Definition of Business. Motives to CHAPTER IV PRELIMINARY SURVEY OF ECONOMICS 66 § 27. In the definition, "economics is the social science of business," the last word is used in its broadest sense. It denotes activity entered into, not primarily for its own sake, but for the sake of some indirect return. Business is thus, in a work" as distinguished from "play," but should not be thought of as necessarily disagreeable. It includes activity, that is, pleasurable mental or physical exercise, as well as effort, that is, exercise which involves some element of discomfort or pain. The rational man tries to arrange his work so that it will involve as little effort as possible. The motives to business activity are too familiar to require extended analysis. Men are so constituted that their happiness, their existence even, depends upon their having command over certain material commodities and personal services. They must have food, shelter and clothing in order to live. Such things satisfy their primary, physical needs. Next come the more complex wants which distinguish the civilized man from the savage. Men now desire tools, machines, conveniences for travel and social intercourse, and countless other things which contribute to the comfort of life. To create or obtain these material and immaterial conditions to well-being is the chief object of business activity. Primitive men went about the task directly. They killed game for food, erected their own huts and made their own garments from the skins of animals. Their civilized brothers have learned that business activity is more fruitful when it proceeds by roundabout and coöperative methods. They spend much of their time in fashioning tools, machines and other aids to production, and concentrate their attention on special tasks, relying on others and upon an elaborate system of markets and other facilities for exchange for most of the things which they require. CHARACTERISTICS OF BUSINESS MEN 51 It is this indirectness of modern business activity which gives rise to many of the most difficult problems of economies. Other motives to business activity (besides the desire to obtain control over commodities and services as a means to gratifying wants) are interest in work for its own sake, desire for the social distinction which attaches to large command over commodities and services, love of power and desire to serve the community. The strength of these supplementary motives varies with different men and in different ercupations. The first is particularly prominent in connection with the work of artists, artisans and professional men, but it is by no means confined to such pursuits. In fact it 's not far from the truth to say that business success in nearly all occupations is in direct proportion to the interest the Forker takes in his work for its own sake. Desire for social listinetion and love of power have little influence on the attitude of the average man toward the working life, but in the minds of those who rise to the highest positions in the business world these become dominant motives. It is only by reference to them that the laborious days of many of America's millionaires can be understood. Finally, the desire to render social service is already a strong motive with many persons and promises to become stronger as political and other opportunities to serve the community on terms that self-respecting men can accept are multiplied. There can be little. doubt that the present trend of development in progressive countries is toward the exaltation of these supplementary motives at the expense of what may be called the mere breadand-butter attitude toward the working life. Business § 28. A first requisite to the understanding of business is Character, a clear description of the business man. As found to-day in istics of the the United States and other countries in the same stage of Man: industrial development, he has four traits which show themselves more or less clearly in all of his acts: This interest. (1) The business man pursues his own interest in his busi- Selfness dealings and assumes that others will do the same. does not mean that he is steeped in selfishness, but simply that from his point of view business is business," not play The Larger Desire for ence. Business Goods and nor philanthropy, and that he prefers to keep his getting separate and distinct from his giving. (2) In judging of his own interest the business man thinks of himself not as an isolated individual, but as a member of different social groups, of which the family is by far the most important. He works not for himself alone, but for his family, his church, his union, or club, and his country. In different relations and at different times he identifies his interest with the interests of these organizations. (3) He desires to be financially independent. His ambition is to stand on his own feet, to make his own way and, when he accepts assistance, to give an adequate return. for it. (4) He is controlled in his business dealings by the code of business morality that pertains to his class. As there is "honor even among thieves," so there are special standards. that are accepted and lived up to by different business classes. These standards are not as high as would be desirable, but they are higher than current criticisms of business morality might lead one to think. To be maintained, however, in communities where class barriers are constantly giving way, such standards have often to be reinforced by legal enact ments. These four characteristics of the business, or economic, man are readily explained by reference to the evolutionary process which has brought industrial society to its present stage of development. Self-interest as a dominant motive, for example, is the direct fruit of that struggle for existence which is still in progress and which makes self-preservation the first law of nature to every organic species. In the case of men, sympathy and the sense of brotherhood have tempered selfseeking with consideration for others, but it still plays an important rôle in shaping human conduct. § 29. The material commodities and personal services which are objects of human desire are conveniently designated as goods, while the capacity or quality in goods which makes them desirable is called utility. As used in economics these terms are stripped of the moral implications that sometimes attach to them in ordinary speech. Thus anything that is an FREE AND ECONOMIC GOODS 53 object of desire has utility and is a good, whether it be the hymn-book of the missionary or the whisky of the trader. This usage is designed to give greater precision to discussions involving these concepts and also to avoid the mistake of substituting the approval or condemnation of the actions of business men for the explanation of their actions-the primary task of economics. Not all goods figure in business transactions. Such things Free Goods. as sunlight, air and water are usually free goods for which no one expects or receives a return. They are supplied by nature in such abundance that there is enough of them for all and to spare. In general it may be said that whenever the spontaneous supply of any good exceeds the desire for it, units of that good will be free. In contrast with free goods is that vastly larger class of Economic commodities whose supplies are limited in comparison with Goods. the desire for them and which are therefore objects of economy. These are appropriately named economic goods and taken together constitute the wealth to secure which men engage in business. The characteristic of economic goods is that they have value as well as utility. The term, value, is used in economics in two distinct, al- Value. though closely related, senses, and this has given rise to a great deal of confusion. It may designate the importance which a person ascribes to a unit of a good as a condition to the gratification of his wants. This is value in the subjective sense and may be distinguished as value in use. In the phrases," the value of a loaf of bread to a starving man is beyond calculation "" "' and no one knows the value of an object until he has to do without it," values in use are meant. The other sense of the term is that of value in exchange. When a bushel of wheat is said to be twice as valuable as a bushel of corn, it is the exchange ratio between the two that is referred to. Value in exchange is thus the power of a good to command other goods in exchange for itself. In future in this book the word value by itself will be used in the sense of value in exchange. The three concepts, utility, value in use and value in exchange, are analyzed more fully in the chapters on Value. Relation Value in Use and Value in At this point it will suffice to suggest very briefly the relations which they bear to one another. Free goods have no value in use, that is, single units of such goods have no importance as conditions to the gratification of wants. Thus a cubic foot of air in the room in which the reader sits has no value, although it has utility, because it would not be missed if withdrawn. Other air would rush in from adjoining rooms and from outdoors and the equilibrium of atmospheric pressure would be almost immediately re-established. If the room were made air-tight, however, and one cubic foot of air after another were withdrawn, the situation would be quite changed. Now, instead of being indifferent, each cubic foot of air would be of importance; and as one cubic foot after another was taken away this importance would steadily increase. As the air became thinner, discomfort, strangulation and finally death would ensue, unless the process of exhaustion could be checked. The reader would in this case ascribe high value to air, holding it as precious when at the last extremity as life itself. As this illustration indicates, value in use is variable and measures the extent of man's dependence under the given conditions of supply upon a unit of the good being valued. The relation between value in use and value in exchange is somewhat more complex. At the outset it is obvious that a good must have value in use to some one as a condition to its having value in exchange. Such value in use may be immediate, as in the case of goods finished and ready for consumption, or derivative, as in the case of tools and machinery. Unless it is present there can be no value in exchange for the simple reason that no one will give anything for something which no one considers of any importance. In the second place a good which has value in use to two or more persons so situated that they may have business dealings with one another and which is transferable will normally have value in exchange. This may be inferred from the definition of value in use, since a good which is of importance to the well-being of two or more persons can hardly fail to be worth something in other goods. Since value in exchange never arises in the absence of value in use, and, on the other hand, normally |