tion which could only be bridged over by a process of expenditure. The individual household remained the center for consumption, but production was no longer by the family for the family, or even by the women for the family. The age-long division of labor between men and women took a new form. The family now satisfies its wants, first, by a sale of highly specialized goods and services upon the market by certain members, and secondly, through a distribution of the resultant income by market purchases of the desired goods and services. The family welfare is affected both by the size of the income and the manner of distribution.

It might be suggested that the change in the technique and organization of production both complicated and facilitated the further process of securing satisfactions, which now became separate and distinct. (1) It immensely widened the possibilities by the abundance and variety of goods made available. The consumer is not limited by what he can make or do alone, but has increased his output by co-operation with others and the use of mechanical devices. (2) In another sense it widened the limits of choice. Customary production meant customary consumption. Free competition and individual initiative in production mean freedom of choice on the part of the purchaser. (3) The separation between the producer and the consumer made necessary the agencies and facilities for storing and distributing goods, and gathering and disseminating information.

Following out the implications of some of these suggestions might indicate some reasons for the emergence of a director of consumption -why the household as the center of this process needs a manager. The modern organization of production gave rise to the function of business manager. An interesting analogy might be worked out between the two.

Granting the importance of expenditure in the sense of choosing and buying goods to be utilized by the household, to what extent has it been turned over to women? There are various indications aside from individual observation that this has taken place to a considerable extent. (1) There is the testimony to the effect that in the wellregulated wage-earner's family the weekly pay envelope is turned over to the wife for disbursement. (2) Again, notice the extensive use that dealers in consumer's goods make of household journals as advertising media. (3) Significant also are the curricula and texts of modern schools of home economics with their change of emphasis from drill in the household arts to household administration, involving the selection of food, clothing, and shelter, and the theory and

practice of budget-making. (4) There is finally the widely accepted theory that our competitive consumption, the conspicuous consumption to win social distinction by display of wealth, has been largely delegated to women.

Are women, then, if called directors of family consumption, responsible for the guidance of economic activity by their choices in the exercise of demand? In the first place, it might be inquired whether they are agents or principals in these transactions? Do they determine policy or merely carry it out? Probably they are neither entirely passive nor the main active force. As to the bases of household policy several considerations might be briefly noted.

1. All consumers are liable to be the victims of certain faults of the system, and are, as compared with the producer, in a weak bargaining position. Since the producer takes the initiative, he often creates the want and is under some pressure to deceive or to adulterate. Further the consumer suffers from lack of knowledge, and the scarcity of objective tests which she can apply or could afford to apply to a great variety of goods bought in small quantities.

2. The art of spending for the household tends to be unprogressive, conservative, and largely non-rational. Some of the reasons that have been assigned are the individual, undifferentiated nature of the act, the lack of such standards as the profit test in industry to measure improvements, the lack of competition to weed out the inefficient, the slow development of the sciences such as psychology and physiology upon which progress in consumption rests, and the resistance to change which any institution which centers in the family shows.

3. The final ends which are behind the choices and preferences displayed in the distribution of the family income could probably be summed up in the phrase, The family standard of living. The expenditure is an attempt to serve those interests and promote those purposes which seem "necessary," "worthy," "desirable." What they are is probably determined partly by tradition, custom, habit, suggestion, and imitation, and partly by "taking thought."

[NOTE. The discussion of the part played by the consumer (demand) reveals something of the significance of the market function and market structure in our society. Some aspects of the market structure were pointed out in Selections 94–99.]

See also 271. The Standard of Living.

C. Entrepreneurship

325. SOME RESPONSIBLE AGENTS'

1. The rôle played by technical experts.-The making and distributing of goods by the elaborate modern methods requires highly skilled direction. On the technical side the work is planned by, and executed under the supervision of, civil, mechanical, mining, and electrical engineers, designers, industrial chemists, "efficiency experts," etc. These are the men who know how to extract raw materials, refine and manufacture them, devise and operate machinery, organize working forces-in short, the men who know how to secure the principal efficiency of economic effort. By applying the results and the methods of science to the everyday work of the world, they have led the rapid advance in the technique of production of which we feel so proud.

2. The rôle played by enterprisers.-But in no country in the world are these technical experts allowed free scope in directing the work of providing material goods. Higher authority is assigned by the money economy to another class of experts, business men who are skilled, not in making goods, but in making money. As an employee of the business man, the engineer must subordinate his interest in mechanical efficiency to his superior's interest in profitable investment. The chief rôle in directing what use shall be made of the country's natural resources, machinery, and labor is therefore played by its enterprisers.

But who and what are these enterprisers? The classical economists assumed that there stood at the head of the typical business enterprise a capitalist-employer, who provided a large part of the capital invested, assumed the pecuniary risk, performed the "work of superintendence," and pocketed the profits. Many enterprisers of this versatile type remain today; but the extraordinary growth in size and influence of the joint-stock company has given greater prominence to another form of business management.

In such an organization it is difficult to find anyone who corresponds closely to the capitalist-employer. Certainly the typical stockholder, who takes no part in managing the corporation beyond sending in his proxies to be voted at the annual meeting, does not fill the bill. Neither does the typical director, who confines such attention as he may give the corporation's affairs to passing on questions of general policy, selecting officers, criticizing or approving their

I

Adapted by permission from W. C. Mitchell, Business Cycles, pp. 32-37. (University of California Press, 1913. Author's copyright.)

reports, and the like. Finally, the general officers, dependent on the directors, remunerated largely if not wholly by salaries, and practicing among themselves an elaborate division of labor, have no such discretion and carry no such risk as the capitalist-employer. The latter, in fine, has been replaced by a "management," which includes several active directors and high officials, and often certain financial advisers, legal counsel, and large stockholders who are neither directors nor officials. It is this group which decides what shall be done with the corporation's property.

In other cases, however, a single enterpriser dominates the corporation and wields full authority. Within the class of enterprisers there has gradually been differentiated a special set, which plays an exceptionally active rôle in guiding economic activity-promoters. The promoter's special province is to find and bring to the attention of investors new opportunities for making money: new natural resources to be exploited, new processes to be developed, new products to be manufactured, new organizations of existing business enterprises to be arranged, etc. But the promoter is seldom more than an explorer who points out the way for fresh advances of the army of industry. When an enterprise of his imagination has been organized and has begun operations, the promoter does not often retain the leadership for long. As permanent officers men of more cautious temper and more systematic habits commonly take command.

3. The rôle played by lenders.-The enterprisers, indeed, do not have unlimited discretion in deciding what use shall be made of the available resources, equipment, and labor. In matters of importance their decisions are subject to review by a higher court. For most business projects require the use of funds borrowed from banks, large capitalists, or from the investing public, and this fact gives the lenders an effective veto power over proposals which do not meet their approbation.

Whenever an enterpriser applies to an individual capitalist to take an interest in some project, to a bank to discount his notes, or to the investing public to buy bonds, he must satisfy the lenders of his ability to keep up the interest and to repay the principal. Even when the applicant can provide collateral security for the loan, and obviously when he cannot, the lender's decision depends largely upon his own judgment regarding the business prospects of the intended venture. To aid their officers in forming intelligent decisions, banks are coming to require applicants for loans to make on standard forms systematic

statements of their financial standing and projects. In addition, the banks and the houses which grant mercantile credits subscribe to commercial agencies and maintain credit departments of their own for the purpose of collecting and classifying information about the business standing and prospects of their customers. Similarly, corporations which offer bonds or stocks for sale find it advisable to publish advertisements and circulars setting forth their financial condition, the purposes for which money is being raised, and the anticipated profitableness of the extensions in view. Affidavits from certified public accountants, legal counsel, and consulting engineers are often appended to lend these statements greater force.

The review of the projects of enterprisers by lenders, then, is no perfunctory affair. Nor is its practical influence upon the guidance of economic activity negligible. There are always being launched more schemes than can be financed with the available funds. In rejecting some and accepting others of these schemes, the men of money are taking a very influential though not a very conspicuous part in determining how labor shall be employed, what products shall be made, and what localities built up.

Not all lenders, however, are able to make intelligent decisions. The great mass of small investors and not a few of the large lack the experience or the ability to discriminate wisely between profitable and unprofitable schemes. Many such folk put their money into savings banks, rely upon the advice of friends who are better equipped, consult with their bankers, take counsel from the financial press, or follow what they suppose to be the lead of some conspicuous figure in high finance. Not being able to obtain from impartial sources or personal examination the data necessary for forming an independent judgment, they cannot work out their problems along strictly rational lines. Hence they are peculiarly subject to the influence of feeling in matters where feeling is a dangerous guide. The alternating waves of overconfidence and unreasoning timidity which sweep over the investment market are among the most characteristic phenomena of business cycles. Even those who are looked to for advice are not wholly immune from the contagion of emotional aberration. It follows that the guidance of economic activity by the investing class is not strictly comparable with the intelligent review of plans by competent experts.

A more vigorous and more intelligent leadership is exercised by the larger capitalists. They excel the investing public, not only in