{"collection":"philosophy-ethics","full_text_available":true,"graph_url":"https://unchartedknowledge.5gfusion.net/v2/api/page/gutenberg_29673/graph","html_url":"https://unchartedknowledge.5gfusion.net/v2/page/gutenberg_29673","id":"gutenberg_29673","license":"Public Domain (US)","rights_basis":"gutenberg_metadata_copyright_false","source":"gutenberg","source_url":"https://www.gutenberg.org/ebooks/29673","summary":null,"tags":["Business","Category: Business/Management","Category: Philosophy & Ethics","Saving and investment","Wealth -- Moral and ethical aspects"],"text":"Produced by The Online Distributed Proofreading Team at\nhttps://www.pgdp.net (This file was produced from images\ngenerously made available by The Internet Archive/Canadian\nLibraries)\n\n\n\n\n\n\n_Barbara Weinstock Lectures on The Morals of Trade_\n\nHIGHER EDUCATION AND BUSINESS STANDARDS.\nBy WILLARD EUGENE HOTCHKISS.\n\nCREATING CAPITAL: MONEY-MAKING AS AN AIM IN BUSINESS.\nBy FREDERICK L. LIPMAN.\n\nIS CIVILIZATION A DISEASE?\nBy STANTON COIT.\n\nSOCIAL JUSTICE WITHOUT SOCIALISM.\nBy JOHN BATES CLARK.\n\nTHE CONFLICT BETWEEN PRIVATE MONOPOLY AND GOOD CITIZENSHIP.\nBy JOHN GRAHAM BROOKS.\n\nCOMMERCIALISM AND JOURNALISM.\nBy HAMILTON HOLT.\n\nTHE BUSINESS CAREER IN ITS PUBLIC RELATIONS.\nBy ALBERT SHAW.\n\n\n\n\nCREATING CAPITAL\n\nMONEY-MAKING AS AN AIM IN BUSINESS\n\n\n\nBy\n\nFREDERICK L. LIPMAN\n\n\n\nBOSTON AND NEW YORK\nHOUGHTON MIFFLIN COMPANY\n_The Riverside Press Cambridge_\n1918\n\nCOPYRIGHT, 1918, BY THE REGENTS OF THE\nUNIVERSITY OF CALIFORNIA\n\nALL RIGHTS RESERVED\n\n_Published March 1918_\n\n\n_The Riverside Press_\nCAMBRIDGE . MASSACHUSETTS\nU . S . A\n\n\n\n\nBARBARA WEINSTOCK\nLECTURES ON THE MORALS OF TRADE\n\n\nThis series will contain essays by representative scholars and men of\naffairs dealing with the various phases of the moral law in its\nbearing on business life under the new economic order, first delivered\nat the University of California on the Weinstock foundation.\n\n\n\n\nCREATING CAPITAL\n\nMONEY-MAKING AS AN AIM IN BUSINESS\n\n\nThe object of this paper is to discuss money-making; to examine its\nprevalence as an aim among people generally and the moral standards\nwhich obtain among those who consciously seek to make money.\n\nThe desire to make money is common to most men. Stronger or weaker, in\nsome degree it is present in the mind of nearly every one. Now, how\nfar does this desire grow to be an aim or object in our lives, and to\nwhat extent is such an aim a worthy one?\n\nThe typical money-maker as commonly pictured in our imagination is a\nnarrow, grasping, selfish individual who has chosen to follow lower\nrather than higher ideals and who often is tempted, and always may be\ntempted, to employ illegitimate means for the attainment of his ends.\nThe aims he has adopted are made to stand in opposition to the\npractice of certain virtues. Thus we contrast profits and patriotism;\nenriching one's self and philanthropy; getting all the law allows and\njustice; taking advantage of the other fellow and honesty; becoming\nengrossed in acquisition and love of family. Now, such contrasts\nobviously prove nothing more than that money-making is and would be a\nvicious aim if pursued regardless of these virtues, and it could well\nbe replied that consideration of patriotism, philanthropy, love of\nfamily, etc., must in themselves impel one to earn and to save. \"The\nlove of money is the root of all evil\" implies an exclusive devotion\nto acquisition that may well be criticized. But aside from this there\nis no doubt that amid the confused ideas held on the subject, aiming\nto make money is commonly regarded as in some sort of antagonism to\nthe social virtues.\n\nThat there are other sides to the picture is recognized, however, even\nby the loose thought of the day. The man who earns his living, for\ninstance, it views as one who in so far is performing a fundamental\nduty. Indeed, the world scorns him who cannot or will not support\nhimself and his family. But this is only to say that one must work\nto-day to meet the expenditures of to-day. Is this the limit? Is it a\nvirtue for him to work in order to spend, but a vice for him to work\nin order to save? What are the considerations to be observed by a man\nin deciding whether or not he should adopt money-making--that is, the\nacquisition of a surplus beyond his current needs--as one of his\ndefinite aims in life?\n\nOne consideration relates to our country. The United States is now\nunderstood to be spending about $25,000,000 per day in carrying on the\nwar. In the last analysis this amount must be paid out of the past\nsavings and the savings from current earnings of the people of the\nUnited States. The wealth of the nation consists mainly of the sum of\nthe wealth of its citizens. We are therefore told to seek increased\nearnings and to economize in our expenditures in order to enhance the\nnational wealth. The duty here is perfectly clear, but even if we did\nnot have war conditions to teach us as a patriotic responsibility the\nnecessity of earning and saving a surplus, the obligation would still\nbe there. We owe a similar debt to our state and to our city or\ndistrict. And nearer still comes the duty to one's family and to one's\nown future, the duty of providing for the rainy day, for old age. And\nit will be observed that money-making in this sense is directed to the\nacquisition of _net_ income, it relates to that portion of one's\nearnings which is saved from current expenditure and becomes capital.\nThen we must also consider the duty to society. As we look out upon the\nsurrounding evidences of civilization--buildings and railroads and\nhighly cultivated fields, the machinery of production and distribution,\nthe shops full of useful commodities--and then cast our thought\nbackward to a time not very many years ago when all this country was a\nnatural wilderness, we may begin to realize the magnitude of the\nwealth, the capital, that has come into being since then, every\nparticle of which is due to the earnings and savings of somebody, to\nthe surplus not consumed by the workers of the past, their unexpended\nand unwasted net balances year by year. Universities, churches,\nlibraries, parks, are included in the wealth thus handed down to us.\nOur lives to-day may be richer and broader through this inheritance\ncreated by the industry and abstinence of our forefathers. Their\nbusiness careers, now closed, we regard as the more successful in that\nthey earned and saved a surplus, that they had a _net_ income to show\nas the result of their work.\n\nBut these savings of the past were accumulated, after all, by\ncomparatively few of the workers; not by the many, who lived from hand\nto mouth, happy-go-lucky, spending and enjoying in time of abundance,\nsuffering in time of poverty and stress, making no provision even for\ntheir own future, still less recognizing any duty to their country or\nto posterity to produce economically and regulate their expenditure\nwisely so as to carry forward a surplus. As far as this majority is\nconcerned we might yet be living among rocks and trees, without\nshelter, lacking sure supplies of food, with fig leaves to cover our\nnakedness. And to-day the same conditions obtain. How many persons are\nto be found among one's acquaintance who feel and act upon any\nresponsibility for doing their \"bit\" in the creation of capital? Very\nfew. Rather than exert himself to work with this in view, on the one\nhand, and to abstain from unnecessary consumption, on the other hand,\nthe ordinary man will make to himself every excuse. He will contemn\nmoney-making as a sordid aim, readily exaggerating itself into a vice;\nhe will dwell upon the obligations and other considerations of a\nhigher life, this being defined as something generous and noble, a\nsomething compared with which money-making cannot be regarded as a\nworthy object but must be included in the class of unpleasant\nnecessities, not to say indecencies, which ought to be relegated to\nthe background of life; he will summon up pictures of extreme poverty,\nwhere any money received must be expended forthwith to meet urgent\nneeds, as justifying that which in his case is the gratification of\nshiftless indulgence. Above all, this typical individual will not\naccept and act upon the idea that his affairs, his small income and\nexpenditure, have any bearing upon the prosperity and progress of his\ncountry. The most he will keep before him is that he should pay his\nbills, and perhaps in some few cases, will extend the notion to the\nfuture to include provision for the bills and possible emergencies\nthen to be met by himself and his family. Nor is this improvident\nattitude confined to the young, to the professional and the other\nnon-business classes. In the business world we see it all around us;\namong those who \"work for a living,\" among clerks and employees and\namong the so-called laboring classes it appears to be the normal\nattitude. People who work for salaries or wages seem characteristically\nto use up all their earnings in their current expenditure, to live up\nto their incomes without any serious attempt to save. If they pride\nthemselves upon trying to keep out of debt, it is as much as they\nexpect of themselves, and among them the man who attempts to go beyond\nthis in his money affairs is certainly the exception.\n\nOne of the effects of a world-wide war is an enormously increased\ndemand for labor at high and advancing wages, a condition that we\nmight suppose would be greatly to the advantage of the laborer. But\nthat will depend upon his own attitude and policy. From England, and\nfrom American towns here and there, we hear stories of the wage-earner\non whom increasing income has had the effect of lessening the effort\nto work; who stops during the week when the higher wage scale has paid\nhim the amount he is accustomed to regard as a week's earnings. Now,\nwould it not seem natural to expect that any man encountering improved\nmarket conditions for his output, whether of commodity or service,\nwould seek to turn the situation to advantage by increasing that\noutput as largely as lay in his power? If, for instance, I can\nmanufacture shoes to sell for $4.00 a pair and a change in market\nconditions is such that I can obtain $5.00 a pair, I would endeavor to\nproduce more shoes in order to profit by the favorable market; and if\nthereafter the price should rise to $6.00 and $7.00 and $8.00 a pair,\nat each increment my efforts would be still further intensified. That,\nindeed, is the normal economic attitude. Fluctuations in the price\nlevel due to changes in the demand for a commodity are expected to\naffect, and do affect, the market supply. At a higher price,\nproduction is stimulated and more units of the commodity are brought\nto the market, both from new sources and from old sources. Under\nfalling prices, on the other hand, the supply offered in the market\nwould become automatically diminished.\n\nThis is an elementary commonplace in economics, yet the laborer to\nwhom we have just referred does not seem to recognize it. He may find\nthat he can earn in, say four days, an amount equal to his former\nearnings in six days and, therefore, at the end of the fourth day he\nquits work for the week. Now, obviously under such increasing wage\nscale, he might do one of three things:\n\nHe could quit at the end of the fourth day, having received a week's\nincome.\n\nHe could continue working for the six days and use his surplus\nearnings for comforts, pleasures, and luxuries which previously he had\nbeen unable to afford.\n\nHe might work for the six days and save as much as possible of his\nexcess earnings.\n\nNow, what is the wise choice for the laborer? Leaving out of account\nspecial cases where he has a large family, or sickness at home, or is\nunder some other disability which in his individual case would reduce\nhis earning power or increase his minimum expenses, ought he not to\nwork for the six days, putting aside all he could of the excess as\nsavings for the future? It will be generally conceded that this is\nself-evident. If, viewing the narrow conditions under which the\nworkman ordinarily lives, it should be claimed that during a period of\nunusual earnings self-gratification would be not only natural but\nmeasurably justifiable, the reply could be made that this is merely\nspecious, involving assumption not in accord with the facts. Excuses\nof this kind we often make for ourselves in the endeavor to justify\nour indulgence in present pleasure rather than perform the irksome\nduty of self-restraint. The laborer whose ideals are such that he\nquits at the end of the fourth day is not the type of man who is going\nto spend the two holidays in pursuing higher aims in life; he is going\nto pass them in inaction, quite likely at the grog-shop. The man who\nfails to take advantage of the security for the future offered him and\nhis family through the opportunity of saving from extraordinary\nearnings is one who is adding to the abnormal demand for such things\nas phonographs, jewelry, spirits, and tobacco. And this helps to\nexplain the tremendous market for luxuries during wartime. Doubtless\nthere are many workmen who follow a more rational course, who are\nreaping and storing the harvest for the comfort and security of\nthemselves and their families during the winter of life. Could any one\nthink that this policy involved an aim that was sordid, tending to\ndraw them down, and away from higher considerations of life? Certainly\na course of careful planning in one's affairs would be in so far a\nbetter course and on a higher plane than indulgence in idleness or\nshiftless expenditure of surplus for present luxuries, regardless of\nfuture need.\n\nThis case of the workmen under conditions of abnormal wages seems\nexceptional; yet the choice so presented to him is not very different\nfundamentally from the choice normally presented to all the rest of\nus.\n\nThe young man starting out in life may be as negligent of his\nopportunities as the workman who quits at the end of the fourth day.\nOr if he devotes himself properly to his vocation he may consume his\nearnings in current self-gratification. If, however, he will both\nconcentrate on his work and practice self-restraint with the purpose\nof creating a saved surplus, all will agree in considering him as so\nfar headed on the road towards success. In the case of the beginner\nthis seems clear enough, but, after all, the same considerations apply\nto everybody else, whether in business or profession, beginners or\nexperienced, young or old; to all of us is the same choice presented\ndaily, and at our peril we must make it wisely. The physician, for\ninstance, although he cannot afford to pay more attention to\nmoney-making than to the welfare of his patients, to his studies, to\nhis professional ideals, must not, on the other hand, leave out of\naccount these business duties and considerations which belong to him\nas an economic member of society. He must produce and must consume\nwith his family, reasonably, decently and thriftily. He must aim at a\nsurplus to store away for the future. These aims are, as a matter of\ncourse, secondary to his professional ideals, but there need be no\nconflict of duty. The point is that there exists a department of his\nactivity devoted, and to be devoted, by him to his business affairs.\nIn any event, as a man, a husband, a father, a citizen, he cannot\nescape from the responsibility of these business affairs. They must be\nconducted in some way. Shall it be well or ill? If he fails herein it\nmay involve failure in any or all these relations--as a man, husband,\nfather, citizen. And obviously these same considerations apply to all\nother men and women, whatever may be their professions, occupations,\nor major interests in life. Why do so many allow themselves to be\ndragged along, living from hand-to-mouth, in fear of the knock of the\nbill collector at the door? Why do we associate money questions with\nthat which is unhappy, unfortunate, down-at-the-heel, with fear and\nmisery? Barring mere accidents, it is because we are careless,\nshiftless; because we do not face the problem manfully, practice\nreasonable self-restraint, consider the subject in its complexity and\ndecide upon, and carry out, a constructive programme. Even if one\nhappens to possess wealth, he is not exempt. Indeed, large wealth\ninvolves still greater necessity for care in the conduct of one's\npecuniary affairs. The rich man is said to have perplexities and\nresponsibilities which are unknown to those in moderate circumstances.\nIn fine, everyone must face these money questions or be driven by\nthem.\n\nThose who live on fixed incomes, whether from salary or investment,\nmay find it impossible to make any direct attempt to make money; for\nthem the problem is to be confronted and mastered on its other side,\nthe side of spending and saving, that the income may be apportioned as\nwisely as possible for the purposes of living. But during the last few\nyears a new factor has entered into the money problems of the\nindividual, often adding to his trials, often adding to his self-made\nexcuses, and especially burdensome to the man on fixed income. We\nrefer to the high cost of living. Here it is, however, that the wage\nearner can do something in self-protection, for the level of prices\nmay be in some measure affected by his policy in handling his\nearnings.\n\nA period of high wages is accompanied by and is in some sense an\nincident of a high level of prices. Now we recognize high wages,\nconsidered in itself, as beneficial to the community, for it gives\nopportunity, at least, for comforts in life and a provision for the\nfuture that otherwise would be lacking. But if prices have advanced as\nmuch as wages, the apparent improvement to the laborer is merely in\nnominal wages, while that which alone can benefit him is higher real\nwages. Now let us see what the workman could do to advance real wages\nas contrasted with nominal wages.\n\nWhat will be the effect on prices of the use of surplus earnings\nduring a period of high wages?\n\nIf the surplus earnings are expended, they will be used either in\nmeeting the higher prices of customary commodities, or in meeting\nthese advanced prices and also in purchasing additional commodities.\nThe first case will occur only if, and when, the advance in price\nequals the advance in wages, for only in that event will the new wages\njust cover the new cost of customary commodities. Then this\nexpenditure of the entire income in customary commodities tends to\nkeep up the price level and any benefit from higher wages disappears.\n\nIn the second case, so far as the worker spends his surplus earnings\nin meeting advanced prices for customary commodities, he tends to\nmaintain prices at the higher level, and so far as he buys additional\ncommodities, he increases the demand for them and tends further to\nadvance the price level.\n\nIf, on the other hand, the worker will save from his surplus earnings,\nhe will increase the community's capital, and this will tend, directly\nor indirectly, to cause the production of further commodities, so\nincreasing the supply of commodities and therefore tending to reduce\nprices.\n\nIn any case, the worker should save as much as possible, as this tends\nto reduce the price level and so to better his condition. Or, putting\nit more simply, in time of high wages the worker ought to produce as\nmuch as possible and consume as little as possible, both influences\ntending to increase the stock of commodities for his ultimate gain and\nfor that of the community.\n\nIn fact, a high level of prices may be due measurably to some wasting\nof the world's capital--as in war, for instance--and then the only\nantidote is to restore the capital, a movement that would doubtless\noccur anyway in time but which could be greatly accelerated through a\ngeneral adoption of habits of thrift and saving throughout a\ncommunity.\n\nThis then, though small, is something definite that we can contribute\nto the material advancement of mankind and, like the duty in this\nconnection to our nation, to our families and ourselves, it consists\nin creating capital; that is, earning as much as we can and, in any\nevent, even if our earnings are fixed, managing the income thriftily,\nand carrying forward as large a net result as possible.\n\nWe turn now from the mass of mankind, on the whole so singularly\nneglectful of these responsibilities, to the few in number who\nconstitute the creators of capital, to whom are due so much of the\ncomforts, the conveniences, and the material advantages that go to\nmake civilized life possible. Now these few are found in every rank in\nlife. They may be rich or poor, professional or business men, employer\nor employee, old or young, male or female. The characteristic is their\nhabit of thrift, of definitely adopting money-making as an aim, of\nspending less than they earn. It is astonishing what a small\npercentage of mankind they are. The Income Tax returns in the United\nStates for 1916 showed that out of a population of 104,000,000 people\nthose with taxable incomes aggregated only 336,652, about one in three\nhundred. But whatever be the rank of the individual practicing this\nthrift he is headed in the right direction and he tends to reach the\npoint of relative competence, of independence in his pecuniary\naffairs.\n\nPreeminent in the class of the thrifty we think of the man of affairs;\nthe business enterprise indeed is supposed to be the money-maker, _par\nexcellence_. Money-making is in fact considered as its _raison d'etre_;\nit is as a money-maker that the business man is contemned by some and\nenvied by many.\n\nNow money-making and money values occupy a special place in business\nenterprise, due to the fact that on economic principles such money\nvalue becomes the best test--perhaps the only true test--of the\nworkableness and success of business efforts. In the complicated\nactivities of the world's work, where each man, each undertaking, each\nbusiness unit, respectively, is striving primarily for its own\nadvantage, how is it, among all this pulling and pushing, this\ncompetition, that the social income is distributed so nearly in\naccordance with the individual contribution? Even if we admit that\nmany persons fail to get a fair share, that there is gross inequality\nhere and there, still after all, a student of mankind's activities in\nproduction, distribution, and consumption must marvel at the extent to\nwhich the rewards approximate the value of contribution. Now this is\nmade possible by money considered as a measure of relative values, by\nthe standard or test of fitness embodied in the thought, Will it pay,\nand to what extent will it pay? If I have in mind some new invention\nthat will perhaps confer benefits on mankind, the best test of its\npracticability and utility will be, Will it pay, will people buy it,\npay money for it? If an improvement in process is proposed, the\nquestion is, Will it pay? If the young man starts out in life with\nhigh ideals and a reasonably good opinion of his own abilities, an\nopinion fostered perhaps by fond parents and admiring friends, the\nquestion is, Will these abilities fit in with the world's needs? Will\nthey supply a real demand, will they be serviceable? The best means of\nascertaining this, although it may be only a rough estimate and\nalthough errors occasionally creep in is, will they pay? Can he sell\nthese services for real money? This criterion is practically\nomnipresent in the world of affairs. It is based on economic\nnecessity, and although here and there it may be charged with\ncruelties, with serious blunders, it is, on the whole, a remarkably\naccurate standard. We see this more clearly where we attempt to\nsubstitute some other criterion for ranking the soldiers in the battle\nof life. We can note, for instance, the inferior type and character,\ngenerally speaking, of men elected to office by the suffrages of their\nfellow citizens, compared with men who reach positions of authority in\nbusiness and other enterprises through the pressure of these economic\nprinciples. Again, consider the nation that has attempted to improve\non economic distribution of power by evolving a government which\nplaces the power in the hands of those best fitted to govern, a ruling\nclass which aims directly at efficiency, a select class but\nnecessarily self-selected, thus supplanting an economic regime by a\nmilitary regime--successful truly in certain forms of economic\nefficiency through a more rigid and compact organization, but\ndestructive of the initiative, the evolutionary growth, the\nfundamental development, the liberties of the people. Contrast this\nwith the freedom, happiness, and progress of a nation of shop-keepers.\nNow this economic regime, with its individual instances of cruelty,\nlike the cruelties of nature, does on the whole tend to develop men,\nto require their best efforts, to make them come forward and upward.\nThus, in this interplay of economic forces, wealth, or money, or\nprofits stands out as a primary object of attainment, and becomes the\nincentive to the complex efforts which tend to benefit the individual,\nthe community, and the nation.\n\nThe business enterprise then directs its attention to profits,\nbecause, from mere economic necessity, profits are the criterion of\nthe true success of the enterprise, that is, its serviceability to\nmankind. Here we distinguish between the shortsighted man, who aims at\nimmediate returns, and the farsighted man, whose eye is fixed on the\nfuture, who verily desires the profits, but desires them in the long\nrun. But this is only a manifestation of human nature as we find it in\nevery field. We always note a deficiency in the man whose life is\nlived for the present, for immediate enjoyment: in him we see the\ntypical pleasure-seeker, peculiarly prone to temptation, to break the\nrules of life, to indulge himself at the expense of others or of his\nown future. He is characteristically the weakling, the wrongdoer. And\nwe contrast him with the man of character, who stands superior to an\nimmediate environment, who will not disregard the distant future, the\nabsent neighbor, the invisible God. And so in the economic world it is\nthe whole life period which is to be regarded when aims are chosen.\nProfits as a goal for the long run do not antagonize moral principles.\n\"Honesty is the best policy\" and \"Do unto others as you would have\nothers do unto you\" are maxims of good business; and that economic\nprinciples do not conflict with them is shown by the fact that they\ntend towards profits in the long run. This is not to assert that\nmankind in business is perfect. In every period of economic advance\ninto a new environment, men try new experiments, as during the\ndevelopment of the great modern corporation in the period following\nthe Civil War in this country and, earlier than that, in the era of\nrailroad building. They have tried new experiments in ethics as they\nhave in physics, in chemistry, in economics. They have attempted to\nreplace honesty by camouflage, the golden rule by self-aggrandizement.\nBut these attempts are not successful and so they become discredited;\nthey do not work because inherently they cannot last, and inability to\nendure is fatal to the purposes of any economic undertaking. We are\nemphasizing the fact that business is necessarily conducted for the\nlong run, the very nature of success implying permanence. A man may\ntake some criminal advantage of an opportunity: he may abscond with\nmoney entrusted to him; he may abuse the confidence reposed in him by\nan employer, by a customer; he may obtain an immediate profit by\nmisrepresentation. But no one could expect such things to last; he\ncould not possibly be building an enduring structure; such a course\ncould not in the end promise him profits, or any other kind of\nsuccess. A properly conducted business enterprise then is concerned\nwith making profits in the long run; that is to say, in accordance\nwith accepted notions of business conduct; in short, according to\nrules of the game, and this involves conformity with a standard, a\nstandard of giving good value for what one gets.\n\nWe must next distinguish between gross profits and net profits. The\nmerchant or manufacturer naturally desires to do a large business, he\npoints with pride to the increase in his sales this year over last\nyear. The larger his turnover the smaller the proportionate amount of\nhis overhead expenses that must be borne per unit of product, and\nother economies follow large-scale production or distribution. He may\noccasionally be desirous of increasing his output even when it entails\na disproportionate increase in his expenditures, with the idea that he\ncan later occupy himself with reducing these expenses and in the\nmeanwhile the goodwill of his enterprise will have gained from the\nlarger circle of customers. Such is the case with a new enterprise\nthat often starts out with the expectation of little or no profits\nduring its early years, when it is gathering a clientele and learning\nto distribute its product with economy. All these, however, are\nspecial cases. The normal situation is that the business enterprise is\naiming at net profits, having an interest in large sales, heavy\ntransactions and gross profits only so far as these are expected to\nlead finally to net profits, the real goal. Now these net profits are,\nof course, the remainder of earnings left on hand after providing for\nall costs and expenses, for depreciation and every other factor\ncausing loss, destruction, and deterioration during the business\nperiod under consideration. In short, the business capital as it was\nat the beginning of the period is first fully restored and made intact\nat the end of the period before a net profit emerges. This net profit\ntherefore becomes in a true sense a creation of new capital and may\nindeed be retained in the business as an addition to capital funds.\nEven when it is paid out in dividends, partly or wholly, it becomes\nnew capital in the hands of the individual stockholders who then in\ntheir private capacity may of course spend it, but by proper\ninvestment may keep it permanently stored as capital. It is the\ncreation of capital then, that is in reality the ultimate money-making\naim of the business enterprise.\n\nWe can now summarize the attitude and policy of the typical business\nman in his money-making aim as follows:\n\nIn seeking profits he is actuated by economic necessity.\n\nHis goal is profits in the long run, which involves conformity with\neconomic and ethical standards, and net profits, which implies the\ncreation of capital.\n\nThe creation of capital we cannot fail to recognize as a worthy aim. It\nhas given mankind much of all that mankind possesses and constitutes\nthe foundation upon which civilization largely rests. The advancement\nin the arts and sciences has been in no small degree stimulated by the\ndemands of business enterprise for new methods of creating capital and\nwe may believe that should the time arrive when this motive should\nfail, when men should grow to be indifferent in their attitude towards\nprofits, the ensuing stagnation would affect every department of human\nendeavor. Of this we may be assured even when we remember that\nmoney-making, and what goes with it, is not the only aim in life.\n\nAfter cataloguing so much that is virtuous in the pursuit of\nmoney-making the suggestion is inevitable that there must be some other\nside to it, that the common views of the rapacity of the money-maker\ncannot be wholly unfounded. What then are the vices of the money-making\naim? In examining this question we shall first brush aside some things\nto which we have already referred. The pathological cases of mere\ncrime, of sharp practice, of taking advantage of others, while mounting\nup into distressingly high figures considered absolutely, are much less\nimportant relatively; that is, they are infrequent and scarce enough to\navoid obscuring the rule which they violate, the rule that honesty is\nindispensable in economics as well as in ethics. What we must now\ninvestigate is any vicious tendencies that may be found in the\nmoney-making aim when followed normally and according to its own\naccepted principles. Of such degenerative tendencies we seem to find\ntwo: first, the tendency to that excess which becomes a vice; and\nsecond, the tendency to a disregard of other considerations in life\nthrough too exclusive a devotion to acquisitiveness. But upon further\nthought we must see that these two tendencies flow together and become\none, for too much devotion to money-getting and too little attention to\nthe other purposes of life are, after all, expressions of the same\nthing. Perhaps a man may err in excessive devotion to any object of\nlife but we must admit that in the pursuit of gain the evil tendency to\nexaggerated absorption in the one aim is promoted through a cooperation\nwith his natural selfishness. Of all the fields of human endeavor, here\nis one that peculiarly fits in with self-seeking, with disregard for\nothers, which may drag a man downward, making him small and mean,\nunhappy and uncharitable, while apparently attaining the goal at which\nhe has aimed. Not every man, while concentrating upon money-making, is\nconsciously seeking his country's welfare, the amelioration of life for\nthe many, the uplift of posterity, even if he rigidly adheres to the\naccepted rules of the game, to the code of business honor. This brings\nus back to the popular picture of the money-maker, grasping, sordid,\nnarrow-minded. There are such people. I believe them to be rare, but\nwhether there are many of them to-day or not, it is a type tending to\ndisappear in the environment of modern business which offers its\ninducements and rewards to him who does, who becomes, who renders\nservice, not to the sordid seeker for gain. Barring an occasional\nexception, such an exclusive aim is not that of the man of large\naffairs, the business leader, the conspicuously successful man. It is\nnot Harriman, nor Edison, nor Weinstock, nor Marshall Field, nor\nPeabody, nor is it the heads of our big corporations of to-day. Such\nmen are money-makers, creators of capital, builders of large\nenterprise, but their aim at profits while genuine is only incidental\nto their main purpose of doing, of becoming better able to achieve, of\nrendering service. When the beginner in business approaches an\nexperienced friend for advice, he is told to work as hard and as\nfaithfully as possible, to study his business, to seek to improve\nhimself--in other words, to concentrate his whole strength on the\ngiving of service, for his wages or salary will take care of itself.\nThe experienced man knows well that this holds just as truly for all\nranks in the business world and that the higher one ascends in\nresponsibilities, the more he must give and do; indeed the leading\npositions in the business world are occupied by men who produce\ntremendously, whose value to themselves and others lies in what they\naccomplish, and this--not what they get--is the criterion of success\namong men of experience, among those in charge of enterprises, who are\non the lookout for leaders of this type.\n\nHere we have the remedy for the tendency backed by natural selfishness\ntowards undue devotion to gain: such narrowness simply does not work,\nit is crowded out by competition with the superior efficiency of\nbroader motives. And while, here and there, the type continues to\nexist, its development in new cases is discouraged by every instance\nillustrating the relative success--in all senses--attained by those who\nmake it their chief aim to produce, to render service. Just as the\nphysician bestows his first thought upon his patient, these superior\nbusiness men give first consideration to their profession, for so they\nregard it, and this tends to assure their success, just as it does that\nof the physician, and to become the standardized ideal for lesser men.\n\nIt is indeed clearly self-evident that on many accounts the man in\nbusiness must give attention primarily to the service he is trying to\nrender. The clerk in the store must devote himself mainly to his\ncustomers, to his merchandise, to his other duties, not to his salary.\nAnd so with the department manager, and so with the general manager,\nwhether of a store, a railroad company, or other activity; the\nimmediate daily problem for all lies in the rendering of a service, the\nproducing of a commodity, or the doing of the thing for which the\nbusiness enterprise exists. This concentration upon output is\nfurthermore required by competition which whips the producer into line\nand often makes it a matter of business life and death that one should\nmake progress in method and quality. That his shoes wear is a matter of\npride to the shoe manufacturer. \"Blank tires are good tires\" is not to\nbe regarded as merely a boastful advertisement. If it was it would not\npay the advertising cost.\n\nMoney-making as an aim thus becomes subsidiary to the characteristic\nactivities of the enterprise, it is in a sense a by-product. But the\nmoney-making aim is there, although perhaps in the background. It is\nfurnishing the power under which the enterprise operates. More than\nthat, it is the gauge indicating the prosperity or lack of prosperity\nof the enterprise, its progress, its fitting in with the needs of life.\nIn short, the money-making aim spurs on the business enterprise, just\nas the weekly or monthly pay spurs on the humble worker; but in each\ncase the main attention is given, and necessarily given, to the work to\nbe performed.\n\nLet us now consider some of the implications of this concentration on\nrendering service. The directed effort of each man to the production of\nthe utility characteristic of his business, tends to result in his\nlearning to conduct that specific activity with a high degree of skill,\nand with an increasingly valuable fund of experience. So highly\nspecialized does he become that it will be quite impossible for any one\nhitherto a stranger in that sphere to conduct it as well. Therefore in\nan age of coordinated effort the more a man has of accumulated\nknowledge and facility in handling a certain kind of affair and the\nbetter fitted, therefore, he is to continue and to progress along that\nline, the less relatively he is able to undertake the affairs of some\nother kind with which he is not familiar. We commonly feel free to\ncriticize a railroad, a newspaper, a large business house, perhaps a\nuniversity, with which we may have casual contact, but the fact is\nthere are few competent critics outside of the ranks of the enterprise\nitself or of those carrying on activities that are directly similar. In\na word, through this focusing of attention, a man will come to be\nexhaustively familiar with his own occupation, while possessing a\nmerely superficial acquaintance with the theories, customs, and\nresponsibilities of those of others. The wise man therefore argues the\nnecessity of confining himself to the field in which he has become\nexpert and will avoid taking chances in some outside direction wherein\nhe is not familiar. One of the most common and disheartening\nexperiences in the money-making and money-saving of the thrifty is that\nafter having both worked hard and practiced self-restraint, the\nresultant savings are often put into some enterprise that turns out\nbadly, and the whole effort is thus thrown away. Generally this happens\nbecause he has violated the rule we have just stated; he has ventured\nhis savings in unfamiliar fields, ignorantly he has rushed in where the\nbetter informed would have feared to tread. Such so-called investments\nare in reality highly speculative. They involve risks which are unknown\nand altogether to be avoided. Now no one speculates in his own\nlegitimate business, for there he is acquainted with the hazards which,\nhe has learned, require the best of knowledge and the greatest of\nprudence. It is the allurement of the unknown that tempts him to seek\nunearned profits through speculation in outside regions where, in the\nnature of the case, the chances must be against him. Now speculation\nhas its proper place in business: there are certain inherent hazards\nthat must be undertaken, mainly to be found in the risk of the seasons\nin the production of crops, and the risk of the future in undeveloped\nenterprise. These risks must be carried by somebody, but clearly they\nconstitute an activity for specialists who study conditions, becoming\nrelatively expert in determining how and when to act. These specialists\nare drawn principally from two classes: First, the professional\nspeculator, who knows his markets and makes a business of buying and\nselling future risks; such men perform a great service in handling our\nseasonal crops and in other directions, and are entitled to a\nreasonable profit. Second, the man of wealth who may use part of his\nsurplus in the risks of undeveloped enterprise; although it is probable\nthat in the end his losses and expenses will outweigh his gains, he can\nafford to take chances of such experiments in the hope that success\nwill follow in some of them; furthermore, he can regard the outlay as a\ncontribution to the advancement of mankind. For the rest of us,\nhowever, outside of these two classes, it is our business to keep away\nfrom speculation whether in oil wells, flying machines, in new\nfactories, or in real estate: in the long run, we cannot get something\nfor nothing and money-making efforts that are ethically valid thus\ncoincide with those that are selfishly desirable, namely, the efforts\nto obtain the payment, the profit, that arises from a valuable service\nperformed or commodity produced. Too often men who follow this rule in\ntheir regular occupation depart from it in the use of their saved\nsurplus funds. They feel that their savings ought to make them money,\nas they say.\n\nNow savings can be employed in one of three ways: They may be used as\ncapital by the owner; or they may be put out in investments--that is,\nused or utilized as capital in the business of another; or, third, they\nmay be wasted in gambling or speculation. As a matter of course, the\nemployment as additional capital in one's own enterprise is generally\nthe most desirable wherever applicable, but this is a use of limited\nscope, relating to but few of the people engaged in productive activity\nwho earn and save a surplus. The main resource for such accumulations\nis in safe investments, in the bonds and securities of our own country\nand those of well established enterprises. Not many among our embryo\ncapitalists possess the experience or skill requisite for the safe and\nproper investment of their funds, they must rely upon the advice of\nothers. But whom can they trust? The demand for investment advice has\nnot failed to call forth a supply of advisers, and elaborate are the\nschemes designed to lure the unwary. But, generally speaking, the man\nwho falls into the clutches of these birds of prey has himself to\nblame, for the reason that the temptations they offer are appeals to\nthe illegitimate desire to get something for nothing or to the foolish\nnotion that one can get-rich-quick in some way whispered about by a\nstranger, and out of sheer benevolence. The fact is that the wise man\nwill dismiss all thought of making money out of his investments; he\nwill seek only the moderate return which alone is consistent with\nsafety; and with this policy, will turn a deaf ear to any so-called\nopportunity which promises big profits. We can summarize the matter by\nsaying that concentration upon one's business and service implies that\none should not attempt to make money elsewhere.\n\nThis concentration on one's affairs therefore grows into a sort of\npractical system in which each member of the business community is\nlooking after some function or activity to the exclusion of other\nthings. And so the world's work is carried on to the best advantage,\neach function being filled by those particular men who have become\nrelatively expert therein. From this system arises a business habit or\nmethod not always understood by the young and inexperienced, by the\nnon-business person. We refer to the practice in trade of leaving to\neach individual, to each enterprise, to each organization, the\nresponsibility for looking out for its own interests when having\ndealings with others. _Caveat emptor_--let the buyer beware--expresses\nan extreme development of this, and in its common signification, that\neach side is to be permitted and expected to take any advantage of the\nother side that it may be able to secure, it describes a state of\nwarfare rather than of business. In buying and selling, in aiming to\nobtain the most favorable terms for each line of his activity, in\nmeeting conditions of competition, in all these relations, the business\nman is endeavoring to better himself and may doubtless be tempted here\nand there to forget the interests of the other party to the\ntransaction. But to yield to such temptation would merely be to abuse a\nprinciple which on the whole is sanctioned by the requirements of\neconomic efficiency. This principle is that the nearest approximation\nto effective justice in business transactions is reached when on each\nside the parties devote themselves to their respective interests and\npoints of view. If _A_ has a house for sale and _B_ is a prospective\nbuyer, the essence of the possible transaction between the two is that\n_A_'s idea of the value of the property is different from _B_'s idea of\nthat value; or at any rate that _A_ sees less value in it to him than\ndoes _B_ to _B_. This is of course typical of all business\ntransactions--the seller desires the money above the commodity, the\nbuyer prefers the commodity to the money. The seller and the buyer each\ndwells naturally upon his own idea of value. This is altogether\ndesirable, not to say indispensable, and is characteristic of every\nrelation of business, wherever two men buy and sell, employ one\nanother, or have other dealings together. The situation is somewhat the\nsame as in a law suit where the duty of the attorney for the plaintiff\nis to make every point that fairly can be made for the plaintiff, while\nthe attorney on the other side must correspondingly make every point\nthat can properly be made for the defendant. Each side is supposed to\nlook after the interest of that side. Similarly, in a business\norganization, say a railroad, when some new project is under\nconsideration it will be submitted to the engineer, to the chemist, to\nthe attorney, to the practical transportation man, and in each of these\ndepartments it is expected that the wisdom born of experience in the\nparticular function will be brought to bear. The engineer speaks with\nauthority on engineering questions, the lawyer on legal questions, the\ntransportation man on the practical working out of the project; and,\nnormally, the criticisms and contribution of each are confined to his\nown function. In short, the regime of economic self-interest results in\nleaving to each the responsibility which he is most competent to\nassume, that in which he is most expert, which thereby receives the\nbest attention that generally speaking it could have. Nor are\ncorrectives lacking for the abuses which may enter in through an\noverdevelopment of self-interest. _Caveat emptor_ becomes discredited\nas an unmodified basis of human action. The golden rule is increasingly\nseen to constitute a foundation demanded by economics as well as by\nethics. The trend to-day is away from indifference to the interests of\nthose with whom we deal. The successful merchant will not attempt to\nmake a profit through sales which he knows would not benefit the\npurchaser, for that would not measure up to the test, Will it pay? The\nvalue of a business depends largely on its goodwill and too much money\nand effort are spent in advertising and other means of building up a\nclientele to make men conceive it to be to their interest to deal\nsharply with their customers.\n\nIn the efforts of scientists to seek out and establish new methods,\nnew principles, the success of an experiment is to be determined, I\nsuppose, by the test, Will it work? Does it yield effective results?\nSimilarly, in economics, the science of mankind in its production,\ndistribution and consumption of material things, the test of utility\nand efficiency is, Will it pay? that being the standard of\nworkableness in the application of that science.\n\nWe have attempted, therefore, in this analysis of money-making to\napply this test, because the practice or habit or influence that pays\nis that which is in accord so far with the principles underlying this\nbranch of social science. We have seen, according to this standard,\nthat it is the duty of all to adopt money-making as a conscious aim;\nthat the money is to be economically used, the final object being net\nprofit, that balance or remainder which is carried forward as created\ncapital. Inability to increase a fixed income does not absolve one\nfrom the duty of doing one's part in the creation of capital through\nthrift and saving. The business enterprise, moreover, is required by\neconomic necessity to aim at money-making--meaning, however, profits\nin the long run rather than immediate or temporary gains. Such\npermanent returns can only be sought through adherence to ethical\nprinciples and although this aim at profits becomes the power plant\nwhich drives the business machine, the latter gives its energies and\nattention more directly to the rendering of service.\n\nConcentration upon service tends to make a man relatively efficient\ntherein, but argues a relative unfamiliarity with the field of others,\nfrom which we infer the advisability of confining one's activity to\nthe thing he has learned to do best. As an example of this, he should\navoid placing his surplus capital or savings in outside enterprises\nwhere they will partake of risks that are unknown to him, nor should\nhe attempt to employ his savings at all with the purpose of making\nmoney, unless, indeed, he can use them as capital in his own business.\nThe focusing of attention on one's own function also implies and\nexplains the custom of placing upon participants in a business\ntransaction the responsibility each for his own side, a custom which\nis economically justified but which must be kept within proper limits,\nas is fully recognized by the business men who are successful and who\ntherefore become models or examples for the guidance of other men,\ninfluencing the latter towards high ideals.\n\nWe have found, on the other hand, that apart from men in charge of\nbusiness enterprise, the burden of providing thus for man's welfare\nand development is assumed by very few, the vast majority, whether in\nprofessional or business employment, treating it with neglect and\ncontempt. They think, perhaps, that they are aiming at higher things,\nor that their efforts would not sufficiently count, or they do not\ngive the matter any sturdy thought; while the underlying motive, often\nunconscious, is simply an unwillingness to practice self-restraint. It\nis self-indulgence, we must conclude, that is to be overcome if we are\nto meet this responsibility in a manly way, visualizing it with\nsufficient clearness to see that thrift, the creation of capital for\none's self and for the race, comes into no necessary conflict with any\nother proper aim in life, but on the contrary constitutes a\nfundamental duty to society, to the state, to one's family, to his own\nfuture, to his self-respect.","title":"Creating Capital: Money-making as an aim in business","tradition":"philosophy-ethics","translated_text":null,"word_count":8632}