Creating Capital / Money-making as an aim in business

by Frederick L. Lipman

What will be the effect on prices of the use of surplus earnings during a period of high wages?

If the surplus earnings are expended, they will be used either in meeting the higher prices of customary commodities, or in meeting these advanced prices and also in purchasing additional commodities. The first case will occur only if, and when, the advance in price equals the advance in wages, for only in that event will the new wages just cover the new cost of customary commodities. Then this expenditure of the entire income in customary commodities tends to keep up the price level and any benefit from higher wages disappears.

In the second case, so far as the worker spends his surplus earnings in meeting advanced prices for customary commodities, he tends to maintain prices at the higher level, and so far as he buys additional commodities, he increases the demand for them and tends further to advance the price level.

If, on the other hand, the worker will save from his surplus earnings, he will increase the community's capital, and this will tend, directly or indirectly, to cause the production of further commodities, so increasing the supply of commodities and therefore tending to reduce prices.

In any case, the worker should save as much as possible, as this tends to reduce the price level and so to better his condition. Or, putting it more simply, in time of high wages the worker ought to produce as much as possible and consume as little as possible, both influences tending to increase the stock of commodities for his ultimate gain and for that of the community.

In fact, a high level of prices may be due measurably to some wasting of the world's capital—as in war, for instance—and then the only antidote is to restore the capital, a movement that would doubtless occur anyway in time but which could be greatly accelerated through a general adoption of habits of thrift and saving throughout a community.

This then, though small, is something definite that we can contribute to the material advancement of mankind and, like the duty in this connection to our nation, to our families and ourselves, it consists in creating capital; that is, earning as much as we can and, in any event, even if our earnings are fixed, managing the income thriftily, and carrying forward as large a net result as possible.

We turn now from the mass of mankind, on the whole so singularly neglectful of these responsibilities, to the few in number who constitute the creators of capital, to whom are due so much of the comforts, the conveniences, and the material advantages that go to make civilized life possible. Now these few are found in every rank in life. They may be rich or poor, professional or business men, employer or employee, old or young, male or female. The characteristic is their habit of thrift, of definitely adopting money-making as an aim, of spending less than they earn. It is astonishing what a small percentage of mankind they are. The Income Tax returns in the United States for 1916 showed that out of a population of 104,000,000 people those with taxable incomes aggregated only 336,652, about one in three hundred. But whatever be the rank of the individual practicing this thrift he is headed in the right direction and he tends to reach the point of relative competence, of independence in his pecuniary affairs.

Preëminent in the class of the thrifty we think of the man of affairs; the business enterprise indeed is supposed to be the money-maker, par excellence. Money-making is in fact considered as its raison d'être; it is as a money-maker that the business man is contemned by some and envied by many.

Now money-making and money values occupy a special place in business enterprise, due to the fact that on economic principles such money value becomes the best test—perhaps the only true test—of the workableness and success of business efforts. In the complicated activities of the world's work, where each man, each undertaking, each business unit, respectively, is striving primarily for its own advantage, how is it, among all this pulling and pushing, this competition, that the social income is distributed so nearly in accordance with the individual contribution? Even if we admit that many persons fail to get a fair share, that there is gross inequality here and there, still after all, a student of mankind's activities in production, distribution, and consumption must marvel at the extent to which the rewards approximate the value of contribution. Now this is made possible by money considered as a measure of relative values, by the standard or test of fitness embodied in the thought, Will it pay, and to what extent will it pay? If I have in mind some new invention that will perhaps confer benefits on mankind, the best test of its practicability and utility will be, Will it pay, will people buy it, pay money for it? If an improvement in process is proposed, the question is, Will it pay? If the young man starts out in life with high ideals and a reasonably good opinion of his own abilities, an opinion fostered perhaps by fond parents and admiring friends, the question is, Will these abilities fit in with the world's needs? Will they supply a real demand, will they be serviceable? The best means of ascertaining this, although it may be only a rough estimate and although errors occasionally creep in is, will they pay? Can he sell these services for real money? This criterion is practically omnipresent in the world of affairs. It is based on economic necessity, and although here and there it may be charged with cruelties, with serious blunders, it is, on the whole, a remarkably accurate standard. We see this more clearly where we attempt to substitute some other criterion for ranking the soldiers in the battle of life. We can note, for instance, the inferior type and character, generally speaking, of men elected to office by the suffrages of their fellow citizens, compared with men who reach positions of authority in business and other enterprises through the pressure of these economic principles. Again, consider the nation that has attempted to improve on economic distribution of power by evolving a government which places the power in the hands of those best fitted to govern, a ruling class which aims directly at efficiency, a select class but necessarily self-selected, thus supplanting an economic régime by a military régime—successful truly in certain forms of economic efficiency through a more rigid and compact organization, but destructive of the initiative, the evolutionary growth, the fundamental development, the liberties of the people. Contrast this with the freedom, happiness, and progress of a nation of shop-keepers. Now this economic régime, with its individual instances of cruelty, like the cruelties of nature, does on the whole tend to develop men, to require their best efforts, to make them come forward and upward. Thus, in this interplay of economic forces, wealth, or money, or profits stands out as a primary object of attainment, and becomes the incentive to the complex efforts which tend to benefit the individual, the community, and the nation.