It's not, but what: the financial market provides a mechanism for people to choose between asset classes with varying risks and rates of return. Bond issuers offer notes that pay out at a premium to the interest rate over a fixed period, stocks are issued with the possibility of a dividend or appreciation in value.

Didn't you notice what happened during the recent financial crisis? Capital markets dried up, credit was unavailable to many small and mid-size businesses, and many of them shut down for lack of cash flow during a period of limited demand, rather than any fundamental flaw in their business organization.

One could argue that the fundamental flaw in their business organization was a reliance on credit in order to survive. It's a different way of thinking about the world to be sure, but that doesn't mean it's wrong.

Ultimately I don't really like living in a society that has so little slack in it. I'd prefer (not that anyone gives a shit what I prefer) one where most businesses have large equities built into them rather than debts. A business which owns outright the building it occupies is more likely to weather a storm than one which rents or is still paying a mortgage on. That's because it can afford to accept lower yields (not paying an extra $X per month in rent-equivalent to the owners/investors/etc) in the short term for the benefit of still being around.

Slack isn't efficient on any time scale that economists or MBAs care about but over 50 years I think it's quite a good idea. I'd rather own a business which lasts 50 years even if 10 of those 50 years don't pay the kinds of returns I'd like than one which makes better returns for 12 years and then folds.

The thing is that many businesses are cyclical by necessity - agriculture being the most obvious example, but cycles of various kinds pervade business just as they natural systems like wildlife populations and so forth.

If most businesses had large equities rather than debts, you'd have a significant opportunity cost. It's not a matter of what MBAs care about (often not what economists care about), but one of what could have been achieved with money that was otherwise sitting idle. The approach you describe often leads to zombie companies that are not actually productive but are able to cannibalize their own assets while making it difficult for more efficient producers to enter the market.

Maybe or maybe not. It depends on what you're trying to optimize for. One man's opportunity cost is another man's ability to weather a funding crisis that eliminates his competitors and provides him with a large opportunity once the business cycle is back on the upswing.

Equity means having control over your destiny, debt means the bankers decide your fate. Choose accordingly.