The Theory of Business Enterprise. Thorstein Veblen

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      But apart from this remoter and larger guidance of the course of industry, the business men also, and more persistently and pervasively, exercise a guidance over the course of industry in detail. The production of goods and services is carried on for gain, and the output of goods is controlled by business men with a view to gain. Commonly, in ordinary routine business, the gains come from this output of goods and services. By the sale of the output the business man in industry "realizes" his gains. To "realize" means to convert salable goods into money values. The sale is the last step in the process and the end of the business man's endeavor.²⁶ When he has disposed of the output, and so has converted his holdings of consumable articles into money values, his gains are as nearly secure and definitive as the circumstances of modern life admit. It is in terms of price that he keeps his accounts, and in the same terms he computes his output of products. The vital point of production with him is the vendibility of the output, its convertibility into money values, not its serviceability for the needs of mankind. A modicum of serviceability, for some purpose or other, the output must have if it is to be salable. But it does not follow that the highest serviceability gives the largest gains to the business man in terms of money, nor does it follow that the output need in all cases have other than a factitious serviceability. There is, on the one hand, such a possibility as overstocking the market with any given line of goods, to the detriment of the business man concerned, but not necessarily to the immediate disadvantage of the body of consumers. And there are, on the other hand, certain lines of industry, such as many advertising enterprises, the output of which may be highly effective for its purpose but of quite equivocal use to the community. Many well-known and prosperous enterprises which advertise and sell patent medicines and other proprietary articles might be cited in proof.

      In the older days, when handicraft was the rule of the industrial system, the personal contact between the producer and his customer was somewhat close and lasting. Under these circumstances the factor of personal esteem and disesteem had a considerable play in controlling the purveyors of goods and services. This factor of personal contact counted in two divergent ways: (1) producers were careful of their reputation for workmanship, even apart from the gains which such a reputation might bring; and (2) a degree of irritation and ill-will would arise in many cases, leading to petty trade quarrels and discriminations on other grounds than the gains to be got, at the same time that the detail character of dealings between producer and consumer admitted a degree of petty knavery and huckstering that is no longer practicable in the current large-scale business dealings. Of these two divergent effects resulting from close personal relations between producer and consumer; the former seems on the whole to have been of preponderant consequence. Under the system of handicraft and neighborhood industry, the adage that "Honesty is the best policy" seems on the whole to have been accepted and to have been true. This adage has come down from the days before the machine's regime and before modern business enterprise. Under modern circumstances, where industry is carried on on a large scale, the discretionary head of an industrial enterprise is commonly removed from all personal contact with the body of customers for whom the industrial process under his control purveys goods or services. The mitigating effect which personal contact may have in dealings between man and man is therefore in great measure eliminated. The whole takes on something of an impersonal character. One can with an easier conscience and with less of a sense of meanness take advantage of the necessities of people whom one knows of only as an indiscriminate aggregate of consumers. Particularly is this true when, as frequently happens in the modern situation, this body of consumers belongs in the main to another, inferior class, so that personal contact and cognizance of them is not only not contemplated, but is in a sense impossible. Equity, in excess of the formal modicum specified by law, does not so readily assert its claims where the relations between the parties are remote and impersonal as where one is dealing with one's necessitous neighbors who live on the same social plane. Under these circumstances the adage cited above loses much of its axiomatic force. Business management has a chance to proceed on a temperate and sagacious calculation of profit and loss, untroubled by sentimental considerations of human kindness or irritation or of honesty.

      The broad principle which guides producers and merchants, large and small, in fixing the prices at which they offer their wares and services is what is known in the language of the railroads as "charging what the traffic will bear."²⁷ Where a given enterprise has a strict monopoly of the supply of a given article or of a given class of services this principle applies in the unqualified form in which it has been understood among those who discuss railway charges. But where the monopoly is less strict, where there are competitors, there the competition that has to be met is one of the factors to be taken account of in determining what the traffic will bear; competition may even become the most serious factor in the case if the enterprise in question has little or none of the character of a monopoly. But it is very doubtful if there are any successful business ventures within the range of the modern industries from which the monopoly element is wholly absent.²⁸ They are, at any rate, few and not of great magnitude. And the endeavor of all such enterprises that look to a permanent continuance of their business is to establish as much of a monopoly as may be. Such a monopoly position may be a legally established one, or one due to location or the control of natural resources, or it may be a monopoly of a less definite character resting on custom and prestige (good-will). This latter class of monopolies are not commonly classed as such; although in character and degree the advantage which they give is very much the same as that due to a differential advantage in location or in the command of resources. The end sought by the systematic advertising of the larger business concerns is such a monopoly of custom and prestige. This form of monopoly is sometimes of great value, and is frequently sold under the name of good-will, trademarks, brands, etc. Instances are known where such monopolies of custom, prestige, prejudice, have been sold at prices running up into the millions.²⁹

      The great end of consistent advertising is to establish such differential monopolies resting on popular conviction. And the advertiser is successful in this endeavor to establish a profitable popular conviction, somewhat in proportion as he correctly apprehends the manner in which a popular conviction on any given topic is built up.³⁰ The cost, as well as the pecuniary value and the magnitude, of this organized fabrication of popular convictions is indicated by such statements as that the proprietors of a certain well-known household remedy, reputed among medical authorities to be of entirely dubious value, have for a series of years found their profits in spending several million dollars annually in advertisements. This case is by no means unique.

      It has been said,³¹ no doubt in good faith and certainly with some reason, that advertising as currently carried on gives the body of consumers valuable information and guidance as to the ways and means whereby their wants can be satisfied and their purchasing power can be best utilized. To the extent to which this holds true, advertising is a service to the community. But there is a large reservation to be made on this head. Advertising is competitive; the greater part of it aims to divert purchases, etc., from one channel to another channel of the same general class.³² And to the extent to which the efforts of advertising in all its branches are spent on this competitive disturbance of trade, they are, on the whole, of slight if any immediate service to the community. Such advertising, however, is indispensable to most branches of modern industry; but the necessity of most of the advertising is not due to its serving the needs of the community nor to any aggregate advantage accruing to the concerts which advertise, but to the fact that a business concern which falls short in advertising fails to get its share of trade. Each concert must advertise, chiefly because the others do. The aggregate expenditure that could advantageously be put into advertising in the absence of competition would undoubtedly be but an inconsiderable fraction of what is actually incurred, and necessarily incurred under existing circumstances.³³

      Not all advertising is wholly competitive, or at least it is not always obviously so. In proportion as an enterprise has secured a monopoly position, its advertising loses the air of competitive selling and takes on the character of information designed to increase the use of its output independently. But such an increase implies a redistribution of consumption on the part of the customers.³⁴ So that the element of competitive selling is after all not absent in these cases, СКАЧАТЬ