besideswhichitis,practically,verydifficulttoeffectsuchanavowedrecapitalizationasappliedtothestockofincorporatedcompanies,particularlyinthecaseofthosewhosestockisostensiblythecapitalizedvalueoftheirplant。
Suchareadjustmentofnominalvaluetoactualvalueasshownbythefactsofearning-capacityiscontinuallygoingon,insomemeasure;butitdoesnotcovertheentirerangeoffactsinvolved,anditisnearlyalwaysofthenatureofareluctantconcession,followingonlyaftertheneedofithasbecomesomewhatpressing。Itcan,therefore,inthecommonrunofcases,notcatchupwiththeprogressivedifficultywhichitisdesignedtomeet,insofarasthedifficultyisofaprogressivecharacter。
Adiscrepancybetweenacceptedcapitalizationandcurrentearning-capacity,similartothediscrepancydiscussedabovebutofaprogressivecharacter,arisesundermodernconditionsapartfromafallintherateofinterest。Thediscrepancypointedoutandprovisionallydisposedofabove,duetoafallininterestrates,isadiscrepancybetweenthenominalvalueacceptedcapitalizationoftheolderestablishments,computedontheirearlierearning-capacityorontheoriginalcostoftheirequipment,ontheonehand,andtheirpresentactualvalueontheotherhand,computedontheircurrentearning-capacityincompetitionwithrivalsthathavetheadvantageofalowercostofequipment,or,inotherwords,alowerinterestchargeperunitofearning-capacity。Undertheregimeofthelater,morefullydevelopedmachineproduction,adiscrepancyhavingasimilareffectarisesoutofapersistentdivergencebetweenthepastcostofproductionofagivenequipmentandthecurrentcostofalikeorequivalentequipmentatanysubsequentdate,-
supposingthatthereintervenesnoinflationofpricesandnoextraneouscausemakingforaspeculativeadvance。22*
Supposepricesoffinishedgoodstobestableortovarybyinconsequentialfluctuations,negligibleforpurposesoftheargument,andsupposetherateofinteresttobeinasimilarlynegligibleposition。Inotherwords,supposesuchaconditionasthebusinesscommunitywouldrecognizeasordinary,normal,sound,withoutgroundforpronouncedhopesorfears。Undermoderncircumstances,dominatedasthemodernsituationisbythemachineindustry,suchastateofaffairsisunstable,evenapartfromanydisturbanceofanextraneouskind。Itisunstablebyvirtueoftheforcesatworkinitsownprocess,andtheseforces,onthewhole,makeforaprogressivechangein。thedirectionofdepression。
Ithasappearedabovethatthedepressingeffectwhicharelativelylowdecliningrateofinteresthasuponindustrialbusinessisduetoitssettingupadiscrepancybetweentheacceptedcapitalizationofolderestablishmentsandthecostofnewestablishmentsofanequivalentearning-capacity。Now,underthecircumstancesofthemorefullydevelopedmachineindustry,suchasithasstoodforacoupleofdecadespast,asimilardiscrepancyresultsfromthegradualbutuninterruptedprogressiveimprovementsofindustrialprocesses。“Thestateoftheindustrialarts,“astheoldereconomistsareinthehabitofcallingit,isnolongertobeconceivedasstationary,evenforthetimebeing。No“statical“theoryoftheindustrialartsorofbusinessprosperityistenable,evenforthepurposesofa“statical“theoryoftheindustrialsituation。Progressivelyincreasingefficiencyoftheprocessesinuseisapervadingtraitoftheindustrialsituation。Notwosuccessiveyearsarenowonthesame,orvirtuallythesame,planeinrespectoftheefficiencyoftheindustrialarts;indeed,the“periodofproduction“cannolongersafelybeconstruedtobeginandendonthesamelevelinthisrespect。Atthesametimetheprogressivelywiderandmoreclose-knitarticulationoftheseveralindustriesinacomprehensiveprocessisalsogoingforward,andthisalsoaffectsallbranchesofindustrialbusinessinsomedegreeandinthesamedirection,aswillappearpresently。
Theitemsoftheequipmentplant,materials,andinameasureevengood-willinwhichanyindustrialenterpriseinvests,andbytheuseofwhichthebusinessmeninindustryturnouttheiroutputofvendiblegoods,arethemselvesproductsofthemachineindustry。Machineprocesses,everincreasinginefficiency,turnoutthemechanicalappliancesandmaterialswithwhichtheprocessesarecarriedon,ataneverdecreasingcost;
sothatateachsuccessivesteptheresultisaprocesshavingahigherefficiencyatalowercost。23*Thisisnownolongerasporadiceffectofingeniouscontrivanceshavingalocalandlimitedapplication,tobehandledastradesecretsandexploitedasanenduringdifferentialadvantage。
Thecostofproductionof“capitalgoods“issteadilyandprogressivelylowered,ascountedintermsoftheprocessesinvolvedintheirproduction。Inacompetitivemarketthisisreflected,withgreaterorlesspromptitude,inthepricesofsuchcapitalgoodstoallbuyers。Butthebuyerswhosepurposesthislowerscaleofpricesparticularlysubservesarechieflythenewinvestorswhogointobusinessinthewayofnewindustrialestablishmentsorextensionsoftheold。Eachnewventureorextensiongoesintothecompetitivetrafficofproducingandsellinganylineofstaplegoodswithadifferentialadvantage,asagainstthosethathavegonebeforeit,inthewayofalowerscaleofcosts。Asuccessivelysmalleraggregatevalueofnewequipmentwillturnoutagivenvolumeofvendibleproduct。Insofarasthereisnocollusivecontroloftheoutputortheprices,thismeansthatthenewcomerswillcutunderthescaleofpricesatwhichtheirpredecessorshavebeencontenttosupplythegoods。Therunofcompetitivepricesislowered;whichmeansthatatthenewcompetitiveprices,andwiththeiroutputremainingonitsoldfootingasregardsexpensesofproduction,theolderestablishmentsandprocesseswillnolongeryieldreturnscommensuratewiththeoldacceptedcapitalization。24*Fromtheinherentcharacterofthemachineindustryitself,therefore,itfollowsthattheearning-capacityofanyindustrialenterpriseentersonadeclinefromtheoutset,andthatitscapitalization,basedonitsinitialputativeearning-capacity,growsprogressivelyantiquatedfromthestart。Theefficiencyofthemachineprocessinthe“instrumentalindustries“setsupadiscrepancybetweencostandcapitalization。Sothataprogressivereadjustmentofcapitalizationtocorrespondwiththeloweredearning-capacityisrequiredbythenatureofthecaseItisalso,inthenatureofthecase,impracticable。
Insofarastheprocessofinvestmentandbusinessmanagementinvolvestheuseofcredit,inthewayofinterest-bearingsecuritiesorloansequivalenttosuchsecurities,thiselementofcreditretardsthereadjustmentbyforceofthefixedchargeswhichitinvolves。Thisretardationaidedasitisbythereluctanceofbusinessmentolowertheircapitalizationisofsufficienteffecttohinderrecapitalization,onthewhole,fromovertakingtheprogressiveneedofit,withtheresultthatafairor“ordinary“rateofprofitsonindustrialinvestmentsisnotpermanentlyattainableinthefieldofopencompetition。Inorderthattherateofinterestshouldeffectuallyfurtherbusinessdepressioninthisway,therefore,itisnotnecessarythattherateshouldriseorfall,orthatitshouldberelativelyhighorlow,orthatitshouldbeuniformoverthefield,butonlythatthereshouldbearateofinterestineachcase,andthatthereshouldbesomeappreciablevolumeofcreditinvolvedinindustrialinvestments。
Creditis,infact,aubiquitousfactorinmodernindustrialbusiness,anditseffectsinthewayindicatedarethereforetobecountedinasaconstantforceinthesituation。
However,evenapartfromthepresenceofthisubiquitouscreditelement,asimilareffectwouldprobablyresultfromtheprogressiveenhancementofindustrialefficiencywhenthisenhancementproceedsatsucharateashasbeenthecaseforsometimepast。Ashasbeenshowninanearlierchapter,businessmenkeepaccountoftheirwealth,theiroutgoandtheirincome,intermsofmoneyvalue,notintermsofmechanicalserviceabilityorofconsumptiveeffect。Businesstrafficandbusinessoutcomearestandardizedintermsofthemoneyunit,whiletheindustrialprocessanditsoutputarestandardizedintermsofphysicalmeasurementsmechanicalefficiency。Inthecurrenthabitsandconventionsofthebusinesscommunity,theunitofmoneyisacceptedanddealtwithasastandardmeasure。Thestabilityofthestandardunitcannotbeeffectuallyquestionedwithinthescopeofbusinesstraffic。Accordingtothepracticalmetaphysicsofthebusinesscommunity,themoneyunitisaninvariablemagnitude,whatevermaybetrueofitinfact。Amanimbuedwiththesebusinessmetaphysicsandnotgiventofine-spunreflection,asbusinessmencommonlyarenot,isricherorpoorerinhisownapprehension,accordingashisbalancesheetshowsagreaterorlessnumberofthesestandardunitsofvalue。Investment,expenses,vendibleoutput,earnings,fixedcharges,andcapitalizationrunintermsofthisvalueunit。Areductionofearningsorofcapitalization,asratedintermsofthevalueunit,isfeltasanimpoverishment。Thereductionofcapitalizationinthesetermsis,therefore,ahardship,whichisonlyreluctantlyandtardilysubmittedto,evenifitcarriesnohardshipinthewayofareducedcommandoverthematerialmeansofproduction,oflife,orofcomfort。Abusinessman’sratinginthebusinesscommunitylikewiserestsonthepecuniarymagnitudeofhisholdingsandhistransactions,notonthemechanicalserviceabilityofhisestablishmentorhisoutput;andthisbusinessratingisalargepartofthebusinessman’severydayambition。Anenhancementofitisasourceofsecuregratificationandself-respect,andareductionofithasaverysubstantialcontraryeffect。25*Areductionofthepecuniaryshowingissubmittedtoonlyreluctantlyandtardily,afterithasbecomeunavoidable,andonlytotheleastfeasibleextent。
Butunderconditions,suchasnowprevail,whichinvolvetherequirementofaprogressivereratingofthiskind,thisreluctantconcessionneverovertakestheneedofreadjustment,-
andthediscrepancybetweencapitalizationandearning-capacityisthereforechronicsolongasnoextraneouscircumstancescomeintemporarilytosetasidethetrendofbusinessaffairsinthisrespect。Itmay,therefore,besaid,onthebasisofthisview,thatchronicdepression,moreorlesspronounced,isnormaltobusinessunderthefullydevelopedregimeofthemachineindustry。26*
Thisdeplorabletrendgiventobusinessbytheexcessiveprevalenceandefficiencyofthemachineindustrycan,however,besetasidebyseveralfactorsmoreorlessextraneoustotheindustrialsystemproper。Evenwithinthemechanicalsystemofindustrythereisatleastonefactorofsomeconsequencethatconsistentlyactstomitigatethetrendindicated,andthatmayevenputitinabeyancefromtimetotime。Ashasbeenpointedoutabove,questionsofbusinessarefundamentallyquestionsofprice。Adeclineofpriceswhichwidelytouchesbusinessinterestsbringsdepression。Conversely,anappreciableadvanceinprices,fromwhatevercause,meansimprovementinbusiness。
Suchanadvanceinpricesmaycomeofaspeculativemovement;
whichinturnmayarisefromavarietyofcircumstances,forthemostpartcircumstancesextraneoustotheindustrialprocess。Forthepresent,however,thequestionofaspeculativemovementisbestleftononeside。Anotherfactortouchesthecasemoreintimately。Ashasmorethanoncebeenthecase,pricesmaybeadvancedthroughafreersupplyofthepreciousmetals,orbyaninflationofthecurrency,oramorefacileuseofcreditinstrumentsasasubsidiarycurrencymechanism。Now,thegrowingefficiencyofindustryhasaneffectinloweringthematerial
costofproductionofthepreciousmetalsandsoincreasingtheeasewithwhichtheyaresupplied,afterthesamemannerasitaffectsthesupplyofgoodsforindustrialorconsumptiveuse。
Buttheincreasedsupplyofthepreciousmetalshas,ofcourse,aneffectuponpricescontrarytothatexertedbytheincreasingsupplyofgoods。Insofarasthiseffectishad,itactstocorrectormitigatethetrendofbusinesstowardchronicdepression。27*
Butcertaincircumstancescomeintoqualifythesalutaryeffectofaloweredcostofthepreciousmetals。Improvementsintheindustrialprocessesaffecttheindustrialcostofproductionofthepreciousmetalsinalessdegreethanthecostofothergoods;atleast,suchseemstohavebeenthecaserecently。Butbeyondthis,andofgraverconsequence,isapeculiarityaffectingthevalueofthemoneymetals。Theannualproductofthemoneymetalsisnotannuallyconsumed,nornearly。
Theuseofthemasmoneydoesnotconsumethemexceptincidentallyandveryslowly。Themassofthesemetalsinhandatanygiventimeisveryconsiderableandisrelativelyimperishable,sothattheannualaccretionisbutasmallfractionoftheaggregatesupply。Theloweredcostoftheannualsupplyhasthereforebutarelativelyslighteffectupontheaggregatevalueoftheavailablesupply。