Circulating capital

“ Increase of Fixed Capital, when, at the Expense of Circulating, might be Detrimental to the Laborers. There is a great difference between the effects of circulating and those of fixed capital, on the amount of the gross produce of the country. Circulating capital being destroyed as such, the result of a single use must be a reproduction equal to the whole amount of the circulating capital used, and a profit besides. ”

“ Fixed capital is always secured by consumption of circulating capital. The extension of railroads always implies great reduction of ready supplies. Money between individuals and communities ranks as circulating capital, but within any community the stock of money needed for domestic trade may be thought of as a permanent machine. Even machinery may be circulating capital in the hands of one who manufactures or sells it, though fixed when located in its work, and for the whole community is “fixed” as soon as its destined use is determined by its form. ”

“ His capital is continually going from him in one shape, and returning to him in another, and it is only by means of such circulation, or successive exchanges, that it can yield him any profit. Such capitals, therefore, may very properly be called circulating capitals. ”

“ All industry, except that of the makers of active instruments, may be considered in the light of an operation, the aim of which is to keep the stock of passive [Pg 187] capital goods intact, or, what is the same thing, to keep the fund of circulating capital undiminished. Whoever puts anything into this fund enables it to overflow and to furnish an income without suffering any diminution. The sole purpose of such capital is to overflow, that is, to suffer, at one and the same time, a loss and a replenishment which neutralizes the loss. ”

“ How much then is the case strengthened, when we consider that these transformations of capital are of the nature of improvements in production, which, instead of ultimately diminishing circulating capital, are the necessary conditions of its increase, since they alone enable a country to possess a constantly augmenting capital without reducing profits to the rate which would cause accumulation to stop. ”

“ There occasionally happens a concurrence of circumstances tending to withdraw from the loan market a considerable portion of the capital which usually supplies it. These circumstances, in the present case, were great foreign payments, (occasioned by a high price of cotton and an unprecedented importation of food,) together with the continual demands on the circulating capital of the country by railway calls and the loan transactions of railway companies, for the purpose of being converted into fixed capital and made unavailable for future lending. ”

“ By the adoption of machinery, a circulating capital, which was perpetually consumed and reproduced, has been converted into a fixed capital, requiring only a small annual expense to keep it up: and a much smaller produce will suffice for merely covering that expense, and replacing the remaining circulating capital of the producer. ”

“ It is potential money-capital on account of its capacity and destination of being converted into the elements of productive capital. But practically he merely accumulates a simple hoard, which is not an element of actual production. His activity for the time being consists only in withdrawing circulating money out of circulation. ”

“ Again two manufacturers may employ the same amount of fixed, and the same amount of circulating capital; but the durability of their fixed capitals may be very unequal. ”

“ The conditions for the capitalisation of surplus value clash increasingly with the conditions for the renewal of the aggregate capital—a conflict which, incidentally, is merely a counterpart of the contradictions implied in the law of a declining profit rate. ”

“ 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. ”

“ Steffens, you go from city to city and from state to state, and you show us these great corporations buying public privileges and capitalizing them for tens and hundreds of millions of dollars, and unloading the securities upon the general investing public. You show this enormous mass of capital piling up, increasing at compound interest, demanding its toll of dividends, which we, the people who do the hard work of the world, who produce the real wealth of the world, must continue forever to pay. ”

“ Surely the legislative intent that the full value of the stock authorized and required to be subscribed, in other words, the entire capital, shall be, in fact, paid in when required,-that it shall be real, and not merely nominal,-is plain enough when the authority to exist as a corporation and to do business is given on condition that the capital subscribed shall not be less than a specified sum. ”

“ Now go a step further, and we find that the managers of these railways, mines, and factories, are in turn dependent—wholly dependent upon capital. They cannot go ahead with the extensions and improvements necessary to efficiency without borrowing money; and credit, in turn, will not come to their support unless a broad market is provided, through the Stock Exchange, for the securities which represent these obligations. ”

“ If the ratio of saving which the capitalists (taken together) choose to make exceeds the rate of accumulation dictated by technical progress, the excess savings can only be ‘capitalised’ if there is an outlet for investment outside the system. ”

“ There are in the savings-banks of many manufacturing centers in our country amounts which if capitalized would place the workingmen of those towns in industrial independence; moneys which, in some instances, are actually furnishing the borrowed capital for their own employers. ”

“ Every person who earns money or owns property is a potential competitor, in that he can be made to lend his capital for great enough inducements. Under the pressure of this competition, the price for the use of capital—the rate of interest—has steadily fallen; and the enormous production of wealth of which our industrial resources are now capable is such that the fall is certain to continue, and a very few years will see loans at 2 per cent. as common as those at 4 per cent. are to-day. Combination to restrict competition among those who loan capital for investment is an utter impossibility. ”

“ In the same way that the costs of installing machinery in position and ready for use are capitalized by being added to the value of the equipment, so may the organization expenses of a corporation be legitimately capitalized as being the measure of the amount of the greater value which these organized business elements have over the same elements unorganized. Capital has been brought together and set to work, management and plan of operation have been secured, and business is ready to begin. ”

“ In the first place, it does not always imply the actual removal of capital already embarked in an employment. In a rapidly progressive state of capital, the adjustment often takes place by means of the new accumulations of each year, which direct themselves in preference towards the more thriving trades. Even when a real transfer of capital is necessary, it is by no means implied that any of those who are engaged in the unprofitable employment, relinquish business and break up their establishments. ”

“ This surplus is divided among the stockholders, not as dividends on their paid-up stock, but is capitalized and stock issued to subscribers. The road is made to pay the interest, and eventually the principal, of the capital borrowed to build it, and also to earn money enough to show a paid-up capital to the amount of the actual cost of the road. This species of financiering on the part of the company is robbing the people, and abusing the privileges conferred by the charter. ”

“ The essential features in the adoption of any plan should be that the returns of the private owner should be in proportion to the skill and economy which he exercises in managing his business; that competition and its resulting waste be done away with; and that the industry be placed on such a safe and stable basis that the capital invested in it shall receive the lowest possible rate of interest, thus leaving the greatest possible amount for the payment of wages of labor and permitting sales of the product at a low price. ”

“ Loans of the credit of States, of counties, cities, and even towns, have been authorized, to furnish capital to railroad corporations, and at the same time they have been continually allowed to borrow money, at usurious and ruinous rates of interest. Securities thus obtained, doubted and comparatively valueless at home, have been pledged to the iron manufacturers abroad, and their enterprise has been excessively stimulated, while that of our own manufacturers has been disheartened and suppressed. ”

“ 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. ”

“ On the other hand, if the element of monopoly enters into the business to any noteworthy extent, the prices of the product may be kept so high that fair dividends may be paid even on this high capitalization. That the tendency towards increasing the capital has been very strong there can be no question, and a penalty is apt to be paid for this somewhat reckless financiering. ”

“ Even in this way, however, the competition has the effect, to a certain limited extent, of lowering the rate of interest; for the power of bankers to receive interest on more than their capital attracts a greater amount of capital into the banking business than would otherwise flow into it; and this greater capital being all lent, interest will fall in consequence. ”

“ Many corporations, without legally capitalizing any part of their profits, had assigned definitely some part or all of the annual balances remaining after paying the usual cash dividends, to the uses to which permanent capital is ordinarily applied. Some of the corporations doing this, transferred such balances on their books to 'surplus' account-distinguishing between such permanent 'surplus' and the 'undivided profits' account. ”

“ Upon a careful review of the cases, the following conclusions were reached by the court:
'That 'moneyed capital in the hands of individual citizens' does not necessarily embrace shares of stock held by them in all corporations where capital is employed, according to their respective corporate powers and privileges, in business carried on for the pecuniary profit of shareholders, although shares in some corporations, according to the nature of their business, may be such moneyed capital. ”

“ Any desired capitalization above a minimum of one thousand dollars may be fixed. Capital stock may be paid for in cash or by property. If it is paid for in cash, it may be paid for in full or by instalments, and a machinery has been created for protecting the corporation against the failure of the subscribers to stock to pay the balance of their subscriptions. If stock is paid for by property, the incorporators and not the State are to pass upon its value. ”

“ The capital paid in and represented by the stock, is entrusted to the custody and husbandry of the corporation; but, that artificial and transferable commodity, brought into life by the charter, endued with all its faculties by the charter, and denominated bank stock, is just as much the separate property, and at the disposal of the respective owners, clear of all corporate control, as their several lands, chattels and choses in action. ”

“ The primary object of the provision that 'no increase of capital shall be valid until the whole amount of such increase is paid in' was to prevent the 'watering' of stock, that is, prevent banking business being done upon the basis of an increased capital which did not in fact exist. ”

“ Industry has created wealth as with the touch of a magic wand; and this rapidly growing wealth has been made available capital through the instrumentality of the corporation which, by means of stocks and bonds, has gathered into giant organizations the property of hundreds and even thousands of individuals. The industrial corporations have been greatly assisted in their work of concentrating and applying capital, by the banks and other institutions that have enlarged credit and made a given amount of property capable of performing a much larger work. ”

“ 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. ”

“ But the same effect cannot be produced in any other way than by the gradual creation and accumulation of wealth. The accumulation of capital and consequent low rates of interest are the result of the work of generations. It cannot be created by the establishment of banks, or by the issues of paper money ”