ABSTRACT
During the trustification and consolidation wave in the latter part of the nineteenth century, companies acquired new valuations that often dwarfed their net assets. For Thorstein Veblen, these new capital valuations reflected the new monopoly pricing power of dominant firms that arose as an inevitable result of a previous competitive phase. Monopoly also meant speculative excess. High stock prices mirrored a general restriction of production in the service of heightened profitability and controlled obsolescence. In his Theory of Business Enterprise, Veblen wrote that "for economic theory of a hundred years ago," capital was the "capitalized cost of the industrial equipment." Q theory assesses the relative choice of "Build or Buy" by costs of acquisition. This chapter suggests a theory of the "Build or Buy" choice based not on costs but on the relative cash-generating power of the alternatives. In pursuing cash-rich growth, firms assess the relative cash-generating power of existing capital as measured by the cash-augmenting prospects of new investment.
