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diff --git a/29673.txt b/29673.txt new file mode 100644 index 0000000..13d44f8 --- /dev/null +++ b/29673.txt @@ -0,0 +1,1268 @@ +The Project Gutenberg EBook of Creating Capital, by Frederick L. Lipman + +This eBook is for the use of anyone anywhere at no cost and with +almost no restrictions whatsoever. You may copy it, give it away or +re-use it under the terms of the Project Gutenberg License included +with this eBook or online at www.gutenberg.org + + +Title: Creating Capital + Money-making as an aim in business + +Author: Frederick L. Lipman + +Release Date: August 12, 2009 [EBook #29673] + +Language: English + +Character set encoding: ASCII + +*** START OF THIS PROJECT GUTENBERG EBOOK CREATING CAPITAL *** + + + + +Produced by The Online Distributed Proofreading Team at +https://www.pgdp.net (This file was produced from images +generously made available by The Internet Archive/Canadian +Libraries) + + + + + + +_Barbara Weinstock Lectures on The Morals of Trade_ + +HIGHER EDUCATION AND BUSINESS STANDARDS. +By WILLARD EUGENE HOTCHKISS. + +CREATING CAPITAL: MONEY-MAKING AS AN AIM IN BUSINESS. +By FREDERICK L. LIPMAN. + +IS CIVILIZATION A DISEASE? +By STANTON COIT. + +SOCIAL JUSTICE WITHOUT SOCIALISM. +By JOHN BATES CLARK. + +THE CONFLICT BETWEEN PRIVATE MONOPOLY AND GOOD CITIZENSHIP. +By JOHN GRAHAM BROOKS. + +COMMERCIALISM AND JOURNALISM. +By HAMILTON HOLT. + +THE BUSINESS CAREER IN ITS PUBLIC RELATIONS. +By ALBERT SHAW. + + + + +CREATING CAPITAL + +MONEY-MAKING AS AN AIM IN BUSINESS + + + +By + +FREDERICK L. LIPMAN + + + +BOSTON AND NEW YORK +HOUGHTON MIFFLIN COMPANY +_The Riverside Press Cambridge_ +1918 + +COPYRIGHT, 1918, BY THE REGENTS OF THE +UNIVERSITY OF CALIFORNIA + +ALL RIGHTS RESERVED + +_Published March 1918_ + + +_The Riverside Press_ +CAMBRIDGE . MASSACHUSETTS +U . S . A + + + + +BARBARA WEINSTOCK +LECTURES ON THE MORALS OF TRADE + + +This series will contain essays by representative scholars and men of +affairs dealing with the various phases of the moral law in its +bearing on business life under the new economic order, first delivered +at the University of California on the Weinstock foundation. + + + + +CREATING CAPITAL + +MONEY-MAKING AS AN AIM IN BUSINESS + + +The object of this paper is to discuss money-making; to examine its +prevalence as an aim among people generally and the moral standards +which obtain among those who consciously seek to make money. + +The desire to make money is common to most men. Stronger or weaker, in +some degree it is present in the mind of nearly every one. Now, how +far does this desire grow to be an aim or object in our lives, and to +what extent is such an aim a worthy one? + +The typical money-maker as commonly pictured in our imagination is a +narrow, grasping, selfish individual who has chosen to follow lower +rather than higher ideals and who often is tempted, and always may be +tempted, to employ illegitimate means for the attainment of his ends. +The aims he has adopted are made to stand in opposition to the +practice of certain virtues. Thus we contrast profits and patriotism; +enriching one's self and philanthropy; getting all the law allows and +justice; taking advantage of the other fellow and honesty; becoming +engrossed in acquisition and love of family. Now, such contrasts +obviously prove nothing more than that money-making is and would be a +vicious aim if pursued regardless of these virtues, and it could well +be replied that consideration of patriotism, philanthropy, love of +family, etc., must in themselves impel one to earn and to save. "The +love of money is the root of all evil" implies an exclusive devotion +to acquisition that may well be criticized. But aside from this there +is no doubt that amid the confused ideas held on the subject, aiming +to make money is commonly regarded as in some sort of antagonism to +the social virtues. + +That there are other sides to the picture is recognized, however, even +by the loose thought of the day. The man who earns his living, for +instance, it views as one who in so far is performing a fundamental +duty. Indeed, the world scorns him who cannot or will not support +himself and his family. But this is only to say that one must work +to-day to meet the expenditures of to-day. Is this the limit? Is it a +virtue for him to work in order to spend, but a vice for him to work +in order to save? What are the considerations to be observed by a man +in deciding whether or not he should adopt money-making--that is, the +acquisition of a surplus beyond his current needs--as one of his +definite aims in life? + +One consideration relates to our country. The United States is now +understood to be spending about $25,000,000 per day in carrying on the +war. In the last analysis this amount must be paid out of the past +savings and the savings from current earnings of the people of the +United States. The wealth of the nation consists mainly of the sum of +the wealth of its citizens. We are therefore told to seek increased +earnings and to economize in our expenditures in order to enhance the +national wealth. The duty here is perfectly clear, but even if we did +not have war conditions to teach us as a patriotic responsibility the +necessity of earning and saving a surplus, the obligation would still +be there. We owe a similar debt to our state and to our city or +district. And nearer still comes the duty to one's family and to one's +own future, the duty of providing for the rainy day, for old age. And +it will be observed that money-making in this sense is directed to the +acquisition of _net_ income, it relates to that portion of one's +earnings which is saved from current expenditure and becomes capital. +Then we must also consider the duty to society. As we look out upon the +surrounding evidences of civilization--buildings and railroads and +highly cultivated fields, the machinery of production and distribution, +the shops full of useful commodities--and then cast our thought +backward to a time not very many years ago when all this country was a +natural wilderness, we may begin to realize the magnitude of the +wealth, the capital, that has come into being since then, every +particle of which is due to the earnings and savings of somebody, to +the surplus not consumed by the workers of the past, their unexpended +and unwasted net balances year by year. Universities, churches, +libraries, parks, are included in the wealth thus handed down to us. +Our lives to-day may be richer and broader through this inheritance +created by the industry and abstinence of our forefathers. Their +business careers, now closed, we regard as the more successful in that +they earned and saved a surplus, that they had a _net_ income to show +as the result of their work. + +But these savings of the past were accumulated, after all, by +comparatively few of the workers; not by the many, who lived from hand +to mouth, happy-go-lucky, spending and enjoying in time of abundance, +suffering in time of poverty and stress, making no provision even for +their own future, still less recognizing any duty to their country or +to posterity to produce economically and regulate their expenditure +wisely so as to carry forward a surplus. As far as this majority is +concerned we might yet be living among rocks and trees, without +shelter, lacking sure supplies of food, with fig leaves to cover our +nakedness. And to-day the same conditions obtain. How many persons are +to be found among one's acquaintance who feel and act upon any +responsibility for doing their "bit" in the creation of capital? Very +few. Rather than exert himself to work with this in view, on the one +hand, and to abstain from unnecessary consumption, on the other hand, +the ordinary man will make to himself every excuse. He will contemn +money-making as a sordid aim, readily exaggerating itself into a vice; +he will dwell upon the obligations and other considerations of a +higher life, this being defined as something generous and noble, a +something compared with which money-making cannot be regarded as a +worthy object but must be included in the class of unpleasant +necessities, not to say indecencies, which ought to be relegated to +the background of life; he will summon up pictures of extreme poverty, +where any money received must be expended forthwith to meet urgent +needs, as justifying that which in his case is the gratification of +shiftless indulgence. Above all, this typical individual will not +accept and act upon the idea that his affairs, his small income and +expenditure, have any bearing upon the prosperity and progress of his +country. The most he will keep before him is that he should pay his +bills, and perhaps in some few cases, will extend the notion to the +future to include provision for the bills and possible emergencies +then to be met by himself and his family. Nor is this improvident +attitude confined to the young, to the professional and the other +non-business classes. In the business world we see it all around us; +among those who "work for a living," among clerks and employees and +among the so-called laboring classes it appears to be the normal +attitude. People who work for salaries or wages seem characteristically +to use up all their earnings in their current expenditure, to live up +to their incomes without any serious attempt to save. If they pride +themselves upon trying to keep out of debt, it is as much as they +expect of themselves, and among them the man who attempts to go beyond +this in his money affairs is certainly the exception. + +One of the effects of a world-wide war is an enormously increased +demand for labor at high and advancing wages, a condition that we +might suppose would be greatly to the advantage of the laborer. But +that will depend upon his own attitude and policy. From England, and +from American towns here and there, we hear stories of the wage-earner +on whom increasing income has had the effect of lessening the effort +to work; who stops during the week when the higher wage scale has paid +him the amount he is accustomed to regard as a week's earnings. Now, +would it not seem natural to expect that any man encountering improved +market conditions for his output, whether of commodity or service, +would seek to turn the situation to advantage by increasing that +output as largely as lay in his power? If, for instance, I can +manufacture shoes to sell for $4.00 a pair and a change in market +conditions is such that I can obtain $5.00 a pair, I would endeavor to +produce more shoes in order to profit by the favorable market; and if +thereafter the price should rise to $6.00 and $7.00 and $8.00 a pair, +at each increment my efforts would be still further intensified. That, +indeed, is the normal economic attitude. Fluctuations in the price +level due to changes in the demand for a commodity are expected to +affect, and do affect, the market supply. At a higher price, +production is stimulated and more units of the commodity are brought +to the market, both from new sources and from old sources. Under +falling prices, on the other hand, the supply offered in the market +would become automatically diminished. + +This is an elementary commonplace in economics, yet the laborer to +whom we have just referred does not seem to recognize it. He may find +that he can earn in, say four days, an amount equal to his former +earnings in six days and, therefore, at the end of the fourth day he +quits work for the week. Now, obviously under such increasing wage +scale, he might do one of three things: + +He could quit at the end of the fourth day, having received a week's +income. + +He could continue working for the six days and use his surplus +earnings for comforts, pleasures, and luxuries which previously he had +been unable to afford. + +He might work for the six days and save as much as possible of his +excess earnings. + +Now, what is the wise choice for the laborer? Leaving out of account +special cases where he has a large family, or sickness at home, or is +under some other disability which in his individual case would reduce +his earning power or increase his minimum expenses, ought he not to +work for the six days, putting aside all he could of the excess as +savings for the future? It will be generally conceded that this is +self-evident. If, viewing the narrow conditions under which the +workman ordinarily lives, it should be claimed that during a period of +unusual earnings self-gratification would be not only natural but +measurably justifiable, the reply could be made that this is merely +specious, involving assumption not in accord with the facts. Excuses +of this kind we often make for ourselves in the endeavor to justify +our indulgence in present pleasure rather than perform the irksome +duty of self-restraint. The laborer whose ideals are such that he +quits at the end of the fourth day is not the type of man who is going +to spend the two holidays in pursuing higher aims in life; he is going +to pass them in inaction, quite likely at the grog-shop. The man who +fails to take advantage of the security for the future offered him and +his family through the opportunity of saving from extraordinary +earnings is one who is adding to the abnormal demand for such things +as phonographs, jewelry, spirits, and tobacco. And this helps to +explain the tremendous market for luxuries during wartime. Doubtless +there are many workmen who follow a more rational course, who are +reaping and storing the harvest for the comfort and security of +themselves and their families during the winter of life. Could any one +think that this policy involved an aim that was sordid, tending to +draw them down, and away from higher considerations of life? Certainly +a course of careful planning in one's affairs would be in so far a +better course and on a higher plane than indulgence in idleness or +shiftless expenditure of surplus for present luxuries, regardless of +future need. + +This case of the workmen under conditions of abnormal wages seems +exceptional; yet the choice so presented to him is not very different +fundamentally from the choice normally presented to all the rest of +us. + +The young man starting out in life may be as negligent of his +opportunities as the workman who quits at the end of the fourth day. +Or if he devotes himself properly to his vocation he may consume his +earnings in current self-gratification. If, however, he will both +concentrate on his work and practice self-restraint with the purpose +of creating a saved surplus, all will agree in considering him as so +far headed on the road towards success. In the case of the beginner +this seems clear enough, but, after all, the same considerations apply +to everybody else, whether in business or profession, beginners or +experienced, young or old; to all of us is the same choice presented +daily, and at our peril we must make it wisely. The physician, for +instance, although he cannot afford to pay more attention to +money-making than to the welfare of his patients, to his studies, to +his professional ideals, must not, on the other hand, leave out of +account these business duties and considerations which belong to him +as an economic member of society. He must produce and must consume +with his family, reasonably, decently and thriftily. He must aim at a +surplus to store away for the future. These aims are, as a matter of +course, secondary to his professional ideals, but there need be no +conflict of duty. The point is that there exists a department of his +activity devoted, and to be devoted, by him to his business affairs. +In any event, as a man, a husband, a father, a citizen, he cannot +escape from the responsibility of these business affairs. They must be +conducted in some way. Shall it be well or ill? If he fails herein it +may involve failure in any or all these relations--as a man, husband, +father, citizen. And obviously these same considerations apply to all +other men and women, whatever may be their professions, occupations, +or major interests in life. Why do so many allow themselves to be +dragged along, living from hand-to-mouth, in fear of the knock of the +bill collector at the door? Why do we associate money questions with +that which is unhappy, unfortunate, down-at-the-heel, with fear and +misery? Barring mere accidents, it is because we are careless, +shiftless; because we do not face the problem manfully, practice +reasonable self-restraint, consider the subject in its complexity and +decide upon, and carry out, a constructive programme. Even if one +happens to possess wealth, he is not exempt. Indeed, large wealth +involves still greater necessity for care in the conduct of one's +pecuniary affairs. The rich man is said to have perplexities and +responsibilities which are unknown to those in moderate circumstances. +In fine, everyone must face these money questions or be driven by +them. + +Those who live on fixed incomes, whether from salary or investment, +may find it impossible to make any direct attempt to make money; for +them the problem is to be confronted and mastered on its other side, +the side of spending and saving, that the income may be apportioned as +wisely as possible for the purposes of living. But during the last few +years a new factor has entered into the money problems of the +individual, often adding to his trials, often adding to his self-made +excuses, and especially burdensome to the man on fixed income. We +refer to the high cost of living. Here it is, however, that the wage +earner can do something in self-protection, for the level of prices +may be in some measure affected by his policy in handling his +earnings. + +A period of high wages is accompanied by and is in some sense an +incident of a high level of prices. Now we recognize high wages, +considered in itself, as beneficial to the community, for it gives +opportunity, at least, for comforts in life and a provision for the +future that otherwise would be lacking. But if prices have advanced as +much as wages, the apparent improvement to the laborer is merely in +nominal wages, while that which alone can benefit him is higher real +wages. Now let us see what the workman could do to advance real wages +as contrasted with nominal wages. + +What will be the effect on prices of the use of surplus earnings +during a period of high wages? + +If the surplus earnings are expended, they will be used either in +meeting the higher prices of customary commodities, or in meeting +these advanced prices and also in purchasing additional commodities. +The first case will occur only if, and when, the advance in price +equals the advance in wages, for only in that event will the new wages +just cover the new cost of customary commodities. Then this +expenditure of the entire income in customary commodities tends to +keep up the price level and any benefit from higher wages disappears. + +In the second case, so far as the worker spends his surplus earnings +in meeting advanced prices for customary commodities, he tends to +maintain prices at the higher level, and so far as he buys additional +commodities, he increases the demand for them and tends further to +advance the price level. + +If, on the other hand, the worker will save from his surplus earnings, +he will increase the community's capital, and this will tend, directly +or indirectly, to cause the production of further commodities, so +increasing the supply of commodities and therefore tending to reduce +prices. + +In any case, the worker should save as much as possible, as this tends +to reduce the price level and so to better his condition. Or, putting +it more simply, in time of high wages the worker ought to produce as +much as possible and consume as little as possible, both influences +tending to increase the stock of commodities for his ultimate gain and +for that of the community. + +In fact, a high level of prices may be due measurably to some wasting +of the world's capital--as in war, for instance--and then the only +antidote is to restore the capital, a movement that would doubtless +occur anyway in time but which could be greatly accelerated through a +general adoption of habits of thrift and saving throughout a +community. + +This then, though small, is something definite that we can contribute +to the material advancement of mankind and, like the duty in this +connection to our nation, to our families and ourselves, it consists +in creating capital; that is, earning as much as we can and, in any +event, even if our earnings are fixed, managing the income thriftily, +and carrying forward as large a net result as possible. + +We turn now from the mass of mankind, on the whole so singularly +neglectful of these responsibilities, to the few in number who +constitute the creators of capital, to whom are due so much of the +comforts, the conveniences, and the material advantages that go to +make civilized life possible. Now these few are found in every rank in +life. They may be rich or poor, professional or business men, employer +or employee, old or young, male or female. The characteristic is their +habit of thrift, of definitely adopting money-making as an aim, of +spending less than they earn. It is astonishing what a small +percentage of mankind they are. The Income Tax returns in the United +States for 1916 showed that out of a population of 104,000,000 people +those with taxable incomes aggregated only 336,652, about one in three +hundred. But whatever be the rank of the individual practicing this +thrift he is headed in the right direction and he tends to reach the +point of relative competence, of independence in his pecuniary +affairs. + +Preeminent in the class of the thrifty we think of the man of affairs; +the business enterprise indeed is supposed to be the money-maker, _par +excellence_. Money-making is in fact considered as its _raison d'etre_; +it is as a money-maker that the business man is contemned by some and +envied by many. + +Now money-making and money values occupy a special place in business +enterprise, due to the fact that on economic principles such money +value becomes the best test--perhaps the only true test--of the +workableness and success of business efforts. In the complicated +activities of the world's work, where each man, each undertaking, each +business unit, respectively, is striving primarily for its own +advantage, how is it, among all this pulling and pushing, this +competition, that the social income is distributed so nearly in +accordance with the individual contribution? Even if we admit that +many persons fail to get a fair share, that there is gross inequality +here and there, still after all, a student of mankind's activities in +production, distribution, and consumption must marvel at the extent to +which the rewards approximate the value of contribution. Now this is +made possible by money considered as a measure of relative values, by +the standard or test of fitness embodied in the thought, Will it pay, +and to what extent will it pay? If I have in mind some new invention +that will perhaps confer benefits on mankind, the best test of its +practicability and utility will be, Will it pay, will people buy it, +pay money for it? If an improvement in process is proposed, the +question is, Will it pay? If the young man starts out in life with +high ideals and a reasonably good opinion of his own abilities, an +opinion fostered perhaps by fond parents and admiring friends, the +question is, Will these abilities fit in with the world's needs? Will +they supply a real demand, will they be serviceable? The best means of +ascertaining this, although it may be only a rough estimate and +although errors occasionally creep in is, will they pay? Can he sell +these services for real money? This criterion is practically +omnipresent in the world of affairs. It is based on economic +necessity, and although here and there it may be charged with +cruelties, with serious blunders, it is, on the whole, a remarkably +accurate standard. We see this more clearly where we attempt to +substitute some other criterion for ranking the soldiers in the battle +of life. We can note, for instance, the inferior type and character, +generally speaking, of men elected to office by the suffrages of their +fellow citizens, compared with men who reach positions of authority in +business and other enterprises through the pressure of these economic +principles. Again, consider the nation that has attempted to improve +on economic distribution of power by evolving a government which +places the power in the hands of those best fitted to govern, a ruling +class which aims directly at efficiency, a select class but +necessarily self-selected, thus supplanting an economic regime by a +military regime--successful truly in certain forms of economic +efficiency through a more rigid and compact organization, but +destructive of the initiative, the evolutionary growth, the +fundamental development, the liberties of the people. Contrast this +with the freedom, happiness, and progress of a nation of shop-keepers. +Now this economic regime, with its individual instances of cruelty, +like the cruelties of nature, does on the whole tend to develop men, +to require their best efforts, to make them come forward and upward. +Thus, in this interplay of economic forces, wealth, or money, or +profits stands out as a primary object of attainment, and becomes the +incentive to the complex efforts which tend to benefit the individual, +the community, and the nation. + +The business enterprise then directs its attention to profits, +because, from mere economic necessity, profits are the criterion of +the true success of the enterprise, that is, its serviceability to +mankind. Here we distinguish between the shortsighted man, who aims at +immediate returns, and the farsighted man, whose eye is fixed on the +future, who verily desires the profits, but desires them in the long +run. But this is only a manifestation of human nature as we find it in +every field. We always note a deficiency in the man whose life is +lived for the present, for immediate enjoyment: in him we see the +typical pleasure-seeker, peculiarly prone to temptation, to break the +rules of life, to indulge himself at the expense of others or of his +own future. He is characteristically the weakling, the wrongdoer. And +we contrast him with the man of character, who stands superior to an +immediate environment, who will not disregard the distant future, the +absent neighbor, the invisible God. And so in the economic world it is +the whole life period which is to be regarded when aims are chosen. +Profits as a goal for the long run do not antagonize moral principles. +"Honesty is the best policy" and "Do unto others as you would have +others do unto you" are maxims of good business; and that economic +principles do not conflict with them is shown by the fact that they +tend towards profits in the long run. This is not to assert that +mankind in business is perfect. In every period of economic advance +into a new environment, men try new experiments, as during the +development of the great modern corporation in the period following +the Civil War in this country and, earlier than that, in the era of +railroad building. They have tried new experiments in ethics as they +have in physics, in chemistry, in economics. They have attempted to +replace honesty by camouflage, the golden rule by self-aggrandizement. +But these attempts are not successful and so they become discredited; +they do not work because inherently they cannot last, and inability to +endure is fatal to the purposes of any economic undertaking. We are +emphasizing the fact that business is necessarily conducted for the +long run, the very nature of success implying permanence. A man may +take some criminal advantage of an opportunity: he may abscond with +money entrusted to him; he may abuse the confidence reposed in him by +an employer, by a customer; he may obtain an immediate profit by +misrepresentation. But no one could expect such things to last; he +could not possibly be building an enduring structure; such a course +could not in the end promise him profits, or any other kind of +success. A properly conducted business enterprise then is concerned +with making profits in the long run; that is to say, in accordance +with accepted notions of business conduct; in short, according to +rules of the game, and this involves conformity with a standard, a +standard of giving good value for what one gets. + +We must next distinguish between gross profits and net profits. The +merchant or manufacturer naturally desires to do a large business, he +points with pride to the increase in his sales this year over last +year. The larger his turnover the smaller the proportionate amount of +his overhead expenses that must be borne per unit of product, and +other economies follow large-scale production or distribution. He may +occasionally be desirous of increasing his output even when it entails +a disproportionate increase in his expenditures, with the idea that he +can later occupy himself with reducing these expenses and in the +meanwhile the goodwill of his enterprise will have gained from the +larger circle of customers. Such is the case with a new enterprise +that often starts out with the expectation of little or no profits +during its early years, when it is gathering a clientele and learning +to distribute its product with economy. All these, however, are +special cases. The normal situation is that the business enterprise is +aiming at net profits, having an interest in large sales, heavy +transactions and gross profits only so far as these are expected to +lead finally to net profits, the real goal. Now these net profits are, +of course, the remainder of earnings left on hand after providing for +all costs and expenses, for depreciation and every other factor +causing loss, destruction, and deterioration during the business +period under consideration. In short, the business capital as it was +at the beginning of the period is first fully restored and made intact +at the end of the period before a net profit emerges. This net profit +therefore becomes in a true sense a creation of new capital and may +indeed be retained in the business as an addition to capital funds. +Even when it is paid out in dividends, partly or wholly, it becomes +new capital in the hands of the individual stockholders who then in +their private capacity may of course spend it, but by proper +investment may keep it permanently stored as capital. It is the +creation of capital then, that is in reality the ultimate money-making +aim of the business enterprise. + +We can now summarize the attitude and policy of the typical business +man in his money-making aim as follows: + +In seeking profits he is actuated by economic necessity. + +His goal is profits in the long run, which involves conformity with +economic and ethical standards, and net profits, which implies the +creation of capital. + +The creation of capital we cannot fail to recognize as a worthy aim. It +has given mankind much of all that mankind possesses and constitutes +the foundation upon which civilization largely rests. The advancement +in the arts and sciences has been in no small degree stimulated by the +demands of business enterprise for new methods of creating capital and +we may believe that should the time arrive when this motive should +fail, when men should grow to be indifferent in their attitude towards +profits, the ensuing stagnation would affect every department of human +endeavor. Of this we may be assured even when we remember that +money-making, and what goes with it, is not the only aim in life. + +After cataloguing so much that is virtuous in the pursuit of +money-making the suggestion is inevitable that there must be some other +side to it, that the common views of the rapacity of the money-maker +cannot be wholly unfounded. What then are the vices of the money-making +aim? In examining this question we shall first brush aside some things +to which we have already referred. The pathological cases of mere +crime, of sharp practice, of taking advantage of others, while mounting +up into distressingly high figures considered absolutely, are much less +important relatively; that is, they are infrequent and scarce enough to +avoid obscuring the rule which they violate, the rule that honesty is +indispensable in economics as well as in ethics. What we must now +investigate is any vicious tendencies that may be found in the +money-making aim when followed normally and according to its own +accepted principles. Of such degenerative tendencies we seem to find +two: first, the tendency to that excess which becomes a vice; and +second, the tendency to a disregard of other considerations in life +through too exclusive a devotion to acquisitiveness. But upon further +thought we must see that these two tendencies flow together and become +one, for too much devotion to money-getting and too little attention to +the other purposes of life are, after all, expressions of the same +thing. Perhaps a man may err in excessive devotion to any object of +life but we must admit that in the pursuit of gain the evil tendency to +exaggerated absorption in the one aim is promoted through a cooperation +with his natural selfishness. Of all the fields of human endeavor, here +is one that peculiarly fits in with self-seeking, with disregard for +others, which may drag a man downward, making him small and mean, +unhappy and uncharitable, while apparently attaining the goal at which +he has aimed. Not every man, while concentrating upon money-making, is +consciously seeking his country's welfare, the amelioration of life for +the many, the uplift of posterity, even if he rigidly adheres to the +accepted rules of the game, to the code of business honor. This brings +us back to the popular picture of the money-maker, grasping, sordid, +narrow-minded. There are such people. I believe them to be rare, but +whether there are many of them to-day or not, it is a type tending to +disappear in the environment of modern business which offers its +inducements and rewards to him who does, who becomes, who renders +service, not to the sordid seeker for gain. Barring an occasional +exception, such an exclusive aim is not that of the man of large +affairs, the business leader, the conspicuously successful man. It is +not Harriman, nor Edison, nor Weinstock, nor Marshall Field, nor +Peabody, nor is it the heads of our big corporations of to-day. Such +men are money-makers, creators of capital, builders of large +enterprise, but their aim at profits while genuine is only incidental +to their main purpose of doing, of becoming better able to achieve, of +rendering service. When the beginner in business approaches an +experienced friend for advice, he is told to work as hard and as +faithfully as possible, to study his business, to seek to improve +himself--in other words, to concentrate his whole strength on the +giving of service, for his wages or salary will take care of itself. +The experienced man knows well that this holds just as truly for all +ranks in the business world and that the higher one ascends in +responsibilities, the more he must give and do; indeed the leading +positions in the business world are occupied by men who produce +tremendously, whose value to themselves and others lies in what they +accomplish, and this--not what they get--is the criterion of success +among men of experience, among those in charge of enterprises, who are +on the lookout for leaders of this type. + +Here we have the remedy for the tendency backed by natural selfishness +towards undue devotion to gain: such narrowness simply does not work, +it is crowded out by competition with the superior efficiency of +broader motives. And while, here and there, the type continues to +exist, its development in new cases is discouraged by every instance +illustrating the relative success--in all senses--attained by those who +make it their chief aim to produce, to render service. Just as the +physician bestows his first thought upon his patient, these superior +business men give first consideration to their profession, for so they +regard it, and this tends to assure their success, just as it does that +of the physician, and to become the standardized ideal for lesser men. + +It is indeed clearly self-evident that on many accounts the man in +business must give attention primarily to the service he is trying to +render. The clerk in the store must devote himself mainly to his +customers, to his merchandise, to his other duties, not to his salary. +And so with the department manager, and so with the general manager, +whether of a store, a railroad company, or other activity; the +immediate daily problem for all lies in the rendering of a service, the +producing of a commodity, or the doing of the thing for which the +business enterprise exists. This concentration upon output is +furthermore required by competition which whips the producer into line +and often makes it a matter of business life and death that one should +make progress in method and quality. That his shoes wear is a matter of +pride to the shoe manufacturer. "Blank tires are good tires" is not to +be regarded as merely a boastful advertisement. If it was it would not +pay the advertising cost. + +Money-making as an aim thus becomes subsidiary to the characteristic +activities of the enterprise, it is in a sense a by-product. But the +money-making aim is there, although perhaps in the background. It is +furnishing the power under which the enterprise operates. More than +that, it is the gauge indicating the prosperity or lack of prosperity +of the enterprise, its progress, its fitting in with the needs of life. +In short, the money-making aim spurs on the business enterprise, just +as the weekly or monthly pay spurs on the humble worker; but in each +case the main attention is given, and necessarily given, to the work to +be performed. + +Let us now consider some of the implications of this concentration on +rendering service. The directed effort of each man to the production of +the utility characteristic of his business, tends to result in his +learning to conduct that specific activity with a high degree of skill, +and with an increasingly valuable fund of experience. So highly +specialized does he become that it will be quite impossible for any one +hitherto a stranger in that sphere to conduct it as well. Therefore in +an age of coordinated effort the more a man has of accumulated +knowledge and facility in handling a certain kind of affair and the +better fitted, therefore, he is to continue and to progress along that +line, the less relatively he is able to undertake the affairs of some +other kind with which he is not familiar. We commonly feel free to +criticize a railroad, a newspaper, a large business house, perhaps a +university, with which we may have casual contact, but the fact is +there are few competent critics outside of the ranks of the enterprise +itself or of those carrying on activities that are directly similar. In +a word, through this focusing of attention, a man will come to be +exhaustively familiar with his own occupation, while possessing a +merely superficial acquaintance with the theories, customs, and +responsibilities of those of others. The wise man therefore argues the +necessity of confining himself to the field in which he has become +expert and will avoid taking chances in some outside direction wherein +he is not familiar. One of the most common and disheartening +experiences in the money-making and money-saving of the thrifty is that +after having both worked hard and practiced self-restraint, the +resultant savings are often put into some enterprise that turns out +badly, and the whole effort is thus thrown away. Generally this happens +because he has violated the rule we have just stated; he has ventured +his savings in unfamiliar fields, ignorantly he has rushed in where the +better informed would have feared to tread. Such so-called investments +are in reality highly speculative. They involve risks which are unknown +and altogether to be avoided. Now no one speculates in his own +legitimate business, for there he is acquainted with the hazards which, +he has learned, require the best of knowledge and the greatest of +prudence. It is the allurement of the unknown that tempts him to seek +unearned profits through speculation in outside regions where, in the +nature of the case, the chances must be against him. Now speculation +has its proper place in business: there are certain inherent hazards +that must be undertaken, mainly to be found in the risk of the seasons +in the production of crops, and the risk of the future in undeveloped +enterprise. These risks must be carried by somebody, but clearly they +constitute an activity for specialists who study conditions, becoming +relatively expert in determining how and when to act. These specialists +are drawn principally from two classes: First, the professional +speculator, who knows his markets and makes a business of buying and +selling future risks; such men perform a great service in handling our +seasonal crops and in other directions, and are entitled to a +reasonable profit. Second, the man of wealth who may use part of his +surplus in the risks of undeveloped enterprise; although it is probable +that in the end his losses and expenses will outweigh his gains, he can +afford to take chances of such experiments in the hope that success +will follow in some of them; furthermore, he can regard the outlay as a +contribution to the advancement of mankind. For the rest of us, +however, outside of these two classes, it is our business to keep away +from speculation whether in oil wells, flying machines, in new +factories, or in real estate: in the long run, we cannot get something +for nothing and money-making efforts that are ethically valid thus +coincide with those that are selfishly desirable, namely, the efforts +to obtain the payment, the profit, that arises from a valuable service +performed or commodity produced. Too often men who follow this rule in +their regular occupation depart from it in the use of their saved +surplus funds. They feel that their savings ought to make them money, +as they say. + +Now savings can be employed in one of three ways: They may be used as +capital by the owner; or they may be put out in investments--that is, +used or utilized as capital in the business of another; or, third, they +may be wasted in gambling or speculation. As a matter of course, the +employment as additional capital in one's own enterprise is generally +the most desirable wherever applicable, but this is a use of limited +scope, relating to but few of the people engaged in productive activity +who earn and save a surplus. The main resource for such accumulations +is in safe investments, in the bonds and securities of our own country +and those of well established enterprises. Not many among our embryo +capitalists possess the experience or skill requisite for the safe and +proper investment of their funds, they must rely upon the advice of +others. But whom can they trust? The demand for investment advice has +not failed to call forth a supply of advisers, and elaborate are the +schemes designed to lure the unwary. But, generally speaking, the man +who falls into the clutches of these birds of prey has himself to +blame, for the reason that the temptations they offer are appeals to +the illegitimate desire to get something for nothing or to the foolish +notion that one can get-rich-quick in some way whispered about by a +stranger, and out of sheer benevolence. The fact is that the wise man +will dismiss all thought of making money out of his investments; he +will seek only the moderate return which alone is consistent with +safety; and with this policy, will turn a deaf ear to any so-called +opportunity which promises big profits. We can summarize the matter by +saying that concentration upon one's business and service implies that +one should not attempt to make money elsewhere. + +This concentration on one's affairs therefore grows into a sort of +practical system in which each member of the business community is +looking after some function or activity to the exclusion of other +things. And so the world's work is carried on to the best advantage, +each function being filled by those particular men who have become +relatively expert therein. From this system arises a business habit or +method not always understood by the young and inexperienced, by the +non-business person. We refer to the practice in trade of leaving to +each individual, to each enterprise, to each organization, the +responsibility for looking out for its own interests when having +dealings with others. _Caveat emptor_--let the buyer beware--expresses +an extreme development of this, and in its common signification, that +each side is to be permitted and expected to take any advantage of the +other side that it may be able to secure, it describes a state of +warfare rather than of business. In buying and selling, in aiming to +obtain the most favorable terms for each line of his activity, in +meeting conditions of competition, in all these relations, the business +man is endeavoring to better himself and may doubtless be tempted here +and there to forget the interests of the other party to the +transaction. But to yield to such temptation would merely be to abuse a +principle which on the whole is sanctioned by the requirements of +economic efficiency. This principle is that the nearest approximation +to effective justice in business transactions is reached when on each +side the parties devote themselves to their respective interests and +points of view. If _A_ has a house for sale and _B_ is a prospective +buyer, the essence of the possible transaction between the two is that +_A_'s idea of the value of the property is different from _B_'s idea of +that value; or at any rate that _A_ sees less value in it to him than +does _B_ to _B_. This is of course typical of all business +transactions--the seller desires the money above the commodity, the +buyer prefers the commodity to the money. The seller and the buyer each +dwells naturally upon his own idea of value. This is altogether +desirable, not to say indispensable, and is characteristic of every +relation of business, wherever two men buy and sell, employ one +another, or have other dealings together. The situation is somewhat the +same as in a law suit where the duty of the attorney for the plaintiff +is to make every point that fairly can be made for the plaintiff, while +the attorney on the other side must correspondingly make every point +that can properly be made for the defendant. Each side is supposed to +look after the interest of that side. Similarly, in a business +organization, say a railroad, when some new project is under +consideration it will be submitted to the engineer, to the chemist, to +the attorney, to the practical transportation man, and in each of these +departments it is expected that the wisdom born of experience in the +particular function will be brought to bear. The engineer speaks with +authority on engineering questions, the lawyer on legal questions, the +transportation man on the practical working out of the project; and, +normally, the criticisms and contribution of each are confined to his +own function. In short, the regime of economic self-interest results in +leaving to each the responsibility which he is most competent to +assume, that in which he is most expert, which thereby receives the +best attention that generally speaking it could have. Nor are +correctives lacking for the abuses which may enter in through an +overdevelopment of self-interest. _Caveat emptor_ becomes discredited +as an unmodified basis of human action. The golden rule is increasingly +seen to constitute a foundation demanded by economics as well as by +ethics. The trend to-day is away from indifference to the interests of +those with whom we deal. The successful merchant will not attempt to +make a profit through sales which he knows would not benefit the +purchaser, for that would not measure up to the test, Will it pay? The +value of a business depends largely on its goodwill and too much money +and effort are spent in advertising and other means of building up a +clientele to make men conceive it to be to their interest to deal +sharply with their customers. + +In the efforts of scientists to seek out and establish new methods, +new principles, the success of an experiment is to be determined, I +suppose, by the test, Will it work? Does it yield effective results? +Similarly, in economics, the science of mankind in its production, +distribution and consumption of material things, the test of utility +and efficiency is, Will it pay? that being the standard of +workableness in the application of that science. + +We have attempted, therefore, in this analysis of money-making to +apply this test, because the practice or habit or influence that pays +is that which is in accord so far with the principles underlying this +branch of social science. We have seen, according to this standard, +that it is the duty of all to adopt money-making as a conscious aim; +that the money is to be economically used, the final object being net +profit, that balance or remainder which is carried forward as created +capital. Inability to increase a fixed income does not absolve one +from the duty of doing one's part in the creation of capital through +thrift and saving. The business enterprise, moreover, is required by +economic necessity to aim at money-making--meaning, however, profits +in the long run rather than immediate or temporary gains. Such +permanent returns can only be sought through adherence to ethical +principles and although this aim at profits becomes the power plant +which drives the business machine, the latter gives its energies and +attention more directly to the rendering of service. + +Concentration upon service tends to make a man relatively efficient +therein, but argues a relative unfamiliarity with the field of others, +from which we infer the advisability of confining one's activity to +the thing he has learned to do best. As an example of this, he should +avoid placing his surplus capital or savings in outside enterprises +where they will partake of risks that are unknown to him, nor should +he attempt to employ his savings at all with the purpose of making +money, unless, indeed, he can use them as capital in his own business. +The focusing of attention on one's own function also implies and +explains the custom of placing upon participants in a business +transaction the responsibility each for his own side, a custom which +is economically justified but which must be kept within proper limits, +as is fully recognized by the business men who are successful and who +therefore become models or examples for the guidance of other men, +influencing the latter towards high ideals. + +We have found, on the other hand, that apart from men in charge of +business enterprise, the burden of providing thus for man's welfare +and development is assumed by very few, the vast majority, whether in +professional or business employment, treating it with neglect and +contempt. They think, perhaps, that they are aiming at higher things, +or that their efforts would not sufficiently count, or they do not +give the matter any sturdy thought; while the underlying motive, often +unconscious, is simply an unwillingness to practice self-restraint. It +is self-indulgence, we must conclude, that is to be overcome if we are +to meet this responsibility in a manly way, visualizing it with +sufficient clearness to see that thrift, the creation of capital for +one's self and for the race, comes into no necessary conflict with any +other proper aim in life, but on the contrary constitutes a +fundamental duty to society, to the state, to one's family, to his own +future, to his self-respect. + + + + + + +End of the Project Gutenberg EBook of Creating Capital, by Frederick L. 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