Capital investment

“ In times of continued business prosperity very high rates are demanded for the use of money, because the liquid capital of the country, to a large extent, has been converted into fixt forms, in the development of new mines, the building of new factories and railroads, and in the improvement and extension of existing properties. These high rates have the effect of reducing the price level of investment securities because people having such securities are apt to sell them in order to lend the money so released, thus maintaining the parity between the yields upon free and invested capital. ”

“ The facilities which these Joint Stock Companies offer for the investment of capital, even of the smallest amount, the temptations which the prospect of large profits hold out, and the low interest obtained on national stock of every description, have attracted a vast body of capitalists, small and great, who have subscribed to these undertakings with the real intention of investment. ”

“ Were these combinations protected in the full control of their market, and were their products such that the public could not do without them or find a substitute for them, they might count on something like success. But capital is always on the outlook for prizes. It is always ready to make daring ventures in the hope of large returns. The fact that any one of these combinations can make eight or ten per cent on an inflated capital is clear evidence that the return for legitimate investment might be much greater. ”

“ Their holdings of investment securities are kept well within the limits set by their aggregate capital, surplus, and savings funds, and their method of handling commercial business, based as it is on accurate knowledge of their customer's operations and upon the lien upon produce heretofore described, prevents their acceptance, through ignorance, of investment securities under commercial disguise. ”

“ We must reiterate that if, in the event of giving all to labor, there were no immediate falling off in the amount of capital, such falling off would nevertheless soon come about through mistaken investment, since the shrewd and enterprising, into whose hands capital now usually falls, are precisely those who are best qualified to discover the fields in which investments may be made to the best advantage; for it is by the utilization of such fields that the greatest amount and variety of productions are had, and most is added to the general wealth of the civilized world. ”

“ He does this by force of his large holdings of capital at large, the weight of which he can shift from one point of investment to another as the relative efficiency—earning-capacity—of one and another line of investment may make it expedient; and at each move of this kind, in so far as it is effective for his ends, he cuts into and assimilates a fraction of the invested wealth involved, in that he cuts into and sequesters a fraction of the capital's earning-capacity in the given line. ”

“ Under the head of investment of Capital will be considered stock of every description, all Implements of Husbandry, and other Articles which may be applicable to the purposes of pn>ductive industry, or which may be necessary for the establishment of the Settler on the Land where he is to be located. The amount of any Half-pay or Pension which the applicant may receive from Government, and which he may be prepared to invest as before mentioned, will also be considered as so much Capital. ”

“ In brief, our position is, that whenever, by the efforts of all parties to be advantaged—local landowners, manufacturers, merchants, trunk-line shareholders, &c., the capital for an extension can be raised—whenever it becomes clear to all such, that their indirect profits plus their direct profits will make the investment a paying one ”

“ Investment is a pecuniary transaction, and its aim is pecuniary gain,—gain in terms of value and ownership. Invested wealth is capital, a pecuniary magnitude, measured in terms of value and determined in respect of its magnitude by a valuation which proceeds on an appraisement of the gain expected from the ownership of this invested wealth. In modern business practice, capital is distinguished into two coördinate categories of assets, [Pg 353] tangible and intangible. ”

“ Again, this as well as every other change in the system of production is greatly favoured by a progressive condition of capital. It is chiefly when the capital of a country is receiving a great annual increase, that there is a large amount of capital seeking for investment: and a new enterprise is much sooner and more easily entered upon by new capital, than by withdrawing capital from existing employments. ”

“ When the treatment of a man's business surplus is spoken of as an investment problem, it is meant, of course, not his working capital, which should be kept in liquid form for immediate needs, but that portion of his surplus which is set aside for emergencies. ”

“ If the circumstances of society are such as to furnish a ready investment of disposable capital; (as for instance in London, where the public funds and other securities, of undoubted stability, and affording great advantages for receiving the interest without trouble and realizing the principal without difficulty when required, tempt all persons who have sums of importance lying idle, to invest them on their own account without the intervention of any middleman;) ”

“ While the progress of science, applied to developing the resources of this country, has prodigiously increased its capital, the ratio of it offered for safe investment has increased at the same time. Savings-banks, trust companies, building associations, insurance companies diverse in type, afford, as it were, a thorough system of conduits to bring every tiny rill of saved earnings to some great reservoir of accumulation. ”

“ Moneyed capital is brought into such competition where it is invested in shares of state banks or in private banking, and also where it is employed, substantially as in the loan and investment features of banking, in making investments, by way of loan, discount or otherwise, in notes, bonds or other securities with a view to sale or repayment and reinvestment. ”

“ Capital then takes hold cheerfully; there is a market for the new securities and a proper basis for fresh commercial development, because investors and speculators have learned from the published daily quotations of these Stock Exchange securities that there is good warrant for the flow of capital into such channels, and that a reasonably safe return will follow an investment in them. ”

“ It is too powerful a weapon in the hands of those alive to its possibilities, enabling a small group of men with a relatively insignificant investment of capital to control a country-wide industry. Take the simplest possible illustration: The industry of manufacturing a particular commodity is carried on by a number of corporations scattered throughout the country with an aggregate capitalization of, say, $10,000,000. A, B, and C form a holding company to acquire a bare majority of the stock of each corporation, say $5,100,000 in the aggregate. ”

“ As each office, also, has business special to itself, with its own peculiarities, its own interests, and its own mode of investment, any detailed statement might be dangerous, and form the groundwork for rivals to copy or to criticise. The points of chief note are the capital, the amount of liabilities, and the annual returns; and if the endeavour were made to show the funds in proportion to the risks, instead of endeavouring to procure a large show of business at any price, the object of ambition would be the accumulation of capital. ”

“ But now the other opportunities for the investment of capital were so profitable and alluring, and the need of it so great, that all the available labor and capital of the American people began to be devoted to the development of their internal resources. A nation cannot do everything with equal advantage at the same time any more than an individual can. Accordingly we began to withdraw our capital from shipping and devote it to agriculture, mining, manufacturing, transportation, and similar more profitable enterprises. ”

“ 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. ”

“ The amount of current investment will depend, in turn, on what we shall call the inducement to invest; and the inducement to invest will be found to depend on the relation between the schedule of the marginal efficiency of capital and the complex of rates of interest on loans of various maturities and risks. ”

“ Effects of Drawing Interest from Investments beyond the Social Boundary.—Not all of these are consumers' goods. Some capital goods are imported and, moreover, many consumers' goods are passed over to the group called HH ́ ́ ́ in our table,—the one that makes active instruments of production,—and in this indirect way the earnings of capital invested abroad add to the amount of capital at home. In the long run the exportation of funds for permanent investment may, by its other and more indirect effects, increase the supply of them at home. ”

“ As a matter of course, the employment as additional capital in one's own enterprise is generally the most desirable wherever applicable, but this is a use of limited scope, relating to but few of the people engaged in productive activity who earn and save a surplus. The main resource for such accumulations is in safe investments, in the bonds and securities of our own country and those of well established enterprises. Not many among our embryo capitalists possess the experience or skill requisite for the safe and proper investment of their funds, they must rely upon the advice of others. ”

“ Dangers of the new system of business; promotion of unprofitable enterprises.—The appeal of joint stock companies to the public through the medium of the stock exchange proved to be so effective in gathering capital that a great many worthless undertakings were floated. When times were good, that is, when enterprises had proved successful, when people had saved money for investment and looked with confidence to the future, almost anything in the shape of a158 company could get subscribers to its stock. ”

“ The greater part of the profitable investment of capital, in the present day, is in operations of this kind, in which the public is persuaded to buy something of no use to it, on production, or sale, of which, the capitalist may charge per-centage ”

“ I expect to see the State, which is in a position to calculate the marginal efficiency of capital-goods on long views and on the basis of the general social advantage, taking an ever greater responsibility for directly organising investment; ”

“ 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. ”

“ In recent times it has been held by many economists that the rate of current saving determined the supply of free capital, that the rate of current investment governed the demand for it, and that the rate of interest was, so to speak, the equilibrating price-factor determined by the point of intersection of the supply curve of savings and the demand curve of investment. But if aggregate saving is necessarily and in all circumstances exactly equal to aggregate investment, it is evident that this explanation collapses. We have to search elsewhere for the solution. ”

“ The annual surplus of production, tho larger than before, is only sufficient to provide for the new undertakings which the growing optimism demands. Interest rates rise moderately in response to the added demand for capital. A few years further along, as business activity increases and success appears plainly to wait upon new ventures, the demand for new capital with which to develop increased facilities and new enterprises exceeds the annual supply of wealth created. Prosperity having increased, another factor commences to assert itself. ”

“ One is to sell it to a limited company which in return for certain concessions kindly puts up the necessary capital for development; the other way is to find the capital out of one's own private resources, and annex all the resultant profits. ”

“ Traders and money changers, with an eye for business in a growing marketplace made a more ample living. At the same time the more successful among them accumulated capital which they loaned or invested in stocks of goods, shops, warehouses, caravans, ships. By hiring labor-power they multiplied their own limited physical capacities. By investing in varied enterprises they assured themselves against possible loss in any one of them. ”

“ For our present purpose it is enough to have shown that the capital, which is the stock-in-trade of finance, is not a fraudulent claim to take toll of the product of industry, but an essential part of the foundation on which industry is built. ”

“ The most obvious fact limiting the pecuniary gain secured by means of invested wealth is the sum invested. Therefore, capital limits the productiveness of industry; and the chief and indispensable condition to an advance in material well-being is the accumulation of invested wealth. In discussing the conditions of industrial improvement, it is usual to assume that "the state of the arts remains unchanged," which is, for all purposes but that of a doctrine of profits per cent., an exclusion of the main fact. Investments may, further, be transferred from one enterprise to another. ”