ABSTRACT
What has been said on the use of loan credit has anticipated much of what is peculiar in modern business capital. Such is necessarily the case, since it is in the extensive use of credit that the later phases of the management of capital contrast most strikingly with the corresponding features of earlier business traffic. To follow the terminological precedents set by German writers, the late-modern scheme of economic life is a “credit economy,” as contrasted with the “money economy” that characterizes early-modern times. The nature of business capital and its relations to the industrial process under the later, more fully developed, credit economy is in some degree different from what it was before the full and free use of credit came to occupy its present central position in business traffic; and more particularly is it at variance with the theoretical expositions of the economists of the past generation. It has been the habit of economists and others to speakof “capital” as a stockof
the material means by which industry is carried on, – industrial [134] equipment, raw materials, and means of subsistence. This view is carried over from the situation in which business and industry stood at the time of Adam Smith and of the generation before Adam Smith, from whose scheme of life and of thought he drew the commonplace materials and conceptions with which his speculations were occupied. It further carries over the point of view occupied by Adam Smith and the generation to whom he addressed his speculations. That is to say, the received theoretical formulations regarding business capital and its relations to industry proceed on the circumstances that prevailed in the days of the “money economy,” before credit and the modern corporation methods became of first-class consequence in economic affairs. They canvass these matters from the point of view of the material welfare of the community at large, as seen from the standpoint of the utilitarian philosophy. In this system of social philosophy the welfare of the community at large is accepted as the central and tone-giving interest, about which a comprehensive, harmonious order of nature circles and gravitates. These early speculations on business traffic turn about the bearing of this traffic upon the wealth of nations, particularly as the wealth of nations would stand in a “natural” scheme of things, in which all things should work together for the welfare of mankind. [135]
The theory, or what there is in the way of a theory, of business capital in the received body of doctrines is worked out from the point of view and for the theoretical purposes of the eighteenth century scheme of natural liberty, natural rights, and natural law; and the received theorems concerning the part played by capital and by the capitalist are substantially of the character of laws of nature, as that term was understood during the period to which these theorems owe their genesis. What these received theorems declare concerning the nature and normal function of capital and of the capitalist need not be recited here; their content is familiar enough to all readers, lay and learned. Also the merits of such a point of view for purposes of economic theory, and the adequacy of the received concept of capital for the purposes to which it was originally applied, need not detain the inquiry. Modern business management does not take that point of view, nor does “capital” carry such a meaning to the modern business man; because the guiding circumstances under which modern business is carried on are not those supposed to be given by a beneficent order of nature, nor do the controlling purposes of business traffic include that general wellbeing which constituted the final term of Adam Smith’s social philosophy. As a business proposition, “capital” means a fund of money values; and
since the credit economy [136] and corporation finance have come to be the ruling factors in industrial business, this fund of money values (taken as an aggregate) bears but a remote and fluctuating relation to the industrial equipment and the other items which may (perhaps properly) be included under the old-fashioned concept of industrial capital.1
