Thefundsobtainedoncreditareingreatmeasureinvestedcompetitivelyinthesameaggregateofmaterialitemsthatisalreadyemployedinindustryapartfromtheuseofloancredit，withtheresultthatthesamerangeofitemsofwealthareratedatalargernumberofmoneyunits。Intheseitemsofwealth-
　　which，apartfromtheuseofcredit，areownedbytheirnominalowners-thecreditors，byvirtueofthecreditextension，cometoownanundividedinterestproportionedtotheadvanceswhichtheyhavemade。Theaggregateoftheseitemsofpropertycomesherebytobepotentiallyownedbythecreditorsinapproximatelytheproportionwhichtheloansbeartothecollatcralplustheloans。Theoutcomeofcreditextension，inthisrespect，isasituationinwhichthecreditorshavebecomepotentialownersofsuchafractionoftheindustrialequipmentaswouldberepresentedbytheformula:17*
　　loans/capitalization=collateralloans
　　Inaperiodofliquidationthispotentialownershiponthepartofthecreditorstakeseffecttotheextenttowhichtheliquidationiscarriedthrough。18*
　　Theprecisemeasureandproportioninwhichtheindustrialpropertyofthebusinesscommunitypassesintothehandsofthecreditorsinaperiodofliquidationcan，ofcourse，notbespecified；itdependsonthedegreeofshrinkageinvalues，aswellasonthedegreeofthoroughnesswithwhichtheliquidationiscarriedout，andperhapsonotherstilllessascertainablecauses，amongwhichisthedegreeofclosenessoforganizationofthebusinesscommunity。Itis，however，throughtheshrinkageofmarketvaluesoftheoutputandtheindustrialplantthatthetransferofownershiptothecreditorclasstakesplace。Incasenoshrinkageofvaluestookplace，nosuchgeneraltransferofownershiptothecreditorsasaclasswouldbecomeevident。
　　Inpointoffact，theshrinkagecommonlysupervenes，inthecourseofmodernbusiness，whenageneralliquidationcomes；
　　althoughitisconceivablethattheperiodofacuteliquidationanditsattendantshrinkageofvaluesneednotsupervene。Suchwouldprobablybethecaseintheabsenceofcompetitiveinvestmentinindustrialmaterialonalargescale。Secondaryeffects，suchasperturbationsoftherateofinterest，insolvency，forcedsales，andthelike，needscarcelybetakenuphere，althoughitmaybewelltokeepinmindthatthesesecondaryeffectsarecommonlyveryconsiderableandfarreaching，andthattheymayinspecificinstancesverymateriallyaffecttheoutcome。
　　Thetheoreticalresultofthissummarysketchofloancreditsofarseemstobe:aanextensionofloancreditbeyondthatinvolvedinthetransferenceofproductivegoodsfromtheirownerstomorecompetentusersisunavoidableundertheregimeofcompetitivebusiness-creditexpansionisnormallyinsomedegree“abnormal“or“excessive“；bsuchauseofcreditdoesnotaddtotheaggregateofindustriallyproductiveequipmentnorincreaseitsmaterialoutputofproduct，andthereforeitdoesnotaddmateriallytotheaggregategrossearningsobtainedbythebodyofbusinessmenengagedinindustry，ascountedinmaterialtermsofwealthorofpermanentvalues；19*citdiminishestheaggregatenetprofitsobtainedbythebusinessmenengagedinindustry，ascountedinsuchterms，inthatitrequiresthemtopayinterest，tocreditorsoutsidetheindustrialprocessproper，onfundswhich，takenasanaggregate，representnoproductivegoodsandhavenoaggregateproductiveeffect；dthereresultsanoverratingoftheaggregatecapitalengagedinindustry，comparedwiththevalueoftheindustrialequipmentatthestarting-point，byapproximatelytheamountoftheaggregatedepositsandloansoncollateral；etheoverratingswellsthebusinesscapital，therebyraisesthevaluationofcollateral，andgivesrisetoafurtherextensionofcredit，withfurtherresultsofalikenature；fcommonlybeginningatsomepointwheretheextensionofcreditisexceptionallylargeinproportiontothematerialsubstratumofproductivegoods，orwherethediscrepancybetweennominalcapitalandearning-capacityisexceptionallywide，theoverratingispresentlyrecognizedbythecreditorandasettlementensues；gontheconsequentwithdrawalofcreditaforcedreratingoftheaggregatecapitalfollows，bringingthenominalaggregateintoapproximateaccordwiththefactsofearning-capacity；htheshrinkagewhichtakesplaceinreducingtheaggregateratingofbusinesscapitalfromthebasisofcapitalgoodsplusloanstothebasisofcapitalgoodsalone，takesplaceattheexpenseofdebtorsandnominalownersofindustrialequipment，insofarastheyaresolvent；iintheperiodofliquidationthegainrepresentedbythecreditinflationgoestothecreditorsandclaimantsoffundsoutsidetheindustrialprocessproper，exceptthatsomuchasiscancelledinbaddebtsiswrittenoff；japartfromsecondaryeffects，suchasheightenedefficiencyofindustryduetoinflatedvalues，changesoftherateofinterest，insolvency，etc。，themainfinaloutcomeisaredistributionoftheownershipofpropertywherebythecreditorclass，includingholdersandclaimantsoffunds，isbenefited。
　　Sincethemodernindustrialsituationbegantotakeform，therehavebeentwoprincipalformsofcredittransactionscurrentintheusageofthebusinesscommunityforthepurposeofinvestment:theold-fashionedloan，theusageofwhichhascomedownfromanearlier，day。andthestockshare，wherebyfundsareinvestedinajointstockcompanyorcorporation。Thelatterisacreditinstrument，sofarastouchesthemanagementofthepropertyrepresented，inthatinearlierusageatleastiteffectsatransferofagivenbodyofpropertyfromthehandsofanownerwhoresignsdiscretioninitscontroltoaboardofdirectorswhoassumethemanagementofit。Inadditiontothesetwomethodsofcreditrelationtherehas，duringthelate-modernindustrialperiod，comeintoextensiveuseathirdclassofexpedients，viz。debenturesofoneformandanother-bondsofvarioustenor，preferredstock，preferenceshares，etc。，ranging，inpointoftechnicalcharacteranddegreeofliability，fromsomethingapproachingthenatureofabillofsaletosomethingnotreadilydistinguishableineffectfromapersonalnote。Thetypicallatestandmosthighlyspecializedinstrumentofthisclassisthepreferredstock。Thisisinformadeedofownershipandineffectanevidenceofdebt。Itistypicalofasomewhatcomprehensiveclassofsecuritiesinuseinthebusinesscommunity，intherespectthatitsetsasidethedistinctionbetweencapitalandcredit。Inthisrespect，indeed，preferredstock，moreadequatelyperhapsthananyotherinstrument，reflectsthenatureofthe“capitalconcept“currentamongtheup-to-datebusinessmenwhoareengagedinthelargerindustrialaffairs。
　　Thepartwhichdebenturecredit，nominalandvirtual，playsinthefinancingofmodernindustrialcorporationsisveryconsiderable，andtheproportionwhichitbearsinthecapitalizationofthesecorporationsapparentlygrowslargerastimepassesandshrewdermethodsofbusinessgainground。Inthefieldofthe“industrials“proper，debenturecredithasnotuntillatelybeenemployedwithfulleffect。ItseemstobefromthecorporationfinanceofAmericanrailwaycompaniesthatbusinessmenhavelearnedthefulluseofanexhaustivedebenturecreditasanexpedientforexpandingbusinesscapital。Itisnotanexpedientnewlydiscovered，butitsfreeuse，eveninrailwayfinance，isrelativelylate。Whereveritprevailsinanunmitigatedform，aswithsomerailwaycompanies，andlatterlyinmanyotherindustrialenterprises，itthrowsthecapitalizationofthebusinessconcernsaffectedbyitintoapeculiar，characteristicallymodern，positioninrelationtocredit。Whencarriedoutthoroughlyitplacesvirtuallytheentirecapital，comprisingthewholeofthematerialequipment，onacreditbasis。Stockbeingissuedbytheuseofsuchfundsaswillpayforprintingtheinstruments，aroadwillbebuiltoranindustrialplantestablishedbytheuseoffundsdrawnfromthesaleofbonds；preferredstockorsimilardebentureswillthenbeissued，commonlyofvariousdenominations，tothefullamountthatthepropertywillbear，andnotinfrequentlysomewhatinexcessofwhatthepropertywillbear。Whenthelattercaseoccurs，themarketquotationsofthesecuritieswill，ofcourse，roughlyadjustthecurrenteffectivecapitalizationtotherunofthefacts，whateverthenominalcapitalizationmaybe。Thecommonstockinsuchacaserepresents“goodwill，“andinthelaterdevelopmentitusuallyrepresentsnothingbut“good-will。“20*
　　Thematerialequipmentiscoveredbycreditinstrumentsdebentures。Notinfrequentlythedebenturescoverappreciablymorethanthevalueofthematerialequipment，togetherwithsuchpropertyasusefulpatentrightsortradesecrets；insuchacasethegood-willisalso，tosomeextent，coveredbydebentures，andsoservesasvirtualcollateralforacreditextensionwhichisincorporatedinthebusinesscapitalofthecompany。Intheidealcase，whereacorporationisfinancedwithdueperspicacity，therewillbebutaninappreciableproportionofthemarketvalueofthecompany’sgood-willleftuncoveredbydebentures。Inthecaseofarailwaycompany，forinstance，nomoreshouldbeleftuncoveredbydebenturesthanthevalueofthe“franchise，“andprobablyinmostcasesnotthatmuchactuallyisuncovered。
　　Whethercapitalizedgood-willincluding“franchise“ifnecessaryistoberatedasacreditextensionisanicequestionthatcanapparentlybedecidedonlyonalegaltechnicality。Inanycasesomuchseemsclear-thatgood-willisthenucleusofcapitalizationinmoderncorporationfinance。Inawellfinanced，flourishingcorporation，good-will，indeed，constitutesthetotalremainingassetsafterliabilitieshavebeenmet，butthetotalremainingassetsmaynotnearlyequalthetotalmarketvalueofthecompany’sgood-will；thatistosay，thematerialequipmentplant，etc。ofashrewdlymanagedconcernishypothecatedatleastonce，commonlymorethanonce，anditsimmaterialpropertiesgood-will，togetherwiththeevidencesofitsindebtedness，mayalsotosomeextentbedrawnintothehypothecation。21*
　　Whathasjustbeensaidofthepartbornebygood-willanddebenturesinthecapitalizationofcorporationsshouldbetakeninconnectionwithwhatwassaidabovepp。100-104astothenatureofthesecuritiesofferedascollateralinprocuringacreditextension。Thegreatcrpartofthesecuritiesusedascollateral，andso“coinedintomeansofpayment，“areevidencesofdebt，atthefirstremoveorfartherfromtheirphysicalbasis，instrumentsofcreditrecordingapreviouscreditextension。
　　Intheearlierperiodofgrowthofthisdebenturefinancieringinindustry，as，e。g。，intherailroadfinancieringofthethirdquarterofthenineteenthcentury，theprocessofexpansionbymeansofdebenturecredit，inanygivencase，wasworkedoutgradually，overamoreorlessextendedperiodoftime。Butasthepossibilitiesofthisexpedienthavegrownfamiliartothebusinesscommunity，thetimeconsumedinperfectingthestructureofdebenturesineachcasehasbeenreduced；untilitisnownotunusualtoperfectthewholeorganizztion，withitsloadofdebentures，attheinceptionofacorporateenterprise。Insuchacase，whenacorporationstartswithafullyorganizedcapitalanddebt，theownersoftheconcernarealsoitscreditors；theyare，atthestart，theholdersofbothcommonandpreferredstock，andprobablyalsoofthebondsofthecompany-soaddinganotherincrementofconfusiontotherelationbetweenmoderncapitalandcredit，asseenfromtheold-fashionedpositionastowhatcapitalizationanditsbasisshouldbe。
　　Thissyncopatedprocessofexpandingcapitalbythehelpofcreditfinanciering，however，isseenatitsbestinthelatter-dayreorganizationsandcoalitionsofindustrialcorporations；andasthisclassoftransactionsalsoillustrateanotherinterestingandcharacteristicallymodernfeatureofcreditfinanciering，thewholemattermaybestbesetoutinthewayofasketchofwhattakesplaceinacaseofcoalitionofindustrialcorporationsonalargescalesuchasrecentindustrialhistoryhasmadefamiliar。
　　Theavowedendoftheselatter-daybusinesscoalitionsiseconomyofproductionandsaleandanamicableregulationofintercorporaterelations。Sofarasbearsonthefunctioningofcreditintheattendantbusinesstransactions，thepresenceorabsenceofthesepurposes，ofcourse，doesnotaffectthecourseofeventsortheoutcome。Theseavowedincentivesdonottouchthecreditoperationsinvolved。Ontheotherhand，theneedoflargecreditinconsummatingthedeal，aswellasthepresumptivegainstobedrawnfromthecreditrelationsinvolved，offerinducementsoftheirowntomenwhoareinapositiontoeffectsuchacoalition。Inducementsofthiskindseemtohavebeenofnotableeffectinbringingonsomeoftherecentoperationsofthisclass。
　　Creditoperationscomeintothesetransactionsmainlyattwopoints:inthe“financing“ofthedeal，andintheaugmentationofdebentures；andatbothofthesepointsthereisachanceofgainontheonehandtothepromoterorganizerandthecredithousewhichfinancestheoperation，andontheotherhandtothestockholders。Thegainwhichaccruestothetwoformeristhemoreunequivocal，andthisseemsinsomecasestobethedominantincentivetoeffectthereorganization。Thewholeoperationofreorganizationmay，therefore，bestbetakenupfromthepointofviewofthepromoter，whoistheprimemoverinthematter。