Creating Capital, Frederick L. Lipman [free ebook reader for android .txt] 📗

a remarkably accurate standard. We see this more clearly where we attempt to substitute some other criterion for ranking the soldiers in the battle of life. We can note, for instance, the inferior type and character, generally speaking, of men elected to office by the suffrages of their fellow citizens, compared with men who reach positions of authority in business and other enterprises through the pressure of these economic principles. Again, consider the nation that has attempted to improve on economic distribution of power by evolving a government which places the power in the hands of those best fitted to govern, a ruling class which aims directly at efficiency, a select class but necessarily self-selected, thus supplanting an economic régime by a military régime—successful truly in certain forms of economic efficiency through a more rigid and compact organization, but destructive of the initiative, the evolutionary growth, the fundamental development, the liberties of the people. Contrast this with the freedom, happiness, and progress of a nation of shop-keepers. Now this economic régime, with its individual instances of cruelty, like the cruelties of nature, does on the whole tend to develop men, to require their best efforts, to make them come forward and upward. Thus, in this interplay of economic forces, wealth, or money, or profits stands out as a primary object of attainment, and becomes the incentive to the complex efforts which tend to benefit the individual, the community, and the nation.

The business enterprise then directs its attention to profits, because, from mere economic necessity, profits are the criterion of the true success of the enterprise, that is, its serviceability to mankind. Here we distinguish between the shortsighted man, who aims at immediate returns, and the farsighted man, whose eye is fixed on the future, who verily desires the profits, but desires them in the long run. But this is only a manifestation of human nature as we find it in every field. We always note a deficiency in the man whose life is lived for the present, for immediate enjoyment: in him we see the typical pleasure-seeker, peculiarly prone to temptation, to break the rules of life, to indulge himself at the expense of others or of his own future. He is characteristically the weakling, the wrongdoer. And we contrast him with the man of character, who stands superior to an immediate environment, who will not disregard the distant future, the absent neighbor, the invisible God. And so in the economic world it is the whole life period which is to be regarded when aims are chosen. Profits as a goal for the long run do not antagonize moral principles. "Honesty is the best policy" and "Do unto others as you would have others do unto you" are maxims of good business; and that economic principles do not conflict with them is shown by the fact that they tend towards profits in the long run. This is not to assert that mankind in business is perfect. In every period of economic advance into a new environment, men try new experiments, as during the development of the great modern corporation in the period following the Civil War in this country and, earlier than that, in the era of railroad building. They have tried new experiments in ethics as they have in physics, in chemistry, in economics. They have attempted to replace honesty by camouflage, the golden rule by self-aggrandizement. But these attempts are not successful and so they become discredited; they do not work because inherently they cannot last, and inability to endure is fatal to the purposes of any economic undertaking. We are emphasizing the fact that business is necessarily conducted for the long run, the very nature of success implying permanence. A man may take some criminal advantage of an opportunity: he may abscond with money entrusted to him; he may abuse the confidence reposed in him by an employer, by a customer; he may obtain an immediate profit by misrepresentation. But no one could expect such things to last; he could not possibly be building an enduring structure; such a course could not in the end promise him profits, or any other kind of success. A properly conducted business enterprise then is concerned with making profits in the long run; that is to say, in accordance with accepted notions of business conduct; in short, according to rules of the game, and this involves conformity with a standard, a standard of giving good value for what one gets.

We must next distinguish between gross profits and net profits. The merchant or manufacturer naturally desires to do a large business, he points with pride to the increase in his sales this year over last year. The larger his turnover the smaller the proportionate amount of his overhead expenses that must be borne per unit of product, and other economies follow large-scale production or distribution. He may occasionally be desirous of increasing his output even when it entails a disproportionate increase in his expenditures, with the idea that he can later occupy himself with reducing these expenses and in the meanwhile the goodwill of his enterprise will have gained from the larger circle of customers. Such is the case with a new enterprise that often starts out with the expectation of little or no profits during its early years, when it is gathering a clientèle and learning to distribute its product with economy. All these, however, are special cases. The normal situation is that the business enterprise is aiming at net profits, having an interest in large sales, heavy transactions and gross profits only so far as these are expected to lead finally to net profits, the real goal. Now these net profits are, of course, the remainder of earnings left on hand after providing for all costs and expenses, for depreciation and every other factor causing loss, destruction, and deterioration during the business period under consideration. In short, the business capital as it was at the beginning of the period is first fully restored and made intact at the end of the period before a net profit emerges. This net profit therefore becomes in a true sense a creation of new capital and may indeed be retained in the business as an addition to capital funds. Even when it is paid out in dividends, partly or wholly, it becomes new capital in the hands of the individual stockholders who then in their private capacity may of course spend it, but by proper investment may keep it permanently stored as capital. It is the creation of capital then, that is in reality the ultimate money-making aim of the business enterprise.

We can now summarize the attitude and policy of the typical business man in his money-making aim as follows:

In seeking profits he is actuated by economic necessity.

His goal is profits in the long run, which involves conformity with economic and ethical standards, and net profits, which implies the creation of capital.

The creation of capital we cannot fail to recognize as a worthy aim. It has given mankind much of all that mankind possesses and constitutes the foundation upon which civilization largely rests. The advancement in the arts and sciences has been in no small degree stimulated by the demands of business enterprise for new methods of creating capital and we may believe that should the time arrive when this motive should fail, when men should grow to be indifferent in their attitude towards profits, the ensuing stagnation would affect every department of human endeavor. Of this we may be assured even when we remember that money-making, and what goes with it, is not the only aim in life.

After cataloguing so much that is virtuous in the pursuit of money-making the suggestion is inevitable that there must be some other side to it, that the common views of the rapacity of the money-maker cannot be wholly unfounded. What then are the vices of the money-making aim? In examining this question we shall first brush aside some things to which we have already referred. The pathological cases of mere crime, of sharp practice, of taking advantage of others, while mounting up into distressingly high figures considered absolutely, are much less important relatively; that is, they are infrequent and scarce enough to avoid obscuring the rule which they violate, the rule that honesty is indispensable in economics as well as in ethics. What we must now investigate is any vicious tendencies that may be found in the money-making aim when followed normally and according to its own accepted principles. Of such degenerative tendencies we seem to find two: first, the tendency to that excess which becomes a vice; and second, the tendency to a disregard of other considerations in life through too exclusive a devotion to acquisitiveness. But upon further thought we must see that these two tendencies flow together and become one, for too much devotion to money-getting and too little attention to the other purposes of life are, after all, expressions of the same thing. Perhaps a man may err in excessive devotion to any object of life but we must admit that in the pursuit of gain the evil tendency to exaggerated absorption in the one aim is promoted through a coöperation with his natural selfishness. Of all the fields of human endeavor, here is one that peculiarly fits in with self-seeking, with disregard for others, which may drag a man downward, making him small and mean, unhappy and uncharitable, while apparently attaining the goal at which he has aimed. Not every man, while concentrating upon money-making, is consciously seeking his country's welfare, the amelioration of life for the many, the uplift of posterity, even if he rigidly adheres to the accepted rules of the game, to the code of business honor. This brings us back to the popular picture of the money-maker, grasping, sordid, narrow-minded. There are such people. I believe them to be rare, but whether there are many of them to-day or not, it is a type tending to disappear in the environment of modern business which offers its inducements and rewards to him who does, who becomes, who renders service, not to the sordid seeker for gain. Barring an occasional exception, such an exclusive aim is not that of the man of large affairs, the business leader, the conspicuously successful man. It is not Harriman, nor Edison, nor Weinstock, nor Marshall Field, nor Peabody, nor is it the heads of our big corporations of to-day. Such men are money-makers, creators of capital, builders of large enterprise, but their aim at profits while genuine is only incidental to their main purpose of doing, of becoming better able to achieve, of rendering service. When the beginner in business approaches an experienced friend for advice, he is told to work as hard and as faithfully as possible, to study his business, to seek to improve himself—in other words, to concentrate his whole strength on the giving of service, for his wages or salary will take care of itself. The experienced man knows well that this holds just as truly for all ranks in the business world and that the higher one ascends in responsibilities, the more he must give and do; indeed the leading positions in the business world are occupied by men who produce tremendously, whose value to themselves and others lies in what they accomplish, and this—not what they get—is the criterion of success among men of experience, among those in charge of enterprises, who are on the lookout for leaders of this type.

Here we have the remedy for the tendency backed by natural selfishness towards undue devotion to gain: such narrowness simply does not work, it is crowded out by competition with the superior efficiency of broader motives. And while, here and there, the type continues to exist, its development in new cases is discouraged by every instance illustrating the relative success—in all senses—attained by those who make it their chief aim to produce, to render service. Just as