Itappears，then，thatintheaffairsoflatterdaybusiness，asshownbymoderncorporationfinance，capitalandcreditextensionarenotalwaysdistinguishableinfact，nordoesthereappeartobeadecisivebusinessreasonwhytheyshouldbedistinguished。“Capital“means“capitalizedputativeearning-capacity，“expressedintermsofvalue，andthiscapitalizationcomprisestheuseofallfeasiblecreditextension。Thebusinesscapitalofamoderncorporationisamagnitudethatfluctuatesfromdaytoday；andinthequotationsofitsdebenturesthemagnitudeofitscreditextensionalsofluctuatesfromdaytodaywiththecourseofthemarket。Theprecisepecuniarymagnitudeofthebusinesscommunity’sinvestedwealth，aswellastheaggregateamountofthecommunity’sindebtedness，dependsfromhourtohouronthequotationsofthestockexchange；anditrarelyhappensthatitremainsnearlythesameintheaggregatefromoneweek’sendtothenext。Bothcapitalandcredit，therefore，varyfromhourtohour。and，withinnarrowlimits，fromplacetoplace。Themagnitudeandfluctuationsofbusinesscapital，-“capital“inthesenseinwhichthattermisusedinbusinessaffairs，-ofcourse，standinnohardandfastrelationtothematerialmagnitudeoftheindustrialequipment；nordovariationsinthemagnitudeofthebusinesscapitalreflectvariationsinthemagnitudeortheefficiencyoftheindustrialequipmentinanybuttheloosestandmostindecisivemanner。Soalso，andforthesamereason，themagnitudeandthevariationsoftheaggregatecreditafloatatagiventimebear，atthemost，butaremote，indirect，andshiftyrelationtotheaggregateofmaterialwealthandthematerialchangestowhichthiswealthissubject。Allthisapplieswithpeculiarcogencywhereverandinsofarasindustryandbusinessarecarriedonhymodernexpedientsandinduecontactwiththemarket。
This，ofcourse，hasnothingtosaytoBohm-Bawerk’stheoryoftheenhancementofproductionthroughlengtheningtheprocessesofindustry。Histheoryofthe“roundaboutmethod“appliestothetechnical，materialefficiencyofthemechanicalprocess；whereasthepointinquestionhereistheintervaloccupiedintheturningoverofagivenbusinesscapital。Bohm-Bawerk’spositionmaybequestionable，however，onothergrounds。
Cf。，e。g。，WernerSombart，“DerStildesmodernenWirthschaftslebens。“Achivfursoz。Gestzg。u。Statistik，vol。
ofDermoderneKapitalismusLeipzig，1902。
Cf。，e。g。，Marshall，PrinciplesofEconomics3ded。，bkVI，ch。VII，secs。3and4。
Cf。Laughlin，PrinciplesofMoney，p。86。
Theturnoverwillcountformoreingrossearningsatcurrentratesifinsteadofhisowncapitalalonethebusinessmanalsoengageswhateverfundshecanborrowbyusinghiscapitalascollateral。Theturnovercountedoncapitalvalueoftheindustrialequipmentpluscredit，atcurrentrates，willbegreaterthanthatcountedonthecapitalaaoneusedwithoutcreditextension。Theturnovermaybeexpressedastheproductofthemassofvaluesemployedmultipliedbythevelocity。Hence，ifcreditbetakenasanindeterminatefractioncapital/nofthecapitalusedascollateral，wemaysaythatTurnover=1/timecapitalcapital/n，i。e。
Thealgebraicstatementservestobringouttheequivalencebetweenanaccelerationoftherateofturnoverandanincreaseofthevolumeofbusinesscapital。Cf。Jevons，TheoryofPoliticalEconomy，pp。
SombartismistakeninsayingKapitalismus，vol。II。ch。VI，p。74thattheuseofcreditlengthensthetimeofturnoverofcapital。Creditshortensthetimerelativelytothemagnitudeoftheturnover；i。e。agiveninitialcapitalbythehelpofcreditturnsoveralargerpecuniarymagnitudeinagiventime:
ThelegallyobligatoryreservefortheNationalBanks，forinstance，is25percentofcombinednotecirculationanddepositsincentralreservebanks，15percentinothers——
RevisedStatutes，
Thistakesaccountofadvancemadebyotherlendersthantheregularbankinghouseswhoexcludemortgagesonrealestatefromtheircollateral；such，e。g。，asthelongtimeadvancesinvestmentsinsecuritiesmadebysavingbanks，insurancecompanies，minorprivateandmortgagebanks，privatelenders，etc。
Thistruismisfrequentlyoverlookedintheoreticaldiscussions；hence，asthepresentargumentrequiresitsrecognition，itisherestatedinthisexplicitway。
hecashloansmadebydepositorstosavingsbanksintheformofdeposits。
Cf。TwelfthCensusoftheUnitedStates，vol。VII，p。c。
Few，perhaps，wouldinsettermsmaintainanargumentthatthevalueofmoneydoesnotvary，butstillfewerwould，inacredittransaction，proceedonasuppositionatvariancewiththatposition。Astheeconomistsareaccustomedtosay，moneyisthestandardofdeferredpayments。Itisalso，intheunreflectingapprehensionofthosewhohavepracticallytodealwithwealthphenomena，felttobethestandardandinflexiblemeasureofwealth。Thefactthatthisconvertionalusageisembodiedinlawactsactsgreatlytofortifythenaiveacceptanceofmoneyandpriceasthedefinitivetermsofwealth。Seepp。
Theenhancementofthemarketvalueoftheoutputdoesnot，infact，keeppacewiththeinflationofbusinesscapitalduringaperiodofspeculativeadvance。Inorderthatitshoulddoso，andaffordnominalearningsproportionatetotheinflatedcapital，itwouldbenecessarythatincomesshouldincreaseproportionatelytotheinflationofcapital；but，evenifthishappened，theexpensesofproductionwouldtherebybesoincreasedthroughtheadvanceofwagesandthelikeastooffsettheentireofvaluesforallconsumptivegoodsandleaveonlytheadvanceinthevaluesofproductivegoodsasanetmarginfromwhichtodrawanincreaseofearnings。Thediscrepancyunderdiscussion，however，isnotdueentirelytothepresenceofcredit，andafullydetailedanalysisofthecausesoutofwhichitarisescan，therefore，notproperlybepresentedinthisplace。
17。Solongastheratingofthecapitalizedpropertyremainsundisturbed，theformualwhichexpressesthecreditors’claimmaintaintheformgivenabove。Itthensignifiesnothingmorethanthatthecreditorsholdaclaimonsuchaproportionoftheaggregatecapitalizedpropertyinvolvedastheiradvancesbeartotheaggreagecapitalization。Butsosoonasareratingofthecapitalizedpropertyenterstheproblemtheformulabecomesloans/capitalizationdeltacapitalization
orloans/capitalization-deltacapitalization，accordingasthereratingofcapitalizationisinthedirectionofenhancementordepreciation:1/capdeltacapor1/cap-
deltacap。Duringbrisktimes，whencapitalizationadvances，theclaimrepresentedbyagivenloancoversadecreasingproportionoftheaggregatecapitalizedpropertyinvolved1/capdeltacap；thedenominatorincreasesandtehquotientconsequentlydecreases。Whereas，inaperiodofliquidationtheratioofthecreditors’claimtotheaggregatecapitalizationincreasesbyforceoftheloweredratingofthecapitalizedproperty1/cap-
deltalcap。
18。Allthosewho，ataperiodofliquidation，areholdersoffluentfundsorofclaimstofixedsumsofmoneyare，forthepresentpurpose，inthepositionofcreditors。
19。Thisdisregardstheindirecteffectsofaspeculativeadvanceinthewayofheightenedintensityofapplicationandfulleremploymentoftheindustrialplant。
20。SeechapterVI。
21。Thequestionof“stockwatering““overcapitalization“andthelikeisscarcelypertinentinthecaseofalargeindustrialcorporationfinancedasthemodernsituationdemands。Undermoderncircumstancesthecommonstockcanscarcelyfailtobeall“water“，unlessinasmallconcernorunderincompetentmanagement。Nothingbut“water“-underthenameofgood-will-
belongsinthecommonstock；whereasthepreferredstock，whichrepresentsmaterialequipment，isadebenture。
“Overcapitalization，“ontheotherhand，ifitmeansanythingundermodernbusinessconditions，mustmeanovercapitalizationascomparedwithearning-capacity，forthereisnothingelsepertinenttocompareitwith；andearning-capacityfluctuates，whilethebasisinterestratesonwhichtheearning-capacityistobecapitalizedalsofluctuatesindependently。
Ineffect，theadjustmentofcapitalizationtoearning-capacityistakencareofbythemarketquotationsofstockandothersecurities；andnoothermethodofadjustmentisofanyavail，becausecapitalizationisaquestionofvalue，andmarketquotationsarethelastresortinquestionsofvalue。Thevalueofanystocklistedontheexchange，orotherwisesubjecttopurchaseandsale，fluctuatesfromtimetotime；whichcomestothesamethingassayingthattheeffectualcapitalizationoftheconcern，representedbythesecuritiesquoted，fluctuatesfromtimetotime。Itfluctuatesmoreorless，sometimesveryslowly，butalwaysatleastsomuchastocompensatethelong-periodfluctuationsofdiscountratesinthemoneymarket；
whichmeansthatthepurchasepriceofagivenfractionalinterestinthecorporationasagoingconcernfluctuatessoastoequateitwiththecapitalizedvalueofitsputativeearning-capacity，computedatcurrentratesofdiscountandallowingforrisks。Cf。ReportoftheIndustrialCommission，vol。
I。p。587TestimonyofRogers；vol。XIII。pp。106-107
TestimonyofE。R。Chapman。SeealsoChapterVIbelow。
22。See，e。g。Emery，SpeculationontheStockandProduceExchangesoftheUnitedStates，ch。IV；Hadley，Economics，ch。
IV。
23。ReportoftheIndustrialCommission，vol。I，TestimonyofW。H。Moorepp。960-963，W。E。Reisp。949，Gatesp。1032；
vol。IX。T。L。Greenep。491；vol。XIII，p。viii，withcorrespondingtestimony。SeealsoChapterVIbelow。
24。ReportoftheIndustrialCommission，vol。ITestimonyofDoddpp。1054-1055，1057，1058-1059，Gatespp。1021-1022；vol。
XIII，p。ix，withtestimony。
25。ReportoftheIndustrialCommission，vol。ITestimonyofDosPassosp。1179；vol。XIIIC。R。Flintp。48。TestimonytothesameeffectrecurselsewhereintheReport。Seep。125，n。1
above。
26。SeeChapterVIbelow。
TheTheoryofBusinessEnterprisebyThorsteinVeblen1904
Chapter6
ModernBusinessCapitalWhathasbeensaidontheuseofloancredithasanticipatedmuchofwhatispeculiarinmodernbusinesscapital。Suchisnecessarilythecase，sinceitisintheextensiveuseofcreditthatthelaterphasesofthemanagementofcapitalcontrastmoststrikinglywiththecorrespondingfeaturesofearlierbusinesstraffic。TofollowtheterminologicalprecedentssetbyGermanwriters，thelate-modernschemeofeconomiclifeisa“crediteconomy，“ascontrastedwiththe“moneyeconomy“thatcharacterizesearly-moderntimes。Thenatureofbusinesscapitalanditsrelationstotheindustrialprocessunderthelater，morefullydeveloped，crediteconomyisinsomedegreedifferentfromwhatitwasbeforethefullandfreeuseofcreditcametooccupyitspresentcentralpositioninbusinesstraffic；andmoreparticularlyisitatvariancewiththetheoreticalexpositionsoftheeconomistsofthepastgeneration。
Ithasbeenthehabitofeconomistsandotherstospeakof“capital“asastockofthematerialmeansbywhichindustryiscarriedon，-industrialequipment，rawmaterials，andmeansofsubsistence。ThisviewiscarriedoverfromthesituationinwhichbusinessandindustrystoodatthetimeofAdamSmithandofthegenerationbeforeAdamSmith，fromwhoseschemeoflifeandofthoughthedrewthecommonplacematerialsandconceptionswithwhichhisspeculationswereoccupied。ItfurthercarriesoverthepointofviewoccupiedbyAdamSmithandthegenerationtowhomheaddressedhisspeculations。ThatistoSay，thereceivedtheoreticalformulationsregardingbusinesscapitalanditsrelationstoindustryproceedonthecircumstancesthatprevailedinthedaysofthe“moneyeconomy，“beforecreditandthemoderncorporationmethodsbecameoffirst-classconsequenceineconomicaffairs。Theycanvassthesemattersfromthepointofviewofthematerialwelfareofthecommunityatlarge，asseenfromthestandpointoftheutilitarianphilosophy。Inthissystemofsocialphilosophythewelfareofthecommunityatlargeisacceptedasthecentralandtone-givinginterest，aboutwhichacomprehensive，harmoniousorderofnaturecirclesandgravitates。
Theseearlyspeculationsonbusinesstrafficturnaboutthebearingofthistrafficuponthewealthofnations，particularlyasthewealthofnationswouldstandina“natural“schemeofthings，inwhichallthingsshouldworktogetherforthewelfareofmankind。
Thetheory，orwhatthereisinthewayofatheory，ofbusinesscapitalinthereceivedbodyofdoctrinesisworkedoutfromthepointofviewandforthetheoreticalpurposesoftheeighteenthcenturyschemeofnaturalliberty，naturalrights，andnaturallaw；andthereceivedtheoremsconcerningthepartplayedbycapitalandbythecapitalistaresubstantiallyofthecharacteroflawsofnature，asthattermwasunderstoodduringtheperiodtowhichthesetheoremsowetheirgenesis。Whatthesereceivedtheoremsdeclareconcerningthenatureandnormalfunctionofcapitalandofthecapitalistneednotberecitedhere；theircontentisfamiliarenoughtoallreaders，layandlearned。Alsothemeritsofsuchapointofviewforpurposesofeconomictheory，andtheadequacyofthereceivedconceptofcapitalforthepurposestowhichitwasoriginallyapplied，neednotdetaintheinquiry。Modernbusinessmanagementdoesnottakethatpointofview，nordoes“capital“carrysuchameaningtothemodernbusinessman；becausetheguidingcircumstancesunderwhichmodernbusinessiscarriedonarenotthosesupposedtobegivenbyabeneficentorderofnature，nordothecontrollingpurposesofbusinesstrafficincludethatgeneralwell-beingwhichconstitutedthefinaltermofAdamSmith’ssocialphilosophy。