common stock of the various corporations which they have created; but taken in the sense of an asset belonging to the financing house as a corporation, it is not known that this item of immaterial wealth has yet been formally capitalized and offered in quotable shares on the market or included in the schedules of personal property.
The sublimation of business capital that has been going forward in recent times has grave consequences for the owners of property as well as for the conduct of industry. In so far as invested property is managed by the methods of modern corporation finance, it is evident that the management is separated from the ownership of the property, more and more widely as the scope of corporation finance widens. The discretion, the management, lies in the hands of the holders of the intangible forms of property; and with the extension of corporation methods it is increasingly true that this management, again, centres in the hands of those greater business men who hold large blocks of these intangible assets. The reach of a business man's discretionary control, under corporation methods, is not proportioned simply to the amount of his holdings. If his holdings are relatively small, they give him virtually no discretion. Whereas if they are relatively large, they may give him a business discretion of much more than a proportionate reach. The effective reach of a business man's discretion might be said to increase as the square of his holdings; although this is to be taken as a suggestive characterization rather than as an exact formula.
Among the holdings of industrial property that count in this way toward control of the business situation, the intangible assets (represented by common stock, good-will, and the like) are chiefly of consequence. Hence follow these two results: the fortunes of property owners are in large measure dependent on the discretion of others the owners of intangible property; and the management of the industrial equipment tends strongly to centre in the hands of men who do not own the industrial equipment, and who have only a remote interest in the efficient working of this equipment. The property of those who own less, or who own only material goods, is administered by those who own more, especially of immaterial goods; and the material processes of industry are under the control of men whose interest centres on an increased value of the immaterial assets.
Theory of Modern Welfare
Before business principles came to dominate everyday life the common welfare, when it was not a question of peace and war, turned on the ease and certainty with which enough of the means of life could be supplied. Since business has become the central and controlling interest, the question of welfare has become a question of price. Under the old regime of handicraft and petty trade, dearth (high prices) meant privation and might mean famine and pestilence; under the new regime low prices commonly mean privation and may on occasion mean famine. Under the old regime the question was whether the community's work was adequate to supply the community's needs; under the new regime that question is not seriously entertained.
But the common welfare is in no less precarious a case. The productive efficiency of modern industry has not done away with the recurrence of hard times, or of privation for those classes whose assured pecuniary position does not place them above the chances of hard times. Distress may not be so extreme in modern industrial
