L. R. Hopkins, pp. 346, 347; A. S. White, pp. 254, 256.

50 THE THEORY OF BUSINESS ENTERPRISE

commonly not initiated by the busimess men en-
gaged in these commercial pursuits. Commercial
business, simply as such, does not aim to guide
the course of industry.

On the other hand, the large busimess enter-
prise spoken of above initiates changes in indus-
trial organization and seeks its gain in large part
through such alterations of value levels as take
place on its own initiative. These alterations of
the value levels, of course, have their effect upon
the output of goods and upon the material wel-
fare of the community; but the effect which they
have in this way is only incidental to the quest of
profits.

But apart from this remoter and larger guidance
of the course of industry, the business men also,
and more persistently and pervasively, exercise
a guidance over the course of industry in detail.
The production of goods and services is carried
on for gain, and the output of goods is controlled
by business men with a view to gain. Commonly,
in ordinary routine business, the gains come
from this output of goods and services. By the
sale of the output the business man in industry
“realizes” his gains. To “realize” means to
convert salable goods into money values. The
sale is the last step in the process and the end
of the business man’s endeavor.' When he has

1Cf. Marx, Kapital, bk. I. pt. IT.

BUSINESS ENTERPRISE ol

disposed of the output, and so has converted his
holdings of consumable articles into money values,
his gains are as nearly secure and definitive as the
circumstances of modern life admit. It is in
terms of price that he keeps his accounts, and in
the same terms he computes his output of prod-
ucts. The vital point of production with him
is the vendibility of the output, its convertibility
into money values, not its serviceability for the
needs of mankind. A modicum of serviceability,
for some purpose or other, the output must have
if it is to be salable. But it does not follow
that the highest serviceability gives the largest
gains to the business man in terms of money, nor
does it follow that the output need in all cases
have other than a factitious serviceability. There
is, on the one hand, such a possibility as over-
stocking the market with any given line of goods,
to the detriment of the business man concerned,
but not necessarily to the immediate disadvan-
tage of the body of consumers. And there are,
on the other hand, certain lines of industry, such
as many advertising enterprises, the output of
which may be highly effective for its purpose
but- of quite equivocal use to the community.
Many well-known and prosperous enterprises which
advertise and sell patent medicines and other
proprietary articles might be cited in proof.

In the older days, when handicraft was the rule

52 THE THEORY OF BUSINESS ENTERPRISE

of the industrial system, the personal contact be-
tween the producer and his customer was some-
what close and lasting. Under these circumstances
the factor of personal esteem and disesteem had a
considerable play in controlling the purveyors of
goods and services. This factor of personal con-
tact counted in two divergent ways: (1) producers
were careful of their reputation for workmanship,
even apart from the gains which such a reputation
might bring; and (2) a degree of irritation and ill-
will would arise in many cases, leading to petty
trade quarrels and discriminations on other grounds
than the gains to be got, at the same time that the
detail character of dealings between producer and
consumer admitted a degree of petty knavery and
huckstering that is no longer practicable in the
current large-scale business dealings. Of these two
divergent effects resulting from close personal re-
lations between producer and consumer the former
seems on the whole to have been of preponderant
consequence. Under the system of handicraft and
neighborhood industry, the adage that “ Honesty is
the best policy’ seems on the whole to have been
accepted and to have been true. This adage has
come down from the days before the machine’s
régime and before modern business enterprise.
Under modern circumstances, where industry is
carried on on a large scale, the discretionary head
of an industrial enterprise is commonly removed

BUSINESS ENTERPRISE 53

from all personal contact with the body of cus-
tomers for whom the industrial process under his
control purveys goods or services. The mitigating
effect which personal contact may have in dealings
between man and man is therefore in great meas-
ure eliminated. The whole takes on something of
an impersonal character. One can with an easier
conscience and with less of a sense of meanness
take advantage of the necessities of people whom
one knows of only as an indiscriminate aggregate
of consumers. Particularly is this true when, as
frequently happens in the modern situation, this
body of consumers belongs in the main to another,
inferior class, so that personal contact and cogni-
zance of them is not only not’ contemplated, but is
in a sense impossible. Equity, in excess of the
formal modicum specified by law, does not so
readily assert its claims where the relations between
the parties are remote and impersonal as where
one is dealing with one’s necessitous neighbors who
live on the same social plane. Under these cir-
cumstances the adage cited above loses much of its
axiomatic force. Business management has a
chance to proceed on a temperate and sagacious
calculation of profit and loss, untroubled by senti-
mental considerations of human kindness or irrita-
tion or of honesty.

The broad principle which guides producers and
merchants, large and small, in fixing the prices at

54 THE THEORY OF BUSINESS ENTERPRISE

which they offer their wares and services is what is
known in the language of the railroads as “ charg-
ing what the traffic will bear.
enterprise has a strict monopoly of the supply of a
given article or of a given class of services this prin-

94

Where a given

ciple applies in the unqualified form in which it has
been understood among those who discuss railway
charges. But where the monopoly is less strict,
where there are competitors, there the competition
that has to be met is one of the factors to be taken
account of in determining what the traffic will bear ;
competition may even become the most serious factor
in the case if the enterprise in question has little or
none of the character of a monopoly. But it is
very doubtful if there are any successful business
ventures within the range of the modern industries
from which the monopoly element is wholly absent.”
They are, at any rate, few and not of great magni-
tude. And the endeavor of all such enterprises that
look to a permanent continuance of their business
is to establish as much of a monopoly as may be.

1 The economic principle of ‘‘ charging what the traffic will bear’
is discussed with great care and elaboration by R. T. Ely, Monopolies
and Trusts, ch. III., ‘‘ The Law of Monopoly Price.”? Cf., for illus-
tration of the practical working of this principle, testimony of C. M.
Schwab, Report of the Industrial Commission, vol. XIII. pp. 458-455.

2 «« Monopoly ’’ is here used in that looser sense which it has col-
loquially, not in the strict sense of an exclusive control of the supply,
as employed, e¢.g., by Mr. Ely in the volume cited above. This usage
is the more excusable since Mr. Ely finds that a ‘‘monopoly”’ in the
strict sense of the definition practically does not occur in fact. Cf.
Jenks, The Trust Problem, ch. IV.

BUSINESS ENTERPRISE 59

Such a monopoly position may be a legally estab-
lished one, or one due to location or the control of
natural resources, or it may be a monopoly of a
less definite character resting on custom and
prestige (good-will). This latter class of monopolies
are not commonly classed as such; although in
character and degree the advantage which they
give is very much the same as that due to a differ-
ential advantage in location or in the command of
resources. The end sought by the systematic
advertising of the larger business concerns is such
a monopoly of custom and prestige. This form of
monopoly is sometimes of great value, and is fre-
quently sold under the name of good-will, trade-
marks, brands, etc. Instances are known where
such monopolies of custom, prestige, prejudice, have
been sold at prices running up into the millions.’
The great end of consistent advertising is to
establish such differential monopolies resting on
popular conviction. And the advertiser is success-
ful in this endeavor to establish a_ profitable
popular conviction, somewhat in proportion as he
correctly apprehends the manner in which a popu-
lar conviction on any given topic is built up.” The

1-F.g. the prestige value of Ivory Soap.

2Cf. W. D. Scott, The Theory of Advertising ; J. L. Mahin, The
Commercial Value of Advertising, pp. 4-6, 12-13, 15 ; B. Fogg-Meade,
“ The Place of Advertising in Modern Business,’’ Journal of Political
Economy, March 1901; Sombart, vol. Il. ch. XX.-XXI.; G. Tarde,
Psychologie Economique, vol. I. pp. 187-190. The writing and de-
signing of advertisements (letterpress, display, and illustrations) has

56 THE THEORY OF BUSINESS ENTERPRISE

cost, as well as the pecuniary value and the mag-
nitude, of this organized fabrication of popular

grown into a distinct calling; so that the work of a skilled writer of
advertisements compares not unfavorably, in point of lucrativeness,
with that of the avowed writers of popular fiction.

The psychological principles of advertising may be formulated
somewhat as follows: A declaration of fact, made in the form and with
the incidents of taste and expression to which a person is accustomed,
will be accepted as authentic and will be acted upon if occasion arises,
in so far as it does not conflict with opinions already accepted. The
acceptance of an opinion seems to be almost entirely a passive matter.
The presumption remains in favor of an opinion that has once been
accepted, and an appreciable burden of proof falls on the negative.
A competent formulation of opinion on a given point is the chief
factor in gaining adherents to that opinion, and a reiteration of the
statement is the chief factor in carrying conviction. The truth of
such a formulation is a matter of secondary consequence, but a wide
and patent departure from known fact generally weakens its per-
suasive effect. The aim of the advertiser is to arrest attention and
then present his statement in such a manner that it is easily assimi-
lated into the habits of thought of the person whose conviction is to
be influenced. When this is effectually done a reversal of the con-
viction so established is a matter of considerable difficulty. The
tenacity of a view once accepted in this way is evidenced, for instance,
by the endless number and variety of testimonials to the merits of well-
advertised but notoriously worthless household remedies and the like.

So acute an observer as Mr. Sombart is still able to hold the
opinion that ‘‘ auf Schwindel ist dauernd noch nie ein Unternehmen
begriindet worden’? (Kapitalismus, vol. II. p. 376). Mr. Sombart
has not made acquaintance with the adventures of Elijah the Re-
storer, nor is he conversant with American patent-medicine enter-
prise. With Mr. Sombart’s view may be contrasted that of Mr.