L. F. Ward, an observer of equally large outlook and acumen : —

‘‘The law of mind as it operates in society as an aid to competi- tion and in the interest of the individual is essentially immoral. It rests primarily on the principle of deception. It is an extension to other human beings of the method applied to the animal world by which the latter was subjected toman. This method was that of the ambush and the snare. Its ruling principle was cunning. Its object was to deceive, circumvent, ensnare, and capture. Low animal cun- ning was succeeded by more refined kinds of cunning. The more important of these go by the names of business shrewdness, strategy,
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convictions is indicated by such statements as that the proprietors of a certain well-known household remedy, reputed among medical authorities to be of entirely dubious value, have for a series of years found their profits in spending several mill- ion dollars annually in advertisements. This case is by no means unique.
It has been said,’ no doubt in good faith and certainly with some reason, that advertising as currently carried on gives the body of consumers valuable information and guidance as to the ways and means whereby their wants can be satisfied and their purchasing power can be best utilized. To the extent to which this holds true, advertising is a service to the community. But there is a large reservation to be made on this head. Adver- tising is competitive; the greater part of it aims to divert purchases, etc., from one channel to another channel of the same general class.” And to the extent to which the efforts of advertising in all its branches are spent on this competitive disturbance of trade, they are, on the whole, of
and diplomacy, none of which differ from ordinary cunning in any- thing but the degree of adroitness by which the victim is outwitted. In this way social life is completely honeycombed with deception.’? — ‘¢ The Psychologic Basis of Social Economics,’’ Ann. of Am. Acad., vol. III. pp. 83-84 [475-476].
1Fogg-Meade, ‘‘ Place of Advertising in Modern Business,’’ pp. 218, 224-236.
2 Advertising and other like expedients for the sale of goods aim at changes in the ‘‘ substitution values ’’ of the goods in question, not at an enhancement of the aggregate utilities of the available output of goods.
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slight if any immediate service to the community. Such advertising, however, is indispensable to most branches of modern industry; but the ne- cessity of most of the advertising is not due to its serving the needs of the community nor to any aggregate advantage accruing to the concerns which advertise, but to the fact that a business concern which falls short in advertising fails to get its share of trade. Hach concern must adver- tise, chiefly because the others do. The aggregate expenditure that could advantageously be put into advertising in the absence of competition would undoubtedly be but an inconsiderable fraction of what is actually incurred, and necessarily incurred under existing circumstances.’
Not all advertismg is wholly competitive, or at least it is not always obviously so. In proportion as an enterprise has secured a monopoly position, its advertising loses the air of competitive selling and takes on the character of information designed to increase the use of its output independently. But such an increase implies a redistribution of consumption on the part of the customers.2 So that the element of competitive selling is after all not absent in these cases, but takes the form of competition between different classes of wares
1 Cf. Jenks, The Trust Problem, pp. 21-28; Report of the Industrial Commission, vol. XIX. pp. 611-612.
? Cf. Bohn-Bawerk, Positive Theory of Capital, bk. III., ch. V., VII.-IX., on the value of alternative and complementary goods.
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instead of competitive selling of different brands of the same class of wares.
Attention is here called to this matter of adver- tising and the necessity of it in modern competitive business for the hght which it throws on “ cost of production” in the modern system, where the pro- cess of production is under the control of business men and is carried on for business ends. Com- petitive advertising is an unavoidable item in the aggregate costs of industry. It does not add to the serviceability of the output, except it be inci- dentally and unintentionally. What it aims at is the sale of the output, and it is for this purpose that it is useful. It gives vendibility, which is useful to the seller, but has no utility to the last buyer. Its ubiquitous presence in the costs of any business enterprise that has to do with the produc- tion of goods for the market enforces the statement that the “cost of production” of commodities under the modern business system is cost incurred with a view to vendibility, not with a view to ser- viceability of the goods for human use.
There is, of course, much else that goes into the cost of competitive selling, besides the expenses of advertising, although advertising may be the largest and most unequivocal item to be set down to that account. A great part of the work done by merchants and their staff of employees, both wholesale and retail, as well as by sales-agents not
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exclusively connected with any one mercantile house, belongs under the same head. Just how large a share of the costs of the distribution of goods fairly belongs under the rubric of competi- tive selling can of course not be made out. It is largest, on the whole, in the case of consumable goods marketed in finished form for the consumer, but there is more or less of it throughout. The goods turned out on a large scale by the modern industrial processes, on the whole, carry a larger portion of such competitive costs than the goods still produced by the old-fashioned detail methods of handicraft and household industry; although this distinction does not hold hard and fast. In some extreme cases the cost of competitive selling may amount to more than ninety per cent. of the total cost of the goods when they reach the con- sumer. In other lines of business, commonly occupied with the production of staple goods, this constituent of cost may perhaps fall below ten per cent. of the total. Where the average, for the price of finished goods delivered to the consumers, may le would be a hazardous guess.’
It is evident that the gains which accrue from this business of competitive selling and buying bear
1 Where competitive selling makes up a large proportion of the aggregate final cost of the marketed product, this fact is likely to show itself in an exceptionally large proportion of good-will in the capitali- zation of the concerns engaged in the given line of business ; as, e.g., the American Chicle Company.
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no determinable relation to the services which the work in question may render the community. Ifa comparison may be hazarded between two unknown and indeterminate quantities, it may perhaps be said that the gains from competitive selling bear something more of a stable relation to the service rendered than do the gains derived from specula- tive transactions or from the financiering opera- tions of the great captains of industry. It seems at least safe to say that the converse will not hold true. Gains and services seem more widely out of touch in the case of the large-scale financiering work. Not that the work of the large business men in reorganizing and consolidating the indus- trial process is of slight consequence; but as a general proposition, the amount of the business man’s gains from any given transaction of this latter class bear no traceable relation to any bene- fit which the community may derive from the transaction.’
As to the wages paid to the men engaged in the routine of competitive selling, as salesmen, buyers, accountants, and the like,— much the same holds true of them as of the income of the business men who carry on the business on their own initiative.
1 Cf, Ed. Hahn, Die Wirtschaft der Welt am Ausgang des XLX. Jahr- hunderts. —‘‘In unserem heutigen Wirtschaftsleben ist der Gewinn durch den Zuwachs der Produktion, mit dem friihere Jahrhunderte rechneten, ganz und gar zuriickgedriingt, er ist unwesentlich gewor- den.”’
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Their employers pay the wages of these persons, not because their work is productive of benefit to the community, but because it brings a gain to the employers. The point to which the work is directed is profitable sales, and the wages are in some pro- portion to the efficiency of this work as counted in terms of heightened vendibility.
The like holds true for the work and pay of the force of workmen engaged in the industrial pro- cesses under business management. It holds, in a measure, of all modern industry that produces for the market, but it holds true, in an eminent de- gree, of those lines of industry that are more fully under the guidance of modern business methods. These are most closely in touch with the market and are most consistently guided by considerations of vendibility. They are also, on the whole, more commonly carried on by hired labor, and the wages paid are competitively adjusted on grounds of the vendibility of the product. The brute serviceability of the output of these industries may be a large factor in its vendibility, perhaps the largest factor; but the fact remains that the end sought by the business men in control is a profitable sale, and the wages are paid as a means to that end, not to the end that the way of life may be smoother for the ultimate consumer of the goods produced.!
1Jt might, therefore, be feasible to set up a theory to the effect that wages are competitively proportioned to the vendibility of the
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The outcome of this recital, then, is that wher- ever and in so far as business ends and methods dominate modern industry the relation between the usefulness of the work (for other purposes than pecuniary gain) and the remuneration of it is remote and uncertain to such a degree that no attempt at formulating such a relation is worth while. This is eminently and obviously true of the work and gains of business men, in whatever lines of business they are engaged. This follows as a necessary consequence of the nature of busi- ness management.
Work that is, on the whole, useless or detrimental to the community at large may be as gainful to the business man and to the workmen whom he employs as work that contributes substantially to the aggregate livelihood. This seems to be pecul- iarly true of the bolder flights of business enter- prise. In so far as its results are not detrimental to human life at large, such unproductive work directed to securing an income may seem to be
product ; but there is no cogent ground for saying that the wages in any department of industry, under a business régime, are propor- tioned to the utility which the output has to any one else than the employer who sells it. When it is further taken into account that the vendibility of the product in very many lines of production de- pends chiefly on the wastefulness of the goods (cf. Theory of the Leisure Class, ch. V.), the divergence between the usefulness of the work and the wages paid for it seems wide enough to throw the whole question of an equivalence between work and pay out of theo- retical consideration. Cf., however, Clark, The Distribution of Wealth, especially ch. VII. and XXII.
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an idle matter in which the rest of the community has no substantial interests. Such is not the case. In so far as the gains of these unproductive occu- pations are of a substantial character, they come out of the aggregate product of the other occupa- tions in which the various classes of the commu- nity engage. The aggregate profits of the business, whatever its character, are drawn from the aggre- gate output of goods and services; and whatever goes to the maintenance of the profits of those who contribute nothing substantial to the output is, of course, deducted from the income of the others, whose work tells substantially.
There are, therefore, limits to the growth of the industrially parasitic lines of business Just spoken of. A disproportionate growth of parasitic indus- tries, such as most advertismg and much of the other efforts that go into competitive selling, as well as warlike expenditure and other industries directed to turning out goods for conspicuously wasteful consumption, would lower the effective vitality of the community to such a degree as to jeopardize its chances of advance or even its life. The limits which the circumstances of life impose in this respect are of a selective character, in the last resort. A persistent excess of parasitic and waste- ful efforts over productive industry must bring on a decline. But owing to the very high productive efficiency of the modern mechanical industry, the
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margin available for wasteful occupations and wasteful expenditures is very great. The require- ments of the aggregate livelihood are so far short of the possible output of goods by modern methods as to leave a very wide margin for waste and para- sitic income. So that instances of such a decline, due to industrial exhaustion, drawn from the his- tory of any earlier phase of economic life, carry no well-defined lesson as to what a modern indus- trial community may allow itself in this respect.
While it is in the nature of things unavoidable that the management of industry by modern busi- ness methods should involve a large misdirection of effort and a very large waste of goods and ser- vices, it is also true that the aims and ideals to which this manner of economic life gives effect act forcibly to offset all this incidental futility. These pecuniary aims and ideals have a very great effect, for instance, in making men work hard and unremittingly, so that on this ground alone the business system probably compensates for any wastes involved in its working. There seems, therefore, to be no tenable ground for thinking that the working of the modern business system involves a curtailment of the community’s liveli- hood. It makes up for its wastefulness by the added strain which it throws upon those engaged in the productive work.