The Theory of Business Enterprise. Thorstein Veblen
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must first create the mechanical possibility of such new and more efficient methods and correlations, before the business man sees the chance, makes the necessary business arrangements, and gives general directions that the contemplated industrial advance shall go into effect. The period between the time of earliest practicability and the effectual completion of a given consolidation in industry marks the interval by which the business man retards the advance of industry. Against this are to be offset the cases, comparatively slight and infrequent, where the business men in control push the advance of industry into new fields and prompt the men concerned with the mechanics of the case to experiment and exploration in new fields of mechanical process.
When the recital is made, therefore, of how the large consolidations take place at the initiative of the business men who are in control, it should be added that the fact of their being in control precludes industrial correlations from taking place except by their advice and consent. The industrial system is organized on business principles and for pecuniary ends. The business man is at the centre; he holds the discretion and he exercises it freely, and his choice falls out now On one side, now on the other. The retardation as well as the advance is to be set down to his account.
As regards the economies in cost of production effected by these consolidations, there is a further characteristic feature to be noted, a feature of some significance for any theory of modern business. In great measure the saving effected is a saving of the costs of business management and of the competitive costs of marketing products and services, rather than a saving in the prime costs of production. The heightened facility and efficiency of the new and larger business combinations primarily affect the expenses of office work and sales, and it is in great part only indirectly that this curtailment and consolidation of business management has an effect upon the methods and aims of industry proper. It touches the pecuniary processes immediately, and the mechanical processes indirectly and in an uncertain degree. It is of the nature of a partial neutralization of the wastes due to the presence of pecuniary motives and business management, - for the business management involves waste wherever a greater number of men or transactions are involved than are necessary to the effective direction of the mechanical processes employed. The amount of "business" that has to be transacted per unit of product is much greater where the various related industrial processes are managed in severalty than where several of them are brought under one business management. A pecuniary discretion has to be exercised at every point of contact or transition, where the process or its product touches or passes the boundary between different spheres of ownership. Business transactions have to do with ownership and changes of ownership. The greater the parcelment in point of ownership, the greater the amount of business work that has to be done in connection with a given output of goods or services, and the slower, less facile, and less accurate on the whole, is the work. This applies both to the work of bargain and contract, wherein pecuniary initiative and discretion are chiefly exercised, and to the routine work of accounting, and of gathering and applying information and misinformation.
The standardization of industrial processes, products, services, and consumers, spoken of in an earlier chapter, very materially facilitates the business man's work in reorganizing business enterprises on a larger scale; particularly does this standardization serve his ends by permitting a uniform routine in accounting, invoices, contracts, etc., and so admitting a large central accounting system, with homogeneous ramifications, such as will give a competent conspectus of the pecuniary situation of the enterprise at any given time.
The great, at the present stage of development perhaps the greatest, opportunity for saving by consolidation, in the common run of cases, is afforded by the ubiquitous and in a sense excessive presence of business enterprise in the economic system. It is in doing away with unnecessary business transactions and industrially futile manoeuvring on the part of independent firms that the promoter of combinations finds his most telling opportunity. So that it is scarcely an over-statement to say that probably the largest, assuredly the securest and most unquestionable, service rendered by the great modern captains of industry is this curtailment of the business to be done, this sweeping retirement of business men as a class from the service and the definitive cancelment of opportunities for private enterprise.
So long as related industrial units are under different business managements, they are, by the nature of the case, at cross-purposes, and business consolidation remedies this untoward feature of the industrial system by eliminating the peCuniary element from the interstices of the system as far as may be. The interstitial adjustments of the industrial system at large are in this way withdrawn from the discretion of rival business men, and the work of pecuniary management previously involved is in large part dispensed with, with the result that there is a saving of work and an avoidance of that systematic mutual hindrance that characterizes the competitive management of industry. To the community at large the work of pecuniary management, it appears, is less serviceable the more there is of it. The heroic role of the captain of industry is that of a deliverer from an excess of business management. It is a casting out of business men by the chief of business men.25
The theory of business enterprise sketched above applies to such business as is occupied with the interstitial adjustments of the system of industries. This work of keeping and of disturbing the interstitial adjustments does not look immediately to the output of goods as its source of gain, but to the alterations of values involved in disturbances of the balance, and to the achievement of a more favorable business situation for some of the enterprises engaged. This work lies in the middle, between commercial enterprise proper, on the one hand, and industrial enterprise in the stricter sense, on the other hand. It is directed to the acquisition of gain through taking advantage of those conjunctures of business that arise out of the concatenation of processes in the industrial system.
In a similar manner commercial business may be said to be occupied with conjunctures that arise out of the circumstances of the industrial system at large, but not originating in the mechanical exigencies of the industrial processes. The conjunctures of commercial business proper are in the main fortuitous, in so far that they are commonly not initiated by the business men engaged in these commercial pursuits. Commercial business, simply as such, does not aim to guide the course of industry.
On the other hand, the large business enterprise spoken of above initiates changes in industrial organization and seeks its gain in large part through such alterations of value levels as take place on its own initiative. These alterations of the value levels, of course, have their effect upon the output of goods and upon the material welfare of the community; but the effect which they have in this way is only incidental to the quest of profits.
But apart from this remoter and larger guidance of the course of industry, the business men also, and more persistently and pervasively, exercise a guidance over the course of industry in detail. The production of goods and services is carried on for gain, and the output of goods is controlled by business men with a view to gain. Commonly, in ordinary routine business, the gains come from this output of goods and services. By the sale of the output the business man in industry "realizes" his gains. To "realize" means to convert salable goods into money values. The sale is the last step in the process and the end of the business man's endeavor.26 When he has disposed of the output, and so has converted his holdings of consumable articles into money values, his gains are as nearly secure and definitive as the circumstances of modern life admit. It is in terms of price that he keeps his accounts, and in the same terms he computes his output of products. The vital point of production with him is the vendibility of the output, its convertibility into money values, not its serviceability for the needs of mankind. A modicum of serviceability, for some purpose or other, the output must have if it is to be salable. But it does not follow that the highest serviceability gives the largest gains to the business man in terms of money, nor does it follow that the output need in all cases have other than a factitious serviceability. There is, on the one hand, such a possibility as overstocking the market with any given line of goods, to the detriment of the business man concerned, but not necessarily to the immediate disadvantage of the body of consumers. And there are, on the other hand, certain lines of industry, such as many advertising enterprises, the output of which may be highly effective for its purpose but of quite equivocal use to the community. Many well-known and prosperous enterprises which advertise and sell patent medicines and other proprietary articles might be cited in proof.
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