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.
