The Problem of Long Term and Equity Capital

Abstract

It must be clear that no satisfactory solution will be found to the problem of providing small business with capital until it is projected in the context of the more extensive problems of full production and employment with which it is functionally related. Yet the problem of small business has been generally treated in relatively complete isolation from these more fundamental subjects. This treatment has led, in the opinion of the writer, to sterile proposals for the providing of capital to small business. This article will critically evaluate recent discussions of the financing of small business and current suggestions for providing it with capital, and offer an alternative approach. This analysis is based upon the following premises: i. That to date small business has not proved its case. By this is meant, not that there is no financial problem for some small businessmen, but that it is still open to question whether the aggregate of these problems is sufficiently widespread and meritorious to constitute a national problem or call for action by the federal government; that the research, investigation and discussion up to the present is not conclusive on this point. 2. That the necessary and sufficient conditions of whatever small business financial problems there may be are not to be found within the small business area where inquiry has been almost exclusively directed. But that these causes could have been found within the private banking system, that they are primarily of a psychological order stemming from the habits and attitudes of commercial and investment bankers in the principal financial centers as well as in regional areas, and that the stiff price asked by the bankers for small business accommodations results from these attitudes and is a much more important cause of the shortage of such accommodations than the availability of lendable funds. 3. That the plans, programs, bills for Congressional action, etc., which have been proffered as solutions for the problem are panaceas with scant hope of success f The views expressed in this article are entirely those of the writer and are not to be taken as expressing the views of any member of the Securities and Exchange Commission or of its staff. * A.B., 1921, Harvard University. Investment banker, 1921-1931. Staff member of the Securities and Exchange Commission since 1934, and at present Assistant Director of its Trading and Exchange Division. Adviser to the United States Delegation at the International Monetary Conference, Bretton Woods, 1944.