III.Business-Mainspring of Free Industry

III. BUSINESS — MAINSPRING OF FREE INDUSTRY Money-making by businessmen is as necessary to a free society as vote-getting by politicians. What Businessmen Are For Under free enterprise the job of business* is to promote economic cooperation between wage earners, investors and customers. This job has several aspects. 1. Market study Businessmen study what buyers want and how the right goods may be produced at least cost and in the right proportions. 2. Promotion and investment They persuade producers to cooperate efficiently by working out agreements for dividing the product. 3. Selling They persuade customers to buy the products at prices sufficient to meet obligations to producers. 4. Accounting They keep records of their operations in terms of MONEY, which is the common measure of value and medium of exchange. Businessmen cannot, like government officials, coerce, or compel, people to do things. Instead, they must rely on persuasion and on offers of money, goods and services in order to win the cooperation of other producers in getting things done.

This is why business enterprise involves so much advertising, bargaining, higgling and haggling. How else can free people work out the terms and methods of their cooperation ? Socialists, communists, technocrats and other Utopians build dream worlds in which people are supposed to cooperate without thought of personal gain, bringing their products to central warehouses and taking away what they need, with none of the bargaining, higgling and selling effort of modern business. *Business is here used in the sense in which we say that a successful farmer must be agood "businessman" as well as a good farmer.In this sense business has to do primarily with money matters, trade and finance.Most of us have a certain amount of business to do in acquiring and spending money.Professional businessmen make their living attending to money matters—merchants,bankers, brokers, accountants, and so on. It is against business in this sense of money-making or "production for profit" that much criticism of free enterprise is directed.(Cf. T. Veblen, The Theory of Business Enterprise.) BUSINESS—MAINSPRING OF FREE INDUSTRY 17 But money-making business can be done away with only when people are: A. all-wise and morally perfect, or B. slaves to custom, or C. slaves to a master class.

A. No Middlemen in Utopia If everyone knew just what needed to be done and if everyone always found his greatest joy in doing just the right things, we should need no salesmen or promoters, no bargaining and higgling, no freedom for experimentation and no money measure of value. 1. There would be no need of prices, profits, wages, salaries, rent or interest to induce people to work, save, invest and lend. 2. We should always produce everything we needed in just the right proportions—never too much or too little of anything. 3. No one would ever need to be spurred on to do his best, either by lure of gain or fear of loss. 4. Competition would not be needed to select those best fitted for the more important tasks. But this would be Utopia, or Heaven, not real life. Real people need (1) guidance and (2) motivation. 1. They need indexes and measures of value—money, prices, wages, rent, interest, profits—tp tell them: a. what consumers want; and b. in what proportions they want goods produced.

2. They need every possible incentive, particularly the motive of self-interest, to spur them on to do their best. (The usefulness of self-interest as a motive in economic cooperation depends on the kind of self in which one is interested. Creating selves which are better informed concerning (a) what their long-run welfare requires and (b) how to achieve it, is one way of promoting national progress.) B. Slaves of Custom Give Way to Enterprisers Certain primitive communities (e.g., Australian Bushmen) use little or no money and carry on little or no trading or business. They are dominated by custom and tradition in their work and by family or tribal communism in distributing the products. Such people have only a few simple occupations.

18 DO WE WANT FREE ENTERPRISE? Their scale of living is low. These primitive peoples occupy relatively barren or inaccessible regions not yet demanded by more progressive and powerful neighbors. C. Coercion Loses Out to Enterprise Nazis, Fascists, Japanese "Sons of Heaven," Technocrats, Socialists and Communists propose that the masses be subjected to a master party, a master race or a master class. The "ideal" of these coercionists is variously termed "Totalitarianism," "Collectivism/' "Social Security" and "Authoritarianism." ADVANTAGES OF COERCION 1. Time and effort may be saved through eliminating all bargaining, higgling and salesmanship. This is necessary in military operations because of the importance of speed and secrecy. In peacetime industry this saving is offset by the delays arising from necessary safeguards on the use of coercive authority. (See above, pp. 11-12.) 2. Efficiency may be greater when all decisions are made by patriotic "experts."

This advantage is more apparent than real, particularly in operating a highly industrialized society. (See above, pp. 9-10.) DISADVANTAGES OF COERCION 1. Experts make mistakes. The greater the authority of the experts the more difficult are their tasks and the more costly their mistakes. This limits the efficiency of big business as well as big government. 2. Coercive authority demoralizes leadership. Power to compel obedience tends to generate arrogance. It closes the mind to new facts and opinions. It causes men to persevere in their errors and to waste more and more of their energies in combating growing resentment among their subjects. Few men can long resist this tendency. 3. Coercion represses initiative, ambition and enterprise. Modern industry requires mass intelligence and mass enterprise to get the economies of mass production. (See above, pp. 9-10.) BUSINESS—MAINSPRING OF FREE INDUSTRY 19 Economy of Hope vs. Economy of Fear Business creates an economy of hope. It lures producers by offers of trade. For increased output it holds out rewards of fame and fortune.

Business uses prices, profits, wages, interest and rent as traffic lights for coordinating the flow of production with the wants of consumers. It harnesses the ambition of producers, whether it be the ambition to promote personal welfare or family advancement. It makes men work with and for their fellows while they seek to fulfill their own desires. (See pp. 26, 149-153.) Coercion is useful in repressing uneconomic activities. But as an instrument for inspiring cooperation it can create only an economy of fear. It prods producers with threats of injury or imprisonment. Which is more effective in getting efficiency, firing squads or profits ? History makes plain the answer. Democratic Governments Are Sensitive Democracy is rule by the people.* Its strength lies in^he opportunity which it provides for stimulating and utilizing the energies and abilities of all the people. A democratic leader is sensitive, or responsive, to the desires and interests of those he governs. He is their servant.

Making government democratic, however, has always been difficult: 1. Government tends to rely on its coercive power. Its primary functions have been and are waging war, suppressing violence and fraud, and doing other things requiring a degree of compulsion in administering or financing them. Possessing these powers, government has less incentive to develop the arts of persuasion, which are the methods of democratic leadership. 2. Government is the biggest and most complicated institution in a modern nation. The average citizen can keep track only of a few of his government's activities. In case of a representative government he may vote occasionally on certain officers or policies. But altogether he *Some persons use democracy to mean mob rule, that is, a government which is merelya rubber stamp for snap judgments of more or less tyrannical majorities.According to Webster's New International Dictionary (second edition, unabridged),however, democracy is, "Government by the people; a form of government in which thesupreme power is retained by the people and exercised either directly (absolute, or pure,democracy) or through a system of representation and delegated authority periodicallyrenewed as in a constitutional representative government, or republic . . . SPECIFICALLY, AND COMMONLY IN MODERN USE, A DEMOCRACY IS A REPRESENTATIVE GOVERNMENT WHERE THERE IS EQUALITY OF RIGHTS WITHOUTHEREDITARY OR ARBITRARY DIFFERENCES IN RANK OR PRIVILEGE . ..."Democracies have their defects, but so do other forms of government. Democraciesdo not last, but neither do other types of government.

May we not agree with Aristotle that all governments in practice are imperfect, but that democracy, as defined by Webster's, is usually the least corrupt?

20 DO WE WANT FREE ENTERPRISE? knows little of what government does and rarely gets a chance to express his opinion on what he does know about government policies. This provides opportunity for government bureaus to override or ignore popular interests and demands. The ballot, right of petition, right of assemblage and right of free discussion help in making government more sensitive to the wishes of the people. They do not guarantee democracy, but they are useful instruments for promoting more democratic attitudes and policies in government. When Voting Is Undemocratic Our government, however, would not be more democratic if the employees in the city hall elected the mayor or if the Federal employees elected the President. It would not be more democratic if the policemen elected the judges and lawmakers, or if the firemen voted each time on whether or not they would answer the fire alarm. A democratic government serves the general citizenry. Its employees are the servantS0>i the public, not the masters.

Similarly, for employees of a business to elect their managers and determine policies would not necessarily make business and industry more democratic. In practice it has usually made them less democratic by making them less responsive to wishes of consumers for whom the business is operated. Organized producers—farmers, business owners and wage earners—frequently vote to restrict output in order to raise prices for their services. This is no more democratic than for the city hall employees to increase the tax rates for the purpose of raising their salaries. However, when any necessary agent of production becomes scarcer and its price rises, those who hire that agent tend to treat it with more consideration. For example, as demand for labor increases employers and customers treat wage earners with more consideration. Business Is Democratic Competitive business enterprise is highly democratic because its leaders must rely solely on persuasion in promoting cooperation.

They persuade workers by offers made in terms of wages, hours and working conditions in connection with particular jobs. They persuade investors by offers made in terms of interest, dividends and security of principal for particular investments. They persuade suppliers of materials by price offers. They persuade customers by offers of goods.

BUSINESS—MAINSPRING OF FREE INDUSTRY 21 Businessmen cannot compel workers to work, investors to lend, or customers to buy under conditions of free, competitive enterprise. In order to succeed they must offer what other people want. They must be highly sensitive to the desires and even the whims of those whom they serve—workers, investors, suppliers and customers. For this reason competitive business organizations and other voluntary groups are usually more democratic than government. Increasing freedom of competition for honest enterprise makes business more democratic by making it more efficient in serving the public.