Financial incentive

“ My financial policy is the result of my sales policy. I hold that it is better to sell a large number of articles at a small profit than to sell a few at a large profit. This enables a larger number of people to buy and it gives a larger number of men employment at good wages. It permits the planning of production, the elimination of dull seasons, and the waste of carrying an idle plant. Thus results a suitable, continuous business, and if you will think it over, you will discover that most so-called urgent financing is made necessary because of a lack of planned, continuous business. ”

“ With the third method a permanent increase is secured in the capital funds available for use in the business. Financial policy, governed by the needs of the business and its markets, will always dictate the method to be used for extinguishing or contracting a debt. ”

“ As more businesses begin taking advantage of these incentives, investment will pick up and so will job creation. And together with the individual tax rebates, these incentives will help give our economy a shot in the arm. ”

“ Provide guidance and funds as necessary to credit unions that will contribute to stabilization of the nation's economy by helping to establish and maintain a sound economic base for continuing operations, combating inflation, maintaining confidence in public and private financial institutions, and promoting thrift.”. ”

“ When you put that with all the incentives we've given to lower taxes for families with incomes under $30,000, increases in small business expensing provisions, investment incentives for bigger businesses, real incentives for people who invest in new businesses, this means more jobs. ”

“ As to a fundamental principle, the large majority are of the opinion that such a plan results in a financial loss to the employer, he being recouped if at all in non-computable ways. Those which continue the plan do so, not as a matter of philanthropy, but as a matter of justice if not of business. These are about equally divided in their opinion as to the direct financial benefit of the plan to the firm. ”

“ But on the whole it may be said that where all the general conditions are favourable, and point conclusively to the possibility and probability of fairly rapid economic development, a bold financial policy may and should be adopted, even although it may not be easy to prove beforehand by very exact calculations that any special project under consideration will be directly remunerative. ”

“ As I have said scientific management has given the subject of incentives the same careful thought that it has given to the study of lost energy. The two important incentives for inducing the response of labor to productive enterprises which scientific management has carried forward in their applications, are wages and promotion. The general assumption is that the wage as an incentive has no limitations, except the physical limitation of a human being in response to stimulus. And surely it is true that the chance to "make money" is to-day the most powerful stimulus in use. ”

“ In order to expand the economic foundations of labour, organizations of associated labour may collect financial resources from citizens and ensure them in addition to the repayment of these resources, compensation for investment in the form of interest or other benefits determined by statute. ”

“ And we, of the Salamander, want a man qualified to turn the company into a money maker, and who can assure us at the same time of a reasonable increase in our premium income—say in the five years, from two and a half up to three millions. ”

“ Two such economies will be of infinite value to the people, whose riches will be proportionally increased. In the development of wealth, next to making money is saving money.
Bearing these things in mind, Financial Reconstruction is relieved of its difficulties. It only remains to find the proper machinery or process. And here we encounter the propositions of the Secretary of the Treasury in his Annual Report, [209] which are threefold:—
1. To refund twelve hundred millions of six per cent. Five-Twenty bonds in four and a half per cent. ”

“ The only reason why he now has to pay a bonus proportional to the benefit he derives from the use of the property is found in the fact that the lender of the money, or the original issuer of the money, from whom the lender procured it more or less directly, has secured- a monopoly of money manufacture and can therefore proportion the price of his product to the necessities of his customers, instead of being forced by competition to limit it to the average cost of manufacture. ”

“ If the whole or any part of that income be saved, so much new capital is generated,—the infallible operation of which is to lower the value of money, and consequently to conduce towards the improvement of public credit. ”

“ We should not collect revenue for the purpose of anticipating our bonds beyond the requirements of the sinking fund, but any unappropriated surplus in the Treasury should be so used, as there is no other lawful way of returning the money to circulation, and the profit realized by the Government offers a substantial advantage. ”

“ 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 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 payments they make to their benefit societies should be fixed on such just principles, as not to require extraordinary contributions. In short, the object of all who wish to promote their happiness should be, to give them, in the simplest form, the means of knowing beforehand, the sum they are likely to acquire by their labour, and the money they will be obliged to expend for their support: thus putting before them, in the clearest light, the certain result of persevering industry. ”

“ On Thursday, the Treasury Department and the Federal Reserve launched the Consumer and Business Lending Initiative -- a plan that will generate up to a trillion dollars of new lending so that families can finance a car or college education -- and small businesses can raise the capital that will create jobs. ”

“ To put a premium upon propagation by guaranteeing every man a job, and to pay him, not according to productivity, but according to need, would be equivalent to building up a gigantic charitable institution. ”

“ The funding system is not money; neither is it, properly speaking, credit. It, in effect, creates upon paper the sum which it appears to borrow, and lays on a tax to keep the imaginary capital alive by the payment of interest and sends the annuity to market, to be sold for paper already in circulation. ”

“ It clearly appears, therefore, that this quest for simplification in the means of credit, which each nation ardently pursues in the interest of its own industrial and commercial development, demands the greatest circumspection. ”

“ 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. ”

“ 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. ”

“ The credit, which is rendered as secure as possible in all its stages by the accumulating securities of the drawer, acceptor, and endorsers of a bill of exchange, brings capital into activity,—it carries it directly to those channels in which it may be profitably employed,—it conducts it to those channels by a systematic mode of payment for its use, which we call interest, or discount;—and it therefore carries forward accumulation to its highest point of productiveness. ”

“ This premium (as it is called) the buyers are willing to pay, because they must otherwise go to the expense of remitting the precious metals themselves, and it is done cheaper by those who make doing it a part of their especial business. But though only some of those who have a debt to pay would have actually to remit money, all will be obliged, by each other's competition, to pay the premium; and the brokers are for the same reason obliged to pay it to those whose bills they buy. ”

“ Interest would be forced down to the point which would either tempt borrowers to take a greater amount of loans than they had a reasonable expectation of being able to employ in their business, or would so discourage a portion of the lenders, as to make them either forbear to accumulate, or endeavour to increase their income by engaging in business on their own account, and incurring the risks, if not the labours, of industrial employment. ”

“ But all considerations of justice and equity forbid that those who, declining to take any104 risk themselves, prefer to loan their capital to others at a fixed compensation, should receive any share of the increased product which labourers and employers may succeed in creating, beyond such fixed compensation. Justice is satisfied when to them is returned the value they loaned with the interest agreed upon for its use. ”

“ To the credit of the account he pays in such sums as he may not have occasion to use, and interest is charged or credited upon the daily balance, as the case may be. From the facility which these Cash Credits give to all the small transactions of the country, and from the opportunities which they afford to persons who begin business with little or no capital but their character to employ profitably the minutest products of their industry, it cannot be doubted that the most important advantages are derived to the whole community. ”

“ Rather than overriding market forces, these newer proposals attempt to take advantage of market incentives by making moderate price and wage increases a matter of self-interest for firms and employees. The best known of these proposals involves tax incentives to reward or penalize wage decisions that deviate from some established standard. ”

“ Under the new regulations, credits may be granted only for investment projects and production expenditures that guarantee the attainment of planned returns and unconditionally ensure loan repayment on the due date. The principal criteria for granting long-term credits are the need for, and the economic effectiveness of, the investment projects and the outlook for completing the projects within prescribed time limits. Economic effectiveness is analyzed in terms of production growth, increase in output per acre or per head of livestock, and rise in labor productivity and revenues. ”

“ There will always be found bold speculators, who will advance it at a premium—enhanced by the want of competition, and proportionate to the risks they may be supposed to incur. Independent of this, it is most certain that the rate of interest at which loans may be obtained, will always be increased in proportion to their magnitude. ”

“ Among people of great wealth the surplus of income above expenditures is so great that large savings can hardly be avoided, and among all the well-to-do classes the margin from which savings are possible is sufficiently large and the desire to save sufficiently great to insure large accumulations of capital. Among these classes there is little or no need for institutions designed primarily for the development of the saving instinct. What they need are institutions for the safe keeping, accumulation, and [Pg 138] investment of the savings which they are constantly making. ”

“ But ordinary profit-sharing is not in accord with the general trend toward the centralization of responsibility in the hands of competent managers, ensuring to the worker a definite amount in advance, as high as conditions make possible. The system of premiums, or bonus payments, for output, where it can be safeguarded against abuses, gives in most cases better results and is rapidly spreading. It is sounder in conception and works better in practice as a method of remuneration for most of the workers. ”

“ So far as it is employed in the first way, it promotes prodigality, increases expense and consumption without increasing production, or establishing any permanent fund for supporting that expense, and is in every respect hurtful to the society. ”

“ It is meant, however, that the money-lender is entitled to no share in any increased productiveness of labour during the lifetime of his loan, beyond the interest stated. He gets his share of such increased productiveness through the higher interest he will subsequently receive in re-loaning his capital. ”

“ It is this effect of free and mutual banking upon the rate of interest on capital that insures, or rather constitutes, the realization of the Cost principle by economic processes. For the moment interest and rent are eliminated as elements of price, and brisk competition is assured by the ease of getting capital, profits fall to the level of the manufacturer's or merchant's proper wage. ”