What seems like an obvious and easy answer to all these ques

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_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.

HIGHER EDUCATION

AND

BUSINESS STANDARDS

By

WILLARD EUGENE HOTCHKISS

DIRECTOR OF BUSINESS EDUCATION

AT THE UNIVERSITY OF MINNESOTA

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_

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.

HIGHER EDUCATION AND BUSINESS STANDARDS

Last summer, when we reached California for a year's sojourn, we had

the good fortune to secure a house with a splendid garden. A few weeks

ago, after the early warm days of a California February had opened up

the first blossoms of the season, our little five-year-old discovered

that the garden furnished a fine outlet for her enterprise, and she

soon produced two gorgeous--I will not say beautiful--bouquets. Barring

a certain doubt about her mother's approval, she was well satisfied

with her achievement, she felt a sense of completeness in what she had

done--and well she might, for she had not left a visible bud.

There is a strong tendency to go at business the way Helen went at the

garden. She knew what to do with bouquets; raw material for making them

was within her reach; what more natural than to turn it, in the most

obvious and simple way, into the product for which it was designed.

From her standpoint such a procedure was entirely correct--she was

making bouquets for herself and her friends; every one in her circle

would share the benefit of her industry.

Whenever in the past business enterprise has proceeded from a similar

viewpoint, we have stood aside and let it proceed; it was not our

garden; we were quite willing to take the role of disinterested

spectators. Recently we have discovered that it is our garden; we have

learned that we are not disinterested; we now see that business plays a

large part in the life of every one of us. That being the case, we

assume the right to question its processes, its underlying policies,

and its results. We are gradually coming to think of business in terms

of an integrated and unified national life. We desire the national life

to be both wholesome and secure.

What the public really wants from business, then, is a contribution to

national welfare, and it has become convinced that, by taking thought,

it can make the contribution more certain and more uniform than it has

been in the past. Many business men share this view; with varying zeal

they are trying to work out standards of organization that will insure

the kind of regard for general welfare which the public has come to

demand.

This is the new idea in business; it has already taken deep root; but

it needs to be further developed. We have the difficult task of

reducing an idea to a practical working plan. How shall we go about it?

Fortunately the idea itself contains a hint for further procedure. A

new attitude in business must be coupled with a new attitude in public

policy.

When my enterprising child made an onslaught on the garden it would

have been easy enough to punish her; but it is doubtful if mere

punishment gets very far in a case of that sort. Unless we can teach

the child to enjoy the garden without destroying it, the restraining

influence of punishment will be no stronger than the memory of its pain

or the fear of its repetition. This memory of the past and fear of the

future usually wage a most unequal contest with the vivid and alluring

temptation of the present.

But should not the child be restrained? As far as necessary to protect

the garden, and perhaps also to make her conscious of an authority in

the world outside of her own will, yes--but that is not the main task.

The main task is to educate her, to develop an understanding of the

garden, to get her in the frame of mind in which she will derive her

greatest enjoyment when she cultivates it and sees it grow, and when

she restricts her picking to a reasonable share of what the garden

produces.

In the actual case before us, the child was after quick and easy

results, the only kind she could comprehend; she was unable to look

upon the garden as a living thing whose life and health must be

preserved to-day in order that it may yield returns to-morrow and next

week. Analyzed with adult understanding, her essential fault was a

failure to get beyond immediate results and to view the garden from a

long-time angle. We ought not to expect her to do this now, but we do

expect her to do it when she is grown up. We expect in time so to

educate her that she will be able to think of the garden in terms of

permanence and growth and to make an effective use of it from that

standpoint; and this same education in long-time effectiveness is what

we want in business.

Business standards must be discussed from the standpoint of efficiency,

but efficiency needs to be interpreted. We may as well admit at the

start that the efficiency ideal is not entirely in good repute at this

moment.[1] If I may import an expression from England, we have been

somewhat "fed up" with efficiency during the recent past and the ration

has been rather too much for our digestion.

[1] At the time this was written, in the spring of 1916, it will

be recalled, the German war machine for nearly two years had been

demonstrating its efficiency; the Allies had not yet matched it,

and we did not like the work that efficiency was doing.

Away back in the eighties, before the dominance of business in American

society had been questioned, efficiency, as the term was then

understood, had a place among the elect; it was the intimate associate

of business success. Then came the muck-raker, and with him came also

anti-trust cases and insurance investigations. We turned our attention

to labor outbreaks, to graft prosecutions, and to land steals. We

talked about "malefactors of great wealth." We even became interested

in Schedule K. And so, during the first decade of the new century a

whole train of revelations, incidents, and phrases tempered our regard

for business and brought many business practices under the ban of law

and hostile sentiment. Efficiency was in bad company and suffered in

reputation.

But efficiency was able to prove an alibi; we were told that the thing

which posed as efficiency was not efficiency, but special privilege,

and we were again persuaded of the great service a regenerate and

socialized efficiency could render. Just at this point came the

outbreak in Europe; efficiency was again caught in bad company, and we

began to hear such phrases as the "moral breakdown of efficiency,"

"efficiency, a false ideal," and others of similar import. In an

article bearing the title, "Moral Breakdown of Efficiency," published

in the "Century" for June, 1915, it was maintained that pursuit of

efficiency had led and was still leading civilization on a downward

path.

In addition to the reputation of keeping bad company, efficiency has to

bear the odium of many foolish and inefficient deeds performed by its

self-appointed prophets. The quest for efficiency has called forth in

business a new functionary known as the "efficiency expert." Many of

these men have done a vast amount of valuable work, but many others

have not. While the real expert has been raising the level of business

organization, the others have been piling up a large wastage of poor

work and lost confidence.

But these are side issues. The main fact stands out above them. We have

been steadily adding to the burdens on industrial and commercial

equipment; even more have we increased the stresses and the strains on

human life. A devastating war is now suddenly taking up the slack, and

the slow and painful task of making the world efficient must be

hastened in order that society may bear the load. In these

circumstances we need not apologize for making efficiency the main

support of business standards. Nor need we assume, as does the author

just cited, that the efficiency ideal in any way conflicts with the

ideal of moral responsibility and service.

Of course, if we reflect, the abstract and impersonal thing which

engineers define as the ratio between energy expended and result

obtained has no moral quality in itself. Whatever of morality or lack

of morality the word "efficiency" calls forth is given to it by the

manner in which the terms of the ratio are defined. It is for society

to make the definitions. Society may determine the forms and the

limitations under which it will have business energy expended, and it

may decide what are the social ends toward which it will have business

effort contribute. Guided by wise social policy, efficiency and service

go hand in hand.

Since business is subject to control by society, it follows that the

efficiency factors in a particular business, in a whole industry, or in

business generally, must adjust themselves to the decisions that

society has made, and they must also take account of decisions that it

may make in the future. And these decisions are not all recorded in the

law or even in the vague thing we call public opinion. Laws and

opinions of particular groups, group morality, individual morality,

even inertia, and a long list of more subtle and often capricious

reactions are channels through which social purpose finds expression.

It is worth our while to consider how these reactions may affect

practical administration. No reflection is needed to see that in

proportion as business men fail to take account of forces outside the

business, in that proportion they are likely to miscalculate the

results of business policies. Striking examples of such miscalculation

are found in the experience of Mr. George M. Pullman back in the

nineties, and of Mr. Patterson, of the National Cash Register Company,

a decade later. Each of these men, with apparent good faith, undertook

to surround his laborers with conditions of physical, mental, and moral

uplift, and each undertook to do it as an act of paternal bounty. Each

of them, as far as we can judge, expected appreciation, gratitude, and

increased efficiency. But they failed to take account of the group

consciousness of their laborers; they did not know what the laborers

were thinking; and because the laborers were thinking something

different from what the employers thought, policies intended to arouse

gratitude aroused instead resentment and a strike.

But there are many things besides too much paternalism that may result

in a strike. Another concern of international dimensions and one whose

officers, I can vouch, are men of high character and public spirit,

also found itself confronted with a strike in 1910. This was a highly

organized business. For years its sales department had tried to seek

out the highest grade of talent, and the result was a selling and

distributing organization that was the model and the envy of

competitors. But questions of employment seem to have gone by default,

the general policy being confined to a sincere but vague good-will

toward employees and acceptance of things as they were.

The issues of the strike were issues with which we are all familiar. On

the workers' side, grievances and no workable machinery for redress;

result: organization, concerted group action, force. On the other side,

there was a personal readiness to hear grievances, coupled with

insistence on the ancient right of the employer to conduct his own

business in his own way, without interference from employees or the

public.

After weeks of deadlock the strain of a distressing situation, losses

from the interruption of business, regard for public opinion and the

opinion of friends, combined with their own desire to do the right

thing, induced the employers, probably against their best judgment, to

recede from their position. An agreement was made providing for

increased wages, standardization of piece-work, a preferential shop,

and appointment by the firm of a person to hear grievances and to

cooperate with a representative of the union in securing redress.

The union in this case was fortunate in being represented by a

high-minded man who was a real statesman. The firm selected a trained

economist as labor expert, and he soon had an employment department in

operation. Together these men and their colleagues have kept peace in

the concern and have developed and expanded the machinery for settling

disputes into a model of industrial-relations organization.

Some four years after the strike the business head of the firm

testified in a public hearing that he should scarcely know how to

conduct his business without the organization which now obtains for

dealing collectively with labor. He also in the same hearing expressed

the view that a large employer is a trustee of the public, responsible

for the measure of public welfare in which his business results; and

this man, remember, is not a reformer or even a radical, but just a

successful business man.

In this bit of labor history there were, no doubt, many fortunate but

uncontrollable factors which, otherwise combined, would have brought a

less happy result. But two things stand out: first, the laborers

listened to wise counsel--they were well led; and second, the

employers, when they consented to make an agreement, gave the plan

adopted their genuine support. Combining good citizenship with business

sense they were able to understand the new social influences that make

the formulas of 1880 a poor gauge of efficiency factors in 1910. They

are now enjoying the benefits of their willingness to learn.

The effect of social forces is seen under different circumstances and

from an entirely different angle in the present halting policy of

American railroads.[2] Here, in addition to other social elements in

the question, is the fact of definite government control. This

circumstance has accustomed railway managers to look at both the

internal and the public factors in their success. A number of years

ago, before Mr. Justice Brandeis became a member of the Supreme Court,

he pointed out, as many others have since done, that the railroads were

looking too much to the government factor, and too little to the

economy and effectiveness of their own internal administration. Even

though we concede this point, it is still clear that the highest

efficiency of our railroads must wait upon a clarification of policy

with respect to the great social fact affecting railway operation--the

fact of government control. We may not approve the precise manner in

which the railroads respond to this fact, but obviously they cannot be

efficient and ignore it.

[2] Referring to the situation early in 1916 when this sentence

was written.

Examples, ranging all the way from accepted and enforceable legal

restrictions to the interplay of the most subtle group sentiments,

could be multiplied at will to bring out the presence of the social

factor in efficiency standards. Were it not that internal business

policies, on the one hand, and public policy toward business, on the

other, are so frequently vitiated by failure to reckon with the

probable reactions which a particular measure will call forth, I should

not retard the discussion to emphasize a point so obvious. But though

the presence of social factors is obvious, how to measure them is not

obvious. General principles that bear on a specific case are hard to

locate and difficult to apply. Even the broad lines of social and

business policy are not always clear, and the probable trend of future

policy is still less clear.

Just what are the principles that are being worked put in order to

determine the forms and the limitations under which business energy

shall be expended, and how do they differ from those followed a

generation ago? Take the other side of the efficiency ratio: toward

what results are we trying to have business energy directed? Again,

what are the instruments with which society is enforcing its purpose?

How effective are they, how effective are they likely to become?

Finally, what bearing will this social effectiveness or lack of

effectiveness have on standards of business efficiency for the

generation about to begin its work?

Even though we cannot answer these questions to-day, we have, to-day,

the task of educating the generation that must answer them. More than

this, the education we provide for the generation about to begin its

work will determine, in no small measure, the kind of answers the

future will give. It is, therefore, of great importance that in our

ideals and our policies for educating future business men we should try

to anticipate the social environment in which these men will do their

work.

We are in the habit of speaking of the present as a time of

transition--the end of the old and the beginning of the new. In a very

real sense every period is a period of transition. Society is always in

motion, but that motion at times is accelerated and at other times

retarded. Clearly we are living now in a period of acceleration--a

period which must be interpreted not so much in terms of where we are,

as of whence we came and whither we are going. This means that we

cannot hope to prepare an educational chart for the future without

understanding the past.

In our study of business we are always emphasizing the "long-time point

of view," and we fall back upon this convenient phrase to harmonize

many discrepancies between our so-called scientific principles and

present facts. On the whole, we are well justified in assuming these

long-time harmonies, but it will not do to overlook the fact that many

important and legitimate enterprises have to justify themselves from a

short-time viewpoint. Of more importance still is the fact that in this

country enterprises of the latter sort have predominated in the past.

This circumstance has a very marked bearing on the nature of our task,

when we try to approach business from the standpoint of education.

There are strong historical and temperamental reasons why

nineteenth-century Americans were inclined to take a short-time view of

business situations. Our fathers were pioneers, and the pioneer has

neither the time, the capital, the information, the social insight, nor

the need to build policies for a distant future. The pioneer must

support himself from the land; he must get quick results, and he must

get them with the material at hand.

Every one of our great industries--steel, oil, textiles, packing,

milling, and the rest--has its early story colored with pioneer

romance. The same romantic atmosphere gave a setting of lights and

shadows to merchandising and finance and most of all to transportation.

Whether we view these nineteenth-century activities from the standpoint

of private business or of public policy, they bear the same testimony

to the pioneer attitude of mind.

Considering our business life in its national aspects, our two greatest

enterprises in the nineteenth century were the settlement of the

continent and the building-up of a national industry. In both these

enterprises we gave the pioneer spirit wide range. With respect to the

latter, industrial policy before 1900 was summed up in three items:

protective tariff, free immigration, and essential immunity from legal

restraints. This is not the place to justify or condemn a policy of

_laissez-faire_, or to strike a balance of truth and error in the

intricate arguments for protection and free trade; nor need we here

trace the industrial or social results of immigration. We need only

point out that the policy in general outline illustrates the attitude

of the pioneer. The thing desired was obvious; obvious instruments were

at hand--immediate means used for immediate ends. From his viewpoint,

the question of best means or of ultimate ends did not need to be

considered.

In building our railways and settling our lands the pioneer spirit

operated still more directly, and in this connection it has produced at

the same time its best and its worst results. The problem of

transportation and settlement was not hard to analyze; its solution

seemed to present no occasion for difficult scientific study or for a

long look into the future. The nation had lands, it wanted settlers, it

wanted railroads. If half the land in a given strip of territory were

offered at a price which would attract settlers, the settlers would

insure business for a railroad. The other half of the land, turned over

to a railroad company, would give a basis for raising capital to build

the line. With a railroad in operation, land would increase in value,

the railroad could sell to settlers at an enhanced price and with one

stroke recover the cost of building and add new settlers to furnish

more business.

In its theory and its broad outline the land-grant policy is not hard

to defend. The difficulties came with execution. We know that in actual

operation the policy meant reckless speculation and dishonest finance.

We know that no distinction in favor of the public was made between

ordinary farm lands, forest lands, mineral lands, and power sites. We

know that the beneficiaries of land grants were permitted to exchange

ordinary lands for lands of exceptional value without any adequate

_quid pro quo_; and we know that there were no adequate safeguards

against theft.

Wholesale alienation of public property was intended to secure

railroads and settlers, but the government did not see to it that the

result was actually achieved. Speculation impeded the railways in doing

their part of the task, while individuals enriched themselves from the

proceeds of grants or withheld the grants from settlement to become the

basis of future speculative enterprises. All this seems to show that in

execution at least our policy from a national standpoint was

short-sighted. Careful analysis and a more painstaking effort to look

ahead might have brought more happy results.

And how about the railroads from the standpoint of private enterprise?

A railway financier once described a western railway as "a right of way

and a streak of rust." The phrase was applicable to many railways.

Deterioration and lack of repairs were, of course, responsible for part

of the condition it suggests, but much of the fault went back to

original construction. It was the wonder and the reproach of European

engineers that their so-called reputable American colleagues would risk

professional standing on such temporary and flimsy structures as the

original American lines. Poor road bed; poor construction; temporary

wooden trestles across dangerous spans--everything the opposite of what

sound engineering science seemed to demand. Why did not the owners of

the roads exercise business foresight to provide for reasonably solid

construction?

What seems like an obvious and easy answer to all these questions is

that both the Government and the road were controlled in many cases, as

the people of California well know, by the same men, and these men were

privately interested. As public servants or as officers of corporations

they were supposed to be promoting settlement and transportation; as

individuals they were promoting their own fortunes. This result was

secured by the appropriation of public lands and the conversion of

investments which the public lands supported. That this sort of thing

occurred on a large scale and that it involved the violation of both

public and private trusts is fairly clear.

Public sentiment has judged and condemned the men who in their own

interests thus perverted national policy; and we approve the verdict.

But it is not so easy to condemn the policy itself or to indict the

generation that adopted it. Looking at the matter from the standpoint

of the nation, it was precisely the inefficiency and the corruption in

government which augmented the theoretical distrust of government and

made it unthinkable to the people of the seventies, that the Government

should build and operate railways directly. The land-grant policy

entailed corruption and waste, of course; but what mattered a few

million acres of land! No one had heard of a conservation problem at

the close of the Civil War. Resources were limitless; without

enterprise, without labor and capital, without transportation they had

no value, they were free goods. The great public task of the nineteenth

century was to settle the continent and make these resources available

for mankind. This task it performed with nineteenth-century methods.

From our standpoint they may have been wasteful methods, but they did

get results. In its historical setting, the viewpoint from which the

task of settlement was approached was not so far wrong.

When we examine the counts against the railroads as private

enterprises, we find that the poor construction, which from our point

of vantage looks like dangerous, wasteful, hand-to-mouth policy, is

only in part explained by the fact of reckless and dishonest finance. I

am advised by an eminent and discriminating observer that the

distinguished Italian engineer to whom Argentina entrusted the building

of its railroad to Patagonia, produced a structure which in engineering

excellence is the equal of any in the United States to-day. But the

funds are exhausted and the Patagonia railroad is halted one hundred

and fifty miles short of its goal; there are no earnings to maintain

the investment.

The reaction of high interest rates on the practical sense of American

capitalists and engineers has made operation at the earliest possible

moment and with the smallest possible investment of capital the very

essence of American railway building in new territory. Actual earnings

are expected to furnish capital, or a basis for credit, with which to

make good early engineering defects. All this, of course, is but

another way of saying that the criterion of engineering efficiency is

not "perfection," but "good enough." This distinction has placed a

large measure of genuine efficiency to the credit of American

engineers, and it explains why Americans have done many things that

others were unwilling to undertake. It is a great thing to build a fine

railroad in Patagonia, but I am sure we all rejoice that the first

Pacific railroad did not have its terminus in the Nevada sagebrush. The

standard of technical perfection set by the Italian engineer did not

fit the facts. It is not the failure to attain his standard but the

failure to measure up to a well-considered standard of "good enough"

that stands as an indictment against American railway enterprise.

Viewed in historical perspective the business environment of the

pioneer appears to have been dominated by two outstanding facts: one,

seemingly inexhaustible resources; the other, a set of political and

economic doctrines which told him that these resources must be

developed by individual initiative and not by the State. The faster the

resources were developed the more rapidly the nation became

economically independent and economically great, and since they could

not be developed by the State it is not strange that private initiative

was stimulated by offering men great and immediate rewards. These

rewards have encouraged individuals and associations of individuals to

aspire to a quick achievement of great economic power, and their

aspirations have been realized. Such achievements have been a

dominating feature of our business life, and we have regarded them as

an index of national greatness.

Abundance of resources, if it did not make this the best way, at least

made it an obvious way, for the nineteenth century to solve its

business problems. From our vantage point we can see that serious

mistakes were made. When we set the foresight of our fathers against

our own informed and chastened hindsight their methods appear clumsy

and amateurish. But in the main they did solve their problems: they

gave us a settled continent; they gave us transportation and

diversified industry. We now have our garden and the tools with which

to work it. If the pioneer allowed the children to pick flowers and in

some cases to run away with the plants and the soil, he did not fail to

develop the estate.

Our inheritance from the pioneer is not only material but

psychological. The pioneer attitude of mind has made a real

contribution to our business standards. The very magnitude of our

enterprises, the fact that we have had to develop our methods as we

went, our success in approaching problems that way, have given us a

confidence in ourselves and a readiness to undertake big things without

counting the cost. This readiness is a large, perhaps a dominant,

factor in our contribution to world progress. It is not an accident

that the greatest problems of mountain railway building have been met

and solved by American engineers, or that they have carried a great

railroad under two rivers to the heart of our greatest city. These in a

private way, and the Panama Canal in a public way, are typical of

American engineering enterprise.

As with engineering, so with general business. Our pioneer managers did

not lack imagination; they were not afraid to undertake; they were not

constrained by worry lest they make mistakes. They made many mistakes.

Some were corrected, others ignored, but many more were concealed by an

abundant success. The pioneer could afford to do the next thing and let

the distant thing take care of itself, and in large measure he escaped

the penalties which normally follow a failure to look ahead.

Substantial forces have tended to keep the pioneer spirit alive. If

some resources have been depleted, other resources have been found to

take their place. Scientific discovery, invention, and the development

of technique have placed new forces at our command. Products have been

multiplied, but the demand for products has multiplied faster. We have

been able to continue offering men great and immediate rewards for the

development of new enterprises. As labor was needed, our neighbors have

continued to supply it. The result is that our business has continued

to go ahead without being too much concerned about the direction in

which it was going.

Business has eagerly appropriated the results of science without itself

becoming scientific. The difficult way of science makes slow progress

against the dazzling rewards of unbridled daring. So many strong but

untrained men have been enriched by seizing upon the immediate and

obvious circumstance--there has been so little necessity for sparing

materials or men and so little penalty for waste--that we have

developed a national impatience with the slow and tedious process of

finding out.

Along with our technical and business enterprise, with the courage and

imagination of which we are justly proud, a too easy success has given

us a tendency to drop into a comfortable and optimistic frame of mind.

Imagination, intuition, power to picture the future interplay of

forces, courage and capacity for quick action--all these qualities are

as essential to-day as they ever were to business success. The pioneer

environment reacting on our native temperament has given us these

qualities in full measure, but it has also given us a habit of doing

things in a hit-or-miss fashion. Our very imagination and courage

applied to wrong circumstances and in perverted form have often borne

the fruit of national defects.

There is a strong inclination to assume that the old approach to

problems will bring the same results that it did in the past, and to

forget that we are living in a new world. The problems confronting the

pioneer were not the problems we face to-day. It requires great ability

to draft a prospectus; in many of our greatest enterprises drafting the

prospectus has been the crucial task. But a prospectus is not a going

concern. There is a vast difference between promotion and administration.

In the promotional stage of our business life we were solving problems

made up of unknown quantities, problems for which the only angle of

approach was found in the formula _x_+_y_=_z_. We still have and shall

always have problems of the _x_+_y_=_z_ type, but if we apply that

formula to a problem in which 2+2=4 we are not likely to get the best

results.

Business may not yet be a science, but it is rapidly becoming

scientific. Scientific inquiry is all the while carrying new factors

from the category of the unknown to that of the known, and by so doing

it is setting a new standard of business efficiency. The more brilliant

qualities, like courage and imagination, must be coupled with capacity

for investigation and analysis, with endless patience in seeking out

the twos and the fours and eliminating them from the equation. When it

is possible by scientific research to distinguish a right way and a

wrong way to do a task, it is not an evidence of courage or imagination

but of folly to act on a faulty and imperfect reckoning with the facts.

The person who uses scientific method takes account of all his known

forces; he prepares his materials, controls his processes and isolates

his factors so as to reveal the bearing of every step in the process

upon an ultimate and often a far distant result. In other words, he

tries at every stage to build upon a sure foundation. His trained

imagination and judgment working on known facts set the limit on what

he may expect to find, and interpret what he does find, all along the

way.

In so far as particular business enterprises have rested on

engineering, chemistry, biology, and other sciences, a scientific

method of approach has long had large use in business; but the

scientist in business has usually been a salaried expert--a man apart

from the management--and it has been his results, and not necessarily

his methods, that have influenced business practice. We are now coming

to understand that scientific method is the only sure approach to all

problems; it is a thing of universal application, and far from being

confined to the technical departments of business, where the technical

scientists hold sway in their particular specialties, it may have its

widest application in working out the problems of management.

The way in which a man trained in scientific method may determine

business practice in a scientific manner finds illustration in a

multitude of practical business problems, ranging all the way from the

simplest office detail to the most far-reaching questions of policy. To

cite an example, of the simpler sort: if an item in an order sheet is

identical for eight out of ten orders is it better to have a clerk

typewrite the eight repetitions along with the two deviations or to use

a rubber stamp? Of course, there are not one or two, but many, items in

an order sheet and the repetitions and deviations are not the same for

all items. In practical application, the rubber-stamp method means a

rack of rubber stamps placed in the most advantageous position. It

requires also a decision as to the precise percentage of repetitions

which makes the stamp advantageous. Then arises the further question,

why not have the most numerous repetitions numbered and keyed and thus

avoid the necessity of transcribing them at all?

The rule-of-thumb approach to this kind of problem would proceed from

speculations concerning the effect of interrupting the process to use

the stamp, the result of such interruptions on the accuracy of work,

difficulties in the way of necessary physical adjustments, and many

other questions that would occur to the practical manager.

The scientific method of approach would first inquire whether there are

any principles derived from previous motion study or other

investigations, that apply to the case in hand. In accord with such

principles it would then proceed, as far as possible, to eliminate

neutral or disturbing third factors and to arrange a test. The results

of the test would lead, either to a continuance of the old practice, or

to the establishment of a new practice for a certain period, after

which, if serious difficulties were not revealed, the new practice

would be definitely installed.

It should be emphasized at this point, that there is a fundamental

difference between investigations or tests which contemplate an

immediate modification of practice and those investigations in which

research--that is, the discovery of new truths--is the sole object.

Tests which are carried on within the business must never lose sight of

the fact that a business is a going concern and that it is

impracticable and usually undesirable to transform a business into a

research laboratory. Scientific methods in business should not be

confused with the larger problem of scientific business research. This

larger task, if undertaken by the individual business concern, is the

work of a separate department. For business generally, it will have to

be conducted either by the Government, or by business-research

endowments. The point at which, in practical business, research should

give place to action is a question that wise counsel and the sound

sense of the trained executive must determine.

An example of the contrast between a scientific and a rule-of-thumb

approach, as applied to a question of major policy, is found in

discussions of the relative advantages of a catalogue and mail-order

policy over against a policy of distribution by traveling salesmen. A

few years ago the head of one of the largest wholesale organizations in

the United States, talking with an intimate friend, expressed fear that

his house, which employed salesmen, might be at a dangerous

disadvantage with its chief competitor, which did an exclusively

mail-order business. The friend comforted him with the assurance that

there are many buyers who prefer to be visited by salesmen and to have

goods displayed before them. This fact, he held, would always give an

adequate basis for the prosperity of a house that employed the salesman

method of distribution.

Neither the fear nor the assurance here expressed reveals a scientific

attitude of mind. Careful analysis shows, on the one hand, that the

mail-order policy is not the most effective means of cultivating

intensively a well populated territory. On the other hand, it shows

that the expense of sending salesmen to distant points in sparsely

populated areas more than absorbs the profits from their sales.

Individual concerns have arrived at these conclusions by experiment and

accurate cost-keeping and have succeeded in reaching a scientific

decision as to which territories should be cultivated by salesmen and

which ones should be covered exclusively through advertising and the

distribution of catalogues and other literature.

The difficulty that business men find in applying scientific method

consistently in the analysis of their problems is strikingly revealed

in the labor policy of the great majority of industrial concerns. While

many men of scientific training are dealing with problems of

employment, probably no concern has undertaken to make a scientific

analysis to determine what are the foundations of permanent efficiency

of the labor force which they employ. This is not surprising, when we

remember how complicated is the problem and how short the time during

which we have been emphasizing the human relations as distinguished

from the material or mechanistic aspect of business organization.

To state even a simple problem of management, like the one concerning

the order sheet, set forth above, is to reveal some of the difficulties

of analysis which characterize all subject-matter having to do with

human activity. This means that we should not expect results too

quickly nor should we be disappointed if the first results of efforts

at scientific analysis are not absolutely conclusive. As soon as we

recognize that business is primarily a matter of human relations, that

it has to do with groups and organizations of human beings, we see that

scientific analysis of it cannot proceed in exactly the same way as

with units of inanimate matter. The reaction of human relations to

changed influences, frequently cannot be predicted until the changes

occur. Business, in other words, is a social science and, like all

social sciences, must deal primarily with contingent rather than exact

data; likewise conclusions drawn from scientific analysis must in large

measure be contingent rather than exact.

Although we cannot always isolate our factors, control our processes,

and otherwise apply scientific method, with results as conclusive as

those obtained in laboratories of chemistry, physics, or biology, we

need not therefore reject scientific method in favor of a

rule-of-thumb. We should, however, be suspicious of too sweeping claims

based on any but the most careful and painstaking analysis of facts by

persons who are thoroughly trained in the kind of analysis they

undertake.

While a scientific approach will help in solving many problems of

business detail, the substitution of scientific method for a

rule-of-thumb approach will realize its object most completely in the

influences exerted upon fundamental long-time policy, influences which

cannot bear fruit in a day or a year. The circumstances of our history

have retarded the acceptance of a long-time scientific viewpoint in

business, but forces now at work are making powerfully for a scientific

approach to business management. First among these is a realization

that our resources are measured in finite terms. We have begun to take

account of what we have, and we are able in a rough way to figure the

loss from what we have squandered. The situation is not desperate, but

we can see that it may become so. To insure against possible disaster

in the future we need to exercise effective economy in turning

resources into finished goods, and we need to eliminate waste in the

distribution and the consumption of these goods. In private business

the need for such economy is reflected in rising prices for raw

materials. In its public aspect we have labeled the problem,

conservation.

A second force making for a scientific approach to business is found in

the beginnings of a social policy to which I have referred. This policy

is showing itself in limitations upon the way in which materials and

men may be utilized and in a sharper definition of the business man's

obligations to employees, to competitors and consumers. As long as

resources are to be had for the asking, while cheap labor can be

imported and utilized without restraint, and where no questions are

asked in marketing the product, there is not the right incentive to do

things in a scientific way. As business becomes more and more the

subject of legal definition, as the tendency grows of regarding it as a

definite service, performed under definite limitations, and for

definite social ends, margins will be narrowed and it will become

increasingly necessary to do things in the right way.

The scientific approach to business has made great progress during the

past decade. Out of the hostile criticism to which so-called big

business has been subjected have come several government investigations

and court records, in which policies of different concerns have been

explained, criticized, and compared. Besides, business men themselves

have become less jealous of trade secrets and have shown an increasing

inclination to compare results. A good illustration of this tendency is

seen in the growth of "open price associations" and in the spirit in

which credit men, sales managers' associations, and other business

groups exchange information. In the same spirit, business and trade

journals have given a large exposition of individual experience and

increasing attention to questions of fundamental importance.

More significant still has been the scientific management propaganda.

Mr. Brandeis's dramatic exposition of this movement in the railway rate

cases in 1911 at once made it a matter of public interest. Later

discussion may not have extended acceptance of scientific management,

but it has not caused interest in it to flag. The movement has become

essentially a cult. Its prophet, the late Frederick Taylor, by ignoring

trade-unionism and labor psychology in the exposition of his doctrines,

at once drew down upon them the hostility of organized labor; the

movement was branded as another speeding-up device. More serious than

the antagonism has been the spirit in which some of the scientific

management enthusiasts--not all--have met it. They seem to assume that

their science is absolute and inexorable, that it eliminates disturbing

factors and hence needs no adjustment to adapt it to the difficulties

met in its application. This air of omniscient dogmatism, together with

the disasters of false prophets, has somewhat compromised the movement

and has diminished its direct influence. However, business men have

been stirred up. They have become accustomed to using the words

"science" and "business" in the same sentence. They are in a receptive

attitude for ideas. The indirect influence has been great.

A final, and probably in the long-run the most permanent, influence

making for the extension of scientific method in business has been the

new viewpoint from which universities have been approaching the task of

educating men for business. Prior to 1900, university education for

business in the few universities that attempted anything of the sort

was confined to such branches of applied economics as money and

banking, transportation, corporation finance, commercial geography,

with accounting and business law to give it a professional flavor.

There were also general courses labeled commercial organization and

industrial organization, but these were almost entirely descriptive of

the general business fabric of the country, and had but the most remote

bearing on the internal problems of organization and management which

an individual business man has to face. The assumption was that a man

who was looking forward to business would probably do well to secure

some information about business, but there was little attempt at

definite professional training of the kind given to prospective

lawyers, physicians, or engineers.

Within the past few years universities have begun to undertake

seriously the development of professional training for business. The

result has been that through organized research and through

investigations by individual teachers and students, the universities

are gathering up the threads of different tendencies toward scientific

business and are themselves contributing important scientific results.

Out of all this there is emerging a body of principles and of tested

practice which constitutes an appropriate subject-matter for a

professional course of study, and points the way to still further

research.

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