The Theory of Business Enterprise
by Thorstein Veblen
1904


Chapter 4

Business Principles

    The physical basis of modern business traffic is the machine
process, as described in Chapter II. It is essentially a modern
fact, - late and yet in its early stages of growth, especially as
regards its wider sweep in the organization of the industrial
system. The spiritual ground of business enterprise, on the other
hand, is given by the institution of ownership. "Business
principles" are corollaries under the main proposition of
ownership; they are principles of property, - pecuniary
principles. These principles are of older date than the machine
industry, although their full development belongs within the
machine era. As the machine process conditions the growth and
scope of industry, and as its discipline inculcates habits of
thought suitable to the industrial technology, so the exigencies
of ownership condition the growth and aims of business, and the
discipline of ownership and its management inculcates views and
principles (habits of thought) suitable to the work of business
traffic.
    The discipline of the machine process enforces a
standardization of conduct and of knowledge in terms of
quantitative precision, and inculcates a habit of apprehending
and explaining facts in terms of material cause and effect. It
involves a valuation of facts, things, relations, and even
personal capacity, in terms of force. Its metaphysics is
materialism and its point of view is that of causal sequence.(1*)
Such a habit of mind conduces to industrial efficiency, and the
wide prevalence of such a habit is indispensable to a high degree
of industrial efficiency under modern conditions. This habit of
mind prevails most widely and with least faltering in those
communities that have achieved great things in the machine
industry, being both a cause and an effect of the machine
process.
    Other norms of standardization, more or less alien to this
one, and other grounds for the valuation of facts, have prevailed
elsewhere, as well as in the earlier phases of the Western
culture. Much of this older standardization still stands over, in
varying degrees of vigor or decay, in that current scheme of
knowledge and conduct that now characterizes the Western culture.
Many of these ancient norms of thought which have come down from
the discipline of remote and relatively primitive phases of the
cultural past are still strong in the affections of men, although
most of them have lost greatly in their power of constraint. They
no longer bind men's convictions as they once did. They are
losing their axiomatic character. They are no longer self-evident
or self-legitimating to modern common sense, as they once were to
the common sense of an earlier time.
    These ancient norms differ from the modern norms given by the
machine in that they rest on conventional, ultimately sentimental
grounds; they are of a putative nature. Such are, e.g., the
principles of (primitive) blood relationship, clan solidarity,
paternal descent, Levitical cleanness, divine guidance,
allegiance, nationality. In their time and under the
circumstances which favored their growth these were, all and
several, powerful factors in controlling human conduct and
shaping the course of events. In their time each of these
institutional norms served as a definitive ground of
authentication for such facts as fell under its particular scope,
and the scope of each was very wide in the day of its best vigor.
As time has brought change of circumstances, the facts of life
have gradually escaped from the constraint of these ancient
principles; so that the dominion which they now hold over the
life of civilized men is relatively slight and shifty.
    It is among these transmitted institutional habits of thought
that the ownership of property belongs. It rests on the like
general basis of use and wont. The binding relation of property
to its owner is of a conventional, putative character. But while
these other conventional norms cited above are in their decline,
this younger one of the inherited institutions stands forth
without apology and shows no apprehension of being crowded into
the background of sentimental reminiscence.
    In absolute terms the institution of ownership is ancient, no
doubt; but it is young compared with blood-relationship, the
state, or the immortal gods. Especially is it true that its
fuller development is relatively late. Not until a comparatively
late date in West European history has ownership come to be
emancipated from all restrictions of a non-pecuniary character
and to stand in a wholly impersonal position, without admixture
of personal responsibility or class prerogative.(2*) Freedom and
inviolability of contract has not until recently been the
unbroken rule. Indeed, it has not even yet been accepted without
qualification and extended to all items owned. There still are
impediments in the way of certain transfers and certain
contracts, and there are exemptions in favor of property held by
certain privileged persons, and especially by certain sacred
corporations. This applies particularly to the more backward
peoples; but nowhere is the "cash nexus" free from all admixture
of alien elements. Ownership is not all-pervading and
all-dominant, but it pervades and dominates the affairs of
civilized peoples more freely and widely than any other single
ground of action, and more than it has ever done before. The
range and number of relations and duties that are habitually
disposed of on a pecuniary footing are greater than in the past,
and a pecuniary settlement is final to a degree unknown in the
past. The pecuniary norm has invaded the domain of the older
institutions, such as blood-relationship, citizenship, or the
church, so that obligations belonging under the one or the other
of these may now be assessed and fulfilled in terms of a money
payment, although the notion of a pecuniary liquidation seems to
have been wholly remote from the range of ideas - habits of
thought - on which these relations and duties were originally
based.

    This is not the place for research into the origin and the
primitive phases of ownership, nor even for inquiry into the
views of property current in the early days of the Western
culture. But the views current on this head at present - the
principles which guide men's thinking and roughly define the
right limits of discretion in pecuniary matters - this
common-sense apprehension of what are the proper limits, rights,
and responsibilities of ownership, is an outgrowth of the
traditions, experiences, and speculations of past generations.
Therefore some notice of the character of these traditional views
and the circumstances out of which they have arisen in the recent
past is necessary to an understanding of the part which they play
in modern life.(3*) The theory of property professed at a given
time and in a given cultural region shows what is the habitual
attitude of men, for the time being, on questions of ownership;
for any theory that gains widespread and uncritical acceptance
must carry a competent formulation of the deliverances of common
sense on the matter with which it deals. Otherwise it will not be
generally accepted. And such a commonplace view is in its turn an
outcome of protracted experience on the part of the community.
    The modern theories of property run back to Locke,(4*) or to
some source which for the present purpose is equivalent to Locke;
who, on this as on other institutional questions, has been proved
by the test of time to be a competent spokesman for modern
culture in these premises. A detailed examination of how the
matter stood in the theoretical respect before Locke, and whence,
and by what process of selection and digestion, Locke derived his
views, would lead too far afield. The theory is sufficiently
familiar, for in substance it is, and for the better part of two
centuries has been, held as an article of common sense by nearly
all men who have spoken for the institution of property, with the
exception of some few and late doubters.(5*)
    This modern European, common-sense theory says that ownership
is a "Natural Right." What a man has made, whatsoever "he hath
mixed his labor with," that he has thereby made his property. It
is his to do with it as he will. He has extended to the object of
his labor that discretionary control which in the nature of
things he of right exercises over the motions of his own person.
It is his in the nature of things by virtue of his having made
it. "Thus labor, in the beginning, gave a right of property." The
personal force, the functional efficiency of the workman shaping
material facts to human use, is in this doctrine accepted as the
definitive, axiomatic ground of ownership; behind this the
argument does not penetrate, except it be to trace the workman's
creative efficiency back to its ulterior source in the creative
efficiency of the Deity, the "Great Artificer." With the early
spokesmen of natural rights, whether they speak for ownership or
for other natural rights, it is customary to rest the case
finally on the creator's discretionary dispositions and
workmanlike efficiency. But the reference of natural rights back
to the choice and creative work of the Deity has, even in Locke,
an air of being in some degree perfunctory; and later in the
life-history of the natural-rights doctrine it falls into
abeyance; whereas the central tenet, that ownership is a natural
right resting on the productive work and the discretionary choice
of the owner, gradually rises superior to criticism and gathers
axiomatic certitude. The Creator presently, in the course of the
eighteenth century, drops out of the theory of ownership.
    It may be worth while to indicate how this ultimate ground of
ownership, as conceived by modern common sense, differs from the
ground on which rights of the like class were habitually felt to
rest in mediaeval times. Customary authority was the proximate
ground to which rights, powers, and privileges were then
habitually referred. It was felt that if a clear case of
devolution from a superior could be made out, the right claimed
was thereby established; and any claim which could not be brought
to rest on such an act, or constructive act, of devolution was
felt to be in a precarious case. The superior from whom rights,
whether of ownership or otherwise, devolved held his powers by a
tenure of prowess fortified by usage; the inferior upon whom
given rights and powers devolved held what fell to his lot by a
tenure of service and fealty sanctioned by use and wont. The
relation was essentially a personal one, a relation of status, of
authority and subservience. Hereditary standing gave a
presumption of ownership, rather than conversely. In the last
resort the chain of devolution by virtue of which all rights and
powers of the common man pertained to him was to be traced back
through a sequence of superiors to the highest, sovereign secular
authority, through whom in turn it ran back to God. But neither
in the case of the temporal sovereign nor in that of the divine
sovereign was it felt that their competence to delegate or
devolve powers and rights rested on a workmanlike or creative
efficiency. It was not so much by virtue of His office as creator
as it was by virtue of His office as suzerain that the Deity was
felt to be the source and arbiter of human rights and duties. In
the course of cultural change, as the medieval range of ideas and
of circumstances begins to take on a more modern complexion,
God's creative relation to mundane affairs is referred to with
growing frequency and insistence in discussions of all questions
of this class; but for the purpose in hand His creative relation
to human rights does not supersede His relation of sovereignty
until the modern era is well begun. It may be said that God's
tenure of office in the medieval conception of things was a
tenure by prowess, and men, of high and low degree, held their
rights and powers of Him by a servile tenure. Ownership in this
scheme was a stewardship. It was a stewardship proximately under
the discretion of a secular lord, more remotely under the
discretion of the divine Overlord. And the question then pressing
for an answer when a point of competency or legitimacy was raised
in respect of any given human arrangement or institution was not,
What hath God wrought? but, What hath God ordained?
    This medieval range of conceptions first began to break down
and give place to modern notions in Italy, in the Renaissance.
But it was in the English-speaking communities that the range of
ideas upon which rests the modern concept of natural rights first
gathered form and reached a competent expression. This holds true
with respect to the modern doctrines of natural rights as
contrasted with the corresponding ancient doctrines. The
characteristically modern traits of the doctrine of natural
rights are of English derivation. This is peculiarly true as
regards the natural right of ownership. The material, historical
basis of this English right of ownership, considered as a habit
of thought, is given by the modern economic factors of handicraft
and trade, in contrast with the medieval institutions of status
and prowess. England, as contrasted with the Continent, during
modern times rapidly substituted the occupation of the merchant
and the ubiquitous free artisan as the tone-giving factors of her
everyday life, in place of the prince, the soldier, and the
priest. With this change in the dominant interests of everyday
life came a corresponding change in the discipline given by the
habits of everyday life, which shows itself in the growth of a
new range of ideas as to the meaning of human life and a new
ground of finality for human institutions. New axioms of right
and truth supplant the old as new habits of thought supersede the
old.
    This process of substitution, as a struggle between rival
concepts of finality in political theory, reached a dramatic
climax in the revolution of 1688. As a battle of axioms the
transition comes to a head in the controversy between John Locke
and Sir Robert Filmer. Filmer was the last effective spokesman of
the medieval axiom of devolution. Locke's tracing of natural
rights, the right of property among the rest, back to the
workmanlike performance of the Creator, marks the form in which,
at the point of transition, the modern view pays its respects to
the superseded axiom of devolution and takes leave of it.
    The scope given to the right of ownership in later modern
times is an outgrowth of the exigencies of mercantile traffic, of
the prevalence of purchase and sale in a "money economy." The
habits of thought enforced by these exigencies and by the
ubiquitous and ever recurring resort to purchase and sale decide
that ownership must naturally, normally, be absolute ownership,
with free and unqualified discretion in the use and disposal of
the things owned. Social expediency may require particular
limitations of this full discretion, but such limitations are
felt to be exceptional derogations from the "natural" scope of
the owner's discretion.
    On the other hand, the metaphysical ground of this right of
ownership, the ultimate fact by virtue of which such a
discretionary right vests in the owner, is his assumed creative
efficiency as a workman; he embodies the work of his brain and
hand in a useful object, - primarily, it is held, for his own
personal use, and, by further derivation, for the use of any
other person to whose use he sees fit to transfer it. The
workman's force, ingenuity, and dexterity was the ultimate
economic factor, - ultimate in a manner patent to the common
sense of a generation habituated to the system of handicraft, how
ever doubtful such a view may appear in the eyes of a generation
in whose apprehension the workman is no longer the prime mover
nor the sole, or even chief, efficient factor in the industrial
process. The free workman, master of his own motions and with
discretion as to what he would turn his efforts to, if to
anything, had by Locke's time become an habitual fact in the life
of the English community to such a degree that free labor, of the
character of handicraft, was accepted uncritically as the
fundamental factor in all human economy, and as the presumptive
original fact in industry and in the struggle for wealth. So
settled did this habit of thought become that no question was
entertained as to the truth of the assumption.
    It became a principle of the natural order of things that
free labor is the original source of wealth and the basis of
ownership. In point of historical fact, no doubt, such was not
the pedigree of modern industry or modern ownership; but the
serene, undoubting assumption of Locke and his generation only
stands out the more strongly and unequivocally for this its
discrepancy with fact. It is all the more evidently a competent
expression of the trend which English common sense was following
at this time, since this doctrine of a "natural" right of
property based on productive labor carries all before it, in the
face of the facts. In this matter English thought, or rather
English common sense, has led; and the advanced Continental
peoples have followed the English lead as the form of economic
organization exemplified by the English-speaking communities has
come to prevail among these Continental peoples.
    Such a concept belongs to the regime of handicraft and petty
trade, and it is from, or through, the era of handicraft that it
has come down to the present.(6*) It fits into the scheme of
handicraft, and it is less fully in consonance with the facts of
life in any other situation than that of handicraft. Associated
with the system of handicraft, as its correlate, was the system
of petty trade; and as the differentiation of occupations was
carried to a high degree, purchase and sale came to prevail very
generally, and the community acquired a commercial complexion and
commercial habits of thought. Under these circumstances the
natural right of ownership came to comprise an extreme freedom
and facility in the disposal of property. The whole sequence of
growth of this natural right is, of course, to be taken in
connection with the general growth of individual rights that
culminated in the eighteenth-century system of Natural Liberty.
How far the English economic development is to be accounted the
chief or fundamental factor in the general growth of natural
rights is a question that cannot be taken up here. The outcome,
so far as it immediately touches the present topic, was that by
the time of the industrial revolution a fairly consistent
standardization of economic life had been reached in terms of
workmanship and price. The writings of Adam Smith and his
contemporaries bear witness to this. And this eighteenth-century
standardization stands over as the dominant economic institution
of later times.(7*) Such, in outline, seem to be the historical
antecedents and the spiritual basis of the modern institution of
property, and therefore of business enterprise as it prevails in
the present.(8*)
    This sketch of the genesis of the modern institution of
property and of modern business principles may seem dubious to
those who are inclined to give it a more substantial character
than that of a habit of thought, - that is to say, those who
still adhere to the doctrine of natural rights with something of
the eighteenth-century naivete. But whatever may be accepted as
the ulterior grounds of that cultural movement which culminated
in the system of Natural Liberty, it is plain that the industrial
and commercial experience of western Europe, and primarily of
England, from the fifteenth to the eighteenth century, had much
to do with the outcome of the movement in so far as natural
liberty touches economic matters. It is as an outcome of this
recently past phase of economic development that we have
incorporated in the law, equity, and common sense of to-day,
these peculiarly free and final property rights and obligations,
that is to say, those peculiar principles that control current
business and industry. We owe to the eighteenth century a very
full discretIon and free swing in all pecunIary matters. It has
given freedom of contract, together with security and ease of
credit engagements, whereby the competitive order of business has
been definitively installed.(9*)

    The subject-matter about which this modern pecuniary
discretion turns, with all its freedom and inviolability of
contract, is money values. Accordingly there underlies all
pecuniary contracts. an assumption that the unIt of money value
does not vary. Inviolability of contracts involves this
assumption. It is accepted unquestioningly as a point of
departure in all business transactions. In the making and
enforcement of contracts it is a fundamental point of law and
usage that money does not vary.(10*) Capitalization as well as
contracts are made in its terms, and the plans of the business
men who control industry look to the money unit as the stable
ground of all their transactions. Notoriously, business men are
jealous of any attempt to change the value or lessen the
stability of the money unit, which goes to show how essential a
principle in business traffic is the putative invariability of
the money unit.(11*)
    Usage fortified by law decides that when prices vary the
variation is held to occur in the value of the vendible
commodities, not in the value of the money unit, since money is
the standard of value. There is, of course, no intention here to
question the position, familiar to all economists, that
fluctuations in the course of prices may as well be due to
variation on the part of the money metals as to a variation on
the part of the articles whose prices fluctuate. In so far as the
distinction so made between variations in the one or the other
member of a value ratio has a meaning - which it is not always
clear that it has - it does not touch the argument. It is a
matter of common notoriety, which has also had the benefit of
reiterated statistical proof, that, as measured, for instance, in
terms of livelihood or of labor, the value of money has varied
incontinently throughout the course of history.
    But in the routine of business throughout the nineteenth
century the assumed stability of the money unit has served as an
axiomatic principle, in spite of facts which have from time to
time shown the falsity of that assumption.(12*)
    The all-dominating issue in business is the question of gain
and loss. Gain and loss is a question of accounting, and the
accounts are kept in terms of the money unit, not in terms of
livelihood, nor in terms of the serviceability of the goods, nor
in terms of the mechanical efficiency of the industrial or
commercial plant. For business purposes, and so far as the
business man habitually looks into the matter, the last term of
all transactions is their outcome in money values. The base line
of every enterprise is a line of capitalization in money values.
In current business practice, variations from this base line are
necessarily rated as variations on the part of the other factors
in the case, not as variations of the base line. The business man
judges of events from the standpoint of ownership, and ownership
runs in terms of money.(13*)

    Investments are made for profit, and industrial plants and
processes are capitalized on the basis of their profit-yielding
capacity. In the accepted scheme of things among business men,
profits are included as intrinsic to the conduct of business. So
that, in place of the presumption in favor of a simple pecuniary
stability of wealth, such as prevails in the rating of
possessions outside of business traffic, there prevails within
the range of business traffic the presumption that there must in
the natural course of things be a stable and orderly increase of
the property invested. Under no economic system earlier than the
advent of the machine industry does profit on investment seem to
have been accounted a normal or unquestionably legitimate source
of gain. Under the agrarian-manorial regime of the Middle Ages it
was not felt that the wealth of the large owners must, as a
matter of course, increase by virtue of the continued employment
of what they already had in hand - whatever may be the historical
fact as regards the increase of wealth in their hands.
Particularly, it was not the sense of the men of that time that
wealth so employed must increase at any stated, "ordinary" rate
per time unit. Similarly as regards other traffic in those days,
even as regards mercantile ventures. Gain from investment was
felt to be a fortuitous matter, not reducible to a stated rate.
This is reflected, e.g., in the tenacious protests against the
taking or paying of interest and in the ingenious sophistries by
which the payment of interest was defended or explained away.
Only under more settled commercial relations during the era of
handicraft did the payment of interest gradually come to be
accepted into full legitimacy. But even then gains from other
business employments than mercantile traffic were apparently
viewed as an increase due to productive labor rather than as a
profit on investment.(14*) In industrial pursuits, as distinct
from mercantile traffic proper, profits apparently come to figure
as a regular and ordinary incident only when the industries come
to be carried on on a mercantile basis by relatively large
employers working with hired labor.
    This orderly increase is, of course, taken account of in
terms of the money unit. The "ordinary" rate of profits in
business is looked upon as a matter of course by the body of
business men. It is part of their common-sense view of affairs,
and is therefore a normal phenomenon.(15*) Gain, they feel, is
normal, being the purpose of all their endeavors; whereas a loss
or a shrinkage in the values invested is felt to be an untoward
accident which does not belong in the normal course of business,
and which requires particular explanation. The normality, or
matter-of-course character, of profits in the modern view is well
shown by the position of those classical economists who are
inclined to include "ordinary profits" in the cost of production
of goods.
    The precise meaning of "ordinary profits" need not detain the
argument. It may mean net average profits, or it may mean
something else. The phrase is sufficiently intelligible to the
business community to permit the business men to use it without
definition and to rest their reasoning about business affairs on
it as a secure and stable concept; and it is this commonplace
resort to the term that is the point of interest here.
    At any given time and place there is an accepted ordinary
rate of profits, more or less closely defined, which, it is felt,
should accrue to any legitimate and ordinarily judicious business
venture. However shifty the definition of this rate of profits
may be, in concrete, objective terms, it is felt by the men of
affairs to be of so substantial and consistent a character that
they habitually capitalize the property engaged in any given
business venture on the basis of this ordinary rate of profits.
Due regard being had to any special advantages and drawbacks of
the individual case, any given business venture or plant is
capitalized at such a multiple of its earning-capacity as the
current ordinary rate of profits will warrant.(16*)
    Proceeding on the common-sense view built up out of this
range of habits of thought with respect to normal profits and
price phenomena, the business community holds that times are
ordinary or normal so long as the accepted or reasonable rate of
profits accrues on the accustomed capitalization; whereas times
are good or brisk if the rate of gain is accelerated, and hard or
dull if profits decline. This is the meaning of the phrases,
"brisk times" and "dull times," as currently used in any business
community.
    Under the exigencies of the quest of profits, as conditioned
by the larger industry and the more sweeping business
organization of the last few decades, the question of capital in
business has increasingly become a question of capitalization on
the basis of earning-capacity, rather than a question of the
magnitude of the industrial plant or the cost of production of
the appliances of industry. From being a sporadic trait, of
doubtful legitimacy, in the old days of the "natural" and "money"
economy, the rate of profits or earnings on investment has in the
nineteenth century come to take the central and dominant place in
the economic system. Capitalization, credit extensions, and even
the productiveness and legitimacy of any given employment of
labor, are referred to the rate of earnings as their final test
and substantial ground. At the same time the "ordinary rate of
profits" has become a more elusive idea. The phenomenon of a
uniform rate of profits determined by competition has fallen into
the background and lost something of its matter-of-fact character
since competition in the large industry has begun to shift from
the position of a stable and continuous equilibration to that of
an intermittent, convulsive strain in the service of the larger
business men's strategy. The interest of the business community
centres upon profits and upon the shifting fortunes of the
profit-maker, rather than upon accumulated and capitalized goods.
Therefore the ultimate conditioning force in the conduct and aims
of business is coming to be the prospective profit-yielding
capacity of any given business move, rather than the aggregate
holdings or the recorded output of product.
    But this latest development in the field of industrial
business has not yet come to control the field. It is rather an
inchoate growth of the immediate present than an accomplished
fact even of the recent past, and it can be understood only by
reference to those conditions of the recent past out of which it
comes. Therefore it is necessary to turn back to a further
consideration of the old-fashioned business traffic as it used to
go on by the competitive method before the competitive order
began seriously to be dislocated and take on an intermittent
character, as well as to a consideration of that resort to credit
which has, in large part, changed the competitive system of
business from what it was at the beginning of the nineteenth
century to what it has become at its close.

NOTES:

1. See ch. IX.

2. Cf. e.g. E. Jenks, Law and Politics in the Middle Ages, ch. VI
and VII.

3. "It has been said that the science of one age is the common
sense of the next. It might with equal truth be said that the
equity of one age becomes the law of the next. If positive law is
the basis of order, ideal right is the active factor in
progress." - H.S. Foxwell, Introduction to Menger's Right to the
Whole Produce of Labor, p. XI. Cf. the entire passage.

4. See the essay, of Civil Government, ch. V.

5. Apart from the familiar historical materials for the study of
the growth of national rights, including the right of property,
there are a number of late writings that may be consulted; e.g.
Jellinek, Declaration of the Rights of Man and of the Citizen;
Ritchie, Natural Rights; Bonar, chapters relating to this topic
in Philosophy and Political Economy; Hoffding, History of Modern
Philosophy, vol. I; Albee, History of English Utilitarianism;
and, lately come to hand, Scherger, Evolution of Modern Liberty.
These and other writers treat of natural rights and the law of
nature chiefly in other bearings than that of ownership; while
the legal writers treat the subject from the legal rather than
the de facto standpoint. It is also not unusual to spend
attention chiefly on the pedigree of the doctrines rather than on
the genesis and growth of the concepts. An endeavor at a genetic
account of the modern concepts of ownership is found in Jenks,
Law and Politics in the Middle Ages, so also in Cunningham,
Western Civilization in its Economic Aspects.

6. What appears to be necessary to the development of such a
sentiment is that neither slavery nor the machine system shall be
present in sufficient force to give a pronounced bias to the
community's habits of thought, at the same time that each member
of the community, or each minor group of persons, habitually
carries on its own work at its own discretion and for its own
ends. Such a situation may or may not involve handicraft as that
term is specifically understood. A presumption of similar import,
but less pronounced and less defined, seems to prevail in an
uncertain degree among many peoples on a low stage of culture.
The tenet, accordingly, has some claim to stand as an egression
of "natural" right, even when "natural" is taken in an
evolutionary sense.

7. Taken by and large, the standardization of conduct, knowledge,
and ideals Current in the eighteenth century, and consonant with
the eighteenth-century economic situation, is in the last
analysis reducible to terms of workmanlike efficiency rather than
terms of material cause and effect. This leaning to personal,
workmanlike efficiency as an ultimate term shows itself even in
the science of that time, e.g. in the quasi-personal character
imputed to the so-called "natural laws" which then largely
occupied scientific speculation; similarly in the Romantic
literature and political philosophy.

8. As late as the close of the sixteenth century English law and
usage in the matter of loans for interest and other contracts of
a pecuniary character were in a less advanced state, admitted a
less full and free discretion, than the corresponding development
on the Continent; but from about that time the English rapidly
gains on the Continental community in the habitual acceptance and
application of these "business principles," and it has since then
held the lead in this respect. Cf. Ashley, Economic History, vol.
II. ch. VI.

9. Cf. Sombart, Kapitalismus, vol. II. ch. II.

10. On the putative stability of the money unit, cf. W.W.
Carlile, The Evolution of Modern Money, pt. II. ch. IV.

11. Economists are in the habit of speaking of money as a medium
of exchange, a "great wheel" for the circulation of goods. In the
same connection business traffic is spoken of as a means of
obtaining goods suitable for consumption, the end of all purchase
and sale being consumable goods, not money values. It may be true
in some profound philosophical sense that money values are not
the definitive term of business endeavor, and that the business
man seeks through the mediation of money to satisfy his craving
for consumable goods. Looking at the process of economic life as
a whole and taking it in its rationalized bearing as a collective
endeavor to purvey goods and services for the needs of collective
humanity, the office of the money unit - money transactions,
exchange, credit, and all the rest that make up the phenomena of
business - is perhaps justly rated as something subsidiary,
serving to facilitate the distribution of consumable goods to the
consumers, the Consumption of goods being the objective point of
all this traffic. Such is the view of this matter given by the
rationalistic, normalizing speculations of the eighteenth-century
philosophers; and such is, in substance, the view spoken for by
those economists who still consistently remain at the standpoint
of the eighteenth century. The contention need neither be
defended nor refuted here, since it does not seriously touch the
facts of modern business. Within the range of business
transactions this ulterior end does not necessarily come into
view, at least not as a motive that guides the transactions from
day to day. The matter is not so conceived in business
transactions, it does not so appear on the face of the negotiable
instruments, it is not in this manner that the money unit enters
into the ruling habits of thought of business men.

12. Still, latterly, in the traffic of some of the more
wide-awake business men, account is practically taken of the
variations of the unit of value. What may be the future effects
of habitual and incontinent variations of the unit, such as
prevail in the present, is of course impossible to foretell.
These variations seem due mainly to the extensive prevalence of
credit relations; and the full development of credit relations in
business is apparently a matter of the future rather than of the
recent past, in spite of the great improvements that have been
made in the use of credit. The modern conventional imputation of
stability to the money unit dates back to the regime of a "money
economy," such as prevailed under the circumstances of handicraft
and the earlier huckstering commerce, and it holds its place in
the developed "credit economy" largely as a survival of this more
elementary past phase of economic life.

13. The conventional acceptance of the money unit as an
invariable measure of value and standard of wealth is of very
ancient derivation. (Cf. Carlile, Evolution of Modern Money, pt.
II. ch. I; Ridgeway, Origin of Metallic Currency and Weight
Standards, ch. I, II) Its present-day consequences are also of
first-rate importance, as will be indicated in a later chapter.

14. Cf., e.g., Mun, England's Treasure, particularly ch. II;
Ashley, Economic History and Theory, bk. II. ch. VI. pp. 391-397.
This, essentially handicraft, presumption is reflected even in
the classical economists, who feel a moral necessity of
explaining profits on some basis of productivity, or even of
workmanship in some sophisticated sense. The whole discussion of
the doctrine of Wages of Superintendence will serve to illustrate
the case; the point is well shown in Mr Davidson's article on
"Earnings of Management" in Palgrave's Dictionary of Political
Economy.

15. The "ordinary" rate, of course, differs in detail from one
line of business to another, as well as from place to place.

16. This statement applies with greater aptness to the business
situation of England during the earlier three-quarters of the
nineteenth century, and to the American situation of the third
quarter of the century, than it does to the situation of the last
decade. Qualifications required by the later phases of business
development will be noted presently.