Thorstein Veblen
Industrial And Pecuniary Employments

Publications of the American Economic Association - series 3. Vol. 2 No. 1 (Feb. 
1901), pp. 190-235.
(= The Place Of Science in Modern Civilisation and Other Essays, pp. 279-323)
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[279] 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 [280] bit of preface may be in place as regards the anus 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 tinder 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 [281] 
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 [282] 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 intelli-[283]gent 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 equiva-[284]lence 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(1*) 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.
[285] 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."(2*) 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 [286] 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 Stadt-wirtschaft. 
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 [287] 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 [288] 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 coordinating - and directing industrial [289] 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.(3*) 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.(4*) 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 
[290] 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.(5*) 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 nonprofits 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 [291] 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 
business-[292]man, 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 
[293] 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 [294] 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 ma-
[295]jority 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 busi-
[296]ness 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 [297] to sell dearer.(6*) 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 
modem. 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 [298] 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 
[299] 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 coordination of industrial processes with a 
view to economies of production. No doubt, the remoter effect of business 
transactions often is such coordination 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 [300] 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 coordinations 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 coordination 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 
coordinations of a large scope, but he also can and does at times inhibit the 
process of consolidation and coordination. 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, coordination, 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, [301] on the whole, somewhat problematical. The furtherance of 
coordination by the modern captain of industry bulks large in our vision, in 
great part because the process of widening coordination is of a cumulative 
character. After a given step in coordination 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 coordination 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 
coordination 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.(7*)
[302] It appears, then, as all economists are no doubt aware, that there is in 
modern society a considerable range of [303] 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 rea-[304]sons 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 notice anyway.(8*)

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 [305] 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 [306] 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 [307] 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 [308] 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.(9*) 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.(10*) 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.(11*)
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 [309] 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 [310] 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 [311] the whole an air of caprice, 
- such as psychological phenomena, partticularly 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 cir-[312]cumstances 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 bow 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 coordinations 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 
[313] 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 bands 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 [314] 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 ques-[315]tion 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 
work-[316]man. 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 [317] 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, perogative, 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 beat and strain of the work, when the agent's powers and 
attention are fully taken up with the work which be 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 [318] 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 [319] 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 [320] in showing them the 
error of their ways of think, e.g. 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 
particu-[321]larly 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 relative] 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 [322] 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 cooperate 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 [323] 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.

NOTES:
1) 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.
2) J. B. Clark, The Distribution of Wealth, p. 20
3) The undertaker gets an income; therefore be 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.
4) 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.
5) 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.
6) Cf. e.g., Marx, Capital, especially bk. i, ch. iv.
7) 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 [302] 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.
8) 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.
9) All wealth so used is capital, but it does not follow that all pecuniary 
capital is social wealth.
10) 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.
11) 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.
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