Financial condition

“ Every effort is offset by the cost of that endeavor, and unless the result of the effort be more than its cost, its aim, viz., the increase of net worth, is not accomplished.
Relation between Profit and Loss and Financial Elements.—These income-producing efforts are the agencies that bring about the changes in the values of assets and liabilities. Expenses and costs are incurred for the purpose of securing income. Every expense or cost that is settled causes a diminution of business assets, usually of the asset cash. ”

“ Their own importance has vastly grown as their companies' assets have piled up. A man with $400,000,000 or $500,000,000 under his control, with an annual income of $60,000,000 requiring investment, has become a financial giant. ”

“ After a nation has fixed what its money shall be, it then issues different forms of credit money all of which are directly or indirectly redeemable in the commodity to which a fixed and stable value has been given. ”

“ In the course of my task I shall describe such parts of the general financial structure as will place my readers, especially those unfamiliar with its more complicated conditions, in a mental state to comprehend the methods by which the savings they think are safely guarded in the banks, trust and insurance companies, are so manipulated by the votaries of frenzied finance as to be in constant jeopardy. ”

“ The objections usually urged against credit-money are considered and found untenable, the claim that interest naturally accrues to capital is disputed at each successive stand-point, and in the concluding remarks an explanation is given of the present excess of supply over the demand of commodities and service, confirming the conclusion that the correction of this abnormal state is contingent upon the financial measure suggested. ”

“ The economic financial incubuses you have created now control your lives, from the day of your conception, until long after your death. With your money they directly control your most essential industries; and indirectly hold ownership through their loans, and mortgages, of your business, your homes, farms, stock, lands. ”

“ Complaint is made that the master finds that the companies are entitled to a net return of 7 per cent per annum upon the respective values of their properties devoted to this public use. The character of the business in which an investment is made, the locality in which it is placed, the returns secured in that locality from other investments of a similar nature, the uniformity and certainty of the return, and the risks to which the principal and the income from it are subjected, condition the measure of a fair return upon capital invested. ”

“ This cycle or turnover of merchandise recurs constantly in the management of the financial affairs of a business. It is necessary so to order the buying and selling of goods and the collection of accounts from customers that there will be on hand at all times sufficient cash to pay the expenses of operating the business and the debts contracted in the purchase of merchandise. ”

“ A capital lent at interest may, in this manner, be considered as an assignment, from the lender to the borrower, of a certain considerable portion of the annual produce, upon condition that the borrower in return shall, during the continuation of the loan, annually assign to the lender a small portion, called the interest ”

“ The moneyed capital thus employed is invested for that purpose in securities by way of loan, discount, or otherwise, which are from time to time, according to the rules of the business, reduced again to money and reinvested. ”

“ If life-incomes were assessed at three-fourths of their amount, the profits of business, after deducting interest on capital, should not only he assessed at three- fourths, but should pay, on that assessment, a lower rate. ”

“ All my life through—from the time when my income was not a tenth part of what it is now—I have felt it a duty, while endeavoring to discharge all proper claims, to live within that income, so to adjust my expenditure to it that there should be a margin on the right side. ”

“ Any debt the maturity of which extends beyond the period adopted within that business for current liabilities will usually be grouped with the fixed liabilities, there seldom being an intermediate group. ”

“ Fixed liabilities, called also capital, bonded, long-term, and funded liabilities or debts, comprise all debts of which the date of maturity is some distance ahead and considerably longer than that of current liabilities. ”

“ 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. ”

“ Under the operation of a shrinkage in the volume of money this enormous mass of borrowers, at the maturity of their respective debts, though nominally paying no more than the amount borrowed, with interest, are, in reality, in the amount of the principal alone, returning a percentage of value greater than they received—more than in equity they contracted to pay and oftentimes more, in substance, than they profited by the loan. ”

“ Everybody who had to make a fixed money payment, such as rent or interest, would have had their payment doubled, for they would have had to produce twice as much to meet their obligations as originally sufficed for that purpose. ”

“ In financial legislation every measure in the direction of greater fidelity in the discharge of pecuniary obligations has been found by experience to diminish the rates of interest which debtors are required to pay and to increase the facility with which money can be obtained for every legitimate purpose. Our own recent financial history shows how surely money becomes abundant whenever confidence in the exact performance of moneyed obligations is established. ”

“ The great injury and evil of changing money value comes, however, through fixed money contracts. The enormous amount of bonded indebtedness, railroad, municipal, county, state, and national, makes the slightest change of money value of vast importance, and added to these is the aggregate volume of commercial and private debts. ”

“ 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. ”

“ The amount due from each individual shall be ten percent of whatever his gains or earnings are, off the Earth, over a period of ten years, but he will not be required to pay back any part of the original loan. ”

“ Interest on Partners’ Loans.—Careful differentiation must be made between interest on partners’ capitals and on partners’ loans. If a loan is secured from outside parties, its interest cost is a business expense, to be taken into account before determining net profits. ”

“ The natural concomitant of such a system of industry is the elaborate system of debt and credit which has grown up with it, and is indispensable to it. Any serious enhancement in the value of the unit of money between the time of making a contract or incurring a debt and the date of fulfillment or maturity always works hardship and frequently ruin to the contractor or debtor. ”

“ The net difference between the income and the cost of securing the income, as indicated by the expense accounts, will represent the value added to the assets of the business, and will therefore be reflected tangibly in an increase in the value of the assets by that amount. This increase will usually be reflected either in the cash holdings or in claims against customers. ”

“ As a sub-group under Current or as a separate group we find Working and Trading assets. Other groups are Fixed or Capital, Investments, Sinking and Reserve Fund Assets, Deferred Charges to Operation, Deferred Assets, Deferred Debits, Suspense Debits, with similar titles for corresponding credit items, Contingent Liabilities—in short almost any title which seems best to fit the needs of the particular case. ”

“ Thus may any Gentleman, with very little trouble, apportion his Income:—and as no two Gentlemen live exactly alike, this Table will shew, by inspection only, what branch of Expense may best be curtailed, so as to afford an addition to any other branch, and still keep his whole Expenses short of his actual Revenue. ”

“ And the three parts into which profit may be considered as resolving itself, may be described respectively as interest, insurance, and wages of superintendence.
§ 2.⁠The lowest rate of profit which can permanently exist, is that which is barely adequate, at the given place and time, to afford an equivalent for the abstinence, risk, and exertion implied in the employment of capital. From the gross profit, has first to be deducted as much as will form a fund sufficient on the average to cover all losses incident to the employment. ”

“ Whatever is spent, cannot but be drawn from yearly income. The whole and every part of the wealth produced in the country, forms, or helps to form, the yearly income of somebody. The privation which it is supposed must result from taking the amount in the shape of taxes is not avoided by taking it in a loan. ”

“ Fixed liabilities, as distinguished from current, are those issued distinctively for the purpose of raising capital. Due to insufficient original capitalization, funds may be needed for one or more of many purposes. ”

“ It is clear, that when the rate of interest is increased, the gains of money-lenders are augmented, and the money gained will buy a greater quantity of property and [Pg 90] labor. The increased gains of the lender must be paid by the borrowers, by the productions of their own or of others' labor. ”

“ 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. ”

“ Under the operation of the present system, by which prices are constantly falling and money is constantly increasing in value, the surplus earnings of the people are flowing in a steady stream into the vaults of money-lending institutions, and into the pockets of creditors. ”

“ By empowering such an authority to buy the companies out in full, with money borrowed at 3 or 31⁄2 per cent., we should come into possession of their works at an annual charge for interest, less, by nearly two-fifths, than our present annual payment to the companies ”

“ The assumptions of some of these new offices were audacious enough; one actuary asserting that a company might spend all their premiums and great part of their capital, and be perfectly [256] solvent. The first year’s business of a society which started at this period produced 3300l.; a large sum undoubtedly, but the first year’s expenses were 3000l. out of it. The business of the second year produced 2000l.; but all the money paid by the policy holders was spent, with 15 per cent. of the capital in addition. ”

“ Being able to buy food where it is grown, cuts down expenses to a very small amount comparatively. When I told them this, one of them acknowledged that he could see that they would have less expense, but that they would still have need of money. ‘You bind us to take all we earn in scrip or shares for our labor?’ one of them asked of me. ‘Certainly,’ I said, ‘that is the protection of the society.’ But I told them they could buy money with their scrip. ”

“ When, therefore, such a saving has compleated the redemption of the one capital, there will remain unpaid of the other, 39 millions.—What has been now applied to a large sum holds true in proportion of any smaller sums. ”

“ These expenses usually comprise such costs as state incorporation fees, attorney’s fees for drawing up the application and other papers, the cost of prospectuses, soliciting costs for stock subscriptions, fees paid promoters and organizers, cost of printing and issuing certificates of stock, cost of capital stock records, and similar items. These are necessary and unavoidable expenses without which the company cannot come into being. A company organized and ready to commence business is in a better position than one whose elements have not been brought into harmonious working. ”

“ No other business, perhaps, carries200 so large a fixed indebtedness, in proportion to its value, as railroads, and the stockholders suffer more from an advance in the value of money than most other owners. ”

“ Again, the thing to which the value of debts is referred may be a thing quite different from the goods borrowed, and with the growth of the money economy and the use of the interest contract, money comes more and more to be used as the standard. ”

“ Suppose you made purchases of that kind from a man who owed you a certain amount in your books, would these purchases enter your books to his credit, or would they be paid in cash?- That will depend upon our bargain. If a man said to me, I have a cow to sell, and one part of the price I want to go to pay my rent, and the other part I want put into my account, I would do that for him. I have done that frequently, although the man was in my debt. ”

“ 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 ”

“ No fixed capital can yield any revenue but by means of a circulating capital. ”

“ Moreover, the settled prices prevailing throughout the country allow of assured calculations and precautions as to business ventures, and permit such a ratio to be established between expenses and income, that at the end of the fiscal year a profit, not a loss, may be counted upon. ”