operation. But, by virtue of the debentures distributed, the former owners, together with the other parties named, appear in the role of creditors of the new corporation as well as owners of it ; they commonly come out of the transaction with large holdings of preferred stock or similar debentures at the same time that they hold the common stock. The preferred stock, of course, is presently disposed of by the large holders to outside parties. The maI terial equipment is then practically the same as it was before ; the business capital has been augmented to comprise such proportion of the goodI will of the several concerns incorporated as had 1 not previously been capitalized and hj-pothecated, j together with the good-will imputed to the new corporation and such debentures as these items of ' wealth will float.
The effective capitalization resulting is, of course, indicated by the market quotations of the securities issued rather than by their face value. The value of tlie corporation's business capital so indicated need suffer no permanent shrinkage ; it will suffer none if the monopoly advantage (good-will)
THE USE OF LOAN CREDIT 131
of the new corporation is sufficient to keep its eaming-capacity up to the rate on which the capitalizatioQ is based.
It appears, then, that in the affairs of latterday business, as shown by modern corporation finance, capital and credit extension are not always distinguishable in fact, nor does there appear to be a decisive business reason why they should be distinguished. " Capital " means " capitalized putative eaming-capacity," expressed in terms of value, and this capitalization comprises the use of all feasible credit extension. The business capital [ of a modern corporation is a magnitude that fluctuates from day to day ; and in the quotations of , its debentures the magnitude of its credit extension also fluctuates from day to day with the course of '