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needs are bound up with the daily transactions of the concern。
For most purposes and as regards the greater proportion of the
investors who in this way own the corporation's capital； these
owners are； in effect； anonymous creditors； whose sole effectual
relation to the enter prise is that of a fixed 〃overhead charge〃
on its operations。 Such is the case even in point of form as
regards the investors in corporate bonds and preferred stock。 The
ordinary investor is； in effect； an anonymous pensioner on the
enterprise； his relation to industry is in the nature of a
liability； and his share in the conduct of this industry is much
like the share which the Old Man of the Sea once had in the
promenades of Sinbad。
No doubt； any reasonably skilful economist any certified
accountant of economic theory could successfully question the
goodness of this characterisation of corporate capital。 It is； in
fact； not such a description as is commonly met with in those
theories of ownership and investment that trace back to the
formal definitions of Ricardo and Adam Smith。 Nor is this
description of latter…day facts here set down as a formal
definition of corporate capital and its uses； nor is it designed
to fit into that traditional scheme of conceptions that still
holds the attention of the certified economists。 Its aim is the
less ambitious one of describing； in a loose and informal way；
what is the nature and uses of this corporate capital and its
ownership； in the apprehension of the common man out of doors。 He
is not so familiar with the recondite wisdom of the past； or with
subtle definitions； other than the latter…day subtleties of the
market； the crop season； the blast…furnace and refinery； the
internal…combustion engine； and such like hard and fast matters
with which he is required to get along from day to day。 The
purpose here is only to bring out； without undue precision； what
these interesting phenomena of capital； investment； fixed
charges； and the like； may be expected to foot up to in terms of
tangible performance； in the unschooled reflections of the common
man； who always comes in as 〃the party of the second part〃 in all
these manoeuvres of corporation finance。 He commonly has no more
than a slender and sliding grasp of those honorable principles of
certified make…believe that distinguish the modern point of view
in all that relates to property and its uses； but he has had the
benefit of some exacting experience in the ways of the new order
and its standards of reckoning。 By consequence of much untempered
experience the common man is beginning to see these things in the
glaring though fitful light of that mechanistic conception that
rates men and things on grounds of tangible performance；
without much afterthought。 As seen in this light； and without
much afterthought； very much of the established system of
obligations； earnings； perquisites and emoluments； appears to
rest on a network of make…believe。 Now； it may be deplorable；
perhaps inexcusable； that the New Order in industry should
engender habits of thought of this unprofitable kind； but then；
after all； regrets and excuses do not make the outcome； and with
sufficient reason attention today centers on the outcome。
To the common man who has taken to reckoning in terms of
tangible performance； in terms of man power and material
resources； these returns on investment that rest on productive
enterprise as an overhead charge are beginning to look like
unearned income。 Indeed； the same unsympathetic preconception has
lately come in for a degree of official recognition。 High
officials who are presumed to speak with authority； discretion
and an unbiassed mind have lately spoken of incomes from
investments as 〃unearned incomes；〃 and have even entertained a
project for subjecting such incomes to a differential rate of
taxation above what should fairly be imposed on 〃earned incomes；〃
All this may； of course； be nothing more than an unseasonable
lapse of circumspection on the part of the officials； who have
otherwise； on the whole； consistently lived up to the best
traditions of commercial sagacity； and a safe and sane
legislature has also canvassed the matter and solemnly disallowed
any such invidious distinction between earned and unearned
incomes。 Still； this passing recognition of unearned incomes is
scarcely less significant for being unguarded； and the occurrence
lends a certain timeliness to any inquiry into the source and
nature of that net product of industry out of which any fixed
overhead charges of this kind are drawn。
To come to an understanding of the source and origin of this
margin of disposable revenue that goes to the earnings of
corporate capital； it is necessary to come to an understanding of
the industrial system out of which the disposable margin of
revenue arises。 Productive industry yields a margin of net
product over cost； counting cost in terms of man power and
material resources； and under the established rule of self…help
and free bargaining as it works out in corporation finance； this
margin of net product has come to rest upon productive industry
as an overhead charge payable to anonymous outsiders who own the
corporation securities。
There need be no question of the equity of this arrangement；
as between the men at work in the industries and the
beneficiaries to whom the overhead charge is payable。 At least
there is no intention here to question the equity of it； or to
defend the arrangement against any question that may be brought。
It is also to be remarked that the whole arrangement has this
appearance of gratuitous handicap and hardship only when it is
looked at from the crude ground level of tangible performance。
When seen in the dry light of the old and honest principles of
self…help and equal opportunity； as understood by the substantial
and well…meaning citizens； it all casts no shadow of iniquity or
inexpediency。
So； without prejudice to any ulterior question which may be
harbored by one and another； the question which is here had in
mind is quite simply as to the production of this disposable
margin of net product over human cost。 And to pass muster today；
any attempted answer will be required to meet that exacting and
often inconvenient insistence on palpable fact which is of the
essence of the new order of knowledge and belief。 It is necessary
to reach an understanding of these things in terms of tangible
performance； in such terms as are germane to that new order of
knowledge and belief out of which the perplexity arises； rather
than in those terms of equitable imputation that lie at the root
of the certified economic doctrines and of corporation finance。
These relevant facts are neither particularly obscure nor
particularly elusive； only； they have had little attention in the
argument of economists and politicians。 Still less in the
speculations of the captains of finance。 The partition of incomes
has always been more easily understood by these
practically…minded persons； and it is also a more engrossing
subject of argumentation than the production of goods。 This would
be particularly true for these economists and politicians； who
are imbued with that legalistic spirit which pervades the modern
point of view and all its votaries。
But it is known to all； even to the most safely guarded
persons who do not come in contact with industry or production；
or even with the products of the staple industries； that industry
at large will always turn out something in the way of a net
margin of product over human cost； over human effort and
necessary consumption。 It holds true as far back as the records
have anything to say。 It is evidently a question of the
productivity of the industrial arts。 Men at work turn out a net
product because they know how and are interested in doing it； and
their output is limited by the industrial methods which they have
the use of。 But the output is limited in such a way that it
always exceeds the cost by more or less； barring accident。 By and
large； throughout past time the industrial arts have been gaining
in efficiency； and the ordinary margin of net product over cost
has consequently gone on widening。 This is much of the meaning of
〃an advance in the industrial arts。〃
In an earlier time； by law and custom； the net margin of
product habitually went to a master class； so…called； as the
〃earnings〃 or the due emoluments of their mastery over those
industrious classes who carried forward and gave effect to the
state of the industrial arts as known in their time。 By virtue of
their mastery and its incorporation in the institutions of the
time； they had an equitable； and effectual； vested interest in
the net product of the community's industry； and by virtue of the
same settled principles of law and custom it was for them to see
to the due consumption of any such net product above cost。 In
later times； and particularly in modern times and in the
civilised countries； those immemorial principles of privilege
equitably v