nothing。 They may even come high。 Particularly may their cost
seem high if the cost to the community is taken into account； as
well as the expenditure incurred by their owners for their
production and up…keep。 Vested interests are immaterial wealth；
intangible assets。 As regards their nature and origin； they are
the outgrowth of three main lines of businesslike management： （a）
Limitation of supply； with a view to profitable sales； （b）
Obstruction of traffic； with a view to profitable sales； and （c）
Meretricious publicity； with a view to profitable sales。 It will
be remarked that these are matters of business； in the strict
sense。 They are devices of salesmanship； not of workmanship； they
are ways and means of driving a bargain； not ways and means of
producing goods or services。 The residue which stands over as a
product of these endeavors is in the nature of an intangible
asset； an article of immaterial wealth； not an increase of the
tangible equipment or the material resources in hand。 The
enterprising owners of the concern may be richer by that much；
and so perhaps may the business community as a whole though
that is a precariously dubious point but the community at
large is no better off in any material respect。
This account； of course； assumes that all this business is
conducted strictly within the lines of commercial honesty。 It
would only be tedious and misleading to follow up and take
account of that scattering recourse to force or fraud that will
never wholly be got rid of in the pursuit of gain； whether by way
of business traffic or by more direct methods。 Still； it may well
be in place to recall that the code of commercial honesty applies
only between the parties to a bargain； and takes no account of
the interests of any third party； except by express injunction of
the； law； still less does it imply any degree of regard for the
common good。 Commercial honesty； of course； is the honesty of
self…help； or caveat emptor； which is Latin for the same thing。
In the ordinary course of management some considerable amount
of means and effort is spent in the pursuit of profitable sales
and in creating or acquiring an advantage in their further
pursuit。 The enduring result； if any； is a body of intangible
assets in the nature of what is called good…will。 The ordinary
expenditure incurred for this purpose is so considerable； in
fact； that the 〃selling cost〃 will not infrequently be far and
away the larger part of those costs that are to be covered by the
price of advertised goods or advertised traffic。 This necessary
consumption of work and means with a view to increase sales and
to create a prospective increase of profits is to be counted as
net waste； of course； in the sense that it contributes nothing to
the total output of serviceable goods； present or prospective。
The net aggregate result is to lay equipment idle； hinder
traffic； and induce credulous persons now and again to change
their mind about what things they will buy。
Roughly； any business concern which so comes in for an
habitual run of free income comes to have a vested right in this
〃income stream；〃 and this preferred standing of the concern in
this respect is recognised by calling such a concern a 〃vested
interest；〃 or a 〃special interest；〃 Free income of this kind； not
otherwise accounted for； may be capitalised if it promises to
continue； and it can then be entered on the books as an item of
immaterial wealth； a prospective source of gain。 So long as it
has not been embodied in a marketable legal instrument； any such
item of intangible assets will be nothing more than a method of
notation； a book…keeper's expedient。 But it can readily be
covered with some form of corporation security； as； e。g。；
preferred stock or bonds； and it then becomes an asset in due
standing and a vested interest endowed with legal tenure。
Ordinarily any reasonably uniform and permanent run of free
income of this kind will be covered by an issue of corporate
securities with a fixed rate of interest or dividends； whereupon
the free income in question becomes a fixed overhead charge on
the concern's business； to be carried as an item of ordinary and
unavoidable outlay and included in the necessary cost of
production of the concern's output of goods or services。 But
whether it is covered by an issue of vendible securities or
carried in a less formal manner as a source of income not
otherwise accounted for； such a vested right to get something for
nothing will rightly be valued and defended against infraction
from outside as a proprietary right； an item of immaterial but
very substantial wealth。
There is nothing illegitimate or doubtful about this
incorporation of unearned income into the ordinary costs of
production on which 〃reasonable profits〃 are computed。 〃The law
allows it and the court awards it。〃 To indicate how utterly
congruous it all is with the new order of business enterprise it
may be called to mind that not only do the captains of
corporation finance habitually handle the matter in that way； but
the same view is accepted by those public authorities who are
called in to review and regulate the traffic of the business
concerns governed by these captains of finance。 The later
findings are apparently unequivocal； to the effect that when once
a run of free income has been capitalised and docketed as an
asset it becomes a legitimate overhead charge； and it is then
justly to be counted among necessary costs and covered by the
price which consumers should reasonably pay for the concern's
offering of goods or services。
Such a finding has come to be a fairly well settled matter of
course both among the officials and among the law…abiding
investors； so far as regards those intangible assets that are
covered by vendible securities carrying a fixed rate； and the
logic of this finding is doubtless sound according to the
principles of the modern point of view； which were put into
stable form before the coming of corporation finance。 There may
still be a doubt or a question whether valuable perquisites of
the same nature； which continue to be held loosely as an informal
vested interest； as； e。g。； merchantable good…will； are similarly
entitled to the benefit of the common law which secures any owner
in the usufruct of his property。 To such effect have commonly
been the findings of courts and boards of inquiry； of Public
Utility Commissions； of such bodies as the Interstate Commerce
Commission； the Federal Trade Commission； and latterly of divers
recently installed agencies for the control of prices and output
in behalf of the public interest； so； for instance； right lately；
certain decisions and recommendations of the War Labor Board。
Any person with a taste for curiosities of human behavior
might well pursue this question of capitalised free income into
its further convolutions； and might find reasonable entertainment
in so doing。 The topic also has merits as a subject for economic
theory。 But for the present argument it may suffice to note that
this free income and the business…like contrivances by which it
is made secure and legitimate are of the essence of this new
order of business enterprise； that the abiding incentive to such
enterprise lies in this unearned income； and that the intangible
assets which are framed to cover this line of 〃earnings；〃
therefore； constitute the substantial core of corporate capital
under the new order。 In passing； it may also be noted that there
is room for a division of sentiment as regards this disposal of
the community's net production； and that peremptory questions of
class interest and public policy touching these matters may
presently be due to come to a hearing。
To some； this manner of presenting the case may seem
unfamiliar； and it may therefore be to the purpose to restate the
upshot of this account in the briefest fashion： Capital at
least under the new order of business enterprise is
capitalised prospective gain。 From this arises one of the
singularities of the current situation in business and its
control of industry； viz。； that the total face value； or even the
total market value of the vendible securities which cover any
given block of industrial equipment and material resources； and
which give title to its ownership； always and greatly exceeds the
total market value of the equipment and resources to which the
securities give title of ownership； and to which alone in the
last resort they do give title。 The margin by which the
capitalised value of the going concern exceeds the value of its
material properties is commonly quite wide。 Only in the case of
small and feeble corporations； or such concerns as are balancing
along the edge of bankruptcy； does this margin of intangible
values narrow down and tend to disappear。 Any industrial business
concern which does not enjoy such a margin of capitalised free
earning…capacity has fallen short of ordinary business success
and is possessed of no vested interest。
This margin of free income which is capitalised in the value
of the going concern comes out of the net product of industry
over cost。 It is secured by successful bargaining and an
advantageous position in the market； which involves some
derangement and retardation of the industrial system； so much
so as greatly to reduce the net margin of production over cost。
Approximately the whole of this remaining margin of free income
goes to the business men in charge； or to the business concerns
for whom this management is carried on。 In case the free income
which is gained in this way promises to continue； it presently
becomes a vested right。 It may then be formally capitalised as an
immaterial asset having a recognised earning…capacity equal to
this prospective free income。 That is to say； the outcome is a
capitalised claim to get something for nothing； which constitutes
a vested interest。 The total gains which hereby accrue to the
owners of these vested rights amount to something less than the
total loss suffer