Review of Veblen's 'The use of loan credit in modern business',
by A[lgie] M[artin] Simons
Chicago, Ill., University of Chicago Press, 1903, 22 p. - From: Decennial 
publications of the University of Chicago. First series (Chicago, Ill.), vol. 
4, p.31-50,

The International Socialist Review, A Monthly Journal Of International 
Socialist Thought, (Chicago: Kerr), vol. IV (July, 1903 - June, 1904)

The International Socialist Review, vol. IV, No. 4, (Oct., 1903), pp. 250-251
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[250] Loan Credit in Modern Business, by Thorstein B. Veblen. Reprinted [251] 
from Vol. IV., of the Decennial Publications of the University of Chicago. 
Folio. paper, 22 pp.

It is always difficult in Professor Veblen's work to determine in just how 
far he is poking fun at the orthodox political economist. He announces in 
regard to this study that "the subject of this inquiry is the resort to 
credit as an expedient in the quest of profits." He shows that competition 
forces every capitalist to increase the size of the business turnover by the 
use of as great credit as possible. This was originally done by loans and 
current bills. When these could not be met they were said to be "excessive." 
If these cases included a large number of firms, the resulting liquidation 
became a crisis.

Professor Veblen points out that the only canon of judgment to determine 
whether credit was "excessive" was whether the debtor became bankrupt or not.

With modern corporations this credit extension is pushed to its fullest limit 
at the time of the organization of the company, instead of being a process 
drawn out through many years. Or, as he puts it, to be "carried out 
thoroughly it places virtually the entire capital, comprising the whole of 
the material equipment, on a credit basis. Stock being issued by the use of 
funds, such funds as may be needed 'to pay for printing', a road will be 
built, or an industrial plant established, by the use of funds draws from the 
sale of bonds; preferred stock or similar debentures will then be issued, 
commonly of various denominations, to the full amount that the property will 
bear, and not infrequently somewhat in excess of what the property will 
bear." [Italics ' ours.]

One cannot but think that Professor Veblen must have smiled when he wrote 
such a paragraph as this: "In the ideal case, where a corporation is financed 
with 'due perspicacity', there will be but an inappreciable proportion of the 
market value of the company's good will left uncovered by debentures."

In a note he casts some rather suggestive remarks at "the student who harks 
back to archaic methods for a norm of what capitalism should be." He shows 
that once a corporation is financed by this method, it is easy to clear out 
the holders of "excessive credit" and in this way the trust maker is in some 
respects a substitute for a commercial crisis.

The whole essay, however, is certainly the most keen analysis of modern trust 
financiering that has ever been published, and will repay reading to any 
student of this phase of industry.
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