第10章

Suchaconceptbelongstotheregimeofhandicraftandpettytrade，anditisfrom，orthrough，theeraofhandicraftthatithascomedowntothepresent。(6*)Itfitsintotheschemeofhandicraft，anditislessfullyinconsonancewiththefactsoflifeinanyothersituationthanthatofhandicraft。Associatedwiththesystemofhandicraft，asitscorrelate，wasthesystemofpettytrade；andasthedifferentiationofoccupationswascarriedtoahighdegree，purchaseandsalecametoprevailverygenerally，andthecommunityacquiredacommercialcomplexionandcommercialhabitsofthought。Underthesecircumstancesthenaturalrightofownershipcametocompriseanextremefreedomandfacilityinthedisposalofproperty。Thewholesequenceofgrowthofthisnaturalrightis，ofcourse，tobetakeninconnectionwiththegeneralgrowthofindividualrightsthatculminatedintheeighteenth-centurysystemofNaturalLiberty。

HowfartheEnglisheconomicdevelopmentistobeaccountedthechieforfundamentalfactorinthegeneralgrowthofnaturalrightsisaquestionthatcannotbetakenuphere。Theoutcome，sofarasitimmediatelytouchesthepresenttopic，wasthatbythetimeoftheindustrialrevolutionafairlyconsistentstandardizationofeconomiclifehadbeenreachedintermsofworkmanshipandprice。ThewritingsofAdamSmithandhiscontemporariesbearwitnesstothis。Andthiseighteenth-centurystandardizationstandsoverasthedominanteconomicinstitutionoflatertimes。(7*)Such，inoutline，seemtobethehistoricalantecedentsandthespiritualbasisofthemoderninstitutionofproperty，andthereforeofbusinessenterpriseasitprevailsinthepresent。(8*)

Thissketchofthegenesisofthemoderninstitutionofpropertyandofmodernbusinessprinciplesmayseemdubioustothosewhoareinclinedtogiveitamoresubstantialcharacterthanthatofahabitofthought，-thatistosay，thosewhostilladheretothedoctrineofnaturalrightswithsomethingoftheeighteenth-centurynaivete。ButwhatevermaybeacceptedastheulteriorgroundsofthatculturalmovementwhichculminatedinthesystemofNaturalLiberty，itisplainthattheindustrialandcommercialexperienceofwesternEurope，andprimarilyofEngland，fromthefifteenthtotheeighteenthcentury，hadmuchtodowiththeoutcomeofthemovementinsofarasnaturallibertytoucheseconomicmatters。Itisasanoutcomeofthisrecentlypastphaseofeconomicdevelopmentthatwehaveincorporatedinthelaw，equity，andcommonsenseofto-day，thesepeculiarlyfreeandfinalpropertyrightsandobligations，thatistosay，thosepeculiarprinciplesthatcontrolcurrentbusinessandindustry。WeowetotheeighteenthcenturyaveryfulldiscretIonandfreeswinginallpecunIarymatters。Ithasgivenfreedomofcontract，togetherwithsecurityandeaseofcreditengagements，wherebythecompetitiveorderofbusinesshasbeendefinitivelyinstalled。(9*)

Thesubject-matteraboutwhichthismodernpecuniarydiscretionturns，withallitsfreedomandinviolabilityofcontract，ismoneyvalues。Accordinglythereunderliesallpecuniarycontracts。anassumptionthattheunItofmoneyvaluedoesnotvary。Inviolabilityofcontractsinvolvesthisassumption。Itisacceptedunquestioninglyasapointofdepartureinallbusinesstransactions。Inthemakingandenforcementofcontractsitisafundamentalpointoflawandusagethatmoneydoesnotvary。(10*)Capitalizationaswellascontractsaremadeinitsterms，andtheplansofthebusinessmenwhocontrolindustrylooktothemoneyunitasthestablegroundofalltheirtransactions。Notoriously，businessmenarejealousofanyattempttochangethevalueorlessenthestabilityofthemoneyunit，whichgoestoshowhowessentialaprincipleinbusinesstrafficistheputativeinvariabilityofthemoneyunit。(11*)

Usagefortifiedbylawdecidesthatwhenpricesvarythevariationisheldtooccurinthevalueofthevendiblecommodities，notinthevalueofthemoneyunit，sincemoneyisthestandardofvalue。Thereis，ofcourse，nointentionheretoquestiontheposition，familiartoalleconomists，thatfluctuationsinthecourseofpricesmayaswellbeduetovariationonthepartofthemoneymetalsastoavariationonthepartofthearticleswhosepricesfluctuate。Insofarasthedistinctionsomadebetweenvariationsintheoneortheothermemberofavalueratiohasameaning-whichitisnotalwaysclearthatithas-itdoesnottouchtheargument。Itisamatterofcommonnotoriety，whichhasalsohadthebenefitofreiteratedstatisticalproof，that，asmeasured，forinstance，intermsoflivelihoodoroflabor，thevalueofmoneyhasvariedincontinentlythroughoutthecourseofhistory。

Butintheroutineofbusinessthroughoutthenineteenthcenturytheassumedstabilityofthemoneyunithasservedasanaxiomaticprinciple，inspiteoffactswhichhavefromtimetotimeshownthefalsityofthatassumption。(12*)

Theall-dominatingissueinbusinessisthequestionofgainandloss。Gainandlossisaquestionofaccounting，andtheaccountsarekeptintermsofthemoneyunit，notintermsoflivelihood，norintermsoftheserviceabilityofthegoods，norintermsofthemechanicalefficiencyoftheindustrialorcommercialplant。Forbusinesspurposes，andsofarasthebusinessmanhabituallylooksintothematter，thelasttermofalltransactionsistheiroutcomeinmoneyvalues。Thebaselineofeveryenterpriseisalineofcapitalizationinmoneyvalues。

Incurrentbusinesspractice，variationsfromthisbaselinearenecessarilyratedasvariationsonthepartoftheotherfactorsinthecase，notasvariationsofthebaseline。Thebusinessmanjudgesofeventsfromthestandpointofownership，andownershiprunsintermsofmoney。(13*)

Investmentsaremadeforprofit，andindustrialplantsandprocessesarecapitalizedonthebasisoftheirprofit-yieldingcapacity。Intheacceptedschemeofthingsamongbusinessmen，profitsareincludedasintrinsictotheconductofbusiness。Sothat，inplaceofthepresumptioninfavorofasimplepecuniarystabilityofwealth，suchasprevailsintheratingofpossessionsoutsideofbusinesstraffic，thereprevailswithintherangeofbusinesstrafficthepresumptionthattheremustinthenaturalcourseofthingsbeastableandorderlyincreaseofthepropertyinvested。Undernoeconomicsystemearlierthantheadventofthemachineindustrydoesprofitoninvestmentseemtohavebeenaccountedanormalorunquestionablylegitimatesourceofgain。Undertheagrarian-manorialregimeoftheMiddleAgesitwasnotfeltthatthewealthofthelargeownersmust，asamatterofcourse，increasebyvirtueofthecontinuedemploymentofwhattheyalreadyhadinhand-whatevermaybethehistoricalfactasregardstheincreaseofwealthintheirhands。

Particularly，itwasnotthesenseofthemenofthattimethatwealthsoemployedmustincreaseatanystated，“ordinary“ratepertimeunit。Similarlyasregardsothertrafficinthosedays，evenasregardsmercantileventures。Gainfrominvestmentwasfelttobeafortuitousmatter，notreducibletoastatedrate。

Thisisreflected，e。g。，inthetenaciousprotestsagainstthetakingorpayingofinterestandintheingenioussophistriesbywhichthepaymentofinterestwasdefendedorexplainedaway。

Onlyundermoresettledcommercialrelationsduringtheeraofhandicraftdidthepaymentofinterestgraduallycometobeacceptedintofulllegitimacy。Buteventhengainsfromotherbusinessemploymentsthanmercantiletrafficwereapparentlyviewedasanincreaseduetoproductivelaborratherthanasaprofitoninvestment。(14*)Inindustrialpursuits，asdistinctfrommercantiletrafficproper，profitsapparentlycometofigureasaregularandordinaryincidentonlywhentheindustriescometobecarriedononamercantilebasisbyrelativelylargeemployersworkingwithhiredlabor。

Thisorderlyincreaseis，ofcourse，takenaccountofintermsofthemoneyunit。The“ordinary“rateofprofitsinbusinessislookeduponasamatterofcoursebythebodyofbusinessmen。Itispartoftheircommon-senseviewofaffairs，andisthereforeanormalphenomenon。(15*)Gain，theyfeel，isnormal，beingthepurposeofalltheirendeavors；whereasalossorashrinkageinthevaluesinvestedisfelttobeanuntowardaccidentwhichdoesnotbelonginthenormalcourseofbusiness，andwhichrequiresparticularexplanation。Thenormality，ormatter-of-coursecharacter，ofprofitsinthemodernviewiswellshownbythepositionofthoseclassicaleconomistswhoareinclinedtoinclude“ordinaryprofits“inthecostofproductionofgoods。

Theprecisemeaningof“ordinaryprofits“neednotdetaintheargument。Itmaymeannetaverageprofits，oritmaymeansomethingelse。Thephraseissufficientlyintelligibletothebusinesscommunitytopermitthebusinessmentouseitwithoutdefinitionandtoresttheirreasoningaboutbusinessaffairsonitasasecureandstableconcept；anditisthiscommonplaceresorttothetermthatisthepointofinteresthere。

Atanygiventimeandplacethereisanacceptedordinaryrateofprofits，moreorlesscloselydefined，which，itisfelt，shouldaccruetoanylegitimateandordinarilyjudiciousbusinessventure。Howevershiftythedefinitionofthisrateofprofitsmaybe，inconcrete，objectiveterms，itisfeltbythemenofaffairstobeofsosubstantialandconsistentacharacterthattheyhabituallycapitalizethepropertyengagedinanygivenbusinessventureonthebasisofthisordinaryrateofprofits。

Dueregardbeinghadtoanyspecialadvantagesanddrawbacksoftheindividualcase，anygivenbusinessventureorplantiscapitalizedatsuchamultipleofitsearning-capacityasthecurrentordinaryrateofprofitswillwarrant。(16*)

Proceedingonthecommon-senseviewbuiltupoutofthisrangeofhabitsofthoughtwithrespecttonormalprofitsandpricephenomena，thebusinesscommunityholdsthattimesareordinaryornormalsolongastheacceptedorreasonablerateofprofitsaccruesontheaccustomedcapitalization；whereastimesaregoodorbriskiftherateofgainisaccelerated，andhardordullifprofitsdecline。Thisisthemeaningofthephrases，“brisktimes“and“dulltimes，“ascurrentlyusedinanybusinesscommunity。

Undertheexigenciesofthequestofprofits，asconditionedbythelargerindustryandthemoresweepingbusinessorganizationofthelastfewdecades，thequestionofcapitalinbusinesshasincreasinglybecomeaquestionofcapitalizationonthebasisofearning-capacity，ratherthanaquestionofthemagnitudeoftheindustrialplantorthecostofproductionoftheappliancesofindustry。Frombeingasporadictrait，ofdoubtfullegitimacy，intheolddaysofthe“natural“and“money“

economy，therateofprofitsorearningsoninvestmenthasinthenineteenthcenturycometotakethecentralanddominantplaceintheeconomicsystem。Capitalization，creditextensions，andeventheproductivenessandlegitimacyofanygivenemploymentoflabor，arereferredtotherateofearningsastheirfinaltestandsubstantialground。Atthesametimethe“ordinaryrateofprofits“hasbecomeamoreelusiveidea。Thephenomenonofauniformrateofprofitsdeterminedbycompetitionhasfallenintothebackgroundandlostsomethingofitsmatter-of-factcharactersincecompetitioninthelargeindustryhasbeguntoshiftfromthepositionofastableandcontinuousequilibrationtothatofanintermittent，convulsivestrainintheserviceofthelargerbusinessmen’sstrategy。Theinterestofthebusinesscommunitycentresuponprofitsandupontheshiftingfortunesoftheprofit-maker，ratherthanuponaccumulatedandcapitalizedgoods。

Thereforetheultimateconditioningforceintheconductandaimsofbusinessiscomingtobetheprospectiveprofit-yieldingcapacityofanygivenbusinessmove，ratherthantheaggregateholdingsortherecordedoutputofproduct。

Butthislatestdevelopmentinthefieldofindustrialbusinesshasnotyetcometocontrolthefield。Itisratheraninchoategrowthoftheimmediatepresentthananaccomplishedfactevenoftherecentpast，anditcanbeunderstoodonlybyreferencetothoseconditionsoftherecentpastoutofwhichitcomes。Thereforeitisnecessarytoturnbacktoafurtherconsiderationoftheold-fashionedbusinesstrafficasitusedtogoonbythecompetitivemethodbeforethecompetitiveorderbeganseriouslytobedislocatedandtakeonanintermittentcharacter，aswellastoaconsiderationofthatresorttocreditwhichhas，inlargepart，changedthecompetitivesystemofbusinessfromwhatitwasatthebeginningofthenineteenthcenturytowhatithasbecomeatitsclose。