CHAPTER III

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 inde-
pendent 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 here to describe the
details of business routine, whether in the mer-

1 The ulterior ground of efforts directed to the accumulation of
wealth is discussed at some length in the Theory of the Leisure Class,
ch. II, and V., and the economic bearing of the business man’s
work is treated in a paper on ‘Industrial and Pecuniary Employ-
ments,”’ in the Proceedings of the thirteenth annual meeting of the
American Economic Association. Cf. also Marshall, Principles of
Economics (8d ed.), bk. I. ch. III., bk. IV. ch. XIL., bk. V. ch. IV.,
bk. VII. ch. VII. and VIII.; Bagehot, Heonomic Studies, especially pp.
53 et seq. ; Walker, Wages Question, ch. XIV.; and more especially

Sombart, Moderne Kapitalismus, vol. I. ch. I., VIII, XIV., XV. ;
Marx, Kapital, bk. I. ch. 1V.; Schmoller, Grundriss, bk. II. ch. VIL

20

- BUSINESS ENTERPRISE 21

cantile pursuits or in the conduct of an industrial
concern. The point of the inquiry is that char-
acteristically 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 out-
line sufficiently full to show in what manner busi-
ness 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 régime of the
machine industry set in, business enterprise on any
appreciable scale commonly took the form of com-
mercial 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

11t is significant that joint-stock methods of organization and
management — that is to say, impersonally capitalistic methods —
are traceable, for their origin and early formulation, to the shipping
companies of early modern times. Cf. K. Lehmann, Die geschichtliche
Entwickelung des Aktienrechts bis zum Code de Commerce. The like
view is spoken for by Ehrenberg, Zeitalter der Fugger ; see vol. IT.
pp. 325 e¢ seg.

22 THE THEORY OF BUSINESS ENTERPRISE

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 for-
tunes of men in shipping were on a more pre-
carious 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 busi-
ness 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 situa-
tion 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 stak-
ing his values on the dimly foreseen conjunctures

BUSINESS ENTERPRISE 23

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 man-
agement 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 under-
taker 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 effi-
ciency was the prime element of business success.
A further feature of that precapitalistic business
situation is that business, whether handicraft or

1 Cf. Cantillon, Zssai sur le Commerce, 1¢ partie, ch. III., VI., 1X.,
XIV., XV.; Wealth of Nations, bk. I. ; Biicher, Hnstehung der Volks-
wirtschaft (8d ed.), ch. IV. and V. ; Sombart, Hapitalismus, Vol. L
bk. L

94° THE THEORY OF BUSINESS ENTERPRISE

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 gamed
ground, and as the modern concatenation of in-
dustrial 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 pe-
cuniary 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 close-
knit 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 redis-
tribution of investments from less to more gainful
ventures,’ and to a strategic control of the conjunc-

1 Sombart, vol. I. ch. IV.-VIII.; Ashley, Economic History and
Theory, bk. Il. ch. VI., especially pp. 389-897.

2 Cf. Marshall, Principles of Economics, on the ‘* Law of Substitu-
tion,’’ e.g. bk. VI. ch. I. The law of substitution implies freedom of
investment and applies fully only in so far as the investor in question
is not permanently identified with a given industrial plant or even with
a given line of industry. It requires great facility in shifting from one

BUSINESS ENTERPRISE 25

tures of business through shrewd investments and
coalitions with other business men.

As shown above, the modern industrial system
is a concatenation of processes which has much
of the character of a single, comprehensive, bal-
anced mechanical process. A disturbance of the
balance at any point means a differential advan-
tage (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 appar-
ently 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

to another point of investment. It is therefore only as the business
situation has approached the modern form that the law of substitution
has come to be of considerable importance to economic theory ; for a
theory of business, such as business was in medieval and early modern
times, this law need scarcely have been formulated.

26 THE THEORY OF BUSINESS ENTERPRISE

industry; as, ¢.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 com-
munity, 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 busmess 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 unfavor-
able, 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 disturb-
ances 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

BUSINESS ENTERPRISE v7

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. specially 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

1 See Sombart, Kapitalismus, yol. I. ch. VII.

28 THE THEORY OF BUSINESS ENTERPRISE

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 dis-
turbance makes for heightened facility or for wide-
spread 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 disturb-
ances 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 immedi-
ately 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

1 It is chiefly the passive owner of stock and the like that holds
permanently to a given enterprise, under the fully developed modern
business conditions. The active business man of the larger sort is
hot in this way bound to the glebe of the given business concern.

BUSINESS ENTERPRISE 29

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.

The outcome of this management of industrial
affairs through pecuniary transactions, therefore,
has been to dissociate the interests of those men
who exercise the discretion from the interests of
the community. This is true in a peculiar degree
and increasingly since the fuller development of
the machine industry has brought about a close-
knit and wide-reaching articulation of industrial
processes, and has at the same time given rise to
a class of pecuniary experts whose business is the
strategic management of the interstitial relations
of the system. Broadly, this class of business men,
in so far as they have no ulterior strategic ends to
serve, have an interest in making the disturbances
of the system large and frequent, since it is in the
conjunctures of change that their gain emerges.
Qualifications of this proposition may be needed,
and it will be necessary to return to this poimt
presently.

It is, as a business proposition, a matter of
indifference to the man of large affairs whether
the disturbances which his transactions set up in
the industrial system help or hinder the system at

30 THE THEORY OF BUSINESS ENTERPRISE

large, except in so far as he has ulterior strategic
ends to serve. But most of the modern captains
of industry have such ulterior ends, and of the
greater ones among them this is peculiarly true.
Indeed, it is this work of far-reaching business
strategy that gives them full title to the designa-
tion, “Captains of Industry.” This large business
strategy is the most admirable trait of the great
business men who with force and insight swing the
fortunes of civilized mankind. And due qualifica-
tion is accordingly to be entered in the broad state-
ment made above. The captain’s strategy is
commonly directed to gaining control of some
large portion of the industrial system. When
such control has been achieved, it may be to his
interest to make and maintain business conditions
which shall facilitate the smooth and efficient
working of what has come under his control, in
case he continues to hold a large interest in it as
an investor; for, other things equal, the gains
from what has come under his hands permanently
in the way of industrial plant are greater the
higher and more uninterrupted its industrial
efficiency.

An appreciable portion of the larger transactions
in railway and “industrial” properties, e.g., are
carried out with a view to the permanent owner-
ship of the properties by the business men into
whose hands they pass. But also in a large pro-

BUSINESS ENTERPRISE 31

portion of these transactions the business men’s
endeavors are directed to a temporary control of
the properties in order to close out at an advance
or to gain some indirect advantage ; that is to say,
the transactions have a strategic purpose. The
business man aims to gain control of a given block
of industrial equipment —as, ¢.g., given railway
Imes or iron mills that are strategically important
—as a basis for further transactions out of which
gain is expected. In such a case his efforts are
directed, not to maintaining the permanent effi-
ciency of the industrial equipment, but to influ-
encing the tone of the market for the time being,
the apprehensions of other large operators, or the
transient faith of investors.' His interest in the
particular block of industrial equipment is, then,
altogether transient, and while it lasts it is of a
factitious character.

The exigencies of this business of interstitial
disturbance decide that in the common run of
cases the proximate aim of the business man is to
upset or block the industrial process at some one or
more points. His strategy is commonly directed
against other business interests and his ends are

1 Cf. testimony of J. B. Dill, Report of the Industrial Commission,
vol. I. pp. 1078, 1080-1085 ; ‘* Digest of Evidence,’’ p. 77 ; also testimony
of various witnesses on stock speculation and corporate management,
and particularly the special report to the Commission, on ‘‘ Securities
of Industrial Combinations and Railroads,’’ vol, XITI., especially pp.
920-933.

32 THE THEORY OF BUSINESS ENTERPRISE

commonly accomplished by the help of some form
of pecuniary coercion. This is not uniformly true,
but it seems to be true in appreciably more than
half of the transactions in question. In general,
transactions which aim to bring a coalition of
industrial plants or processes under the control
of a given business man are directed to making it
difficult for the plants or processes in question to
be carried on in severalty by their previous owners
or managers.’ It is commonly a struggle between
rival business men, and more often than not the
outcome of the struggle depends on which side can
inflict or endure the greater pecuniary damage.
And pecuniary damage in such a case not uncom-
monly involves a set-back to the industrial plants
concerned and a derangement, more or less exten-
sive, of the industrial system at large.

The work of the greater modern business men,
in so far as they have to do with the ordering of
the scheme of industrial life, is of this strategic
character. The dispositions which they make are

1 The history of the formation of any one of the great industrial
coalitions of modern times will show how great and indispensable a
factor in the large business is the invention and organization of diffi-
culties designed to force rival enterprises to come to terms. J.g. the
manoeuvres preliminary to the formation of the United States Steel
Corporation, particularly the movements of the Carnegie Company,
show how this works on a large scale. Cf. E. S. Meade, Trust
Finance, pp. 204-217 ; Report of the Industrial Commission, vol. XIII.,
‘‘Review of Evidence,’ pp. v-vii, with the testimony relating to
this topic. The pressure which brings about a new adjustment (coali-
tion) is commonly spoken of as ‘‘ excessive competition.’?

BUSINESS ENTERPRISE 33

business transactions, “deals,” as they are called
in the business jargon borrowed from gaming slang.
These do not always imvolve coercion of the oppos-
ing interests ; it is not always necessary to “ put a
man ina hole” before he is willing to “come in
on” a “deal.” It may often be that the several
parties whose business interests touch one another
will each see his interest in reaching an amicable
and speedy arrangement; but the interval that
elapses between the time when a given “deal” is
seen to be advantageous to one of the parties con-
cerned and the time when the terms are finally
arranged is commonly occupied with business ma-
neeuvres on both or all sides, intended to “bring
the others to terms.” In so playing for position
and endeavoring to secure the largest advantage
possible, the manager of such a campaign of reor-
ganization not infrequently aims to “freeze out”
a rival or to put a rival’s industrial enterprise
under suspicion of insolvency and “ unsound
methods,’ at the same time that he “puts up a
bluff” and manages his own concern with a view
to a transient effect on the opinions of the business
community. Where these endeavors occur, directed
to a transient derangement of a rival’s business or
to a transient, perhaps specious, exhibition of
industrial capacity and earning power on the part
of one’s own concern, they are commonly detyri-
mental to the industrial system at large; they act

34 THE THEORY OF BUSINESS ENTERPRISE

temporarily to lower the aggregate serviceability
of the comprehensive industrial process within
which their effects run, and to make the livelihood
and the peace of mind of those involved in these
industries more precarious than they would be in
the absence of such disturbances. If one is to
believe any appreciable proportion of what passes
current as information on this head, in print and
by word of mouth, business men whose work is not
simply routine constantly give some attention to
manoeuvring of this kind and to the discovery of
new opportunities for putting their competitors at
a disadvantage. This seems to apply in a peculiar
degree, if not chiefly, to those classes of business
men whose operations have to do with railways
and the class of securities called “ industrials.”
Taking the industrial process as a whole, it is safe
to say that at no time is it free from derangements
of this character in any of the main branches of
modern industry. This chronic state of perturba-
tion is incident to the management of industry by
business methods and is unavoidable under exist-
ing conditions. So soon as the machine industry
had developed to large proportions, it became
unavoidable, in the nature of the case, that the
business men in whose hands lies the conduct of
affairs should play at cross-purposes and endeavor
to derange industry. But chronic perturbation
is so much a matter of course and prevails with so

BUSINESS ENTERPRISE 30

rare interruptions, that, beg the normal state of
affairs, it does not attract particular notice.

In current discussion of business, indeed ever
since the relation of business men to the industrial
system has seriously engaged the attention of
economists, the point to which attention has chiefly
been directed is the business man’s work as an
organizer of comprehensive industrial processes.
During the later decades of the nineteenth century,
particularly, has much interest centred, as there
has been much provocation for its doing, on the
formation of large industrial consolidations; and
the evident good effects of this work in the way of
heightened serviceability and economies of produc-
tion are pointed to as the chief and characteristic
end of this work of reorganization. So obvious
are these good results and so well and widely has
the matter been expounded, theoretically, that it is
not only permissible, but it is a point of conscience,
to shorten this tale by passing over these good
effects as a matter of common notoriety. But there
are other features of the case, less obtrusive and
less attractive to the theoreticians, which need more
detailed attention than they have commonly received.

The circumstances which condition the work of
consolidation in industry and which decide whether
a given move in the direction of a closer and wider
organization of industrial processes will be practi-

36 THE THEORY OF BUSINESS ENTERPRISE

cable and will result in economies of production,
—these circumstances are of a mechanical nature.
They are facts of the comprehensive machine pro-
cess. The conditions favorable to industrial con-
solidation on these grounds are not created by the
business men. They are matters of “the state of
industrial arts,’ and are the outcome of the work
of those men who are engaged in the industrial
employments rather than of those who are occupied
with business affairs. The inventors, engineers,
experts, or whatever name be applied to the com-
prehensive class that does the intellectual work
involved in the modern machine industry, must
prepare the way for the man of pecuniary affairs
by making possible and putting in evidence the
economies and other advantages that will follow
from a prospective consolidation.

But it is not enough that the business man
should see a chance to effect economies of production
and to heighten the efficiency of industry by a new
combination. Conditions favorable to consolida-
tion on these grounds must be visible to him before
he can make the decisive business arrangements ;
but these conditions, taken by themselves, do not
move him. The motives of the business man are
pecuniary motives, inducements in the way of
pecuniary gain to him or to the business enterprise
with which he is identified. The end of his
endeavors is, not simply to effect an industrially

BUSINESS ENTERPRISE Ot

advantageous consolidation, but to effect it under
such circumstances of ownership as will give him
control of large business forces or bring him the
largest possible gain. The ulterior end sought is
an increase of ownership, not industrial service-
ability. His aim is to contrive a consolidation in
which he will be at an advantage, and to effect it
on the terms most favorable to his own interest.
But it is not commonly evident at the outset
what are the most favorable terms that he can get
in his dealmgs with other business men whose
interests are touched by the proposed consolidation,
or who are ambitious to effect some similar con-
solidation of the same or of competing industrial
elements for their own profit. It rarely happens
that the interests of the business men whom the
prospective consolidation touches all converge to a
coalition on the same basis and under the same
management. The consequence is negotiation and
delay. Itcommonly also happens that some of the
business men affected see their advantage in stav-
ing off the coalition until a time more propitious
to their own interest, or until those who have the
work of consolidation in hand can be brought to
compound with them for the withdrawal of what-
ever obstruction they are able to offer.’ Such a
coalition involves a loss of independent standing,

1Cf., e.g., the accounts of the formation of the United States Steel
Corporation or of the Shipbuilding Company.

388 THE THEORY OF BUSINESS ENTERPRISE

or even a loss of occupation, to many of the
business men interested in the deal. If a pros-
pective industrial consolidation is of such scope as
to require the concurrence or consent of many
business interests, among which no one is very
decidedly preponderant in pecuniary strength or in
strategic position, a long time will be consumed in
the negotiations and strategy necessary to define
the terms on which the several business interests
will consent to come in and the degree of solidarity
and central control to which they will submit.

It is notorious, beyond the need of specific cita-
tion, that the great business coalitions and indus-
trial combinations which have characterized the
situation of the last few years have commonly
been the outcome of a long-drawn struggle, in
which the industrial ends, as contrasted with
business ends, have not been seriously considered,
and in which great shrewdness and tenacity have
commonly been shown in the staving off of a set-
tlement for years in the hope of more advantageous
terms. The like is true as regards further coali-
tions, further consolidations of industrial processes
which have not been effected, but which are known
to be feasible and desirable so far as regards the
mechanical circumstances of the case. The difficul-
ties in the way are difficulties of ownership, of
business imterest, not of mechanical feasibility.

These negotiations and much of the strategy

BUSINESS ENTERPRISE 39

that leads up to a business consolidation are of
the nature of derangements of industry, after the
manner spoken of above. So that business inter-
ests and manceuvres commonly delay consolida-
tions, combinations, correlations of the several
plants and processes, for some appreciable time
after such measures have become patently advis-
able on industrial grounds. In the meantime the
negotiators are working at cross-purposes and
endeavoring to put their rivals in as disadvan-
tageous a light as may be, with the result that
there is chronic derangement, duplication, and
misdirected growth of the industrial equipment
while the strategy is going forward, and expensive
maladjustment to be overcome when the negotia-
tions are brought to a close.’

Serviceability, industrial advisability, is not the
decisive point. The decisive point is business
expediency and business pressure. In the normal
course of business touching this matter of indus-
trial consolidation, therefore, the captain of indus-
try works against, as well as for, a new and more
efficient organization. He inhibits as well as fur-
thers the higher organization of industry.’ Broadly,

1 Witness the rate wars and the duplications of inefficient track and
terminal equipment among the railways, and the similar duplications
in the iron and steel industry. The system of railway terminals in
Chicago, e.g., is an illuminated object-lesson of systematic ineptitude.

2The splendid reach of this inhibitory work of the captain of
industry, as well as of his aggressive work of consolidation, is well
shown, for instance, in the history and present position of the railway

40 THE THEORY OF BUSINESS ENTERPRISE

it may be said that industrial consolidations and
the working arrangements made for the more

industry in America. It is and has for a long term of years been
obvious that a very comprehensive unification or consolidation, in
respect of the mechanical work to be done by the railway system, is
eminently desirable and feasible, — consolidation of a scope not only
equalling, but far outreaching, the coalitions which have lately been
effected or attempted. There is no hazard in venturing the assertion
that several hundreds of men who are engaged in the mechanical work
of railroading, in one capacity and another, are conversant with fea-
sible plans for economizing work and improving the service by more
comprehensive and closer correlation of the work; and it is equally
obvious that nothing but the diverging interests of the business men
concerned hinders these closer and larger feasible correlations from
being put into effect. It is easily within the mark to say that the
delay which railway consolidation has suffered up to the present, from
business exigencies as distinct from the mechanical circumstances of
the case, amounts to an average of at least twenty years. Ever since
railroading began in this country there has been going on a process of
reluctant consolidation, in which the movements of the business men
in control have tardily followed up the opportunities for economy and
efficient service which the railroad industry has offered. And their
latest and boldest achievements along this line, as seen from the stand-
point of mechanical advisability, have been foregone conclusions since
a date so far in the past as to be forgotten, and taken at their best
they fall short to-day by not less than some fifty per cent. of their
opportunities. Cf. Report of the Industrial Commission, vol. XIX..,
‘¢ Transportation,’’ especially pp. 304-3848.

Like other competitive business, but more particularly such busi-
ness as has to do with the interstitial adjustments of the industrial
system, the business of railway consolidation is of the nature of a
game, in which the end sought by the players is their own pecuniary
gain and to which the industrial serviceability of the outcome is inci-
dental only. This is recognized by popular opinion and is made much
of by popular agitators, who take the view that when once the game
between the competing business interests has been played to a finish,
in the definitive coalition of the competitors under one management,
then the game will go on as a somewhat one-sided conflict between the
resulting monopoly and the community at large.

So again, as a further illustration, it is and from the outset has
been evident that the iron-ore beds of northern Wisconsin, Michigan,
and Minnesota ought, industrially speaking, to have been worked as
one collective enterprise. There are also none but business reasons

BUSINESS ENTERPRISE 4]

economical utilization of resources and mechanical
contrivances are allowed to go into effect only
after they are long overdue.

In current economic theory the business man is
spoken of under the name of “entrepreneur” or
“ undertaker,’ and his function is held to be the
coordinating of industrial processes with a view to
economics of production and heightened service-
ability. The soundness of this view need not be
questioned. It has a great sentimental value and is
useful in many ways. There is also a modicum of
truth in it as an account of facts. In common with
other men, the business man is moved by ideals of
serviceability and an aspiration to make the way of
life easier for his fellows. Like other men, he has
something of the instinct of workmanship. Nodoubt
such aspirations move the great business man less
urgently than many others, who are, on that account,
less successful in business affairs. Motives of this
kind detract from business efficiency, and an undue
yielding to them on the part of business men is to be
deprecated as an infirmity. Still, throughout men’s

why practically all the ore beds and iron and steel works in the coun-
try are not worked as one collective enterprise. It is equally evident
that such correlations of work as are permitted by the business coali-
tions already effected in this field have resulted in a great economy of
production, and that the failure to carry these coalitions farther means
an annual waste running up into the millions. Both the economies so
effected and the waste so incurred are to be set down to the account
of the business managers who have gone so far and have failed to go
farther. The like is obvious as regards many other branches of
industry and groups of industries.

42 THE THEORY OF- BUSINESS ENTERPRISE

dealings with one another and with the interests of
the community there runs a sense of equity, fair deal-
ing, and workmanlike integrity; and in an uncertain
degree this bent discountenances gain that is got at
an undue cost to others, or without rendering some
colorable equivalent. Business men are also, in a
measure, guided by the ambition to effect a credit-
able improvement in the industrial processes which
their business traffic touches. These sentimental
factors in business exercise something of a con-
straint, varying greatly from one person to another,
but not measurable in its aggregate results. The
careers of most of the illustrious busmess men
show the presence of some salutary constraint of
this kind. Not imfrequently an excessive sensi-
tiveness of this kind leads to a withdrawal from
business, or from certain forms of business which
may appeal to a vivid fancy as peculiarly dishonest
or peculiarly detrimental to the community.’ Such

1 Tilustrative instances will readily suggest themselves. Many a
business man turns by preference to something less dubious than the
distilling of whiskey or the sale of deleterious household remedies.
They prefer not to use deleterious adulterants, even within the limits
of the law. They will rather use wool than shoddy at the same price.
The officials of a railway commonly prefer to avoid wrecks and man-
slaughter, even if there is no pecuniary advantage in choosing the
more humane course. More than that, it will be found true that the
more prosperous of the craft, especially, take pride and pains to
make the service of their roads or the output of their mills as efficient,
not simply as the pecuniary advantage of the concern demands, but
as the best pecuniary results will admit. Instances are perhaps not
frequent, but they are also not altogether exceptional, where a pros-
perous captain of industry will go out of his way to heighten the

BUSINESS ENTERPRISE 43

grounds of action, and perhaps others equally
genial and equally unbusinesslike, would probably
be discovered by a detailed scrutiny of any large
business deal. Probably in many cases the business
strategist, infected with this human infirmity,
reaches an agreement with his rivals and his
neighbors in the industrial system without exact-
ing the last concession that a ruthless business
strategy might entitle him to. The result is,
probably, a speedier conclusion and a smoother
working of the large coalitions than would
follow from the unmitigated sway of business
principles.’

But the sentiment which in this way acts in
constraint of business traffic proceeds on such
grounds of equity and fair dealing as are afforded
by current business ethics; it acts within the
range of business principles, not in contravention
of them; it acts as a conventional restraint upon
pecuniary advantage, not in abrogation of it.
This code of business ethics consists, after all,
of mitigations of the maxim, Caveat emptor. It
touches primarily the dealings of man with man,
serviceability of his industry even to a degree that is of doubtful
pecuniary expediency for himself. Such aberrations are, of course,
not large; and if they are persisted in to any very appreciable extent
the result is, of course, disastrous to the enterprise. The enterprise

in such a case falls out of the category of business management and

falls under the imputation of philanthropy.
1'The captains of the first class necessarily are relatively exempt

from these unbusinesslike scruples.

44 THE THEORY OF BUSINESS ENTERPRISE

and only less directly and less searchingly incul-
cates temperance and circumspection as regards
the ulterior interests of the community at large.
Where this moral need of a balance between the
services rendered the community and the gain
derived from a given business transaction asserts
itself at all, the balance is commonly sought to
be maintained in some sort of pecuniary terms ;
but pecuniary terms afford only a very inadequate
measure of serviceability to the community.

Great and many are the items of service to be
set down to the business man’s account in connec-
tion with the organization of the industrial system,
but when all is said, it is still to be kept in mind
that his work in the correlation of industrial pro-
cesses 1s chiefly of a permissive kind. His further-
ance of industry is at the second remove, and is
chiefly of a negative character. In his capacity
as business man he does not go creatively into the
work of perfecting mechanical processes and turn-
ing the means at hand to new or larger uses. That
is the work of the men who have in hand the
devising and oversight of mechanical processes.
The men in industry must first create the mechani-
cal possibility of such new and more efficient
methods and correlations, before the business man
sees the chance, makes the necessary business
arrangements, and gives general directions that
the contemplated industrial advance shall go into

BUSINESS ENTERPRISE 45

effect. The period between the time of earliest
practicability and the effectual completion of a
given consolidation in industry marks the interval
by which the business man retards the advance
of industry. Against this are to be offset the cases,
comparatively slight and infrequent, where the
business men in control push the advance of
industry into new fields and prompt the men con-
cerned with the mechanics of the case to experi-
ment and exploration in new fields of mechanical
process.

When the recital is made, therefore, of how the
large consolidations take place at the initiative
of the business men who are in control, it should
be added that the fact of their being in control
precludes industrial correlations from taking
place except by their advice and consent. The
industrial system is organized on business _prin-
ciples and for pecuniary ends. The business man
is at the centre; he holds the discretion and he
exercises it freely, and his choice falls out now
on one side, now on the other. The retardation
as well as the advance is to be set down to his
account.

As regards the economies in cost of production
effected by these consolidations, there is a fur-
ther characteristic feature to be noted, a feature
of some significance for any theory of modern
business. In great measure the saving effected

46 THE THEORY OF BUSINESS ENTERPRISE

is a saving of the costs of business management
and of the competitive costs of marketing products
and services, rather than a saving in the prime
costs of production. The heightened facility and
efficiency of the new and larger business combina-
tions primarily affect the expenses of office work
and sales, and it is in great part only indirectly
that this curtailment and consolidation of business
management has an effect upon the methods and
aims of industry proper. It touches the pecuniary
processes immediately, and the mechanical pro-
cesses indirectly and in an uncertain degree. It is
of the nature of a partial neutralization of the
wastes due to the presence of pecuniary motives
and business management,— for the business man-
agement involves waste wherever a greater number
of men or transactions are involved than are
necessary to the effective direction of the mechani-
cal processes employed. The amount of “business ”’
that has to be transacted per unit of product is
much greater where the various related industrial
processes are managed in severalty than where
several of them are brought under one business
management. A pecuniary discretion has to be
exercised at every point of contact or transition,
where the process or its product touches or passes
the boundary between different spheres of owner-
ship. Business transactions have to do with
ownership and changes of ownership. The greater

BUSINESS ENTERPRISE ae 47

the parcelment in point of ownership, the greater
the amount of business work that has to be done
in connection with a given output of goods or
services, and the slower, less facile, and less ac-
curate, on the whole, is the work. This applies
both to the work of bargain and contract, wherein
pecuniary initiative and discretion are chiefly ex-
ercised, and to the routine work of accounting,
and of gathering and applyimg information and
misinformation.

The standardization of industrial processes, prod-
ucts, services, and consumers, spoken of in an
earlier chapter, very materially facilitates the
business man’s work in reorganizing business
enterprises on a larger scale; particularly does
this standardization serve his ends by permitting
a uniform routine in accounting, invoices, con-
tracts, etc., and so admitting a large central ac-
counting system, with homogeneous ramifications,
such as will give a competent conspectus of the
pecuniary situation of the enterprise at any given
time.

The great, at the present stage of development
perhaps the greatest, opportunity for saving by
consolidation, in the common run of cases, is
afforded by the ubiquitous and in a sense excessive
presence of business enterprise in the economic
system. It is in doing away with unnecessary
business transactions and industrially futile ma-

48 THE THEORY OF BUSINESS ENTERPRISE

noeuvring on the part of independent firms that
the promoter of combinations finds his most tell-
ing opportunity. So that it is scarcely an over-
statement to say that probably the largest, assuredly
the securest and most unquestionable, service ren-
dered by the great modern captains of industry
is this curtailment of the business to be done, —
this sweeping retirement of business men as a
class from the service and the definitive cancel-
ment of opportunities for private enterprise.

So long as related industrial units are under
different business managements, they are, by the
nature of the case, at cross-purposes, and business
consolidation remedies this untoward feature of
the industrial system by elimimating the pecun-
iary element from the interstices of the system
as far as may be. The interstitial adjustments
of the industrial system at large are in this way
withdrawn from the discretion of rival business
men, and the work of pecuniary management pre-
viously involved is in large part dispensed with,
with the result that there is a saving of work
and an avoidance of that systematic mutual hin-
drance that characterizes the competitive manage-
ment of industry. To the community at large
the work of pecuniary management, it appears,
is less serviceable the more there is of it. The
heroic role of the captain of industry is that of
a deliverer from an excess of business manage-

BUSINESS ENTERPRISE 49

ment. It is a casting out of business men by
the chief of business men.'

The theory of business enterprise sketched above
applies to such business as is occupied with the
interstitial adjustments of the system of industries.
This work of keeping and of disturbing the inter-
stitial adjustments does not look immediately to
the output of goods as its source of gain, but to
the alterations of values involved in disturbances
of the balance, and to the achievement of a more
favorable business situation for some of the enter-
prises engaged. This work lies in the middle,
between commercial enterprise proper, on the one
hand, and industrial enterprise in the stricter
sense, on the other hand. It is directed to the
acquisition of gain through taking advantage of
those conjunctures of business that arise out of the
concatenation of processes in the industrial system.

In a similar manner commercial business may
be said to be occupied with conjunctures that
arise out of the circumstances of the industrial
system at large, but not originating in the mechan-
ical exigencies of the industrial processes. The
conjunctures of commercial business proper are
in the main fortuitous, in so far that they are

1See Report of the Industrial Commission, vol. I., Testimony of
J. W. Gates, pp. 1029-1039 ; S. Dodd, pp. 1049-1050 ; N. B. Rogers, p.
1068 ; vol. XIII., C. M. Schwab, pp. 451, 459; H. B. Butler, p. 400 ;