Coming Soon to Listen to Genius:
A selection from
THE THEORY OF BUSINESS ENTERPRISE
Narrated by Jeff Riggenbach
downloadable mp3 file coming soon
Business Enterprise
The motive of business is pecuniary gain, the method is
essentially purchase and sale. The aim and usual outcome is an
accumulation of wealth. Men whose aim is not increase of
possessions do not go into business, particularly not on an
independent footing.
How these motives and methods of business work out in the
traffic of commercial enterprise proper - in mercantile and
banking business does not concern the present inquiry, except so
far as these branches of business affect the course of industrial
business in the stricter sense of the term. Nor is it necessary
were to describe the details of business routine, whether in the
mercantile pursuits or in the conduct of an industrial concern.
The point of the inquiry is that characteristically modern
business that is coextensive with the machine process described
above and is occupied with the large mechanical industry. The aim
is a theory of such business enterprise in outline sufficiently
full to show in what manner business methods and business
principles, in conjunction with the mechanical industry,
influence the modern cultural situation. To save space and
tedium, therefore, features of business traffic that are not of a
broad character and not peculiar to this modern situation are
left on one side, as being already sufficiently familiar for the
purpose in hand.
In early modern times, before the regime of the machine
industry set in, business enterprise on any appreciable scale
commonly took the form of commercial business - some form of
merchandising or banking. Shipping was the only considerable line
of business which involved an investment in or management of
extensive mechanical appliances and processes, comparable with
the facts of the modern mechanical industry. And shipping was
commonly combined with merchandising. But even the shipping trade
of earlier times had much of a fortuitous character, in this
respect resembling agriculture or any other industry in which
wind and, weather greatly affect the outcome.
The fortunes of men
in shipping were on a more precarious footing than to-day, and
the successful outcome of their ventures was less a matter of
shrewd foresight and daily pecuniary strategy than are the
affairs of the modern large business concerns in transportation
or the foreign trade. Under these circumstances the work of the
business man was rather to take advantage of the conjunctures
offered by the course of the seasons and the fluctuations of
demand and supply than to adapt the course of affairs to his own
ends. The large business man was more of a speculative buyer and
seller and less of a financiering strategist than he has since
become.
Since the advent of the machine age the situation has
changed. The methods of business have, of course, not changed
fundamentally, whatever may be true of the methods of industry;
for they are, as they had been, conditioned by the facts of
ownership. But instead of investing in the goods as they pass
between producer and consumer, as the merchant does, the business
man now invests in the processes of industry; and instead of
staking his values on the dimly foreseen conjunctures of the
seasons and the act of God, he turns to the conjunctures arising
from the interplay of the industrial processes, which are in
great measure under the control of business men.
So long as the machine processes were but slightly developed,
scattered, relatively isolated, and independent of one another
industrially, and so long as they were carried on on a small
scale for a relatively narrow market, so long the management of
them was conditioned by circumstances in many respects similar to
those which conditioned the English domestic industry of the
eighteenth century. It was under the conditions of this inchoate
phase of the machine age that the earlier generation of
economists worked out their theory of the business man's part in
industry. It was then still true, in great measure, that the
undertaker was the owner of the industrial equipment, and that he
kept an immediate oversight of the mechanical processes as well
as of the pecuniary transactions in which his enterprise was
engaged; and it was also true, with relatively infrequent
exceptions, that an unsophisticated productive efficiency was the
prime element of business success. A further feature of that
precapitalistic business situation is that business, whether
handicraft or trade, was customarily managed with a view to
earning a livelihood rather than with a view to profits on
investment.
In proportion as the machine industry gained ground, and as
the modern concatenation of industrial processes and of markets
developed, the conjunctures of business grew more varied and of
larger scope at the same time that they became more amenable to
shrewd manipulation. The pecuniary side of the enterprise came to
require more unremitting attention, as the chances for gain or
loss through business relatIons simply, aside from mere
industrial efficiency, grew greater in number and magnitude. The
same circumstances also provoked a spirit of business enterprise,
and brought on a systematic investment for gain. With a fuller
development of the modern closeknit and comprehensive industrIal
system, the point of chief attention for the business man has
shifted from the old-fashioned surveillance and regulation of a
given industrial process, with which his livelihood was once
bound up, to an alert redistribution of investments from less to
more gainful ventures, and to a strategic control of the
conjunctures of business through shrewd investments and
coalitions with other business men.
The modern industrial system is a
concatenation of processes which has much of the character of a
single, comprehensive, balanced mechanical process. A disturbance
of the balance at any point means a differential advantage (or
disadvantage) to one or more of the owners of the sub-processes
between which the disturbance falls; and it may also frequently
mean gain or loss to many remoter members in the concatenation of
processes, for the balance throughout the sequence is a delicate
one, and the transmission of a disturbance often goes far. It may
even take on a cumulative character, and may thereby seriously
cripple or accelerate branches of industry that are out of direct
touch with those members of the concatenation upon which the
initial disturbance falls. Such is the case, for instance, in an
industrial crisis, when an apparently slIght initial disturbance
may become the occasion of a widespread derangement. And such, on
the other hand, is also the case when some favorable condition
abruptly supervenes in a given industry, as, e.g., when a sudden
demand for war stores starts a wave of prosperity by force of a
large and lucrative demand for the products of certain
industries, and these in turn draw on their neighbors in the
sequence, and so transmit a wave of business activity.
The keeping of the industrial balance, therefore, and
adjusting the several industrial processes to one another's work
and needs, is a matter of grave and far-reaching consequence in
any modern community, as has already been shown. Now, the means
by which this balance is kept is business transactions, and the
men in whose keeping it lies are the business men. The channel by
which disturbances are transmitted from member to member of the
comprehensive industrial system is the business relations between
the several members of the system; and, under the modern
conditions of ownership, disturbances, favorable or unfavorable,
in the field of industry are transmitted by nothing but these
business relations. Hard times or prosperity spread through the
system by means of business relations, and are in their primary
expression phenomena of the business situation simply. It is only
secondarily that the disturbances in question show themselves as
alterations in the character or magnitude of the mechanical
processes involved. Industry is carried on for the sake of
business, and not conversely; and the progress and activity of
industry are conditioned by the outlook of the market, which
means the presumptive chance of business profits.
All this is a matter of course which it may seem simply
tedious to recite. But its consequences for the theory of
business make it necessary to keep the nature of this connection
between business and industry in mind. The adjustments of
industry take place through the mediation of pecuniary
transactions, and these transactions take place at the hands of
the business men and are carried on by them for business ends,
not for industrial ends in the narrower meaning of the phrase.
The economic welfare of the community at large is best served
by a facile and uninterrupted interplay of the various processes
which make up the industrial system at large; but the pecuniary
interests of the business men in whose hands lies the discretion
in the matter are not necessarily best served by an unbroken
maintenance of the industrial balance. Especially is this true as
regards those greater business men whose interests are very
extensive.
The pecuniary operations of these latter are of large
scope, and their fortunes commonly are not permanently bound up
with the smooth working of a given Sub-process in the industrial
system. Their fortunes are rather related to the larger
conjunctures of the industrial system as a whole, the
interstitial adjustments, Or to conjunctures affecting large
ramifications of the system. Nor is it at all uniformly to their
interest to enhance the smooth working of the industrial system
at large in so far as they are related to it. Gain may come to
them from a given disturbance of the system whether the
disturbance makes for heightened facility or for widespread
hardship, very much as a speculator in grain futures may be
either a bull or a bear. To the business man who aims at a
differential gain arising out of interstitial adjustments or
disturbances of the industrial system, it is not a material
question whether his operations have an immediate furthering or
hindering effect upon the system at large. The end is pecuniary
gain, the means is disturbance of the industrial system, - except
so far as the gain is sought by the old-fashioned method of
permanent investment in some one industrial or commercial plant,
a case which is for the present left on one side as not bearing
on the point immediately in hand.
The point immediately in
question is the part which the business man plays in what are
here called the interstitial adjustments of the industrial
system; and so far as touches his transactions in this field it
is, by and large, a matter of indifference to him whether his
traffic affects the system advantageously or disastrously. His
gains (or losses) are related to the magnitude of the
disturbances that take place, rather than to their bearing upon
the welfare of the community. More information about from Wikipedia
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