Book I., on the "Development of Technological Expedients and its

Economic Significance," but more particularly the sections (84-86) on

the modern machine industry (pp. 211-228). In this discussion, also, the

point of interest is the attention given to the latter-day phenomena of

machine industry, and the author's method and animus in dealing with

them. There is (pp. 211-218) a condensed and competent presentation of

the main characteristics of the modern "machine age," followed (pp.

218-228) by a critical discussion of its cultural value. The customary

eulogy, but with more than the customary discrimination, is given to the

advantages of the regime of the machine in point of economy, creature

comforts, and intellectual sweep; and it is pointed out how the regime

of the machine has brought about a redistribution of wealth and of

population and a reorganisation and redistribution of social and

economic structures and functions. It is pointed out (p. 223) that the

gravest social effect of the machine industry has been the creation of a

large class of wage laborers. The material circumstances into which this

class has been thrown, particularly in point of physical comfort, are

dealt with in a sober and discriminating way; and it is shown (p. 224)

that in the days of its fuller development the machine's regime has

evolved a class of trained laborers who not only live in comfort, but

are sound and strong in mind and body. But with the citation of these

facts the pursuit of the chain of cause and effect in this modern

machine situation comes to an end. The remainder of the space given to

the subject is occupied with extremely sane and well-advised criticism,

moral and aesthetic, and indications of what the proper ideals and ends

of endeavor should be.

Professor Schmoller misses the opportunity he here has of dealing with

this material in a scientific spirit and with some valuable results for

economic theory. He could, it is not too bold to assume, have sketched

for us an effective method and line of research to be pursued, for

instance, in following up the scientific question of what may be the

cultural, spiritual effects of the machine's regime upon this large body

of trained workmen, and what this body of trained workmen in its turn

counts for as a factor in shaping the institutional growth of the

present and the economic and cultural situation of to-morrow. Work of

this kind, there is reason to believe, Professor Schmoller could have

done with better effect than any of his colleagues in the science; for

he is, as already noticed above, possessed of the necessary

qualifications in the way of psychological training, broad knowledge of

the play of cause and effect in cultural growth, and an ability to take

a scientific point of view. Instead of this he harks back again to the

dreary homiletical waste of the traditional _Historismus_. It seems as

if a topic which he deals with as an objective matter so long as it lies

outside the sphere of every-day humanitarian and social solicitude,

becomes a matter to be passed upon by conventional standards of taste,

dignity, morality, and the like, so soon as it comes within the sweep of

latter-day German sentiment.

This habit of treating a given problem from these various and shifting

points of view at times gives a kaleidoscopic effect that is not without

interest. So in the matter of the technically trained working population

in the machine industry, to which reference has already been made,

something of an odd confusion appears when expressions taken from

diverse phases of the discussion are brought side by side. He speaks of

this class at one point (p. 224) as "sound, strong, spiritually and

morally advancing," superior in all these virtues to the working classes

of other times and places. At another point (pp. 250-253) he speaks of

the same popular element, under the designation of "socialists," as

perverse, degenerate, and reactionary. This latter characterisation may

be substantially correct, but it proceeds on grounds of taste and

predilection, not on grounds of scientifically determinable cause and

effect. And the two characterisations apply to the same elements of

population; for the substantial core and tone-giving factor of the

radical socialistic element in the German community is, notoriously,

just this technically trained population of the industrial towns where

the discipline of the machine industry has been at work with least

mitigation. The only other fairly isolable element of a radical

socialistic complexion is found among the students of modern science.

Now, further, in his speculations on the relation of technological

knowledge to the advance of culture, Professor Schmoller points out

(_e.g._, p. 226) that a high degree of culture connotes, on the whole, a

high degree of technological efficiency, and conversely. In this

connection he makes use of the terms _Halbkulturvoelker_ and

_Ganskulturvoelker_ to designate different degrees of cultural maturity.

It is curious to reflect, in the light of what he has to say on these

several heads, that if the socialistically affected, technically

trained population of the industrial towns, together with the

radical-socialistic men of science, were abstracted from the German

population, leaving substantially the peasantry, the slums, and the

aristocracy great and small, the resulting German community would

unquestionably have to be classed as a _Halbkulturvoelk_ in Professor

Schmoller's scheme. Whereas the elements abstracted, if taken by

themselves, would as unquestionably be classed among the

_Ganskulturvoelker_.

In conclusion, one may turn to the concluding chapter (Book II., Chapter

vii.) of the present volume for a final illustration of Professor

Schmoller's method and animus in handling a modern economic problem. All

the more so as this chapter on business enterprise better sustains that

scientific attitude which the introductory outline leads the reader to

look for throughout. It shows how modern business enterprise is in the

main an outgrowth of commercial activity, as also that it has retained

the commercial spirit down to the present. The motive force of business

enterprise is the self-seeking quest of dividends; but Professor

Schmoller shows, with more dispassionate insight than many economists,

that this self-seeking motive is hemmed in and guided at all points in

the course of its development by considerations and conventions that are

not of a primarily self-seeking kind. He is not content to point to the

beneficent working of a harmony of interests, but sketches the play of

forces whereby a self-seeking business traffic has come to serve the

interests of the community. Business enterprise has gradually emerged

and come into its present central and dominant position in the

community's industry as a concomitant of the growth of individual

ownership and pecuniary discretion in modern life. It is therefore a

phase of the modern cultural situation; and its survival and the

direction of its further growth are therefore conditioned by the

exigencies of the modern cultural situation. What this modern cultural

situation is and what are the forces, essentially psychological, which

shape the further growth of the situation, no one is better fitted to

discuss than Professor Schmoller; and he has also given valuable

indications (pp. 428-457) of what these factors are and how the inquiry

into their working must be conducted. But even here, where a

dispassionate tracing-out of the sequence of cause and effect should be

easier to undertake, because less readily blurred with sentiment, than

in the case, _e.g._, of the family, the work of tracing the

developmental sequence tapers off into advice and admonition proceeding

on the assumption that the stage now reached is, or at least should be,

final. The attention in the later pages diverges from the process of

growth and its conditioning circumstances, to the desirability of

maintaining the good results attained and to the ways and means of

holding fast that which is good in the outcome already achieved. The

question to which an answer is sought in discussing the present phase of

the development is not a question as to what is taking place as respects

the institution of business enterprise, but rather a question as to what

form should be given to an optimistic policy of fostering business

enterprise and turning it to account for the common good. At this

point, as elsewhere, though perhaps in a less degree than elsewhere, the

existing form of the institution is accepted as a finality. All this is

disappointing in view of the fact that at no other point do modern

economic institutions bear less of an air of finality than in the forms

and conventions of business organisations and relations. As Professor

Schmoller remarks (p. 455), the scope and character of business

undertakings necessarily conform to the circumstances of the time, not

to any logical scheme of development from small to great or from simple

to complex. So also, one might be tempted to say, the expediency and the

chance of ultimate survival of business enterprise is itself an open

question, to be answered by a scrutiny of the forces that make for its

survival or alteration, not by advice as to the best method of

sustaining and controlling it.

* * * * *

What has here been said in criticism of Professor Schmoller's work,

particularly as regards his departure from the path of scientific

research in dealing with present-day phenomena, may, of course, have to

be qualified, if not entirely set aside, when his work is completed with

the promised genetic survey of modern institutions to be set forth in

the concluding fourth book. Perhaps it may even be said that there is

fair hope, on general grounds, of such a consummation; but the present

volume does not afford ground for a confident expectation of this kind.

It is perhaps needless, perhaps gratuitous, to add that the strictures

offered indicate, after all, but relatively slight shortcomings in a

work of the first magnitude.

FOOTNOTES:

[1] Reprinted by permission from _The Quarterly Journal of Economics_,

Vol. XVI, Nov., 1901.

[2] _Grundriss der allgemeinen Volkswirtschaftslehre_. Erster Teil.

Leipzig, 1900.

[3] _E.g._, K. Buecher's _Entstehung der Volkswirtschaft_, and _Arbeit

und Rythmus_; R. Hildebrand's _Recht und Sitte_; Knapp's

_Grundherrschaft und Rittergut_; Ehrenberg's _Zeitalter der Fugger_; R.

Mucke's various works.

[4] A physiological conception of society, or of the community, had been

employed before,--_e.g._, by the Physiocrats,--and such a concept was

reached also by English speculators--_e.g._, Herbert Spencer--during

Roscher's lifetime; but these physiological conceptions of society are

reached by a different line of approach from that which led up to the

late-Hegelian physiological or biological conception of human culture as

a spiritual structure and process. The outcome is also a different one,

both as regards the use made of the analogy and as regards the

theoretical results reached by its aid.

It may be remarked, by the way, that neo-Hegelianism, of the "Left,"

likewise gave rise to a theory of a self-determining cultural

exfoliation; namely, the so-called "Materialistic Conception of History"

of the Marxian socialists. This Marxian conception, too, had much of a

physiological air; but Marx and his coadjutors had an advantage over

Roscher and his following, in that they were to a greater extent

schooled in the Hegelian philosophy, instead of being uncritical

receptacles of the Romantic commonplaces left by Hegelianism as a

residue in popular thought. They were therefore more fully conscious of

the bearing of their postulates and less naive in their assumptions of

self-sufficiency.

[5] _E.g._, in his controversy with Treitschke. See _Grundfragen der

Socialpolitik und der Volkswirtschaftslehre_, particularly pp. 24, 25.

[6] _E.g._, _Grundriss_, pp. 225, 409, 411.

INDUSTRIAL AND PECUNIARY EMPLOYMENTS[1]

For purposes of economic theory, the various activities of men and

things about which economists busy themselves were classified by the

early writers according to a scheme which has remained substantially

unchanged, if not unquestioned, since their time. This scheme is the

classical three-fold division of the factors of production under Land,

Labor, and Capital. The theoretical aim of the economists in discussing

these factors and the activities for which they stand has not remained

the same throughout the course of economic discussion, and the

three-fold division has not always lent itself with facility to new

points of view and new purposes of theory, but the writers who have

shaped later theory have, on the whole, not laid violent hands on the

sacred formula. These facts must inspire the utmost reserve and

circumspection in any one who is moved to propose even a subsidiary

distinction of another kind between economic activities or agents. The

terminology and the conceptual furniture of economics are complex and

parti-colored enough without gratuitous innovation.

It is accordingly not the aim of this paper to set aside the

time-honored classification of factors, or even to formulate an

iconoclastic amendment, but rather to indicate how and why this

classification has proved inadequate for certain purposes of theory

which were not contemplated by the men who elaborated it. To this end a

bit of preface may be in place as regards the aims which led to its

formulation and the uses which the three-fold classification originally

served.

* * * * *

The economists of the late eighteenth and early nineteenth centuries

were believers in a Providential order, or an order of Nature. How they

came by this belief need not occupy us here; neither need we raise a

question as to whether their conviction of its truth was well or ill

grounded. The Providential order or order of Nature is conceived to work

in an effective and just way toward the end to which it tends; and in

the economic field this objective end is the material welfare of

mankind. The science of that time set itself the task of interpreting

the facts with which it dealt, in terms of this natural order. The

material circumstances which condition men's life fall within the scope

of this natural order of the universe, and as members of the universal

scheme of things men fall under the constraining guidance of the laws of

Nature, who does all things well. As regards their purely theoretical

work, the early economists are occupied with bringing the facts of

economic life under natural laws conceived somewhat after the manner

indicated; and when the facts handled have been fully interpreted in the

light of this fundamental postulate the theoretical work of the

scientist is felt to have been successfully done.

The economic laws aimed at and formulated under the guidance of this

preconception are laws of what takes place "naturally" or "normally,"

and it is of the essence of things so conceived that in the natural or

normal course there is no wasted or misdirected effort. The standpoint

is given by the material interest of mankind, or, more concretely, of

the community or "society" in which the economist is placed; the

resulting economic theory is formulated as an analysis of the "natural"

course of the life of the community, the ultimate theoretical postulate

of which might, not unfairly, be stated as in some sort a law of the

conservation of economic energy. When the course of things runs off

naturally or normally, in accord with the exigencies of human welfare

and the constraining laws of nature, economic income and outgo balance

one another. The natural forces at play in the economic field may

increase indefinitely through accretions brought in under man's dominion

and through the natural increase of mankind, and, indeed, it is of the

nature of things that an orderly progress of this kind should take

place; but within the economic organism, as within the larger organism

of the universe, there prevails an equivalence of expenditure and

returns, an equilibrium of flux and reflux, which is not broken over in

the normal course of things. So it is, by implication, assumed that the

product which results from any given industrial process or operation is,

in some sense or in some unspecified respect, the equivalent of the

expenditure of forces, or of the effort, or what not, that has gone into

the process out of which the product emerges.

This theorem of equivalence is the postulate which lies at the root of

the classical theory of distribution, but it manifestly does not admit

of proof--or of disproof either, for that matter; since neither the

economic forces which go into the process nor the product which emerges

are, in the economic respect, of such a tangible character as to admit

of quantitative determination. They are in fact incommensurable

magnitudes. To this last remark the answer may conceivably present

itself that the equivalence in question is an equivalence in utility or

in exchange value, and that the quantitative determination of the

various items in terms of exchange value or of utility is,

theoretically, not impossible; but when it is called to mind that the

forces or factors which go to the production of a given product take

their utility or exchange value from that of the product, it will easily

be seen that the expedient will not serve. The equivalence between the

aggregate factors of production in any given case and their product

remains a dogmatic postulate whose validity cannot be demonstrated in

any terms that will not reduce the whole proposition to an aimless

fatuity, or to metaphysical grounds which have now been given up.

The point of view from which the early, and even the later classical,

economists discussed economic life was that of "the society" taken as a

collective whole and conceived as an organic unit. Economic theory

sought out and formulated the laws of the normal life of the social

organism, as it is conceived to work out in that natural course whereby

the material welfare of society is attained. The details of economic

life are construed, for purposes of general theory, in terms of their

subservience to the aims imputed to the collective life process. Those

features of detail which will bear construction as links in the process

whereby the collective welfare is furthered, are magnified and brought

into the foreground, while such features as will not bear this

construction are treated as minor disturbances. Such a procedure is

manifestly legitimate and expedient in a theoretical inquiry whose aim

is to determine the laws of health of the social organism and the normal

functions of this organism in a state of health. The social organism is,

in this theory, handled as an individual endowed with a consistent life

purpose and something of an intelligent apprehension of what means will

serve the ends which it seeks. With these collective ends the interests

of the individual members are conceived to be fundamentally at one; and,

while men may not see that their own individual interests coincide with

those of the social organism, yet, since men are members of the

comprehensive organism of nature and consequently subject to beneficent

natural law, the ulterior trend of unrestrained individual action is, on

the whole, in the right direction.

The details of individual economic conduct and its consequences are of

interest to such a general theory chiefly as they further or disturb the

beneficent "natural" course. But if the aims and methods of individual

conduct were of minor importance in such an economic theory, that is not

the case as regards individual rights. The early political economy was

not simply a formulation of the natural course of economic phenomena,

but it embodied an insistence on what is called "natural liberty."

Whether this insistence on natural liberty is to be traced to

utilitarianism or to a less specific faith in natural rights, the

outcome for the purpose in hand is substantially the same. To avoid

going too far afield, it may serve the turn to say that the law of

economic equivalence, or conservation of economic energy, was, in early

economics, backed by this second corollary of the order of nature, the

closely related postulate of natural rights. The classical doctrine of

distribution rests on both of these, and it is consequently not only a

doctrine of what must normally take place as regards the course of life

of society at large, but it also formulates what ought of right to take

place as regards the remuneration for work and the distribution of

wealth among men.

Under the resulting natural-economic law of equivalence and equity, it

is held that the several participants or factors in the economic process

severally get the equivalent of the productive force which they expend.

They severally get as much as they produce; and conversely, in the

normal case they severally produce as much as they get. In the earlier

formulations, as, for example, in the authoritative formulation of Adam

Smith, there is no clear or consistent pronouncement as regards the

terms in which this equivalence between production and remuneration

runs. With the later, classical economists, who had the benefit of a

developed utilitarian philosophy, it seems to be somewhat consistently

conceived in terms of an ill-defined serviceability. With some later

writers it is an equivalence of exchange values; but as this latter

reduces itself to tautology, it need scarcely be taken seriously. When

we are told in the later political economy that the several agents or

factors in production normally earn what they get, it is perhaps fairly

to be construed as a claim that the economic service rendered the

community by any one of the agents in production equals the service

received by the agent in return. In terms of serviceability, then, if

not in terms of productive force,[2] the individual agent, or at least

the class or group of agents to which the individual belongs, normally

gets as much as he contributes and contributes as much as he gets. This

applies to all those employments or occupations which are ordinarily

carried on in any community, throughout the aggregate of men's dealings

with the material means of life. All activity which touches industry

comes in under this law of equivalence and equity.

Now, to a theorist whose aim is to find the laws governing the economic

life of a social organism, and who for this purpose conceives the

economic community as a unit, the features of economic life which are of

particular consequence are those which show the correlation of efforts

and the solidarity of interests. For this purpose, such activities and

such interests as do not fit into the scheme of solidarity contemplated

are of minor importance, and are rather to be explained away or

construed into subservience to the scheme of solidarity than to be

incorporated at their face value into the theoretical structure. Of this

nature are what are here to be spoken of under the term "pecuniary

employments," and the fortune which these pecuniary employments have met

at the hands of classical economic theory is such as is outlined in the

last sentence.

In a theory proceeding on the premise of economic solidarity, the

important bearing of any activity that is taken up and accounted for, is

its bearing upon the furtherance of the collective life process. Viewed

from the standpoint of the collective interest, the economic process is

rated primarily as a process for the provision of the aggregate material

means of life. As a late representative of the classical school

expresses it: "Production, in fact, embraces every economic operation

except consumption."[3] It is this aggregate productivity, and the

bearing of all details upon the aggregate productivity, that constantly

occupies the attention of the classical economists. What partially

diverts their attention from this central and ubiquitous interest, is

their persistent lapse into natural-rights morality.

The result is that acquisition is treated as a sub-head under

production, and effort directed to acquisition is construed in terms of

production. The pecuniary activities of men, efforts directed to

acquisition and operations incident to the acquisition or tenure of

wealth, are treated as incidental to the distribution to each of his

particular proportion in the production of goods. Pecuniary activities,

in short, are handled as incidental features of the process of social

production and consumption, as details incident to the method whereby

the social interests are served, instead of being dealt with as the

controlling factor about which the modern economic process turns.

Apart from the metaphysical tenets indicated above as influencing them,

there are, of course, reasons of economic history for the procedure of

the early economists in so relegating the pecuniary activities to the

background of economic theory. In the days of Adam Smith, for instance,

economic life still bore much of the character of what Professor

Schmoller calls _Stadtwirtschaft_. This was the case to some extent in

practice, but still more decidedly in tradition. To a greater extent

than has since been the case, households produced goods for their own

consumption, without the intervention of sale; and handicraftsmen still

produced for consumption by their customers, without the intervention of

a market. In a considerable measure, the conditions which the Austrian

marginal-utility theory supposes, of a producing seller and a consuming

buyer, actually prevailed. It may not be true that in Adam Smith's time

the business operations, the bargain and sale of goods, were, in

general, obviously subservient to their production and consumption, but

it comes nearer being true at that time than at any time since then. And

the tradition having once been put into form and authenticated by Adam

Smith, that such was the place of pecuniary transactions in economic

theory, this tradition has lasted on in the face of later and further

changes. Under the shadow of this tradition the pecuniary employments

are still dealt with as auxiliary to the process of production, and the

gains from such employments are still explained as being due to a

productive effect imputed to them.

According to ancient prescription, then, all normal, legitimate economic

activities carried on in a well regulated community serve a materially

useful end, and so far as they are lucrative they are so by virtue of

and in proportion to a productive effect imputed to them. But in the

situation as it exists at any time there are activities and classes of

persons which are indispensable to the community, or which are at least

unavoidably present in modern economic life, and which draw some income

from the aggregate product, at the same time that these activities are

not patently productive of goods and can not well be classed as

industrial, in any but a highly sophisticated sense. Some of these

activities, which are concerned with economic matters but are not

patently of an industrial character, are integral features of modern

economic life, and must therefore be classed as normal; for the existing

situation, apart from a few minor discrepancies, is particularly normal

in the apprehension of present-day economists. Now, the law of economic

equivalence and equity says that those who normally receive in income

must perforce serve some productive end; and, since the existing

organization of society is conceived to be eminently normal, it becomes

imperative to find some ground on which to impute industrial

productivity to those classes and employments which do not at first view

appear to be industrial at all. Hence there is commonly visible in the

classical political economy, ancient and modern, a strong inclination to

make the schedule of industrially productive employments very

comprehensive; so that a good deal of ingenuity has been spent in

economically justifying their presence by specifying the productive

effect of such non-industrial factors as the courts, the army, the

police, the clergy, the schoolmaster, the physician, the opera singer.

But these non-economic employments are not so much to the point in the

present inquiry; the point being employments which are unmistakably

economic, but not industrial in the naive sense of the word industry,

and which yield an income.

Adam Smith analysed the process of industry in which he found the

community of his time engaged, and found the three classes of agents or

factors: Land, Labor, and Capital (stock). The productive factors

engaged being thus determined, the norm of natural-economic equivalence

and equity already referred to above, indicated what would be the

natural sharers in the product. Later economists have shown great

reserve about departing from this three-fold division of factors, with

its correlated three-fold division of sharers of remuneration;

apparently because they have retained an instinctive, indefeasible trust

in the law of economic equivalence which underlies it. But circumstances

have compelled the tentative intrusion of a fourth class of agent and

income. The undertaker and his income presently came to be so large and

ubiquitous figures in economic life that their presence could not be

overlooked by the most normalising economist. The undertaker's activity

has been interpolated in the scheme of productive factors, as a peculiar

and fundamentally distinctive kind of labor, with the function of

cooerdinating and directing industrial processes. Similarly, his income

has been interpolated in the scheme of distribution, as a peculiar kind

of wages, proportioned to the heightened productivity given the

industrial process by his work.[4] His work is discussed in expositions

of the theory of production. In discussions of his functions and his

income the point of the argument is, how and in what degree does his

activity increase the output of goods, or how and in what degree does it

save wealth to the community. Beyond his effect in enhancing the

effective volume of the aggregate wealth the undertaker receives but

scant attention, apparently for the reason that so soon as that point

has been disposed of the presence of the undertaker and his income has

been reconciled with the tacitly accepted natural law of equivalence

between productive service and remuneration. The normal balance has been

established, and the undertaker's function has been justified and

subsumed under the ancient law that Nature does all things well and

equitably.

This holds true of the political economy of our grandfathers. But this

aim and method of handling the phenomena of life for theoretical ends,

of course, did not go out of vogue abruptly in the days of our

grandfathers.[5] There is a large sufficiency of the like aim and animus

in the theoretical discussions of a later time; but specifically to cite

and analyse the evidence of its presence would be laborious, nor would

it conduce to the general peace of mind.

Some motion towards a further revision of the scheme is to be seen in

the attention which has latterly been given to the function and the

profits of that peculiar class of undertakers whom we call speculators.

But even on this head the argument is apt to turn on the question of how

the services which the speculator is conceived to render the community

are to be construed into an equivalent of his gains.[6] The difficulty

of interpretation encountered at this point is considerable, partly

because it is not quite plain whether the speculators as a class come

out of their transactions with a net gain or with a net loss. A

systematic net loss, or a no-profits balance, would, on the theory of

equivalence, mean that the class which gets this loss or doubtful gain

is of no service to the community; yet we are, out of the past,

committed to the view that the speculator is useful--indeed economically

indispensable--and shall therefore have his reward. In the discussions

given to the speculator and his function some thought is commonly given

to the question of the "legitimacy" of the speculator's traffic. The

legitimate speculator is held to earn his gain by services of an

economic kind rendered the community. The recourse to this epithet,

"legitimate," is chiefly of interest as showing that the tacit postulate

of a natural order is still in force. Legitimate are such speculative

dealings as are, by the theorist, conceived to serve the ends of the

community, while illegitimate speculation is that which is conceived to

be disserviceable to the community.

The theoretical difficulty about the speculator and his gains (or

losses) is that the speculator _ex professo_ is quite without interest

in or connection with any given industrial enterprise or any industrial

plant. He is, industrially speaking, without visible means of support.

He may stake his risks on the gain or on the loss of the community with

equal chances of success, and he may shift from one side to the other

without winking.

The speculator may be treated as an extreme case of undertaker, who

deals exclusively with the business side of economic life rather than

with the industrial side. But he differs in this respect from the common

run of business men in degree rather than in kind. His traffic is a

pecuniary traffic, and it touches industry only remotely and

uncertainly; while the business man as commonly conceived is more or

less immediately interested in the successful operation of some concrete

industrial plant. But since the undertaker first broke into economic

theory, some change has also taken place as regards the immediacy of the

relations of the common run of undertakers to the mechanical facts of

the industries in which they are interested. Half a century ago it was

still possible to construe the average business manager in industry as

an agent occupied with the superintendence of the mechanical processes

involved in the production of goods or services. But in the later

development the connection between the business manager and the

mechanical processes has, on an average, grown more remote; so much so,

that his superintendence of the plant or of the processes is frequently

visible only to the scientific imagination. That activity by virtue of

which the undertaker is classed as such makes him a businessman, not a

mechanic or foreman of the shop. His superintendence is a

superintendence of the pecuniary affairs of the concern, rather than of

the industrial plant; especially is this true in the higher development

of the modern captain of industry. As regards the nature of the

employment which characterises the undertaker, it is possible to

distinguish him from the men who are mechanically engaged in the

production of goods, and to say that his employment is of a business or

pecuniary kind, while theirs is of an industrial or mechanical kind. It

is not possible to draw a similar distinction between the undertaker who

is in charge of a given industrial concern, and the business man who is

in business but is not interested in the production of goods or

services. As regards the character of employment, then, the line falls

not between legitimate and illegitimate pecuniary transactions, but

between business and industry.

The distinction between business and industry has, of course, been

possible from the beginning of economic theory, and, indeed, the

distinction has from time to time temporarily been made in the contrast

frequently pointed out between the proximate interest of the business

man and the ulterior interest of society at large. What appears to have

hindered the reception of the distinction into economic doctrine, is the

constraining presence of a belief in an order of Nature and the habit of

conceiving the economic community as an organism. The point of view

given by these postulates has made such a distinction between

employments not only useless, but even disserviceable for the ends to

which theory has been directed. But the fact has come to be gradually

more and more patent that there are constantly, normally present in

modern economic life an important range of activities and classes of

persons who work for an income but of whom it cannot be said that they,

either proximately or remotely, apply themselves to the production of

goods. Their services, proximate or remote, to society are often of

quite a problematical character. They are ubiquitous, and it will

scarcely do to say that they are anomalous, for they are of ancient

prescription, they are within the law and within the pale of popular

morals.

Of these strictly economic activities that are lucrative without

necessarily being serviceable to the community, the greater part are to

be classed as "business." Perhaps the largest and most obvious

illustration of these legitimate business employments is afforded by the

speculators in securities. By way of further illustration may be

mentioned the extensive and varied business of real-estate men

(land-agents) engaged in the purchase and sale of property for

speculative gain or for a commission; so, also, the closely related

business of promoters and boomers of other than real-estate ventures; as

also attorneys, brokers, bankers, and the like, although the work

performed by these latter will more obviously bear interpretation in

terms of social serviceability. The traffic of these business men shades

off insensibly from that of the _bona fide_ speculator who has no

ulterior end of industrial efficiency to serve, to that of the captain

of industry or entrepreneur as conventionally set forth in the economic

manuals.

The characteristic in which these business employments resemble one

another, and in which they differ from the mechanical occupations as

well as from other non-economic employments, is that they are concerned

primarily with the phenomena of value--with exchange or market values

and with purchase and sale--and only indirectly and secondarily, if at

all, with mechanical processes. What holds the interest and guides and

shifts the attention of men within these employments is the main

chance. These activities begin and end within what may broadly be called

"the higgling of the market." Of the industrial employments, in the

stricter sense, it may be said, on the other hand, that they begin and

end outside the higgling of the market. Their proximate aim and effect

is the shaping and guiding of material things and processes. Broadly,

they may be said to be primarily occupied with the phenomena of material

serviceability, rather than with those of exchange value. They are taken

up with phenomena which make the subject matter of Physics and the other

material sciences.

The business man enters the economic life process from the pecuniary

side, and so far as he works an effect in industry he works it through

the pecuniary dispositions which he makes. He takes thought most

immediately of men's convictions regarding market values; and his

efforts as a business man are directed to the apprehension, and commonly

also to the influencing of men's beliefs regarding market values. The

objective point of business is the diversion of purchase and sale into

some particular channel, commonly involving a diversion from other

channels. The laborer and the man engaged in directing industrial

processes, on the other hand, enter the economic process from the

material side; in their characteristic work they take thought most

immediately of mechanical effects, and their attention is directed to

turning men and things to account for the compassing of some material

end. The ulterior aim, and the ulterior effect, of these industrial

employments may be some pecuniary result; work of this class commonly

results in an enhancement, or at least an alteration, of market values.

Conversely, business activity may, and in a majority of cases it

perhaps does, effect an enhancement of the aggregate material wealth of

the community, or the aggregate serviceability of the means at hand; but

such an industrial outcome is by no means bound to follow from the

nature of the business man's work.

From what has just been said it appears that, if we retain the classical

division of economic theory into Production, Distribution, and

Consumption, the pecuniary employments do not properly fall under the

first of these divisions, Production, if that term is to retain the

meaning commonly assigned to it. In an earlier and less specialised

organisation of economic life, particularly, the undertaker frequently

performs the work of a foreman or a technological expert, as well as the

work of business management. Hence in most discussions of his work and

his theoretical relations his occupation is treated as a composite one.

The technological side of his composite occupation has even given a name

to his gains (wages of superintendence), as if the undertaker were

primarily a master-workman. The distinction at this point has been drawn

between classes of persons instead of between classes of employments;

with the result that the evident necessity of discussing his

technological employment under production has given countenance to the

endeavor to dispose of the undertaker's business activity under the same

head. This endeavor has, of course, not wholly succeeded.

In the later development, the specialisation of work in the economic

field has at this point progressed so far, and the undertaker now in

many cases comes so near being occupied with business affairs alone, to

the exclusion of technological direction and supervision, that, with

this object lesson before us, we no longer have the same difficulty in

drawing a distinction between business and industrial employments. And

even in the earlier days of the doctrines, when the aim was to dispose

of the undertaker's work under the theoretical head of Production, the

business side of his work persistently obtruded itself for discussion in

the books and chapters given to Distribution and Exchange. The course

taken by the later theoretical discussion of the entrepreneur, leaves no

question but that the characteristic fact about his work is that he is a

business man, occupied with pecuniary affairs.

Such pecuniary employments, of which the purely fiscal or financiering

forms of business are typical, are nearly all and nearly throughout,

conditioned by the institution of property or ownership--an institution

which, as John Stuart Mill remarks, belongs entirely within the

theoretical realm of Distribution. Ownership, no doubt, has its effect

upon productive industry, and, indeed, its effect upon industry is very

large, both in scope and range, even if we should not be prepared to go

the length of saying that it fundamentally conditions all industry; but

ownership is not itself primarily or immediately a contrivance for

production. Ownership directly touches the results of industry, and only

indirectly the methods and processes of industry. If the institution of

property be compared with such another feature of our culture, for

instance, as the domestication of plants or the smelting of iron, the

meaning of what has just been said may seem clearer.

So much then of the business man's activity as is conditioned by the

institution of property, is not to be classed, in economic theory, as

productive or industrial activity at all. Its objective point is an

alteration of the distribution of wealth. His business is, essentially,

to sell and buy--sell in order to buy cheaper, buy in order to sell

dearer.[7] It may or may not, indirectly, and in a sense incidentally,

result in enhanced production. The business man may be equally

successful in his enterprise, and he may be equally well remunerated,

whether his activity does or does not enrich the community. Immediately

and directly, so long as it is confined to the pecuniary or business

sphere, his activity is incapable of enriching or impoverishing the

community as a whole except, after the fashion conceived by the

mercantilists, through his dealings with men of other communities. The

circulation and distribution of goods incidental to the business man's

traffic is commonly, though not always or in the nature of the case,

serviceable to the community; but the distribution of goods is a

mechanical, not a pecuniary transaction, and it is not the objective

point of business nor its invariable outcome. From the point of view of

business, the distribution or circulation of goods is a means of gain,

not an end sought.

It is true, industry is closely conditioned by business. In a modern

community, the business man finally decides what may be done in

industry, or at least in the greater number and the more conspicuous

branches of industry. This is particularly true of those branches that

are currently thought of as peculiarly modern. Under existing

circumstances of ownership, the discretion in economic matters,

industrial or otherwise, ultimately rests in the hands of the business

men. It is their business to have to do with property, and property

means the discretionary control of wealth. In point of character, scope

and growth, industrial processes and plants adapt themselves to the

exigencies of the market, wherever there is a developed market, and the

exigencies of the market are pecuniary exigencies. The business man,

through his pecuniary dispositions, enforces his choice of what

industrial processes shall be in use. He can, of course, not create or

initiate methods or aims for industry; if he does so he steps out of the

business sphere into the material domain of industry. But he can decide

whether and which of the known processes and industrial arts shall be

practiced, and to what extent. Industry must be conducted to suit the

business man in his quest for gain; which is not the same as saying that

it must be conducted to suit the needs or the convenience of the

community at large. Ever since the institution of property was

definitely installed, and in proportion as purchase and sale has been

practiced, some approach has been made to a comprehensive system of

control of industry by pecuniary transactions and for pecuniary ends,

and the industrial organisation is nearer such a consummation now than

it ever has been. For the great body of modern industry the final term

of the sequence is not the production of the goods but their sale; the

endeavor is not so much to fit the goods for use as for sale. It is well

known that there are many lines of industry in which the cost of

marketing the goods equals the cost of making and transporting them.

Any industrial venture which falls short in meeting the pecuniary

exigencies of the market declines and yields ground to others that meet

them with better effect. Hence shrewd business management is a requisite

to success in any industry that is carried on within the scope of the

market. Pecuniary failure carries with it industrial failure, whatever

may be the cause to which the pecuniary failure is due--whether it be

inferiority of the goods produced, lack of salesmanlike tact, popular

prejudice, scanty or ill-devised advertising, excessive truthfulness, or

what not. In this way industrial results are closely dependent upon the

presence of business ability; but the cause of this dependence of

industry upon business in a given case is to be sought in the fact that

other rival ventures have the backing of shrewd business management,

rather than in any help which business management in the aggregate

affords to the aggregate industry of the community. Shrewd and

farsighted business management is a requisite of survival in the

competitive pecuniary struggle in which the several industrial concerns

are engaged, because shrewd and farsighted business management abounds

and is employed by all the competitors. The ground of survival in the

selective process is fitness for pecuniary gain, not fitness for

serviceability at large. Pecuniary management is of an emulative

character and gives, primarily, relative success only. If the change

were equitably distributed, an increase or decrease of the aggregate or

average business ability in the community need not immediately affect

the industrial efficiency or the material welfare of the community. The

like can not be said with respect to the aggregate or average industrial

capacity of the men at work. The latter are, on the whole, occupied with

production of goods; the business men, on the other hand, are occupied

with the acquisition of them.

Theoreticians who are given to looking beneath the facts and to

contemplating the profounder philosophical meaning of life speak of the

function of the undertaker as being the guidance and cooerdination of

industrial processes with a view to economies of production. No doubt,

the remoter effect of business transactions often is such cooerdination

and economy, and, no doubt also, the undertaker has such economy in view

and is stimulated to his maneuvers of combination by the knowledge that

certain economies of this kind are feasible and will inure to his gain

if the proper business arrangements can be effected. But it is

practicable to class even this indirect furthering of industry by the

undertaker as a permissive guidance only. The men in industry must first

create the mechanical possibility of such new and more economical

methods and arrangements, before the undertaker sees the chance, makes

the necessary business arrangements, and gives directions that the more

effective working arrangements be adopted.

It is notorious, and it is a matter upon which men dilate, that the wide

and comprehensive consolidations and cooerdinations of industry, which

often add so greatly to its effectiveness, take place at the initiative

of the business men who are in control. It should be added that the fact

of their being in control precludes such cooerdination from being

effected except by their advice and consent. And it should also be

added, in order to a passably complete account of the undertaker's

function, that he not only can and does effect economising cooerdinations

of a large scope, but he also can and does at times inhibit the process

of consolidation and cooerdination. It happens so frequently that it

might fairly be said to be the common run that business interests and

undertaker's maneuvers delay consolidation, combination, cooerdination,

for some appreciable time after they have become patently advisable on

industrial grounds. The industrial advisability or practicability is not

the decisive point. Industrial advisability must wait on the eventual

convergence of jarring pecuniary interests and on the strategical moves

of business men playing for position.

Which of these two offices of the business man in modern industry, the

furthering or the inhibitory, has the more serious or more far-reaching

consequences is, on the whole, somewhat problematical. The furtherance

of cooerdination by the modern captain of industry bulks large in our

vision, in great part because the process of widening cooerdination is of

a cumulative character. After a given step in cooerdination and

combination has been taken, the next step takes place on the basis of

the resulting situation. Industry, that is to say the working force

engaged in industry, has a chance to develop new and larger

possibilities to be taken further advantage of. In this way each

successive move in the enhancement of the efficiency of industrial

processes, or in the widening of cooerdination in industrial processes,

pushes the captain of industry to a further concession, making possible

a still farther industrial growth. But as regards the undertaker's

inhibitory dealings with industrial cooerdination the visible outcome is

not so striking. The visible outcome is simply that nothing of the kind

then takes place in the premises. The potential cumulative sequence is

cut off at the start, and so it does not figure in our appraisement of

the disadvantage incurred. The loss does not commonly take the more

obtrusive form of an absolute retreat, but only that of a failure to

advance where the industrial situation admits of an advance.

It is, of course, impracticable to foot up and compare gain and loss in

such a case, where the losses, being of the nature of inhibited growth,

cannot be ascertained. But since the industrial serviceability of the

captain of industry is, on the whole, of a problematical complexion, it

should be advisable for a cautious economic theory not to rest its

discussion of him on his serviceability.[8]

It appears, then, as all economists are no doubt aware, that there is in

modern society a considerable range of activities, which are not only

normally present, but which constitute the vital core of our economic

system; which are not directly concerned with production, but which are

nevertheless lucrative. Indeed, the group comprises most of the highly

remunerative employments in modern economic life. The gains from these

employments must plainly be accounted for on other grounds than their

productivity, since they need have no productivity.

But it is not only as regards the pecuniary employments that

productivity and remuneration are constitutionally out of touch. It

seems plain, from what has already been said, that the like is true for

the remuneration gained in the industrial employments. Most wages,

particularly those paid in the industrial employments proper, as

contrasted with those paid for domestic or personal service, are paid on

account of pecuniary serviceability to the employer, not on grounds of

material serviceability to mankind at large. The product is valued,

sought and paid for on account of and in some proportion to its

vendibility, not for more recondite reasons of ulterior human welfare

at large. It results that there is no warrant, in general theory, for

claiming that the work of highly paid persons (more particularly that of

highly paid business men) is of greater substantial use to the community

than that of the less highly paid. At the same time, the reverse could,

of course, also not be claimed. Wages, resting on a pecuniary basis,

afford no consistent indication of the relative productivity of the

recipients, except in comparisons between persons or classes whose

products are identical except in amount,--that is to say, where a

resort to wages as an index of productivity would be of no use

anyway.[9]

* * * * *

A result of the acceptance of the theoretical distinction here attempted

between industrial and pecuniary employments and an effective

recognition of the pecuniary basis of the modern economic organisation

would be to dissociate the two ideas of productivity and remuneration.

In mathematical language, remuneration could no longer be conceived and

handled as a "function" of productivity,--unless productivity be taken

to mean pecuniary serviceability to the person who pays the

remuneration. In modern life remuneration is, in the last analysis,

uniformly obtained by virtue of an agreement between individuals who

commonly proceed on their own interest in point of pecuniary gain. The

remuneration may, therefore, be said to be a "function" of the pecuniary

service rendered the person who grants the remuneration; but what is

pecuniarily serviceable to the individual who exercises the discretion

in the matter need not be productive of material gain to the community

as a whole. Nor does the algebraic sum of individual pecuniary gains

measure the aggregate serviceability of the activities for which the

gains are got.

In a community organized, as modern communities are, on a pecuniary

basis, the discretion in economic matters rests with the individuals, in

severalty; and the aggregate of discrete individual interests nowise

expresses the collective interest. Expressions constantly recur in

economic discussions which imply that the transactions discussed are

carried out for the sake of the collective good or at the initiative of

the social organism, or that "society" rewards so and so for their

services. Such expressions are commonly of the nature of figures of

speech and are serviceable for homiletical rather than for scientific

use. They serve to express their user's faith in a beneficent order of

nature, rather than to convey or to formulate information in regard to

facts.

Of course, it is still possible consistently to hold that there is a

natural equivalence between work and its reward, that remuneration is

naturally, or normally, or in the long run, proportioned to the material

service rendered the community by the recipient; but that proposition

will hold true only if "natural" or "normal" be taken in such a sense as

to admit of our saying that the natural does not coincide with the

actual; and it must be recognised that such a doctrine of the "natural"

apportionment of wealth or of income disregards the efficient facts of

the case. Apart from effects of this kind in the way of equitable

arrangements traceable to grounds of sentiment, the only recourse which

modern science would afford the champion of a doctrine of natural

distribution, in the sense indicated, would be a doctrine of natural

selection; according to which all disserviceable or unproductive,

wasteful employments would, perforce, be weeded out as being

incompatible with the continued life of any community that tolerated

them. But such a selective elimination of unserviceable or wasteful

employments would presume the following two conditions, neither of which

need prevail: (1) It must be assumed that the disposable margin between

the aggregate productivity of industry and the aggregate necessary

consumption is so narrow as to admit of no appreciable waste of energy

or of goods; (2) it must be assumed that no deterioration of the

condition of society in the economic respect does or can "naturally"

take place. As to the former of these two assumptions, it is to be said

that in a very poor community, and under exceptionally hard economic

circumstances, the margin of production may be as narrow as the theory

would require. Something approaching this state of things may be found,

for instance, among some Eskimo tribes. But in a modern industrial

community--where the margin of admissible waste probably always exceeds

fifty per cent, of the output of goods--the facts make no approach to

the hypothesis. The second assumed condition is, of course, the

old-fashioned assumption of a beneficent, providential order or

meliorative trend in human affairs. As such, it needs no argument at

this day. Instances are not far to seek of communities in which economic

deterioration has taken place while the system of distribution, both of

income and of accumulated wealth, has remained on a pecuniary basis.

* * * * *

To return to the main drift of the argument. The pecuniary employments

have to do with wealth in point of ownership, with market values, with

transactions of exchange, purchase and sale, bargaining for the purpose

of pecuniary gain. These employments make up the characteristic

occupations of business men, and the gains of business are derived from

successful endeavors of the pecuniary kind. These business employments

are the characteristic activity (constitute the "function") of what are

in theory called undertakers. The dispositions which undertakers, _qua_

business men, make are pecuniary dispositions--whatever industrial

sequel they may or may not have--and are carried out with a view to

pecuniary gain. The wealth of which they have the discretionary disposal

may or may not be in the form of "production goods"; but in whatever

form the wealth in question is conceived to exist, it is handled by the

undertakers in terms of values and is disposed of by them in the

pecuniary respect. When, as may happen, the undertaker steps down from

the pecuniary plane and directs the mechanical handling and functioning

of "production goods," he becomes for the time a foreman. The

undertaker, if his business venture is of the industrial kind, of course

takes cognizance of the aptness of a given industrial method or process

for his purpose, and he has to choose between different industrial

processes in which to invest his values; but his work as undertaker,

simply, is the investment and shifting of the values under his hand from

the less to the more gainful point of investment. When the investment

takes the form of material means of industry, or industrial plant, the

sequel of a given business transaction is commonly some particular use

of such means; and when such industrial use follows, it commonly takes

place at the hands of other men than the undertaker, although it takes

place within limits imposed by the pecuniary exigencies of which the

undertaker takes cognizance. Wealth turned to account in the way of

investment or business management may or may not, in consequence, be

turned to account, materially, for industrial effect. Wealth, values, so

employed for pecuniary ends is capital in the business sense of the

word.[10] Wealth, material means of industry, physically employed for

industrial ends is capital in the industrial sense. Theory, therefore,

would require that care be taken to distinguish between capital as a

pecuniary category, and capital as an industrial category, if the term

capital is retained to cover the two concepts.[11] The distinction here

made substantially coincides with a distinction which many late writers

have arrived at from a different point of approach and have, with

varying success, made use of under different terms.[12]

A further corollary touching capital may be pointed out. The gains

derived from the handling of capital in the pecuniary respect have no

immediate relation, stand in no necessary relation of proportion, to the

productive effect compassed by the industrial use of the material means

over which the undertaker may dispose; although the gains have a

relation of dependence to the effects achieved in point of vendibility.

But vendibility need not, even approximately, coincide with

serviceability, except serviceability be construed in terms of marginal

utility or some related conception, in which case the outcome is a

tautology. Where, as in the case commonly assumed by economists as

typical, the investing undertaker seeks his gain through the production

and sale of some useful article, it is commonly also assumed that his

effort is directed to the most economical production of as large and

serviceable a product as may be, or at least it is assumed that such

production is the outcome of his endeavors in the natural course of

things. This account of the aim and outcome of business enterprise may

be natural, but it does not describe the facts. The facts being, of

course, that the undertaker in such a case seeks to produce economically

as vendible a product as may be. In the common run vendibility depends

in great part on the serviceability of the goods, but it depends also on

several other circumstances; and to that highly variable, but nearly

always considerable extent to which vendibility depends on other

circumstances than the material serviceability of the goods, the

pecuniary management of capital must be held not to serve the ends of

production. Neither immediately, in his purely pecuniary traffic, nor

indirectly, in the business guidance of industry through his pecuniary

traffic, therefore, can the undertaker's dealings with his pecuniary

capital be accounted a productive occupation, nor can the gains of

capital be taken to mark or to measure the productivity due to the

investment. The "cost of production" of goods in the case contemplated

is to an appreciable, but indeterminable, extent a cost of production

of vendibility--an outcome which is often of doubtful service to the

body of consumers, and which often counts in the aggregate as waste. The

material serviceability of the means employed in industry, that is to

say the functioning of industrial capital in the service of the

community at large, stands in no necessary or consistent relation to the

gainfulness of capital in the pecuniary respect. Productivity can

accordingly not be predicated of pecuniary capital. It follows that

productivity theories of interest should be as difficult to maintain as

productivity theories of the gains of the pecuniary employments, the two

resting on the same grounds.

It is, further, to be remarked that pecuniary capital and industrial

capital do not coincide in respect of the concrete things comprised

under each. From this and from the considerations already indicated

above, it follows that the magnitude of pecuniary capital may vary

independently of variations in the magnitude of industrial capital--not

indefinitely, perhaps, but within a range which, in its nature, is

indeterminate. Pecuniary capital is a matter of market values, while

industrial capital is, in the last analysis, a matter of mechanical

efficiency, or rather of mechanical effects not reducible to a common

measure or a collective magnitude. So far as the latter may be spoken of

as a homogenous aggregate--itself a doubtful point at best--the two

categories of capital are disparate magnitudes, which can be mediated

only through a process of valuation conditioned by other circumstances

besides the mechanical efficiency of the material means valued. Market

values being a psychological outcome, it follows that pecuniary capital,

an aggregate of market values, may vary in magnitude with a freedom

which gives the whole an air of caprice,--such as psychological

phenomena, particularly the psychological phenomena of crowds,

frequently present, and such as becomes strikingly noticeable in times

of panic or of speculative inflation. On the other hand, industrial

capital, being a matter of mechanical contrivances and adaptation,

cannot similarly vary through a revision of valuations. If it is taken

as an aggregate, it is a physical magnitude, and as such it does not

alter its complexion or its mechanical efficiency in response to the

greater or less degree of appreciation with which it is viewed. Capital

pecuniarily considered rests on a basis of subjective value; capital

industrially considered rests on material circumstances reducible to

objective terms of mechanical, chemical and physiological effect.

The point has frequently been noted that it is impossible to get at the

aggregate social (industrial) capital by adding up the several items of

individual (pecuniary) capital. A reason for this, apart from variations

in the market values of given material means of production, is that

pecuniary capital comprises not only material things but also

conventional facts, psychological phenomena not related in any rigid way

to material means of production,--as _e.g._, good will, fashions,

customs, prestige, effrontery, personal credit. Whatever ownership

touches, and whatever affords ground for pecuniary discretion, may be

turned to account for pecuniary gain and may therefore be comprised in

the aggregate of pecuniary capital. Ownership, the basis of pecuniary

capital, being itself a conventional fact, that is to say a matter of

habits of thought, it is intelligible that phenomena of convention and

opinion should figure in an inventory of pecuniary capital; whereas,

industrial capital being of a mechanical character, conventional

circumstances do not affect it--except as the future production of

material means to replace the existing outfit may be guided by

convention--and items having but a conventional existence are,

therefore, not comprised in its aggregate. The disparity between

pecuniary and industrial capital, therefore, is something more than a

matter of an arbitrarily chosen point of view, as some recent

discussions of the capital concept would have us believe; just as the

difference between the pecuniary and the industrial employments, which

are occupied with the one or the other category of capital, means

something more than the same thing under different aspects.

* * * * *

But the distinction here attempted has a farther bearing, beyond the

possible correction of a given point in the theory of distribution.

Modern economic science is to an increasing extent concerning itself

with the question of what men do and how and why they do it, as

contrasted with the older question of how Nature, working through human

nature, maintains a favorable balance in the output of goods. Neither

the practical questions of our generation, nor the pressing theoretical

questions of the science, run on the adequacy or equity of the share

that goes to any class in the normal case. The questions are rather such

realistic ones as these: Why do we, now and again, have hard times and

unemployment in the midst of excellent resources, high efficiency and

plenty of unmet wants? Why is one-half our consumable product contrived

for consumption that yields no material benefit? Why are large

cooerdinations of industry, which greatly reduce cost of production, a

cause of perplexity and alarm? Why is the family disintegrating among

the industrial classes, at the same time that the wherewithal to

maintain it is easier to compass? Why are large and increasing portions

of the community penniless in spite of a scale of remuneration which is

very appreciably above the subsistence minimum? Why is there a

widespread disaffection among the intelligent workmen who ought to know

better? These and the like questions, being questions of fact, are not

to be answered on the grounds of normal equivalence. Perhaps it might

better be said that they have so often been answered on those grounds,

without any approach to disposing of them, that the outlook for help in

that direction has ceased to have a serious meaning. These are, to

borrow Professor Clark's phrase, questions to be answered on dynamic,

not on static grounds. They are questions of conduct and sentiment, and

so far as their solution is looked for at the hands of economists it

must be looked for along the line of the bearing which economic life has

upon the growth of sentiment and canons of conduct. That is to say, they

are questions of the bearing of economic life upon the cultural changes

that are going forward.

For the present it is the vogue to hold that economic life, broadly,

conditions the rest of social organization or the constitution of

society. This vogue of the proposition will serve as excuse from going

into an examination of the grounds on which it may be justified, as it

is scarcely necessary to persuade any economist that it has substantial

merits even if he may not accept it in an unqualified form. What the

Marxists have named the "Materialistic Conception of History" is

assented to with less and less qualification by those who make the

growth of culture their subject of inquiry. This materialistic

conception says that institutions are shaped by economic conditions;

but, as it left the hands of the Marxists, and as it still functions in

the hands of many who knew not Marx, it has very little to say regarding

the efficient force, the channels, or the methods by which the economic

situation is conceived to have its effect upon institutions. What answer

the early Marxists gave to this question, of how the economic situation

shapes institutions, was to the effect that the causal connection lies

through a selfish, calculating class interest. But, while class interest

may count for much in the outcome, this answer is plainly not a

competent one, since, for one thing, institutions by no means change

with the alacrity which the sole efficiency of a reasoned class interest

would require.

Without discrediting the claim that class interest counts for something

in the shaping of institutions, and to avoid getting entangled in

preliminaries, it may be said that institutions are of the nature of

prevalent habits of thought, and that therefore the force which shapes

institutions is the force or forces which shape the habits of thought

prevalent in the community. But habits of thought are the outcome of

habits of life. Whether it is intentionally directed to the education of

the individual or not, the discipline of daily life acts to alter or

reenforce the received habits of thought, and so acts to alter or

fortify the received institutions under which men live. And the

direction in which, on the whole, the alteration proceeds is conditioned

by the trend of the discipline of daily life. The point here immediately

at issue is the divergent trend of this discipline in those occupations

which are prevailingly of an industrial character, as contrasted with

those which are prevailingly of a pecuniary character. So far as regards

the different cultural outcome to be looked for on the basis of the

present economic situation as contrasted with the past, therefore, the

question immediately in hand is as to the greater or less degree in

which occupations are differentiated into industrial and pecuniary in

the present as compared with the past.

The characteristic feature which is currently held to differentiate the

existing economic situation from that out of which the present has

developed, or out of which it is emerging, is the prevalence of the

machine industry with the consequent larger and more highly specialised

organisation of the market and of the industrial force and plant. As has

been pointed out above, and as is well enough known from the current

discussions of the economists, industrial life is organised on a

pecuniary basis and managed from the pecuniary side. This, of course, is

true in a degree both of the present and of the nearer past, back at

least as far as the Middle Ages. But the larger scope of organisations

in modern industry means that the pecuniary management has been

gradually passing into the hands of a relatively decreasing class, whose

contact with the industrial classes proper grows continually less

immediate. The distinction between employments above spoken of is in an

increasing degree coming to coincide with a differentiation of

occupations and of economic classes. Some degree of such specialisation

and differentiation there has, of course, been, one might almost say,

always. But in our time, in many branches of industry, the

specialisation has been carried so far that large bodies of the working

population have but an incidental contact with the business side of the

enterprise, while a minority have little if any other concern with the

enterprise than its pecuniary management. This was not true, _e.g._, at

the time when the undertaker was still salesman, purchasing agent,

business manager, foreman of the shop, and master workman. Still less

was it true in the days of the self-sufficing manor or household, or in

the days of the closed town industry. Neither is it true in our time of

what we call the backward or old-fashioned industries. These latter have

not been and are not organised on a large scale, with a consistent

division of labor between the owners and business managers on the one

side and the operative employees on the other. Our standing

illustrations of this less highly organised class of industries are the

surviving handicrafts and the common run of farming as carried on by

relatively small proprietors. In that earlier phase of economic life,

out of which the modern situation has gradually grown, all the men

engaged had to be constantly on their guard, in a pecuniary sense, and

were constantly disciplined in the husbanding of their means and in the

driving of bargains,--as is still true, _e.g._, of the American farmer.

The like was formerly true also of the consumer, in his purchases, to a

greater extent than at present. A good share of the daily attention of

those who were engaged in the handicrafts was still perforce given to

the pecuniary or business side of their trade. But for that great body

of industry which is conventionally recognised as eminently modern,

specialisation of function has gone so far as, in great measure, to

exempt the operative employees from taking thought of pecuniary matters.

Now, as to the bearing of all this upon cultural changes that are in

progress or in the outlook. Leaving the "backward," relatively

unspecialised, industries on one side, as being of an equivocal

character for the point in hand and as not differing characteristically

from the corresponding industries in the past so far as regards their

disciplinary value; modern occupations may, for the sake of the

argument, be broadly distinguished, as economic employments have been

distinguished above, into business and industrial. The modern industrial

and the modern business occupations are fairly comparable as regards the

degree of intelligence required in both, if it be borne in mind that the

former occupations comprise the highly trained technological experts and

engineers as well as the highly skilled mechanics. The two classes of

occupations differ in that the men in the pecuniary occupations work

within the lines and under the guidance of the great institution of

ownership, with its ramifications of custom, prerogative, and legal

right; whereas those in the industrial occupations are, in their work,

relatively free from the constraint of this conventional norm of truth

and validity. It is, of course, not true that the work of the latter

class lies outside the reach of the institution of ownership; but it is

true that, in the heat and strain of the work, when the agent's powers

and attention are fully taken up with the work which he has in hand,

that of which he has perforce to take cognisance is not conventional

law, but the conditions impersonally imposed by the nature of material

things. This is the meaning of the current commonplace that the required

close and continuous application of the operative in mechanical industry

bars him out of all chance for an all-around development of the cultural

graces and amenities. It is the periods of close attention and hard work

that seem to count for most in the formation of habits of thought.

An _a priori_ argument as to what cultural effects should naturally

follow from such a difference in discipline between occupations, past

and present, would probably not be convincing, as _a priori_ arguments

from half-authenticated premises commonly are not. And the experiments

along this line which later economic developments have so far exhibited

have been neither neat enough, comprehensive enough, nor long continued

enough to give definite results. Still, there is something to be said

under this latter head, even if this something may turn out to be

somewhat familiar.

It is, _e.g._ a commonplace of current vulgar discussions of existing

economic questions, that the classes engaged in the modern mechanical or

factory industries are improvident and apparently incompetent to take

care of the pecuniary details of their own life. In this indictment may

well be included not only factory hands, but the general class of highly

skilled mechanics, inventors, technological experts. The rule does not

hold in any hard and fast way, but there seems to be a substantial

ground of truth in the indictment in this general form. This will be

evident on comparison of the present factory population with the class

of handicraftsmen of the older culture whom they have displaced, as also

on comparison with the farming population of the present time,

especially the small proprietors of this and other countries. The

inferiority which is currently conceded to the modern industrial classes

in this respect is not due to scantier opportunities for saving, whether

they are compared with the earlier handicraftsmen or with the modern

farmer or peasant. This phenomenon is commonly discussed in terms which

impute to the improvident industrial classes something in the way of

total depravity, and there is much preaching of thrift and steady

habits. But the preaching of thrift and self-help, unremitting as it is,

is not producing an appreciable effect. The trouble seems to run deeper

than exhortation can reach. It seems to be of the nature of habit rather

than of reasoned conviction. Other causes may be present and may be

competent partially to explain the improvidence of these classes; but

the inquiry is at least a pertinent one; how far the absence of

property and thrift among them may be traceable to the relative absence

of pecuniary training in the discipline of their daily life. If, as the

general lie of the subject would indicate, this peculiar pecuniary

situation of the industrial classes is in any degree due to

comprehensive disciplinary causes, there is material in it for an

interesting economic inquiry.

The surmise that the trouble with the industrial class is something of

this character is strengthened by another feature of modern vulgar life,

to which attention is directed as a further, and, for the present, a

concluding illustration of the character of the questions that are

touched by the distinction here spoken for. The most insidious and most

alarming malady, as well as the most perplexing and unprecedented, that

threatens the modern social and political structure is what is vaguely

called socialism. The point of danger to the social structure, and at

the same time the substantial core of the socialistic disaffection, is a

growing disloyalty to the institution of property, aided and abetted as

it is by a similarly growing lack of deference and affection for other

conventional features of social structure. The classes affected by

socialistic vagaries are not consistently averse to a competent

organisation and control of society, particularly not in the economic

respect, but they are averse to organisation and control on conventional

lines. The sense of solidarity does not seem to be either defective or

in abeyance, but the ground of solidarity is new and unexpected. What

their constructive ideals may be need not concern nor detain us; they

are vague and inconsistent and for the most part negative. Their

disaffection has been set down to discontent with their lot by

comparison with others, and to a mistaken view of their own interests;

and much and futile effort has been spent in showing them the error of

their ways of thinking. But what the experience of the past suggests

that we should expect under the guidance of such motives and reasoning

as these would be a demand for a redistribution of property, a

reconstitution of the conventions of ownership on such new lines as the

apprehended interests of these classes would seem to dictate. But such

is not the trend of socialistic thinking, which contemplates rather the

elimination of the institution of property. To the socialists property

or ownership does not seem inevitable or inherent in the nature of

things; to those who criticise and admonish them it commonly does.

Compare them in this respect with other classes who have been moved by

hardship or discontent, whether well or ill advised, to put forth

denunciations and demands for radical economic changes; as _e.g._, the

American farmers in their several movements, of grangerism, populism,

and the like. These have been loud enough in their denunciations and

complaints, and they have been accused of being socialistic in their

demand for a virtual redistribution of property. They have not felt the

justice of the accusation, however, and it is to be noted that their

demands have consistently run on a rehabilitation of property on some

new basis of distribution, and have been uniformly put forth with the

avowed purpose of bettering the claimants in point of ownership.

Ownership, property "honestly" acquired, has been sacred to the rural

malcontents, here and elsewhere; what they have aspired to do has been

to remedy what they have conceived to be certain abuses under the

institution, without questioning the institution itself.

Not so with the socialists, either in this country or elsewhere. Now,

the spread of socialistic sentiment shows a curious tendency to affect

those classes particularly who are habitually employed in the

specialised industrial occupations, and are thereby in great part exempt

from the intellectual discipline of pecuniary management. Among these

men, who by the circumstances of their daily life are brought to do

their serious and habitual thinking in other than pecuniary terms, it

looks as if the ownership preconception were becoming obsolescent

through disuse. It is the industrial population, in the modern sense,

and particularly the more intelligent and skilled men employed in the

mechanical industries, that are most seriously and widely affected. With

exceptions both ways, but with a generality that is not to be denied,

the socialistic disaffection spreads through the industrial towns,

chiefly and most potently among the better classes of operatives in the

mechanical employments; whereas the relatively indigent and

unintelligent regions and classes, which the differentiation between

pecuniary and industrial occupations has not reached, are relatively

free from it. In like manner the upper and middle classes, whose

employments are of a pecuniary character, if any, are also not seriously

affected; and when avowed socialistic sentiment is met with among these

upper and middle classes it commonly turns out to be merely a

humanitarian aspiration for a more "equitable" redistribution of

wealth--a readjustment of ownership under some new and improved method

of control--not a contemplation of the traceless disappearance of

ownership.

Socialism, in the sense in which the word connotes a subversion of the

economic foundations of modern culture, appears to be found only

sporadically and uncertainly outside the limits, in time and space, of

the discipline exercised by the modern mechanical, non-pecuniary

occupations. This state of the case need of course not be due solely to

the disciplinary effects of the industrial employments, nor even solely

to effects traceable to those employments whether in the way of

disciplinary results, selective development, or what not. Other factors,

particularly factors of an ethnic character, seem to cooeperate to the

result indicated; but, so far as evidence bearing on the point is yet in

hand and has been analysed, it indicates that this differentiation of

occupations is a necessary requisite to the growth of a consistent body

of socialistic sentiment; and the indication is also that wherever this

differentiation prevails in such a degree of accentuation and affects

such considerable and compact bodies of people as to afford ground for a

consistent growth of common sentiment, a result is some form of

iconoclastic socialism. The differentiation may of course have a

selective as well as a disciplinary effect upon the population affected,

and an off-hand separation of these two modes of influence can of course

not be made. In any case, the two modes of influence seem to converge to

the outcome indicated; and, for the present purpose of illustration

simply, the tracing out of the two strands of sequence in the case

neither can nor need be undertaken. By force of this differentiation, in

one way and another, the industrial classes are learning to think in

terms of material cause and effect, to the neglect of prescription and

conventional grounds of validity; just as, in a faintly incipient way,

the economists are also learning to do in their discussion of the life

of these classes. The resulting decay of the popular sense of

conventional validity of course extends to other matters than the

pecuniary conventions alone, with the outcome that the socialistically

affected industrial classes are pretty uniformly affected with an

effortless iconoclasm in other directions as well. For the discipline to

which their work and habits of life subject them gives not so much a

training away from the pecuniary conventions, specifically, as a

positive and somewhat unmitigated training in methods of observation and

inference proceeding on grounds alien to all conventional validity. But

the practical experiment going on in the specialisation of discipline,

in the respect contemplated, appears still to be near its beginning, and

the growth of aberrant views and habits of thought due to the peculiar

disciplinary trend of this late and unprecedented specialisation of

occupations has not yet had time to work itself clear.

The effects of the like one-sided discipline are similarly visible in

the highly irregular, conventionally indefensible attitude of the

industrial classes in the current labor and wage disputes, not of an

avowedly socialistic aim. So also as regards the departure from the

ancient norm in such non-economic, or secondarily economic matters as

the family relation and responsibility, where the disintegration of

conventionalities in the industrial towns is said to threaten the

foundations of domestic life and morality; and again as regards the

growing inability of men trained to materialistic, industrial habits of

thought to appreciate, or even to apprehend, the meaning of religious

appeals and consolations that proceed on the old-fashioned conventional

or metaphysical grounds of validity. But these and other like directions

in which the cultural effects of the modern specialisation of

occupations, whether in industry or in business, may be traceable can

not be followed up here.

FOOTNOTES:

[1] Reprinted by permission from _Publications of the American Economic

Association_, series 3, Vol. II.

[2] Some late writers, as, _e.g._, J. B. Clark, apparently must be held

to conceive the equivalence in terms of productive force rather than of

serviceability; or, perhaps, in terms of serviceability on one side of

the equation and productive force on the other.

[3] J. B. Clark, _The Distribution of Wealth_, p. 20.

[4] The undertaker gets an income; therefore he must produce goods. But

human activity directed to the production of goods is labor; therefore

the undertaker is a particular kind of laborer. There is, of course,

some dissent from this position.

[5] The change which has supervened as regards the habitual resort to a

natural law of equivalence is in large part a change with respect to the

degree of immediacy and "reality" imputed to this law, and to a still

greater extent a change in the degree of overtness with which it is

avowed.

[6] See, _e.g._, a paper by H. C. Emery in the _Papers and Proceedings

of the Twelfth Annual Meeting_ of the American Economic Association, on

"The Place of the Speculator in the Theory of Distribution," and more

particularly the discussion following the paper.

[7] _Cf. e.g._, Marx, _Capital_, especially bk. I, ch. IV.

[8] It is not hereby intended to depreciate the services rendered the

community by the captain of industry in his management of business. Such

services are no doubt rendered and are also no doubt of substantial

value. Still less is it the intention to decry the pecuniary incentive

as a motive to thrift and diligence. It may well be that the pecuniary

traffic which we call business is the most effective method of

conducting the industrial policy of the community; not only the most

effective that has been contrived, but perhaps the best that can be

contrived. But that is a matter of surmise and opinion. In a matter of

opinion on a point that can not be verified, a reasonable course is to

say that the majority are presumably in the right. But all that is

beside the point. However probable or reasonable such a view may be, it

can find no lodgment in modern scientific theory, except as a corollary

of secondary importance. Nor can scientific theory build upon the ground

it may be conceived to afford. Policy may so build, but science can not.

Scientific theory is a formulation of the laws of phenomena in terms of

the efficient forces at work in the sequence of phenomena. So long as

(under the old dispensation of the order of nature) the animistically

conceived natural laws, with their God-given objective end, were

considered to exercise a constraining guidance over the course of events

whereof they were claimed to be laws, so long it was legitimate

scientific procedure for economists to formulate their theory in terms

of these laws of the natural course; because so long they were speaking

in terms of what was, to them, the efficient forces at work. But so soon

as these natural laws were reduced to the plane of colorless empirical

generalization as to what commonly happens, while the efficient forces

at work are conceived to be of quite another cast, so soon must theory

abandon the ground of the natural course, sterile for modern scientific

purposes, and shift to the ground of the causal sequence, where alone it

will have to do with the forces at work as they are conceived in our

time. The generalisations regarding the normal course, as "normal" has

been defined in economics since J. S. Mill, are not of the nature of

theory, but only rule-of-thumb. And the talk about the "function" of

this and that factor of production, etc., in terms of the collective

life purpose, goes to the same limbo; since the collective life purpose

is no longer avowedly conceived to cut any figure in the every-day

guidance of economic activities or the shaping of economic results.

The doctrine of the social-economic function of the undertaker may for

the present purpose be illustrated by a supposititious parallel from

Physics. It is an easy generalisation, which will scarcely be

questioned, that, in practice, pendulums commonly vibrate in a plane

approximately parallel with the nearest wall of the clock-case in which

they are placed. The normality of this parallelism is fortified by the

further observation that the vibrations are also commonly in a plane

parallel with the nearest wall of the room; and when it is further

called to mind that the balance which serves the purpose of a pendulum

in watches similarly vibrates in a plane parallel with the walls of its

case, the absolute normality of the whole arrangement is placed beyond

question. It is true, the parallelism is not claimed to be related to

the working of the pendulum, except as a matter of fortuitous

convenience; but it should be manifest from the generality of the

occurrence that in the normal case, in the absence of disturbing causes,

and in the long run, all pendulums will "naturally" tend to swing in a

plane faultlessly parallel with the nearest wall. The use which has been

made of the "organic concept," in economics and in social science at

large, is fairly comparable with this supposititious argument concerning

the pendulum.

[9] Since the ground of payment of wages is the vendibility of the

product, and since the ground of a difference in wages is the different

vendibility of the product acquired through the purchase of the labor

for which the wages are paid, it follows that wherever the difference in

vendibility rests on a difference in the magnitude of the product alone,

there wages should be somewhat in proportion to the magnitude of the

product.

[10] All wealth so used is capital, but it does not follow that all

pecuniary capital is social wealth.

[11] In current theory the term capital is used in these two senses;

while in business usage it is employed pretty consistently in the former

sense alone. The current ambiguity in the term capital has often been

adverted to by economists, and there may be need of a revision of the

terminology at this point; but this paper is not concerned with that

question.

[12] Professor Fetter, in a recent paper (_Quarterly Journal of

Economics_, November, 1900) is, perhaps, the writer who has gone the

farthest in this direction in the definition of the capital concept.

Professor Fetter wishes to confine the term capital to pecuniary

capital, or rather to such pecuniary capital as is based on the

ownership of material goods. The wisdom of such a terminological

expedient is, of course, not in question here.

ON THE NATURE OF CAPITAL[1]

I. THE PRODUCTIVITY OF CAPITAL GOODS

It has been usual in expositions of economic theory to speak of capital

as an array of "productive goods." What is immediately had in mind in

this expression, as well as in the equivalent "capital goods," is the

industrial equipment, primarily the mechanical appliances employed in

the processes of industry. When the productive efficiency of these and

of other subsidiary classes of capital goods is subjected to further

analysis, it is not unusual to trace it back to the productive labor of

the workmen, the labor of the individual workman being the ultimate

productive factor in the commonly accepted systems of theory. The

current theories of production, as also those of distribution, are drawn

in individualistic terms, particularly when these theories are based on

hedonistic premises, as they commonly are.

Now, whatever may or may not be true for human conduct in some other

bearing, in the economic respect man has never lived an isolated,

self-sufficient life as an individual, either actually or potentially.

Humanly speaking, such a thing is impossible. Neither an individual

person nor a single household, nor a single line of descent, can

maintain its life in isolation. Economically speaking, this is the

characteristic trait of humanity that separates mankind from the other

animals. The life-history of the race has been a life-history of human

communities, of more or less considerable size, with more or less of

group solidarity, and with more or less of cultural continuity over

successive generations. The phenomena of human life occur only in this

form.

This continuity, congruity, or coherence of the group, is of an

immaterial character. It is a matter of knowledge, usage, habits of life

and habits of thought, not a matter of mechanical continuity or contact,

or even of consanguinity. Wherever a human community is met with, as,

_e.g._, among any of the peoples of the lower cultures, it is found in

possession of something in the way of a body of technological

knowledge,--knowledge serviceable and requisite to the quest of a

livelihood, comprising at least such elementary acquirements as

language, the use of fire, of a cutting edge, of a pointed stick, of

some tool for piercing, of some form of cord, thong, or fiber, together

with some skill in the making of knots and lashings. Cooerdinate with

this knowledge of ways and means, there is also uniformly present some

matter-of-fact knowledge of the physical behavior of the materials with

which men have to deal in the quest of a livelihood, beyond what any one

individual has learned or can learn by his own experience alone. This

information and proficiency in the ways and means of life vests in the

group at large; and, apart from accretions borrowed from other groups,

it is the product of the given group, though not produced by any single

generation. It may be called the immaterial equipment, or, by a license

of speech, the intangible assets[2] of the community; and, in the early

days at least, this is far and away the most important and

consequential category of the community's assets or equipment. Without

access to such a common stock of immaterial equipment no individual and

no fraction of the community can make a living, much less make an

advance. Such a stock of knowledge and practice is perhaps held loosely

and informally; but it is held as a common stock, pervasively, by the

group as a body, in its corporate capacity, as one might say; and it is

transmitted and augmented in and by the group, however loose and

haphazard the transmission may be conceived to be, not by individuals

and in single lines of inheritance.

The requisite knowledge and proficiency of ways and means is a product,

perhaps a by-product, of the life of the community at large; and it can

also be maintained and retained only by the community at large. Whatever

may be true for the unsearchable prehistoric phases of the life-history

of the race, it appears to be true for the most primitive human groups

and phases of which there is available information that the mass of

technological knowledge possessed by any community, and necessary to its

maintenance and to the maintenance of each of its members or subgroups,

is too large a burden for any one individual or any single line of

descent to carry. This holds true, of course, all the more rigorously

and consistently, the more advanced the "state of the industrial arts"

may be. But it seems to hold true with a generality that is fairly

startling, that whenever a given cultural community is broken up or

suffers a serious diminution of numbers, its technological heritage

deteriorates and dwindles, even though it may have been apparently

meager enough before. On the other hand, it seems to hold true with a

similar uniformity that, when an individual member or a fraction of a

community on what we call a lower stage of economic development is drawn

away and trained and instructed in the ways of a larger and more

efficient technology, and is then thrown back into his home community,

such an individual or fraction proves unable to make head against the

technological bent of the community at large or even to create a serious

diversion. Slight, perhaps transient, and gradually effective

technological consequences may result from such an experiment; but they

become effective by diffusion and assimilation through the body of the

community, not in any marked degree in the way of an exceptional

efficiency on the part of the individual or fraction which has been

subjected to exceptional training. And inheritance in technological

matters runs not in the channels of consanguinity, but in those of

tradition and habituation, which are necessarily as wide as the scheme

of life of the community. Even in a relatively small and primitive

community the mass of detail comprised in its knowledge and practice of

ways and means is large,--too large for any one individual or household

to become competently expert in it all; and its ramifications are

extensive and diverse, at the same time that all these ramifications

bear, directly or indirectly, on the life and work of each member of the

community. Neither the standard and routine of living nor the daily work

of any individual in the community would remain the same after the

introduction of an appreciable change, for good or ill, in any branch of

the community's equipment of technological expedients. If the community

grows larger, to the dimensions of a modern civilised people, and this

immaterial equipment grows proportionately great and various, then it

will become increasingly difficult to trace the connection between any

given change in technological detail and the fortunes of any given

obscure member of the community. But it is at least safe to say that an

increase in the volume and complexity of the body of technological

knowledge and practice does not progressively emancipate the life and

work of the individual from its dominion.

The complement of technological knowledge so held, used, and transmitted

in the life of the community is, of course, made up out of the

experience of individuals. Experience, experimentation, habit,

knowledge, initiative, are phenomena of individual life, and it is

necessarily from this source that the community's common stock is all

derived. The possibility of its growth lies in the feasibility of

accumulating knowledge gained by individual experience and initiative,

and therefore it lies in the feasibility of one individual's learning

from the experience of another. But the initiative and technological

enterprise of individuals, such, _e.g._, as shows itself in inventions

and discoveries of more and better ways and means, proceeds on and

enlarges the accumulated wisdom of the past. Individual initiative has

no chance except on the ground afforded by the common stock, and the

achievements of such initiative are of no effect except as accretions to

the common stock. And the invention or discovery so achieved always

embodies so much of what is already given that the creative contribution

of the inventor or discoverer is trivial by comparison.

In any known phase of culture this common stock of intangible,

technological equipment is relatively large and complex,--_i.e._,

relatively to the capacity of any individual member to create or to use

it; and the history of its growth and use is the history of the

development of material civilisation. It is a knowledge of ways and

means, and is embodied in the material contrivances and processes by

means of which the members of the community make their living. Only by

such means does technological efficiency go into effect. These "material

contrivances" ("capital goods," material equipment) are such things as

tools, vessels, vehicles, raw materials, buildings, ditches, and the

like, including the land in use; but they include also, and through the

greater part of the early development chiefly, the useful minerals,

plants, and animals. To say that these minerals, plants, and animals are

useful--in other words, that they are economic goods--means that they

have been brought within the sweep of the community's knowledge of ways

and means.

In the relatively early stages of primitive culture the useful plants

and minerals are, no doubt, made use of in a wild state, as, _e.g._,

fish and timber have continued to be used. Yet in so far as they are

useful they are unmistakably to be counted in among the material

equipment ("tangible assets") of the community. The case is well

illustrated by the relation of the Plains Indians to the buffalo, and by

the northwest coast Indians to the salmon, on the one hand, and by the

use of a wild flora by such communities as the Coahuilla Indians,[3] the

Australian blacks, or the Andamanese, on the other hand.

But with the current of time, experience, and initiative, domesticated

(that is to say improved) plants and animals come to take the first

place. We have then such "technological expedients" in the first rank as

the many species and varieties of domestic animals, and more

particularly still the various grains, fruits, root-crops, and the like,

virtually all of which were created by man for human use; or perhaps a

more scrupulously veracious account would say that they were in the main

created by the women, through long ages of workmanlike selection and

cultivation. These things, of course, are useful because men have

learned their use, and their use, so far as it has been learned, has

been learned by protracted and voluminous experience and

experimentation, proceeding at each step on the accumulated achievements

of the past. Other things, which may in time come to exceed these in

usefulness are still useless, economically non-existent, on the early

levels of culture, because of what men in that time have not yet

learned.

* * * * *

While this immaterial equipment of industry, the intangible assets of

the community, have apparently always been relatively very considerable

and are always mainly in the keeping of the community at large, the

material equipment, the tangible assets, on the other hand, have, in the

early stages (say the earlier 90 per cent.) of the life-history of human

culture, been relatively slight, and have apparently been held somewhat

loosely by individuals or household groups. This material equipment is

relatively very slight in the earlier phases of technological

development, and the tenure by which it is held is apparently vague and

uncertain. At a relatively primitive phase of the development, and under

ordinary conditions of climate and surroundings, the possession of the

concrete articles ("capital goods") needed to turn the commonplace

knowledge of ways and means to account is a matter of slight

consequence,--contrary to the view commonly spoken for by the economists

of the classical line. Given the commonplace technological knowledge and

the commonplace training,--and these are given by common notoriety and

the habituation of daily life,--the acquisition, construction, or

usufruct of the slender material equipment needed arranges itself almost

as a matter of course, more particularly where this material equipment

does not include a stock of domestic animals or a plantation of

domesticated trees and vegetables. Under given circumstances a

relatively primitive technological scheme may involve some large items

of material equipment, as the buffalo pens (_piskun_) of the Blackfoot

Indians or the salmon weirs of the river Indians of the northwest coast.

Such items of material equipment are then likely to be held and worked

collectively, either by the community at large or by subgroups of a

considerable size. Under ordinary, more generally prevalent conditions,

it appears that even after a relatively great advance has been made in

the cultivation of crops the requisite industrial equipment is not a

matter of serious concern, particularly so aside from the tilled ground

and the cultivated trees, as is indicated by the singularly loose and

inconsequential notions of ownership prevalent among peoples occupying

such a stage of culture. A primitive stage of communism is not known.

But as the common stock of technological knowledge increases in volume,

range, and efficiency, the material equipment whereby this knowledge of

ways and means is put into effect grows greater, more considerable

relatively to the capacity of the individual. And so soon, or in so far,

as the technological development falls into such shape as to require a

relatively large unit of material equipment for the effective pursuit of

industry, or such as otherwise to make the possession of the requisite

material equipment a matter of consequence, so as seriously to handicap

the individuals who are without these material means, and to place the

current possessors of such equipment at a marked advantage, then the

strong arm intervenes, property rights apparently begin to fall into

definite shape, the principles of ownership gather force and

consistency, and men begin to accumulate capital goods and take measures

to make them secure.