Capital expenditure

“ Many appraisers overlook this point, and predicate the anticipated profits of the going plant on the past growth of the income account, forgetting that a considerable portion of this growth is due to extensions into new territory, and not to any material increase in revenue from the territory already served. To include income from new territory in the forecast of income is just as fatal an error as to include the anticipated expenditure of new capital in the present physical valuation. ”

“ Thus “income” really signifies diminution of patrimony or increase of debt. In regard to “expenditure,” “movement of capital” refers to extinction of debt by amortization or otherwise, to purchases of buildings or to advances made by the state. Thus “expenditure” really represents a patrimonial improvement, a creation of credit or a decrease of indebtedness. The items referring to “railway construction” represent, on the one hand, repayments made to the exchequer by the communes and provinces of money disbursed on their account by the State Treasury ”

“ In proportion as the capital of a country is diminished, its productions will be necessarily diminished; and therefore, if the same ex188penditure on the part of the people and of the government continue, with a constantly diminishing annual reproduction, the resources of the people and the state will fall away with increasing rapidity, and distress and ruin will follow.
Notwithstanding the immense expenditure of the English government during the last twenty years, there can be little doubt but that the increased production on the part of the people has more than compensated for it. ”

“ By its sovereign power over the citizens, the State seems to be in a position to take all it wants. This has led to the hypothesis laid down by certain writers that in private economy expenditure is measured by income, but in the economy of the State income is measured by expenditure. The epigrammatic statement is wholly true, since among individuals expenditures are made by inroads upon capital when income does not suffice, while in the State expenditures are sometimes curtailed and more frequently postponed for lack of sufficient income. ”

“ Upon the organization of a new enterprise the distinction between capital and revenue expenditures can usually be made without much difficulty. All costs incurred to put the concern in a position to earn revenue are properly treated as capital expenditures. Sufficient capital must be provided to put the undertaking on an earning basis, as otherwise it fails. These costs will include many items which upon their second incurrence must be treated as expense charges because the revenue must provide for keeping the plant in a state of efficient repair. ”

“ Such deficits may be covered either by being regarded as a part of the investment and included in the capital upon which interest is allowed, or they may be carried until they can be written off when the earnings have so grown as to leave a surplus above a reasonable return on the investment that is large enough to permit it. When capitalized, they become a permanent charge on the consumers. ”

“ The net output thus obtained is obviously for each industry the only fund from which first, wages, salaries, interest on capital, rent, royalties and profits are, or can be, paid, and secondly, taxes, rates, depreciation, advertisement and sales expenses. ”

“ Among the costs of production have to be reckoned taxes, general and local. If, as in our large towns, the local rates now amount to one third of the rental or more if the employer has to pay this, not on his private dwelling only, but on his business-premises, factories, warehouses, or the like, it results that the interest on his capital must be diminished by that amount, or the amount must be taken from the wages-fund, or partly one and partly the other. ”

“ If it shall be found that for one year the net earnings have been less than 31⁄2 per cent., and for two years less than 41⁄2 per cent., unless it shall be proven that this deficit has been fostered by neglect of due economy, or by extravagant expenditure as aforesaid, the rates shall be raised. ”

“ When new railways, machines, etc., before they are complete, simultaneously increase the rate of interest and the rate of wages, and even sometimes rent, although they do not immediately increase the national income in any way, the phenomena are to be explained, not by a distribution of income, but as the result of an advance of capital made. ”

“ The law originates primarily in the fiscal conditions attaching to the heavy capital investment,—the fact, namely, that fixed charges up to a given point of saturation tend to remain constant, absolutely; but become proportionately less, therefore, as the volume of business expands. ”

“ There will, therefore, constantly be more capital in capacity to be employed than capital taken from employment. The excess, for the first year, has been stated to be $92; it will diminish yearly; but there always will be an excess, until the principal of the debt is brought to a level with the redeeming annuity ”

“ Each determines his expenditure as if the whole of the joint stock were his own. Consequently, in a multitude of partners, where the diminution effected by each separate act of expenditure is insensible, the motive for economy entirely vanishes. ”

“ This surplus is the fund from which the enjoyments, as distinguished from the necessaries of the producers, are provided; it is the fund from which all are subsisted who are not themselves engaged in production, and from which all additions are made to capital. The capital of the employer forms the revenue of the laborers, and, if this exceeds the necessaries of life, it gives them a surplus which they may either expend in enjoyments or save. ”

“ The chief source of revenue is from indirect taxes, which bring nearly 10,000,000, while the greatest expenditure is for the payment of the interest on the debt, which with the sinking fund demands upward of 7,000,000. ”

“ It is not a part of the "cost of construction." The money provided for working capital at the outset is not a permanent investment, but is rather a temporary loan paid back out of earnings. The writer fails to perceive any possible argument in favor of adding such an item to the permanent value of the property. In making an appraisal, after the physical value is determined, it is usual to set up a statement of stores, supplies, fuel, and cash on hand, and working capital is certainly shown by the current balance sheet, in the form of cash or accounts receivable. ”

“ It is, therefore, absolutely essential that there should be an adequate increase of the amount and efficiency of the capital item requisite to additional employment and production. It is obvious that this may be increased from its own slow growth and accretion in the course of industry; and that for a higher degree of prosperity there must be even additional savings from available fruits or income. People have thus already learned how pernicious excess profit taxes are, and are unanimously seeking their abandonment. ”

“ Gross receipts equal to c + v + s pass through the hands of the capitalists during the year, of which they use an amount, c, to replace physical capital used up during the year, so that c represents costs of raw materials and wear and tear and amortisation of plant. An amount, v, is paid to workers and is consumed by them (saving by workers is regarded as negligible [4] ) . The surplus, s, remains to the capitalists for their own consumption and for net saving. ”

“ But is it nevertheless true that, during the whole of the interval between the creation of the capital of $100 and its reduction to a sum not greater than that of the annual revenue appropriated to its redemption, there will be a greater active capital in existence than if no debt had been contracted. ”

“ It has been asserted, in substance, that though an increase in the productivity of one orchard would not affect the total productivity of capital, and hence would not appreciably affect the rate of interest, yet, if the productivity of all the capital in the world could be doubled, the rate of interest would be doubled. ”

“ Cost of operation constantly is compared with fixed charges, the interest with the capital investment. Expensive improvements on railroads, the straightening of curves, the tunneling of mountains, the reducing of grades, the replacement of lighter by heavier rails, have been made possible by a fall in the rate of interest. A fall in the rate of interest disturbs the equilibrium that has been arrived at, between the cost of operation, the amount paid for wages, coal, etc., and the income on permanent investment. ”

“ The conversion of their Public Debt by many of the countries in whose Securities the funds of the Establishment had been invested, has greatly diminished its revenue, and necessitated an economy of expenditure much to be regretted. ”

“ Not only must the total rate of investment be equal to the total of planned saving, but investment in each department must be equal to saving in that department, and not only must the rate of increase of capital lead to an increase of total output compatible with total demand, but the increase in output of each department, dictated by the increase in capital in that department, must be divided between consumers’ and producers’ goods in proportions compatible with the demand for each, dictated by the consumption and the investment plans in each department. ”

“ Writers on the theory of Public Finance seem to conceive the subject as though it were primarily a matter of equity in taxation and economy in expenditure. But to a Chancellor of the Exchequer finance is eminently practical with a problem to solve, namely, how to bring about an equilibrium in the Budget. ”

“ In order to obtain the means for granting industrial credit and to dispose of the enormous amounts of newly created industrial securities, it was and is necessary to attract in as large a measure as possible the surplus funds of the community available for capital investments. ”

“ A country with a metallic circulation of £100,000,000 incurs a loss of the interest which that amount of capital would produce by investment, i.e. at 4% £4,000,000. The expense is amply justified by the services that a good currency renders; but, at the same time, it proves the desirability of any economies that do not detract from efficiency. The great economizing agency is the use of representative money and the various forms of credit, in which so much of the latest advances consist. ”

“ The capital of those who live on the interest of their own fortunes, has generally sought and found some fixed investment, such as the public funds, mortgages, or the bonds of public companies, which investment, except under peculiar temptations or necessities, is not changed.
§ 3.⁠Fluctuations in the rate of interest arise from variations either in the demand for loans, or in the supply. The supply is liable to variation, though less so than the demand. ”

“ Why does another wish to purchase this same land? it is to employ a capital which brings him in too little, which was unemployed, or the use of which he thinks susceptible of improvement. This exchange will increase the general income, since it increases the income of these parties. But if the charges are so exorbitant as to prevent the exchange, they are an obstacle to this increase of the general income. ”

“ Variable capital, v, is the annual wages bill. Surplus, s, is annual rent, interest, and net profit, so that v + s represents net national income. (In this introduction surplus is used interchangeably with rent, interest and net profit.) Constant capital, c, represents at the same time the contribution which materials and capital equipment make to annual output, and the cost of maintaining the stock of physical capital in existence at the beginning of the year. ”

“ For, if wages depend upon the ratio between the amount of labor seeking employment and the amount of capital devoted to its employment, the relative scarcity or abundance of one factor must mean the relative abundance or scarcity of the other. Thus, capital must be relatively abundant where wages are high, and relatively scarce where wages are low. Now, as the capital used in paying wages must largely consist of the capital constantly seeking investment, the current rate of interest must be the measure of its relative abundance or scarcity. ”

“ Next, the amount of capital investment to be supported out of earnings was computed by estimating the cost of reproduction of track and overhead lines under each franchise and apportioning the cost of land, power-houses, barns, cars, tools, and stores in proportion to car-mileage. ”

“ That there must be a limit to the accumulation of capital is obvious. The downward course of the rate of interest, notwithstanding that many new employments have been made possible for capital, indicates how large is the increase of surplus value. ”

“ The least favorable view which can be taken of them is, that of considering them a capital, yielding, at present, an income of three millions of dollars annually. Assuming the ordinary rate of six per centum interest per annum as the standard, to ascertain the amount of that capital, it would be fifty millions of dollars. But this income has been progressively increasing. ”

“ There can be no doubt, that if capital were forthcoming to execute, within the next year, all known and recognised improvements in the land of the United Kingdom which would pay at the existing prices, that is, which would increase the produce in as great or a greater ratio than the expense ”