The Theory of Business Enterprise. Thorstein Veblen

extreme cases the cost of competitive selling may amount to more than ninety per cent. of the total cost of the goods when they reach the consumer. In other lines of business, commonly occupied with the production of staple goods, this constituent of cost may perhaps fall below ten per cent of the total. Where the average, for the price of finished goods delivered to the consumers, may lie would be a hazardous guess.³⁵

      It is evident that the gains which accrue from this business of competitive selling and buying bear no determinable relation to the services which the work in question may render the community. If a comparison may be hazarded between two unknown and indeterminate quantities, it may perhaps be said that the gains from competitive selling bear something more of a stable relation to the service rendered than do the gains derived from speculative transactions or from the financiering operations of the great captains of industry. It seems at least safe to say that the converse will not hold true. Gains and services seem more widely out of touch in the case of the large-scale financiering work. Not that the work of the large business men in reorganizing and consolidating the industrial process is of slight consequence; but as a general proposition, the amount of the business man's gains from any given transaction of this latter class bear no traceable relation to any benefit which the community may derive from the transaction.³⁶

      As to the wages paid to the men engaged in the routine of competitive selling, as salesmen, buyers, accountants, and the like, - much the same holds true of them as of the income of the business men who carry on the business on their own initiative. Their employers pay the wages of these persons, not because their work is productive of benefit to the community, but because it brings a gain to the employers. The point to which the work is directed is profitable sales, and the wages are in some proportion to the efficiency of this work as counted in terms of heightened vendibility.

      The like holds true for the work and pay of the force of workmen engaged in the industrial processes under business management. It holds, in a measure, of all modern industry that produces for the market, but it holds true, in an eminent degree, of those lines of industry that are more fully under the guidance of modern business methods. These are most closely in touch with the market and are most consistently guided by considerations of vendibility. They are also, on the whole, more commonly carried on by hired labor, and the wages paid are competitively adjusted on grounds of the vendibility of the product. The brute serviceability of the output of these industries may be a large factor in its vendibility, perhaps the largest factor; but the fact remains that the end sought by the business men in control is a profitable sale, and the wages are paid as a means to that end, not to the end that the way of life may be smoother for. the ultimate consumer of the goods produced.³⁷

      The outcome of this recital, then, is that wherever and in so far as business ends and methods dominate modern industry the relation between the usefulness of the work (for other purposes than pecuniary gain) and the remuneration of it is remote and uncertain to such a degree that no attempt at formulating such a relation is worth while. This is eminently and obviously true of the work and gains of business men, in whatever lines of business they are engaged. This follows as a necessary consequence of the nature of business management.

      Work that is, on the whole, useless or detrimental to the community at large may be as gainful to the business man and to the workmen whom he employs as work that contributes substantially to the aggregate livelihood. This seems to be peculiarly true of the bolder flights of business enterprise. In so far as its results are not detrimental to human life at large, such unproductive work directed to securing an income may seem to be an idle matter in which the rest of the community has no substantial interests. Such is not the case. In so far as the gains of these unproductive occupations are of a substantial character, they come out of the aggregate product of the other occupations in which the various classes of the community engage. The aggregate profits of the business, whatever its character, are drawn from the aggregate output of goods and services; and whatever goes to the maintenance of the profits of those who contribute nothing substantial to the output is, of course, deducted from the income of the others, whose work tells substantially.

      There are, therefore, limits to the growth of the industrially parasitic lines of business just spoken of. A disproportionate growth of parasitic industries, such as most advertising and much of the other efforts that go into competitive selling, as well as warlike expenditure and other industries directed to turning out goods for conspicuously wasteful consumption, would lower the effective vitality of the community to such a degree as to jeopardize its chances of advance or even its life. The limits which the circumstances of life impose in this respect are of a selective character, in the last resort. A persistent excess of parasitic and wasteful efforts over productive industry must bring on a decline. But owing to the very high productive efficiency of the modern mechanical industry, the margin available for wasteful occupations and wasteful expenditures is very great. The requirements of the aggregate livelihood are so far short of the possible output of goods by modern methods as to leave a very wide margin for waste and parasitic income. So that instances of such a decline, due to industrial exhaustion, drawn from the history of any earlier phase of economic life, carry no well-defined lesson as to what a modern industrial community may allow itself in this respect.

      While it is in the nature of things unavoidable that the management of industry by modern business methods should involve a large misdirection of effort and a very large waste of goods and services, it is also true that the aims and ideals to which this manner of economic life gives effect act forcibly to offset all this incidental futility. These pecuniary aims and ideals have a very great effect, for instance, in making men work hard and unremittingly, so that on this ground alone the business system probably compensates for any wastes involved in its working. There seems, therefore, to be no tenable ground for thinking that the working of the modern business system involves a curtailment of the community's livelihood. It makes up for its wastefulness by the added strain which it throws upon those engaged in the productive work.

      Business Principles

       Table of Contents

      The physical basis of modern business traffic is the machine process, as described in Chapter II. It is essentially a modern fact, - late and yet in its early stages of growth, especially as regards its wider sweep in the organization of the industrial system. The spiritual ground of business enterprise, on the other hand, is given by the institution of ownership. "Business principles" are corollaries under the main proposition of ownership; they are principles of property, - pecuniary principles. These principles are of older date than the machine industry, although their full development belongs within the machine era. As the machine process conditions the growth and scope of industry, and as its discipline inculcates habits of thought suitable to the industrial technology, so the exigencies of ownership condition the growth and aims of business, and the discipline of ownership and its management inculcates views and principles (habits of thought) suitable to the work of business traffic.

      The discipline of the machine process enforces a standardization of conduct and of knowledge in terms of quantitative precision, and inculcates a habit of apprehending and explaining facts in terms of material cause and effect. It involves a valuation of facts, things, relations, and even personal capacity, in terms of force. Its metaphysics is materialism and its point of view is that of causal sequence.³⁸ Such a habit of mind conduces to industrial efficiency, and the wide prevalence of such a habit is indispensable to a high degree of industrial efficiency under modern conditions. This habit of mind prevails most widely and with least faltering in those communities that have achieved great things in the machine industry, being both a cause and an effect of the machine process.

      Other norms of standardization, more or less alien to this one, and other grounds for the valuation of facts, have prevailed elsewhere, as well as in the earlier phases of the Western culture. Much of this older standardization still stands over, in varying degrees of vigor or decay, in that current scheme of knowledge and conduct that now characterizes the Western culture. Many of these ancient norms of thought which have come down from the discipline of remote and relatively primitive phases of the cultural past are still strong in the affections of men, although most of them