第6章

Butapartfromthisremoterandlargerguidanceofthecourseofindustry，thebusinessmenalso，andmorepersistentlyandpervasively，exerciseaguidanceoverthecourseofindustryindetail。Theproductionofgoodsandservicesiscarriedonforgain，andtheoutputofgoodsiscontrolledbybusinessmenwithaviewtogain。Commonly，inordinaryroutinebusiness，thegainscomefromthisoutputofgoodsandservices。Bythesaleoftheoutputthebusinessmaninindustry“realizes“hisgains。To“realize“meanstoconvertsalablegoodsintomoneyvalues。Thesaleisthelaststepintheprocessandtheendofthebusinessman’sendeavor。(16*)Whenhehasdisposedoftheoutput，andsohasconvertedhisholdingsofconsumablearticlesintomoneyvalues，hisgainsareasnearlysecureanddefinitiveasthecircumstancesofmodernlifeadmit。Itisintermsofpricethathekeepshisaccounts，andinthesametermshecomputeshisoutputofproducts。Thevitalpointofproductionwithhimisthevendibilityoftheoutput，itsconvertibilityintomoneyvalues，notitsserviceabilityfortheneedsofmankind。Amodicumofserviceability，forsomepurposeorother，theoutputmusthaveifitistobesalable。Butitdoesnotfollowthatthehighestserviceabilitygivesthelargestgainstothebusinessmanintermsofmoney，nordoesitfollowthattheoutputneedinallcaseshaveotherthanafactitiousserviceability。Thereis，ontheonehand，suchapossibilityasoverstockingthemarketwithanygivenlineofgoods，tothedetrimentofthebusinessmanconcerned，butnotnecessarilytotheimmediatedisadvantageofthebodyofconsumers。Andthereare，ontheotherhand，certainlinesofindustry，suchasmanyadvertisingenterprises，theoutputofwhichmaybehighlyeffectiveforitspurposebutofquiteequivocalusetothecommunity。Manywell-knownandprosperousenterpriseswhichadvertiseandsellpatentmedicinesandotherproprietaryarticlesmightbecitedinproof。

Intheolderdays，whenhandicraftwastheruleoftheindustrialsystem，thepersonalcontactbetweentheproducerandhiscustomerwassomewhatcloseandlasting。Underthesecircumstancesthefactorofpersonalesteemanddisesteemhadaconsiderableplayincontrollingthepurveyorsofgoodsandservices。Thisfactorofpersonalcontactcountedintwodivergentways:(1)producerswerecarefuloftheirreputationforworkmanship，evenapartfromthegainswhichsuchareputationmightbring；and(2)adegreeofirritationandill-willwouldariseinmanycases，leadingtopettytradequarrelsanddiscriminationsonothergroundsthanthegainstobegot，atthesametimethatthedetailcharacterofdealingsbetweenproducerandconsumeradmittedadegreeofpettyknaveryandhucksteringthatisnolongerpracticableinthecurrentlarge-scalebusinessdealings。Ofthesetwodivergenteffectsresultingfromclosepersonalrelationsbetweenproducerandconsumer；theformerseemsonthewholetohavebeenofpreponderantconsequence。Underthesystemofhandicraftandneighborhoodindustry，theadagethat“Honestyisthebestpolicy“seemsonthewholetohavebeenacceptedandtohavebeentrue。Thisadagehascomedownfromthedaysbeforethemachine’sregimeandbeforemodernbusinessenterprise。Undermoderncircumstances，whereindustryiscarriedononalargescale，thediscretionaryheadofanindustrialenterpriseiscommonlyremovedfromallpersonalcontactwiththebodyofcustomersforwhomtheindustrialprocessunderhiscontrolpurveysgoodsorservices。Themitigatingeffectwhichpersonalcontactmayhaveindealingsbetweenmanandmanisthereforeingreatmeasureeliminated。Thewholetakesonsomethingofanimpersonalcharacter。Onecanwithaneasierconscienceandwithlessofasenseofmeannesstakeadvantageofthenecessitiesofpeoplewhomoneknowsofonlyasanindiscriminateaggregateofconsumers。Particularlyisthistruewhen，asfrequentlyhappensinthemodernsituation，thisbodyofconsumersbelongsinthemaintoanother，inferiorclass，sothatpersonalcontactandcognizanceofthemisnotonlynotcontemplated，butisinasenseimpossible。Equity，inexcessoftheformalmodicumspecifiedbylaw，doesnotsoreadilyassertitsclaimswheretherelationsbetweenthepartiesareremoteandimpersonalaswhereoneisdealingwithone’snecessitousneighborswholiveonthesamesocialplane。Underthesecircumstancestheadagecitedabovelosesmuchofitsaxiomaticforce。Businessmanagementhasachancetoproceedonatemperateandsagaciouscalculationofprofitandloss，untroubledbysentimentalconsiderationsofhumankindnessorirritationorofhonesty。

Thebroadprinciplewhichguidesproducersandmerchants，largeandsmall，infixingthepricesatwhichtheyoffertheirwaresandservicesiswhatisknowninthelanguageoftherailroadsas“chargingwhatthetrafficwillbear。“(17*)Whereagivenenterprisehasastrictmonopolyofthesupplyofagivenarticleorofagivenclassofservicesthisprincipleappliesintheunqualifiedforminwhichithasbeenunderstoodamongthosewhodiscussrailwaycharges。Butwherethemonopolyislessstrict，wheretherearecompetitors，therethecompetitionthathastobemetisoneofthefactorstobetakenaccountofindeterminingwhatthetrafficwillbear；competitionmayevenbecomethemostseriousfactorinthecaseiftheenterpriseinquestionhaslittleornoneofthecharacterofamonopoly。Butitisverydoubtfulifthereareanysuccessfulbusinessventureswithintherangeofthemodernindustriesfromwhichthemonopolyelementiswhollyabsent。(18*)Theyare，atanyrate，fewandnotofgreatmagnitude。Andtheendeavorofallsuchenterprisesthatlooktoapermanentcontinuanceoftheirbusinessistoestablishasmuchofamonopolyasmaybe。Suchamonopolypositionmaybealegallyestablishedone，oroneduetolocationorthecontrolofnaturalresources，oritmaybeamonopolyofalessdefinitecharacterrestingoncustomandprestige(good-will)。Thislatterclassofmonopoliesarenotcommonlyclassedassuch；althoughincharacteranddegreetheadvantagewhichtheygiveisverymuchthesameasthatduetoadifferentialadvantageinlocationorinthecommandofresources。Theendsoughtbythesystematicadvertisingofthelargerbusinessconcernsissuchamonopolyofcustomandprestige。Thisformofmonopolyissometimesofgreatvalue，andisfrequentlysoldunderthenameofgood-will，trademarks，brands，etc。Instancesareknownwheresuchmonopoliesofcustom，prestige，prejudice，havebeensoldatpricesrunningupintothemillions。(19*)

Thegreatendofconsistentadvertisingistoestablishsuchdifferentialmonopoliesrestingonpopularconviction。Andtheadvertiserissuccessfulinthisendeavortoestablishaprofitablepopularconviction，somewhatinproportionashecorrectlyapprehendsthemannerinwhichapopularconvictiononanygiventopicisbuiltup。(20*)Thecost，aswellasthepecuniaryvalueandthemagnitude，ofthisorganizedfabricationofpopularconvictionsisindicatedbysuchstatementsasthattheproprietorsofacertainwell-knownhouseholdremedy，reputedamongmedicalauthoritiestobeofentirelydubiousvalue，haveforaseriesofyearsfoundtheirprofitsinspendingseveralmilliondollarsannuallyinadvertisements。Thiscaseisbynomeansunique。

Ithasbeensaid，(21*)nodoubtingoodfaithandcertainlywithsomereason，thatadvertisingascurrentlycarriedongivesthebodyofconsumersvaluableinformationandguidanceastothewaysandmeanswherebytheirwantscanbesatisfiedandtheirpurchasingpowercanbebestutilized。Totheextenttowhichthisholdstrue，advertisingisaservicetothecommunity。Butthereisalargereservationtobemadeonthishead。Advertisingiscompetitive；thegreaterpartofitaimstodivertpurchases，etc。，fromonechanneltoanotherchannelofthesamegeneralclass。(22*)Andtotheextenttowhichtheeffortsofadvertisinginallitsbranchesarespentonthiscompetitivedisturbanceoftrade，theyare，onthewhole，ofslightifanyimmediateservicetothecommunity。Suchadvertising，however，isindispensabletomostbranchesofmodernindustry；butthenecessityofmostoftheadvertisingisnotduetoitsservingtheneedsofthecommunitynortoanyaggregateadvantageaccruingtotheconcertswhichadvertise，buttothefactthatabusinessconcernwhichfallsshortinadvertisingfailstogetitsshareoftrade。Eachconcertmustadvertise，chieflybecausetheothersdo。Theaggregateexpenditurethatcouldadvantageouslybeputintoadvertisingintheabsenceofcompetitionwouldundoubtedlybebutaninconsiderablefractionofwhatisactuallyincurred，andnecessarilyincurredunderexistingcircumstances。(23*)

Notalladvertisingiswhollycompetitive，oratleastitisnotalwaysobviouslyso。Inproportionasanenterprisehassecuredamonopolyposition，itsadvertisinglosestheairofcompetitivesellingandtakesonthecharacterofinformationdesignedtoincreasetheuseofitsoutputindependently。Butsuchanincreaseimpliesaredistributionofconsumptiononthepartofthecustomers。(24*)Sothattheelementofcompetitivesellingisafterallnotabsentinthesecases，buttakestheformofcompetitionbetweendifferentclassesofwaresinsteadofcompetitivesellingofdifferentbrandsofthesameclassofwares。

Attentionisherecalledtothismatterofadvertisingandthenecessityofitinmoderncompetitivebusinessforthelightwhichitthrowson“costofproduction“inthemodernsystem，wheretheprocessofproductionisunderthecontrolofbusinessmenandiscarriedonforbusinessends。Competitiveadvertisingisanunavoidableitemintheaggregatecostsofindustry。Itdoesnotaddtotheserviceabilityoftheoutput，exceptitbeincidentallyandunintentionally。Whatitaimsatisthesaleoftheoutput，anditisforthispurposethatitisuseful。Itgivesvendibility，whichisusefultotheseller，buthasnoutilitytothelastbuyer。Itsubiquitouspresenceinthecostsofanybusinessenterprisethathastodowiththeproductionofgoodsforthemarketenforcesthestatementthatthe“costofproduction“ofcommoditiesunderthemodernbusinesssystemiscostincurredwithaviewtovendibility，notwithaviewtoserviceabilityofthegoodsforhumanuse。

Thereis，ofcourse，muchelsethatgoesintothecostofcompetitiveselling，besidestheexpensesofadvertising，althoughadvertisingmaybethelargestandmostunequivocalitemtobesetdowntothataccount。Agreatpartoftheworkdonebymerchantsandtheirstaffofemployees，bothwholesaleandretail，aswellasbysales-agentsnotexclusivelyconnectedwithanyonemercantilehouse，belongsunderthesamehead。Justhowlargeashareofthecostsofthedistributionofgoodsfairlybelongsundertherubricofcompetitivesellingcanofcoursenotbemadeout。Itislargest，onthewhole，inthecaseofconsumablegoodsmarketedinfinishedformfortheconsumer，butthereismoreorlessofitthroughout。Thegoodsturnedoutonalargescalebythemodernindustrialprocesses，onthewhole，carryalargerportionofsuchcompetitivecoststhanthegoodsstillproducedbytheold-fashioneddetailmethodsofhandicraftandhouseholdindustry；althoughthisdistinctiondoesnotholdhardandfast。Insomeextremecasesthecostofcompetitivesellingmayamounttomorethanninetypercent。ofthetotalcostofthegoodswhentheyreachtheconsumer。Inotherlinesofbusiness，commonlyoccupiedwiththeproductionofstaplegoods，thisconstituentofcostmayperhapsfallbelowtenpercentofthetotal。Wheretheaverage，forthepriceoffinishedgoodsdeliveredtotheconsumers，mayliewouldbeahazardousguess。(25*)

Itisevidentthatthegainswhichaccruefromthisbusinessofcompetitivesellingandbuyingbearnodeterminablerelationtotheserviceswhichtheworkinquestionmayrenderthecommunity。Ifacomparisonmaybehazardedbetweentwounknownandindeterminatequantities，itmayperhapsbesaidthatthegainsfromcompetitivesellingbearsomethingmoreofastablerelationtotheservicerenderedthandothegainsderivedfromspeculativetransactionsorfromthefinancieringoperationsofthegreatcaptainsofindustry。Itseemsatleastsafetosaythattheconversewillnotholdtrue。Gainsandservicesseemmorewidelyoutoftouchinthecaseofthelarge-scalefinancieringwork。Notthattheworkofthelargebusinessmeninreorganizingandconsolidatingtheindustrialprocessisofslightconsequence；butasageneralproposition，theamountofthebusinessman’sgainsfromanygiventransactionofthislatterclassbearnotraceablerelationtoanybenefitwhichthecommunitymayderivefromthetransaction。(26*)

Astothewagespaidtothemenengagedintheroutineofcompetitiveselling，assalesmen，buyers，accountants，andthelike，-muchthesameholdstrueofthemasoftheincomeofthebusinessmenwhocarryonthebusinessontheirowninitiative。

Theiremployerspaythewagesofthesepersons，notbecausetheirworkisproductiveofbenefittothecommunity，butbecauseitbringsagaintotheemployers。Thepointtowhichtheworkisdirectedisprofitablesales，andthewagesareinsomeproportiontotheefficiencyofthisworkascountedintermsofheightenedvendibility。