Review of Veblen's "The Theory of Business Enterprise", By A. M. Simons.

The International Socialist Review.
A Monthly Journal of International Socialist Thought
Vol. V (July, 1904-June, 1905), Chicago, 1905

Vol. V, No., 6, 1904, pp. 348 - 358
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[348]
The Theory of Business Enterprise

The Theory of Business Enterprise, by Thorstein Veblen. Scribners. Cloth, 350 
pp. $2.00.

THE material framework of modern civilization is the industrial system, and 
the directing force which animates this framework is business enterprise." 
With this quotation Prof. Thorstein Veblen opens his work on "The Theory of 
Business Enterprise." We have no hesitation in saying that this work is the 
most searching analysis of capitalism ever published in the English language. 
Business enterprise, he tells us, is a very comprehensive term; "the scope of 
the process is larger than the machine." The two great fundamental facts of 
the machine process are the inter-relations of the productive process and the 
standardization of all things connected with it. This standardization begins 
with weights and measures, and soon extends to tools, materials and products. 
Next, are included services, and, finally, the entire population tends to be 
standardized to fit the machine.

"The motive of business is pecuniary gain, the method is essentially purchase 
and sale. The aim and usual outcome is an accumulation of wealth." To those 
whose idea of business enterprise is the furthering of production the 
statement that while "the end is pecuniary gain, the means is disturbance of 
the industrial system," will come with somewhat of a shock. The reason for 
this condition is found however in the fact that "The outcome of this 
management of industrial affairs through pecuniary transactions has been to 
disassociate the interests of those men who exercise the discretion from the 
interests of the community." In other words, an antagonism has arisen between 
the process of production and the interests of those who dominate industrial 
life. As a consequence he concludes that "The largest and assuredly the 
securest and most unquestionable service rendered by the great modern 
captains of industry is the sweeping reduction of business men as a class 
from service and the definitive cancelment of opportunities for private 
enterprise." The reason for this, of course, lies in the tremendous 
wastefulness of modern industry and the fact that things are produced for 
sale and not for use, and need only to have "a modicum of serviceability in 
order to be salable." Industry has become so completely de-personalized that 
there is no personal relation between the buyer and the seller, and 
consequently, the strongest motive to honesty is removed. However, he thinks 
that the present system to some degree "makes up for its wastefulness by the 
added strain which it throws upon those engaged in the productive work." A 
method [349] of compensation which does not carry great comfort to the 
working class.

The foundation of business enterprise is given by the institution of 
ownership. This idea of ownership has passed through two phases: first, it 
was supposed to arise from divine right, and this idea occasionally finds 
utterance to-day in the theories of stewardship of Rockefeller and the 
statements of such men as Baer. Later, however, this right of ownership, 
under the influence of the craftsmanship stage of the Middle Ages, came to be 
founded on production. It rests "in the assumed creative efficiency of a 
workman." This foundation having also passed away with the passing of the 
handicraft stage, the idea of ownership to-day rests upon "a habit of 
thought." Certainly a very unsubstantial foundation for a whole social 
system. This ownership is always expressed in money values and always with an 
assumption that the unit of money value does not vary, an assumption, which 
it is unnecessary to say. Professor Veblin recognizes as contrary to fact. 
"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.

The base line of every enterprise is the line of capitalization in money 
value *** Investments are made for profit, and industrial plants and 
processes are capitalized on the basis of their profit-yielding capacity." In 
this capitalization loan credit plays a very great part. The return on any 
investment depends on the rapidity of the turnover — the turnover equaling 
the amount of capital multiplied by the length of time in which it is "turned 
over" in the business. The size of the capital can be increased by the use of 
credit and thus the product of the turnover be increased. But in a 
competitive world whatever can be done to increase profits mast be done. 
Therefore "any concern involved in the open business competition which cannot 
or does not take recourse to credit to swell its volume of business, will be 
unable to earn a 'reasonable' rate of profits." Since this matter of loan 
credit was included in a monograph which was reviewed in an earlier number of 
this magazine, it will be passed over here with less notice than it really 
deserves. It is worth while however to notice even at the cost of repetition, 
the ingenious analysis by which he shows how the modem promoter has been able 
to "syncopate an industrial crisis" including all the features from the 
inflation of credit to the final shearing of the lamb, and doing it all at a 
single business transaction.

He next considers "The Theory of Modern Welfare" and tells us that "Before 
business principles came to dominate everyday life the common welfare, when 
it was not a question of peace [350] and war, turned on the case and 
certainty with which enough of the means of life could be supplied. Since 
business has become the central and controlling interest, the question of 
welfare has become a question of price. Under the old regime of handicraft 
and petty trade, dearth (high prices) meant privation and might mean famine 
and pestilence; under the new regime low prices commonly mean privation and 
may on occasion mean famine. Under the old regime the question was whether 
the community work was adequate to supply the community's needs; under the 
new regime that question is not seriously entertained" ... "Formerly, 
therefore, times were good or bad according as the industrial processes 
yielded a sufficient or an insufficient output of the means of life. Latterly 
times are good or bad according as the process of business yields an adequate 
or inadequate rate of profits." He here propounds a theory of crises and 
makes these spring out of the operation of credit. In our opinion this is the 
weakest portion of the entire book.

He says, however, that only through monopoly can we escape the coming of 
crises. Even with these he discovers that: "The great coalitions and the 
business maneuvers connected with them have the effect of adding to the large 
fortunes of the greater business men; which adds to the large incomes that 
cannot be spent in consumptive expenditures; which accelerates the increase 
of investments; which brings competition if there is a chance for it; which 
tends to bring on depression, in the manner already indicated. The great 
coalitions, therefore, seem to carry the seed of this malady of competition, 
and this evil consequence can accordingly be avoided only on the basis of so 
comprehensive and rigorous a coalition of business concerns as shall wholly 
exclude competition, even in the face of any conceivable amount of new 
capital seeking investment."

Finally, he points out what has never before been noticed in exactly this 
form, at least by any standard political economist, that the workmen do not 
and cannot own and direct the industrial equipment and processes so long as 
private ownership prevails, and industry has to be managed on business 
principles. "The labor supply, or the working population, can therefore not 
be included in the ideally complete coalition suggested above *** So that 
when the last step in business coalition has been taken, there remains the 
competitive friction between the combined business capital and the combined 
workmen."

He then proceeds to the chapter on "Business in Law and Politics" in which he 
informs us that: "Modern (civilized) institutions rest in great part on 
business principles." He finds naturally that America carries this principle 
farther than anywhere else. "Here, as nowhere else do obligations and claims 
of the most diverse kinds, domestic, social, and civil, tend to take the 
[351] pecuniary form and admit of being discharged on a monetary valuation." 
This grew out of the fact that for many years industrial relations in America 
were on the small capitalist basis and affected a large number of persons. 
The foundation of business principles is the freedom of contract, but while 
it is noticed that "physical impossibility may be pleaded as invalidating the 
terms of the contract. *** The material necessities of a group of workmen or 
consumers, enforced by the specialization and concatenation of industrial 
processes, is, therefore, not competent to set aside, or indeed to qualify, 
the natural freedom of the owners of these processes to let work go on or 
not, as the outlook for profits may decide. Profits is a business proposition 
and livelihood is not." The courts naturally derive their ideas from business 
principles, interpreting freedom of contract in accord with these principles. 
And the higher courts being more closely in touch with these principles apply 
them with a surer and firmer touch*. The workers sometimes do not see the 
full justice of this, but as he says: "This extreme consequence of the 
principle of natural liberty has at times roused indignation in the vulgar, 
but their grasp of legal principles is at fault."

"Government at one time was an organization for the control of affairs in the 
interest of princely or dynastic ends, but since the advent of constitutional 
government and parliamentary representation, business ends have taken the 
place of dynastic ends in statecraft. *** The constitutional government is a 
business government *** And representative government must generally be 
representative of business interests."

The ground of sentiment on which rests the popular approval of a government 
for business ends may be summed up under two heads: "Patriotism and property. 
*** Patriotism arises from a happy knack of clannish fancy by which the 
common man is enabled to feel that he has some sort of metaphysical share in 
the gains that accrue to the business men who are citizens of the same 
'commonwealth.' In the same way the working man's idea of property is as an 
outgrowth of the discipline of the past." This idea of property in itself has 
had an important change. Instead of resting on production it has come to rest 
on possession, or as Professor Veblen states it "acquisition of property" has 
been considered "to mean production of wealth; so that a business man is 
looked upon as the putative producer of whatever wealth he acquires. By force 
of this sophistication the acquisition of property by any person is held to 
be, not only expedient for the owner, but meritorious as an action serving 
the common good." Business interests affect the governmental policy in 
various ways, one of the most striking of which is in the pressure for 
expansion .or imperialism. "Armaments serve trade not only in the making of 
general terms of purchase and sale between the business men of [352] 
civilized countries, but they are similarly useful in extending and 
maintaining business enterprise and privileges in the outlying regions of the 
earth. *** There is commonly a handsome margin of profit in doing business 
with these, pecuniarily unregenerate populations, particularly when the 
traffic is adequately backed with force. But, also commonly, these peoples do 
not enter willingly into lasting business relations with civilized mankind. 
It is therefore necessary, for the purposes of trade and culture, that they 
be firmly held up to such civilized rules of conduct as will make trade easy 
and lucrative. To this end armament is indispensable."

Perhaps one of the most striking chapters in the whole work is one on "The 
Cultural Incidence of the Machine Process." This is a study of the different 
ways in which the machine process affects various social factors. The workman 
is made into a machine so that the final form of his habitual thinking is 
mechanical efficiency. The machine process however divides society into two 
classes one of which is exclusively interested in "the work of purchase and 
sale and of husbanding a store of accumulated values." "The other," he tells 
us with fine sarcasm, "have been relieved of the cares of business and have 
with increasing specialization given their attention to the mechanical 
processes involved in production for the market." He shows how with the 
workers all possible exercise of the pecuniary or accumulative spirit has 
been abolished since, even in the purchase of their daily necessities prices 
are fixed by forces outside their control. As a result, one class thinks only 
in terms of property and profit, the other in terms of production and use. So 
that the two classes come to have an increasing difficulty in understanding 
one another. The business classes do their thinking on the basis of natural 
rights in property while the working classes are "habitually occupied with 
matters of casual sequence, and with hard matter of fact things which make it 
impossible for them to appreciate the conventional idea of property rights. 
As a result the working class come to have less and less faith in the action 
of governmental institutions dominated by property ideas. Finally, we are 
told, that when "distrust of business principles rises to such a pitch as to 
become intolerant of all pecuniary institutions, and leads to a demand, for 
the abrogation of property rights rather than a limitation of them, it is 
spoken of as 'socialism' or 'anarchism.' This socialistic disaffection is 
widespread among the advanced industrial peoples. No other cultural 
phenomenon is so threatening to the received economic and political 
structure; none is so unprecedented or so perplexing for practical men of 
affairs to deal with. The immediate point of danger in the socialistic 
disaffection is a growing disloyalty to the natural-rights institution of 
property, but this is backed by a similar failure of regard for other 
articles of the [353] institutional furniture handed down from the past. The 
classes affected with socialistic vagaries protest against the existing 
economic organization, but they are not necessarily averse to a somewhat 
rigorous economic organization on new lines of their own choosing. They 
demand an organization on industrial as contrasted with business lines. Their 
sense of economic solidarity does not seem to be defective, indeed it seems 
to many of their critics to be unnecessarily pronounced; but it runs on lines 
of industrial coherence and mechanical constraint, not on lines given by 
pecuniary conjunctures and conventional principles of economic right and 
wrong." The fine sarcasm of this statement has few equals in economic 
literature. He tells us that the socialists do not look "to the 
redistribution of property or a re-organization of ownership" but rather "to 
the disappearance of property rights." While socialists agree with this, 
there is a note on this page stating that this was not the position of the 
"scientific socialism" of Marx and Engels. We are not exactly sure whether 
this is intended to be another joke for the purpose of throwing his orthodox 
readers off the trade or not, but the statement is certainly not true, as 
Marx and Engels had as little sympathy with the cry of the "right to the full 
product of labor" as do the modem socialists. If any one doubts this let him 
read Lafargue's "Right to be Lazy" and probably few would deny Lafargue's 
right to speak authoritatively on Marxian socialism.

With two such opposing mental make-ups as that of the capitalist and the 
working class, there can be no reconciliation. "With the socialistic element 
the question is not what shall be done in the way of readjustment of property 
claims, but what is to be done to abolish them?" *** "In this differential 
rate of movement the departure from the ancient landmarks has now gone so far 
(or is reaching such a point) among the socialistic vulgar as to place their 
thinking substantially on a plane of material matter of fact, particularly as 
regards economic institutions. The respectable classes will not, owing to 
their retention of the conventional property ideas reach a mature 
revolutionary frame of mind' consequently, the socialists maintain that their 
movement must be a proletarian movement in which the 'respectable', that is 
to say, the pecuniarily competent, classes can have no organic part even if 
they try. *** Instead of contrasting the well-to-do with the indigent, the 
line of demarcation between those available for the socialist propaganda and 
those not so available is rather to be drawn between the classes employed in 
the industrial and those employed in the pecuniary occupations. It is a 
question not so much of possessions as of employments; not of relative 
wealth, but of work. It is a question of work because it is a question of 
habits of thought, and work shapes the habits of thought."

[354] In a note he has this peculiarly shrewd observance concerning another 
class which often hangs on the fringe of the socialist movement "The 
unpropertied classes employed in business do not take to socialistic vagaries 
with such alacrity as should inspire a confident hope in the advocates of 
socialism or a serious apprehension to those who stand for law and order. 
This pecuniarily disfranchised business population^ in its revulsion against 
unassimilated facts, turns rather to some excursion into pragmatic romance 
such as Social Settlements, Prohibition, Clean Politics, Single Tax, Arts and 
Crafts, Neighborhood Guilds, Institutional Churches, Christian Science, New 
Thought, or some such cultural thimblerig."

There is little tendency among the workers to substitute "new myths or 
conventions" in place of the old. They tend constantly to deal with hard, 
material matter-of-fact things and their effects on our social institutions.

His final chapter on "The Natural Decay of Business Enterprise" would in 
itself make a most excellent socialist propaganda leaflet for use among those 
who have learned to think in the economic jargon that is taught in the 
average capitalist university. He shows how absolutely hopeless is any effort 
to retain the body of thought and institutions built upon an industrial 
basis. The periodical press and standard literature has become so permeated 
with the insincerity of capitalism that it has really over-reached itself and 
today probably has less effect than is commonly thought. "The literary output 
issued under the surveillance of the advertising office is excellent in 
workmanship and deficient in intelligence and substantial originality. What 
is encouraged and cultivated is adroitness of style and a piquant 
presentation of commonplaces. Harmlessness, not to say pointlessness, and an 
edifying-gossipy optimism are the substantial characteristics, which persist 
through all ephemeral mutation of style, manner, and subject matter."

With fine sarcasm he suggests that the only possible way of maintaining our 
present society is by the introduction of a military discipline in that 
"there can, indeed, be no serious question but that a consistent return to 
the ancient virtues of allegiance, piety, servility, graded dignity, class 
prerogative, and prescriptive authority would greatly conduce to popular 
content and to the facile management of affairs. *** "If national ambitions 
and warlike aims, achievements, spectacles, and discipline be given a large 
place in the community's life, together with the concomitant coercive police 
surveillance, then there is a fair hope that the disintegrating trend of the 
machine discipline may be corrected. The regime of status, fealty, 
prerogative, and arbitrary command would guide the institutional growth back 
into the archaic conventional ways and give the cultural structure something 
of that secure dignity and stability which it had before the times, not only 
of [355] socialistic vapors, but of natural rights as well. Then, too, the 
rest of the spiritual furniture of the ancient regime shall presumably be 
reinstated; materialistic skepticism may' yield the ground to a romantic 
philosophy, and the populace and the scientists alike may regain something of 
that devoutness and faith in preternatural agencies which they have recently 
been losing. As the discipline of prowess comes to its own, conviction and 
contentment with whatever is authentic may return to distracted Christendom, 
and may once more give something of a sacramental serenity to men's outlook 
on the present and the future."

However, he concludes with: "It seems possible to say this much, that the 
full dominion of business enterprise is necessarily a transitory dominion. It 
stands to lose in the end whether the one or the other of the two divergent 
cultural tendencies wins, because it is incompatible with the ascendency of 
either." To the socialist this conclusion is all that he could ask for. He 
has full faith that the proletariat will see to it that no military regime 
perpetuates business enterprise or supplants the ruling capitalism.

The question which comes up to the reader of the work is largely one of 
whether this sarcastic, cynical style is really one capable of producing 
results. To a large degree the book is unintelligible to one who has not 
swallowed the scholastic jargon of conventional economics. We cannot 
understand however how any follower of Laughlin, Sumner, or the standard 
capitalist economists can read this book and not become, if not a socialist, 
at least thoroughly convinced of the uselessness of his professionally 
acquired knowledge.

A. M. Simons.
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