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Title: Creating Capital

Author: Frederick L. Lipman

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Language: English

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*** START OF THE PROJECT GUTENBERG EBOOK CREATING
CAPITAL ***

Barbara Weinstock
Lectures on The Morals of Trade

HIGHER EDUCATION AND BUSINESS
STANDARDS.
By Willard Eugene Hotchkiss.

CREATING CAPITAL: MONEY-MAKING
AS AN AIM IN BUSINESS.
By Frederick L. Lipman.

IS CIVILIZATION A DISEASE?
By Stanton Coit.

SOCIAL JUSTICE WITHOUT
SOCIALISM.
By John Bates Clark.

THE CONFLICT BETWEEN PRIVATE
MONOPOLY AND GOOD CITIZENSHIP.
By John Graham Brooks.

COMMERCIALISM AND JOURNALISM.
By Hamilton Holt.

THE BUSINESS CAREER IN ITS PUBLIC
RELATIONS.
By Albert Shaw.

C R E AT IN G C A P ITA L

MONEY-MAKING AS AN AIM IN BUSINESS

By

FREDERICK L. LIPMAN

BOSTON AND NEW YORK
HOUGHTON MIFFLIN COMPANY
The Riverside Press Cambridge
1918

COPYRIGHT, 1918, BY THE REGENTS OF
THE UNIVERSITY OF CALIFORNIA

ALL RIGHTS RESERVED

Published March 1918

The Riverside Press
CAMBRIDGE · MASSACHUSETTS
U·S·A

BARBARA WEINSTOCK
LECTURES ON THE MORALS OF

TRADE

This series will contain essays by
representative scholars and men of affairs
dealing with the various phases of the moral
law in its bearing on business life under the
new economic order, first delivered at the
University of California on the Weinstock
foundation.

CREATING CAPITAL

MONEY-MAKING AS AN AIM IN BUSINESS

T HE object of this paper is to discuss money-making; to examine its
prevalence as an aim among people generally and the moral standards
which obtain among those who consciously seek to make money.

The desire to make money is common to most men. Stronger or weaker, in
some degree it is present in the mind of nearly every one. Now, how far
does this desire grow to be an aim or object in our lives, and to what extent
is such an aim a worthy one?

The typical money-maker as commonly pictured in our imagination is a
narrow, grasping, selfish individual who has chosen to follow lower rather
than higher ideals and who often is tempted, and always may be tempted, to
employ illegitimate means for the attainment of his ends. The aims he has
adopted are made to stand in opposition to the practice of certain virtues.
Thus we contrast profits and patriotism; enriching one's self and
philanthropy; getting all the law allows and justice; taking advantage of the
other fellow and honesty; becoming engrossed in acquisition and love of
family. Now, such contrasts obviously prove nothing more than that money-
making is and would be a vicious aim if pursued regardless of these virtues,
and it could well be replied that consideration of patriotism, philanthropy,
love of family, etc., must in themselves impel one to earn and to save. "The
love of money is the root of all evil" implies an exclusive devotion to
acquisition that may well be criticized. But aside from this there is no doubt
that amid the confused ideas held on the subject, aiming to make money is
commonly regarded as in some sort of antagonism to the social virtues.

That there are other sides to the picture is recognized, however, even by the
loose thought of the day. The man who earns his living, for instance, it
views as one who in so far is performing a fundamental duty. Indeed, the
world scorns him who cannot or will not support himself and his family.
But this is only to say that one must work to-day to meet the expenditures
of to-day. Is this the limit? Is it a virtue for him to work in order to spend,
but a vice for him to work in order to save? What are the considerations to
be observed by a man in deciding whether or not he should adopt money-
making—that is, the acquisition of a surplus beyond his current needs—as
one of his definite aims in life?

One consideration relates to our country. The United States is now
understood to be spending about $25,000,000 per day in carrying on the
war. In the last analysis this amount must be paid out of the past savings
and the savings from current earnings of the people of the United States.
The wealth of the nation consists mainly of the sum of the wealth of its
citizens. We are therefore told to seek increased earnings and to economize
in our expenditures in order to enhance the national wealth. The duty here is
perfectly clear, but even if we did not have war conditions to teach us as a
patriotic responsibility the necessity of earning and saving a surplus, the
obligation would still be there. We owe a similar debt to our state and to our
city or district. And nearer still comes the duty to one's family and to one's
own future, the duty of providing for the rainy day, for old age. And it will
be observed that money-making in this sense is directed to the acquisition
of net income, it relates to that portion of one's earnings which is saved
from current expenditure and becomes capital. Then we must also consider
the duty to society. As we look out upon the surrounding evidences of
civilization—buildings and railroads and highly cultivated fields, the
machinery of production and distribution, the shops full of useful
commodities—and then cast our thought backward to a time not very many
years ago when all this country was a natural wilderness, we may begin to
realize the magnitude of the wealth, the capital, that has come into being
since then, every particle of which is due to the earnings and savings of
somebody, to the surplus not consumed by the workers of the past, their

unexpended and unwasted net balances year by year. Universities, churches,
libraries, parks, are included in the wealth thus handed down to us. Our
lives to-day may be richer and broader through this inheritance created by
the industry and abstinence of our forefathers. Their business careers, now
closed, we regard as the more successful in that they earned and saved a
surplus, that they had a net income to show as the result of their work.

But these savings of the past were accumulated, after all, by comparatively
few of the workers; not by the many, who lived from hand to mouth, happy-
go-lucky, spending and enjoying in time of abundance, suffering in time of
poverty and stress, making no provision even for their own future, still less
recognizing any duty to their country or to posterity to produce
economically and regulate their expenditure wisely so as to carry forward a
surplus. As far as this majority is concerned we might yet be living among
rocks and trees, without shelter, lacking sure supplies of food, with fig
leaves to cover our nakedness. And to-day the same conditions obtain. How
many persons are to be found among one's acquaintance who feel and act
upon any responsibility for doing their "bit" in the creation of capital? Very
few. Rather than exert himself to work with this in view, on the one hand,
and to abstain from unnecessary consumption, on the other hand, the
ordinary man will make to himself every excuse. He will contemn money-
making as a sordid aim, readily exaggerating itself into a vice; he will dwell
upon the obligations and other considerations of a higher life, this being
defined as something generous and noble, a something compared with
which money-making cannot be regarded as a worthy object but must be
included in the class of unpleasant necessities, not to say indecencies, which
ought to be relegated to the background of life; he will summon up pictures
of extreme poverty, where any money received must be expended forthwith
to meet urgent needs, as justifying that which in his case is the gratification
of shiftless indulgence. Above all, this typical individual will not accept and
act upon the idea that his affairs, his small income and expenditure, have
any bearing upon the prosperity and progress of his country. The most he
will keep before him is that he should pay his bills, and perhaps in some
few cases, will extend the notion to the future to include provision for the

bills and possible emergencies then to be met by himself and his family.
Nor is this improvident attitude confined to the young, to the professional
and the other non-business classes. In the business world we see it all
around us; among those who "work for a living," among clerks and
employees and among the so-called laboring classes it appears to be the
normal attitude. People who work for salaries or wages seem
characteristically to use up all their earnings in their current expenditure, to
live up to their incomes without any serious attempt to save. If they pride
themselves upon trying to keep out of debt, it is as much as they expect of
themselves, and among them the man who attempts to go beyond this in his
money affairs is certainly the exception.

One of the effects of a world-wide war is an enormously increased demand
for labor at high and advancing wages, a condition that we might suppose
would be greatly to the advantage of the laborer. But that will depend upon
his own attitude and policy. From England, and from American towns here
and there, we hear stories of the wage-earner on whom increasing income
has had the effect of lessening the effort to work; who stops during the
week when the higher wage scale has paid him the amount he is
accustomed to regard as a week's earnings. Now, would it not seem natural
to expect that any man encountering improved market conditions for his
output, whether of commodity or service, would seek to turn the situation to
advantage by increasing that output as largely as lay in his power? If, for
instance, I can manufacture shoes to sell for $4.00 a pair and a change in
market conditions is such that I can obtain $5.00 a pair, I would endeavor to
produce more shoes in order to profit by the favorable market; and if
thereafter the price should rise to $6.00 and $7.00 and $8.00 a pair, at each
increment my efforts would be still further intensified. That, indeed, is the
normal economic attitude. Fluctuations in the price level due to changes in
the demand for a commodity are expected to affect, and do affect, the
market supply. At a higher price, production is stimulated and more units of
the commodity are brought to the market, both from new sources and from
old sources. Under falling prices, on the other hand, the supply offered in
the market would become automatically diminished.

This is an elementary commonplace in economics, yet the laborer to whom
we have just referred does not seem to recognize it. He may find that he can
earn in, say four days, an amount equal to his former earnings in six days
and, therefore, at the end of the fourth day he quits work for the week. Now,
obviously under such increasing wage scale, he might do one of three
things:

He could quit at the end of the fourth day, having received a week's income.

He could continue working for the six days and use his surplus earnings for
comforts, pleasures, and luxuries which previously he had been unable to
afford.

He might work for the six days and save as much as possible of his excess
earnings.

Now, what is the wise choice for the laborer? Leaving out of account
special cases where he has a large family, or sickness at home, or is under
some other disability which in his individual case would reduce his earning
power or increase his minimum expenses, ought he not to work for the six
days, putting aside all he could of the excess as savings for the future? It
will be generally conceded that this is self-evident. If, viewing the narrow
conditions under which the workman ordinarily lives, it should be claimed
that during a period of unusual earnings self-gratification would be not only
natural but measurably justifiable, the reply could be made that this is
merely specious, involving assumption not in accord with the facts. Excuses
of this kind we often make for ourselves in the endeavor to justify our
indulgence in present pleasure rather than perform the irksome duty of self-
restraint. The laborer whose ideals are such that he quits at the end of the
fourth day is not the type of man who is going to spend the two holidays in
pursuing higher aims in life; he is going to pass them in inaction, quite
likely at the grog-shop. The man who fails to take advantage of the security
for the future offered him and his family through the opportunity of saving
from extraordinary earnings is one who is adding to the abnormal demand
for such things as phonographs, jewelry, spirits, and tobacco. And this helps

to explain the tremendous market for luxuries during wartime. Doubtless
there are many workmen who follow a more rational course, who are
reaping and storing the harvest for the comfort and security of themselves
and their families during the winter of life. Could any one think that this
policy involved an aim that was sordid, tending to draw them down, and
away from higher considerations of life? Certainly a course of careful
planning in one's affairs would be in so far a better course and on a higher
plane than indulgence in idleness or shiftless expenditure of surplus for
present luxuries, regardless of future need.

This case of the workmen under conditions of abnormal wages seems
exceptional; yet the choice so presented to him is not very different
fundamentally from the choice normally presented to all the rest of us.

The young man starting out in life may be as negligent of his opportunities
as the workman who quits at the end of the fourth day. Or if he devotes
himself properly to his vocation he may consume his earnings in current
self-gratification. If, however, he will both concentrate on his work and
practice self-restraint with the purpose of creating a saved surplus, all will
agree in considering him as so far headed on the road towards success. In
the case of the beginner this seems clear enough, but, after all, the same
considerations apply to everybody else, whether in business or profession,
beginners or experienced, young or old; to all of us is the same choice
presented daily, and at our peril we must make it wisely. The physician, for
instance, although he cannot afford to pay more attention to money-making
than to the welfare of his patients, to his studies, to his professional ideals,
must not, on the other hand, leave out of account these business duties and
considerations which belong to him as an economic member of society. He
must produce and must consume with his family, reasonably, decently and
thriftily. He must aim at a surplus to store away for the future. These aims
are, as a matter of course, secondary to his professional ideals, but there
need be no conflict of duty. The point is that there exists a department of his
activity devoted, and to be devoted, by him to his business affairs. In any
event, as a man, a husband, a father, a citizen, he cannot escape from the
responsibility of these business affairs. They must be conducted in some

way. Shall it be well or ill? If he fails herein it may involve failure in any or
all these relations—as a man, husband, father, citizen. And obviously these
same considerations apply to all other men and women, whatever may be
their professions, occupations, or major interests in life. Why do so many
allow themselves to be dragged along, living from hand-to-mouth, in fear of
the knock of the bill collector at the door? Why do we associate money
questions with that which is unhappy, unfortunate, down-at-the-heel, with
fear and misery? Barring mere accidents, it is because we are careless,
shiftless; because we do not face the problem manfully, practice reasonable
self-restraint, consider the subject in its complexity and decide upon, and
carry out, a constructive programme. Even if one happens to possess
wealth, he is not exempt. Indeed, large wealth involves still greater
necessity for care in the conduct of one's pecuniary affairs. The rich man is
said to have perplexities and responsibilities which are unknown to those in
moderate circumstances. In fine, everyone must face these money questions
or be driven by them.

Those who live on fixed incomes, whether from salary or investment, may
find it impossible to make any direct attempt to make money; for them the
problem is to be confronted and mastered on its other side, the side of
spending and saving, that the income may be apportioned as wisely as
possible for the purposes of living. But during the last few years a new
factor has entered into the money problems of the individual, often adding
to his trials, often adding to his self-made excuses, and especially
burdensome to the man on fixed income. We refer to the high cost of living.
Here it is, however, that the wage earner can do something in self-
protection, for the level of prices may be in some measure affected by his
policy in handling his earnings.

A period of high wages is accompanied by and is in some sense an incident
of a high level of prices. Now we recognize high wages, considered in
itself, as beneficial to the community, for it gives opportunity, at least, for
comforts in life and a provision for the future that otherwise would be
lacking. But if prices have advanced as much as wages, the apparent
improvement to the laborer is merely in nominal wages, while that which

alone can benefit him is higher real wages. Now let us see what the
workman could do to advance real wages as contrasted with nominal
wages.

What will be the effect on prices of the use of surplus earnings during a
period of high wages?

If the surplus earnings are expended, they will be used either in meeting the
higher prices of customary commodities, or in meeting these advanced
prices and also in purchasing additional commodities. The first case will
occur only if, and when, the advance in price equals the advance in wages,
for only in that event will the new wages just cover the new cost of
customary commodities. Then this expenditure of the entire income in
customary commodities tends to keep up the price level and any benefit
from higher wages disappears.

In the second case, so far as the worker spends his surplus earnings in
meeting advanced prices for customary commodities, he tends to maintain
prices at the higher level, and so far as he buys additional commodities, he
increases the demand for them and tends further to advance the price level.

If, on the other hand, the worker will save from his surplus earnings, he will
increase the community's capital, and this will tend, directly or indirectly, to
cause the production of further commodities, so increasing the supply of
commodities and therefore tending to reduce prices.

In any case, the worker should save as much as possible, as this tends to
reduce the price level and so to better his condition. Or, putting it more
simply, in time of high wages the worker ought to produce as much as
possible and consume as little as possible, both influences tending to
increase the stock of commodities for his ultimate gain and for that of the
community.

In fact, a high level of prices may be due measurably to some wasting of the
world's capital—as in war, for instance—and then the only antidote is to
restore the capital, a movement that would doubtless occur anyway in time

but which could be greatly accelerated through a general adoption of habits
of thrift and saving throughout a community.

This then, though small, is something definite that we can contribute to the
material advancement of mankind and, like the duty in this connection to
our nation, to our families and ourselves, it consists in creating capital; that
is, earning as much as we can and, in any event, even if our earnings are
fixed, managing the income thriftily, and carrying forward as large a net
result as possible.

We turn now from the mass of mankind, on the whole so singularly
neglectful of these responsibilities, to the few in number who constitute the
creators of capital, to whom are due so much of the comforts, the
conveniences, and the material advantages that go to make civilized life
possible. Now these few are found in every rank in life. They may be rich
or poor, professional or business men, employer or employee, old or young,
male or female. The characteristic is their habit of thrift, of definitely
adopting money-making as an aim, of spending less than they earn. It is
astonishing what a small percentage of mankind they are. The Income Tax
returns in the United States for 1916 showed that out of a population of
104,000,000 people those with taxable incomes aggregated only 336,652,
about one in three hundred. But whatever be the rank of the individual
practicing this thrift he is headed in the right direction and he tends to reach
the point of relative competence, of independence in his pecuniary affairs.

Preëminent in the class of the thrifty we think of the man of affairs; the
business enterprise indeed is supposed to be the money-maker, par
excellence. Money-making is in fact considered as its raison d'être; it is as a
money-maker that the business man is contemned by some and envied by
many.

Now money-making and money values occupy a special place in business
enterprise, due to the fact that on economic principles such money value
becomes the best test—perhaps the only true test—of the workableness and
success of business efforts. In the complicated activities of the world's

work, where each man, each undertaking, each business unit, respectively,
is striving primarily for its own advantage, how is it, among all this pulling
and pushing, this competition, that the social income is distributed so nearly
in accordance with the individual contribution? Even if we admit that many
persons fail to get a fair share, that there is gross inequality here and there,
still after all, a student of mankind's activities in production, distribution,
and consumption must marvel at the extent to which the rewards
approximate the value of contribution. Now this is made possible by money
considered as a measure of relative values, by the standard or test of fitness
embodied in the thought, Will it pay, and to what extent will it pay? If I
have in mind some new invention that will perhaps confer benefits on
mankind, the best test of its practicability and utility will be, Will it pay,
will people buy it, pay money for it? If an improvement in process is
proposed, the question is, Will it pay? If the young man starts out in life
with high ideals and a reasonably good opinion of his own abilities, an
opinion fostered perhaps by fond parents and admiring friends, the question
is, Will these abilities fit in with the world's needs? Will they supply a real
demand, will they be serviceable? The best means of ascertaining this,
although it may be only a rough estimate and although errors occasionally
creep in is, will they pay? Can he sell these services for real money? This
criterion is practically omnipresent in the world of affairs. It is based on
economic necessity, and although here and there it may be charged with
cruelties, with serious blunders, it is, on the whole, a remarkably accurate
standard. We see this more clearly where we attempt to substitute some
other criterion for ranking the soldiers in the battle of life. We can note, for
instance, the inferior type and character, generally speaking, of men elected
to office by the suffrages of their fellow citizens, compared with men who
reach positions of authority in business and other enterprises through the
pressure of these economic principles. Again, consider the nation that has
attempted to improve on economic distribution of power by evolving a
government which places the power in the hands of those best fitted to
govern, a ruling class which aims directly at efficiency, a select class but
necessarily self-selected, thus supplanting an economic régime by a military
régime—successful truly in certain forms of economic efficiency through a

more rigid and compact organization, but destructive of the initiative, the
evolutionary growth, the fundamental development, the liberties of the
people. Contrast this with the freedom, happiness, and progress of a nation
of shop-keepers. Now this economic régime, with its individual instances of
cruelty, like the cruelties of nature, does on the whole tend to develop men,
to require their best efforts, to make them come forward and upward. Thus,
in this interplay of economic forces, wealth, or money, or profits stands out
as a primary object of attainment, and becomes the incentive to the complex
efforts which tend to benefit the individual, the community, and the nation.

The business enterprise then directs its attention to profits, because, from
mere economic necessity, profits are the criterion of the true success of the
enterprise, that is, its serviceability to mankind. Here we distinguish
between the shortsighted man, who aims at immediate returns, and the
farsighted man, whose eye is fixed on the future, who verily desires the
profits, but desires them in the long run. But this is only a manifestation of
human nature as we find it in every field. We always note a deficiency in
the man whose life is lived for the present, for immediate enjoyment: in him
we see the typical pleasure-seeker, peculiarly prone to temptation, to break
the rules of life, to indulge himself at the expense of others or of his own
future. He is characteristically the weakling, the wrongdoer. And we
contrast him with the man of character, who stands superior to an
immediate environment, who will not disregard the distant future, the
absent neighbor, the invisible God. And so in the economic world it is the
whole life period which is to be regarded when aims are chosen. Profits as a
goal for the long run do not antagonize moral principles. "Honesty is the
best policy" and "Do unto others as you would have others do unto you" are
maxims of good business; and that economic principles do not conflict with
them is shown by the fact that they tend towards profits in the long run.
This is not to assert that mankind in business is perfect. In every period of
economic advance into a new environment, men try new experiments, as
during the development of the great modern corporation in the period
following the Civil War in this country and, earlier than that, in the era of
railroad building. They have tried new experiments in ethics as they have in

physics, in chemistry, in economics. They have attempted to replace
honesty by camouflage, the golden rule by self-aggrandizement. But these
attempts are not successful and so they become discredited; they do not
work because inherently they cannot last, and inability to endure is fatal to
the purposes of any economic undertaking. We are emphasizing the fact that
business is necessarily conducted for the long run, the very nature of
success implying permanence. A man may take some criminal advantage of
an opportunity: he may abscond with money entrusted to him; he may
abuse the confidence reposed in him by an employer, by a customer; he
may obtain an immediate profit by misrepresentation. But no one could
expect such things to last; he could not possibly be building an enduring
structure; such a course could not in the end promise him profits, or any
other kind of success. A properly conducted business enterprise then is
concerned with making profits in the long run; that is to say, in accordance
with accepted notions of business conduct; in short, according to rules of
the game, and this involves conformity with a standard, a standard of giving
good value for what one gets.

We must next distinguish between gross profits and net profits. The
merchant or manufacturer naturally desires to do a large business, he points
with pride to the increase in his sales this year over last year. The larger his
turnover the smaller the proportionate amount of his overhead expenses that
must be borne per unit of product, and other economies follow large-scale
production or distribution. He may occasionally be desirous of increasing
his output even when it entails a disproportionate increase in his
expenditures, with the idea that he can later occupy himself with reducing
these expenses and in the meanwhile the goodwill of his enterprise will
have gained from the larger circle of customers. Such is the case with a new
enterprise that often starts out with the expectation of little or no profits
during its early years, when it is gathering a clientèle and learning to
distribute its product with economy. All these, however, are special cases.
The normal situation is that the business enterprise is aiming at net profits,
having an interest in large sales, heavy transactions and gross profits only
so far as these are expected to lead finally to net profits, the real goal. Now

these net profits are, of course, the remainder of earnings left on hand after
providing for all costs and expenses, for depreciation and every other factor
causing loss, destruction, and deterioration during the business period under
consideration. In short, the business capital as it was at the beginning of the
period is first fully restored and made intact at the end of the period before a
net profit emerges. This net profit therefore becomes in a true sense a
creation of new capital and may indeed be retained in the business as an
addition to capital funds. Even when it is paid out in dividends, partly or
wholly, it becomes new capital in the hands of the individual stockholders
who then in their private capacity may of course spend it, but by proper
investment may keep it permanently stored as capital. It is the creation of
capital then, that is in reality the ultimate money-making aim of the
business enterprise.

We can now summarize the attitude and policy of the typical business man
in his money-making aim as follows:

In seeking profits he is actuated by economic necessity.

His goal is profits in the long run, which involves conformity with
economic and ethical standards, and net profits, which implies the creation
of capital.

The creation of capital we cannot fail to recognize as a worthy aim. It has
given mankind much of all that mankind possesses and constitutes the
foundation upon which civilization largely rests. The advancement in the
arts and sciences has been in no small degree stimulated by the demands of
business enterprise for new methods of creating capital and we may believe
that should the time arrive when this motive should fail, when men should
grow to be indifferent in their attitude towards profits, the ensuing
stagnation would affect every department of human endeavor. Of this we
may be assured even when we remember that money-making, and what
goes with it, is not the only aim in life.

After cataloguing so much that is virtuous in the pursuit of money-making
the suggestion is inevitable that there must be some other side to it, that the

common views of the rapacity of the money-maker cannot be wholly
unfounded. What then are the vices of the money-making aim? In
examining this question we shall first brush aside some things to which we
have already referred. The pathological cases of mere crime, of sharp
practice, of taking advantage of others, while mounting up into distressingly
high figures considered absolutely, are much less important relatively; that
is, they are infrequent and scarce enough to avoid obscuring the rule which
they violate, the rule that honesty is indispensable in economics as well as
in ethics. What we must now investigate is any vicious tendencies that may
be found in the money-making aim when followed normally and according
to its own accepted principles. Of such degenerative tendencies we seem to
find two: first, the tendency to that excess which becomes a vice; and
second, the tendency to a disregard of other considerations in life through
too exclusive a devotion to acquisitiveness. But upon further thought we
must see that these two tendencies flow together and become one, for too
much devotion to money-getting and too little attention to the other
purposes of life are, after all, expressions of the same thing. Perhaps a man
may err in excessive devotion to any object of life but we must admit that in
the pursuit of gain the evil tendency to exaggerated absorption in the one
aim is promoted through a coöperation with his natural selfishness. Of all
the fields of human endeavor, here is one that peculiarly fits in with self-
seeking, with disregard for others, which may drag a man downward,
making him small and mean, unhappy and uncharitable, while apparently
attaining the goal at which he has aimed. Not every man, while
concentrating upon money-making, is consciously seeking his country's
welfare, the amelioration of life for the many, the uplift of posterity, even if
he rigidly adheres to the accepted rules of the game, to the code of business
honor. This brings us back to the popular picture of the money-maker,
grasping, sordid, narrow-minded. There are such people. I believe them to
be rare, but whether there are many of them to-day or not, it is a type
tending to disappear in the environment of modern business which offers its
inducements and rewards to him who does, who becomes, who renders
service, not to the sordid seeker for gain. Barring an occasional exception,
such an exclusive aim is not that of the man of large affairs, the business

leader, the conspicuously successful man. It is not Harriman, nor Edison,
nor Weinstock, nor Marshall Field, nor Peabody, nor is it the heads of our
big corporations of to-day. Such men are money-makers, creators of capital,
builders of large enterprise, but their aim at profits while genuine is only
incidental to their main purpose of doing, of becoming better able to
achieve, of rendering service. When the beginner in business approaches an
experienced friend for advice, he is told to work as hard and as faithfully as
possible, to study his business, to seek to improve himself—in other words,
to concentrate his whole strength on the giving of service, for his wages or
salary will take care of itself. The experienced man knows well that this
holds just as truly for all ranks in the business world and that the higher one
ascends in responsibilities, the more he must give and do; indeed the
leading positions in the business world are occupied by men who produce
tremendously, whose value to themselves and others lies in what they
accomplish, and this—not what they get—is the criterion of success among
men of experience, among those in charge of enterprises, who are on the
lookout for leaders of this type.

Here we have the remedy for the tendency backed by natural selfishness
towards undue devotion to gain: such narrowness simply does not work, it
is crowded out by competition with the superior efficiency of broader
motives. And while, here and there, the type continues to exist, its
development in new cases is discouraged by every instance illustrating the
relative success—in all senses—attained by those who make it their chief
aim to produce, to render service. Just as the physician bestows his first
thought upon his patient, these superior business men give first
consideration to their profession, for so they regard it, and this tends to
assure their success, just as it does that of the physician, and to become the
standardized ideal for lesser men.

It is indeed clearly self-evident that on many accounts the man in business
must give attention primarily to the service he is trying to render. The clerk
in the store must devote himself mainly to his customers, to his
merchandise, to his other duties, not to his salary. And so with the
department manager, and so with the general manager, whether of a store, a

railroad company, or other activity; the immediate daily problem for all lies
in the rendering of a service, the producing of a commodity, or the doing of
the thing for which the business enterprise exists. This concentration upon
output is furthermore required by competition which whips the producer
into line and often makes it a matter of business life and death that one
should make progress in method and quality. That his shoes wear is a matter
of pride to the shoe manufacturer. "Blank tires are good tires" is not to be
regarded as merely a boastful advertisement. If it was it would not pay the
advertising cost.

Money-making as an aim thus becomes subsidiary to the characteristic
activities of the enterprise, it is in a sense a by-product. But the money-
making aim is there, although perhaps in the background. It is furnishing
the power under which the enterprise operates. More than that, it is the
gauge indicating the prosperity or lack of prosperity of the enterprise, its
progress, its fitting in with the needs of life. In short, the money-making
aim spurs on the business enterprise, just as the weekly or monthly pay
spurs on the humble worker; but in each case the main attention is given,
and necessarily given, to the work to be performed.

Let us now consider some of the implications of this concentration on
rendering service. The directed effort of each man to the production of the
utility characteristic of his business, tends to result in his learning to
conduct that specific activity with a high degree of skill, and with an
increasingly valuable fund of experience. So highly specialized does he
become that it will be quite impossible for any one hitherto a stranger in
that sphere to conduct it as well. Therefore in an age of coördinated effort
the more a man has of accumulated knowledge and facility in handling a
certain kind of affair and the better fitted, therefore, he is to continue and to
progress along that line, the less relatively he is able to undertake the affairs
of some other kind with which he is not familiar. We commonly feel free to
criticize a railroad, a newspaper, a large business house, perhaps a
university, with which we may have casual contact, but the fact is there are
few competent critics outside of the ranks of the enterprise itself or of those
carrying on activities that are directly similar. In a word, through this

focusing of attention, a man will come to be exhaustively familiar with his
own occupation, while possessing a merely superficial acquaintance with
the theories, customs, and responsibilities of those of others. The wise man
therefore argues the necessity of confining himself to the field in which he
has become expert and will avoid taking chances in some outside direction
wherein he is not familiar. One of the most common and disheartening
experiences in the money-making and money-saving of the thrifty is that
after having both worked hard and practiced self-restraint, the resultant
savings are often put into some enterprise that turns out badly, and the
whole effort is thus thrown away. Generally this happens because he has
violated the rule we have just stated; he has ventured his savings in
unfamiliar fields, ignorantly he has rushed in where the better informed
would have feared to tread. Such so-called investments are in reality highly
speculative. They involve risks which are unknown and altogether to be
avoided. Now no one speculates in his own legitimate business, for there he
is acquainted with the hazards which, he has learned, require the best of
knowledge and the greatest of prudence. It is the allurement of the unknown
that tempts him to seek unearned profits through speculation in outside
regions where, in the nature of the case, the chances must be against him.
Now speculation has its proper place in business: there are certain inherent
hazards that must be undertaken, mainly to be found in the risk of the
seasons in the production of crops, and the risk of the future in undeveloped
enterprise. These risks must be carried by somebody, but clearly they
constitute an activity for specialists who study conditions, becoming
relatively expert in determining how and when to act. These specialists are
drawn principally from two classes: First, the professional speculator, who
knows his markets and makes a business of buying and selling future risks;
such men perform a great service in handling our seasonal crops and in
other directions, and are entitled to a reasonable profit. Second, the man of
wealth who may use part of his surplus in the risks of undeveloped
enterprise; although it is probable that in the end his losses and expenses
will outweigh his gains, he can afford to take chances of such experiments
in the hope that success will follow in some of them; furthermore, he can
regard the outlay as a contribution to the advancement of mankind. For the

rest of us, however, outside of these two classes, it is our business to keep
away from speculation whether in oil wells, flying machines, in new
factories, or in real estate: in the long run, we cannot get something for
nothing and money-making efforts that are ethically valid thus coincide
with those that are selfishly desirable, namely, the efforts to obtain the
payment, the profit, that arises from a valuable service performed or
commodity produced. Too often men who follow this rule in their regular
occupation depart from it in the use of their saved surplus funds. They feel
that their savings ought to make them money, as they say.

Now savings can be employed in one of three ways: They may be used as
capital by the owner; or they may be put out in investments—that is, used
or utilized as capital in the business of another; or, third, they may be
wasted in gambling or speculation. As a matter of course, the employment
as additional capital in one's own enterprise is generally the most desirable
wherever applicable, but this is a use of limited scope, relating to but few of
the people engaged in productive activity who earn and save a surplus. The
main resource for such accumulations is in safe investments, in the bonds
and securities of our own country and those of well established enterprises.
Not many among our embryo capitalists possess the experience or skill
requisite for the safe and proper investment of their funds, they must rely
upon the advice of others. But whom can they trust? The demand for
investment advice has not failed to call forth a supply of advisers, and
elaborate are the schemes designed to lure the unwary. But, generally
speaking, the man who falls into the clutches of these birds of prey has
himself to blame, for the reason that the temptations they offer are appeals
to the illegitimate desire to get something for nothing or to the foolish
notion that one can get-rich-quick in some way whispered about by a
stranger, and out of sheer benevolence. The fact is that the wise man will
dismiss all thought of making money out of his investments; he will seek
only the moderate return which alone is consistent with safety; and with this
policy, will turn a deaf ear to any so-called opportunity which promises big
profits. We can summarize the matter by saying that concentration upon

one's business and service implies that one should not attempt to make
money elsewhere.

This concentration on one's affairs therefore grows into a sort of practical
system in which each member of the business community is looking after
some function or activity to the exclusion of other things. And so the
world's work is carried on to the best advantage, each function being filled
by those particular men who have become relatively expert therein. From
this system arises a business habit or method not always understood by the
young and inexperienced, by the non-business person. We refer to the
practice in trade of leaving to each individual, to each enterprise, to each
organization, the responsibility for looking out for its own interests when
having dealings with others. Caveat emptor—let the buyer beware—
expresses an extreme development of this, and in its common signification,
that each side is to be permitted and expected to take any advantage of the
other side that it may be able to secure, it describes a state of warfare rather
than of business. In buying and selling, in aiming to obtain the most
favorable terms for each line of his activity, in meeting conditions of
competition, in all these relations, the business man is endeavoring to better
himself and may doubtless be tempted here and there to forget the interests
of the other party to the transaction. But to yield to such temptation would
merely be to abuse a principle which on the whole is sanctioned by the
requirements of economic efficiency. This principle is that the nearest
approximation to effective justice in business transactions is reached when
on each side the parties devote themselves to their respective interests and
points of view. If A has a house for sale and B is a prospective buyer, the
essence of the possible transaction between the two is that A's idea of the
value of the property is different from B's idea of that value; or at any rate
that A sees less value in it to him than does B to B. This is of course typical
of all business transactions—the seller desires the money above the
commodity, the buyer prefers the commodity to the money. The seller and
the buyer each dwells naturally upon his own idea of value. This is
altogether desirable, not to say indispensable, and is characteristic of every
relation of business, wherever two men buy and sell, employ one another, or

have other dealings together. The situation is somewhat the same as in a law
suit where the duty of the attorney for the plaintiff is to make every point
that fairly can be made for the plaintiff, while the attorney on the other side
must correspondingly make every point that can properly be made for the
defendant. Each side is supposed to look after the interest of that side.
Similarly, in a business organization, say a railroad, when some new project
is under consideration it will be submitted to the engineer, to the chemist, to
the attorney, to the practical transportation man, and in each of these
departments it is expected that the wisdom born of experience in the
particular function will be brought to bear. The engineer speaks with
authority on engineering questions, the lawyer on legal questions, the
transportation man on the practical working out of the project; and,
normally, the criticisms and contribution of each are confined to his own
function. In short, the régime of economic self-interest results in leaving to
each the responsibility which he is most competent to assume, that in which
he is most expert, which thereby receives the best attention that generally
speaking it could have. Nor are correctives lacking for the abuses which
may enter in through an overdevelopment of self-interest. Caveat emptor
becomes discredited as an unmodified basis of human action. The golden
rule is increasingly seen to constitute a foundation demanded by economics
as well as by ethics. The trend to-day is away from indifference to the
interests of those with whom we deal. The successful merchant will not
attempt to make a profit through sales which he knows would not benefit
the purchaser, for that would not measure up to the test, Will it pay? The
value of a business depends largely on its goodwill and too much money
and effort are spent in advertising and other means of building up a clientèle
to make men conceive it to be to their interest to deal sharply with their
customers.

In the efforts of scientists to seek out and establish new methods, new
principles, the success of an experiment is to be determined, I suppose, by
the test, Will it work? Does it yield effective results? Similarly, in
economics, the science of mankind in its production, distribution and
consumption of material things, the test of utility and efficiency is, Will it

pay? that being the standard of workableness in the application of that
science.

We have attempted, therefore, in this analysis of money-making to apply
this test, because the practice or habit or influence that pays is that which is
in accord so far with the principles underlying this branch of social science.
We have seen, according to this standard, that it is the duty of all to adopt
money-making as a conscious aim; that the money is to be economically
used, the final object being net profit, that balance or remainder which is
carried forward as created capital. Inability to increase a fixed income does
not absolve one from the duty of doing one's part in the creation of capital
through thrift and saving. The business enterprise, moreover, is required by
economic necessity to aim at money-making—meaning, however, profits in
the long run rather than immediate or temporary gains. Such permanent
returns can only be sought through adherence to ethical principles and
although this aim at profits becomes the power plant which drives the
business machine, the latter gives its energies and attention more directly to
the rendering of service.

Concentration upon service tends to make a man relatively efficient therein,
but argues a relative unfamiliarity with the field of others, from which we
infer the advisability of confining one's activity to the thing he has learned
to do best. As an example of this, he should avoid placing his surplus
capital or savings in outside enterprises where they will partake of risks that
are unknown to him, nor should he attempt to employ his savings at all with
the purpose of making money, unless, indeed, he can use them as capital in
his own business. The focusing of attention on one's own function also
implies and explains the custom of placing upon participants in a business
transaction the responsibility each for his own side, a custom which is
economically justified but which must be kept within proper limits, as is
fully recognized by the business men who are successful and who therefore
become models or examples for the guidance of other men, influencing the
latter towards high ideals.

We have found, on the other hand, that apart from men in charge of
business enterprise, the burden of providing thus for man's welfare and
development is assumed by very few, the vast majority, whether in
professional or business employment, treating it with neglect and contempt.
They think, perhaps, that they are aiming at higher things, or that their
efforts would not sufficiently count, or they do not give the matter any
sturdy thought; while the underlying motive, often unconscious, is simply
an unwillingness to practice self-restraint. It is self-indulgence, we must
conclude, that is to be overcome if we are to meet this responsibility in a
manly way, visualizing it with sufficient clearness to see that thrift, the
creation of capital for one's self and for the race, comes into no necessary
conflict with any other proper aim in life, but on the contrary constitutes a
fundamental duty to society, to the state, to one's family, to his own future,
to his self-respect.

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