Southern Branch of the University of California Los Angeles Form L 1 mi This book is DUE on the last date stamped below APR. 191950 OCT i 5 1953 1HM. «*!?»« RECEIVED LD- JRL m.t J 3 1965 AM 7-4 Form L-9-15m-8,*26 PM 9-10 I— 1 Modern Business A SERIES OF TEXTS PREPARED AS PART OF THE MODERN BUSINESS COURSE AND SERVICE OF THE ALEXANDER HAMILTON INSTITUTE ALEXANDER HAMILTON INSTITUTE NEW YORK 795 Modern Business BDITOR-1 N-c'lllKI' JOSEPH FRENCH JOHNSON Dean, New York University School of Commerce, Accounts and Finance MANAGING EDITOR Roland P. Fai.kner ASSOCIATE EDITORS Leo Green di.inc.eh, Charles W. Hurd Volume Titles Authors 1. Business and the Man Joseph French Johnson 2. Economics of Business The Editors 3. Organization and Control .... Charles W. Gerstenberg 4. Plant Management Dexter S. Kimball 5. Marketing and Merchandising . . . The Editors • 6. Advertising Principles Herbert F. de Bower 7. Salesmanship and Sales Management . John G. Jones 8. Credit and the Credit Man .... The Editors 9. Accounting Principles The Editors 10. Cost Finding Dexter S. Kimball 11. Corporation Finance William H. Walker 12. Business Correspondence Harrison McJohnston 13. Advertising Campaigns Mac Martin 14. Railway Traffic Edwin J. Clapp 15. Foreign Trade and Shipping .... J. Anton de Haas 16. Banking Major B. Foster 17. Domestic and Foreign Exchange . . E. L. Stewart Patterson 18. Insurance The Editors 19. Office Management The Editors 20. The Exchanges and Speculation . . Albert W. Atwood 21. Accounting Practice and Auditing . John T. Madden 22. Financial and Business Statements . Leo Greendlinger 23. Investment Edward D. Jones 24. Business and the Government . . . Jeremiah W. Jenks BUSINESS AND THE MAN BY JOSEPH FRENCH JOHNSON, D.C.S.,LL..D Dean of the New York University School of Commerce, Accounts and Finance MODERN BUSINESS VOLUME I ALEXANDER HAMILTON INSTITUTE NEW YORK COPYHIOHT, 1918, 1919, BY ALEXANDER HAMILTON INSTITUTE COPYRIGHT IN GREAT BRITAIN, 1918, 1919, BY ALEXANDER HAMILTON INSTITUTE The title and contents of this volume as well as the business growing out of it, are further protected by laws relating to trade marks and unfair trade. All rights reserved, including translation into Scandinavian. Registered trade mark, Reg. U. S. Pat. Off., Marca Registrada, M. de F. Made in U. S. A. <* EDITOR'S PREFACE "Modern Business" is a pioneer work in its field. Its authors, who are successful teachers, have aimed in these twenty-four volumes to apply scientific meth- ods in the discussion of the various phases of busi- ness and at the same time to be so practical and clear, and so copious with illustrations, that their words shall be readily understood by every man of ordinary intelligence. They should appeal to the mature man already engaged in business, for they will explain many phenomena which now puzzle him; and to the young man looking forward to a business career, for they will give him a helpful grasp of underlying prin- ciples and a most useful knowledge of modern forms, methods and practices. The volumes of "Modern Business," it should be clearly understood, are not designed to cover thoroly and in detail every point that ought to be included in a study of present-day business; they constitute but one feature of the Alexander Hamilton Institute's comprehensive course of training for business. The function of the Texts is to present clearly the basic principles of each subject discussed. Applications to specific problems, concrete questions, technical details are largely left to be treated in other features of the course. The twentv-four text volumes of the Insti- vi EDITOR'S PREFACE tute present in most readable form the fundamental principles in accordance with which successful busi- ness is and must be conducted. It is intended that the subscriber who reads these volumes and the other literature of the Institute shall have the substance of a liberal education for business, that he shall be better able to» understand and solve any and all kinds of business problems, and that in his own business he shall rely more and more upon reason and the proved experience of others, and less and less upon prejudice, weak imitation and outworn traditions. It is only during the last few decades that business has been recognized as a science worthy the attention of specialists. Many doctrinaire political economies have been written, but these in the main have sought to explain, not the actual phenomena of the business world, but the phenomena of an imaginary, hypothet- ical world in which all men were supposed to be ac- tuated solely by economic or material considerations. Such classic writers as Adam Smith, David Ricardo, and John Stuart Mill performed a great service for humanity, for they called attention to certain truths which must always prevail so long as human nature is unchanged; but their service lies largely in the field of pure economics rather than that of practical or ap- plied economics. Our great economists did not seek to explain the actual phenomena of every-day life. Their interests lay, not in the science of business, but in social or national economy. As a result their works, altho possessing great scientific value, seem far EDITOR'S PREFACE vii removed from the affairs which interest the practical business man. The volumes of "Modern Business," on the other hand, are directly concerned with the problems which the business man is called upon daily to solve. They treat specifically of the science and art of business. The problems involved in the more general science of so-called political or national economy they discuss only in so far as light is thus thrown upon actual transactions. These twenty-four volumes from a scientific point of view all belong in the same field, each discussing a separate set of business phenomena. Could their contents be condensed into a single volume, it would be a complete syllabus or outline of the science of business in all its phases and practical applications. It must not be supposed, however, that the writers ignore the teachings of the older econo- mists. On the contrary, those teachings, in so far as they are applicable today, are here given emphasis and fresh illustration. Within the last few years many of the leading uni- versities of the United States, including the Univer- sity of Pennsylvania, New York University, Harvard, University of Wisconsin, University of Michigan and the University of Illinois, have established schools of commerce in which they aim to give young men a thoro training in the principles of business. Their work is based upon a belief that thru a^study of com- mercial methods and economic forces a young man may get valuable mental discipline and at the same viii EDITOR'S PREFACE time acquire the technical knowledge and the habits that make for efficiency and success in business. These schools of commerce have been the outgrowth of a popular demand for instruction of the sort they give, and the large number of students they have en- rolled is evidence that the people of the United States realize the importance of intellectual training as a preparation for business careers. It has long been acknowledged that a man who chooses the career of a physician, of a civil or mechanical engineer, of an architect, or of a dentist, must prepare himself for his work by devoting several years to study in the schools and universities. Now it is known that the young man who chooses a career as a banker, or certified public accountant, or stock-broker, or bond-dealer, or fire or life insurance agent, or journalist, or real estate dealer, or manufacturer, ought in the beginning to learn by study all that is possible from the experi- ence of others. In other words, many of our business careers have become professional in their character, requiring a training of the intellect quite as much as the older professions. It is for this purpose that our schools of commerce have been established and are now enrolling large numbers of students. But not all men can attend these schools of com- merce. Many a young man is earning a living in his native town at a distance from a university and with- out the means to go to it. Furthermore, there are thousands of older men — including many of high abil- ity — in the United States and other countries who EDITOR'S PREFACE ix realize the deficiencies of their early training and re- gret that they have no opportunity to get the educa- tion which they could not get or did not get in their youth. Most ambitious men of this kind have fami- lies to support and are tied down to a particular loca- tion. It is for men of this sort who are distant from universities, or whose daily employment prevents their attendance upon university schools, that these volumes have been prepared. The authors, all of them experienced university teachers, have aimed, above all things, at comprehensiveness and clearness, in order that no reader of intelligence might be puzzled. They have aimed also to develop each sub- ject in such logical fashion and to illustrate all points so clearly that every reader who conscientiously fol- lows directions and does the work outlined for him shall not fail to arrive at an intelligent understanding of each of the subjects. Every author was urged to have clearly and con- stantly in mind the following facts : ( 1 ) That the subscribers to the Alexander Hamil- ton Institute Modern Business Course and Service are active, intelligent, ambitions business men. (2) That the single aim or purpose of the Modern Business Course and Service is to help men to become more productive and to increase their incomes, either by showing them how to improve the quality of their present work or by fitting them for more difficult and more profitable undertakings. In Volume 1 on "Business and the Man," I have x EDITOR'S PREFACE sought to make clear the fundamental nature of busi- ness and to show how human qualities and character- istics affect the success of men in the pursuit of wealth. It is intended as a study of human nature based on long experience and related especially to the business field. For valuable suggestions in the preparation of this volume I am greatly indebted to my colleagues, Pro- fessor Enoch Burton Gowin, and Dr. Rudolph M. Binder of the New York University School of Com- merce, and to one of my former students, Clinton Collver, recently director of the School of Commerce of the Young Men's Christian Association in Balti- more. It is not necessary to take the space here to describe the contents of all the Texts. The reader will find that they treat of all forms of business activity and that these might all be conveniently classed under four heads as follows: Production, Marketing, Finance, Accounting. The scope and aim of each volume the subscriber will find succinctly stated in each author's preface. The order of arrangement may strike the subscriber as arbitrary, but it is not. It was adopted after a careful analysis of the curricula of university schools of commerce and is believed to be the best possible se- quence in which the various subjects can be taken up and mastered. Some of the volumes, to be sure, could be read with profit by a man who had not read all or any of the preceding ones; for example, the Texts EDITOR'S PREFACE xi on "Advertising Principles" and "Business Corre- spondence." In regard to other volumes it is pre- supposed that the subscriber already has mastered the contents of certain other volumes. It is well there- fore for the subscriber in his reading to follow the arrangement prescribed by the Institute. The relations of the United States to Canada are growing closer every day. That the American busi- ness man should know something of Canadian prac- tice where it differs from our own is highly important. We have, therefore, secured for some of the volumes the collaboration of Canadian authors, who have read the galley-proofs of the Texts, and inserted such in- formation as seemed necessary to give a correct view of Canadian experience or practice. The review questions at the end of each chapter are intended to be an aid to the subscriber. He is not expected to send written answers to the Institute. , The personal service of the Institute, however, ap- plies to the reading of the Modern Business Texts. Thru this service, any questions which may arise in the mind of the subscriber concerning the subjects treated in the Texts, will be answered. The sub- scriber is urged to submit to the Institute any doubt- ful points. It would be impossible to give due credit to all the persons who have united in the effort to make these twenty-four volumes worthy of their purpose. The authors have put their best thought into the books, and have never failed to give patient heed to the xii EDITOR'S PREFACE editor's suggestions. Full credit is given to the thou- sands of loyal Institute subscribers who thru their timely suggestions and criticisms of the Texts, have helped to make them of such practical value. These suggestions are always gratefully received, and when- ever desirable, they are embodied in the succeeding revision of the Texts. I feel personally under great obligation to my old friend and colleague, Dr. Roland P. Falkner, upon whose shoulders has fallen a large part of the heavy task of editing and revision. Joseph French Johnson. Xew York. , TABLE OF CONTENTS SCIENTIFIC TRAINING FOR BUSINESS Introduction to the Modern Business Course and Service 1 BUSINESS AND THE MAN . CHAPTER I NATURE AND AIM OF BUSINESS SECTION PAGE 1. Definition of Business 37 2. Profit and Risk Essential Elements .... 39 3. Importance of Money and Price 40 4. Business Must Satisfy Human Wants ... 41 5. New Wants Constantly Appearing .... 42 6. The Overproduction Bogey 44 7. Importance of Salesmanship and Advertising . . 45 8. Three Great Classes of Business 46 9. The Professions 47 10. Artists 49 11. Is Business a Profession? 50 12. What Constitutes Success in Business? ... 53 13. Dignity and Importance of Business .... 54 14. Business as a Job 57 15. Business as a Fascinating Game 58 CHAPTER II THE PROFIT PROBLEM 1. Cost and Prices 61 2. Necessity for Capital 62 xiii xiv BUSINESS AND THE MAN [Oh PAGE J}. Capital Got Only l>\ Saving (j3 4. Nature of Competition 65 5. Unfair Competition 67 6. Building an Organization 69 7. Labor Troubles * . . 70 8. Unforeseen Price Changes 72 9. Perils of Advertising 73 10. Bad Debts 74 11. Unwise Laws 75 12. Climatic Uncertainties 77 13. Changes in Eashions and Eads 78 14. Brains and Will-Power 79 CHAPTER III ECONOMICS AND SOCIOLOGY 1. Custom or Group Habits 82 2. Aim of Sociology 82 3. Socialism Not Sociology 84 4. Aim of Economics 84 5. The Reformer 85 6. Mercantilists 86 7. Physiocrats 87 8. English Classical School 88 9. Significance of Human Wants . . . . . .90 10. Sociology and Consumption 91 11. Poverty and Incompetence 93 12. National Efficiency 94 13. Inflexibility of Custom 96 CHAPTER IV PSYCHOLOGY 1. The Human Equation 99 2. Nervous System 99 CONTENTS xv SECTION PAGE 3. Nerve Ganglia .... - 100 4. Medulla Oblongata 100 5. Cerebellum 101 6. Cerebrum 101 7. Habits, Good and Bad 101 8. Operating the Mental Machine 102 9. Appeals to the Instincts 103 10. Making Use of Reason 104 11. Choice of Appeals 105 12. Suiting Appeal to Person 106 13. Traits in Common 107 14. One's Own Personality 107 15. Appeal in Relation to Action 108 16. Attention 109 CHAPTER V ETHICS OF BUSINESS 1. Science of Ethics Ill 2. The Moral Imperative in Business 112 3. The Law and Ethics 115 4. Codes of Ethics . . . 115 5. Caveat Emptor 116 6. Standards Enforced by Law 118 7. Unwise Laws 119 8. Trades Lacking Standards 120 9. Merchandising . . ' 121 10. Trade Associations 122 11. Wall Street 124 12. New York Stock Exchange 126 13. Ethics of Directors 127 14. Ethics of a Great Industry 128 1—2 xvi BUSINESS AND THE MAN CHAPTER VI VISION, OK THE IDEA nonoN page 1. Imagination 130 «, Visual 131 3. Sound and Other Sense Images 132 4. Memory Supplies the Materials 133 5. Imagination in Science 134 6. The Ideal 136 7. Vision and Judgment 137 8. Idea and Ambition 139 9. Idea and Enthusiasm 141 10. Vision and Will 142 11. Genius 143 12. The Fixed Idea 144 13. Vision at Work 145 CHAPTER VII PERSONAL EFFICIENCY 1. Energy, Time and Space 150 2. Know Thyself 152 3. Be Thyself 154 4. Temperament 156 5. The Efficient Mind 158 6. Purpose .159 7. The Dominant Trait 161 8. The Head and the Heels 163 9. Habit 164 10. Environment . 166 11. Poise, or Self-Possession 167 12. Weak Spots in Character 168 CONTENTS xvii CHAPTER VIII HEALTH SECTION PAGB 1. The Strain of Business 171 2. What Is a Strong Body? 172 3. Sound Nerves 175 4. Relation of Body to Mind 176 5. Health Must Be Earned 177 6. Exercise 178 7. Play 181 8. Right Mental Attitude 182 9. Ready Remedies 184 10. Alcohol and Other Habit-Forming Drugs . . . 185 11. Food 187 CHAPTER IX THE EFFICIENT BUSINESS MAN 1. Certain Essential Qualities 189 2. Decision 190 3. Expert Knowledge 191 4. Judgment 193 5. Self-Reliance 196 6. Patience and Grit 196 7. Concentration 197 8. Enthusiasm 199 9. Imagination 200 10. Executive Ability 200 CHAPTER X THE EXECUTIVE 1. Three Classes of Men 203 2. The Executive a Business Statesman .... 205 3. Delegated Responsibility of the Executive . . 207 4. Qualities of the Executive 209 xviii BUSINESS AND THE MAN uotion paqb 5. Responsibility 209 6. Initiative 211 7. Courage 212 8. Energy 213 9. Selection of Subordinates 215 10. Methods of Control 216 11. "Born Leaders" 217 12. Tay of the Executive 219 CHAPTER XI SUBORDINATE OR JUNIOR OFFICERS 1. Duties and Responsibilities 223 2. Training and Experience 224 3. Team Work 225 4. Loyalty- 226 5. Obedience 227 6. Adaptability 228 7. Willingness to Learn 229 8. Ideas and Initiative 230 9. Capacity for Detail 231 10. His Prospects 233 CHAPTER XII THE RANK-AND-FILE WORKER 1. Men and Machines 235 2. Work and Responsibility of the Rank-and-File Worker 237 3. Training for Higher Positions 238 4. Choosing One's Career 239 5. Certain Cardinal Virtues 240 6. The Cheerful Worker 242 7. Courtesy 244 8. Personal Appearance 246 CONTENTS xix SECTION PAGE 9. Punctuality 247 The Man in a Rut ,248 Hidden Perils 249 On Getting a Start 252 Education and Advancement 255 Wages 256 CHAPTER XIII PERSONALITY 1. Intuitive Judgments 260 2. Meaning of Personality 262 3. Strong Personalities 263 4. Disagreeable Personalities 264 5. Value of Personality in Business 266 6. Possibility of Development 267 7. Qualities a Young Man Should Cultivate . . . 269 8. Resolute Will 269 9. Self-Control 271 10. Knowledge and Self-Confidence 273 11. Self-Confidence Is Not Conceit 275 12. Courtesy 275 CHAPTER XIV CHARACTER ANALYSIS 1. Character and Personality 278 2. Does Character Mark Us? 279 3. Phrenology and Physiognomy 281 4. Evolution of Physical Characteristics .... 285 5. Mental Power * 287 6. Practical Tests 289 7. Will-Power 290 8. Stability and Reliability 293 9. Energy, or Love of Work 295 xx BUSINESS AND THE MAN nonoN PAGE 10. The Dishonest or Tricky Man 297 11. Tact 298 CHAPTER XV OPPORTUNITY 1. Universally Desired 302 2. Growth Creates Opportunities 302 3. Business Opportunities Increasing in the United States 304 4. Variety and Opportunity 305 5. Is There a Law of Opportunity? 306 6. Opportunity and Ability 308 7. Opportunity Always Near at Hand .... 309 8. The Will for Doing 311 9. Business Experience 313 10. Luck 314 11. Opportunity and Age 316 12. Preparedness 318 SCIENTIFIC TRAINING FOR BUSINESS AN INTRODUCTION TO THE MODERN BUSINESS COURSE AND SERVICE 1. University schools of commerce. — Only a few years ago no books were to be had which treated busi- ness subjects in a way both practical and scientific. In 1890, if a man wished to solve any of the problems of business or to get an understanding of business principles, he had to think it all out for himself. Since that time, however, American universities have admitted business subjects into their curricula, and men of scientific training have been studying the phenomena of business. In the last century science has made clear to us many of the processes of nature. It has helped even the farmer to increase his crops. It foretells the weather. It has given us vehicles pro- pelled by gas and electricity, rendering the horse al- most obsolete. It has enabled man to fly thru the air. Science is at last at work in the field of business, and should accomplish there results as brilliant and valuable as any that have been achieved in physics or chemistry. The purpose of a university school of commerce is twofold: First, to give the students a scientific knowledge of the laws or principles governing busi- ness phenomena; second, to make its instruction so 1 2 INTRODUCTION practical that the student when he enters business will know something of the nature of his task as well as of those higher up. All professional schools have this double purpose. For example, the medical student must study the sciences of physiology', bacteriology and chemistry, and also learn by experience in the hospital how to make use of these sciences in the care of disease. The experience which makes a man a great physician is ob- tained only by years of practice. The medical school, if it does its work well, graduates a man trained in the necessary sciences and with some skill in the ap- plication of their principles. In the same way a uni- versity school of commerce aims to train men in the sciences underlying business and to give them some knowledge of the practical difficulties that will con- front them in actual business. The medical school does not seek to train specialists, but rather to give that broad knowledge of funda- mental principles without which a specialist would be narrow and one-sided. In the same way a university school of commerce aims first at broad training. Spe- cialization must come later. 2. Purpose of the Alexander Hamilton Institute. — The Alexander Hamilton Institute was founded in 1909 for the purpose of bringing the aid of science to men who are engaged in business. It puts into their hands literature which will help them to under- stand the principles underlying business phenomena. It does not aim to make them specialists, as account- SCIENTIFIC TRAINING FOR BUSINESS 3 ants, or bankers, or credit men, or merchants ; it aims rather to help them gain such a clear understanding of all business operations that their feet shall be on a solid foundation whatever their business or their specialty. Modern business, in a sense, is an organism com- parable to the human body. The oculist who has not had an all-round training in medical science is a quack incapable of diagnosing correctly diseases of the eye, for many of these diseases are symptoms of disorders in other parts of the body. In somewhat the same way eveiy business man is confronted by problems which he cannot solve correctly if he has only a super- ficial knowledge of business in general. Business is exposed to perils which the ignorant man cannot fore- see. He does" not even suspect their existence. If they overwhelm him, he blames his luck, not his ig- norance. The violent readjustments made necessary in American business by the great war furnish an illustration showing how closely the various parts of the business world are knit together. The effects were so stupendous that any man could trace them to their cause. The causes of the higher prices of dye-stuffs and of certain drugs were obvious. It was obvious, too, that the war would bring an in- creased demand and higher prices for munitions. Re- sults like these everybody understands. The war was an object lesson on a large scale. But the untrained business man does not know that many events in the 4 INTRODUCTION business world are the results of forces invisible to the casual observer. He fails to realize that the law of cause and effect rules in business quite as much as in nature. The condition of the human body is revealed to the wise physician by symptoms. There are signs also which indicate the condition of the business organism. Certain phenomena are invariably followed by cer- tain others. The Alexander Hamilton Institute wants its subscribers to be able to trace the connec- tion of cause and effect between events in the business world. It would have them scientific as well as prac- tical. 3. Duty of the subscriber. — Every teacher has met the student who expects the teacher somehow to in- ject knowledge and understanding into him. Such a student unconsciously thinks of his intellect as a bucket and of the teacher as a man of such skill that he can fill the bucket with knowledge. He does not want to make any effort himself and is rather in- credulous when told that he has got to do the work, the teacher merely telling him what to do. The first duty of a subscriber to the Modern Busi- ness Course and Service is to resolve that he will read carefully and with an open mind all the Texts and other literature which he receives from the Institute. His second duty is to give the Institute every possi- ble chance to help him. If he has tried his best to un- derstand a principle or to solve a problem and is still perplexed, he should seek the advice of the Institute. SCIENTIFIC TRAINING FOR BUSINESS 5 Finally, the subscriber should not let himself get discouraged. Most of his study should be a joy to him, for the human mind is fortunately so constituted that it loves to understand things. Curiosity is a man- ifestation of that love; if that quality had been left out of man, the human race would still be in a state of savagery. Instinctively a man wants to know why certain things take place. Too often men are satis- fied with a reason that does not really explain. For thousands of years men were content merely to know that rain and sunshine made the crops grow; only in recent years have they discovered that many other things are essential, and why different kinds of soil are best for different crops. The scientist always takes keen pleasure in the dis- covery of a new truth. I doubt, indeed, if there is any higher or finer kind of pleasure. So the student should take pleasure, as a rule, in the rolling away of a curtain which has hidden from him an important truth. Even tho it be a truth well known to many others, to him it will be a discovery. But the subscriber must not expect always to be entertained and delighted. Let him bear in mind that the Modern Business Course and Service has been carefully planned by men who have had much experi- ence as teachers and that they have sought to give him the benefit of their thinking and knowledge in the best possible manner. The subscriber who "sticks to the end" will be an enthusiast in the study of business problems in general and of his own in particular. 6 INTRODUCTION 4. Read with ///<• mind. — Hooks, magazines and newspapers arc so cheap that there is (lunger lest reading become a lost art. A few centuries ago, when books were scarce, much real reading was done. Now we skim the newspapers, dash thru the maga- zines, and hastily leap thru many books — and pride ourselves on the fact that we have read much. But reading is an art, and it must be learned by con- scious effort. Just as many a student is likely to think that a teacher can pour information into him, so the average reader of a book has an idea that the author is going to give him something without any effort on his part. That cannot be done. No one can get anything worth while out of a book unless while reading it with his eyes his mind works just as did the author's mind when he wrote the book. The eyes must be thought of merely as windows thru which the mind looks and grasps and reproduces the author's thoughts. Any other kind of reading is casual, desultory, profitless. Novels and stories may be read with the intellect half-asleep, the imag- ination and memory alone being really awake, but the reading done for the purpose of training the under- standing must be done by the mind itself. The entire mind must be awake. A man may read a chapter in psychology or politi- cal economy a dozen times and have no understanding of its contents. If he has an unusually retentive memory, he may be able, to recite parts of the chapter and yet have no real knowledge of what the author in- SCIENTIFIC TRAINING FOR BUSINESS 7 tended to convey. He reads merely with his eyes. But if he makes his mind work, and if the author is not obscure in his style, a single reading of the same chapter will make him master of all the author has to say. In order to read a book with his mind, instead of merely with his eyes, it is advisable for the reader to run over the table of contents and then read the author's preface, trying in advance to get some idea of what the book is about, of what in general the author wishes to explain or demonstrate. In other words, before you read, you should make your own mind do some work. It would be well if you try to do some thinking yourself on the subject of the book. You might ask yourself, "What do I know about this subject anyway? What would I like to know about it? If I had to write a book on this subject, of what topics would I treat and on which would I place spe- cial emphasis?" The value of this preparatory work, which may oc- cupy ten minutes or an hour, perhaps longer, is that it will tend to get your mind into working harness. It will also stir somewhat your curiosity or interest in the subject. 5. "Gist" sentences and paragraphs. — Next the reader should attack the first chapter, resolved to master its contents as quickly as possible. In every chapter the author has tried to put some truth which the reader ought to know and understand. Possibly the reader may know it already; if so, he will quickly 8 INTRODUCTION discover the fact and pass on to the second chapter; In it if the content of the chapter is new to him, the reader must search for it as his eyes travel over the pages. The gist of the chapter may possibly be round in a single paragraph's being illustrative, ex- planatory or descriptive. The "gist" paragraph or "gist" sentence may be at the end or at the beginning or in the middle of the chapter. The reader's mind must be on the alert to discover it ; unless he finds it the chapter will contain many sentences that mean noth- ing at all to him. To help my memory I have the habit of using a lead pencil freely in reading books whose contents I wish to absorb quickly. On my first reading I underscore in pencil, or mark in the margin, sentences which at first strike me as important. Having finished read- ing a chapter, I can review it in a few minutes, and I usually find that my pencil has marked the "key" or "gist" sentence or sentences which unlock and dis- close all the author's thought. 6. Reading by the page. — When reading with the mind it is often possible to read by the page, or by the paragraph, instead of groping along thru sentence after sentence. This method of reading is advisable when you already have some knowledge of the sub- ject, and is adopted by most of us when we read news- papers and are looking for important things, not car- ing about details. It must not be confused with slip- shod reading; the latter, which is the bane of many SCIENTIFIC TRAINING FOR BUSINESS 9 students, is hasty and careless reading, the mind not being alert and attentive. To read a paragraph rapidly your mind must be wide-awake to discover almost at a glance whether it contains something new to you. Take, for exam- ple, the paragraphs I have just written on reading. Perhaps you have already learned to read and you may have felt pretty sure that you knew what I was going to say when you saw the side-head "Read with the mind." If so you could very quickly find out if the paragraphs following that side-head contained any information you did not already possess. It might not have been necessary for you to read every sen- tence and paragraph carefully. But if what I have said about reading has come to you as a surprise, you should go over it all carefully and thoughtfully; that is, you should read it with your mind. It may interest you to know, by the way, that the German philosopher, Immanuel Kant, once said that he could get the heart out of any book he ever saw in an hour. You are not expected to get the heart out of this, or of any other of the Institute's books, in an hour, for it is not to be presumed that you have had the intellectual training of a Kant, but I do advise that you try to find out just what Kant meant by his re- mark, and do some thinking on how he would go about it to get the heart out of a book in an hour. If you attack this little problem resolutely and do not give it up because you cannot reach a solution 10 INTRODUCTION immediately, or even after six months of thinking and experimenting, you will achieve results that will sur- prise you. There is no short-cut method of learn- ing the art. You must learn it by diligent practice, and you should practise it while reading the literature of the Institute by seeing how quickly you can get "the heart" out of a given chapter or lecture. 7. Concentration. — What I have said about read- ing with the mind rather than with the eyes alone, could have been said with equal pertinence under the head of "Concentration." This word comes from the Latin and means bringing things to a common cen- ter. We mentally concentrate when we focus our powers of mind upon any one thought or problem. The man who has a very retentive memory sometimes relies upon it too much, failing to make use of his judgment or imagination. When he faces an emer- gency, he remembers what he has read about the best procedure under such circumstances and acts without giving his judgment a chance to advise or his imagina- tion a chance to invent a new and better method. He fails to concentrate and so fails to become an origina- tor. Such a man in business is likely to be a mere imitator, and may never become a great success be- cause of his failure to take advantage of new condi- tions. Memory is a most useful servant and should not be neglected, but the man who makes all of his faculties work realizes that memory carries, as it were, only second-hand goods. He who uses memory merely SCIENTIFIC TRAINING FOR BUSINESS 11 as an aid to judgment and imagination concentrates, and he is the man who achieves real success in business. It goes without saying that in reading the pages of this Introduction your mind should be in a state of concentration. Your judgment, that is, your intel- lect, should be weighing the correctness and soundness of my statements. Your imagination should be plac- ing on the screen many pictures, say of yourself or a friend seeking to get the heart out of a chapter, or of yourself as you will be five years hence when you will read like Immanuel Kant. Your memory may jog you now and then with a reminder that you have read something like this in another book, or that you yourself have had an experience which in some way confirms some of my statements. 8. On being interested. — In order to get much benefit out of any study a man must really want to know, he must be curious; the greater his curiosity the greater will be his zest in his study. Studying a subject in which we are not interested merely results in weariness. A subscriber ambitious to make the most of him- self in business, even tho in the past he has found study dull and books dreary, should not lose heart. The fact that he did not like study at school and was never interested in books, preferring always to learn everything by doing and by observation, is not evi- dence that he will not be really interested in the think- ing and reading which the Institute will strive to make him do. If he has taken up the task languidly, his 1—3 12 INTRODUCTION tirst job must be to convince himself that he cannot get on in the world as he ought to unless he goes thru the Modern Business Course conscientiously. Let liini put behind him the notion that success of any kind ever comes as the result of luck or chance. If he follows the Course of the Institute, he will have no doubt upon that score. Success in business comes only to those who work hard and do clear thinking. If the subscriber is in earnest and is willing to pay the price, namely, that of work and concentration, he will find himself getting more and more interested as he pursues the Course. 9. Clear thinking. — In the foregoing pages I have occasionally made references to clear thinking, science, scientific training, knowledge and understanding. It is well for us at the outset to get the correct mean- ing of these expressions. I have frequently asked college seniors to define the words "think" and "cause," and I have rarely got a satisfactory reply. The answers are too often ex- amples of muddled thinking. A man, to be sure, may think clearly and yet not be able to explain what he means by clear thinking. However, it helps us to keep our thinking clear if we know exactly what it is and some of the common difficulties in the way of it. The average man may suppose he is thinking when he is only dreaming or letting his fancy construct air- castles. Others suppose they are thinking when they are just sitting idly while images of this and that thing seen and remembered pass thru consciousness. They SCIENTIFIC TRAINING FOR BUSINESS 13 are not thinking at all; they are enjoying a memory movie. Thinking is not an idle, lazy, passive mental occu- pation. It is strenuous work of the intellect. The aim of thinking is understanding. The mind is look- ing for an explanation of something that it does not understand. It is seeking to throw light into a dark place. When do we understand anything? When are we able to explain it ? Not until we know precisely what is its cause. If the price of copper declines, we do not understand it and cannot explain it until we know the cause of the decline. We may learn that new copper mines have been discovered, and that the world's output of copper has been greatly increased. Then we are satisfied, for our mind has discovered a cause which explains the decline of price. But our mind must not be too easily satisfied. We must be as sure as possible, if our thinking is to be clear, that we have found the real cause of the phe- nomenon we are studying. Nearly all phenomena in the world of nature, as well as in the world of business, are the results of a combination of forces. We do not do clear thinking if we neglect any of them. 10. Meaning of "cause." — We should, first of all, do some clear thinking about the word "cause." Most people have hazy ideas about it. Quite commonly it is thought of as that which brings a tiling into exist- ence; but that is only another way of saying that a 14 INTRODUCTION cause of any event is something which causes it to be. We cannot accept such a definition. As a matter of fact, we know very little about real causes, that is, those forces which bring change into the world. All we know is that under certain condi- tions, certain things always have happened; that cer- tain events are always followed by certain others. We know, for example, that a kettle of cold water placed over a fire will soon give us the phenomenon of boiling. The first phenomenon — fire — is the cause of the second phenomenon — boiling. Our mind, be- ing still curious, asks why the water boils; what is the cause of it. We discover that many substances ex- pand when heated, and we call this fact a scientific law. Then we say water boils because the heated water at the bottom of the kettle, being lightest, rushes to the top. But the scientific mind is still curious. Why does heat make water or any other substance expand? To find an answer to this question, the mind goes into a realm of speculation which we need not enter. You are thinking when you are seeking for the causes of jjhenomena. By cause is meant that phenomenon or combina- tion of phenomena which observation and experience have shown always to be followed by the phenomenon you are studying. To make your thinking clear and "scientific," you must beware of conventional explana- tions and be certain of your facts. The well-known belief in some quarters that a "wet" moon indicates SCIENTIFIC TRAINING FOR BUSINESS 15 rain, or that a dry spell cannot be broken until the moon changes, is not the product of clear or scientific thinking. Furthermore, the memories of the people who believe such things are not to be trusted, as they fail altogether to note or remember the occasions when their so-called "law" did not work. 11. Definition of science. — The word "science" is very loosely used in everyday speech. It is derived from a Latin word meaning "to know" and is com- monly applied to any kind of knowledge which is be- lieved to be exact and precise. A favorite dictionary definition is "classified knowledge." Let us get a clearer idea of what the word means. As we have already shown, we do not understand any event or phenomenon unless we know its cause. Until we get at the cause we cannot explain anything in a way satisfactory to ourselves or to other people. The word "explain" might properly be defined as fol- lows: To make any fact or occurrence intelligible by showing what caused it. And the word "under- stand" means: To perceive or grasp a phenomenon (that is, fact, event or occurrence) in all its impor- tant causal relationships. I have purposely used some so-called scientific phrases in the foregoing paragraph, for I want the reader to become familiar with them. They are con- venient tools of expression when one wants to be ex- act, and are not at all difficult to understand. The word "phenomenon" (of which the plural is phenom- ena) the reader will find frequently in scientific 16 INTRODUCTION treatises. It comes from a Greek word meaning "to appear." The meaning is very broad. Anything which affects the senses and so makes an im- pression upon the mind is a phenomenon. To the scientist any object or occurrence is a phenomenon, whether it be usual or unusual, ordinary or extraordi- nary. It is the scientist's word for thing or happen- ing. A science is any body of knowledge in a given field so arranged or classified that the phenomena can be understood. The goal of science is understanding, and a man is doing scientific work when he is search- ing for the causes of phenomena. If he is merely collecting facts and classifying his knowledge of them, he may be a statistician or historian or annalist, but not a scientist, for he may not be seeking to explain or interpret the facts. The real aim of science is to ex- plain phenomena by discovering their causes. His- tory is a science, therefore, in so far as it points out why certain events took place. Tire historian who merely tells what happened in certain years, without undertaking to make clear why events happened as they did, is a narrator or annalist, not a historian in the scientific sense. A man whose memory holds many facts may be called a man of much learning or knowledge, yet he may have little acquaintance with science. He be- comes scientific when he groups his facts into classes according to their likenesses and seeks to explain them by inquiry into their relations as causes and effects. SCIENTIFIC TRAINING FOR BUSINESS 17 Science is specially concerned with the so-called chain of cause and effect. Emerson says, "We all have facts enough; what we need is the heat that dissolves the facts." 12. Three ways of getting knowledge. — Knowledge comes either from perceiving a phenomenon or from understanding it. A man who has seen many things happen, or who has read carefully some history of the United States, has acquired knowledge of the first sort if he has a retentive memory. If he has gone be- yond the facts that he has seen and has discovered their causes, or has studied the forces which have shaped the development of the United States, he has that higher kind of knowledge which is called scientific. He is then a man not merely of knowledge but also of un- derstanding. To store the mind with a large knowledge of facts and phenomena, a man must evidently cultivate his powers of observation and memory. Both these fac- ulties are exceedingly valuable. A man in whom they are weak is not likely to do clear thinking for the reason that he will never be' certain about his facts, but it is easy to overestimate the importance of these faculties, for learning, that is, the mere knowledge of a large number of facts, or the ability to recall histori- cal dates, produces a great impression, especially among the uneducated. A man of excellent memory seems to be very wise, yet he who devotes most of his energy to gathering and recording facts, neglecting to inquire into their scientific meaning, that is, not seek- 18 INTRODUCTION ing to understand them, is never really a wise man. If the facts or the information which he collects are arranged in such order that they can be utilized by others as a basis for thinking, he is a servant of science and is helping to add to our real knowledge of things. AVhat I have just called real knowledge of things is knowledge of the higher sort, namely, understanding. Sometimes this knowledge is called truth-; it is the object of all real thinking. The mind arrives at truth in three different ways: First, thru intuition, a word derived from the Latin meaning "to see into"; second, by experience or, as the philosophers call it, by induction, from two Latin words meaning "lead into"; or third, by logical rea- soning or deduction, a Latin word meaning "leading from." These three methods of acquiring a knowl- edge of the truth, or an understanding of facts, are fully explained and illustrated in any ordinary treatise upon logic. Here I will undertake to give only a gen- eral idea of their nature. If a subscriber is specially interested, he can easily pursue the subject after he has finished the Institute's Course. 13. Intuition. — There are certain truths which the human intellect perceives without effort. In mathe- matics such truths are called axioms ; in philosophy, in- nate ideas. We know that two parallel lines can never meet; that a straight line is the shortest distance be- tween two points ; that the sum of the parts cannot ex- ceed the whole, and so on. We know, too, that space is endless, that if we could fly thru the ether, we might SCIENTIFIC TRAINING FOR BUSINESS 19 travel for all time in any direction and never come to the boundaries of the universe. These truths, which the philosophers call "innate" or "inborn," are said to be got by intuition. The mind instantly perceives the truth of a mathematical axiom and cannot possibly conceive of its opposite being true. Mathematics, philosophy and metaphysics are entirely built upon truths obtained thru intuition. 14. Deduction or a priori reasoning. — If you have studied geometry, you will easily understand the na- ture of the process of reasoning called deduction, for this process is illustrated in the demonstration of every theorem. Deduction is a reasoning from the general to the particular. The stock illustration is : Man is mortal; John Smith is a man; therefore John Smith is mortal. Reasoning of this style is called a syllo- gism, of which the first clause is the major premise, the second the minor premise, and the last the conclusion. Man would know very little about the outer world if he had to rely exclusively upon deduction and in- tuition. He would have at hand only a few major premises, namely, those furnished by intuition, and would be able to develop only the so-called pure sciences, by which is meant those sciences, such as mathematics, the truths of which are independent of our sense impressions. Deduction as a source of knowledge is chiefly valuable when employed in con- nection with experience or induction. 15. Experience, or induction. — Most of our knowl- edge of the world in which we live has been obtained 20 INTRODUCTION thru the five senses. In logic, the process is called induction. How do you know that boiling an egg for five min- utes will make it hard? Or that boiling potatoes for twenty minutes will make them soft and edible? You know it solely because you have tried the experiment, of because you know some one else has. If a cook should boil an egg five minutes and should find it very soft, she would be very much astonished. She would doubtless suspect the accuracy of her clock or of her eyesight, and if the strange event happened fre- quently, she might, especially if she were superstitious, think the house bewitched and give notice. Yet nobody really knows absolutely that boiling an egg five minutes will make its contents hard. All we know is that in the past when eggs were boiled five minutes they did become hard. So we have assumed it to be a law that to boil an egg for that length of time will make it hard. If a man decides to commit suicide by jumping from a high building, he believes that his body will go to the ground and not up toward the clouds. Yet he does not absolutely know that. All he really knows is that in the past when a man has sprung from a height his body has gone down, not up. All of our knowledge of the external world is of this sort, namely, inductive, for it is based upon ex- perience. We assume that the laws of nature will not change, and that things today will happen as they did yesterday if all conditions are the same. SCIENTIFIC TRAINING FOR BUSINESS 21 If for several years a farmer applies nitrates and phosphates to one field and not to another, and uni- formly gets a better crop off the first field than off the other, he concludes that these chemicals are good fer- tilizers and that he will get a larger crop if he uses them than if he does not. We observe that immoderate consumers of alco- holic beverages frequently get red noses and watery eyes. If we meet a stranger with a red nose and wat- ery eyes, involuntarily we conclude that he is an al- coholic. If you examine these illustrations, you will find that in every instance a general conclusion or inference has been reached which has for its basis a number of ob- servations or experiences. The fact that boiling an egg five minutes has always made it hard, leads us to the general conclusion that such will always be the case. That method of arriving at knowledge is called induction, a reasoning from particulars up to the gen- eral. 16. Induction and deduction work together. — Most of our knowledge is obtained by the combined use of induction and deduction. The two methods, so to speak, pull together like a team of horses, one helping the other. Having learned from experience what usually follows the appearance of heavy black clouds, thunder and lightning, men have drawn the conclusion that these phenomena indicate rain. This is an in- duction. If we see the sky heavily clouded and hear thunder, we say it is going to rain. This is deduc- £<2 INTRODUCTION tion, the major premise of which is: Black clouds and thunder are followed by rain; and the minor pre- mise: There are now black clouds and thunder; hence the conclusion: We shall have rain. So in most of our conclusions with respect to ordinary everyday af- fairs. We are constantly drawing conclusions in which both induction and deduction are employed. In this rain illustration we get our general proposi- tion with regard to the sequence of thunder and rain thru induction, but we reach our particular conclu- sion by deduction. Let us take another illustration. A man is brought into court accused of being a sneak thief. The magis- trate has had experience with sneak thieves, let us suppose, and has observed that their lips are usually thin, that their eyes are close together, and that they will not look at you steadily. By induction he has come to the conclusion that men possessing these traits are inclined to thievery. He notes that the prisoner at the bar has all these traits and by deduction he is prejudiced against him. Unconsciously his mind works out this syllogism: Men of thin lips and fur- tive, narrow eyes are sneak thieves; the prisoner has thin lips and furtive, narrow eyes; therefore, he is a sneak thief. You will say that the magistrate is prejudiced, and that he ought not to let his mind be in- fluenced in the way I have indicated, but he cannot help it. As an honest judge, he will do his best to weigh in the balance the evidence for and against the prisoner, but back of all the evidence there will be that SCIENTIFIC TRAINING FOR BUSINESS 23 "sub-conscious" judgment, and it will not work to the prisoner's advantage. 17. Hypothesis. — The uncritical mind may be led into error by either induction or deduction, but most of our mistakes, prejudices and wrong ideas are due to our careless use of the inductive method. People observe a few facts and then "jump" to a conclusion. Their minds being untrained, they often cling to their conclusions with great obstinacy and refuse to listen when anybody seeks to enlighten them. Hence we find people still carrying horse-chestnuts in their pockets to prevent rheumatism, wearing amber beads about their necks to ward off a sore throat, confident that a "wet" moon indicates rain, or sure that olive oil, being "oil," cannot possibly be palatable as food. Since all inductions are liable to imperfections, the scientific man submits them to tests before he accepts them as truths. In certain fields, especially chemis- try, physics and bacteriology, inductions are tested in the laboratory. In other sciences, such as economics and sociology, laboratory tests are impossible. Stu- dents of these sciences can test their conclusions only by repeated observations of events in the actual world, but here satisfactory tests are difficult because the same event never occurs twice under exactly the same conditions. The scientific man, seeking an explanation of a phe- nomenon frequently recurring in nature, constructs what is called an hypothesis, which is merely a guess at the truth. He assumes that the phenomenon is the M INTRODUCTION result of certain conditions, and that when these con- ditions exist this phenomenon will inevitably follow; then he proceeds to make observations to confirm his hypothesis if possible. If he finds that his guess is correct so far as all his observations go and that the phenomenon never occurs excepting under the condi- tions which he has "guessed" to be necessary, he will conclude that he has reached the truth. Then his hypothesis will have risen to the dignity of a theory or law of nature. 18. Theory. — The theory of evolution by natural selection was at first only a scientific guess on Dar- win's part. It occurred to him as a reasonable hy- pothesis when he read a book by Thomas Malthus on the "Theory of Population," in which Malthus showed that the tendency of population was to increase faster than the food supply, so that the weakest perished and the strongest survived. Darwin made observations of animal life with infinite patience, and it is generally believed that the truth of his hypothesis has been proved. It is now called the "theory of evolution." For many years men observed such phenomena as the falling apple, but nobody so far as we know, sought for an explanation until in the seventeenth cen- tury Xewton's curiosity was aroused. This is really not strange, for the human mind is least curious about the phenomena with which it is most familiar. Air and water, the two substances most essential to our life and health, received no scientific attention un- til within recent years ; in fact, scientists still seem to SCIENTIFIC TRAINING FOR BUSINESS 25 be in doubt, not as to the nature of air, but as to the evil effects of impure air and the best method for its purification by ventilation. The theory of gravitation was first an hypothesis or guess in Newton's mind. "If I can assume that bod- ies of matter," he said to himself, "attract each other mutually in proportion to their size and density and inversely as the squares of their distance, the laws of motion being true, then I should be able to calculate aright the orbit of each planet in the solar system." Newton first tested the truth of his law by a study of the moon's orbit, but at that time, 1665, the exact distance of the earth from the moon was not known and his calculations were not entirely satisfactory. Before his death, however, the size of the earth and its distance from the moon had been accurately deter- mined and Newton had the satisfaction of knowing that his law of gravitation had been verified. In 1845, a young French astronomer named Leverrier, puz- zling over the erratic behavior of the planet Uranus, came to the conclusion that it must be under the in- fluence of an undiscovered planet located in a certain part of the heavens. He had no telescope powerful enough to bring this unknown planet into the field of vision, but he wrote to an astronomer in Berlin and told him in what direction to turn his powerful tele- scope. The German astronomer followed directions and within half an hour found the new planet almost exactly where Leverrier had indicated. It was the planet we now know as Neptune. It was discovered 26 INTRODUCTION as the result of deductive or a priori reasoning based, on an induction, namely, Newton's law of gravitation. 19. Three .steps in thinking. — Note that in scien- tific thinking there are three important steps : First, the collection of facts or phenomena thru observation or experience; second, the tentative explanation of those phenomena by an hypothesis or scientific guess ; third, the confirmation of this hypothesis by patient observation of the phenomena as they occur in nature. Note also that the hypothesis, if finally confirmed and generally accepted, is known as a theory or law, a nat- ural law being merely a statement of the order in which phenomena inevitably follow one another. The laws of a science are often called its fundamental prin- ciples. For example, the laws of motion and the law of gravitation are fundamental principles of physics. Without a comprehension of them no man can explain the simplest phenomenon of the physical world. The foregoing discussion of reasoning processes may seem irrelevant, unnecessary and wearisome to some of my readers. But it was necessary. The phenomena of business are determined by laws or fundamental principles, and it is important that every subscriber of the Alexander Hamilton Institute should understand how these laws are discovered and applied. 20. Prejudice. — The hero of "Pilgrim's Progress," that wonderful allegory written by John Bunyan while in prison, was beset by numerous enemies who drew near to him in the guise of friends, but he re- SCIENTIFIC TRAINING FOR BUSINESS 27 buffed them all and finally reached his journey's end. Some of the worst enemies of the man who is seeking for the truth will appeal to him as old friends in whom he has had great confidence. One of the worst of these enemies is Prejudice, which is a cherished belief based on reiterated hearsay or tradition. Voltaire called it "the reason of fools." Boys are taught to believe what they are told by their elders, especially their teachers and parents. The average American boy grows up with many beliefs firmly rooted in his mind. He is sure that the United States is the greatest country in the world; that its soldiers are the bravest, its railroad trains the fastest, and its*boys the cleverest. Nobody could pos- sibly cook better than his mother. The church his father and mother belong to is certainly the best one. How strange that people should belong to any other ! The boy sheds many of his prejudices when he be- comes a man, but he accumulates others when he goes into business. His first employer may exaggerate the value of shrewdness and the boy get a prejudice against candor and square dealing. As he continues in business he will get crude ideas about the money question, banking, the cause of high prices, railroad rates, or about the tyranny of capital over labor. Very few men do any real thinking, yet all of them entertain very positive convictions on many subjects, and those who know the least are usually the most positive. No man likes to part with an old and long cherished 1—4 28 INTRODUCTION belief. It is as dear to him as an old friend. When he reads a book that demolishes one of his pet beliefs, lie is in a hostile mood at once and is likely to throw the book down in disgust, denouncing the author as a mere theorist who does not know what he is writing about. Our subscriber must guard against prejudice. He must resolve at the outset to drop any of his precon- ceived opinions or prejudices if an author shows that they are not based on facts correctly interpreted. In other words, he must pursue the Modern Business Course with an open mind, eager to be rid of ignorance and to know the truth. On the other hand, he must not accept as true whatever an author says unless he is convinced. If an author's statement does not seem reasonable, let him question-mark it and make it a problem for his own mind to work out. If he returns to the problem from time to time, he will either dis- cover the fallacy or error in the author's reasoning or will conclude after all that the author is right. Un- happily, if the doubted statement runs counter to a cherished prejudice, the subscriber will be sorely tempted to condemn offhand the author's judgment and then give no more thought to it. That is why prejudice is an enemy against whom all of us must be on our guard. 21. The mere theorist. — There is a very common prejudice in business circles against the word "theory." If a college professor after long study of transporta- tion or banking reaches a conclusion which is at vari- SCIENTIFIC TRAINING FOR BUSINESS 29 ance with the ideas of men in business, his opinion at first receives little attention and less respect. You will hear men say, "He is all right as a professor,, but he is too theoretical ; he does not really know what he is talking about." Or it will be something like this: "He is only a theorist; a man can't understand this business unless he is really in it ; I want the ideas of a practical man." The subscriber must rid himself of any prejudice against the word "theory." All our worth-while knowledge of the outer world is based upon theory. The law of gravitation is a theory. No man ever saw it actually in operation. When a man falls from a height, according to Newton's law, the earth is drawn toward him, as well as he toward the earth. But no man in falling is conscious of the earth's rising toward him — unless he is drunk. Our railroads, steamships, bridges and factories with all their machinery have been constructed in harmony with theories that have been carefully thought out and tested. If man theorized no more and began to for- get what theory has already taught him, in a few gen- erations the human race would again be in a state of, barbarism. As a matter of fact, the very worst theories in the world are found in the ranks of uneducated, "prac- tical" men. Some of the most theoretical and absurd plans for the betterment of the banking system of the United States have come from practical men, some of whom are engaged in the business of banking, and they all insist that they as "practical" men are much 30 INTRODUCTION better qualified to devise a good banking system than any mere theorist. That they themselves are rank theorists, building structures without foundations and in violation of fundamental principles, is a fact the truth of which they would not for a moment consider. I have talked with many such men on the money ques- tion and on banking and have always found them not only unable to think clearly, but also ignorant of the ABC principles of the science of which they claim to be masters because of their practical experience. By ABC principles I mean those laws or statements of truth which the impartial and unprejudiced mind immediately accepts as true when they are clearly stated. The theorist to be shunned is the man Mho con- structs his theory without carefully sifting his facts and confirming his conclusions. The colored parson in Virginia who refused to believe that the earth moves around the sun was a practical theorist. He rose early in the morning and had many times seen the sun swing around the earth. He had positive evi- dence that the mere theorists were all wrong. He was a practical theorist and knew better. 22. Does study pay? — The business man who reads, studies and trains his mind merely because he hopes thereby to increase his ability to make money, is not impelled by the highest motive and will not get the best results. The ambition to make money is honor- able. Fundamentally, it is the motive which rouses men to activity in the professions as well as in busi- SCIENTIFIC TRAINING FOR BUSINESS 31 ness. Yet the lawyer who studies and plans only that he may earn large fees will never be a great lawyer; lacking noble aspirations, he will lack breadth of train- ing. In fact, any man, whether in the professions or in business, who alwa} r s thinks of compensation in terms of dollars, must be cheap and sordid and in- capable of the finest achievements. The business man who studies will get a double re- ward. First, his money-making ability will be in- creased, for he will have a better understanding of business conditions, will see more clearly the possibili- ties of his own business, and will be better prepared to take advantage of opportunity. Second, he will be a bigger, broader, wiser man and so get more satis- faction out of business and out of life. As he begins to understand things that are now mysterious and puzzling, and sees more and more clearly into the in- tricacies of relationship existing among business phe- nomena, his own business, which once was work and drudgery, will begin to possess for him the fascina- tion of a game, and its charm will be due, not only to the number of dollars added to the surplus account of his balance sheet, but also to the consciousness of power which its successful conduct gives him. It cer- tainly does pay to study. 23. Culture. — In the foregoing section I have made no mention of the highest reward of study, the prize which scholars most highly value and which makes men of talent devote themselves happily to science and to teaching. I did not mention it above because the ;*s» INTRODUCTION men who study and earn this reward do not think of it as "pay" and do not work iii order that they may get it. They devote their lives to scientific study and investigation because they love it. Their unsought compensation is culture. Culture is a word difficult to define for a man not possessing it. In the same way one would have diffi- culty in making a cad or a boor understand the word "gentleman" if neither had ever seen a gentleman. Culture is a by-product of reading, of study and of fine associations. The better the books a man has read and understood and enjoyed, the finer the works of art he has seen and appreciated, the profounder his enjoyment of the beauty of nature and of the charm of music, the greater his knowledge of the funda- mentals of the sciences — the larger his store of culture. Culture is not a veneer that can be bought at a shop or at a university. It implies the harmonious develop- ment of the whole man, a glad, sympathetic knowl- edge of the fine, noble and beautiful achievements of the human race as recorded in the best of literature. Xo man can pursue the Modern Business Course and Service faithfully and intelligently without gain- ing in that breadth of vision and knowledge which is part of culture. It is to be hoped that a subscriber who thus far has taken no interest in science or in any intellectual pursuit, if there are any such, will become a new man intellectually. Under the direction of the Institute he will study the science of business and will get some knowledge of certain related sciences, such SCIENTIFIC TRAINING FOR BUSINESS 33 as ethics, psychology and sociology. His studies should have a cultural effect. He will be getting, in some measure, the kind of education which Milton thus described in his "Tractate on Education": I shall detain you no longer in the demonstration of what we should not do, but strait conduct ye to a hill side, where I will point ye out the right path of a vertuous and nohle Education ; laborious indeed at the first ascent, but else so smooth, so green, so full of goodly prospect, and melodious sounds on every side, that the harp of Orpheus was not more charming. ... I call therefore a compleat and generous Education that which fits a man to perform justly, skilfully and magnanimously all the offices both private and publick of Peace and War. And there should be awakened in the subscriber a desire for knowledge and a taste for study which will send him with enthusiasm into other fields of science and literature. 24. Purpose of education. — Xot so very many years ago the common notion was that the aim of educa- tion was the advancement of learning, but it is now beginning to be seen that mere learning cannot justify the social and financial cost of our schools and colleges. Many a learned man has not been of the slightest use in this world. Some educators hold that the highest function of the college is to train character and so make its stu- dents real men. Xow character is the finest thing on earth. It is a far more beautiful thing than culture. By character we mean the will to endure, the will to do that which is disagreeable if we ought to do it, and 84 INTRODUCTION the will not to do that which is agreeable if we ought not to do it. This great thing, character, can be earned only by hard work, by endurance, by self-de- nial. It is not a product of lectures or of sermons. But the primary and important aim of education is not character building, nor learning, nor culture, but the development of the power to understand and of the knowledge that understanding must precede wise action. The country is full of social quack doctors with nostrums for all imaginable social diseases and evils. Their active, insistent, cocksure ignorance is the third rail against which society needs protection, and it is to the trained, the educated business man, humbly aware how little he knows, but keenly alive to the fact that a problem must be understood before it can be solved, that society must look for deliverance from peril. Speaking of the fallacious idea that there is not enough work to go around and that laboring men should therefore restrict production, Mr. Frank A. Vanderlip said recently befor"e the American Bank- ers' Association: However natural it may be to feel impatient with the man who honestly holds such views, impatience is useless. As long as he holds these views, he will act upon them as you or I act upon our views. His opinion is a fact to be dealt with. It is as real as a mountain where you want to build a road- way. In the case of the mountain, we do not get impatient, but we endeavor to survey it and find a way over or thru it. Fortunately, erroneous opinions, however stubbornly held, are more like an ice-bank than a mountain. They will even- tually melt away and disappear before the truth — if not in SCIENTIFIC TRAINING FOR BUSINESS 35 one generation, in another. Understanding of economic laws seems to me almost the greatest need of our day. No body of men will act contrary to their own interests when thev know what their interests are. The spread of a sound comprehension of economic laws seems to me, therefore, one of the greatest duties that go with the responsibilities of bankers. 25. Business and life. — The aim of the Institute is service. That, indeed, is the aim of all legitimate business. The founders of the Institute would be disappointed if its subscribers were content merely to increase their money-getting abilities. Business, money, profits, are not ends in themselves, but are the means by which men live. Man is on the earth to live, not merely to make a living. The subscriber who de- votes all the days and years of his life to business and becomes so engrossed in it or so eager for larger gains that he has no time for the joys and duties of life and no will for the responsibilities of citizenship and par- enthood, may die worth many million dollars and be rated a business success, but as a man he will be a failure. A man who devotes most of his time to a single kind of activity or interest does not really live. His un- used faculties actually die or atrophy. This is true of the farmer who toils from sunrise to sundown until old age brings him to the grave. It is equally true of the musician or artist who knows but one source of pleasure, and it is certainly true of the man who gives all his life and energy to business in order that he may amass a fortune. A violinist cannot get music 86 INTRODUCTION out of his instrument if he keeps his bow forever on one string. Man is an instrument of myriad strings. 1 1 he Mould really live he must play on them all. Business has given to modern civilization conveni- ences and luxuries unknown to the Greeks and Romans. It has made living easier and more com- fortable. But business men as a class have not in the past always so ordered their own lives as to win the unqualified respect and confidence of other classes of society. The word "commercial" in popular opinion is now losing its taint, but it will not have an unques- tioned place in the ethical "blue book" until business men have proved by their lives, as well as by their donations, their unselfish interest in social welfare, in religion, in education, in the improvement of labor conditions, in the abolition of poverty, and in the sta- bility of law and government with equal rights and im- partial justice for all. The army of Alexander Hamilton Institute sub- scribers is growing rapidly; they are in almost every town and city in the United States and in Canada, and in many foreign countries, including Japan, China and South America. The mission of the Insti- tute is world-wide. It will have rendered its highest service if these men prove by their lives that they have not only learned from the Alexander Hamilton Insti- tute the scientific principles of business, but have also got from it aspirations toward all-around manhood and citizenship. BUSINESS AND THE MAN CHAPTER I NATURE AND AIM OF BUSINESS 1. Definition of business. — In everyday speech the word "business" does not possess a clear-cut mean- ing. It is applied rather vaguely to trading and manufacturing occupations as distinguished from the arts and professions. It is the aim of the Modern Business Texts to ex- plain the laws or principles which determine and con- trol the events of the business world. For the pur- pose of our study business may be defined as follows: Any occupation in which men, at the risk of loss, seek to make money by producing commodities for sale, or by buying and selling commodities, or by hiring the services of others for utilization at a profit. Or more briefly: Business is any gainful occupation of which profit is the goal and in which there is risk of loss. This definition, it will be noted, excludes many so- called gainful occupations. The farmer, for example, would be said to be in business only in so far as he hires labor and markets his products. As he enlarges his operations and hires more men Jto work for him, 37 7 Q R : 38 BUSINESS AND THE MAN he becomes more and more a business man because he is more and more concerned in such problems of busi- ness as are involved in accounting, management, sales- manship and credits. But in the beginning his busi- ness interests are negligible. Evidently a country storekeeper is in business, for he buys goods in the hope of selling them at a profit and takes the risk of not being able to do so. A young clerk in his employ on a salary takes no business risk and is not thinking about profits ; hence, strictly speak- ing, he is not a business man. But he is part of a business machine and is learning how to do business, and so is commonly thought of as being in business. The owner of a factory who buys raw materials and hires labor is taking risks and is in business. Some of his employes are artisans or workers with tools and machines; they are learning nothing about business and are not thought of as being in business. Other employes may be connected with the purchase or sales department, and may have to assume distinctly busi- ness responsibilities so we think of them as being in business. The bookkeeper who keeps the records of the purchases and sales, the output, the costs, etc., stands on the border line between business and man- ual labor. As mere bookkeeper he is little more than a machine, but as a potential accountant, able to im- prove his employer's system of bookkeeping and to warn him against the danger of increasing costs, he steps into the ranks of business men. In general, the, great mass of laborers in manufac- NATURE AND AIM OF BUSINESS 39 turing establishments and on our railroads, whose work is mainly with their hands, are not thought of as business men altho they are connected with business enterprises. They have no part in the solution of problems involving risk and profit and are not being trained for such effort. They have "jobs" in business concerns, but they assume no business responsibilities. On the other hand, every business enterprise employs men upon whom the employer unloads some of his re- sponsibilities. Such men, whether they be bookkeep- ers, cashiers, salesmen or department managers, are in direct contact with business problems and are re- garded as business men even tho their own money is not at risk. 2. Profit and risk essential elements. — It is not im- portant to decide whether this or that man is in busi- ness or not, but it is important to understand that the word business necessarily implies a balance sheet upon which the two most important words are profit and loss. If profit is not the goal, then the enterprise is not a business one. By the profit of a business enterprise is meant the surplus left over after all the costs or expenses have been paid. A small storekeeper doing a cash business must sell his goods at such prices and in such volume as will enable him to pay the wages of his employes, a fair wage to himself, rent to his landlord, interest on capital invested, and all other expenses. If, at the end of a year, his inventory shows that his stock of goods has not shrunk in value, and his outstanding 40 BUSINESS AND THE MAN debts are no greater, the increase or decrease of his bank balance during the year will disclose his profit or loss. 1 Profits are the goal of business. If the socialists had their way and legislated capital and profits out of existence, what we now know as modern business Mould completely disappear. In Chapter II we shall make a closer study of profits and endeavor to show how profit is earned and the obstacles that must be overcome. Later on it will be shown that the strug- gle for profit which we call business has been a tre- mendous force in the development of human capacity and for the advancement of civilization. 3. Importance of money and price. — At the pres- ent time almost all goods are made to be sold. Spe- cialization and the subdivision of labor have been car- ried so far that few men produce the things which they themselves consume. Old people recall the days when farmers had little need for cash, for they bought little at the stores. Their own farms produced most of their food and the material for some of their cloth- ing. Today the average farmer in the United States devotes his energies to the raising of a few crops. He sells these for money and buys his food and clothes very much as does the city dweller. So it happens that money and prices have become very important matters. What men really want are goods or commodities, things which possess what we i Profits are more technically discussed from the accounting stand- point in other volumes of the Modern Business Texts. NATURE AND AIM OF BUSINESS 41 call value. To get these is the ultimate object of work, but under modern conditions the immediate re- ward of work is money, for with money the things wanted can be purchased. By the price of a thing is meant the amount of money it sells for. Evidently the subject of money and its purchasing power is of great importance to all people. Since business men must figure their profits in money and cannot make a profit unless they sell at a price higher than they bought, it is evident that the forces which control the purchasing power of money must not be ignored by the wide-awake business man. That is the reason why the subjects of money and prices and credit are fully treated in the Modern Busi- ness Texts. 4. Business must satisfy human wants. — Altho the business man is seeking to make a profit for himself, he must nevertheless think more of others than of himself. He can earn his profit only thru his ability to please others. If he is a trader he must buy and sell things that people want. He is not a dictator and cannot make people buy his goods merely because he himself thinks they are better than the goods peo- ple call for. So the business man must study human wants and caprices. He may not approve of their tastes or of their judgment, but if he wishes to make a profit, he must be ruled by them. He may be a manufacturer of shoes and know very well that high heels make walking painful, but he will not let what he knows about physiology and anatomy shape the 42 BUSINESS AND THE MAN model of any woman's shoe — unless possibly his wife's. P. D. Armour once said that he chose to deal in pork because it was an article of food that nearly every- body wanted in some form or other. A business deal- ing in a commodity that is in universal demand, such as wheat, flour, or cotton cloth, is capable of tremendous development. The profit on each ham or each barrel of flour or each gallon of oil may be small, yet the gross profits may run into the millions because of the large sales. 5. New wants constantly appearing. — As every- body knows, the last twenty-five years of the nine- teenth century were characterized by a remarkable development of machine production. Invention after invention lowered costs of production and made pos- sible a great increase in the output of commodities. One man with the aid of modern machinery is able to produce one hundredfold more than his grandfather could have produced fifty or sixty years ago. While this industrial progress was taking place, especially between 1880 and 1896, the general level of prices was falling, and as goods became cheaper one often heard the prediction that the time was fast ap- proaching when all the goods that man needed could be produced by two or three hours of labor a day. The increasing efficiency of the machine seemed des- tined to reduce the demand for hired labor to a mini- mum, and in consequence dire prophecies, especially among persons of socialistic or radical tendencies, were heard with regard to the future of the laboring classes. NATURE AND AIM OF BUSINESS 43 The radicals held that the machine, called capital by the economists, was bound to absorb an increasing pro- portion of the world's wealth and that less and less would be left for the poor working man. Happily this gloomy prophecy has not come true. It was based upon a fallacy, namely, the assumption that man has a definite number of wants and that when these are satisfied he is content. As a matter of fact, man is a bundle of an infinite number of po- tential wants. This is one of the important charac- teristics which distinguish man from all other ani- mals. A certain amount of food and drink, a little play and a chance to run and climb a tree, and now and then to "lay" for a mouse or a chipmunk, will bring complete content to the most high-bred tabby in any cat show. The wants of all the lower animals are fixed in number, and when these are gratified the ani- mal is ready for rest and sleep. But man is insatiable. As his power over nature grows or as his wealth increases, his wants multiply. 1 When poor and half-nourished his idea of heaven is a place where there is an abundance of roast beef and vegetables. A poor and ignorant Yankee farmer was once asked what he was working for. "Salt pork and sundown," was his illuminating reply. He wanted the day to end that he might get something to eat and go to bed. If that farmer should inherit a fortune and go to New York City to live, it needs no 1 Man is the whole encyclopedia of facts, the creation of a thousand forests in an aoorn; Egypt, Greece, Rome, Gaul, Britain, America lie folded already in the first man. — Ralph Waldo Emerson. 1—5 44 BUSINESS AND THE MAN prophet to foretell what would happen to his taste for salt pork or that sundown might become a signal for something else than going to bed. »'». The overproduction bogey. — Fortunately for the business man as well as for the man who wishes to sell his services, there is not the slightest possibility that the world will ever be overstocked with the things that men desire. 1 General overproduction is impossible. The word overproduction has no significance in busi- ness except when it is applied to a single commodity. The automobile, for example, is making imminent the overproduction of horses, wagons and harnesses. The increasing use of gas and electricity might easily lead to a glut in the lamp market. Some people prefer rice to potatoes, both having substantially the same value as food ; if this taste for rice should spread rap- idly thruout the country, then there might be for a time overproduction of potatoes. Since the business man is striving to make a profit, he must constantly be on his guard, whether he be manufacturer or trader, against overproduction or overstocking in special lines, and seek to anticipate the changes of demand to w T hich the market is sus- ceptible. He need have no fear that any increase in the production of goods will so satiate the human i Schopenhauer, the German philosopher, rests his theory of pessimism on the capacity of human wants to multiply. He held that misery was the ultimate and inevitable lot of the human race. A man is unhappy in the presence of an ungratified want. Happiness is possible only when the want is gratified, but the moment the want is gratified two other clamorous wants take its place, so that the poor man is really more miserable than when he thought he was about to be happy. NATURE AND AIM OF BUSINESS 45 race that there will be no desire for his services. As production increases, wealth will increase, and the demand for goods will be not only greater but more varied. 7. Importance of salesmanship and advertising. — The reader has gathered from the two preceding sec- tions not only how necessary it is for the business man to study the wants of his customers, but also how im- portant it is that he be able to give them just what they want. To sell a man anything you must first know what he wants and then be able to convince him that you can supply it at a reasonable price. In the old days of so-called community production and marketing, when there were no railways nor steam- ships, both production and trading were usually on a small scale and the business man knew most of his customers personally. Now, however, production and marketing are world affairs. A manufacturer in a Massachusetts village may sell in all the continents of the globe. Thus it happens that marketing has become one of the most important of business prob- lems. No man can succeed in business if he ignores its difficulties and its perils. Advertising and salesmanship, which are vital parts of the marketing process, have special importance in any business which deals in something new. The salesman and the advertisement must rouse in people a desire for that new thing. The manufac- turer cannot afford to wait for the slow develop- ment of his industry that will ensue if he lets the ad- 46 BUSINESS AND THE MAN vantages of his product be discovered gradually as a result of its use among a small number of customers. Hence he makes it known in every possible way, and for that purpose spends money in a fashion which his grandfather fifty years ago would have regarded as astounding extravagance. Salesmanship and adver- tising are in great part responsible for the spectacular development of the automobile industry. 8. Three great classes of business. — For our pres- ent purpose it seems proper to divide buolness into the following three classes : First — The production and sale of goods. This kind of business is commonly known as industry, and embraces all kinds of manufacturing and the so-called extractive industries, mining, agriculture and lumber- ing. While some farmers would hardly be classed as business men because of the small scale upon which they produce, agriculture as a whole is properly regarded as an industry. Second — The purchase and sale of commodities. By commodity is meant anything which has value and is therefore salable. This kind of business embraces those which are usually grouped under trade and mer- chandising. Third — The purchase and sale of services, whether the services of human beings or the uses of material things. This class embraces many different kinds of human activity. The banker may be regarded as a dealer in that valuable but intangible thing called credit, or we may without splitting hairs say that the NATURE AND AIM OF BUSINESS 47 charge he makes when he discounts a promissory note is for the service the bank renders. A theatrical man- ager who hires the services of players is a business man, but the players are not. The railroad, steamship, telegraph and telephone companies sell services. The city landlord sells to his tenant the right to use an apartment ; strictly speaking, he is selling a service. This use of the word service may seem technical to the reader, but it is not difficult to understand. A man renders you a service whenever he aids you in getting what you want. Any man who makes a "busi- ness" of rendering services to others and is looking for a profit and taking a risk, is in business. 9. The professions. — There are many gainful occu- pations that are not classed as business for the reason that profit making is not their primary aim. The most important of these are the professions and the arts. The three best known professions are law, medicine and theology, often referred to as the learned professions. In recent years, other callings have ac- quired equal claim to rank as professions, for ex- ample, engineering and architecture. A professional man finds his reward not merely in the money he earns, which comes to him usually in fees and retainers, but in his love of the work, in its dignity and importance, in his personal independence, in the distinction he achieves because of his skill and intelligence, and in the respect he commands from his colleagues of the same profession. The prerequisite to success in a profession is in- IS BUSINESS AND THE MAN tellectual power. If success in any calling depends more upon manual skill than upon brains, it is a trade, not a profession. For example, a dentist who is merely able to extract teeth and to fill decayed cavi- ties is little more than a mechanic. To be entitled to professional rank he must know as much as a physi- eian about the various diseases that attack the teeth and the gums, and must be able to treat them in a scientific manner. To impart this knowledge as well as to give opportunity to attain mechanical skill, is the aim of all our best dental schools. Hence den- tistry may claim to rank among the professions. The professions differ from business occupations in that they have definite codes of ethics which prescribe and limit the conduct of practitioners in the various contingencies likely to arise. As is well known, it is unethical for a professional man to advertise, for the only thing he can advertise is his own ability. It is all right for the merchant to extol the virtues and qualities of his goods, or for a druggist to claim that he handles only pure drugs, but evidently it would be bad taste for a doctor to boast of his wonderful cures or for a lawyer to brag about his success in the courts. So the young man entering a profession evi- dently has a hard time of it in the beginning. He may send out cards announcing that he has opened an office, he can join clubs and societies and make all the friends possible, but he must beware of any con- duct that seems to have an advertising aim. Other- wise, if he is a lawyer, he may be spoken of contemptu- NATURE AND AIM OF BUSINESS 49 ously as an "ambulance chaser," or if he be a young physician, he will be looked upon with suspicion, will possibly be called a "quack," and will be given no "boost" by the older members of his profession. Members of some of the professions, however, are wise if they make a study of business problems. Many of our most successful lawyers, for example, are constantly occupied with cases which cannot be thoroly understood by one who is ignorant of business principles and customs. The engineer or the architect who knows nothing of corporation finance or business law or of cost finding will never rise to the highest rank in his profession. 10. Artists. — In all these respects artists are very much like the professional men. A sculptor, a painter or a poet camiot brag about his work. The prereq- uisite of success in art is taste, and it would certainly be evidence of very bad taste for an artist to proclaim his superiority to the world. The artist, however, is not altogether debarred from the advantages of publicity. Publishers proclaim the worth of the poet, and dealers advertise an exhibit of the creations of the sculptor and the painter, while theatrical managers are frequently most gorgeous and lurid in their claims for the brilliancy of the stars be- hind their footlights. Publishers, art dealers and theatrical managers are in business. It is proper for them to advertise. But the artists themselves, if they are to be thought real artists, must not seem to be courting publicity. Possibly this view may come as 50 BUSINESS AND THE MAN a shock to some so-called artists, yet it is perfectly true. But then artists will have no occasion to read this book. 11, Is business a profession? — If we analyze the so- called learned professions, we find them distinguished by these two characteristics: first, in their practice brains are far more important than technique or man- ual skill; second, education in certain sciences is es- sential to success. No calling deserves to be called a profession if its tasks and problems are so simple as to be within the grasp of any man of ordinary abil- ity and education. The problems of a profession can be correctly solved only by a man who has had thoro training in science. The physician, for example, apart from his knowledge of materia medica, must be well grounded in anatomy, physiology, chemistry and bacteriology. Psychology should be added to this list, altho our medical schools do not appear to be alive to the importance of this science. The well trained lawyer should be disciplined in the sciences of pure logic and of jurisprudence, in ethics, in the evo- lution of law and in the theories that explain and justify legal doctrines. When the physician or law- yer is not thus trained, the young lawyer merely know- ing the statutes and procedure of his jurisdiction, and the young physician knowing only drugs and symp- toms, both are empiricists and do not deserve to be called professional men. They resemble the car- penter who works by rule-of -thumb. Certain business callings in recent years have risen NATURE AND AIM OF BUSINESS 51 into the professional ranks. Before the year 1900 few public accountants would have claimed that their occupation was professional in character. The ac- countant was then often referred to as a "bookkeeper out of a job." But the really expert accountants of the last century knew very well that their difficult tasks could not be performed by the ordinary book- keeper. They realized that the accountant could not do his best work unless he knew a great deal about the business man's problems. It has been largely because of the accountants' belief in the high character of their work that university schools of commerce have re- cently been established in all parts of the country, in which men are trained in all the sciences underlying business as well as in the theory and practice of ac- counting. For the same reason many states have passed laws providing that no man shall style him- self a "certified public accountant" until he has suc- cessfully passed examinations conducted by the state authorities. In view of these conditions the account- ant may fairly claim that his calling is one of profes- sional rank. . Other business occupations, notably advertising and the work of the credit man, are rapidly moving in the same upward direction. Entrance into these callings is not yet guarded by statute, but many of the lead- ers already realize the need for preparatory training, and some of our university schools of commerce are doing their best to supply it. The American banker is also beginning to discover BUSINESS AND THE MAN his need for men who have had scientific training, for the problems of banking are becoming more and more intricate and difficult. The time seems to be ap- proaching when bank presidents and managers can- not be picked haphazard from lists of men who have had successful experience in trade or manufacturing. Not many years ago a prosperous farmer was often elected to a bank presidency. But a banker is becom- ing more and more a specialist, and competition will surely compel him to obtain mastery of the sciences underlying the phenomena of economics, credit, money and international, as well as national, finance. And then we may fairly claim to have professional bankers. Some of our banks are showing preference for uni- versity graduates and are conducting courses of in- struction for their employes which are scientific as well as practical, but these banks are exceptions. Not until it is generally realized that office experience cannot take the place of scientific training can bank- ing justly be called a profession. The business of transportation is one of increasing importance and difficulty. Many of our railroad managers have worked up from the bottom merely by the knowledge they have gained in the service. In the future this working up will doubtless be more difficult unless the ambitious employe does a lot of hard studying and thinking in his leisure hours. The successful management of a great railroad, while de- manding great executive ability, also calls for a pro- found knowledge of economic and industrial condi- NATURE AND AIM OF BUSINESS 53 tions. Some day it should rank among the profes- sions. 12. What constitutes success in business? — Since profit is admittedly the aim of business, it would log- ically follow that a business man's success can be meas- ured only by the amount of money he makes. As a general statement this is perfectly true, yet erroneous inferences and applications are quite possible. The manager of a Xew York City bank may raise the net earnings of his bank by one million dollars a year and yet not really be so successful as a small country banker who increases his bank's revenue by only ten thousand dollars a year. In the same way the business of a city merchant may annually expand by a million dollars and yet he may be properly re- garded as less successful than a small country mer- chant the volume of whose business is increasing at the rate of only ten thousand dollars a year. The city banker and merchant have practically unlimited op- portunities of expansion, while the country banker and merchant are hemmed in by a narrow environ- ment. Each of the latter may have done all that could possibly be done to increase his business, keep down costs and increase net revenues. Suppose that two brothers go into business, one go- ing to the city, the other preferring to remain in the home town. The one in the city has a fortune of a million dollars at the end of twenty years, while the country brother has accumulated only fifty thousand dollars. It would be unfair to conclude that one was 54 BUSINESS AND THE MAN twenty times more successful than the other. We must not forget that while money profit is the aim of business, yet men are influenced by many other mo- tives when they choose a business or its location. Money is the tangible reward of successful business, but money is not everything that is worth while in life. Doubtless thousands of merchants potentially as capable as the brilliant Marshall Field or A. T. Stewart, are conducting successful businesses in the small towns and cities of the United States. To many of these the larger pecuniary rewards of successful enterprise in great cities possess no charm or temp- tation. To judge wisely therefore of a man's success in business, we must know : First, has he accomplished what he himself set out to do? Second, has the vol- ume of his business been as large as was warranted by its location? And, third, has its management been so sound that profits have been as large as could reason- ably be expected? 13. Dignity and importance of business. — To peo- ple who are not well read in history and fiction it might seem strange that an author should think it necessary to prove that business is an important and worthy occupation. To them it will seem perfectly obvious that business is both important and most worthy, yet only a generation ago if a boy chose to be a lawyer or a doctor or a preacher his parents took pride in the fact, and viewed with more or less un- conscious pity those friends whose sons had gone into NATURE AND AIM OF BUSINESS 55 business. In Europe fifty years ago business was thought something altogether too vulgar to engage the attention of the nobility, and two thousand years ago, when business was comparatively simple, espe- cially among the Greeks and Romans, business mat- ters were attended to either by slaves or by a class of citizens much despised. To devote one's life merely to the making of money was deemed ignoble and un- worthy. How much finer to be an orator, a warrior, a poet, a painter or a sculptor! It would be a waste of time to make comparisons and try to determine whether one calling is finer or nobler than another. Men are born into the world with different capacities, and it should be the duty and ambition of each to do that work which he can do best, and to put all his soul into it, whether he write poetry, paint pictures, play the violin, or buy and sell groceries. Then each will deserve respect and honor. This truth is now clearly recognized in Great Britain, many of whose great business men have been knighted, while in the United States our leading universities do honor to themselves by conferring honorary degrees upon men of distinguished service in trade or industry. When we consider the fact that the rendering of services to humanity is an essential element of busi- ness and that no business man can long be successful if he fail to render service, we must admit that a great business man deserves honor and respect just as does a great lawyer or physician. The adjective "com- mercial" cannot be justly used to imply reproach or 56 BUSINESS AND THE MAN contempt. To be sure, business may be done in dis- honorable fashion. There may be lying, cheating, misrepresentation. But these evils are also found in the professions. In the long run, both in the profes- sions and in business, they work against great success. Business as a calling cannot be impaled because some grocers use loaded scales or because now and then a banker embezzles the funds of his trusting depositors. Criticism of business is usually directed most vio- lently against the trading classes. It is assumed that the merchant is a parasite producing nothing and liv- ing off the necessities of the community. That this assumption is a fallacy is clearly shown in the Modern Business Text on "Economics of Business." Modern methods of distributing commodities are the product of competitive forces and are doubtless imperfect in many respects, yet the merchant who is doing his best to satisfy the wants of his customers and is doing it honestly, is performing a real service for so- ciety and, as a rule, is not overpaid for it. Business has made our civilization possible. If we should return to methods of trading in vogue a thou- sand or more years ago, even tho the industrial world retained all of its machinery and processes, our na- tional wealth would disappear in a few years. The farmers' great markets would vanish and production would come to a standstill. The debt society owes to business is so obvious and so great that there should be no excuse for an author to devote a page to a dis- cussion of this sort. But there is an excuse. It is NATURE AND AIM OF BUSINESS 57 the ignorant and often vicious hostility to business frequently manifested, and the untrue assumption that our wealth is wholly the creation of farmers and factory hand-workers. 14. Business as a job. — Many emploj^es of business concerns think and speak of their positions as "jobs." To them the job means more or less disagreeable work for eight or ten hours a day. Their compensation may be on a weekly basis, in which case it is called wages, or it may have an annual rating and be called a salary. The typical man with a "job" is very much given to thinking that he is overworked and underpaid; he is glad when the day is over, for the job means hard work and no pleasure. He also has a habit of thinking that mere length of service entitles him to increased pay or to promotion to a better job. He often is heard to complain about the big salaries that are paid to men who do not do half the work he does. He usually has a special grudge against his immediate superior, the man who directs his work. He is certain that he works harder than that fellow and that his work is not appreciated. If a few months elapse without any increase in his pay envelop, he complains to his friends that his job has no future in it. You hear him say: "All the places down there are already filled and there is no chance for a live young fellow like me. I want to get into some place where there is a chance to climb up." 58 BUSINESS AND THE MAN The trouble with men of this kind, and unfortu- nately, they are numerous, is that they do not know what business means. They ignorantly think of them- selves as business men, whereas they are mere routine job holders, thinking more about their pay than they do about the possibilities of their job, or of how they can make it helpful to them in places higher up. There is a sense in which every business "job" is a gold mine. The man who works for the gold in the job rather than for the money in the pay envelop, is the fellow who gets on. Then, no matter how humble his job, he is learning the A B C of business. But our typical "job man" is doomed to be a drudge all his days. Business is much more than a "job." 15. Business as a fascinating game. — Not till the reader has finished the twenty-four volumes of the Modern Business Text will he have at hand all the evidence justifying the foregoing sidehead. Yet we may give him a glimpse of the truth. A game is ordinarily thought of as play, but when you analyze some of the most interesting games, such as baseball, tennis and golf, you will find in all of them what is called work when the element of inter- est is lacking. Seeking for the element of interest which makes the "work" a pleasure, you will find it in three circumstances: first, the number of difficulties and obstacles in the way of successful play ; second, in the joy the human animal takes in triumphing over obstacles, particularly if at the same time he has proved himself the better fellow; third, in the NATURE AND AIM OF BUSINESS 59 freakish behavior of the goddess of chance, which accounts for the charm of gambling. All these interesting game elements are found in business, and your real business man, if he is in good health, gets as much pleasure out of his day's "work" as he ever did out of any game he played as a boy. In fact, some men get so engrossed in their business — which is only another way of saying they get so much satisfaction out of its conduct — that they devote prac- tically all their waking hours to it and cannot be per- suaded to give it up even after they have accumulated much more money than they or their families can ever need. Of course, this j)olicy is a mistake. Not only is a man's health likely to break down if he overplays the business game, but he fails also to get the most out of life. He breaks one of the fundamental laws of psychology, that of variety, which is founded on the well-known fact that pleasures pall as a result of frequent repetition. Children unconsciously obey this law and are forever varying their games. But business is such a fascinating game to the man who is really interested in its principles that many men keep on playing it to the exclusion of all other games, and are with the greatest difficulty persuaded by their relatives to abandon it when old age comes on. Fre- quently we read in the newspapers about the death of some octogenarian of whom it is said, "He was at his desk only a few days before his death," or "He has not missed a day at his office in forty years." Young men cannot understand such interest and wonder why 1—6 60 BUSINESS AND THE MAN the old man with all his wealth still kept on working. They do not realize that to him it was not work. He loved the game and since death had to come, he wanted to die playing. REVIEW How would you define business? What classes of workers would you include as business men and what classes would you exclude ? Why is it that money and price movements touch the business man more closely than formerly? Discuss the view of socialists and radicals that capital absorbs increasing proportions of the world's wealth, and leaves a dimin- ishing proportion to labor. Why do advertising and salesmanship play such an important part in the marketing of products which cater to the newer busi- ness wants? How would you distinguish between a profession and a busi- ness? What business callings have recently become professions and what ones are rapidly moving in this direction? CHAPTER II THE PROFIT PROBLEM 1. Cost and prices. — The manager of a going busi- ness concern must always have in mind two things: first, to keep the costs at the lowest possible point for the goods produced ; second, to get for this volume of goods the highest possible price. It is obvious that profits increase as the gulf between costs and the selling price g^ows wider. This profit problem would be a comparatively sim- ple one if human wants were fixed and unchanging in their nature, if the seasons year after year were uniform so that the weather in each month could be foretold with certainty, and if the population of the country were stationary. Then we should have what might be called a static society, all the trade and in- dustrial problems of which could be solved for all time. But our twentieth century civilization is just the opposite — it is dynamic rather than static. Busi- ness and industry are in a constant state of flux. Change rather than stability is the law of the day. This statement is especially true of the United States, for here the population is increasing rapidly and the tastes and needs of the people are subject to great and sudden variations. Hence the man who does business under the con- 68 BUSINESS AND THE MAN dit ions of modern civilization, if he is to be really suc- cessful, must solve difficult problems and overcome obstacles which to many seem insurmountable. In this chapter we will briefly consider some of these problems and difficulties. 2. Necessity for capital. — The late Marshall Field of Chicago, who was often spoken of as the "Merchant Prince," was once asked by an acquaintance what particular achievement of his had cost him the most work and worry. "Saving my first thousand dol- lars" was his prompt reply. Inasmuch as he began his business career as a clerk in a small country store at a salary of possibly fifty dollars a year and "keep," and never had a "pull" with influential relatives or friends, it is not remarkable that the efforts necessary to save that first thousand dollars loomed up at the age of sixty in much greater proportion than all the brilliant achievements which had turned the first thou- sand dollars into many millions. Mr. Field realized, even as a boy, the importance of capital in business. Economists usually state that there are three factors essential for the production of wealth — namely, land, labor and capital. Mr. Field had never read a book on political economy and as he did not intend to be a farmer, he did not go out after land. He doubtless knew that both labor and capital were necessary factors. He had command of his own labor and he used it to acquire the needed capital. It should not be necessary to show that a business cannot be done without capital and that a man can- THE PROFIT PROBLEM 63 not start a business if he has no capital. Yet it is necessary, for most people have only a hazy idea of what capital means. They generally confuse it with money, yet the two things are entirely different. Money is a mere medium of exchange, whereas capital is an instrument of production, or some form of wealth, such as raw cotton, or wheat, which by labor can be converted into something more valuable. The money supply of the United States in 1916 amounted to less than four thousand million dollars, whereas, the capital, which includes all the factories, railroads, raw materials and goods passing thru the channels of trade from producer to consumer, was many times greater. We always value capital in terms of money, and people commonly think of capital as so much money, yet money is only an instrument which men use in the purchase and valuation of capital. Just as a man cannot chop a tree down without an axe, the axe being capital to the wood-chopper, so a man cannot manufacture any article, even on a small scale, unless he has the necessary tools and raw ma- terials ; nor can he start out as a small tradesman un- less he has the necessary stock on his shelves. In other words, he must have capital. 3. Capital got only by saving. — When you study the saving process, you will understand why that first thousand dollars appeared so large in the memory of Marshall Field. He had had a thousand chances to spend it, but he had turned them all down. He had "saved" it. 64 BUSINESS AND THE MAN People are prone to think of saving as an easy nega- tive virtue requiring no great energy or effort. The man who produces, who makes money, is usually thought of as the dynamic force in business and as deserving the most credit for industrial progress and development. The man who saves is often con- temptuously referred to as a "tight-wad." He is not thought of as a doer, but as one who refrains from doing. As a matter of fact, saving is the result of positive qualities and is very hard work. In the United States, indeed, it is much harder to save money than it is to make it. Saving means the firm, the con- stant, the strenuous exercise of the will to forego cer- tain pleasures or satisfactions today in order that your future may be more golden. You must trample ruth- lessly on certain wants now in order that you may gratify them more generously a year or ten years hence. The saving habit is one most difficult to acquire, and like all habits, it is sometimes carried to extremes, producing the miser. Or it is persisted in illogically, as in the case of the old lady, who remarked that she and her husband had "slaved and slaved and saved and saved all our lives in order that we might have something to live on when we came to die." At any rate, no man can get into business with his own capital, unless it has been saved by himself or by his ancestors. If he has no capital of his own and cannot borrow the use of a friend's capital, he can- THE PROFIT PROBLEM 65 not go into business on his own account. He must be an employe. While a vast amount of business is done on bor- rowed capital, yet in almost all cases the borrowed dollar works side by side with a dollar belonging to the proprietor. Experience has proved that it is not safe to lend money to men who have not proved their ability to save money. A young man once asked a well-to-do friend to back him in an attractive business venture. The older man said, "My boy, when you come to me with a thousand dollars of your own money saved out of your income, I will match it." The first difficulty in the business man's path, the necessity for capital and for saving, is usually much underestimated by young men. Listen to the great railroad builder, James J. Hill: If you want to know whether you are destined to be a success or a failure in life, you can easily find out. The test is simple, and it is infallible. Are you able to save money? If not, drop out. You will lose. You may think not, but you will lose as sure as you live. The seed of success is not in you. 4. Nature of competition. — If we analyze any busi- ness, whether a small cigar shop, a large depart- ment store or an automobile factory, we find in each case that the making of profit would be a very simple matter but for the behavior of certain other people. Across the street from our cigar store an- other man fits up a cigar shop more attractive than 66 BUSINESS AND THE MAN ours. He even undersells us on some popular brands and draws away some of our best customers. The automobile manufacturer discovers that other manu- facturers are offering on the market an automobile apparently as good as his at a lower price. The owner of the department store sees his profits begin to decline because many of his customers are learning to patron- ize mail-order houses and are getting goods by parcel post, or perhaps because his large profits of the pre- ceding years have convinced another man that the town is big enough for two department stores. In the foregoing paragraph we have concrete in- stances of what is known as competition, a word de- rived from the Latin and meaning etymologically a "seeking together." Whenever there are two or more men trying to sell the same article in the same market, there we have competition. If there is only one pro- ducer and one salesman, we have monopoly, a word coming from the Greek and meaning "to sell alone.'* It needs no argument to show that a man who is go- ing to succeed in the face of competition must be very wide-awake, for he cannot get trade or hold it long unless he is the best in his line. If the competitor across the street is a closer buyer, a harder worker, a better advertiser or a better salesman our friend will lose his customers and his chance of profit. The law of competition is the survival of the fittest. It seems a brutal law to some people, and it is often held responsible for much deceit and misrepresenta- tion. For example, some critics hold that competition THE PROFIT PROBLEM 67 inevitably leads to food adulteration, shoddy clothing, unsafe tenement and apartment houses. We will not stop to discuss this criticism here. The important point now to note is the fact that competition is in- exorable and compels the business man to do his best or go down. Competition inevitably brings to the top the strongest men who take up business, the men who know the most about the principles of business and are the most skilful and energetic in their ap- plication. That competition has been called the "life of trade" is not at all remarkable. Every man knows by ex- perience how indifferent to his customers' opinions is the average man who enjoys monopoly. Frequently a tradesman's monopoly is due to his location. He is in a small town the trade of which does not tempt a competitor. He lets his stock run low, is frequently out of articles called for, and has no patience with the whims of his customers. In other words, he runs a poor store. Let a competitor enter the field, and signs of life in the first store will quickly begin to appear. 5. Unfair competition. — Not only does our busi- ness man have to compete on equal terms with men like himself — we will assume that he is an honest and an honorable man, anxious to make a profit by render- ing real service to his customers — but also with men who will not "play fair." The man who takes ad- vantage of his customers' ignorance and palms off on them second quality goods as if they were first quality, is no better than a thief. He takes something for 68 BUSINESS AND THE MAN which he gives no equivalent. Such men never achieve great success in business. They are usually found out. And even tho they reform and cease to cheat and misrepresent, people refuse to believe in them. Nevertheless, our real business man must meet much unscrupulous competition and it will give him a lot of annoyance. Some of the enemies of competition, notably the socialists, maintain that it tends to drag business down to the lowest level. The honest business man, they hold, camiot do business honestly, for then he will be undersold, or apparently undersold, by the liars and conscienceless. Undoubtedly there is danger here and many weak men have succumbed to temptation, jus- tifying their moral lapse on the ground of necessity. But anybody familiar with business developments dur- ing the last two generations, especially in the United States, does not doubt that there has been a steady lift- ing of business standards. Almost no other fact con- nected with business has received so much comment in recent years. Unfair competition is undoubtedly one of the foes which an honest business man must overcome. For- tunately it is not the "life of trade" and it leads to the death of the unfair competitor. It is opposed to eco- nomic interest and to moral sentiment and must grow relatively less formidable as buyers become more in- telligent. We will make no attempt here to describe the vari- ous tricks and schemes which are considered unfair THE PROFIT PROBLEM 69 competition. Recent court decisions in cases against alleged monopolies have listed certain practices which are considered unfair, but these are treated more prop- erly in Volume 24 of the Modern Business Text. The purpose of this section is to make the reader see that unfair competition is a real peril in the path of the business man who would play the game honestly. 6. Building an organization. — Let us suppose that a man has control of sufficient capital for the estab- lishment and conduct of a business large enough to permit the reduction of costs to a minimum. His first important task will be the building of an organization. He must find men upon whom he can rely to do the work he wants done. Even tho our business man has had abundant ex- perience and is equipped by training as well as by ability for the management of large affairs, his task of finding competent and trustworthy lieutenants will be a difficult one. He will need men who command large salaries, men of his own type, men who know as much as he himself about this or that side of his busi- ness. Such men are not out of work. They already have positions and are reluctant to give them up to work under a boss of whose temper and character they do not feel certain. Our business man, since he has had experience, doubtless knows many of the best men connected with his line of business and is able to base his selections of men on first hand knowledge. Even then his task is not easy, and he frequently will be unable to get for some important post the man whom 70 BUSINESS AND THE MAN he has decided upon as being the one best fitted for it. Having obtained the best men he can find for the most important positions, those requiring what is usu- ally called executive ability, the task of filling the lower ranks must then be undertaken. Here mistakes are less costly, for the workers bear less responsibility, yet it is most important that even the humblest task be performed properly and on time. The negligence of a shipping clerk may cost the business a valuable cus- tomer, and a bookkeeper's mistake may lead to mis- understandings and recriminations or to an overdraft at the bank. The building of an organization for a business is so important that it ought never to be undertaken by a man who himself has not been trained in the business. A man without experience, no matter how much capi- tal he possesses, should beware of making the experi- ment. To such a man business may seem a very simple and easy matter. Doubtless baseball looks like a very easy game to many of the spectators, and the better the players the easier the game looks. Busi- ness is a much more difficult game than any that is played for sport, and the job of getting together a really efficient business organization requires much more knowledge and judgment than does the build- ing of a champion baseball team. 7. Labor troubles. — Two great cost factors of busi- ness are the salaries and wages paid to employes and the interest on the capital invested. The experienced business man, with the advice and cooperation of his THE PROFIT PROBLEM 71 banker, is able to keep the interest factor fairly well under control. In abnormal times, such as prevailed after the European war broke out in 1914, the rate of interest on capital is subject to unusual fluctuations, but in ordinary times its stability can safely be counted upon. But the cost of labor is never a stable factor and it is one of the problems which give most worry to our manufacturers. In figuring output and prices for the coming season, a manufacturer must estimate the wage cost per unit. A month or two later, after he has closed many contracts for delivery, his men may strike for higher wages, and his plant may be idle during many weeks of futile negotiations with his men. The so-called industrial discontent, which has been the sub- ject of many books and magazine articles, is an im- portant social question, but from our point of view it is a grave business problem, for it makes business more difficult and increases the uncertainty of profit. We will not consider here the reasons why the labor question is of more importance than formerly, nor will we describe the various means that have been adopted to prevent strikes and lockouts. Here it is enough to call attention to the fact that the hiring of labor for business purposes involves a positive and always imminent risk. 1 Doubtless the very size of modern business is largely responsible for it, for em- i In the Modern Business Texts on "Plant Management 1 ' and "Office Management" the reader will find a description of various plans that have heen adopted to produce and preserve harmony and satisfaction among the employes of any industrial concern. 72 BUSINESS AND THE MAN p loves too seldom come into personal contact with their employer. The corporation they are working for seems to them a hard, impersonal, unsympathetic taskmaster. Whatever measures or plans an employer may adopt to hold his men and to keep them satisfied, no effort should be spared to make the men feel that he personally is really interested in their condition and very glad when one of them has earned a promotion. In the case of a corporation this is the duty of the president or general manager, and it would be well if the men could feel that the executive had the cor- dial backing of the entire board of directors. If un- happily some of the directors think only of dividends, they must be kept in the background. Such directors may work infinite mischief to a business. 8. Unforeseen price changes. — Few men realize that the prices of commodities are subject to hidden and incalculable forces. In the long run the prices of most articles tend to keep close to their costs of production, but at times market prices depart widely from costs. The price of any article on any day is explained by the demand in its relation to the supply. If the demand for an article is not a constant quantity, the price is subject to fluctuations. These cannot be foreseen and the business man must therefore be pre- pared for the unexpected. He may be obliged to pay a higher price for his raw materials than he expected, and when he is ready to market his finished product, it may happen that he and his competitors have over- THE PROFIT PROBLEM 73 estimated the demand and will be obliged to sell at prices barely covering the cost of production. The risk of loss thru price changes is least in the case of certain so-called staples, the consumption of which is pretty well known. The grocer, for example, incurs little risk of loss thru changes in the prices of such commodities as flour, salt, sugar, etc. In gen- eral, a business dealing in staples is safer than a busi- ness dealing in so-called "fancies," for the demand for the "fancies" may vanish at any time. Furthermore, the prices of commodities in general depend on the value of gold, the money metal. If the world's stock of gold does not increase in proper amount, the value of gold tends to become greater. That means that the prices of commodities in general will tend downwards. Such a decline of prices often puzzles business men, for most of them do not under- stand the money question and cannot grasp the cause of price-changes. No matter how much thought and study a man in business gives to the subject of prices, nor how keen he is in watching for circumstances that affect them, he is certain every now and then to be caught napping. No business man can hope always to sell his goods at a profit. Sometimes it is a wise policy to let them go at a loss. 9. Perils of advertising. — It is a familiar saying that it pays to advertise. Men tell glibly of fortunes made by advertising wisely, but omit to tell of its enormous wastes. Advertising is such an important 74. BUSINESS AND THE MAN aid to profit-making that it is the subject of two of the Modern Business Texts. For the purpose of this chapter it is sufficient to call attention to the fact that advertising, when done by men ignorant of the prin- ciples, is one of the easiest known ways of throwing away money. It is estimated that over a billion dol- lars is spent every year in the United States in the payment of advertising bills, and experts have said that only about ten per cent of this sum is wisely ex- pended. Money spent on advertising is wasted if it does not add to the prestige and good-will of the ad- vertiser or if it fails to increase the demand for the goods advertised. Much advertising fails to produce either of these results, and sometimes an advertise- ment, because of its objectionable form or content, does positive harm to the business. But in these days almost no business can achieve great success without the aid of advertising. Hence the business man who is seeking a profit must take all the risks involved in advertising. He should, there- fore, be himself familiar with the fundamental prin- ciples of advertising and should know enough to em- ploy good advertising counsel. 10. Bad debts. — Business today is dependent on credit. Seldom does the manufacturer get cash when he delivers goods to the jobber or wholesaler. He re- ceives a promise to pay at a later date, or he keeps the account upon his books with the understanding that payment is to be made on or before a certain date. The wholesaler gives credit to the retailer, and the re- THE PROFIT PROBLEM 75 tailer in his turn gives credit to his customers, sending out monthly bills. This credit system, complicated and hazardous as it seems on the surface, is found so efficient that very few businesses are now run upon a strictly cash basis. The methods of giving credit differ in different countries, but the essential principle is the same everywhere. The sale of merchandise on credit contains possibili- ties of great loss. This the business man must assume and guard against, for his losses will be deducted from his profit. He must be wise in his extension of credit to customers, and exceedingly diligent and tactful in the collection of debts past due. These two functions are so important that most business houses maintain a credit and collection department under the manage- ment of well-trained specialists. This subject is fully treated in the Modern Business Text on "Credit and the Credit Man." The salesman is often looked upon as the most im- portant servant of a business concern; he finds the cus- tomer and sells the goods. But his work will be in vain if he has not the guidance of a wise credit man. If despite all precautions a mistake is made, the col- lection department must prove its worth. Con- scientious salesmen, guided by an alert credit man, reduce the worries of the collection department to a minimum. 11. Unwise laws. — In the United States, and per- haps to a lesser extent in other civilized countries, laws have been passed which needlessly hamper the business 1—7 * 76 BUSINESS AND THE MAN man's activities. From a business point of view it is a misfortune that most of the members of our legisla- tures and of Congress have been trained for the law and have had no experience in business. This condition is undoubtedly responsible for the fact that business and the law are frequently out of adjustment. For example, the Federal Anti-Trust Act of 1890 was the outcome of popular antipathy to monopoly. When this law was passed it aroused little or no crit- icism, and many prominent lawyers declared it to be an excellent statute. Yet in the next twenty years it received various interpretations in the courts, and so uncertain were lawyers and business men of its real meaning that many important and desirable business enterprises were halted. It undoubtedly greatly lessened the profits of American enterprise. The law has been supplemented by additional legislation in the hope that the growth of monopoly may be checked without any check to the development of legitimate business and industry. A concrete instance of what many good business men consider an evil effect of the Anti-Trust Act is illustrated by the controversy over "price mainte- nance." Certain manufacturers of articles for which they have created a wide demand thru advertising have insisted upon fixing the price at which the re- tailer shall sell, and have refused to sell to dealers who would not conform to such an arrangement. Some retailers protested and invoked the aid of the THE PROFIT PROBLEM 77 law, holding that the "price maintenance" policy was monopolistic in character. The lack of uniformity in the legislation of different states with respect to important business matters, such as bills of lading and the rights and liabilities of cor- poration stockholders, is a source of annoyance to business men in the United States. The American Bar Association deserves credit for its determined effort to correct this evil. The lawyer is the only member of the community who profits by the situation. The prudent business man, before undertaking a new venture or entering into any new "deal," feels obliged to lay the entire matter before his attorney and to delay action until he has a favorable opinion. The numerous legal obstacles which lie in the path of successful business lessen the profits of business and increase the fees of the lawyer. Here is one reason why the legal profes- sion gets a much greater revenue from business than it does from all other sources, and why young men preparing for the law are generally advised to special- ize as much as possible in business subjects in their undergraduate work in college. 12. Climatic uncertainties. — Some articles are in pretty constant demand thruout the year regardless of the weather or of the seasons, but for many articles the demand depends very much upon climatic con- ditions. A late spring followed by an unusually colcj summer causes loss to dealers in light summer cloth* 78 BUSINESS AND THE MAN ing; the dealer in Panama and straw hats may find the hulk of his eapital locked up for a year, and the manu- facturers may find in many cases that collections are impossible; summer resorts do not get their expected patronage. In the same way an unusually mild win- ter lessens profits in furs and in heavy winter clothing, notwithstanding the fact that by a freak of fashion women sometimes wear furs in summer. It goes without saying that climatic conditions have great bearing upon the farmer's crops. Too much rain in one month or too little in another may lessen the yield of corn or of wheat or of cotton, and cause an abnormal advance of the price. In the same way, many of the raw materials of the manufacturer are exposed to price fluctuations due to the uncertainties of our climate- These are risks which the business man, whether he be a trader or a manufacturer, must assume. They are a real and constant menace to his profit. 13. Changes in fashions and fads. — New human wants are constantly appearing. Women take de- light in new kinds of apparel and men are always seek- ing new means of amusement. The bicycle gave way to the motorcycle and the automobile, and the latter 's supremacy promises to be soon brought into question by the airplane and the dirigible. A wave of interest in food values may sweep over the country and cause a change in the dietary of millions of people and thus affect the sales and profits of many dealers in food products. THE PROFIT PROBLEM 79 Many changes in demand are so gradual that busi- ness men are able to make adjustments without loss. But others are so sudden and sweeping that some houses are caught loaded with goods that cannot be sold at a profit. Manufacturers of articles, the de- mand for which depends upon the permanence of a prevailing fashion or fad, are not considered desirable risks by bankers, for their assets are liable to sudden shrinkage at any time. Naturally, men engaged in any business which locks up capital in goods likely to lose their value because of a shifting fashion or caprice, must make a larger profit on their turnover than dealers in staples or things for which the demand is fairly constant. Only the prospect of a large profit will tempt one into a business in which the risks are above the average. 14. Brains and will-power. — Our survey of the obstacles that lie in the way of profit-making suggests a revision of the older economist's formula to the effect that wealth is the product of land, labor and capital. The economist includes under labor the man whose work we have just been describing, namely, the busi- ness man who is aiming to make a profit at the risk of loss. In recent books on economics he is called the entrepreneur or enterpriser. He is the mainspring of all business and industry. Without his fearless, intel- ligent and determined effort, capital would be idle, land unutilized, and labor unemployed. However, because of the fact that the word laborer is usually applied to men who work for wages and is 80 BUSINESS AND THE MAN not held to include those who assume business risks, it would seem desirable to add a fourth factor of pro- duction to the economist's scientific formula, and that fourth factor must manifestly be "brains." Unless the labor and capital are directed wisely by intelli- gence, and unless the cultivation of land is ruled by intelligence, there can evidently be little wealth pro- duced. This is certainly true under our modern com- petitive system of business and industry, and it would still be true even tho the competition were abolished and all business and industry were taken over by the state. To win their case the socialists must prove that the management of the country's business and in- dustry in the hands of men selected by the people would be more intelligent and efficient than it now is in the hands of men who have proved their right to command by their triumph in the hard struggle of modern business. As I have already said, competi- tion leads to the survival of the fittest, and this means in plain English that the great businesses and indus- tries of the United States are now managed by the men best fitted for the work. They have played the game hard and sometimes too roughly, but there can be no question about their right to leadership. REVIEW Distinguish between money and capital. Give an illustration of this distinction. What do you understand by competition; by monopoly? How would you, if in business, meet competition? How would you go about building up an organization for a business? THE PROFIT PROBLEM 81 In the long run, prices keep close to production costs but at times market prices vary widely. Why? In what ways do climatic conditions and fads affect demand for many commodities ? What are the three factors of wealth, according to the econ- omist? Under which factor would you place the business man? What other factor could you add to this list? CHAPTER III ECONOMICS AND SOCIOLOGY 1. Custom or group habits. — Just as an individual forms the habit of acting in a particular way under given conditions, so a group of people living in the same environment and subject to identical laws fall into the habit of doing things in the same way. In the country, for example, people eat dinner at midday ; in the city they usually dine in the evening. In the United States people are in the habit of eating three times a day, while in some European countries they eat five times a day. When groups of people have the same habits, these habits are called customs. It is important that the business man know some- thing about the origin and cause of custom. Society is a network of customs. Unconsciously people are slaves of custom just as the individual is often the slave of habit. Hence the business man must take custom into account, both in the manufacturing and marketing of his goods. 2. Aim of sociology. — During the last century scientific men have begun to recognize the importance of those group actions which are called customs and have made careful study of their nature, gradually reducing the fruits of their studies and investigations into that systematic form which is essential to science. 82 ECONOMICS AND SOCIOLOGY 83 Thus has developed the new science which is called sociology. Its aim is to explain the conduct of men when acting in groups. It differs, therefore, from psychology, which is concerned only with the con- duct of the individual. Many customs have a psychological origin, owing their existence mainly to the satisfaction they give to the individuals constituting a group. The study of such customs is sometimes called sociological psy- chology. Sociology is evidently a very broad science. The word comes from a Latin word, socius (companion) and a Greek word logos (science) ; so etymologically it means the science of companionship or society. Its business is to explain a great multitude of phenomena arising out of human relationships. All human in- stitutions, such as the school, the university, the church, marriage, divorce, the poor houses, the asylums, the charitable organizations and the prisons, fall within the scope of sociology. What are the causes of these and other institutions? What forces have made them ? How can they be improved ? The sociologist is concerned with questions of this sort. Naturally, the field being so broad and the problems so numerous, no single man can hope to solve them all. Hence we have specialists in sociology, some devoting themselves to the theory or general principles of the science, others to the intensive study of par- ticular customs or institutions. Sociology is of importance to the business man, for 84 BUSINESS AND THE MAN business institutions and customs are among the sub- jects of its investigation. The Trade Union, for ex- ample, is an institution possessing interest to the sociologist as well as to the economist. In the Modern Business Text no volume is de- voted specifically to the science of sociology, yet thru- out them all a subscriber will find many conclusions which are based upon the investigations of that science. 3. Socialism not sociology. — Sociology must not be confused with socialism. The latter is not a science at all, but the dream of a new social state in which there shall be no poverty or want. The sociologist seeks first to find the causes of existing social institu- tions and thus be able to point out the ways of better- ment; the socialist, instead of making a scientific study of existing institutions, assumes that certain of them are evil and should be entirely abolished by law. The socialist believes in the abolition of the private owner- ship of capital, that the country's great machinery of production and distribution, its railroads and factories and shops, should be owned by the state, and that all men would then have employment. The sociologist is concerned with the causes of unemployment and with any evil influences affecting the conditions under which men live and work. He knows that he cannot prescribe a remedy for any ill until he has found its cause. 4. Aim of economics. — The science of business is the subject of Volume 2 of the Modern Business Text and is generally known as economics or political econ- ECONOMICS AND SOCIOLOGY 85 omy. In this chapter we need consider only its pur- pose and scope and the importance of its study in re- lation to human welfare and business prosperity. It is the aim of economics to explain the phenomena of business. It sets forth the laws governing prices, values, wages, rent, interest. In other words, it seeks to explain the production and consumption of wealth; by wealth being meant anything that has value and is, therefore, marketable. Economics is the business man's science. It is the one above all others that he should master, for it treats of things which are part of his daily life. He must be familiar with the laws which determine the prices at which he sells his goods and the rates of wages which he must pay for labor ; otherwise he works in the dark and will not be able to foresee changes. 5. The reformer. — It must be borne in mind that the economist as a man of science is especially con- cerned about the causes of existing phenomena. He looks for the principles underlying economic condi- tions and business events of today. Having found these he may then go further and become an economic or social reformer, showing how business conditions might be changed for the better. The man who is merely an economist is not qualified to serve society as a reformer. The moment he proposes changes he is invading the domain of sociology, for there can be no change in our economic system which does not run counter to custom and involve social consequences. For example, free trade and protection do not con- 86 BUSINESS AND THE MAN stitute a purely economic question. It is an issue that cannot be settled rightly if certain social, ethical and political considerations are left out of account. It is quite possible that an economist who had upheld the economic advantages of free trade would, if he as- sumed the responsibilities of statesmanship, become an ardent protectionist. He would, of course, be ac- cused of inconsistency, whereas the truth might be that in his position as statesman he had discovered that for his country there existed in favor of a protective tariff certain broad considerations which he had not taken into account as an economist. 6. Mercantilists. — It is interesting and profitable to note the influence of environment upon economic thought. Among the ancient Greeks and Romans there was no such science as economics. No philoso- pher in those days gave any thought to the phenomena of what we call business. The reason is found in their ideals and environment. They loved the arts, litera- ture, sports, war. Slaves supplied them jvith the necessaries, comforts and luxuries of life. Business to them was of small consequence. Its transactions, therefore, received no attention from philosophers. They did not seem to deserve the notice of wise men. In the Middle Ages, however, after the downfall of the Roman Empire, men lived under an entirely dif- ferent environment. The freemen of the feudal age declined to work in the gold and silver mines of Europe, as slaves had been compelled to do in the ECONOMICS AND SOCIOLOGY 87 earlier ages. Since the conquering legions of Rome brought no more of the precious metals into Europe, and as the church absorbed large quantities of them for the purposes of ornamentation, they became grad- ually scarcer and scarcer during the Middle Ages and greatly increased in value. Rulers found it difficult to keep within their kingdoms an adequate supply of the precious metals and numerous laws were passed for the prevention of their export, it being often made a capital offense. As a result of this condition men got into the habit of thinking of gold and silver as being the most im- portant commodities in the world, and toward the end of the Middle Ages publicists and scholars began to write books and pamphlets on the subject, their gen- eral aim being to show how a nation or a city might best increase and conserve its store of the precious metals. There grew up an overwhelming sentiment in favor of a tariff on imports. A nation's exports should be large and its imports small in order that there might be a so-called "favorable" balance of trade which must be paid in gold or silver. These first pro- tectionists, it should be noted, had not in mind the building up of home industries, but the enlargement of their country's stock of precious metals. They were not known at the time as economists, but histori- ans now group them together as the first school of political economy and call them the "Mercantilists" because of their faith in the value of trade. 7. Physiocrats. — In the sixteenth and seventeenth 88 BUSINESS AND THE MAN centuries, as a result of the inflow of gold and silver from America, these metals greatly declined in value, causing a great rise of prices in Europe. Adam Smith in his "Wealth of Nations" estimates that the general level of prices rose some three hundred per cent during the seventeenth century. Since many wages and salaries did not rise in proportion and since the purchasing power of annuities and pensions had declined, there was great suffering in Europe among many different classes. No longer were gold and silver regarded as the most important commodities. These metals existed in abundance, yet there was great misery and discontent. This condition had its effect upon economic thought and produced a group of writers, most of them living in France, who took issue with the conclusions of the Mercantilists and argued that agriculture, not trade, was the important pursuit of man. The source of wealth, they held, lay in Mother Earth, and a nation which sought to increase its wealth must encourage its people to till the soil and develop its natural re- sources. Historians called this group of writers "Physiocrats" (from two Greek words physis, na- ture, hratein, to rule) . 8. English Classical School. — The next change in the character of economic thinking was brought about by Adam Smith, a Scotch professor of natural phi- losophy. In "The Wealth of Nations," published in 1776, he exposed the crude fallacies of the Mercantil- ists and pointed out the economic advantages of com- ECONOMICS AND SOCIOLOGY 89 petition and free trade, combating the Physiocratic doctrines in favor of governmental interference with trade and industry. The keynote of his book is found in the phrase "laissez faire," let things alone, let not the law inter- fere with the business man, let competition bring the best man to the top. The people of each country should devote themselves to those pursuits for which it and they are best fitted. Adam Smith's book made a sensation in Europe and was the Bible of English economists for one hundred years. The last great expounder and advocate of its principles was John Stuart Mill, an English philosopher who published a treatise on political economy about 1845. The Eng- lish economists who followed Adam Smith are gener- ally recognized as the ablest group of men who have written upon the science and are now generally re- ferred to as the English Classical School of political economy. The English economists have been criticized as re- lying too much on the mode of reasoning known as deductive or a priori, or as being pure theorists who knew little about the facts of business. Modern economists, while recognizing the value of the deduc- tive method, are seeking to make political economy the science of business as actually done today. In- stead of reasoning as to how business men would be- have under certain hypothetical conditions, they are studying the conditions and problems which do actually confront the business man in his office. 90 BUSINESS AND THE MAN 9. Significance of human wants. — All the actions of men are prompted by their wants or desires. If the wants of the people are few, their activities will be few and their lives simple and comparatively easy to understand. As their wants increase in number their activities become more complex and more difficult of comprehension. The psychologist studies the peculiarities of wants as manifested in the individual and draws conclusions which are of interest to both the economist and the sociologist. He learns, for example, that there is practically no limit to the wants of which an ordinary human being is capable, a man in this respect being entirely different from the beasts. Second, he finds that the wants of different men differ greatly, one caring nothing at all for what another wants very much. Third, he learns that a man's desire for any- thing tends to decrease somewhat in proportion to the abundance of it in his possession ; that a man, for ex- ample, who has three fountain pens will not worry much if he loses one, for he does not want nor need it. To the economist and to the business man since they are especially concerned about the production and sale of commodities, these three peculiarities of human wants are of great interest. The fact that human wants are capable of indefinite increase in number re- veals the almost infinite possibilities of business and industry. It stimulates the imagination of the in- ventor and gives incentive to the enterprising manu- facturer and merchant, who have confidence in their ECONOMICS AND SOCIOLOGY 91 ability to market new qualities or new kinds of goods. The fact that a want lessens in intensity when grati- fied, finally reaching the point of satiety, is found by the economist to be the psychological basis of the well- known law of demand and supply, as is explained in Volume 2 of the Modern Business Texts. When a business man understands these peculiari- ties of human wants, he gets a new idea of the real meaning of overproduction. A particular industry may turn out more goods than people want at the price which covers their cost of production, but men will never produce goods in excess of human wants if production is properly adjusted to the variety of those wants. An overproduction of shoes is tanta- mount to the underproduction of certain other things. 10. Sociology and consumption. — The sociologist is more interested in the consumption of wealth than in its production, for social institutions and customs depend very much on the way people spend their money; on the number and character of wants they gratify. The moralist regards money as the root of all evil; the economist thinks of it as the end and aim of business ; the sociologist regards it as the source of all that is good in material civilization. The sociolo- gist sees in the human desire for wealth one of the principal springs to human action. He has learned from the study of various peoples that those who want little do little and are anemic and inefficient. The "wantlessness of the poor" is well known to every social worker. Give the poor man new wants, 1—8 98 BUSINESS AND THE MAN says the sociologist, and you will give him ambition that will lift him out of poverty. Life indeed would be simpler if we could all model ourselves after Di- ogenes, that old Greek philosopher, to whom Alex- ander, the world conqueror, offered to grant any favor he might ask. "Please stand out of the sun" was all that Diogenes wanted him to do. It is re- ported of Diogenes that he lived in a tub and that he aimed to reduce his wants to a minimum, having, for example, thrown away his wooden cup when he chanced to see somebody else drinking out of the palm of his hand. If human beings were all like Diogenes the problems of sociology and economics would not exist, nor any of the remarkable institutions of mod- ern society. "Every want," said Daniel Webster, "not a low one, physical as well as moral, which the human heart feels that brutes cannot do or feel, raises man by so much in the scale of existence." Social and industrial progress is impossible in any community or country where the natural wants of men are stifled in their development. In India, under the influence of the doctrines of Brahma the people were divided into castes, a system which, tho consid- erably modified, still exists. In the artificial social system thus created men had no hope of rising from one caste to a higher; each had to be satisfied with the state in which he found himself. Under such condi- tions the development of a fine civilization was impos- sible. Sociologists are interested in the consumption of ECONOMICS AND SOCIOLOGY 93 wealth because of the bearing it has on social welfare. Take, for example, the drinking of alcohol. To the economist, alcoholic beverages constitute wealth quite as much as wool, leather, or gold. He is interested in its cost of production and in its price, in the de- mand for it and supply of it. And all these matters are of interest to the business man. The sociologist is especially concerned about the effect which the con- sumption of liquor has upon a community. He finds that excessive consumption of it tends to fill the jails and almshouses and lessen the productive powers of the community. Hence he says to the business man, "If you wish to protect business from harm and con- serve the buying power of the people on whom you depend, you must regulate this industry." In the United States it is easier to earn money than it is to spend it wisely. The right consumption of wealth, the proper coordination of our wants and their satisfactions, are matters upon which the welfare of society depends. Thus far science has given too little attention to the problems involved in the consumption of wealth. They concern business men quite as much as they do economists and sociologists. 11. Poverty and incompetence. — The economist is interested in the cause of poverty and he finds it as a rule in the inefficiency of the poor, in their lack of productive power, in their ignorance, in their inability or unwillingness to perform any valuable service for society. The sociologist thinks most of the social institutions made necessary by the poor. He dis- 04 BUSINESS AND THE MAN covers among paupers great numbers of defectives, delinquents and criminals, and puzzles over the prob- lem of their treatment. In a properly organized society there should be no defectives, delinquents or paupers; the ultimate aim of both economics and sociology is their elimination. They are consumers of wealth, but not producers. They are a drag upon business. Here is a task which the conscientious business man must not shirk. He must endeavor gradually to bring about such a reconstruction of so- ciety that poverty and its attendant evils shall not exist, and in this work he must look for aid and guid- ance to the sociologist as well as to the economist. It is easy to make mistakes in our treatment of the socially unfit. A good illustration is furnished by the prejudice that prevails with regard to the products of convict labor. It is admitted that the inmates of penitentiaries ought to be made to work, but the prod- ucts of their labor, it is held, should not be sold in the general markets, for that would lessen the de- mand for honest labor. This prejudice is economi- cally unsound. The production of goods by con- victs, if encouraged and wisely directed, would be beneficial from every point of view; it would not lessen the earnings of honest laboring men by a dollar. 12. National efficiency. — Few business men realize how much of their prosperity they owe to certain social conditions and institutions which seem to have no relation whatever to business. Conspicuous among such institutions are the school and the church. The ECONOMICS AND SOCIOLOGY 95 one makes for intelligence, the other for honesty and clean living. Without their influence no nation could realize any high ideal of efficiency. Least of all can the discipline and training of the family life be over- looked. Whatever makes for solidity and strength of character contributes to the business success of a people. In a country lacking a system of general education, or of moral training such as it is the aim of the church to give, business men would be seriously handicapped by the poor and untrustworthy quality of their em- ployes. A great executive can accomplish little if he is surrounded by men who do not understand his plans. He needs wise subordinates upon whom he can depend just as a great general needs good soldiers. Self-interest as well as patriotism demands, there- fore, that the business man help to foster all social institutions which increase the efficiency and strengthen the character of the average citizen. Upon that efficiency and character the continuance and growth of a nation's material prosperity abso- lutely depend, and that is a matter of vital concern to every business man. As Mr. Vanderlip has elo- quently said in a recent address : There are times in the world which call men away from their personal and immediate interests. There are periods that compel them to think together of fundamental things. Surely the present is such a time. It seems almost idle to discuss the working of banking statutes when we can discern, even tho dimly, the working of great laws in the statute book of human nature and society, whose action is so funda- 96 BUSINESS AND THE MAN mental and important as to make our men-made laws and their workings seem inconsequential in comparison. We are in a time when it is of the utmost importance that we think socially and fundamentally. These are not days when we can give our thoughts exclusively to our business, to our im- mediate affairs. They are days that demand that we think nationally and internationally rather than individually or as a business class. We are confronted by an insistent need for comprehending fundamentals. 13. Inflexibility of custom. — It is of practical im- portance that business men know enough about soci- ology to understand the rigidity and inflexibility of custom. When a people once get into the habit of doing a certain thing in a certain way, the business man who runs counter to that custom will get into trouble. As we all know, it is exceedingly difficult to correct a bad personal habit, it seems part of our nature. But customs are changed with much greater difficult) 7- than habits. They are reenforced personal habits. Each individual member of a community clings to an old custom with tenacity not only for the reason that it is a habit with him, but also because it has the complete approval of his associates. The cus- tom may be absurd, illogical, uneconomic, but you can- not uproot it merely by exposing its absurdity and wastefulness. It will yield to change very gradually, and for a time those who make improvements will be sneered at as queer, not practical. The American people, for example, have long railed at the custom of tipping the Pullman car porter, but only women are brave enough to violate the custom. ECONOMICS AND SOCIOLOGY 97 New Yorkers write letters to the newspapers con- demning the custom requiring the checking of coats and hats at restaurants, but if they dine at a restau- rant the next day they meekly hand the hat-boy his tip. The law itself is often powerless to change a busi- ness custom. The new Federal Reserve Banking Law which is described in the Modern Business Text on "Banking" was designed to bring about a change in certain credit customs in the United States. In Europe buyers of goods get credit by means of what is called the bill of exchange, a credit instrument much more useful and flexible than the promissory note which is in common use in the United States, but the bill of exchange is the product of a custom new in the United States ; it is the result of the creditor drawing on the debtor, the latter accepting the draft. It re- mains to be seen whether the business men of the United States will avail themselves of the opportunity offered by the new law and adopt this European custom. Custom owes its inflexibility largely to the human passion for imitation. In this respect man can cer- tainly claim some kinship to the ape. Our imitation of others is sometimes the result of our desire for their approbation, but usually it is unconscious and in- stinctive, and it takes more than a sermon or a lecture to convince a man that his subordinance to any foolish custom is evidence of weakness. The business man must bear in mind that the customs of a country or of 98 BUSINESS AND THE MAN a community are part of its second nature. He must not ignore or ridicule them, and if he seeks to eradicate them he must he content with slow progress. REVIEW Distinguish between sociology and economics. What are the underlying reasons for the prominence given certain doctrines by the Mercantilist, Physiocratic, and Classical Schools of economists? What concern has the business man with such questions as the temperance movement, the juvenile court, prison labor, tenement dwellings and the like? Name some cases in which social custom affects men's ways of doing business. Will business find it more profitable to seek to change custom, or to adapt itself to custom? CHAPTER IV PSYCHOLOGY 1. The human equation. — Psychology aims to ex- plain our states of mind or consciousness — our sensa- tions, emotions, desires, ideas, volitions, etc. Psychol- ogy is a natural science, involving the study of the body as well as of our mental states. Every state of consciousness is the reflex of some physical activity in the brain or nervous system and is usually followed by bodily activity of some kind. Since business is essentially cooperative in its na- ture, a man's mind being constantly brought into con- tact with the minds of others, a business man uncon- sciously becomes a psychologist, but not always a good one. It is worth our while, therefore, to give a little systematic thought to this interesting science. The manager must consider the worker as well as the work ; the advertiser must know human motives as well as type faces ; in short, the business man must recognize the human equation, must study how to solve it. 2. Nervous system. — The many formidable the- ories about the mind with their fine spun distinctions, have often left men impatient with psychology. But the essential principles are simple and easily put into practice. Let us sweep away whatever fantastic or 99 100 BUSINESS AND THE MAN metaphysical notions we may have about the thought world and focus our attention upon the nervous .system. The nervous system consists of four parts — cere- brum, cerebellum, medulla oblongata, and nerves — all intimately bound together, yet each with its distinctive functions. As the reader studies these functions the similarity between the nervous system and a business organization cannot fail to impress him. 3. Nerve ganglia. — The nerves thru the organs of sight, taste, smell, feeling and hearing, receive the first impressions, or sensations as they are called, from the outside. These nerves may be compared to the tele- phone and telegraph wires, the railroads and the mails which keep a business organization in touch with its markets. But some of these impressions or sensations do not travel very far along the nerves toward head- quarters before they meet a little nerve knot, or gan- glion, which passes upon their message. If it is of routine sort merely, the ganglion decides the matter itself, just as an office boy might under similar cir- cumstances. A message of higher sort gets on by the ganglion and quickly reaches the medulla oblongata. 4. Medulla oblongata. — The medulla oblongata rests at the top of the spinal cord, as a sort of clearing house for automatic and semi-automatic actions. While it is of higher rank than the myriad ganglia, its functions are very much the same. The medulla might be called the chief of the routine department. Certain messages and orders are too PSYCHOLOGY 101 important for it to dispatch, of course, and these are passed on to the cerebellum. 5. Cerebellum. — The cerebellum is the "little brain" lying just above the medulla, yet still far back and low in the brain case or skull. It has charge of the voluntary muscles, that is, over those which oper- ate under the direction of our will. The beating of the heart goes on whether we think of it or not, but were we to draw a caricature of a friend, the cere- bellum would direct the muscles. In general, the cerebellum might be called the seat of the action de- partment. 6. Cerebrum. — The cerebrum crowns the nervous system both in size and function. Practically the en- tire brain case is filled by it. Just as the most impor- tant messages and orders come finally to the general manager, the main business of the mind, its general policies, so to speak, are here transacted. 7. Habits, good and bad. — These four parts of the nervous system are composed of tiny, plastic cells, striking one another and rebounding as a message flies from cell to cell. The first time the message is sent, as, for instance, walking down the stairs of our new home to the dinner table, so great is the difficulty encountered that the general manager himself must take a hand in directing the muscles, and even at that we may perchance stumble at the last stair. 15i.it the brain cells under repetition shape themselves into a less and less plastic order, until finally a habit is formed. The clock points to seven-thirty, the cere- 102 BUSINESS AND THE MAN helium incites the medulla to effort and aided by the ganglia, we reach the table with the general manager (the cerebrum) still undisturbed, putting the finish- ing touches on "what to do tomorrow." Evidently, there may be good as well as bad habits. Every useful action possible, such as ways of dress- ing, eating, working, in short all the details of exist- ence, should be made automatic and habitual. They can then be turned over to the lower nervous centers for attention, leaving the general manager unfettered to transact the real business of life. The nervous system is designed for this very purpose and the man who would be efficient takes advantage of its wonder- fully simple yet adequate organization. 8. Operating the mental machine. — The business man would have the men who buy from him or work for him, as responsive to his touch as a motor car or a locomotive under the engineer's hand. To a certain extent this is entirely possible. . The average man has plenty of energy within him which awaits the call of the man able to release it — brain cells and muscle cells in unstable equilibrium are like powder awaiting the match. To appreciate what possibilities here await the man able to operate mental machinery, one need only con- sider that galvanic power applied to the nerve of a frog's leg produces energy 70,000 times greater than the original stimulus. The procedure itself is pretty well comprehended in three words, motive, appeal and response. By mo- PSYCHOLOGY 103 tive is meant that which impels men to act ; as, for ex- ample, when the desire for a home or for clothing and food impels the workman to lay bricks. Appeal is the means by which a motive may effectively be incited. If, for example, the manager wants to arouse a par- ticular motive, such as curiosity or gratitude, he makes an appeal, that is, he invites, or argues, etc. By re- sponse is meant the reaction on the part of the other person, whether favorable or unfavorable, to the ap- peal which has been made to him. 9. Appeals to the instincts. — Classified broadly, appeals are directed either to the reason or to the in- stincts. The instinctive appeal is addressed to the lower parts of the brain, those which control our habits and all our routine conduct. If a man is hungry and food is placed before him, he instinctively seizes a knife and fork. In the presence of danger a man instinctively seeks a place of security. It is a human instinct to protect one's wife, children and friends from harm. It is instinctive, also, to continue doing whatever one has been accustomed to do. Many of life's most important customs are instinc- tive and non-rational. A man who seeks to make us act counter to these instincts has a difficult task. If he wishes to win us, he must by all means be careful not to begin by rousing instincts which are hostile to his desire. If an art critic should be tactless enough to mention the physical blemishes of a friend's sweet- heart or mother, his friend would not be at all con- vinced. Possibly "Old Glory" is not the most artistic 104. BUSINESS AND THE MAN national Hag in existence, but every real American believes it is and does not care to reason about it. "You want a tie to match this new coat," suggests the salesman with conviction, and our lower brain centers, habit-bound and greedy, urge us over toward the stock of neckwear. The appeal to instinct is sometimes called the hu- man interest appeal. Sometimes it is known as "sug- gestion/' Men are sometimes persuaded to act with- out the slightest suspicion that they are not acting entirely upon their own initiative. Instinctively we love the approbation of others; so almost uncon- sciously we become imitators and seek to mend our manners and improve our speech when we are with people whose training and environment have been finer than ours. 10. Making use of reason. — Reason is the com- mander-in-chief of our mental forces and may at any time countermand the orders issued by the instincts. When the price of a new necktie is telegraphed to the brain, the reason may take note of it and thwart the salesman's appeal to instinct unless he is able to prove that the high price is abundantly justified. Occasions often arise when the reason appeal alone can be used ; for example if a concern wishes to estab- lish a line of credit at a bank, it must convince the banker of the value of its assets and of the certainty of its income. Banks do not loan money on sentiment. On the contrary, a banker is instinctively suspicious when a man applies for a loan on the ground of PSYCHOLOGY 105 friendship or because they are members of the same church or secret society. Frequently the instinct and reason appeal can be made to work together to the same end. Dealers in" farms and country estates understand this fact and make skilful use of both appeals in their advertise- ments. They picture what seems to be an ideal country home which is to be sold at a most reasonable price, because the owner is a recent widow and is com- pelled to sell. When a would-be buyer rushes out eagerly to snap up the bargain, he is usually disap- pointed. The advertisement may have told nothing untrue, yet it did not tell all the truth ; it was designed to arouse his instinct for a country home. 11. Choice of appeals. — When should we use the appeal to reason and when the appeal to instinct? We cannot answer that question unless we know the kind of person with whom we are dealing and just what we want him to do. Furthermore, is the transaction one that requires mental analysis and deliberation? A man who is placing on the market a new article, one satisfying a want hitherto unsatisfied, must appeal to the reason of people. He must make it clear that his article will give satisfaction or relieve them of much discomfort which they in the past have been obliged to endure. If he is offering a new office appliance for $100 which will do the work of two clerks whose wages are at least eight dollars a week, he should use pencil and paper and absolutely convince the judgment of the pros- 106 BUSINESS AND THE MAN jKvtive buyer, but if he is offering something which co i Kerns the comforts of home or the health and well- being of children, he will find the instinctive appeal most effective. Most business men underestimate the value and im- portance of the instinctive appeal. In the upbuild- ing of an efficient business organization, one full of "ginger," loyalty and enthusiasm, the instinctive ap- peal is worth a hundred times more than any cold calculation with regard to the grading of salaries. Many houses give prizes each month to those em- ployes who make the best suggestions for the improve- ment of their business. To the employe the honor of winning the prize is of much more consequence than the number of dollars. 12. Suiting appeal to person. — A good salesman unconsciously considers the character of the person he is addressing. Is he reserved, self-centered, his eyes partly closed, his face showing hard lines, his lower jaw prominent and firm? Then the wise salesman gets down to business at once, cracking no jokes and attempting no familiarities. When dealing with a man who has a habit of insisting upon evidence of merit, that habit must be respected. His reason must be convinced. However, people who are controlled entirely by reason are the exceptions in this world. Reasoning is work which most men like to avoid. To be sure, men like to be told that they are reasonable. That bit of flattery puts them in a comfortable state PSYCHOLOGY 107 of mind, in which they the more easily surrender to an instinctive appeal. Men are a good deal like chil- dren — bundles of habits and instincts. Appeal to their reason often leaves them unmoved, while a subtle ap- peal to their emotions, prejudices or ambitions often drives them into conduct utterly irrational. 13. Traits in common. — It is well to bear in mind that men resemble one another more in their instincts than in their reason. People living in the same en- vironment naturally fall into the same habits and cus- toms and acquire common views on many subjects, but in intellectual power the individuals of a com- munity differ greatly. At a theater the downfall of the villain and the rescue of the heroine get equal applause from the boxes and the gallery, but at a lecture on some ab- stract topic there is no applause because there is no common response ; perhaps only a few of the audience understand and appreciate all that is said, and it may be that not a single hearer is in agreement with all the speaker's arguments. A man who would appeal to all sorts and condi- tions of men must stir their common instincts and emotions. This fact is well understood by dema- gogues and successful stump speakers in political campaigns. 14. One's own personalit?/. — A man must take into account his own personality in deciding upon the char- acter of appeal he shall make. Personality is such an important matter that I have deemed it worthy of 1—9 108 BUSINESS AND THE MAN a chapter in this book. A man of unattractive per- sonality can often accomplish more by writing a letter than by a personal visit. Other men have such a compelling personality that they win us almost in spite of ourselves. Said the rough General Van- damme of Napoleon : That devil of a man exercises a fascination over me I cannot explain even to myself, and in such a degree that, tho I fear neither God nor devil, when I am in his pres- ence, I am ready to tremble like a child and he could make me go thru the eye of a needle or throw myself into a fire. A timid, sensitive man should not attempt to domi- nate others or to control them thru fear; he can win others over to his policy only thru patient and tactful suggestion. Some successful managers are as silent as the sphinx, their immobile faces arousing fear as well as curiosity. Others are genial and friendly, winning the hearts of their employes. Still others reason everything out with great care and accuracy and delight in graphic charts for the instruction of their men. It is certainly wise for a man to know the type of his personality and to direct his conduct in conformity with it. 15. A j) peal in relation to action. — While the in- stincts and the reason both impel us to action, it is im- portant to note that the instincts are much the swifter in action. It takes time to analyze a proposition, to scrutinize arguments and to weigh facts and condi- tions to the satisfaction of the reason. Hence if im- mediate action is wanted, the instincts must be ap- PSYCHOLOGY 109 pealed to. Religious revivals, financial panics, foot- ball games, lynching mobs, all show how the conta- gious instinctive appeal is able to make them outdo themselves in acts, both good and bad. But the effects of the instinctive appeal are not al- ways lasting, for they not always stand the test of reason. Reason works slowly and painfully, but it carries a man safely along a straight road and he has no thought of turning back. 16. Attention. — The mind of a man refuses to pay heed or to give thought to anything in which it is not interested. If you wish to capture a man's mind, you must first of all get his attention, and you cannot do that unless you stir his interest. You must make him feel that your message is one of great interest to him, one of importance to his welfare, something that he cannot afford to miss. He is more interested in himself than in ariybody else. Hence you must appeal to his self-interest if you wish him to attend to you. If he has had experience, you cannot capture him with commonplace phrases or with form letters. The commonplaces he does not hear, the letters he throws into his wastebasket. To capture him you must use a new phrase or write a new letter. The mind does not easily give long and concentrated attention to any topic. Men are very much the slaves of memory and imagination and like best to wander away from the business immediately in hand. It is difficult for most men to understand how Archimedes could have been so absorbed in his mathematics as not 110 BUSINESS AND THE MAN to know that the City of Syracuse was falling, or how Horace Greeley could sit on a Broadway doorstep and write a masterful editorial for the Tribune. That is because the average man, not being absorbed in any one interest, cannot shut his ears and be deaf to the jargon of sounds in his environment. Yet this fac- ulty of attention and concentration is one that the business man must cultivate, and he must master the art of rousing and holding attention in others. REVIEW Make an analogy between the four main parts of the nervous system and a business organization. What is meant by (a) motive, (b) appeal, (c) response? How would you classify appeals and how may such a classifi- cation serve business purposes? In securing action or decision on the part of another how must appeals based on common human traits and instincts be modified to attract and hold the attention of persons of different char- acteristics ? CHAPTER V ETHICS OF BUSINESS 1. Science of ethics. — Ethics comes from a Greek word meaning "custom." In modern times it has come to be virtually synonymous with morality and is the science which seeks to determine the fundamental distinction between right and wrong human conduct. The mere fact that a certain practice is customary is no longer accepted as evidence that it is ethical or moral. A great gulf often lies between morality and conventionality. Philosophers are not in agreement as to the scien- tific basis of ethics. Adam Smith, a Scotch professor of moral philosophy, who, in 1776, published the first systematic treatise of political economy and is known as the father of that science, found the basis of right and wrong in the principle of sympathy, but few phi- losophers have agreed with him. The Utilitarian school of philosophers regarded the greatest good of the greatest number as the fundamental principle of ethics; an act which causes more pain than pleasure, more suffering than happiness, does more harm than good and is wrong. The tenets of this school have been severely attacked, especially by theologians, as encouraging materialism and selfishness. Some phi- 111 118 BUSINESS AND THE MAN losophers have taught that men know right and wrong by intuition, while others have held that the canons or laws of morality are to be found only in the Bible and could never have been known by men except thru divine revelation. But we are not concerned about the philosophical basis of ethics. In a civilized country, business some- times gives rise to perplexing problems in ethics, the dividing line between right and wrong conduct not being perfectly clear, but as a rule all business men know perfectly well when they are violating the moral law. Their common sense, their judgment tells them so. By the way, when common sense or judgment is passing on the moral quality of an act it is called con- science. While the customary procedure is not always or necessarily the most ethical, nevertheless we may safely assume that any procedure, practice or policy is right and ethical if it has the general approval of our business associates, especially those most respected in the community. The essence of practical ethics is undoubtedly found in the golden rule, "do unto others as you would have them do unto you." In the "street" this law finds expression in the "square deal." 2. The moral imperative in business. — What are the moral obligations, the duties of the business man ? Is it enough that he be honest and square in all his dealings? His reputation as an honest dealer, as a man who has never cheated a customer nor violated the law, is a valuable business asset. Has he, having ETHICS OF BUSINESS 113 earned this reputation, performed all his duties as a business man? Business is a cooperative matter. Nothing much can be accomplished in it unless men work together for a common result. Now, men cannot be closely associated, working side by side, some subordinate to others, without that clashing of self-interest which gives rise to moral or ethical problems. It is evident that honesty cannot be regarded as the sole necessary virtue in business. Duty demands much more of a business man. Responsibility and duty are usually commensurate with power and authority; hence the head of a large business with many employes subject to his will carries upon his shoulders serious duties as well as responsibilities. He may ignore the moral impera- tive or command, but no civilized conscience will ac- cept the excuse of Cain that he is not "his brother's keeper." Economics teaches that in general the rate of wages is fixed by the law of demand and supply. When an employe thinks that his particular wage "ought" to be raised, has the employer done his full duty by that employe when he quotes to him the law of demand and supply? Or should he, or one of his representatives, make clear to the employe just why he is not worth more and what he must do to make his services more valuable ? * The laws of political economy are based on condi- tions as they exist, not on conditions that ought to be. 114 BUSINESS AND THE MAN This fact the enlightened business men of today are beginning to understand and are recognizing it as their duty to improve the conditions under which men work. The relations of employer to employe are more than economic. They are personal and ethical. The business man who thinks of his men as so many tools or machines to be worked to the utmost and then scrapped, is a shameless violator of the moral law. It is the duty of the employer to see that his men shall work under the best possible conditions, that their souls shall be properly replenished by variety of employment and by recreation, and that they shall have opportunity for mental growth. There is a sense in which it is absolutely true that an employer is the "keeper of his employes." The busi- ness man who denies it is ethically unsound. The man who does not cooperate with his competi- tors in their effort to raise standards, enforce laws and prevent unfair practices, is ethically recreant. A hundred years ago such cooperation was not practical, but today the means of rapid communication and publicity make possible what may be called solidarity or unity in any line of business or trade. That ac- counts for the great increase in the number of business associations during recent years, such as the National Credit Men's Association, the American Institute of Accountants and the American Bankers' As- sociation. One of the objects of these associations is the establishment and maintenance of codes of ethics or honor. A business man who neglects to support ETHICS OF BUSINESS 115 the association that has been organized for the good of his line of business neglects a real duty. 3. The law and ethics. — It would be impossible for any legislature, however wise its members, to enact statutes embodying all the prohibitions and impera- tives of the moral law. Legislatures can do no more than make illegal such practices as are generally rec- ognized to be unfair and harmful to the community. When they attempt to go further, as they sometimes do, and prescribe specific rules of conduct for par- ticular cases, they usually do more harm than good. Sometimes by too sweeping a law they render acts illegal which are in themselves neither culpable nor injurious to society. The Sherman Anti-Trust Act of 1890, as interpreted by the courts, proved to be a law of this kind. Its purpose was the curbing of monopoly, but its terms were so sweeping that it ex- posed to indictment men who combined their busi- nesses with the best of motives and without any thought of monopoly. Ethically a man cannot justify himself by the plea that he keeps within the law. An act or practice may be entirely lawful and yet be immoral and unethical. It is possible for a business man to be morally crim- inal and depraved without violating a single law of the land. 4. Codes of ethics. — Because of the varying condi- tions governing conduct in the different callings and because the law cannot possibly take them all into ac- count, codes of ethics or inks of conduct have come 11G BUSINESS AND THE MAN into existence. In the old professions of law and medicine these codes are clearly defined and are rigidly insisted upon by practitioners. To laymen some of the features of these professional codes seem un- reasonable and unfair to the public. Yet so long as these codes have the approval of our best lawyers and physicians the laymen must be content. As yet nobody has attempted to draft a code of ethics for business in general. Probably such a code is impracticable because of the different customs and conditions that prevail in different businesses, but the necessity for codes of ethics in business is beginning to be clearly recognized and in certain fields of busi- ness, definite and satisfactory progress is being made. In a not far distant future it is quite possible that cer- tain practices now tolerated, altho not generally ap- proved, will be so definitely and publicly condemned in a written code of ethics that the business man who indulges in them will lose caste and suffer loss of repu- tation and profit. 5. Caveat emptor. — The doctrine of caveat emptor, the Latin for "let the buyer beware," is losing its sig- nificance in these days of publicity and of great and rapid transactions. Quality must be dependable and is so in most general lines of business. Some years ago a large tobacco company bought a famous brand of cigars and then began to cheapen its quality. The fact could not be kept secret and sales collapsed. The company restored the quality and advertised ex- tensively, but could not recreate the demand. ETHICS OF BUSINESS 117 Recently one of the shrewdest automobile dealers in the country bought over six million dollars' worth of cars from a manufacturer. Up to the day of buy- ing them he had never ridden in a car of that make. He knew the reputation of the car. Its merits were so well accepted and so many of the cars were in the hands of the public that they simply had to be all right. He did not expect the manufacturer to commit finan- cial suicide by cheapening the standard. Big business is impossible if allied with humbug and deceit or misrepresentation. If there were any- thing mechanically wrong with Ford cars or with the Ingersoll watches, they could not have reached their present sales. Can Hart, Schaffner & Marx clothes or the Westinghouse electrical products be anything else than full value ? The limelight of publicity would immediately make havoc with sales if defects or de- terioration were permitted. Legally the buyer must still be on his guard to be sure that the goods he receives are what he believed them to be when the purchase was made, but practi- cally, because of the rising standards of business ethics and because of the increasing appreciation of the value of good-will as an asset, buyers of almost any article, not even excepting horses, can now find markets where they can place implicit confidence in tlie representations of the seller. In New York City today there are firms which do an international export business in commodities which they never see. They buy from catalogs and samples and they ship to all 118 BUSINESS AND THE MAN parts of the globe, machinery, automobiles, flour, oil, prints, lumber, cotton, grain and other raw materials. They operate in small offices. They have no ware- houses and they handle no goods. They buy only from dealers in whom they have absolute confidence. "Every man takes care," said Ralph Waldo Emer- son, "that his neighbor does not cheat him. But a day comes when he begins to care that he does not cheat his neighbor. Then all goes well." 6. Standards enforced by law. — Since many goods are not sold by brand or firm name, legislation has sometimes been found necessary to reenforce the standards of quality set by responsible firms. Laws fixing the standard of sterling silver have been in effect for decades, as have laws for enforcing the use of correct carat marks for different alloys of gold. The "pure food" law passed in 1906 is not yet uni- formly accepted or approved by dealers, and its en- forcement is difficult. The food, drug and liquor trades are not solidly pledged to the reform. The ethical standards of these trades, certain successful firms excepted, is below that of the law. If the public were not so vitally concerned, the law would be im- possible of enforcement at all. Honest manufac- turers support the law, for it enables them to market their wares without unfair competition from un- scrupulous rivals. It is not yet generally considered disgraceful to adulterate silk with tin and cotton, or to mix wool or linen with cotton and to sell the fabric to the public ETHICS OF BUSINESS 119 as pure silk, wool or linen. The public does not seem vitally interested in the passage of a "fabric law." High standards of ethics in the textile trades as a whole are not yet permanently fixed, and the public must depend upon brands for protection. Certain manufacturers, however, are agitating for a "fabric law" requiring correct labeling of dry-goods. Some years ago rebates were commonly granted by railroads to large shippers, but the practice led to such unfair discriminations that Congress passed a law against railroad rebates. The beneficial effects of the law are now admitted by railroad men as well as by business men. 7. Unwise laws. — When Congress or the legisla- ture of a state enacts a law which has not the approval of business men generally, many a business man breaks it without the slightest qualm of conscience. The laws against usury, for example, are in this class. A thousand years ago it was thought sinful for the lender of money to charge the borrower interest. It was argued that money, being a dead thing, could not by itself earn or produce. The legitimacy of the in- terest charge is now generally recognized, but many people still have erroneous ideas about the laws gov- erning the rate of interest. There is a popular not ion that no man should be compelled to pay over G per cent for borrowed money, and several state legisla- tures in the United States have enacted this notion into a law. Lenders evade the law without com- punction, by charging a commission whenever the 1*0 BUSINESS AND THE MAN money market conditions warrant a rate higher than the maximum fixed by law. Until 1882, the rate of interest on call loans on the New York Stock Ex- change was limited to 6 per cent, but lenders by means of commissions sometimes ran the rate up to 700 per cent per annum. Since the repeal of the law bor- rowers in Wall Street have fared better than when the law was in force. Certain kinds of borrowers undoubtedly need pro- tection by the law. They are the poor and ignorant people who sometimes are forced to go to the money lender, often the pawn shop or a so-called "money shark," and to pledge their belongings in order that they may get money to save themselves from eviction or famine. In some states, borrowers of this class are carefully protected by laws which have the approval of business men generally. 8. Trades lacking standards. — In some lines of business there are still lacking accepted and approved ethical standards. The people of Xew York City, for example, have little faith in the average dealer in poultry. It is generally felt that the "broiler" must be examined carefully to see that its weight has not been augmented by the insertion into its crop of gravel, oyster shells, or sand. Produce commission men are also under some sus- picion. The amateur dealing with them does not feel at all certain that he can rely upon their word, nor does the farmer who ships them his produce. Of course, the wide-awake grocer in any large city knows ETHICS OF BUSINESS 121 the commission men he can trust. These are the men who in the long run prosper. One hears also much complaint about the practices of certain import and export commission merchants. It is said that many of them accept commissions from both buyer and seller, a practice which would not be tolerated in domestic trade. As our foreign business grows more important, a standard of ethics will evolve which will put out of business those who indulge in unfair practices. It used to be said that no one could be honest and be a second-hand automobile dealer. Noisy cylinders were charmed to temporary silence and the labors of loose gears drowned in thick grease. The engine was tuned up in order to imitate for the time being proper performance. Today the second-hand automobile business has mostly passed into the hands of scrupu- lous men whose guarantees are genuine. 9. Merchandising. — The recent rapid growth of the department store in the cities of the United States and of the large mail-order houses is the best possible evidence of the commercial importance and value of the practical applications of ethical standards in busi- ness. Hundreds of thousands of farmers all over the United States feel certain that they will get their money's worth when they order supplies from certain mail order houses. Their experience with these houses has uniformly been satisfactory, and they know they can return the goods if they are dissatisfied. If the managers of these houses had not insisted upon l£g BUSINESS AND THE MAN a high ethical standard, but had sought by misleading advertisements and catalogs to increase their sales, they would in all probability have met with fail- ure. As exponents of the "square deal" in the depart- ment store, A. T. Stewart, Marshall Field and John Wanamaker were the pacemakers in the beginning. They insisted upon the "one price only" for all cus- tomers and upon the policy of "money back if dissatis- fied." The Woolworth five and ten cent stores, de- spite the fine business idea underlying them, could not have prospered had they not been conducted in such a manner that people enter them with confidence as well as with curiosity. The merchant who misrep- resents the quality of his goods, who advertises bogui- fire sales, who refuses to be fair with dissatisfied cus- tomers, is rapidly being relegated to the back streets. His lack of moral quality classes him with the unfit in business and will lead to his extermination. 10. Trade associations. — A potent influence in standardizing business practices has been exerted by the various trade associations. Mr.ny of these asso- ciations have worked out practical codes of ethics which have received general acceptance among the members. These associations, which have been or- ganized in connection with all the important trades of the country, have for their purpose the advance- ment of the common interests of their membership, and are in themselves evidence of the fact that busi- ETHICS OF BUSINESS 123 ness standards in the United States are tend- ing steadily upward. Among the members there is the keenest kind of competition for trade, yet along with this competition there exists a cordial spirit of cooperation, each member realizing that the higher interests of his trade are of vital concern to him per- sonally. The fruit-packing industry of the Northwest is often referred to as a classic example of trade associa- tions. Knowing the necessity for permanent mar- kets, growers got together some years ago and agreed upon standards of packing. Thereafter western fruit came to the East uniform in size and quality. As a result the market for eastern fruit was demoralized and it did not revive until similar action was taken in the East. The small wormy fruit at the bottom had to go. The National Association of Credit Men has been a powerful factor in establishing and maintaining high standards of business conduct. The association has adopted eight "canons of commercial ethics" which have exerted a tine influence on the conduct of credit men and their employers. The National Association of Purchasing Agents is doing much to free business transactions from certain objectionable features. Not many years ago, for ex- ample, the acceptance by a purchasing agent of a com- mission, or of some other valuable consideration, was tolerated and regarded as quite the proper thing. I— 10 184 BUSINESS AND THE MAN Today commissions are not welcome and any salesman who attempts to arrange such retainers injures his chances of sale. Of all the classes of business men who have sincerely attempted to work out standards of business conduct the advertising men have had the hardest problem, but their various associations, national and local, have worked at it with great intelligence and determination. It is not too much to hope that the time will soon come when a mendacious, unprincipled advertiser will be unable to get his name into the columns of a respect- able newspaper or magazine. As a result of the vigorous educational campaigns carried on by adver- tising clubs and associations much objectionable advertising has already been eliminated from our newspapers. 11. Wall Street. — Thruout the country there exists an idea that Wall Street is a very wicked place and that the Xew York Stock Exchange is a den of gam- blers who would not hesitatcto ruin the country if they thereby could make a dollar. Ir many states the prejudice against Wall Street is so bitter that men are sent to Congress virtually pledged to oppose any measure that has the hearty support of the financial interests of Xew York City. A demagogue can al- ways win votes by denouncing the conspiracies, the trickery, the deceit, the corruption, which are alleged to exist in Wall Street. The popular idea of Wall Street and its practices is entirely erroneous. By "Wall Street" is meant the ETHICS OF BUSINESS 125 financial and speculative markets of the United States. It is the national loan or capital market. Wherever capital is loaned and borrowed, wherever securities are bought and sold, there is Wall Street. It is called Wall Street merely because the greatest financial houses of the country happen to be located in or near a street of that name. As the reader will discover in reading the Modern Business Texts on "The Exchanges and Speculation" and "Investment," the business transactions of Wall Street are the great- est done anywhere in the world. The man who says that Wall Street is controlled by gamblers or by men lacking principle or patriotic sentiment is, without knowing it, slandering the whole American people. The leaders of Wall Street live not only in New York, but in Boston, Chicago, Seattle, San Francisco, St. Louis and in other cities and towns. They got their leadership with the approval of the American people ; and by their ability they have been able to plan and finance those mighty industries which give employ- ment to millions of men and have placed the United States first among nations in the production of wealth. From the point of view of industry as well as finance the nation's brain is in "Wall Street." The reader should not be surprised, therefore, when told that nowhere in the world will he find a higher code of business honor than that which prevails in Wall Street. The man who does not keep his word, even tho he has given it only by telephone, the man who seeks to evade a contract because of some tech- 126 Hl'SINESS AND THE MAN nicality, the man who misrepresents, is not tolerated in the "street." As soon as he is found out he is shunned. The men who give character to the "street," doing 90 per cent of its real business, will have nothing more to do with him. Undoubtedly trickery and deception are practised in the shadows of Wall Street and many guileless investors are fleeced. It would be strange, indeed, if this were not true, for thieves and swindlers are attracted to the "street" as are flies to an open sugar barrel. Foolish, gullible persons, reading about the many million dollar trans- actions in the "street," often go there hoping to pick up a fortune without work. The keen men who wel- come them on arrival, or who advertise for them in newspapers, are not the regulars of Wall Street. They are despised parasites, for whose extermination the men who do the real business in the "street" never cease to work. 12. New York Stock Exchange. — The New York Stock Exchange is a voluntary association of men in- terested in the purchase and sale of stocks and bonds. Its transactions, amounting daily to many million dol- lars, originate in all parts of the country. Some ex- perts have estimated that less than half its business originates in New r York City. The history of the Ex- change reveals a constant effort on the part of its governors to bring its methods up to the highest pos- sible standard and to prevent any practice or custom which w r ill tend to give wrong impressions to out- siders. No code of ethics so-called has been adopted, ETHICS OF BUSINESS 127 yet an unwritten code exists which no broker dare violate. The governors of the Exchange seem to realize fully their responsibility to the public, and are not slow to rule against any evil or dangerous prac- tice that is brought to their notice. It is doubtful if the affairs of any other business organization in the country are managed in accordance with an ethical code of finer qualit} T . Most men who lose money by dabbling in stocks are victims of their own greed and folly. In order to save such men from themselves, if that is possible, the governors of the Stock Exchange have adopted a very strict rule with regard to advertising done by its members. In the words of Mr. William C. Van Ant- werp speaking for the governors of the Exchange : We have said to the members, "you must not only put your advertising on a dignified plane, but you must not use anything in the nature of catch phrases or alluring devices designed to influence the judgment of those to whom it is addressed. You may advertise as generously as you please; supply the public with as much educational matter as you choose ; offer what you have for sale, but do not attempt anything remotely approaching the business of a tipster." 13. Ethics of directors. — Not many years ago the* board of directors of a large industrial corporation suddenly decided to stop dividends. Before final ad- journment every member of the directors present had excused himself under some pretext or other and tele- phoned orders to his broker to sell stock. It was considered conventional and proper for a man at the head of a corporation, the "insider," to 128 BUSINESS AND THE MAN take advantage in the market of all secret informa- tion. It was usual for those in charge to organize private firms to sell to and buy from the large cor- poration on terms not at all to the advantage of the latter. But big corporate business today is, as a rule, done on strictly ethical principles. Never before was there such a keen feeling of responsibility to stockholders, customers, employes and the public. Little real "in- side information" exists. In fact the public is promptly informed as to developments in most cor- poration affairs. 14. Ethics of a great industry. — The United States Steel Corporation, the largest industrial organization in the world, has done much to lift ethical standards in business. Assailed by government judicial action, no competitor could be found to malign it ; indeed, all wondered at its helpful spirit of cooperation. No employe could give material evidence of deliberate, unfair treatment. The attitude of the corporation in regard to competition and its employes is expressed in the following extracts from speeches made by the chairman of its board of directors: In the days gone by, never to return it is to be hoped, it was a common practice for competitors in business to act in accordance with the rule that might makes right, and on the basis that permanent success could be reached and enjoyed only by those having the greatest strength and power or the . longest purse. As a result, it frequently happened that the weaker or poorer were crushed and destroyed. A com- petitor was treated as a common enem}\ Methods for his ETHICS OF BUSINESS 129 defeat and overthrow were used regardless of good morals or good policy. Possibly, in some instances, this redounded to the pecuniary advantage of a few, tho even that is doubtful. Certainly, it was not permanently beneficial to the general public ; and, from the standpoint of good morals, was a shame and a disgrace. In passing, it is proper to say that in the long run an unreasonable destructive competition, such as I have re- ferred to, is prejudicial to the best interests of all concerned, including the manufacturer, his workmen, his customers and the general public. We do not need the suggestions of any one in order to make up our minds as to what we will do when these ques- tions of ethics and economics and politics are brought to our attention. We should be the leaders and not the followers. We should undertake to place ourselves on a plane much higher than the demagogue or the reformer who attempts to assail us and who pretends to be the champion of the laboring man. We do not need any suggestions from people like that. We know what our duty is, we know what the rights of our employes are, and we feel obligated, and take pleasure in knowing that we are at all times doing all we can for the people in our employ in keeping their wages up and in bettering their condition and keeping them in a posi- tion where they may enjoy life. REVIEW Discuss the moral imperative in business. What is meant by caveat emptor? Do business men today generally regard this as good business as well as good law ? In what lines of goods has the law fixed effective standards, and where has it been ineffective? Why? Name some lines of business in which low standards of ethics are prevalent. How have voluntary associations helped to standardize husi ness practice? Give some examples. What is your conception of Wall Street? Discuss the code of honor prevailing there. CHAPTER VI VISION, OR THE IDEA 1. Imagination. — Business men as a rule do not realize their indebtedness to imagination. That faculty is commonly thought of, not as a work-horse, but as a thorobred to be driven only by the poet, the artist, the story-writer. The imaginative man is thought of as a dreamer. He may entertain us with the beautiful pictures his mind creates, but we do not expect him to be alert in practical affairs. Few par- ents would think their son fitted for a business career because his teachers had discovered that he possessed a vivid and active imagination. This popular view of imagination is erroneous be- cause it rests upon an inadequate conception of the nature of the faculty and upon a superficial idea of business. No man of feeble imagination ever achieved real success in business. By imagination is meant the mind's ability to recall past experiences — sensations, emotions, feelings, per- ceptions — and to cause these to reappear in the con- sciousness in combinations of infinite variety. The simplest act of the imagination is the recollec- tion of a past experience, as when a man recalls his enjoyment of a recent fishing excursion — the pic- 130 VISION, OR THE IDEA 131 ture of a mountain brook in which he wooed the trout, or the music he heard at the opera last evening, or the picture of the table at which he ate his first home dinner after coming from the camp. These are all simple acts of memory in which imagination plays its part. More or less vivid copies of the originals are reproduced in the consciousness. But the mind can do more. It may combine all four of these memories and create a new fishing camp, one where he is casting for trout in the mountain stream, eating dinner from the home table, and in the evening listening to the opera, the singers being staged in a grove of pines under Hamlet's "majestical roof fretted with golden fire." Here we have constructive or productive imagination, fantastic and dreamlike because past experiences are combined in a way prac- tically impossible. All men possess the power of imagination, and in most people it is a very active faculty ; yet much of its activity is purposeless and useless. 2. Visual. — The imaginations of many people re- produce most easily sight images, things that have been seen with the eye. This power is the basis of what is commonly called "visual" memory. Some people quickly forget words that are spoken to them, but will easily commit to memory a poem or an ora- tion from a printed page. It is not unusual for a man to recall something that he read as a boy in his geography or history, and to remember exactly whether the fact was stated on the left-hand or right- 188 BUSINESS AND THE MAN hand page or at the top or the bottom of the page. I know a man who used to sing in a church choir. He was not a very good singer, but he eould read the notes and he made a tolerable bass. He has sung no hymns for twenty years, yet he recalls accurately the key of the tune to which each hymn is set. His im- agination reproduces before him the page and musical notation of the hymn book. If the music was not actually before him, he could not sing a tune unless his imagination reproduced the notes as they appeared on the page. He has visual memory or imagination. The painter and sculptor possess imagination of this sort in the highest degree. 1 Men differ greatly in their power to visualize. It is a source of pleasure to the possessor and, as we shall see, can be made to do useful work in business. Without its aid an inventor would be as helpless as the builder who has no tools, or bricks, or lumber. 3. Sound and other sense images. — The ability to recall sounds, impressions on the consciousness pro- duced thru the ear, is believed to be rarer than the visual memory or imagination. It is highly devel- oped in the blind, for their visual imagination receives no stimulus. It must be especially strong in the musician. The aural imagination of the deaf Bee- i "A person whose visual imagination is strong finds it hard to under- stand how those who are without the faculty can think at all. Some people undoubtedly have no visual images at all worthy of the name, and instead of seeing their breakfast table, they tell you that they remember it or know what was on it. The 'mind-stuff' of which this 'knowing' is made seems to be verbal images exclusively." William James, "Psychology," p. 305. VISION, OR THE IDEA 133 thoven was able to recombine sounds in his conscious- ness and produce marvelous harmonies. We say of such a man that the music is in his soul. People with an "ear for music" are often able to reproduce a melody after hearing it only once. Similarly we are able to reproduce more or less vividly the sensations of touch, taste and smell, and various painful and pleasant emotions that we have experienced in the past. 4. Memory supplies the materials. — The imagina- tion in its constructive efforts is limited to the mate- rials which memory can furnish. It creates no new images of any kind, no new states of consciousness. Imagination is a marvelous builder, but it can ac- complish nothing without the aid of its faithful hod- carrier, the memory. It is clear, therefore, that the imagination of a man who has had little or no experience in business can build for him no new plans or visions that will be of much value. When such a man, not knowing the limitations under which his imagination must work, plans great ventures in business, he fails time and again and is called a visionary. Colonel Sellers, Mark Twain's immortal visionary, had a scheme every few days and there were always "millions in it." He knew nothing about the details of business, yet he had superb confidence in his ability as a fortune builder. Colonel Sellers is still alive; you can find him in al- most every town and on every street. We may think of imagination as a Pegasus in 184 BUSINESS AND THE MAN harness, but the driver must be a man who knows every twist and turn of the road. In front of a green driver, this winged steed delights in a runaway and smash-up. It is well for the young business man to know that the drudgery of the office, which is so distasteful to him, is essential to his development. As a routine worker he is storing his memory with facts or experi- ences of which his imagination may make valuable use in later years. 5. Imagination in science. — The aim of science, as was explained in the Introduction, is knowledge or understanding. Of what possible use can imagina- tion, the builder of air castles, be to the scientist ? He is seeking for truth and can, of course, get some aid from his memory, but, some reader may say, "Imag- ination does not think or reason and can be of no help to him." As a matter of fact, the scientist who is exploring new realms of knowledge employs his imagination as much as he does his reason or judgment. When a man is seeking to explain a phenomenon, it is the imagination which constructs the necessary hypothesis. 1 It was Newton's imagination which dis- covered the law of gravitation ; it was his reason which verified it and finally accepted the law as the truth. The theory of evolution had been in existence for many years as a product of the imagination before the patient studies of Darwin and Wallace brought forth i The reader should review the discussion of Hypothesis and Theory in the Introduction to this volume. VISION, OR THE IDEA 135 data which satisfied the reason. Copernicus, who is credited with the discovery of our planetary or solar system, undoubtedly in his imagination pictured the planets moving around the central sun, and the moon about the earth, before his reason and judgment had weighed and sifted all the phenomena and accepted as true the hypothesis which his imagination had created. A student who is traversing fields of science that have already been explored, relies most upon his un- derstanding and memory, but when he gets to the frontiers of truth he can go no farther without the aid of imagination. Let the reader use his own im- agination and put himself in the place of the first geometer. That thinker saw at a glance the truth of propositions which we call axioms, but the theor- ems now found in the textbooks were unknown to him. It was his imagination which suggested that the angles opposite the two equal sides of a triangle must be equal. He hunted for evidence, and by a logical use of the axioms in his possession he convinced his reason of the truth of the proposition. Imagination and memory have played their im- portant parts in the demonstration of all mathematical truths. A man of weak imagination is never a really great mathematician. The arithmetical processes, multiplication and division, which are short processes of addition and subtraction, were suggested by the imagination of man thousands of years ago. Hoth algebra and geometry, when properly taught, owe V36 BUSINESS AND THE MAN their charm almost entirely to the play they give to the student's imagination. If imagination, a faculty apparently so irrational, can be made of so much use to the scientist, it would be strange, indeed, if it could not be drafted into the service of the business man. 6. The ideal. — Imagination constructs for men more or less definite ideas or pictures of the things which will give them greatest satisfaction. For a man whose chief joy is eating, his imagination plans a din- ner which no cook ever sets before him. It is his ideal dinner, and he hopes to eat it when he gets to heaven. The great artists are never quite satisfied with their creations. Their imaginations have built for them an ideal which they cannot quite convert into reality. A farmer unconsciously constructs an ideal farm in an ideal climate, periods of rainfall and sunshine at just the right intervals. The ideal is the highest product of the imagination. Using those past experiences which have given us the most pleasurable emotions, or have proved themselves of golden worth to our reason, the imagination, spurred sometimes by our pleasure-loving senses, sometimes by our conscience, sometimes by our desire for success and happiness, pictures those experiences to us in a combination which seems absolutely perfect. Thus it is we get the ideal. It is a human product and may be far from perfection, yet to every man his ideal has all the qualities of perfection. VISION, OR THE IDEA 137 Unconsciously the imagination of every man is for- ever at work building ideals that charm his soul and stir him to activity. The ideals of one man may seem base, vulgar and commonplace to a man of higher type, whereas the ideals of the latter may seem fool- ish, impracticable, worthless to the man of cheaper tastes. Xo man can subdue his imagination and keep it from building ideals. A man's imagination keeps for- ever at its work and constructs for him ideals in ac- cordance with which he must live. In the firma- ment of every man's soul there is a polar star — it is the ideal that dominates his life. Such being the case, it is important that each of us give some thought to the character of the ideals which our imagination is. building. If we examine them critically with our judgment, we may discover that their perfection is only apparent, and that their domi- nance in our life will sooner or later bring us into sackcloth and ashes. While we cannot chain our imagination or hitch it to a post, yet we can, if we will, supervise its marvelous work and make it build for us ideals which we may struggle toward without disloyalty to our reason or to our con- science. If a business man's ideal is merely the accumula- tion of a great fortune, is he not merely chasing the