The nature of capital and income

Bibliographic data

Monograph

Identifikator:: 102659555X

URN:: urn:nbn:de:zbw-retromon-82920

Document type:: Monograph

Author:: Fisher, Irving http://d-nb.info/gnd/118533541

Title:: The nature of capital and income

Place of publication:: New York

Publisher:: The Macmillan Company

Year of publication:: 1923

Scope:: XXI, 427 Seiten

Digitisation:: 2019

Collection:: Economics Books

Usage license:: Get license information via the feedback formular.

Chapter

Document type:: Monograph

Structure type:: Chapter

Title:: Part I. Capital

Collection:: Economics Books

88 NATURE OF CAPITAL AND INCOME [Cuap, V down as a bad asset worth only $10,000 instead of $50,000; that is, B’s assets shrink $40,000. A’s loss is thus enough to wipe out all of B’s capital of $30,000, and pare down the value of his other liabilities by $10,000, so that B can now pay only $30,000 out of the $40,000 he owes. In other words, he is able to pay only 75 cents on the dollar. Next comes C, who has $20,000 invested in B’s note. He gets only 75 cents on the dollar, so that this asset, nominally worth $20,000, is found to be worth only $15,000, and his loss is only $5000. This loss is not enough to wipe out all his capital, but only reduces it from $30,000 to $25,000, so that C remains solvent. Consequently D, who owns (’s bills for $5000, will lose nothing. The force of the catas- trophe has been spent. It ruined A and B and injured C, but stopped short of D. From this example we may see that the statistics of bankruptcies are often misleading. Thus, it is usual for the. statistician to sum up the liabilities of all bankrupt firms. But in case the various firms are connected, as in the above example, the total sum lost is not as great as though the same amount of bankruptcy occurred in inde- pendent firms. In the preceding example the only loss is $90,000, all in A’s assets. But there would appear to be a loss of $90,000 in A’s account, one of $40,000 in B’s account, and one of $5000 in C’s, or $135,000 in all. This misleading result is evidently due to counting parts of the loss twice and three times. Failures are sometimes due to a false fear of calamity, a shock to business confidence. This will cause a shrinkage of values in several ways. For instance, it will induce creditors to demand payment and refuse renewals of bills, Forced liquidation and contraction of credit are the result. No physical capital is destroyed, but the form of ownership is violently disturbed, and often the management, being transferred from stockholders to bondholders, is turned from competent to incompetent hands. Above all, the

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