第11章

“Ithasbeensaidthatthescienceofoneageisthecommonsenseofthenext。Itmightwithequaltruthbesaidthattheequityofoneagebecomesthelawofthenext。Ifpositivelawisthebasisoforder，idealrightistheactivefactorinprogress。“-H。S。Foxwell，IntroductiontoMenger’sRighttotheWholeProduceofLabor，p。XI。Cf。theentirepassage。

Seetheessay，ofCivilGovernment，ch。V。

Apartfromthefamiliarhistoricalmaterialsforthestudyofthegrowthofnationalrights，includingtherightofproperty，thereareanumberoflatewritingsthatmaybeconsulted；e。g。

Jellinek，DeclarationoftheRightsofManandoftheCitizen；

Ritchie，NaturalRights；Bonar，chaptersrelatingtothistopicinPhilosophyandPoliticalEconomy；Hoffding，HistoryofModernPhilosophy，vol。I；Albee，HistoryofEnglishUtilitarianism；

and，latelycometohand，Scherger，EvolutionofModernLiberty。

Theseandotherwriterstreatofnaturalrightsandthelawofnaturechieflyinotherbearingsthanthatofownership；whilethelegalwriterstreatthesubjectfromthelegalratherthanthedefactostandpoint。Itisalsonotunusualtospendattentionchieflyonthepedigreeofthedoctrinesratherthanonthegenesisandgrowthoftheconcepts。AnendeavoratageneticaccountofthemodernconceptsofownershipisfoundinJenks，LawandPoliticsintheMiddleAges，soalsoinCunningham，WesternCivilizationinitsEconomicAspects。

Whatappearstobenecessarytothedevelopmentofsuchasentimentisthatneitherslaverynorthemachinesystemshallbepresentinsufficientforcetogiveapronouncedbiastothecommunity’shabitsofthought，atthesametimethateachmemberofthecommunity，oreachminorgroupofpersons，habituallycarriesonitsownworkatitsowndiscretionandforitsownends。Suchasituationmayormaynotinvolvehandicraftasthattermisspecificallyunderstood。Apresumptionofsimilarimport，butlesspronouncedandlessdefined，seemstoprevailinanuncertaindegreeamongmanypeoplesonalowstageofculture。

Thetenet，accordingly，hassomeclaimtostandasanegressionof“natural“right，evenwhen“natural“istakeninanevolutionarysense。

Takenbyandlarge，thestandardizationofconduct，knowledge，andidealsCurrentintheeighteenthcentury，andconsonantwiththeeighteenth-centuryeconomicsituation，isinthelastanalysisreducibletotermsofworkmanlikeefficiencyratherthantermsofmaterialcauseandeffect。Thisleaningtopersonal，workmanlikeefficiencyasanultimatetermshowsitselfeveninthescienceofthattime，e。g。inthequasi-personalcharacterimputedtotheso-called“naturallaws“whichthenlargelyoccupiedscientificspeculation；similarlyintheRomanticliteratureandpoliticalphilosophy。

AslateasthecloseofthesixteenthcenturyEnglishlawandusageinthematterofloansforinterestandothercontractsofapecuniarycharacterwereinalessadvancedstate，admittedalessfullandfreediscretion，thanthecorrespondingdevelopmentontheContinent；butfromaboutthattimetheEnglishrapidlygainsontheContinentalcommunityinthehabitualacceptanceandapplicationofthese“businessprinciples，“andithassincethenheldtheleadinthisrespect。Cf。Ashley，EconomicHistory，vol。

Carlile，TheEvolutionofModernMoney，pt。II。ch。IV。

11。Economistsareinthehabitofspeakingofmoneyasamediumofexchange，a“greatwheel“forthecirculationofgoods。Inthesameconnectionbusinesstrafficisspokenofasameansofobtaininggoodssuitableforconsumption，theendofallpurchaseandsalebeingconsumablegoods，notmoneyvalues。Itmaybetrueinsomeprofoundphilosophicalsensethatmoneyvaluesarenotthedefinitivetermofbusinessendeavor，andthatthebusinessmanseeksthroughthemediationofmoneytosatisfyhiscravingforconsumablegoods。Lookingattheprocessofeconomiclifeasawholeandtakingitinitsrationalizedbearingasacollectiveendeavortopurveygoodsandservicesfortheneedsofcollectivehumanity，theofficeofthemoneyunit-moneytransactions，exchange，credit，andalltherestthatmakeupthephenomenaofbusiness-isperhapsjustlyratedassomethingsubsidiary，servingtofacilitatethedistributionofconsumablegoodstotheconsumers，theConsumptionofgoodsbeingtheobjectivepointofallthistraffic。Suchistheviewofthismattergivenbytherationalistic，normalizingspeculationsoftheeighteenth-centuryphilosophers；andsuchis，insubstance，theviewspokenforbythoseeconomistswhostillconsistentlyremainatthestandpointoftheeighteenthcentury。Thecontentionneedneitherbedefendednorrefutedhere，sinceitdoesnotseriouslytouchthefactsofmodernbusiness。Withintherangeofbusinesstransactionsthisulteriorenddoesnotnecessarilycomeintoview，atleastnotasamotivethatguidesthetransactionsfromdaytoday。Thematterisnotsoconceivedinbusinesstransactions，itdoesnotsoappearonthefaceofthenegotiableinstruments，itisnotinthismannerthatthemoneyunitentersintotherulinghabitsofthoughtofbusinessmen。

Still，latterly，inthetrafficofsomeofthemorewide-awakebusinessmen，accountispracticallytakenofthevariationsoftheunitofvalue。Whatmaybethefutureeffectsofhabitualandincontinentvariationsoftheunit，suchasprevailinthepresent，isofcourseimpossibletoforetell。

Thesevariationsseemduemainlytotheextensiveprevalenceofcreditrelations；andthefulldevelopmentofcreditrelationsinbusinessisapparentlyamatterofthefutureratherthanoftherecentpast，inspiteofthegreatimprovementsthathavebeenmadeintheuseofcredit。Themodernconventionalimputationofstabilitytothemoneyunitdatesbacktotheregimeofa“moneyeconomy，“suchasprevailedunderthecircumstancesofhandicraftandtheearlierhucksteringcommerce，anditholdsitsplaceinthedeveloped“crediteconomy“largelyasasurvivalofthismoreelementarypastphaseofeconomiclife。

Theconventionalacceptanceofthemoneyunitasaninvariablemeasureofvalueandstandardofwealthisofveryancientderivation。(Cf。Carlile，EvolutionofModernMoney，pt。

ch。I；Ridgeway，OriginofMetallicCurrencyandWeightStandards，ch。I，Itspresent-dayconsequencesarealsooffirst-rateimportance，aswillbeindicatedinalaterchapter。

Cf。，e。g。，Mun，England’sTreasure，particularlych。II；

Ashley，EconomicHistoryandTheory，bk。II。ch。VI。pp。391-397。

This，essentiallyhandicraft，presumptionisreflectedevenintheclassicaleconomists，whofeelamoralnecessityofexplainingprofitsonsomebasisofproductivity，orevenofworkmanshipinsomesophisticatedsense。ThewholediscussionofthedoctrineofWagesofSuperintendencewillservetoillustratethecase；thepointiswellshowninMrDavidson’sarticleon“EarningsofManagement“inPalgrave’sDictionaryofPoliticalEconomy。

The“ordinary“rate，ofcourse，differsindetailfromonelineofbusinesstoanother，aswellasfromplacetoplace。

ThisstatementapplieswithgreateraptnesstothebusinesssituationofEnglandduringtheearlierthree-quartersofthenineteenthcentury，andtotheAmericansituationofthethirdquarterofthecentury，thanitdoestothesituationofthelastdecade。Qualificationsrequiredbythelaterphasesofbusinessdevelopmentwillbenotedpresently。

TheTheoryofBusinessEnterprisebyThorsteinVeblen1904

TheUseofLoanCreditCreditservestwomainusesintheregularcourseofsuchbusinessasisoccupiedwiththeconductofindustry-(a)thatofdeferredpaymentsinthepurchaseandsaleofgoods-bookaccounts，bills，checks，andthelikebelongchieflyunderthishead；and(b)loansordebts-notes，stockshares，interest-bearingsecurities，deposits，callloans，etc。，belongchieflyhere。Thesetwocategoriesofcreditextensionarebynomeansclearlydistinct。Formsofcreditwhichcommonlyservetheonepurposemaybeturnedtotheotheruse；butthetwousesofcreditare，afterall，broadlydistinguishable。Formanypurposesofeconomictheorysuchadistinctionmightnotbeserviceable，orevenpracticable；itisheremademerelyforpresentuse。Itischieflywithcreditofthelatterclass，orratherwithcreditinsofarasitisturnedtouseforthelatterpurpose，thatthisinquiryisconcerned。

Supposeduecreditarrangementshavealreadybeenmade-inthewayofinvestmentsinstocks，interest-bearingsecuritiesandthelike-suchastoplacethemanagementoftheindustrialequipmentincompetenthands。Thissuppositionisnotaviolentone，sinceaconditionroughlyapproximatingtothisprevailsinanyquiescentperiodofindustrywhenthereisnoappreciabledepression。Underthese“normal“conditions，thecapitalinvestedinanygivenindustrialventureisturnedoverwithinacertain，approximatelydefinite，lengthoftime。Thelengthoftimeoccupiedbytheturnovermayvaryfromoneestablishmenttoanother，butinanygivencasethelengthoftheturnoverisoneoftheimportantfactorsthatdeterminethechancesofgainforthebusinessconcerninquestion。Indeed，ifthegeneralconditionsofthetradeandofthemarketaregiven，thetwofactorswhichdeterminethestatusandvalueofagivensoundconcern，asseenfromthebusinessman’sstandpoint，arethemagnitudeoftheturnoverandthelengthoftimeitoccupies。

Thebusinessman’sobjectistogetthelargestaggregategainfromhisbusiness。Itismanifestlyforhisinterest，asfarasmaybe，toshortentheprocessoutofwhichhisearningsaredrawn，(1*)or，inotherwords，toshortentheperiodinwhichheturnsoverhiscapital。Iftheturnoverconsumeslessthanthetimeordinarilyallowedinthelineofindustryinwhichheisengaged，hegainsmorethanthecurrentrateofprofitsinthatlineofbusiness，otherthingsequal；whereashelosesiftheturnovertakesmorethanthenormaltime。Thisfactisforciblyexpressedinthemaxim，“Smallprofitsandquickreturns。“Therearetwochiefmeansofshorteningtheintervaloftheturnover，currentlyresortedtoinindustrialbusiness。Thefirstistheadoptionofmoreefficient，time-savingindustrialprocesses。

Improvementsofindustrialplantandindustrialprocesseshavingthisinviewaregaininginimportanceinthelaterdevelopmentsofbusiness，sinceacloserattentionisnowgiventothetimeelementininvestments，andgreatadvanceshavebeenmadeinthisdirection。(2*)Asecondexpedientforacceleratingtherateofturnoveristhecompetitivepushingofsales，throughlargerandmoreurgentadvertisingandthelike。Itisneedlesstosaythatthismeansofacceleratingbusinessalsoreceivesdueattentionatthehandsofmodernbusinessmen。

Butthemagnitudeoftheturnover，“thevolumeofbusiness，“

isofnolessconsequencethanitsrapidity。Itis，ofcourse，atritecommonplacethattheearningsofanyindustrialbusinessareajointfunctionoftherateofturnoverandthevolumeofbusiness。(3*)Thebusinessmanmayreachhisendofincreasedearningsbyeithertheoneortheotherexpedient，andhecommonlyhasresourcetobothifhecan。Hismeansofincreasingthemagnitudeoftheturnoverisaresorttocreditandaclosehusbandingofhisassets。Heisunderaconstantincentivetoincreasehisliabilitiesandtodiscounthisbillsreceivable。

Indebtednessinthiswaycomestoservemuchthesamepurpose，asregardstherateofearnings，asdoesatime-savingimprovementintheprocessesofindustry。(4*)Theeffectoftheuseofcreditonthepartofabusinessmansoplacedismuchthesameasifhiscapitalhadbeenturnedoveragreaternumberoftimesintheyear。Itisaccordinglytohisinteresttoextendhiscreditasfarashisstandingandthestateofthemarketwilladmit。(5*)

Butonfundsobtainedoncreditthedebtorhastopayinterest，which，beingdeductedfromthegrossearningsofthebusiness，leaves，asnetgainduetohisuseofcredit，onlytheamountbywhichtheincrementofgrossearningsexceedstheinterestcharge。Thissetsasomewhatelasticlimittotheadvantageoususeofloancreditinbusiness。Inordinarytimes，however，andundercapablemanagement，thecurrentrateofbusinessearningsexceedstherateofinterestbyanappreciableamount；andintimesofordinaryprosperity，therefore，itiscommonlyadvantageoustoemploycreditinthewayindicated。

Stillmoresoinbrisktimes，whenopportunitiesforearningsaremanyandpromisetoincrease。Toturnthepropositionabout，soastoshowtherunofbusinessmotivesinthecase:wheneverthecapablebusinessmanagerseesanappreciabledifferencebetweenthecostofagivencreditextensionandthegrossincreaseofgainstobegotbyitsuse，hewillseektoextendhiscredit。

Butundertheregimeofcompetitivebusinesswhateverisgenerallyadvantageousbecomesanecessityforallcompetitors。

Thosewhotakeadvantageoftheopportunitiesaffordedbycreditareinapositiontoundersellanyotherswhoaresimilarlyplacedinallbutthisrespect。Speakingbroadly，recoursetocreditbecomesthegeneralpractice，theregularcourseofcompetitivebusinessmanagement，andcompetitiongoesononthebasisofsuchauseofcreditasanauxiliarytothecapitalinhand。Sothatthecompetitiveearningcapacityofbusinessenterprisescomescurrentlytorestonthebasis，notoftheinitialcapitalalone，butofcapitalplussuchborrowedfundsasthiscapitalwillsupport。

Thecompetitiverateofearningsisbroughttocorrespondwiththisbasisofoperation；theconsequencebeingthatundersuchcompetitiveemploymentofcredittheaggregateearningsofanenterpriserestingonagiveninitialcapitalwillbebutslightlylargerthanitmighthavebeenifsuchageneralrecoursetocredittoswellthevolumeofbusinessdidnotprevail。Butsincesuchuseofcreditprevailsgenerally，afurtherconsequenceisthatanyconcerninvolvedintheopenbusinesscompetition，whichcannotordoesnottakerecoursetocredittoswellitsvolumeofbusiness，willbeunabletoearna“reasonable“rateofprofits。Sothatthegeneralpracticedrivesallcompetitorstotheuseofthesameexpedient；butsincetheadvantagetobederivedfromthisexpedientisacompetitiveadvantageonly，theuniversalityofthepracticeresultsinbutaslight，ifany，increaseoftheaggregateearningsofthebusinesscommunity。Borrowedfundsaffordanygivenbusinessconcernadifferentialadvantageasagainstothercompetitors；

butitis，inthemain，adifferentialadvantageonly。Thecompetitiveuseofsuchfundsinextendingbusinessoperationsmay，incidentally，throwthemanagementofsomeportionoftheindustrialprocessintomorecompetentorlesscompetenthands。