Thorstein Veblen
ON THE NATURE OF CAPITAL.
(Part 1) THE PRODUCTIVITY OF CAPITAL GOODS (1*)
Quarterly Journal of Economics, Vol. 22 No. 4 (Aug 1908), pp. 517-542
(Part 2) INVESTMENT, INTANGIBLE ASSETS, AND THE PECUNIARY MAGNATE.
Quarterly Journal of Economics, Vol. 23 No. 1 (Nov. 1908), pp. 104-136
--------------------------
[517] (Part 1)
ON THE NATURE OF CAPITAL.
THE PRODUCTIVITY OF CAPITAL GOODS (1*)
Quarterly Journal of Economics, Vol. 22 No. 4 (Aug 1908), pp. 517-542
--------------------------
SUMMARY.
The knowledge of ways and means is a communal product, 517. Access to the common 
stock of technological knowledge is necessary to the production of a livelihood, 
524. - With the advance of the industrial arts the possession of material 
equipment has become a requisite to the effective use of this common stock of 
knowledge and skill, 527. - Hence the grant advantage of owning capital goods, 
530; and hence the dominant position of the owner-employer in modern economic 
life, 536. - Summary conclusion, 541.

It has been usual in expositions of economic theory to speak of capital as an 
array of "productive goods." What is immediately had in mind in this expression, 
as well as in the equivalent "capital goods," is the industrial equipment, 
primarily the mechanical appliances employed in the processes of industry. When 
the productive efficiency of these and of other, subsidiary classes of capital 
goods is subjected to further analysis, it is not unusual to trace it back to 
the productive labor of the workmen, the labor of the individual workman being 
the ultimate productive factor in the commonly accepted systems of theory. The 
current theories of production, as also those of distribution, are drawn in 
individualistic terms, particularly when these theories are based on hedonistic 
premises, as they commonly are.
Now, whatever may or may not be true for human conduct in some other bearing, in 
the economic respect man has never lived an isolated, self-sufficient life as an 
individual, either actually or potentially. Humanly speaking, such a thing is 
impossible. Neither an individual person nor a single household, nor a single 
line of descent, can maintain its life in isolation. Economically speaking, 
[518] this is the characteristic trait of humanity that separates mankind from 
the other animals. The life-history of the race has been a life-history of human 
communities, of more or less considerable size, with more or less of group 
solidarity, and with more or less of cultural continuity over successive 
generations. The phenomena of human life occur only in this form.
This continuity, congruity, or coherence of the group, is of an immaterial 
character. It is a matter of knowledge, usage, habits of life and habits of 
thought, not a matter of mechanical continuity or contact, or even of 
consanguinity. Wherever a human community is met with, as, e.g., among any of 
the peoples of the lower cultures, it is found in possession of something in the 
way of a body of technological knowledge, - knowledge serviceable and requisite 
to the quest of a livelihood, comprising at least such elementary acquirements 
as language, the use of fire, of a cutting edge, of a pointed stick, of some tool 
for piercing, of some form of cord, thong, or fibre, together with some skill in 
the making of knots and lashings. Co-ordinate with this knowledge of ways and 
means, there is also uniformly present some matter-of-fact knowledge of the 
physical behavior of the materials with which men have to deal in the quest of a 
livelihood, beyond what any one individual has learned or can learn by his own 
experience alone. This information and proficiency in the ways and means of life 
vests in the group at large; and, apart from accretions borrowed from other 
groups, it is the product of the given group, tho not produced by any single 
generation. It may be called the immaterial equipment, or, by a license of 
speech, the intangible assets(2*) of the commu-[519]nity; and, in the early days 
at least, this is far and away the most important and consequential category of 
the community's assets or equipment. Without access to such a common stock of 
immaterial equipment no individual and no fraction of the community can make a 
living, much less make an advance. Such a stock of knowledge and practice is 
perhaps held loosely and informally; but it is held as a common stock, 
pervasively, by the group as a body, in its corporate capacity, as one might 
say; and it is transmitted and augmented in and by the group, however loose and 
haphazard the transmission may be conceived to be, not by individuals and in 
single lines of inheritance.
The requisite knowledge and proficiency of ways and means is a product, perhaps 
a by-product, of the life of the community at large; and it can also be 
maintained and retained only by the community at large. Whatever may be true for 
the unsearchable prehistoric phases of the life-history of the race, it appears 
to be true for the most primitive human groups and phases of which there is 
available information that the mass of technological knowledge possessed by any 
community, and necessary to its maintenance and to the maintenance of each of 
its members or subgroups, is too large a burden for any one individual or any 
single line of descent to carry. This holds true, of course, all the more 
rigorously and consistently, the more advanced the "state of the industrial 
arts" may be. But it seems to hold true with a generality that is fairly 
startling that whenever a given cultural community is broken up or suffers a 
serious diminution of members, its technological heritage deteriorates and 
dwindles, even tho it may have been apparently meagre enough before. On the 
other hand, it seems to hold true with a similar uniformity that, when an 
individual member or a fraction of a community on what we call a lower stage 
[520] of economic development is drawn away and trained and instructed in the 
ways of a larger and more efficient technology, and is then thrown back into his 
home community, such an individual or fraction proves unable to make head 
against the technological bent of the community at large or even to create a 
serious diversion. Slight, perhaps transient, and gradually effective 
technological consequences may result from such an experiment; but they become 
effective by diffusion and assimilation through the body of the community, not 
in any marked degree in the way of an exceptional efficiency on the part of the 
individual or fraction which has been subjected to exceptional training. And 
inheritance in technological matters runs not in the channels of consanguinity, 
but in those of tradition and habituation, which are necessarily as wide as the 
scheme of life of the community. Even in a relatively small and primitive 
community the mass of detail comprised in its knowledge and practice of ways and 
means is large, - too large for any one individual or household to become 
competently expert in it all; and its ramifications are extensive and diverse at 
the same time that all these ramifications bear, directly or indirectly, on the 
life and work of each member of the community. Neither the standard and routine 
of living nor the daily work of any individual in the community would remain the 
same after the introduction of an appreciable change, for good or ill, in any 
branch of the community's equipment of technological expedients. If the 
community grows larger, to the dimensions of a modern civilized people, and this 
immaterial equipment grows proportionately great and various, then it will 
become increasingly difficult to trace the connection between any given change 
in technological detail and the fortunes of any given obscure member of the 
community. But it is at least safe to say that an increase in the volume and 
complexity of the body of technological [521] knowledge and practise does not 
progressively emancipate the life and work of the individual from its dominion.
The complement of technological knowledge so held, used, and transmitted in the 
life of the community is, of course, made up out of the experience of 
individuals. Experience, experimentation, habit, knowledge, initiative, are 
phenomena of individual life, and it is necessarily from this source that the 
community's common stock is all derived. The possibility of its growth lies in 
the feasibility of accumulating knowledge gained by individual experience and 
initiative, and therefore it lies in the feasibility of one individual's 
learning front the experience of another. But the initiative and technological 
enterprise of individuals, such, e.g., as shows itself in inventions and 
discoveries of more and better ways and means, proceeds on and enlarges the 
accumulated wisdom of the past. Individual initiative has no chance except on 
the ground afforded by the common stock, and the achievements of such initiative 
are of no effect except as accretions to the common stock. And the invention or 
discovery so achieved always embodies so much of what is already given that the 
creative contribution of the inventor or discoverer is trivial by comparison.
In any known phase of culture this common stock of intangible, technological 
equipment is relatively large and complex, - i.e., relatively to the capacity of 
any individual member to create or to use it; and the history of its growth and 
use is the history of the development of material civilization. It is a 
knowledge of ways and means, and is embodied in the material contrivances and 
processes by means of which the members of the community make their living. Only 
by such means does technological efficiency go into effect. These "material 
contrivances" ("capital goods," material equipment) are such things as tools, 
vessels, vehicles, raw materials, [522] buildings, ditches, and the like, 
including the land in use; but they include also, and through the greater part 
of the early development chiefly, the useful minerals, plants, and animals. To 
say that these minerals, plants, and animals are useful - in other words, that 
they are economic goods - means that they have been brought within the sweep of 
the community's knowledge of ways and means.
In the relatively early stages of primitive culture the useful plants and 
minerals are, no doubt, made use of in a wild state, as, e.g., fish and timber 
have continued to be used. Yet in so far as they are useful they are 
unmistakably to be counted in among the material equipment ("tangible assets") 
of the community. The case is well illustrated by the relation of the Plains 
Indians to the buffalo, and by the north-west coast Indians to the salmon, on 
the one hand, and by the use of a wild flora by such communities as the Coahuila 
Indians, the Australian blacks, or the Andamanese, on the other hand.
But with the current of time, experience, and initiative, domesticated (that is 
to say improved) plants and animals come to take the first place. We have then 
such "technological expedients" in the first rank as the many species and 
varieties of domestic animals, and more particularly still the various grains, 
fruits, root crops, and the like, virtually all of which were created by man for 
human use; or perhaps a more scrupulously veracious account would say that they 
were in the main created by the women through long ages of workmanlike selection 
and cultivation. These things, of course, are useful because men have learned 
their use, and their use, so far as it has been learned, has been learned by 
protracted and voluminous experience and experimentation, proceeding at each 
step on the accumulated achievements of the past. Other things, which may in 
time, come to exceed these in [523] usefulness are still useless, economically 
non-existent, on the early levels of culture, because of what men in that time 
have not yet learned.
While this immaterial equipment of industry, the intangible assets of the 
community, have apparently always been relatively very considerable and are 
always mainly in the keeping of the community at large, the material equipment, 
the tangible assets, on the other hand, have, in the early stages (say the 
earlier 90 per cent.) of the life-history of human culture, been relatively 
slight, and have apparently been held somewhat loosely by individuals or 
household groups. This material equipment is relatively very slight in the 
earlier phases of technological development, and the tenure by which it is held 
is apparently vague and uncertain. At a relatively primitive phase of the 
development, and under ordinary conditions of climate and surroundings, the 
possession of the concrete articles ("capital goods") needed to turn the 
commonplace knowledge of ways and means to account is a matter of slight 
consequence, - contrary to the view commonly spoken for by the economists of the 
classical line. Given the commonplace technological knowledge and the 
commonplace training, - and these are given by common notoriety and the 
habituation of daily life, - the acquisition, construction, or usufruct of the 
slender material equipment needed arranges itself almost as a matter of course, 
more particularly where this material equipment does not include a stock of 
domestic animals or a plantation of domesticated trees and vegetables. Under 
given circumstances a relatively primitive technological scheme may involve some 
large items of material equipment, as the buffalo pens (piskun) of the Blackfoot 
Indians or the salmon weirs of the river Indians of the north-west coast. Such 
items of material equipment [524] are then likely to be held and worked 
collectively, either by the community at large or by subgroups of a considerable 
size. Under ordinary, more generally prevalent conditions it appears that even 
after a relatively great advance has been made in the cultivation of crops the 
requisite industrial equipment is not a matter for serious concern, particularly 
so aside from the tilled ground and the cultivated trees, as is indicated by the 
singularly loose and inconsequential notions of ownership prevalent among 
peoples occupying such a stage of culture. A primitive stage of communism is not 
known.
But, as the common stock of technological knowledge increases in volume, range, 
and efficiency, the material equipment whereby this knowledge of ways and means 
is put into effect grows greater, more considerable relatively to the capacity 
of the individual. And so soon, or in so far, as the technological development 
falls into such shape as to require a relatively large unit of material 
equipment for the effective pursuit of industry, or such as otherwise to make 
the possession of the requisite material equipment a matter of consequence, so 
as seriously to handicap the individuals who are without these material means, 
and to place the current possessors of such equipment at a marked advantage, 
then the strong arm intervenes, property rights apparently begin to fall into 
definite shape, the principles of ownership gather force and consistency, and 
men begin to accumulate capital goods and take measures to make them secure.
An appreciable advance in the industrial arts is commonly followed or 
accompanied by an increase of population. The difficulty of procuring a 
livelihood may be no greater after such an increase: it may even be less; but 
there results a relative curtailment of the available area and raw materials, 
and commonly also an increased accessibility of the several portions of the 
community. A wide-[525]reaching control becomes easier. At the same, time a 
larger unit of material equipment is needed for the effective pursuit of 
industry. As this situation develops, it becomes worth while - that is to say, 
it becomes feasible - for the individual with the strong arm to engross, or 
"corner," the usufruct of the commonplace knowledge of ways and means by taking 
over such of the requisite material as may be relatively scarce and relatively 
indispensable for procuring a livelihood under the current state of the 
industrial arts.(3*) Circumstances of space and numbers prevent escape from the 
now technological situation. The commonplace knowledge of ways and means cannot 
be turned to account, under the new conditions, without a material equipment 
adapted to the then current state of the industrial arts; and such a suitable 
material equipment is no longer a slight matter to be compassed by workmanlike 
initiative and application. Beati possidentes.
The emphasis of the technological situation, as one might say, may fall now on 
one line of material items, now on another, according as the exigencies of 
climate, topography, flora and fauna, density of population, and the like, may 
decide. So also, under the rule of the game exigencies, the early growth of 
property lights and of the principles (habits of thought) of ownership may 
settle on one or another line of material items, according as one or another 
affords the strategic advantage for engrossing the current technological 
efficiency of the community.
Should the technological situation, the state of the industrial arts, be such as 
to throw the strategic emphasis on manual labor, on workmanlike skill and 
application, and [526] if at the same time the growth of population has made 
land relatively scarce, or hostile contact with other communities has made it 
impracticable for members of the community to range freely over outlying tracts, 
then it would be expected that the growth of ownership should take the direction 
primarily of slavery, or of some equivalent form of servitude, so effecting a 
naive and direct monopolistic control of the current knowledge of ways and 
means.(4*) Whereas if the development has taken such a turn, and the community 
is so placed as to make the quest of a livelihood a matter of the natural 
increase of flocks and herds, then it should reasonably be expected that these 
items of equipment will be the chief and primary subject of property rights. In 
point of fact, it appears that a pastoral culture commonly involves also some 
degree of servitude, along with the ownership of flocks and herds.
Under different circumstances the mechanical appliances of industry, or the 
tillable land, might come into the position of strategic advantage, and might 
come in for the foremost place in men's consideration as objects of ownership. 
The evidence afforded by the known (relatively) primitive cultures and 
communities seems to indicate that slaves and cattle have in this way come into 
the primacy as objects of ownership at an earlier period in the growth of 
material civilization than land or the mechanical appliances. And it seems 
similarly evident - more so, indeed - that land has on the whole preceded the 
mechanical equipment as the stronghold of ownership and the means of engrossing 
the community's industrial efficiency.
It is not until a late period in the life-history of material civilization that 
ownership of the industrial equipment, in the narrower sense in which that 
phrase is commonly [527] employed, comes to be the dominant and typical method 
of engrossing the immaterial equipment. Indeed, it is a consummation which has 
been reached only a very few times even partially, and only once with such a 
degree of finality as to leave the fact indisputable. If it may be said, 
loosely, that mastery through the ownership of slaves, cattle, or land comes on 
in force only after the economic development has run through some nine-tenths of 
its course hitherto, then it may be said likewise that some ninety-nine one-
hundredths of this course of development bad been completed before the ownership 
of the mechanical equipment came into undisputed primacy as the basis of 
pecuniary dominion. So late an innovation, indeed; is this modern institution of 
"capitalism," - the predominant ownership of industrial capital as we know it, 
- and yet so intimate a fact is it in  our familiar scheme of life, that we have 
some difficulty in seeing it in perspective at all, and we find ourselves 
hesitating between denying its existence, on the one hand, and affirming it to 
be a fact of nature antecedent to all human institutions, on the other hand.
In so speaking of the ownership of industrial equipment as being an institution 
for cornering the community's intangible assets, there is conveyed an 
unavoidably implied, tho unintended, note of condemnation. Such an implication 
of merit or demerit is an untoward circumstance in any theoretical inquiry. Any 
sentimental bias, whether of approval or disapproval, aroused by such an implied 
censure, must unavoidably hamper the dispassionate pursuit of the argument. To 
mitigate the effect of this jarring note as far as may be, therefore, it will be 
expedient to turn back for a moment to other more primitive and remoter forms of 
the institution, - as slavery and landed wealth, - and so reach the modern facts 
of industrial capital by a roundabout and gradual approach.
[528] These ancient institutions of ownership, slavery and landed wealth, are 
matters of history. Considered as dominant factors in the community's scheme of 
life, their record is completed; and it needs no argument to enforce the 
proposition that it is a record of economic dominion by the owners of the slaves 
or the land, as the case may be. The effect of slavery in its best day, and of 
landed wealth in mediaeval and early modern times, was to make the community's 
industrial efficiency serve the needs of the slave-owners in the one case and of 
the land-owners in the other. The effect of these institutions in this respect 
is not questioned now, except in such sporadic and apologetical fashion as need 
not detain the argument.
But the fact that such was the direct and immediate effect of these institutions 
of ownership in their time by no means involves the instant condemnation of the 
institutions in question. It is quite possible to argue that slavery and landed 
wealth, each in its due time and due cultural setting, have served the 
amelioration of the lot of man and the advance of human culture. What these 
arguments may be that aim to show the merits of slavery and landed wealth as a 
means of cultural advance does not concern the present inquiry, neither do the 
merits of the case in which the arguments are offered. The matter is referred to 
here to call to mind that any similar theoretical outcome of an analysis of the 
productivity of "capital goods" need not be admitted to touch the merits of the 
case in controversy between the socialistic critics of capitalism and the 
spokesmen of law and order.
The nature of landed wealth, in point of economic theory, especially as regards 
its productivity, has been sifted with the most jealous precautions and the most 
tenacious logic during the past century; and any economic student can easily 
review the course of the argument whereby that line of economic theory has been 
run to earth. It is only [529] necessary here to shift the point of view 
slightly to bring the whole argument concerning the rent of land to bear on the 
present question. Rent is of the nature of a differential gain, resting on a 
differential advantage in point of productivity of the industry employed upon or 
about it. This differential advantage attaching to a given parcel of land may be 
a differential as against another parcel or as against industry applied apart 
from land. The differential advantage attaching to agricultural land - e.g., as 
against industry at large - rests on certain broad peculiarities of the 
technological situation. Among them are such peculiarities as these: the human 
species, or the fraction of it concerned in the case, is numerous, relatively to 
the extent of its habitat; the methods of getting a living, as hitherto 
elaborated, the ways and means of life, make use of certain crop plants and 
certain domestic animals. Apart from such conditions, taken for granted in 
arguments concerning agricultural rent, there could manifestly be no 
differential advantage attaching to land and no production of rent. With 
increased command of methods of transportation, the agricultural lands of 
England, e.g., and of Europe at large, declined in value, not because these 
lands became less fertile, but because an equivalent result could more 
advantageously be got by a new method. So, again, the flint- and amber-bearing 
regions that are now Danish and Swedish territory about the waters at the 
entrance to the Baltic were in the neolithic culture of northern Europe the most 
favored and valuable lands within that cultural region. But, with the coming of 
the metals and the relative decline of the amber trade, they began to fall 
behind in the scale of productivity and preference. So also in later time, with 
the rise of "industry" and the growth of the technology of communication, urban 
property has gained, as contrasted with rural property, and land placed in an 
advantageous position relatively to [530] shipping and railroads has acquired a 
value and a "productiveness" which could not be claimed for it apart from these 
modern technological expedients.
The argument of the single-tax advocates and other economists as to the 
"unearned increment" is sufficiently familiar, but its ulterior implications 
have not commonly been recognized. The unearned increment, it is held, is 
produced by the growth of the community in numbers and in the industrial arts. 
The contention seems to be sound, and is commonly accepted; but it has commonly 
been overlooked that the argument involves the ulterior conclusion that all land 
values and land productivity, including the "original and indestructible powers 
of the soil," are a function of the "state of the industrial arts." It is only 
within the given technological situation, the current scheme of ways and means, 
that any parcel of land has such productive powers as it has. It is, in other 
words, useful only because, and in so far, and in such manner, as men have 
learned to make use of it. This is what brings it into the category of "land," 
economically speaking. And the preferential position of the landlord as a 
claimant of the "net product" consists in his legal right to decide whether, how 
far, and on what terms men shall put this technological scheme into effect in 
those features of it which involve the use of his parcel of land.
All this argument concerning the unearned increment may be carried over, with 
scarcely a change of phrase, to the case of "capital goods." The Danish flint 
supply was of first-rate economic consequence, for a thousand years or so, 
during the stone age; and the polished-flint utensils of that time were then 
"capital goods" of inestimable importance to civilization, and were possessed of 
a "productivity" so serious that the life of mankind in that world may be said 
to have been balanced on the [531] fine-ground edge of those magnificent 
polished-flint axes. All that lasted through its technological era. The flint 
supply and the mechanical expedients and "capital goods," whereby it was 
turned to account, were valuable and productive then, but neither before nor 
after that time. Under a changed technological situation the capital goods of 
that time have become museum exhibits, and their place in human economy has been 
taken by technological expedients which embody another "state of the industrial 
arts," the outcome of later and different phases of human experience. Like the 
polished-flint axe, the metal utensils which gradually displaced it and its like 
in the economy of the Occidental culture were the product of long experience and 
the gradual learning of ways and means. The steel axe, as well as the flint axe, 
embodies the same ancient technological expedient of a cutting edge, as well as 
the use of a helve and the efficiency due to the weight of the tool. And in the 
case of the one or the other, when seen in historical perspective and looked at 
from the point of view of the community at large, the knowledge of ways and 
means embodied in the utensils was the serious and consequential matter. The 
construction or acquisition of the concrete "capital goods" was simply an easy 
consequence. It "cost nothing but labor," as Thomas Mun would say.
Yet it might be argued that each concrete article of "capital goods" was the 
product of some one man's labor, and, as such, its productivity, when put to 
use, was but the indirect, ulterior, deferred productiveness of the maker's 
labor. But the maker's productivity in the ease was but a function of the 
immaterial technological equipment at his command, and that in its turn was the 
slow spiritual distillate of the community's time-long experience and 
initiative. To the individual producer or owner, to whom the community's 
accumulated stock of [532] immaterial equipment was open by common notoriety, 
the cost of the concrete material goods would be the effort involved in making 
or getting them and in making good his claim to them. To his neighbor who had 
made or acquired no such parcel of "productive goods," but to whom the resources 
of the community, material and immaterial, were open on the same easy terms, the 
matter would look very much the same. He would have no grievance, nor would he 
have occasion to seek one. Yet, as a resource in the maintenance of the 
community's life and a factor in the advance of material civilization, the whole 
matter would have a different meaning.
So long, or rather in so far, as the "capital goods" required to meet the 
technological demands of the time were slight enough to be compassed by the 
common man with reasonable diligence and proficiency, so long the draft upon the 
common stock of immaterial assets by any one would be no hindrance to any other, 
and no differential advantage or disadvantage would emerge. The economic 
situation would answer passably to the classical theory of a free competitive 
system, - "the simple and obvious system of natural liberty," which rests on the 
presumption of equal opportunity. In a roughly approximate way, such a situation 
supervened in the industrial life of western Europe on the transition from 
mediaeval to modern times, when handicraft and "industrial" enterprise 
superseded landed wealth as the chief economic factor. Within the "industrial 
system," as distinct from the privileged non-industrial classes, a man with a 
modicum of diligence, initiative, and thrift might make his way in a tolerable 
fashion without special advantages in the way of prescriptive right or 
accumulated means. The principle of equal opportunity was, no doubt, met only in 
a very rough and dubious fashion; but so favorable became the conditions in this 
respect that men came to persuade [533] themselves in the course of the 
eighteenth century that a substantially equitable allotment of opportunities 
would result from the abrogation of all prerogatives other than the ownership of 
goods. But so precarious and transient was this approximation to a 
technologically feasible system of equal opportunity that, while the liberal 
movement which converged upon this great economic reform was still gathering 
head, the technological situation was already outgrowing the possibility of such 
a scheme of reform. After the Industrial Revolution came on, it was no longer 
true, even in the roughly approximate way in which it might have been true some 
time earlier, that equality before the law, barring property rights, would mean 
equal opportunity. In the leading, aggressive industries which were beginning to 
set the pace for all that economic system that centred about the market, the 
unit of industrial equipment, as required by the new technological era, was 
larger than one man could compass by his own efforts with the free use of the 
commonplace knowledge of ways and means. And the growth of business enterprise 
progressively made the position of the small, old-fashioned producer more 
precarious. But the speculative, theoreticians of that time still saw the 
phenomena of current economic life in the light of the handicraft traditions and 
of the preconceptions of natural rights associated with that system, and still 
looked to the ideal of "natural liberty" as the goal of economic development and 
the end of economic reform. They were ruled by the principles (habits of 
thought) which had arisen out of an earlier situation, so effectually as not to 
see that the rule of equal opportunity which they aimed to establish was already 
technologically obsolete.(5*)
During the hundred years and more of this ascendency [534] of the natural-rights 
theories in economic science, the growth of technological knowledge has 
unremittingly gone forward, and concomitantly the large-scale industry has grown 
great and progressively dominated the field. This large-scale, industrial regime 
is what the socialists, and some others, call "capitalism." "Capitalism," as so 
used, is not a neat and rigid technical term, but it is definite enough to be 
useful for many purposes. On its technological side the characteristic trait of 
this capitalism is that the current pursuit of industry requires a larger unit 
of material equipment than one individual can compass by his own labor, and 
larger than one person can make use of alone.
So soon as the capitalist regime, in this some, comes in, it ceases to be true 
that the owner of the industrial equipment (of the controller of it) in any 
given case is or may be the producer of it, in any naive sense of "production." 
He is under the necessity of acquiring its ownership or control by some other 
expedient than that of industrially productive work. The pursuit of industry 
requires an accumulation of wealth, and, barring force, fraud, and inheritance, 
the method of acquiring such an accumulation of wealth is necessarily some form 
of bargaining; that is to say, some form of business enterprise. Wealth is 
accumulated, within the industrial field, from the gains of business; that is to 
say, from the gains of advantageous bargaining.(6*) Taking the situation by and 
large, looking to the body of business enterprise as a whole, the advantageous 
bargaining from which gains accrue and from which, therefore, accumulations of 
capital are derived, is necessarily, in the last analysis, a bargaining between 
[535] those who own (or control) industrial wealth and those whose work turns 
this wealth to account in productive industry. This bargaining for hire - 
commonly a wage agreement - is conducted under the rule of free contract, and is 
concluded according to the play of demand and supply, as has been well set forth 
by many writers.
On this technological view of capital, as here spoken for, the relations between 
the two parties to the bargain, the, capitalist-employer and the working class, 
stand as follows. More or less rigorously, the technological situation enforces 
a certain scale and method in the various lines of industry.(7*) The industry 
can, in effect, be carried on only by recourse to the technologically requisite 
scale and method, and this requires a material equipment of a certain (large) 
magnitude; while material equipment of this required magnitude is held 
exclusively by the capitalist-employer, and is de facto beyond the reach of the 
common man.
A corresponding body of immaterial equipment - knowledge and practice of ways 
and means - is likewise requisite, under the rule of the same technological 
exigencies. This immaterial equipment is in part drawn on in the making of the 
material equipment held by the capitalist-employers, in part in the use to be 
made of this material equipment in the further processes of industry. This body 
of immaterial equipment so drawn on in any line of industry is, relatively, 
still larger, being, on any exhaustive analysis, virtually the whole body of 
industrial experience accumulated by the community up to date. A free draft on 
this common stock of technological wis-[536] dom must be had both in the 
construction and in the subsequent use of the material equipment; altho no one 
person can master, or himself employ, more than an inconsiderable fraction of 
the immaterial equipment so drawn on for the installation or operation of any 
given block of the material equipment.
The owner of the material equipment, the capitalist-employer, is, in the typical 
case, not possessed of any appreciable fraction of the immaterial equipment 
necessarily drawn on in the construction and subsequent use of the material 
equipment owned (controlled) by him. His knowledge and training, so far as it 
enters into the question, is a knowledge of business, not of industry.(8*) The 
slight technological proficiency which he has or needs for his business ends is 
of a general character, wholly superficial and impracticable in point of 
workmanlike efficiency; nor is it turned to account in actual workmanship. He 
therefore "needs in his business" the service of persons who have a competent 
working mastery of this immaterial technological equipment, and it is with such 
persons that his bargains for hire are made. By and large, the measure of their 
serviceability for his ends is the measure of their technological competency. No 
workman not possessed of some fractional mastery of the technological 
requirements is employed, - imbeciles are useless in proportion to their 
imbecility; and even unskilled and "unintelligent" workmen, so called, are of 
relatively little use, altho they may be possessed of a proficiency in the 
commonplace industrial details such as would bulk large in absolute magnitude. 
The "common laborer" is, in fact, a highly trained and widely proficient workman 
when contrasted with the conceivable human blank supposed to have drawn on the 
community for nothing but his physique.
[537] In the hands of these workmen - the industrial community, the bearers of 
the immaterial, technological equipment - the capital goods owned by the 
capitalist become a "means of production." Without them, or in the hands of men 
who do not know their use, the goods in question would be simply raw materials, 
somewhat deranged and impaired through having been given the form which now 
makes them "capital goods." The more proficient the workmen in their mastery of 
the technological expedients involved, and the greater the facility with which 
they are able to put these expedients into effect, the more productive will be 
the processes in which the workmen turn the employer's capital goods to account. 
So, also, the more competent the work of "superintendence," the foremanlike 
oversight and correlation of the work in respect of kind, speed, volume, the 
more will it count in the aggregate of productive efficiency. But this work of 
correlation is a function of the foreman's mastery of the technological 
situation at large and his facility in proportioning one process of industry to 
the requirements and effects of another. Without this due and sagacious 
correlation of the processes of industry, and their current adaptation to the 
demands of the industrial situation at large, the material equipment engaged 
would have but slight efficiency and would count for but little in tire way of 
capital goods. The efficiency of the control exercised by the master-workman, 
engineer, superintendent, or whatever term may be used to designate the 
technological expert who controls and correlates the productive processes, - 
this workmanlike efficiency determines how far the given material equipment is 
effectually to be rated as "capital goods."
Through all this functioning of the workman and the foreman the capitalist's 
business ends are ever in the background, and the degree of success that attends 
his busi-[538]ness endeavors depends, other things equal, on the efficiency with 
which these technologists carry on the processes of industry in which be has 
invested. His working arrangements with these workmen, the bearers of the 
immaterial equipment engaged, enables the capitalist to turn the processes for 
which his capital goods are adapted to account for his own profit, but at the 
cost of such a deduction from the aggregate product of these processes as the 
workmen may be able to demand in return for their work. The amount of this 
deduction is determined by the competitive bidding of other capitalists who may 
have use for the same lines of technological efficiency, in the manner set forth 
by writers on wages.
With the conceivable consolidation of all material assets under one business 
management, so as to eliminate competitive bidding between employers, it is 
plain that the resulting business concern would command the undivided forces of 
the technological situation, with such deduction as is involved in the 
livelihood of the working population. This livelihood would in such a case be 
reduced to the most economical footing, as seen from the standpoint of the 
employer. And the employer (capitalist) would be the de facto owner of the 
community's aggregate knowledge of ways and means, except so far as this body of 
immaterial equipment serves also the housekeeping routine of the working 
population. How nearly the current economic situation may approach to this 
finished state is a matter of opinion. There is also place for a broad question 
whether the conditions are more or less favorable to the working population 
under the existing business regime, involving competitive bidding between the 
several business concerns, than they would be in case a comprehensive business 
consolidation had eliminated competition and placed the ownership of the 
material assets on a footing of unqualified monopoly. Nothing but vague [539] 
surmises can apparently be offered in answer to these questions.
But as bearing on the question of monopoly and the use of the community's 
immaterial equipment it is to be kept in mind that the technological situation 
as it stands to-day does not admit of a complete monopolization of the 
community's technological expedients, even if a complete monopolization of the 
existing aggregate of material property were effected. There is still current a 
large body of industrial processes to which the large-scale methods do not apply 
and which do not presume such a large unit of material equipment or involve such 
rigorous correlation with the large-scale industry as to take them out of the 
range of discretionary use by persons not possessed of appreciable material 
wealth. Typical of such lines of work, hitherto not amenable to monopolization, 
are the details of housekeeping routine alluded to above. It is, in fact, still 
possible for an appreciable fraction of the population to "pick up a living," 
more or less precarious, without recourse to the large-scale processes that are 
controlled by the owners of the material assets. This somewhat precarious margin 
of free recourse to the commonplace knowledge of ways and means appears to be 
what stands in the way of a neater adjustment of wages to the "minimum of 
subsistence" and the virtual ownership of the immaterial equipment by the owners 
of the material equipment.
It follows from what has been said that all tangible(9*) assets owe their 
productivity and their value to the immaterial industrial expedients which they 
embody or which their ownership enables their owner to engross. These immaterial 
industrial expedients are necessarily a product of the community, the immaterial 
residue of the commu-[540]nity's experience, past and present, which has no 
existence apart from the community's life, and can be transmitted only in the 
keeping of the community at large. 
It may be objected by those who make much of the productivity of capital that 
tangible capital goods on hand are themselves of value and have a specific 
productive efficiency, if not apart from the industrial processes in which they 
serve, then at least as a prerequisite to these processes, and therefore a 
material condition-precedent standing in a causal relation to the industrial 
product. But these material goods are themselves a product of the past exercise 
of technological knowledge, and so back to the beginning. What there is involved 
in the material equipment, which is not of this immaterial, spiritual nature, 
and so what is not an immaterial residue of the community's experience, is the 
raw material out of which the industrial appliances are constructed, with the 
stress falling wholly on the "raw."
The point is illustrated by what happens to a mechanical contrivance which goes 
out of date because of a technological advance and is displaced by a new 
contrivance embodying a new process. Such a contrivance "goes to the junk-heap," 
as the phrase has it. The specific technological expedient which it embodies 
ceases to be effective in industry, in competition with "improved methods." It 
ceases to bean immaterial asset. When it is in this way eliminated, the material 
repository of it ceases to have value as capital. It ceases to be a material 
asset. "The original and indestructible powers" of the material constituents of 
capital goods, to adapt Ricardo's phrase, do not make these constituents capital 
goods; nor, indeed, do these original and indestructible powers of themselves 
bring the objects in question into the category of economic goods at all. The 
raw materials - land, minerals, and the like - may, of course, be valuable 
property, [541] and may be counted among the assets of a business. But the value 
which they so have is a function of the anticipated use to which they may be 
put, and that is a function of the technological situation under which it is 
anticipated that they will be useful.
All this may seem to undervalue or perhaps to overlook the physical facts of 
industry and the physical nature of commodities. There is, of course, no call to 
understate the importance of material goods or of manual labor. The goods about 
which this inquiry turns are the products of trained labor working on the 
available materials; but the labor has to be trained, in the large sense, in 
order to be labor, and the materials have to be available in order to be 
materials of industry. And both the trained efficiency of the labor and the 
availability of the material objects engaged are a function of the "state of the 
industrial arts."
Yet the state of the industrial arts is dependent on the traits of human nature, 
physical, intellectual, and spiritual, and on the character of the material 
environment. It is out of these elements that the human technology is made up; 
and this technology is efficient only as it meets with the suitable material 
conditions and is worked out, practically, in the material forces required. The 
brute forces of the human animal are an indispensable factor in industry, as are 
likewise the physical characteristics of the material objects with which 
industry deals. And it seems bootless to ask how much of the products of 
industry or of its productivity is to be imputed to these brute forces, human 
and non-human, as contrasted with the specifically human factors that make 
technological efficiency. Nor is it necessary to go into questions of that 
import here, since the inquiry here turns on the productive relation of capital 
to industry; that is to say, the relation [542] of the material equipment and 
its ownership to men's dealings with the physical environment in which the race 
is placed. The question of capital goods (including that of their ownership and 
therefore including the question of investment) is a question of how mankind as 
a species of intelligent animals deals with the brute force at its disposal. It 
is a question of how the human agent deals with his means of life, not of how 
the forces of the environment deal with man. Questions of the latter class 
belong under the head of ecology, a branch of the biological sciences dealing 
with the adaptive variability of plants and animals. Economic inquiry would 
belong under that category if the human response to the forces of the 
environment were instinctive and variational only, including nothing in the way 
of a technology. But in that case there would be no question of capital goods, 
or of capital, or of labor. Such questions do not arise in relation to the non-human 
animals.
In an inquiry into the productivity of labor some perplexity might be met with 
as to the share or the place of the brute forces of the human organism in the 
theory of production; but in relation to capital that question does not arise, 
except so far as these forces am involved in the production of the capital 
goods. As a parenthesis, more or less germane to the present inquiry into 
capital, it may be remarked that an analysis of the productive powers of labor 
would apparently take account of the brute energies of mankind (nervous and 
muscular energies) as material forces placed at the disposal of man by 
circumstances largely beyond human control, and in great part not theoretically 
dissimilar to the like nervous and muscular forces afforded by the domestic 
animals.
THORSTEIN VEBLEN.
STANFORD UNIVERSITY

NOTES
1) Subtitle originally was omitted. See: Quarterly Journal of Economics, Vol. 
23, Issue 1 (Nov., 1908), p. 104.
2) "Assets" is, of course, not to be taken literally in this connection. The 
term properly covers a pecuniary concept, not an industrial (technological) one, 
and it connotes ownership as well as value; and it will be used in this literal 
sense when in a later article ownership and investment come into the 
discussion. In the present connection it is used figuratively, for want of a 
better term, to convey the connotation of value and serviceability without 
thereby implying ownership.
3) Motives of exploit and emulation, no doubt, play a serious part in bringing 
on the practise of ownership and in establishing the principles on which it 
rests; but this play of motives and the concomitant growth of institutions 
cannot be taken up here. Cf. Theory of the Leisure Class, chaps. i, ii, iii.
4) Cf. H. Niebuer, Slavery as an Industrial System, chap. iv., sect. 12.
5) For a more extended discussion of this point see the Quarterly Journal of 
Economics, July, 1899, "The Preconceptions of Economic Science"; also the Theory 
of Business Enterprise, chap. iv. especially pp. 70-82.
6) Marx holds that the "primitive accumulation" from which capitalism takes its 
rise is a matter of force and fraud (Capital, Book I., chap. xxiv.). Sombart 
holds the source to have been landed wealth (Moderne Kapitalismus, Book II., 
Part II., especially chap. xii.). Ehrenberg and other critics of Sombart incline 
to the view that the most important source was usury and the petty trade 
(Zeitalter der Fugger, chaps. i., ii.).
7) The phrase "more or less" covers a certain margin of tolerance in respect of 
scale and method, which may be very appreciably wider in some lines of industry 
than in others, and which, cannot be more adequately defined or described here 
within such space as could reasonably be allowed. The requirement of scale and 
method is enforced by competition. The force and reach of this competitive 
adjustment can also not be dealt with here, but the familiar current acceptance 
of the fact will dispense with details.
8) Cf. Theory of Business Enterprise, chap. III.
9) "Tangible assets" is here taken to signify serviceable capital goods 
considered as valuable possessions yielding income to their owner.
--- End of part 1 ---
--------------------------
[104] (Part 2)
ON THE NATURE OF CAPITAL:
INVESTMENT, INTANGIBLE ASSETS, AND THE PECUNIARY MAGNATE.
Quarterly Journal of Economics, Vol. 23 No. 1 (Nov. 1908), pp. 104-136
--------------------------
 SUMMARY
Introductory summary, 104. - Certain effects of investment and the price system, 
105. - Intangible assets, their nature, derivation, and basis, 111. - Summary of 
analysis of assets, 115. - Tangible and intangible assets distinct, but mutually 
convertible, 116. - Dependence of all assets on industrial production, 122. - 
Non-capitalizable income from assets, 125. - Place and function of the 
"Pecuniary Magnate," 126. - "Timeless" gains from the use of (large) capital, 
130. - Source of such "timeless" gains, 132. - Consequences for ordinary 
business men and ordinary profits, 135.

What has been said in the earlier section of this paper(1*) applies to "capital 
goods," so called, and it is intended to apply to these in their character of 
"productive goods" rather than in their character of "capital"; that is to say, 
what is had in mind is the industrial, or technological, efficiency and 
subservience of the material means of production rather than the pecuniary use 
and effect of invested wealth. The inquiry has dealt with the industrial 
equipment as "plant" rather than as "assets." In the course of this inquiry it 
has appeared that out of the profitable engrossing of the community's industrial 
efficiency through control of the material equipment there arises the practise 
of investment, which has further consequences that merit more detailed 
attention.
Investment is a pecuniary transaction, and its aim is pecuniary gain, - gain in 
terms of value and ownership. Invested wealth is capital, a pecuniary magnitude, 
meas-[105]ured in terms of value and determined in respect of its magnitude by a 
valuation which proceeds on an appraisement of the gain expected from the 
ownership of this invested wealth. In modern business practise, capital is 
distinguished into two co-ordinate categories of assets, tangible and 
intangible. "Tangible assets" is here taken to designate pecuniarily serviceable 
capital goods, considered as a valuable possession yielding an income to their 
owner. Such goods, material items of wealth, are "assets" to the amount of their 
capitalizable value, which may be more or less closely related to their 
industrial serviceability as productive goods. "Intangible assets" are 
immaterial items of wealth, immaterial facts owned, valued, and capitalized on 
an appraisement of the gain to be derived from their possession. These are also 
assets to the amount of their capitalizable value, which has commonly little, if 
any, relation to the industrial serviceability of these items of wealth 
considered as factors of production.
Before going into the matter of intangible assets, it is necessary to speak 
further of the consequences which investment - and hence capitalization - has 
for the use and serviceability of (material) capital goods. It has commonly been 
assumed by economists, without much scrutiny, that the gains which accrue from 
invested wealth are derived from and (roughly) measured by the productivity of 
the industrial process in which the items of wealth so invested are employed, 
productivity being counted in some terms of material serviceability to the 
community, conduciveness to the livelihood, comfort, or consumptive needs of the 
community. In the course of the present inquiry it has appeared that the 
gainfulness of such invested wealth (tangible assets) is due to a more or less 
extensive engrossing of the community's industrial efficiency. The aggregate 
gains of the aggregate material [106] capital accrue from the community's 
industrial activity, and bear some relation to the productive capacity of the 
industrial traffic so engrossed. But it will be noted that them is no warrant in 
the analysis of these phenomena as here set forth for alleging that the gains of 
investment bear a relation of equality or proportion to the material 
serviceability of the capital goods, as rated in terms of effectual usefulness 
to the community. Given capital goods, tangible assets, may owe their pecuniary 
serviceability to their owner, and so their value, to other things than their 
serviceability to the community; altho the gains of investment in the aggregate 
are drawn from the aggregate material productivity of the community's industry.
The ownership of the material equipment gives the owner not only the right of 
use over the community's immaterial equipment, but also the right of abuse and 
of neglect or inhibition. This power of inhibition may be made to afford an 
income, as well as the power to serve; and whatever will yield an income may be 
capitalized and become an item of wealth to its possessor. Under modern 
conditions of investment it happens not infrequently that it becomes pecuniarily 
expedient for the owner of the material equipment to curtail or retard the 
processes of industry, - "restraint of trade." The motive in all such cases of 
retardation is the pecuniary expediency of the measure for the owner 
(controller) of capital, - expediency in terms of income from investment, not 
expediency in terms of serviceability to the community at large or to any 
fraction of the community except the owner (manager). Except for the exigencies 
of investment, i.e., exigencies of pecuniary gain to the investor, phenomena of 
this character would have no place in the industrial system. They invariably 
come of the endeavors of business men to secure a pecuniary gain or to avoid a 
pecuniary loss. More frequently, perhaps, manoeuvres of inhibi-[107]tion - 
advised idleness of plant - in industry aim to effect a saving or avoid a waste 
than to procure an increase of gain; but the saving to be effected and the waste 
to be avoided am always pecuniary saving to the owner and pecuniary waste in the 
matter of ownership, not a saving of goods to the community or a prevention of 
wasteful consumption or wasteful expenditure of effort and resources on the part 
of the community. Pecuniary - that is to say, differential - advantage to the 
capitalist-manager has, under the regime of investment, taken precedence of 
economic advantage to the community; or rather, the differential advantage of 
ownership is alone regarded in the conduct of industry under this system.
Business practises which inhibit industrial efficiency and curtail the 
industrial output are too well known to need particular enumeration. Nor is it 
necessary to cite evidence to show that such inhibition and curtailment am 
resorted to from motives of pecuniary expediency. But an illustrative example or 
two will make the theoretical point clearer, and perhaps more plainly bring out 
the wholly pecuniary grounds of such business procedure. The most comprehensive 
principle involved in this class of business management is that of raising 
prices, and so increasing the net gains of business, by limiting the supply, or 
"charging what the traffic will bear." Of a similar effect, for the point here 
in question, are the obstructive tactics designed to hinder the full efficiency 
of a business rival. These phenomena lie along the line of division between 
tangible and intangible assets. Successful strategy of this kind may, by force 
of custom, legislation, or the "freezing-out" of rival concerns, pass into 
settled conditions of differential advantage for the given business concern, 
which so may be capitalized as an item of intangible assets and take their place 
in the business community as articles of invested wealth.
[108] But, aside from such capitalization of inefficiency, it is at least an 
equally consequential fact that the processes of productive industry are 
governed in detail by the exigencies of investment, and therefore by the quest 
of gain as counted in terms of price, which leads to the dependence of 
production on the course of prices. So that, under the regime of capital, the 
community is unable to turn its knowledge of ways and means to account for a 
livelihood except at such seasons and in so far as the course of prices affords 
a differential advantage to the owners of the material equipment. The question 
of advantageous - which commonly means rising - prices for the owners (managers) 
of the capital goods is made to decide the question of livelihood for the rest 
of the community. The recurrence of hard times, unemployment, and the rest of 
that familiar range of phenomena, goes to show how effectual is the inhibition 
of industry exercised by the ownership of capital under the price system.(2*)
So also as regards the discretionary abuse of the community's industrial 
efficiency vested in the owner of the material equipment. Disserviceability may 
be capitalized as readily as serviceability, and the ownership of the capital 
goods affords a discretionary power of misdirecting the industrial processes and 
perverting(3*) industrial efficiency, as well as of inhibiting or curtailing 
industrial processes and their output, while the outcome may still be profitable 
to the owner of the capital goods. There is a large volume of capital goods 
whose value lies in their turning the technological inheritance to the injury of 
mankind. Such are, e.g., naval and military establishments, together with the 
docks, arsenals, schools, and manu-[109]factories of arms, ammunition, and naval 
and military stores, that supplement and supply such establishments. These 
armaments and the like are, of course, public and quasi-public enterprises, 
under the current regime, with somewhat disputable relations to the system of 
current business enterprise. But it is no far-fetched interpretation to say that 
they are, in great part, a material equipment for the maintenance of law and 
order, and so enable the owners of capital goods with immunity to inhibit or 
pervert the industrial processes when the exigencies of business profits make it 
expedient; that they are, further, a means - more or less ineffectual, it is 
true - for extending and protecting trade, and so serve the differential 
advantage of business men at the cost of the community; and that they are also 
in large part a material equipment set apart for the diversion of a livelihood 
from the community at large to the military, naval, diplomatic, and other 
official classes. These establishments may in any case be taken as illustrating 
how items of material equipment may be devoted to and may be valued for the use 
of the technological expedients for the damage and discomfort of mankind, 
without sensible offset or abatement.
Typical of a class of investments which derive profits from capital goods 
devoted to uses that are altogether dubious, with a large presumption of net 
detriment, are such establishments as race-tracks, saloons, gambling-houses, and 
houses of prostitution.(4*) Some spokesmen of [110] the "non-Christian tribes" 
might wish to include churches under the same category, but the consensus of 
opinion in modern communities inclines to look on churches as serviceable, on the 
whole; and it may be as well not to attempt to assign them a specific place in 
the scheme of serviceable and disserviceable use of invested wealth.
There is, further, a large field of business, employing much capital goods and 
many technological processes, whose profits come from products in which 
serviceability and disserviceability are mingled with waste in the most varying 
proportion. Such are the production of goods of fashion, disingenuous 
proprietary articles, sophisticated household supplies, newspapers and 
advertising enterprise. In the degree in which business of this class draws its 
profits from wasteful practises, spurious goods, illusions and delusions, 
skilled mendacity, and the like, the capital goods engaged must be said to owe 
their capitalizable value to a perverse use of the technological expedients 
employed.
These wasteful or disserviceable uses of capital goods have been cited, not as 
implying that the technological proficiency embodied in these goods or brought 
into effect in their use, intrinsically has a disserviceable bearing, nor that 
investment in these things, and business enterprise in the management of them, 
need aim at disserviceability, but only to bring out certain minor points of 
theory, obvious but commonly overlooked: (a) technological proficiency is not of 
itself and intrinsically serviceable or disserviceable to mankind, - it is only 
a means of efficiency for good or ill; (b) the enterprising use of capital goods 
by their businesslike owner aims not at [111] serviceability to the community, 
but only at serviceability to the owner; (c) under the price system - under the 
rule of pecuniary standards and management - circumstances make it advisable for 
the business man at times to mismanage the processes of industry, in the sense 
that it is expedient for his pecuniary gain to inhibit, curtail, or misdirect 
industry, and so turn the community's technological proficiency to the 
community's detriment. These somewhat commonplace points of theory are of no 
great weight in themselves, but they are of consequence for any theory of 
business or of life under the rules of the price system, and they have an 
immediate bearing hem on the question of intangible assets.
At the risk of some tedium it is necessary to the theory of intangible assets to 
pursue this analysis and piecing together of commonplaces somewhat farther. As 
has already been remarked, "assets" is a pecuniary concept, not a technological 
one; a concept of business, not of industry. Assets are capital, and tangible 
assets are items of material equipment and the like, considered as available for 
capitalization. The tangibility of tangible assets is a matter of the 
materiality of the items of wealth of which they are made up, while they are 
assets to the amount of their value. Capital goods, which typically make up the 
category of tangible assets, are capital goods by virtue of their technological 
serviceability, but they are capital in the measure, not of their technological 
serviceability, but in the measure of the income which they may yield to their 
owner. The like is, of course, true of intangible assets, which are likewise 
capital, or assets, in the measure of their income-yielding capacity. Their 
intangibility is a matter of the immateriality of the item of wealth - objects 
of ownership - of which they are made up, but their character and magnitude as 
assets is a matter [112] of the gainfulness to their owner of the processes 
which their ownership enables him to engross. The facts so engrossed, in the 
case of intangible assets, are not of a technological or industrial character; 
and herein lies the substantial disparity between tangible and intangible 
assets.
Mankind has other dealings with the material means of life, besides those 
covered by the community's technological proficiency. These other dealings have 
to do with the use, distribution, and consumption of the goods procured by the 
employment of the community's technological proficiency, and are carried out 
under working arrangements of an institutional character, - use and wont, law 
and custom. The principles and practise of the distribution of wealth vary with 
the changes in technology and with the other cultural changes that are going 
forward; but it is probably safe to assume that the principles of apportionment, 
- that is to say, the consensus of habbitual opinion as to what is right and good 
in the distribution of the product, - these principles and the concomitant 
methods of carrying them out in practise have always been such as to give one 
person or group or class something of a settled preference above another. 
Something of this kind, something in the way of a conventionally arranged 
differential advantage in the apportionment of the common livelihood, is to be 
found in all cultures and communities that have been observed at all carefully; 
and it is perhaps needless to remark that in the higher cultures such economic 
preferences, privileges, prerogatives, differential advantages and 
disadvantages, are numerous and varied, and that they make up an intricate 
fabric of economic institutions. Indeed, peculiarities of class difference in 
some such respect are among the most striking and decisive features that 
distinguish one cultural era from another. In all phases of material 
civilization these preferential advantages are sought and valued. Classes or 
groups which [113] are in a position to make good a claim to such differential 
advantages commonly come, in due course, to put forward such claims; as, e.g., 
the priesthood, the princely and ruling class, the men as contrasted with the 
women, the adults as against minors, the able-bodied as against the infirm. 
Principles (habits of thought) countenancing some form of class or personal 
preference in the distribution of income are to be found incorporated in the 
moral code of all known civilizations and embodied in some form of institution. 
Such items of immaterial wealth are of a differential character, in that the 
advantage of those who secure the preference is the disadvantage of those who do 
not; and it may be mentioned in passing, that such a differential advantage 
inuring to any one class or person commonly carries a more than equal 
disadvantage to some other class or person or to the community at large.(5*)
When property rights fall into definite shape and the price system comes in, and 
more particularly when the practise of investment arises and business enterprise 
comes into vogue, such differential advantages take on something of the 
character of intangible assets. They come to have a pecuniary value and rating, 
whether they are transferable or not; and if they are transferable, if they can 
be sold and delivered, they become assets in a fairly clear and full sense of 
that term. Such immaterial wealth, preferential benefits of the nature of 
intangible assets, may be a matter of usage simply, as the vogue of a given 
public house, or of a given tradesman, or of a given brand of consumable goods; 
or may be a matter of arrogation, as the King's Customs in early times, or [114] 
the once notorious Sound Dues, or the closing of public highways by large land-
owners; or of contractual concession, as the freedom of a city or a gild, or a 
franchise in the Hanseatic League or in the Associated Press; or of government 
concession, whether on the basis of a bargain or otherwise, as the many trade 
monopolies of early modern times, or a corporation charter, or a railway 
franchise, or letters of marque, or letters patent; or of statutory creation, as 
trade protection by import, export, or excise duties or navigation laws; or of 
conventionalized superstitious punctilio, as the creation of a demand for wax by 
the devoutly obligatory consumption of consecrated tapers, or the similar devout 
consumption of and demand for fish during Lent.
Under the régime of investment and business enterprise these and the like 
differential benefits may turn to the business advantage of a given class, 
group, or concern, and in such an event the resulting differential business 
advantage in the pursuit of gain becomes an asset, capitalized on the basis of 
its income-yielding capacity, and possibly vendible under the cover of a 
corporation security (as, e.g., common stock), or even under the usual form of 
private sale (as, e.g., the appraised good-will of a business concern).
But the régime of business enterprise has not only taken over various forms of 
institutional privileges and prerogatives out of the past: it also gives rise to 
new kinds of differential advantage and capitalizes them into intangible assets. 
These are all (or virtually all) of one kind, in that their common aim and 
common basis of value and capitalization is a preferentially advantageous sale. 
Naturally so, since the end of all business endeavor, in the last analysis, is 
an advantageous sale. The commonest and typical kind of such intangible assets 
is "good-will," so called, - a term which has come to cover a great variety 
[115] of differential business advantages, but which in the original business 
usage of it meant the customary resort of a clientèle to the concern so 
possessed of the good-will. It seems originally to have implied a kindly 
sentiment of trust and esteem on the part of a customer, but as the term is now 
used it has lost this sentimental content. In the broad and loose sense in which 
it is now currently employed it is extended to cover such special advantages as 
inure to a monopoly or a combination of business concerns through its power to 
limit or engross the supply of a given line of goods or services. So long as 
such a special advantage is not specifically protected by special legislation or 
by a due legal instrument, - as in the case of a franchise or a patent right, - 
it is likely to be spoken of loosely as "good-will."
The results of the analysis may be summed up to show the degree of coincidence 
and the distinctions between the two categories of assets: (a) the value (that 
is to say, the amount) of given assets, whether tangible or intangible, is the 
capitalized (or capitalizable) value of the given articles of wealth, rated on 
the basis of their income-yielding capacity to their owner; (b) in the case of 
tangible assets there is a presumption that the objects of wealth involved have 
some (at least potential) serviceability at large, since they serve a materially 
productive work, and there is therefore a presumption, more or less well 
founded, that their value represents, tho it by no means measures, an item of 
serviceability at large; (c) in the ease of intangible assets there is no 
presumption that the objects of wealth involved have any serviceability at 
large, since they serve no materially productive work, but only a differential 
advantage to the owner in the distribution of the industrial product;(6*) (d) 
given tangible assets may [116] be disserviceable to the community, - a given 
material equipment may owe its value as capital to a disserviceable use, tho in 
the aggregate or on an average the body of tangible assets are (presumptively) 
serviceable; (e) given intangible assets may be indifferent in respect of 
serviceability at large, tho in the aggregate, or on an average, intangible 
assets are (presumably) disserviceable to the community.
On this showing it would appear that the substantial difference between tangible 
and intangible assets lies in the different character of the immaterial facts 
which are turned to pecuniary account in the one ease and in the other. The 
former, in effect, capitalize such fraction of the technological proficiency of 
the community as the ownership of the capital goods involved enables the owner 
to engross. The latter capitalize such habits of life, of a non-technological 
character, - settled by usage, convention, arrogation, legislative action, or 
what not, - as will effect a differential advantage to the concern to which the 
assets in question appertain. The former owe their existence and magnitude to 
the usufruct of technological expedients involved in the industrial process 
proper; while the latter are in like manner due to the usufruct of what may be 
called the interstitial correlations and ad-[117]justments both within the 
industrial system and between industry proper and the market, in so far as these 
relations are of a pecuniary rather than a technological character. Much the 
same distinction may be put in other words, so as to bring the expression nearer 
the current popular apprehension of the matter, by saying that tangible assets, 
commonly so called, capitalize the processes of production, while intangible 
assets, so called, capitalize certain expedients and processes of acquisition, 
not productive of wealth, but affecting only its distribution. Formulated in 
either way, the distinction seems not to be an altogether hard-and-fast one, as 
will immediately appear if it is called to mind that intangible assets may be 
converted into tangible assets, and conversely, as the exigencies of business 
may decide. Yet, while the two categories of assets stand in such close relation 
to one another as this state of things presumes, it is still evident from the 
same state of things that they are not to be confounded with one another.
Taking "good-will" as typical of the category of "intangible assets," as being 
the most widely prevalent and at the same time the farthest removed in its 
characteristics from the range of "tangible assets," some slight further 
discussion of it may serve to bring out the difference between the two 
categories of assets and at the same time to enforce their essential congruity 
as assets as well as the substantial connection between them. In the earlier 
days of the concept, in the period of growth to which it owes its name, when 
good-will was coming into recognition as a factor affecting assets, it was 
apparently looked on habitually as an adventitious differential advantage 
accruing spontaneously to the business concern to which it appertained; an 
immaterial by-product of the concern's conduct of business, - commonly presumed 
to be an adventitious blessing incident to an upright and [118] humane course of 
business life. Poor Richard would express this sense of the matter in the saying 
that "honesty is the best policy." But presently, no doubt, some thought would 
be taken of the acquirement of good-wilt and some effort would be expended by 
the wise business man in that behalf. Goods would be given a more elegant finish 
for the sake of a readier sale, beyond what would conduce to their brute 
serviceability simply; smooth-spoken and obsequious salesmen and solicitors, 
gifted with a tactful effrontery, have come to be preferred to others, who, 
without these merits, may be possessed of all the diligence, dexterity, and 
muscular force required in their trade; something is expended on convincing, not 
to say vain-glorious, show-windows that shall promise something more than one 
would like to commit one's self to in words; itinerant agents, and the like, are 
employed at some expense to secure a clientèle; much thought and substance is 
spent on advertising of many kinds.
This last-named item may be taken as typical of the present stage of growth in 
the production or generation of good-will, and therefore in the creation of 
intangible assets. Advertising has come to be an important branch of business 
enterprise by itself, and it employs a large and varied array of material 
appliances and processes (tangible assets). Investment is made in certain 
material items (productive goods), such as printed matter, signboards, and the 
like, with a view to creating a certain body of good-will. The precise magnitude 
of the product may not be foreseen, but, if sagaciously made, such investment 
rarely fails of the effect aimed at - unless a business rival with even greater 
sagacity should outmanoeuvre and offset these endeavors with a superior array of 
appliances (productive goods) and workmen for the generation of good-will. The 
product aimed at, commonly with effect, is good-will, - an intangible asset, - 
which [119] may be considered to have been generated by converting certain 
tangible assets into this intangible; or it may be considered as an industrial 
product, the output of certain industrial processes in which the given items of 
material equipment are employed and give effect to the requisite technological 
proficiency. Whichever view be taken of the causal relation between the material 
equipment and processes employed, on the one hand, and the output of good-will, 
on the other hand, the result is substantially the same for the purpose in hand.
The ulterior end of the advertising is, it may be said, the sale of an increased 
quantity of the advertised articles, at an increased net gain; which would mean 
an increased value of the material items offered for sale; which, in turn, is 
the same as saying an increase of tangible assets. It may be assumed without 
debate that the end of business endeavor is a gain in final terms of tangible 
values. But this ulterior end is, in the ease of advertising enterprise, to be 
gained only by the intermediate step of a production of an immaterial item of 
good-will, an intangible asset.
So the case in illustration shows not only the conversion of tangible assets 
(material capital goods, such as printed matter) into intangible wealth, or, if 
that formula be preferred, the production of immaterial wealth by the productive 
use of material wealth, but also, conversely, in the second step of the process, 
it shows the conversion of intangible assets into tangible wealth (enhanced 
value of vendible goods), or, if the expression seems preferable, the production 
of tangible assets by the use of intangible wealth.
This creation of tangible wealth out of intangible assets is seen perhaps at its 
neatest in the enhancement of land values by the endeavors of interested 
parties. Real estate is, of course, a tangible asset of the most authentic 
tangibility, and it is an asset to the amount of its value, which is determined, 
say, by the figures at which the real estate [120] in question is currently 
bought and sold. This is the current value of the real estate, and therefore its 
current actual magnitude as a tangible asset. The value of the real estate might 
also be computed by capitalizing its rental value; but, where the current market 
value does not coincide with the capitalized rental value, the former must, 
according to business conceptions, be accepted as the actual value. In many 
parts of this country, perhaps in most, but particularly in the Western States 
and in the neighborhood of flourishing towns, these two methods of rating the 
pecuniary magnitude of real estate will habitually not coincide. Due allowance, 
often very considerable, being made, the capitalized rental value of the land 
may be taken as measuring its current serviceability as an item of material 
equipment; while the amount by which the market value of the land exceeds its 
capitalized rental value may be taken as the product, the tangible residue, of 
an intangible asset of the nature of good-will, turned to account, or 
"productively employed," in behalf of this parcel of land.(7*)
Some of the lands of California may be taken as a very good, tho perhaps not an 
extreme, example of such a creation of real estate by spiritual 
instrumentalities. It is probably well within the mark to say that some of these 
lands owe not more than one-half their current market value to their current 
serviceability as an instrument of production or use. The excess may be 
attributable to illusions touching the chances of future sale, to anticipation 
of a prospective enhanced usefulness, and the like; but all these are immaterial 
factors, of the nature of good-[121] will. Like other assets, these lands are 
capitalized on the basis of the anticipated income from them, part of which 
income is anticipated from profitable sales to persons who, it is hoped, will be 
persuaded to take a very sanguine view of the land situation, while part of it 
may be due to over-sanguine anticipations of usefulness generated by the 
advertising matter and the efforts of the land agents directed to what is called 
"developing the country."
To any one preoccupied with the conceit that "capital" means "capital goods" 
such a conversion of intangible into tangible goods, or such a generation of 
intangible assets by the productive use of tangible assets, might be something 
of a puzzle. If "assets" were a physical concept, covering a range of physical 
things, instead of a pecuniary concept, such conversion of tangible into 
intangible assets, and conversely, would be a case of transubstantiation. But 
there is nothing miraculous in the matter. "Assets" are a pecuniary magnitude, 
and belong among the facts of investment. Except in relation to investment the 
items of wealth involved are not assets. In other words, assets are a matter of 
capitalization, which is a special case of valuation; and the question of 
tangibility or intangibility as regards a given parcel of assets is a question 
what article or class of articles the valuation shall attach to or be imputed 
to. If, e.g., the fact to which value is imputed in the valuation is the 
habitual demand for a given article of merchandise, or the habitual resort of a 
given group of customers to a particular shop or merchant, or a monopolistic 
control or limitation of price and supply, then the resulting item of assets 
will be "intangible," since the object to which the capitalized value in 
question is imputed is an immaterial object. If the fact which is by imputation 
made the bearer of the capitalized value is a material object, as, e.g., the 
merchantable goods of which the supply is arbitrarily limited or the price 
arbitrarily fixed, [122] or if it is the material means of supplying such goods, 
then the capitalized value in question is a case of tangible assets. The value 
involved is, like all value, a matter of imputation, and as assets it is a 
matter of capitalization; but capitalization is an appraisement of a pecuniary 
"income-stream" in terms of the vendible objects to the ownership of which the 
income is assumed to inure. To what object the capitalized value of the "income-
stream" shall be imputed is a question of what object of ownership secures to 
the owner an effectual claim on this "income-stream"; that is to say, it is a 
question of what object of ownership the strategic advantage is assumed to 
attach to, which is a question of the play of business exigencies in the given 
case.
The "income-stream" in question is a pecuniary income stream, and is in the last 
resort traceable to transactions of sale. Within the confines of business - and 
therefore within the scope of capital, investments, assets, and the like 
business concepts - transactions of purchase and sale are the final terms of any 
analysis. But beyond these confines, comprehending and conditioning the business 
system, lie the material facts of the community's work and livelihood. In the 
final transaction of sale the merchantable goods are valued by the consumer, not 
as assets, but as livelihood;(8*) and in the last analysis and long run it is to 
some such transaction that all business imputations of value and capitalistic 
appraisement of assets must have regard and by which they must finally be 
checked. Dissociated from the facts of work and livelihood, therefore, assets 
cease to be assets; but this does not preclude their relation to these facts of 
work and livelihood being at times somewhat remote and loose.
[123] Without recourse, immediately or remotely, to certain material facts of 
industrial process and equipment, assets would not yield earnings; that is to 
say, wholly disjoined from these material facts, they would in effect not be 
assets. This is true for both tangible and intangible assets, altho the relation 
of the assets to the material facts of industry is not the same in the two 
cases. The case of tangible assets needs no argument. Intangible assets, such as 
patent right or monopolistic control, are likewise of no effect except in 
effectual contact with industrial facts. The patent right becomes effective for 
the purpose only in the material working of the innovation covered by it; and 
monopolistic control is a source of gain only in so far as it effectually 
modifies or divides the supply of goods.
In the light of these considerations it seems feasible to indicate both the 
congruence and the distinction between the two categories of assets a little 
more narrowly than was done above. Both are assets, - that is to say, both are 
values determined by a capitalization of anticipated income-yielding capacity; 
both depend for their income-yielding capacity on the preferential use of 
certain immaterial factors; both depend for their efficiency on the use of 
certain material objects; both may increase or decrease, as assets, apart from 
any increase or decrease of the material objects involved. The tangible assets 
capitalize the preferential use of technological, industrial expedients, - 
expedients of production, dealing with the facts of brute nature under the laws 
of physical cause and effect, - this preferential use being secured by the 
ownership of material articles employed in the processes in which these 
expedients are put into effect. The intangible assets capitalize the 
preferential use of certain facts of human nature - habits, propensities, 
beliefs, aspirations, necessities - to be dealt with under the psychological 
laws of human motivation; this preferential use being secured by [124] custom, 
as in the case of old-fashioned good-will, by legal assignment, as in patent or 
copyright, by ownership of the instruments of production, as in the case of 
industrial monopolies.(9*)
Intangible assets are capital as well as tangible assets; that is to say, they 
are items of capitalized wealth. Both categories of assets, therefore, represent 
expected "income-streams" which are of such definite character as to admit of 
their being rated in set terms per cent. per time unit; altho the expected 
income need not therefore be anticipated to come in an even flow or to be 
distributed in any equable manner over a period of time. The income-streams to 
be so rated and capitalized are associated in such a manner with some external 
fact (impersonal to their claimant), whether material or immaterial, as to 
permit their being traced or attributed to an income-yielding capacity on the 
part of this external fact, to which their valuation as a whole may be imputed 
and which may then be capitalized as an item of wealth yielding this income-
stream. Income-streams which do not meet these requirements do not give rise to 
assets, and so do not swell the volume of capitalized wealth.
There are income-streams which do not meet the necessary specifications of 
capitalizable wealth; and in modern business traffic, particularly, there are 
large and secure sources of income that are in this way not capitalizable and 
yet yield a legitimate business income. Such are, indeed, to be rated among the 
most consequential factors in the current business situation. Under the guidance 
of traditions carried over from a more primitive business [125] situation, it 
has been usual to speak of income-streams derived in such a manner as "wages of 
superintendence," or "undertaker's wages," or "entrepreneur's profits," or, 
latterly, as "profits" simply and specifically. Such phenomena of this class as 
are of consequence in business are commonly accounted for, theoretically, under 
this head; and the effort so to account for them is to be taken as, at least, a 
laudable endeavor to avoid an undue multiplication of technical terms and 
categories.(10*) Yet the most striking phenomena of this class, and the most 
consequential for modern business and industry, both in respect of their 
magnitude and in respect of the pecuniary dominion and discretion which they 
represent, cannot well be accounted undertaker's gains, in the ordinary sense of 
that term. The great gains of the great industrial financiers or of the great 
"interests," e.g., do not answer the description of undertaker's gains, in that 
they do not accrue to the captain of industry on the basis of his "managerial 
ability" alone, apart from his wealth or out of relation to his wealth; and yet 
it is not safe to say that such gains (which are over and above ordinary returns 
on his investments) accrue on the ground of the requisite amount of wealth 
alone, apart from the exercise of a large business discretion on the part of the 
owner of such wealth or on the part of his agent to whom discretion has been 
delegated. Administrative, or strategic, discretion and activity must 
necessarily be present in the case: otherwise, the income in question would 
rightly be rated as income from capital simply.
The captain of industry, the pecuniary magnate, is normally in receipt of income 
in excess of the ordinary [126] rate per cent. on investment; but apart from his 
large holdings he is not in a position to get those large gains. Dissociated 
from his large holdings, he is not a large captain of industry; but it is not 
the size of his holdings alone that determines what the gains of the pecuniary 
magnate in modern industry shall be. Gains of the kind and magnitude that 
currently come to this class of business men come only on condition that the 
owner (or his agent) shall exercise a similarly large discretion and control in 
the affairs of the business community; but the magnitude of the gains, as well 
as of the discretion and control exercised, is somewhat definitely conditioned 
by the magnitude of the wealth which gives effect to this discretion.
The disposition of pecuniary forces in such matters may be well seen in the work 
and remuneration of any coalition of "interests," such as the modern business 
community has become familiar with. The "interests" in such a case are of a 
personal character, - they are "interested parties," - and the sagacity, 
experience, and animus of these various interested parties counts in the 
outcome, both as regards the aggregate gains of the coalition and as regards the 
distribution of these gains among the several parties in interest; but the 
weight of any given "interest " in a coalition or "system" is more nearly 
proportioned to the wealth controlled by the given "interest," and to the 
strategic position of such wealth, than to any personal talents or proficiency 
of the "interested party." The talents and proficiency involved are not the main 
facts. Indeed, the movements of such a "system," and of the several component 
"interests," are largely a matter of artless routine, in which the greatest 
ingenuity and initiative engaged in the premises are commonly exercised by the 
legal counsel working for a fee.
A dispassionate student of the current business traffic, who is not overawed by 
round numbers, will be more im-[127]pressed by the ease and simplicity of the 
manoeuvres that lead to large pecuniary results in the higher business finance 
than by any evidence of pre-eminent sagacity and initiative among the pecuniary 
magnates. One need only call to mind the simple and obvious way in which the 
promoters of the Steel Corporation were magnificently checkmated by the 
financiers of the Carnegie "interest," when that great and reluctant corporation 
was floated, or the pettyfogging tactics of Standard Oil in its later career. In 
extenuation of their visible lack of initiative and insight it may not be 
ungraceful to call to mind that many of the discretionary heads of the great 
"interests" are men of advanced years, and that in the nature of the case the 
pecuniary magnates of the present generation must commonly be men of a somewhat 
advanced age; and it is only during the present generation that the existing 
situation has arisen, with its characteristic opportunities and demands. To take 
their present foremost rank in the new business finance which is here under 
inquiry, they have had to accumulate the great wealth on which alone their 
discretionary control of business affairs rests, and their best vigor has been 
spent in this work of preparation; so that they have commonly attained the 
requisite strategic position only after they had outlived their "years of 
discretion."
But there is no intention here to depreciate the work of the pecuniary magnates 
or the spokesmen of the great "interests." The matter has been referred to only 
as it bears on this category of capitalistic income which accrues on other 
ground than the "earning-capacity" of the assets involved, and which still 
cannot be imputed to the "earning-capacity" of these business men apart from 
these assets. The case is evidently not one of "wages of superintendence" or 
"undertaker's profits"; but it is as evidently not a ease of the earning-capacity 
of the [128] assets. The proof of the latter point is quite as easy as 
of the former. If the gains of the "system" or of its constituent "interests" 
and magnates were imputable to the earning-capacity of the assets involved, - in 
any accepted sense of "earnings," - then it would immediately follow that those 
assets would be recapitalized on the basis of these extraordinary earnings, and 
that the income derived in this class of traffic should reappear as interest or 
dividends on the capital so increased to correspond with the increased earnings. 
But such recapitalization takes place only to a relatively very limited extent, 
and the question then bears on the income which is not so accounted for in the 
recapitalization.
The gains of this class of traffic are, of course, themselves capitalized, - for 
the most part they accrue in the capitalized form, as issues of securities and 
the like; but the sources of this income are not capitalized as such. The 
(large) accumulated wealth, or assets, which gives weight to the movements of 
the "interests" and magnates in question, and which affords the ground for the 
discretionary control of business affairs exercised by them, are, for the most 
part at least, invested in ordinary business ventures, in the form of 
corporation securities and the like, and are there earning dividends or interest 
at current rates; and these assets are valued in the market (and thereby 
capitalized) on the basis of their current earnings in the various enterprises 
in which they are so invested. But their being so invested in profitable 
business enterprises does not in the least hinder their usefulness in the hands 
of the magnates as a basis or means of carrying on the large and highly 
profitable transactions of the higher industrial finance. To impute these gains 
to those assets as "earnings," therefore, would be to count the assets twice as 
capital, or rather to count them over and over.
[129] An additional perplexity in endeavoring to handle gains of this class 
theoretically as earnings, in the ordinary sense, arises from the fact that they 
stand in no definable time relation to their underlying assets. They have no 
definable "time-shape," as Mr. Fisher might put it.(11*) Such gains am timeless, 
in the sense that the time relation does not count in any substantial manner or 
in any sensible degree in their determination.(12*)
In a more painstaking statement of this point of theory it would be necessary to 
note that these gains are "timeless," in the sense indicated, in so far as the 
enterprise from which they accrue is dissociated from the technological 
circumstances and processes of industry, and only in so far. Technological 
(industrial) procedure, being of the nature of physical causation, is subject to 
the time relation under which causal sequence runs. This is the basis of such 
discussions of capital and interest as those of Böhm-Bawerk, and of Fisher. But 
business traffic, as distinguished from the processes of industry, being not 
immediately concerned with the technological process, is also not immediately or 
uniformly subject to the time relation involved in the causal sequence of the 
technological process. Business traffic is subject to the time relation because 
and in so far as it depends upon and follows up the processes of production. The 
commonplace or old-fashioned business enterprise, the competitive system of 
investment in industrial business simply, commonly rests pretty directly on the 
due sequence of the industrial processes in which the investments of such 
enterprise are placed. Such enterprise, as conceived by the current theories of 
capital, does business at first hand [130] in the industrial efficiency of the 
community, which is conditioned by the time relation of the causal sequence, and 
which is, indeed, in great measure a function of the time consumed in the 
technological processes. Therefore, the gains, as well as the transactions, of 
such enterprise are also commonly somewhat closely conditioned by the like time 
relation, and they typically emerge under the form of a per cent. per time unit; 
that is to say, as a function of the lapse of time. Yet the business 
transactions themselves are not a matter of the lapse of time. Time is not of 
the essence of the case. The magnitude of a pecuniary transaction is not a 
function of the time consumed in concluding it, nor are the gains which accrue 
from the transaction. In business enterprise on the higher plane, which is here 
under inquiry, the relation of the transactions, and of their gains, to the 
consecution of the technological processes remotely underlying them is distant, 
loose, and uncertain, so that the time element here does not obtrude itself: 
rather, it somewhat obviously falls into abeyance, marking the degree of its 
remoteness. Yet this phase of business enterprise, like any other, of course 
takes place in time; and, it is also to be remarked, the volume of the traffic 
and the gains derived from it are, no doubt, somewhat closely conditioned in the 
long run by the time relation which dominates that technological (industrial) 
efficiency on which this enterprise, too, ultimately and indirectly rests and 
from which in the last resort its gains are finally drawn, however remotely and 
indirectly.
An analysis of these phenomena on lines similar to those which have been 
followed in the discussion of assets above is not without difficulty, nor can it 
fairly be expected to yield any but tentative and provisional results. The 
matter has received so little attention from economic theoreticians that even 
significant mistakes in this con-[131]nection are of very rare occurrence.(13*) 
The cause of this scant attention to these matters lies, no doubt, in the 
relative novelty of the facts in question. The facts may be roughly drawn 
together under the caption "Traffic in Vendible Capital"; altho that term serves 
rather as a comprehensive designation of the class of business enterprise from 
which these gains accrue than as an adequate characterization of the play of 
forces involved.(14*) Traffic in vendible capital has not been unknown in the 
past, but it is only recently that it has come into the foreground as the most 
important line of business enterprise. Such it now is, in that it is in this 
traffic that the ultimate initiative and discretion in business are now to be 
found. It is at the same time the most gainful of business enterprise, not only 
in absolute terms, but relatively to the magnitude of the assets involved as 
well. One reason for this superior gainfulness is the fact that the assets 
involved in this traffic are at the same time engaged as assets to their full 
extent in ordinary business, so that the peculiar gains of this traffic, are of 
the nature of a bonus above the earnings of the invested wealth. "It is like 
finding money."
As was said above, the method, or the ways and means, characteristic of this 
superior business enterprise is a traffic in vendible capital. The wealth gained 
in this field is commonly in the capitalized form, and constitutes in each 
transaction or "deal," a deduction or abstraction from the capitalized wealth of 
the business commonly in favor of the magnates or "interests" to whom the gains 
accrue. Its proximate aim is a transfer of capital-[132]ized wealth from other 
capitalists to those who so gain. This transfer or abstraction of capitalized 
wealth from the former owners is commonly effected by all augmentation of the 
nominal capital, based on a (transient) advantage inuring to the particular 
concerns whose capitalization is so augmented.(15*) Any such increase of the 
community's aggregate capitalization, without a corresponding increase of the 
material wealth on which the capitalization is based, involves, of course, in 
effect a redistribution of the aggregate capitalized wealth; and in this 
redistribution the great financiers are in a position to gain. The gains in 
question, it will be seen, come out of the business community, out of invested 
wealth, and only remotely and indirectly out of the community at large from 
which the business community draws its income. These gains, therefore, we a tax 
on commonplace business enterprise, in much the same manner and with much the 
like effect as the gains of commonplace business (ordinary profits and interest) 
are a tax on industry.(16*)
In a manner analogous to the old-fashioned capitalist-employer's engrossing of 
the industrial community's technological efficiency does the modern pecuniary 
magnate engross the business community's capitalistic efficiency. This 
capitalistic efficiency lies in the capitalist-employer's ability - by force of 
the ownership of the material equipment - to induce the industrial community, 
through suitable bargaining, to turn over to the owner of the material equipment 
the excess of the product above the industrial [133] community's livelihood. The 
fortunes of the capitalist-employer are closely dependent on the run of the 
market, - the conjunctures of advantageous purchase and sale; and it is his 
constant endeavor to create or gain for himself some peculiar degree of 
advantage in the market, in the way of monopoly, good-will, legalized privilege, 
and the like, - something in the way of intangible assets. But the pecuniary 
magnate, in the measure in which he truly answers to the concept, is superior to 
the market on which the capitalist-employer depends, and can make or mar its 
conjunctures of advantageous purchase and sale of goods; that is to say, he is 
in a position to make or mar any peculiar advantage possessed by the given 
capitalist-employer who comes in his way. He does this by force of his large 
holdings of capital at large, the weight of which he can shift from one point of 
investment to another as the relative efficiency - earning-capacity - of one and 
another line of investment may make it expedient; and at each move of this kind, 
in so far as it is effective for his ends, he cuts into and assimilates a 
fraction of the invested wealth involved, in that he cuts into and sequesters a 
fraction of the capital's earning-capacity in the given line. That is to say, in 
the measure in which he is a pecuniary magnate, and not simply a capitalist-
employer, he engrosses the capitalistic efficiency of invested wealth; he turns 
to his own account the capitalist-employer's effectual engrossing of the 
community's industrial efficiency. He engrosses the community's pecuniary 
initiative and proficiency. In the measure, therefore, in which this relatively 
new-found serviceability of extraordinarily large wealth is effective for its 
peculiar business function, the old-fashioned capitalist-employer loses his 
discretionary initiative and becomes a mediator, an instrumentality of 
extraction and transmission, a collector and conveyer of revenue from the 
community at large to the pecuniary [134] magnate, who, in the ideal case, 
should leave him only such an allowance out of the gross earnings collected and 
transmitted as will induce him to continue in business.
To the community at large, whose industrial efficiency is already virtually 
engrossed by the capitalist-employer's ownership and control of the material 
equipment, this later step in the evolution of the economic situation should 
apparently not be a matter of substantial consequence or a matter for 
sentimental disturbance. On the face of it, it should appear to have little more 
than a speculative interest for those classes of the community who do not derive 
an income from investments; particularly not for the working classes, who own 
nothing to speak of and whose only dependence is their technological efficiency, 
which has virtually ceased to be their own. But such is not the current state of 
sentiment. This inchoate new phase of capitalism, this business enterprise on 
the higher plane, is in fact viewed with the most lively apprehension. In a maze 
of consternation and solicitude the boldest, wisest, most public-spirited, most 
illustrious gentlemen of our time are spending their manhood in an endeavor to 
make the hen continue sitting on the nest after the chickens are out of the 
shell. The modern community is imbued with business principles - of the old 
dispensation. By precept and example, men have learned that the business 
interests (of the authentic superannuated scale and kind) are the palladium of 
our civilization, as Mr. Dooley would say; and it is felt that any disturbance 
of the existing pecuniary dominion of the capitalist-employer - as contrasted 
with the pecuniary magnate - would involve the well-being of the community in 
one common agony of desolation.
The merits of this perturbation, or of the remedies proposed for saving the 
pecuniary life of the old-fashioned capitalist-employer, of course do not 
concern the present [135] inquiry; but the matter has been referred to here as 
evidence that the pecuniary magnate's work, and the dominion which his 
extraordinarily large wealth gives him, are, in effect, substantially a new 
phase of the economic development, and that these phenomena are distastefully 
unfamiliar and are felt to be consequential enough to threaten the received 
institutional structure. That is to say, it is felt to be a new phase of 
business enterprise, - distasteful to those who stand to lose by it.
The basis of this business enterprise on the higher plane is capital-at-large, 
as distinguished from capital invested in a given line of industrial enterprise, 
and it becomes effective when wealth has accumulated in holdings sufficiently 
large to give the holder (or combination of holders, the "system") a controlling 
weight in any group or ramification of business interests into which he may 
throw his weight by judicious investment (or by underwriting and the like). The 
pecuniary magnate must be able effectually to engross the pecuniary initiative 
and the business opportunities on which such a section or ramification of the 
business community depends for its ordinary gains. How large a proportion of the 
business community's capital is needed for such an effectual engrossing of its 
capitalistic efficiency, in any given bearing, is a question that cannot be 
answered in anything like absolute terms, or even in relative terms of a 
satisfactorily definite kind. It is, of course, evident that a relatively large 
disposable body of capital is needed for such a purpose; and it is also evident, 
from the current facts of business, that the body of capital so disposed of need 
not amount to a majority, or anything near a majority, of the investments 
involved, - at least not at the present relatively inchoate phase of this larger 
business enterprise. The larger the holdings of the magnate, the more effectual 
and expeditious will be his work of absorbing the holdings of the smaller [136] 
capitalist-employer, and the more precipitately will the latter yield his assets 
to the new claimant.
Evidently, this work of the pecuniary magnate, bears a great resemblance to the 
creation of intangible assets under the ordinary competitive system. This is, no 
doubt, the point of its nearest relation to the current capitalistic enterprise. 
But, as has already been indicated above, it cannot be said that the magnate's 
peculiar work is the creation of intangible, or other assets, altho there is 
commonly some recapitalization involved in his manoeuvres, and altho his gains 
commonly come as assets, i.e., in the capitalized form. Nor can it, as has also 
been indicated above, be said that the wealth which serves him as the means of 
his peculiar enterprise stands in the relation of assets to this enterprise or 
to the gains in question, since this wealth already stands in an exhaustive 
relation as assets to some corporate enterprise in ordinary business and to the 
corresponding items of interest and dividends. It may, of course, be contended 
that the present state of things on this higher plane of enterprise is transient 
and transitional only, and that in the settled condition which may conceivably 
supervene the magnate's relation to business at large will be capitalized in 
some form of intangible assets, after the manner in which the monopoly advantage 
of an ordinary "trust" is now capitalized. But this is at the best only a 
surmise, guided by inapplicable generalizations drawn from a past situation in 
which this higher enterprise has not engrossed the pecuniary initiative and 
played the ruling part.
THORSTEIN VEBLEN.
STANFORD UNIVERSITY.

NOTES:
1) See this Journal for August 1908. By an oversight the sub-title of the 
earlier section was omitted. It should have read "The Productivity of Capital 
Goods."
2) For the concretion between prices and prosperity, hard times, unemployment, 
etc, see The Theory of Business Enterprise, chap. vii (pp. 185-252, especially, 
196-212).
3) By "perversion" is here meant such disposition of the industrial forces as 
entails a net waste or detriment to the community's livelihood.
4) Should the connection at this point with the main argument of the paper as 
set forth in the earlier section seem doubtful or obscure, it may be called to 
mind that these dubious enterprises in dissipation are cases of investment for a 
profit, and that the "capital goods" engaged are invested wealth yielding an 
income, but that they yield an income only on the fulfilment of two conditions 
(a) the possession and employment of these capital goods enables their holder to 
turn to account the common stock of technological proficiency, in those bearings 
in which it may be of use in his enterprise; and (b) as limited amount of wealth 
available for the purpose enables their holder to "engross" the usufruct of such 
a fraction of the common stock of technological proficiency, in the degree 
determined by this limitation of the amount available. In so far, these 
enterprises are like any other industrial enterprise, but beyond this they have 
the peculiarity that they do not, or need not, even ostensibly, turn the current 
knowledge and use of ways and means to "productive" account for the community at 
large, but simply take their stand on the (institutionally sacred) "accomplished 
fact" of invested wealth. They have less of the fog of apology about them than 
the common run of business enterprise.
5) This statement may not seem clear without indicating in a more concrete 
manner some terms in which to measure the relative differential advantage and 
disadvantage which so emerge in such a case of prerogative or privilege. Where, 
as in the earlier non-pecuniary phases of culture, no price test is applicable, 
the statement in the text may be taken to mean that the differential 
disadvantage at the cost of which the differential benefit in question is gained 
is greater than the beneficiary would be willing to undergo in order to procure 
this benefit.
6) A doubt has been offered as to the applicability of this characterization to 
such intangible assets as a patent right and other items of the same class. The 
doubt seems to arise from a misapprehension of the analysis and of its 
intention. It should be remarked that there is no intention to condemn or 
disapprove any of the items here spoken of as intangible assets. The patent 
right may be justifiable or it may not - there is no call to discuss that 
question here. Other intangible assets are in the same case in this respect.
Further, as to the character of a patent right considered as an asset. The 
invention or innovation covered by the patent right is a contribution to the 
common stock of technological proficiency. It may be (immediately) serviceable 
to the community at large, or it may not; - e.g., a cash register, a bank-
check punch, a street-car fare register, a burglar-proof safe and the like are 
of no immediate service to the community at large, but serve only a pecuniary 
use to their users. But, whether the innovation is useful or not, the patent 
right, as an asset, has no (immediate) usefulness at large, since its essence is 
the restriction of the usufruct of the innovation to the patentee. Immediately 
and directly the patent right must be considered a detriment to the community at 
large, since its purport is to prevent the community from making use of the 
patented innovation, whatever may be its ulterior beneficial effects or its 
ethical justification.
7) Neither as a physical magnitude ("land") nor as a pecuniary magnitude ("real 
estate") is the capitalized land in question an item of "good-will"; but ist 
value as real estate, i. e., its magnitude as an asset - is in part a product of 
the "good-will" (illusions and the like) worked up in ist behalf and turned to 
account, by the land agent. The real estate is a tangible asset, an item of 
material wealth, while the "good-will" to which in part it owes ist magnitude as 
an item of wealth is an intangible asset, an item of immaterial wealth.
8) "Livelihood" is, of course, here taken in a loose sense, not as denoting the 
means of subsistence simply or even the means of physical comfort, but as 
signifying that the purchases in question are made with a view to the 
consumptive use of the goods rather than with a view to their use for a profit.
9) The instruments of production so monopolized are, of course, tangible assets, 
but the ownership of such means of production in amount sufficient to enable the 
owner to monopolize or control the market, whether for purchase (as of materials 
or labor) or for sale (as of marketable goods or services), gives rise to a 
differential business advantage which is to be classed as intangible assets.
10) One writer even goes so far in the endeavor to bring the facts within the 
scope of  the staple concepts of theory at this point as to rate the persons 
concerned in such a case as "capital," after having satisfied himself that much 
income-streams are traceable to a personal source - See Fisher, Nature of 
Capital and Income, chap. v.
11) Cf. Fisher, Rate of Interest, chap. vi.
12) This conclusion is reached, e.g., by Mr. G. P. Watkins (The Growth of Large 
Fortunes, chap. iii, sec. 10), altho, through a curious etymological 
misapprehension he rejects the term "timeless" as not available.
13) Even Mr. Watkins (as cited above), e.g., is led by a superficial 
generalization to class these gains as "speculative," and so to excuse himself 
from a closer acquaintance with their character and with the bearings of tho 
class of business enterprise out of which they arise.
14) Cf. Theory of Business Enterprise, chap v., pp. 119-130; chap. vi, pp. 162-
174.
15) Cf. Theory of Business Enterprise, footnote on pp. 169-170.
16) As should be evident from the run of the argument in the earlier portions of 
this paper, the use of the words "tax," "deduction," "abstraction," in this 
connection, is not to be taken as implying approval or disapproval of the 
phenomena, so characterized. The words are used for want of better terms to 
indicate the source of business gains, and objectively to characterize the 
relation of give-and-take between industry and ordinary capitalistic business, 
on the one hand, and between ordinary business and this business enterprise on 
the higher plane, on the other hand.
--- End of part 2---