第14章

Areorganizationofindustrialconcernsonalargescale，suchasarenotuncommonatthepresenttime，involvesacampaignofbusinessstrategy，engaging，itissaid，abilitiesandresponsibilitiesofaveryhighorder。Suchacampaignofbusinessstrategy，ascarriedoutbythemodemcaptainsofindustry，runs，inthemain，oncreditrelations，inthewayoffinancialbacking，options，purchases，leases，andtheissuanceandtransferofstockanddebentures。Inordertocarrythroughtheselarge“deals，“inthefirstplace，averysubstantialbasisofcreditisrequired，eitherinthehandsofthepromoter(organizer)himselforinthehandsofacredithousewhich“finances“theorganizationforhim。

Thestrategicuseofcredithereinvolvedis，ineffect，verydifferentfromtheold-timeuseofloancreditininvestments。Intransactionsofthisclassthetimeelement，thecreditperiod，isaninconspicuousfactoratthemost；itplaysaverysubordinateanduncertainpart。Thevolumeofcreditatthedisposalofagivenstrategistisaltogetherthedecisivepoint，ascontrastedwiththelapseoftimeoverwhichtheincidentcreditextensionmayrun。Theusefulnessofthecreditextensionisnotmeasuredintermsoftime，norarethegainswhichaccruetothecreditorinthecaseproportionedtothelengthoftimeinvolved。

Thisfollowsfromthepeculiarnatureoftheworkwhichthesegreatcaptainsofindustryhaveinhand，andmoreremotely，therefore，fromthepeculiarcharacteroftheearningswhichinducethemtoundertakethework。Theirwork，thoughitisofthegravestconsequencetoindustry，isnotindustrialbusiness，inthatitisnotoccupiedwithanythingliketheconductofacontinuousindustrialprocess。Norisitofthesameclassascommercialbusiness，orevenbankingbusiness，inthatthereisnoinvestmentinacontinuedsequenceoftransactions。Itdiffersalsofromstockandproducespeculation，asthatiscurrentlyconceived，(22*)inthatitdoesnotdependonthelapseoftimetobringachangeofcircumstances；althoughithasmanypointsofsimilaritywithstockspeculation。Initsdetailsthisworkresemblescommercialbusiness，inthatithastodowithbargaining；butsodoesallbusiness，andthispeculiarworkofthetrustpromoterdiffersfrommercantilebusinessintheabsenceofcontinuity。Perhapsitsnearestbusinessanalogueistheworkoftherealestateagent。

Thevolumeofcreditinvolvediscommonlyverygreat；whereasthecreditperiod，thelapseoftime，isanegligiblefactor。

Indeed，ifanappreciablecreditperiodintervenes，thatisafortuitouscircumstance。Thetimeelementinthesecreditoperationsisinabeyance，oratthebest，itisanindeterminatemagnitude。Hencetheformulashownabove(p。95，n。3)ispracticallynotapplicabletobusinessofthisclass。Sofarasbearsuponthecreditoperationsinvolvedinthesetransactionsofthelargefinance，thequestionaboutwhichinterestturnsisalmostexclusivelythevolumeoftheturnover；itsvelocityisanegligiblequantity。Suchstrategicuseofcreditisnotconfinedtothebusinessofmakingormarringindustrialcoalitions。Itishabituallytobemetwithinconnectionwithstock(andproduce)

speculation，andramificationsofthelikeuseofcreditrunthroughthedealingsofthebusinesscommunityatlargeinmanydirections；butitrarelyattainsthemagnitudeintheserviceofstockspeculationwhichitreachesinthecampaignincidenttoatrust-makingdeal。Theformofcreditextensionemployedinthesetransactionswithindeterminatetimealsovaries。Theolderandmorefamiliarformisthatofthecallloan，togetherwiththestockexchangetransactionsforwhichcallloansarelargelyused。Herethetimeelementispresent，especiallyinform；butthecreditperiodissomewhatindeterminate，asisalsothegainthataccruestothecreditorfromthetransaction；althoughthecreditor’sgainherecontinuestobecountedata(variable)ratepercent。pertime-unit。Thestrategicuseofcreditintheaffairsofthelargebusinessfinancehasmuchincommonwiththecallloan。Indeed，thecallloaninsetformisoftenresortedtoasavaluableauxiliaryrecourse，althoughthelargerarrangementsforfinancingsuchacampaignofbusinessstrategyarenotusuallyputintheformofacallloan。Thearrangementbetweenthepromoterandthefinancialagentiscommonlybasedonalessspecificstipulationastocollateral，andthepaymentforcreditobtainedtakesevenless，ifany，accountofthelengthofthecreditperiod。Infinancingacampaignofcoalitionthecredithousethatactsasfinancialagentassumes，ineffect，anevenlessdeterminatecreditresponsibility。Here，too，thegainsaccruingtothecreditorarenolonger，evennominally，countedpercent。pertime-unit，butratherintheformofabonusbasedmainlyonthevolumeoftheturnover，withsomevariabledegreeofregardtoothercircumstances。

Answeringtotheessentiallytimelesscharacterofthegainsaccruingtothefinancialagent，theearningsofthepromoterengagedintransactionsofthisclassarealsonotofthenatureofprofitspercent。pertime-unit，butratherabonuswhichcommonlyfallsimmediatelyintotheshapeofashareinthecapitalizationofthenewlyorganizedconcern。Muchoftheincrementofcapital，orcapitalization，thatgoestothepromoterisscarcelydistinguishablefromanincreaseoftheliabilitiesofthenewcorporation(e。g。preferredstock)；andtheremainder(e。g。commonstock)hasalsosomeofthecharacteristicsofacreditinstrument。Itisworthnotingthatthecostofreorganization，includingthebonusofthepromoterandthefinancialagent，is，inthecommonrunofcases，addedtothecapitalization；thatistosay，asnearasthisclassoftransactionsmaybespokenofintermsborrowedfromtheold-fashionedbusinessterminology，whatanswerstothe“interest“duethecreditoronthecreditextensioninvolvedisincorporatedinthe“capital“ofthedebtor，withoutcircumlocutionorfaltering。(23*)

Thelinebetweencreditandcapital，orbetweendebtandproperty，inthevalueshandledthroughoutthesestrategicoperationsofcoalition，remainssomewhatuncertain。Indeed，theold-fashionedconceptsof“debt“and“property，“or“liabilities“

and“assets，“arenotfairlyapplicabletothefactsofthecase-except，ofcourse，inthewayofatechnicallegaldistinction。

Theold-fashionedlawandlegalpresumptionsandthenew-fashionedfactsandusagesarepartingcompany，atthispointaswellasatsomeothersintheaffairsofmodernbusiness。

Whensuchalargetransactioninthereorganizationofindustrialconcernshasbeencompleted，thevaluesleftinthehandsoftheformerownersoftheconcernsmergedinthenewcoalitionareonlytoafractionalanduncertainextentofthenatureofmaterialgoods。Theyareinlargepartdebentures，andmuchoftheremainderisofadoubtfulcharacter。Alargeproportionofthenominalcollectivecapitalresultinginsuchcasesismadeupofthecapitalizedgood-willoftheconcernsmerged。(24*)Thisgood-willischieflyacapitalizationofthedifferentialadvantagespossessedbytheseveralconcernsascompetitorsinbusiness，andisforthemostpartofnouseforotherthancompetitivebusinessends。Ithasforthemostpartnoaggregateindustrialeffect。Thedifferentialadvantagespossessedbybusinessconcernsascompetitorsdisappearwhenthecompetitorsaremerged，inthedegreeinwhichtheyceasetocompetewithrivalbiddersforthesamerangeofbusiness。Tothisaggregatedefunctgood-willoftheconsolidatedconcerns(whichinthenatureofthingscanmakeonlyanimaginaryaggregate)isaddedsomethinginthewayofanincrementofgood-willbelongingtothenewcorporationassuch；(25*)andthewholeisthenrepresented，approximately，bythecommonstockissued。Thenominalcapitaloftheconcernsmerged(ingoodpartbasedoncapitalizedgoodwill)isaggregated，afteranappraisementwhichcommonlyequalizestheproportionofeachbyincreasingthenominalsharesofall。Thisaggregateiscoveredwithcommonandpreferredstock，chieflypreferred，whichisaclassofdebenturesissuedundertheformofcapital。Thestock，commonandpreferred，goestotheownersoftheconcernsmerged，andtothepromoterandthefinancialagent，asindicatedabove。

Incasebondsareissued，theselikewisegototheformerowners，insofarastheydonotreplaceoutstandingliabilitiesoftheconcernsmerged。

“Capital“intheenlightenedmodernbusinessusagemeans“capitalizedpresumptiveearning-capacity，“andinthiscapitalizationiscomprisedtheusufructofwhatevercreditextensionthegivenbusinessconcern’sindustrialequipmentandgood-willwillsupport。(26*)Byconsequencetheeffectualcapitalization(shownbythemarketquotations)ascontrastedwiththenominalcapital(shownbytheparvalueofthestockofalldescriptions)fluctuateswiththefluctuationsoftheprevalentpresumptionastothesolvencyandearning-capacityoftheconcernandthegoodfaithofitsgoverningboard。

Whenthemoderncaptainofindustryreorganizesandconsolidatesagivenrangeofindustrialbusinessconcerns，therefore，andgivesthemacollectiveformandnameasanup-to-datecorporation，thecompletedoperationpresents，insyncopatedformandwithinanegligiblelapseoftime，allthatintricateprocessofcumulativeaugmentationofbusinesscapitalthroughtheuseofcreditwhichotherwisemaycomegraduallyinthecourseofbusinesscompetition。Atthesametimeitinvolvesaredistributionoftheownershipofthepropertyengagedinindustry，suchasotherwiseoccursataperiodofliquidation。

Theresultis，ofcourse，notthesameatallpoints，buttheequivalencebetweenthetwomethodsofexpandingbusinesscapitalanddistributingthegainsiscloseinsomerespects。Theresemblancesandthedifferencesbetweenthetwoprocesses，sofarasrelatestocredit，areworthnoticing。Thetrust-makerisinsomerespectsasurrogateforacommercialcrisis。

Whencreditextensionisusedcompetitivelyintheold-fashionedwayforincreasingthebusinessofcompetingconcerns，asspokenofabove(pp。94-100，109-114)，theexpansionofbusinesscapitalthroughcreditoperationsoccupiesaperiodofsomeduration，commonlyrunningoveranintervalrecognizedasaperiodofspeculativeadvanceor“risingprosperity。“Theexpansionofcapitalizedvaluesthentakesplacemoreorlessgraduallythroughacompetitiveenhancementofthepricesofindustrialequipmentandthelike。Thecreditorsthencommonlycomeinfortheirresultingshareintheindustrialequipmentonlyattheperiodofliquidation，withitsattendantshrinkageofvalues。Inthetimelesscredittransactionsinvolvedinthemodernreorganizationsofindustrialbusiness，ontheotherhand，thecreditors’claimtakeseffectwithoutanappreciablelapseoftime，aliquidation，orashrinkageofvalues。

Thewholeprocessofcreditextension，augmentationofbusinesscapital，anddistributionofproceedsisreducedtoaverysimpleform。Thecreditextensioniseffectedintwomainforms:(a)the“financing“undertakenbythecredithouseinconjunctionwiththepromoter，and(b)theissuanceofdebentures。Thebonusofthefinancinghouseandpromoter，aswellasthedebentures，areallincludedintherecapitalization，togetherwithanincrementofgood-willandanyotherincidentalitemsofexpenseorpresumptivegain。Theresultingcollectivecapitalization(assetsandliabilities)isthendistributedtotheseveralpartiesconcernedinthetransaction。Theoutcome，sofarastouchesthepresentargument，beingthatwhentheoperationiscompletedtheownershipoftherecapitalizedindustrialequipment，withwhateverotherpropertyisinvolved，appearsdistributedbetweentheformerowners，thepromotcr，andthecredithousewhichfinancedtheoperation。But，byvirtueofthedebenturesdistributed，theformerowners，togetherwiththeotherpartiesnamed，appearintheroleofcreditorsofthenewcorporationaswellasownersofit；theycommonlycomeoutofthetransactionwithlargeholdingsofpreferredstockorsimilardebenturesatthesametimethattheyholdthecoommonstock。Thepreferr。edstock，ofcourse，ispresentlydisposedofbythelargeholderstooutsideparties。Thematerialequipmentisthenpracticallythesameasitwasbefore；thebusinesscapitalhasbeenaugmentedtocomprisesuchproportionofthegoodwilloftheseveralconcernsincorporatedashadnotpreviouslybeencapitalizedandhypothecated，togetherwiththegood-willimputedtothenewcorporationandsuchdebenturesastheseitemsofwealthwillfloat。

Theeffectivecapitalizationresultingis，ofcourse，indicatedbythemarketquotationsofthesecuritiesissuedratherthanbytheirfacevalue。Thevalueofthecorporation’sbusinesscapitalsoindicatedneedsuffernopermanentshrinkage；

itwillsuffernoneifthemonopolyadvantage(good-will)ofthenewcorporationissufficienttokeepitsearning-capacityuptotherateonwhichthecapitalizationisbased。