99. STOCK EXCHANGES' Much that is to be condemned appears in their conduct. But they are after all productive institutions. They play useful, almost indispensable, rôles in the economic order. Their most important function is to render more efficient the capital of the country. a) They make investment easy. b) They make withdrawal from an investment easy, and, in so doing, make capitalists more disposed to invest. c) They bring together all classes of investments, make clear their disadvantages, and so appeal to all classes of investors, e.g., those who wish above all security; those who demand a chance for large returns; those who can wait indefinitely for returns of any sort; etc. d) They make the properties represented in stocks and bonds perfectly available as a basis for loans. (Banks will readily accept such bonds and stocks as security, seeing that there is a continuous and unlimited market where these properties can be disposed of at almost any moment.) e) It is worth noting that the stock market furnishes government with the best available clue to the value of corporate properties when these are needed for the purposes of taxation or social control. See also 133. The Functions of the Stock Exchange. A scheme for combined production must originate in the mind of some person; and somebody also is required to organize it and to take the risk of his labor being wasted. These different functions are usually combined in the same man. An idea occurs to a man, who is not well satisfied with his present employment, that there is money to be made in the manufacture of some article-it may be a new invention, or it may be a well-established article of commerce now transported from a great distance. He estimates the probable demand, in a neighbourhood which he selects, for the article in question, at various prices at which it might be possible to manufacture it; he next makes an estiTaken by permission from F. M. Taylor, Principles of Economics, pp. 295-96. (University of Michigan, 1916.) 2 Taken by permission from H. S. Jevons, Essays on Economics, pp. 224–26. (Macmillan and Co., Ltd., 1905.) mate of the probable cost of production; and, if the probable proceeds show a sufficient margin above the cost of production, and the business is likely to prove profitable, he feels free to do his best to inaugurate the undertaking. It will be well to designate a man who thus ventures on any new scheme of production by some descriptive term. For this I propose the old English word enterpriser, one which was formerly used to denote any person starting upon an adventure or enterprise, but has now fallen into disuse. The word has already been occasionally used by writers on Economics in much the sense which I shall here give it; but it has not yet found a place in the textbooks of the science. The only English word which has been used with the same meaning is undertaker, but this word, though very expressive of the economic meaning, also bears a somewhat incongruous suggestion. The French synonym, entrepreneur, has been largely used by English writers, and a German term, unternehmer, occasionally. See also 199. The Entrepreneur as a Risk-Taker. IOI. 328. Is the Entrepreneur Active or Passive? THE INDIVIDUAL AND THE GAIN SPIRIT' The present organization of industry is sometimes described as capitalistic, and the term is quite properly applied, if all that is meant by it is that in our part of the world the greater part of industry and property is immediately controlled by persons and institutions, whose object is to make a profit on their capital. In Western Europe and America it is certain that the majority of workers work as they are directed to work by persons and bodies of persons who employ them in order to make a profit by getting more than they pay for all expenses, and who reckon the profit as a percentage on their capital. The greater part of the property is also in the hands of such persons and institutions. But we are not to conclude from this that these persons and institutions exercise any really spontaneous control over mankind and the useful things upon the face of the earth. They are only intermediaries between the consumer on the one side and the persons whose work and property are necessary for production on the other. They can only get their profits in consequence of a careful Taken by permission from Edwin Cannan, Wealth, pp. 104-5. (P. S. King & Son, Ltd., 1914.) attention to value which compels them to agree on the one side with the consumer with means, and on the other with the workers whom they employ and the owners whose property they use. Their profit is dependent on the price the consumer with means will give, and on the prices at which they can obtain the things and services necessary for the production. If the consumers for any reason choose to place a lower value on some commodity or service which is being produced by "capitalistic" methods, the profits fall off, and all or some of the persons, firms, or companies engaged in the trade are compelled, or at the least find it better, to reduce their output. And the same thing happens if, on the other hand, the value of some of the necessary elements of the production rises; profits are reduced until the amount. produced is cut down, so that a rise in its price takes place. Thus everyone, including the capitalist, is governed by the desire of being able to produce commodities and services of high value. A man capable of several different kinds of work of equal pleasantness will take up that which "pays" him best. If he is well disposed towards his children and able to train them for several such different kinds of work, he will train them for that kind which will "pay" best after allowing for the cost. If he has property, he will devote it to the purpose which will "pay" best. Whether he works for a person who consumes for his own satisfaction what he produces, or for a person or firm or company which sells what he makes to the final consumer and wants to secure a profit, matters not. 102. COMPETITION PLACES THE INDIVIDUAL' The function of personal competition, considered as a part of the social system, is to assign to each individual his place in that system. If "all the world's a stage," this is a process that distributes the parts among the players. It may do it well or ill, but, after some fashion, it does it. Some may be cast in parts unsuited to them; good actors may be discharged altogether and worse ones retained; but nevertheless the thing is arranged in some way and the play goes on. That such a process must exist can hardly, it seems to me, admit of question: in fact I believe that those who speak of doing away with competition use the word in another sense than is here intended. Within the course of the longest human life there is necessarily a complete renewal of the persons whose communication and co-operation 1 Adapted by permission from C. H. Cooley, "Personal Competition," Economic Studies, IV, 78-83. (American Economic Association, 1899.) make up the life of society. The new members come into the world without any legible sign to indicate what they are fit for, a mystery to others from the first and to themselves as soon as they are capable of reflection; the young man does not know for what he is adapted, and no one else can tell him. The only possible way to get light upon the matter is to adopt the method of experiment. By trying one thing and another and by reflecting upon his experiences, he begins to find out about himself, and the world begins to find out about him. His field of investigation is of course restricted, and his own judgment and that of others liable to error, but the tendency of it all can hardly be other than to guide his choice to that one of the available careers in which he is best adapted to hold his own. There is but one alternative to competition as a means of determining the place of the individual in the social system, and that is some form of status, some fixed mechanical rule, usually a rule of inheritance, which decides the function of the individual without reference to his personal traits and thus dispenses with any process of comparison. It is possible to conceive of a society organized entirely upon the basis of the inheritance of functions, and indeed societies exist which may be said to approach this condition. In India, for example, the prevalent idea regarding the social function of the individual is that it is unalterably determined by his parentage, and the village blacksmith, shoemaker, accountant, or priest has his place assigned by a rule of descent as rigid as that which governs the transmission of the crowns of Europe. If all functions were handed down in this way, if there were never any deficiency or surplus of children to take the place of their parents, if there were no progress or decay in the social system, making necessary new activities or dispensing with old ones, then there would be no use for a selective process. But precisely in the measure that a society departs from this condition, that individual traits are recognized and made available, or social change of any sort comes to pass, in that measure must there be competition. Status is not an active process as competition is; it is simply a rule of conservation, a makeshift to avoid the inconveniences of continual readjustment in the social structure. The chief danger of status is that of suppressing personal development, and so of causing social enfeeblement, rigidity, and ultimate decay. On the other hand, competition develops the individual and gives flexibility and animation to the social order, its danger being chiefly that of disintegration in some form or other. The general tendency in modern times has been toward the relative increase of the free or competitive principle, owing to the fact that the rise of other means of securing stability has diminished the need for status. The latter persists, however, even in the freest countries, as the method by which wealth is transmitted, and also in social classes, which, so far as they exist at all, are based chiefly upon inherited wealth and the culture and opportunities that go with it. The ultimate reason for this persistence without very serious opposition-in the face of the obvious inequalities and limitations upon liberty that it perpetuates, is perhaps the fact that no other method of transmission has arisen that has shown itself capable of giving continuity and order to the control of wealth. 103. HUMAN MOTIVES IN ECONOMIC LIFE' Man is born into his world accompanied by a rich psychical disposition which furnishes him ready made all his motives for conduct, all his desires, economic or wasteful, moral or depraved, crass or aesthetic. As Macdougall graphically puts it: "Take away these instinctive dispositions with their powerful impulses and the human organism would become incapable of activity of any kind; it would lie inert and motionless like a wonderful clockwork whose mainspring had been removed or a steam engine whose fires had been drawn. These impulses are the mental forces which maintain and shape all the life of individuals and societies, and in them we are confronted with the central mystery of life and mind and will." Instincts to their modern possessor seem unreasoning and irrational and often embarrassing. To the race, however, they are an efficient and tried guide to conduct, for they are the result of endless experiments of how to fight, to grow, to procreate, under the ruthless valuing mechanism of the competition for survival. These instincts have in the most complete sense of the word survival value. In fact, outside of some relatively unimportant bodily attributes, the instincts are all that our species in its long evolution have considered worth saving. All human activity then is untiringly actuated by the demand for realization of the instinct wants. If an artificially limited field of endeavor be called "economic life," all of its so-called motives hark back to the human instincts for their origin. There are in truth no "economic motives" as such. The motives of economic life are the 'Adapted from an unpublished article by Carleton H. Parker. |