Good judgment of the money market often is as vital as judg ment of the market for the particular product. In some of the largest corporate enterprises this quality becomes the most essential, so that financial "influence," consisting of personal or official relations with large financial institutions, comes to outweigh in importance most other qualities of management. This is in part the explanation both of the growth and of the evil of "interlocking directorates." A similar power to get special privileges and opportunities from national, state, and city legislatures, in the form of favoring tariffs or of public franchises, is important for the success of some business enter prises, and this often fosters an evil conspiracy between bad politics and big business.
§ 7. Profit-seeking borrowers and the rate of interest. The enterpriser (and his agent, the manager) is essentially a profit-seeking (so-called productive) borrower. He does not borrow in order to enjoy more in the present in exchange for the future. He borrows to earn more in the present, to spend when he pleases, which may or may not be now. The money which he borrows to invest in business he uses to get better machinery or a larger stock, with which to secure a better or a larger product. The product finally being sold at a profit, the enterpriser is at a point where he can spend without en croaching upon his capital. The consumer of the product pays (or is expected to pay) the interest included in the price, and the final consumer's payment for enjoyment must be deemed the logical source of the money interest. The business loan is made in view of the rate of interest, of the market price of the goods in which the loan will be reinvested, and of the probable chances for earning profits in the business.
/ Evidently the price of these goods, to control which is the real object of the loan, is a general market-price reflection of their earning power. It is merely the sum of the expected prices they will yield, capitalized at the prevailing rate of time-premium. But earning power in whose hands? Not in everybody's, for the price of the factors can be recovered in the price of the product only when they are applied to certain uses. (Whoever buys anything to use and sell again, is ven turing his judgment that he can make at least as much in the future as the market-price reflects, and possibly more. /Ile borrower expects either to make these particular goods earn incomes larger than those on the basis of which they have been capitalized, or to transfer them to an economy where goods are capitalized at a higher rate than he is paying. The income
yielded by these goods, if the borrower's expectation is ful filled, is but the difference between present and future prices that has been wrapped up in their capitalization. As time elapses and the incomes emerge in wisely chosen investments, the borrower has a surplus large enough to pay the contract interest. It appears, therefore, that the motive of the bor rower is to get control of future incomes, at prices that al ready involve, in their capitalization, a discount of the future uses, as he sees them, somewhat greater than the interest he contracts to pay.
§ 8. Buying materials and labor. The large classes of goods which are to be bought are equipment, materials, and labor. In the main the prices of these things are determined by impersonal forces and can be only slightly modified by a particular buyer. This is especially true in the case of many staple goods. The manager can but look upon the price of these materials as fixed, and seek to combine them as eco nomically as possible into other products. But there are many special patterns and qualities which have no true market price. By close attention, good judgment, skilful bargaining, one man may be able to buy slightly cheaper than his com petitors, and thus have an advantage over them at the outset. When he does this, it is usually by searching out a better market in which to buy, buying at a better time, and judging better than his competitors the quality of the goods.
Failure to have merchandise in stock when called for, and every needed material in stock to fill orders in manufacture, is an occasion of great loss. On the other hand, keeping more than is needed is a useless cost. The ability to buy cheap de pends largely on being able to use a large quantity, sparing the seller in this way certain usual costs, and reducing the costs of transportation by economies in large shipments. But buying more than can be used within a short time causes costs for storing, insuring, etc., loss by deterioration, and loss of interest on the investment. Finding the golden mean—just enough and not too much—is one of the arts of business man agement, and requires a good organization of the purchasing department, and constant watchfulness both in mercantile and in manufacturing business.