of on p. 95 above) becomes, under the circumstances of the modern corporation finance, in great part a question of the interval between the purchase and sale of the capital engaged in industry on the one hand, and of the magnitude of the discrepancy between actual and putative earning-capacity on the other hand, rather than a question of the period of the industrial process and the magnitude of the output and its price. The formula there shown becomes: -- turnover = capital/time (actual earning capacity/n = putative earning capacity - actual earning capacity) in which capital is the amount of the operator's investment in the concern's securities, the time is the interval between purchase and sale of the securities, and the putative earning capacity is taken to exceed the actual earning capacity by an indeterminate fraction of the latter.
103Cf. Chapter III above.
104 Cf. Chapter V above.
105Cf. Emery, "Place of the Speculator in the Theory of Distribution." Proceedings of the twelfth annual meeting of the American Economic Association; also "Discussion" following Mr Emery's paper.
106Well shown in Mr Emery's paper cited above.
107p. 154.
108As is true of good-will and credit extensions generally, so with respect to the good-will and credit strength of these greater business men
109Such a discussion as Patten's Theory of Prosperity applies to the regime of "natural economy", and passably also to that of handicraft and petty trade, but does not seriously touch the modern situation. The like is true generality for current discussions of this topic.
110Wealth of Nations, Introduction.
111This means, in concrete terms, prior to the regime of the machine industry. Since the coming in of the machine, modern business enterprise has taken over the management of industry; that is to say, industry has come to be managed by the method of investment for a profit by what is in aim and animus essentially the commercial method. As has been remarked above, capital has become vendible in a decisive degree. The material factors engaged in industry , particularly in the machine industry proper, are vendible in about the same (perhaps on an average in a higher) degree as the material items handled by commercial traffic are vendible. This is true of raw materials, labor power, and industrial equipment, but it is peculiarly true of the industrial equipment - the mechanical factors in the stricter sense. It is in these mechanical appliances primarily, but in the other factors of the machine industry in only a slightly lower degree, that the traffic of investment, and of purchase and sale connected with investment, is particularly active. Within these wider limits a further limitation may be made. "Vendibility" of all items involved is, as a broadly general rule, carried to the highest pitch in those branches of industry that have to do with the production of "producer's goods." These branches are at the same time, and partly in consequence of this fact, more widely and intimately related to other branches of industry than are any other group of industrial processes that might be named. It seems to be this extreme prevalence of vendibility, together with this more far-reaching and more exacting articulation with the industrial process at large, that chiefly gives substantial significance to a classification of these lines of industry as "Produktivmittel-Industrien" by late German writers. There is, for business purposes, a difference of degree, in both of the respects named, between this (ill-defined) group of industrial processes on the one hand, and the contrasted group occupied with the production of consumption goods on the other hand. The "productive-goods industries" show the modern industrial and business traits in an accentuated form and force, and they are, by consequence, in a strategically primary position in the business situation.
112Cf., e.g., A. Spiethoff, Jahrbuch f. Gesetzgebung Verwaltung u. Volkswirtschaft, vol. XXVI. Heft 2 . "Vorbemerkungen zu einer Theorie der Uberproducktion." and vol. XXVII, pp. 348-353; Turgan-Baranowsky, Theorie und Geschicte der Handelskrisen in England, pp. 16-28; L. Pohle, Periodische Wirschaftskrisen, especially sec. II, with subjoined notes.
113This is well exemplified in Tugan-Baranowsky (Handelskrise), who declares at the outset (p. 17) that money and price are negligible factors for the purpose in hand. He thereby commits himself to the position that these crises are phenomena of the material processes of economic life (production and consumption), not of business traffic. Hence the ultimate failure of this acute observer and theoretician to reach a tenable solution to the question. Substantially the is true of Marx, whom Tugan follows, though with large reservations. (Cf. Marx, Capital, vol. III, ch. XV)
114The "cycle" of exaltation, crisis, and depression has frequently been describe. Perhaps as effective a description and analysis as any is that of Tugan-Baranowsky, Handelskrisen, chap. VIII.
115Cf., however, Cassel, "Om Kriser och Daliga Tider," Ekonomisk Tidskrift, vol. vi, no. 2, pp. 69-78.
116As, e.g., the era of prosperity 1897-1902 took its start from the demand for supplies caused by the Spanish-American War, though other favorable circumstances acted to give it volume. Mr Carver, possibly following suggestions given by Spiethoff's discussion, has suggested that the lines of business in which the favorable initial disturbance arises are necessarily those engaged in the production of "producer's goods"; the reason for this being that, in the nature of the case, "the value of producer's goods tends to fluctuate more violently than the value of consumer's goods," inasmuch as the value of producer's goods varies somewhat as the magnitude of the margin of profits, while that of the consumer's goods varies somewhat as the magnitude of the entire demand on which this margin of profits rests as an increment. (The value of producer's goods = f(delta), that of consumer's goods = f(demand + delta).) From the like line of argument it should follow that the initial break in time of crisis must come in some line of business occupied with producer's goods. Cf. Quarterly Journal of Economics, May 1903, pp. 497-500. See also foot-note on p. 181 above.
117Cf. Sombart, Kapitalismus, vol II, ch. I, on the motive forces at work in advancing business enterprise.
118The "intitial disturbance" here spoken of may of course be of a progressive or recurring character, and so may keep the differential advantage going in a progressive manner, as, e.g., in the case of a progressive demand for supplies due to a protracted war or to a period of continued preparation for war, such as has occurred in America during the last few years.
119There is a point or two of further detail in what may be called the method of prosperity and crisis, which are best discussed in connection with the phenomena of depression. These will, therefore, be taken up presently. The above characterization of an era of prosperity and the manner of its exhausting itself will serve as a description of the course which such an era takes under the regime of the more highly developed business methods of the high tide of the nineteenth century. For the earlier, less fully developed, business situation of the early nineteenth century the corresponding course of events runs somewhat different, owing, chiefly at least, (1) to a slower rate of transmission of any
