What has just been said of the part borne by good-will and debentures in the capitalization of corporations should be taken in connection with what was said above (pp. 100-104) aa to the nature of the securities offered as collateral in procuring a credit extension. The greater part of the securities used as collateral, and so '' coined into means of payment," are evidences of debt, at the first remove or farther from their physical basis, instruments of credit recording a previous credit extension.
In the earlier period of growth of this debenture
onleas Id a small concern or under incompetent management. Nothing but " water "^ under the name of good- will — belongs in the common gtock ; wbereaa the prelerred stock, which represents material equipment, is a debenture. >' Overcapitalization," on the other hand, if il neona anything under modem businesB conditions, must mean overcapltalizaKon u compared with eaming-capaclty, for there is noUilng else pertinent to compare it with ; and eaming-capacity fluctuates, while the basis (interest rates) on which the earnlDg-capacity ia lo bo oapfialized also fluctuates Independently.
In effect, the adjufltmeut of capitalization to earning-capacity is taken care of by the market quotations of stock and other securities ; and no other method of adjustment Is of any avail, becaiue capitalization is a question of value, and market quotations are the last resort in questions of value. The value of any stock listed on the exchange, or otherwise subject to purchase and sale, fluctuates from time to lime ; which comes to the same thing as saying that the effectual capitalization of the concern, represented by the securities quoted, fluctuates from time to time. It fluctuates more or less, sometimes very slowly, but always at lea«t so much a» lo compensate the long-period fluctuations of discount rates in the money msfket ; which means that the purchase price of a given fractional interest in the corporation as a going concern fluctuates so as to equate it with the capitalized Talue of its putative eaniin^-ca[iacity,