CHAPTER VII

THE THEORY OF MODERN WELFARE

Brrore business principles came to dominate
everyday life the common welfare, when it was not
a question of peace and war, turned on the ease
and certainty with which enough of the means of
life could be supplied. Since business has become
the central and controlling interest, the question of
welfare has become a question of price. Under the
old régime of handicraft and petty trade, dearth
(high prices) meant privation and might mean
famine and pestilence; under the new régime low
prices commonly mean privation and may on
occasion mean famine. Under the old régime the
question was whether the community's work was
adequate to supply the community’s needs; under
the new régime that question is not seriously
entertained.

But the common welfare is in no less precarious
a case. The productive efficiency of modern in-
dustry has not done away with the recurrence of
hard times, or of privation for those classes whose
assured pecuniary position does not place them
above the chances of hard times. Distress may

177

178 THE THEORY OF BUSINESS ENTERPRISE

not be so extreme in modern industrial commu-
nities, it does not readily reach the famine mark ;
but such a degree of privation as is implied in the
term “hard times” recurs quite as freely in
modern civilized countries as among the indus-
trially less efficient peoples on a lower level of
culture. The oscillation between good times and
bad is as wide and as frequent as ever, although
the average level of material well-being runs at a
higher mark than was the case before the machine
industry came in.

This visible difference between the old order and
the new is closely dependent on the difference
between the purposes that guide the older scheme
of economic life and those of the new. Under the
old order, industry, and even such trade as there
was, was a quest of livelihood; under the new order
industry is directed by the quest of profits. For-
merly, therefore, times were good or bad according
as the industrial processes yielded a sufficient or
an insufficient output of the means of life. Lat-
terly times are good or bad according as the pro-
cess of business yields an adequate or inadequate
rate of profits. The controlling end is different in
the present, and the question of welfare turns on
the degree of success with which this different
ulterior end is achieved. Prosperity now means,
primarily, business prosperity ; whereas it used to
mean industrial sufficiency.

THE THEORY OF MODERN WELFARE 179

A theory of welfare which shall account for the
phenomena of prosperity and adversity under the
modern economic order must, accordingly, proceed
on the circumstances which condition the modern
situation, and need not greatly concern itself with
the range of circumstances that made or marred
the common welfare under the older régime,
before the age of machine industry and business
enterprise.. Under the old order, when those in
whose hands lay the discretion in economic affairs
looked to a livelihood as the end of their endeavors,
the welfare of the community was regulated “ by
the skill, dexterity, and judgment with which its
labor was generally applied.”* What would mar
this common welfare was the occasionally disastrous
act of God in the way of unpropitious seasons and
the like, or the act of man in the way of war and
untoward governmental exactions. Price varia-
tions, except as conditioned by these untoward intru-
sive agencies, had commonly neither a wide nor a
profound effect upon the even course of the com-
munity’s welfare. This holds true, in a general
way, even after resort to the market had come
to be a fact of great importance in the life of large
classes, both as an outlet for their products and as

1 Such a discussion as Patten’s Theory of Prosperity applies to the
régime of ‘‘ natural economy,’’ and passably also to that of handicraft
and petty trade, but does not seriously touch the modern situation.
The like is true generally for current discussions of this topic.

~ Wealth of Nations, Introduction.

180 THE THEORY OF BUSINESS ENTERPRISE

a base of supplies of consumable goods or of raw
materials, — as in the better days of the handicraft
system.

Until the machine industry came forward, com-
merce (with its handmaiden, banking) was the
only branch of economic activity that was in any
sensible degree organized in a close and compre-
hensive system of business relations. ‘ Business ”
would then mean “ commerce,’ and little else.
This was the only field in which men habitually
took account of their own economic circumstances
in terms of price rather than in terms of liveli-
hood. Price disturbances, even when they were
of considerable magnitude, seem to have had grave
consequences only in commerce, and to have passed
over without being transmitted much beyond the
commercial houses and the fringe of occupations
immediately subsidiary to commercial business.

Crises, depressions, hard times, dull times, brisk
times, periods of speculative advance, “eras of
prosperity,” are primarily phenomena of business ;
they are, in their origin and primary incidence,
phenomena of price disturbance, either of decline
or advance. It is only secondarily, through the
mediation of business traffic, that these matters
involve the industrial process or the livelihood of
the community. They affect industry because
industry is managed on a business footing, in terms
of price and for the sake of profits. So long as

THE THEORY OF MODERN WELFARE 181

business enterprise habitually ran its course within
commercial traffic proper, apart from the industrial
process as such, so long these recurring periods of
depression and exaltation began and ended within
the domain of commerce.' The greatest field for

1 This means, in concrete terms, prior to the régime of the machine
industry. Since the coming in of the machine, modern business enter-
prise has taken over the management of industry ; that is to say, indus-
try has come to be managed by the method of investment for a profit —
by what is in aim and animus essentially the commercial method. As
has been remarked above, capital has become vendible in a decisive
degree. The material factors engaged in industry, particularly in the
machine industry proper, are vendible in about the same (perhaps on
an average in a higher) degree as the material items handled by com-
mercial traffic are vendible. This is true of raw materials, labor
power, and industrial equipment, but it is peculiarly true of the indus-
trial equipment—the mechanical factors in the stricter sense. It is
in these mechanical appliances primarily, but in the other factors of
the machine industry in only a slightly lower degree, that the traffic
of investment, and of purchase and sale connected with investment, is
particularly active. Within these wider limits a further limitation
may be made. ‘‘ Vendibility’’ of all items involved is, as a broadly
general rule, carried to the highest pitch in those branches of industry
that have to do with the production of ‘‘ producer’s goods.’’ ‘These
branches are at the same time, and partly in consequence of this fact,
more widely and intimately related to other branches of industry than
are any other group of industrial processes that might be named. It
seems to be this extreme prevalence of vendibility, together with this
more far-reaching and more exacting articulation with the industrial
process at large, that chiefly gives substantial significance to a classi-
fication of these lines of industry as ‘‘ Produktivmittel-Industrien ’’ by
late German writers. There is, for business purposes, a difference
of degree, in both of the respects named, between this (ill-defined)
group of industrial processes on the one hand, and the contrasted
group occupied with the production of consumption goods on the other
hand. The ‘‘ productive-goods industries’? show the modern indus-
trial and business traits in an accentuated form and force, and they
are, by consequence, in a strategetically primary position in the busi-
ness situation.

Cf., e.g., A. Spiethoff, Jahrbuch f. Gesetzgebung Verwaltung u.
Volkswirtschaft, vol. XX VI, Heft 2. ‘‘ Vorbemerkungen zu einer Theorie

182 THE THEORY OF BUSINESS ENTERPRISE

business profits is now afforded, not by commercial
traffic in the stricter sense, but by the industries
engaged in producing goods and services for the
market. And the close-knit, far-reaching articula-
tion of the industrial processes in a balanced sys-
tem, in which the interstitial adjustments are made
and kept in terms of price, enables price disturb-
ances to be transmitted throughout the industrial
community with such celerity and effect that a
wave of depression or exaltation passes over the
whole community and touches every class employed
in industry within a few weeks. And somewhat in
the same measure as the several modern industrial
peoples are bound together by the business ties of
the world market, do these peoples also share in
common any wave of prosperity or depression
which may initially fall upon any one member of
this business community of nations. Exceptions
from this rule, of course, are such periods of pros-
perity or depression as result from local (material)
accidents of the seasons and the like,—accidents
that may inflict upon one community hardships
which through the mediation of prices are trans-
muted into gain for the other communities that
are not touched by the calamitous act of God to
which the disturbance is due.

der Uberproducktion,”’ and vol. XX VII. pp. 343-858 ; Tugan-Baranow-
sky, Theorie und Geschichte der Handelskrisen in England, pp. 18-28 ;