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Title: Creating Capital

Money-making as an aim in business

Author: Frederick L Lipman

Release Date: August 12, 2009 [EBook

#29673]

Language: English

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CREATING CAPITAL ***

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STANDARDS.

By Willard Eugene Hotchkiss.

CREATING

CAPITAL: MAKING AS AN AIM IN BUSINESS.

MONEY-By Frederick L Lipman.

IS CIVILIZATION A DISEASE?

By Stanton Coit SOCIAL JUSTICE WITHOUT

SOCIALISM.

By John Bates Clark.

THE CONFLICT

BETWEEN PRIVATE MONOPOLY AND GOOD

CITIZENSHIP.

By John Graham Brooks.

COMMERCIALISM AND JOURNALISM.

By Hamilton Holt THE BUSINESS CAREER IN ITS PUBLIC

RELATIONS.

By Albert Shaw.

C R E A T I N G

MONEY-MAKING AS

AN AIM IN BUSINESS

By

COPYRIGHT, 1918, BY THE

REGENTS OF THE UNIVERSITY OF CALIFORNIA

ALL RIGHTS RESERVED

LECTURES ON THE MORALS OF TRADE This series will contain essays by representative

scholars and men of affairs dealing with the various phases of the moral law in its bearing on business life under the new economic order, first delivered at the University of California on the Weinstock

foundation.

CREATING CAPITAL

MONEY-MAKING AS AN AIM IN BUSINESS

HE object of this paper is to discussmoney-making; to examine itsprevalence as an aim among peoplegenerally and the moral standards whichobtain among those who consciously seek

to make money

The desire to make money is common to

most men Stronger or weaker, in somedegree it is present in the mind of nearlyevery one Now, how far does this desiregrow to be an aim or object in our lives,and to what extent is such an aim a worthyone?

The typical money-maker as commonlypictured in our imagination is a narrow,grasping, selfish individual who haschosen to follow lower rather than higherideals and who often is tempted, andalways may be tempted, to employillegitimate means for the attainment of hisends The aims he has adopted are made

to stand in opposition to the practice ofcertain virtues Thus we contrast profitsand patriotism; enriching one's self and

philanthropy; getting all the law allowsand justice; taking advantage of the otherfellow and honesty; becoming engrossed

in acquisition and love of family Now,such contrasts obviously prove nothingmore than that money-making is and would

be a vicious aim if pursued regardless ofthese virtues, and it could well be repliedthat consideration of patriotism,philanthropy, love of family, etc., must inthemselves impel one to earn and to save

"The love of money is the root of all evil"implies an exclusive devotion toacquisition that may well be criticized.But aside from this there is no doubt thatamid the confused ideas held on thesubject, aiming to make money is

commonly regarded as in some sort ofantagonism to the social virtues.

That there are other sides to the picture isrecognized, however, even by the loosethought of the day The man who earns hisliving, for instance, it views as one who in

so far is performing a fundamental duty.Indeed, the world scorns him who cannot

or will not support himself and his family.But this is only to say that one must workto-day to meet the expenditures of to-day

Is this the limit? Is it a virtue for him towork in order to spend, but a vice for him

to work in order to save? What are theconsiderations to be observed by a man indeciding whether or not he should adoptmoney-making—that is, the acquisition of

a surplus beyond his current needs—asone of his definite aims in life?

One consideration relates to our country.The United States is now understood to bespending about $25,000,000 per day incarrying on the war In the last analysisthis amount must be paid out of the pastsavings and the savings from currentearnings of the people of the UnitedStates The wealth of the nation consistsmainly of the sum of the wealth of itscitizens We are therefore told to seekincreased earnings and to economize inour expenditures in order to enhance thenational wealth The duty here is perfectlyclear, but even if we did not have warconditions to teach us as a patriotic

responsibility the necessity of earning andsaving a surplus, the obligation would still

be there We owe a similar debt to ourstate and to our city or district And nearerstill comes the duty to one's family and toone's own future, the duty of providing forthe rainy day, for old age And it will beobserved that money-making in this sense

is directed to the acquisition of net

income, it relates to that portion of one'searnings which is saved from currentexpenditure and becomes capital Then wemust also consider the duty to society As

we look out upon the surroundingevidences of civilization—buildings andrailroads and highly cultivated fields, themachinery of production and distribution,

the shops full of useful commodities—andthen cast our thought backward to a timenot very many years ago when all thiscountry was a natural wilderness, we maybegin to realize the magnitude of thewealth, the capital, that has come intobeing since then, every particle of which

is due to the earnings and savings ofsomebody, to the surplus not consumed bythe workers of the past, their unexpendedand unwasted net balances year by year.Universities, churches, libraries, parks,are included in the wealth thus handeddown to us Our lives to-day may bericher and broader through this inheritancecreated by the industry and abstinence ofour forefathers Their business careers,

now closed, we regard as the moresuccessful in that they earned and saved a

surplus, that they had a net income to

show as the result of their work

But these savings of the past wereaccumulated, after all, by comparativelyfew of the workers; not by the many, wholived from hand to mouth, happy-go-lucky,spending and enjoying in time ofabundance, suffering in time of povertyand stress, making no provision even fortheir own future, still less recognizing anyduty to their country or to posterity toproduce economically and regulate theirexpenditure wisely so as to carry forward

a surplus As far as this majority isconcerned we might yet be living among

rocks and trees, without shelter, lackingsure supplies of food, with fig leaves tocover our nakedness And to-day the sameconditions obtain How many persons are

to be found among one's acquaintance whofeel and act upon any responsibility fordoing their "bit" in the creation of capital?Very few Rather than exert himself towork with this in view, on the one hand,and to abstain from unnecessaryconsumption, on the other hand, theordinary man will make to himself everyexcuse He will contemn money-making as

a sordid aim, readily exaggerating itselfinto a vice; he will dwell upon theobligations and other considerations of ahigher life, this being defined as

something generous and noble, asomething compared with which money-making cannot be regarded as a worthyobject but must be included in the class ofunpleasant necessities, not to sayindecencies, which ought to be relegated

to the background of life; he will summon

up pictures of extreme poverty, where anymoney received must be expendedforthwith to meet urgent needs, asjustifying that which in his case is thegratification of shiftless indulgence.Above all, this typical individual will notaccept and act upon the idea that hisaffairs, his small income and expenditure,have any bearing upon the prosperity andprogress of his country The most he will

keep before him is that he should pay hisbills, and perhaps in some few cases, willextend the notion to the future to includeprovision for the bills and possibleemergencies then to be met by himself andhis family Nor is this improvident attitudeconfined to the young, to the professionaland the other non-business classes In thebusiness world we see it all around us;among those who "work for a living,"among clerks and employees and amongthe so-called laboring classes it appears

to be the normal attitude People whowork for salaries or wages seemcharacteristically to use up all theirearnings in their current expenditure, tolive up to their incomes without any

serious attempt to save If they pridethemselves upon trying to keep out of debt,

it is as much as they expect of themselves,and among them the man who attempts to

go beyond this in his money affairs iscertainly the exception

One of the effects of a world-wide war is

an enormously increased demand for labor

at high and advancing wages, a conditionthat we might suppose would be greatly tothe advantage of the laborer But that willdepend upon his own attitude and policy.From England, and from American townshere and there, we hear stories of thewage-earner on whom increasing incomehas had the effect of lessening the effort towork; who stops during the week when the

higher wage scale has paid him the amount

he is accustomed to regard as a week'searnings Now, would it not seem natural

to expect that any man encounteringimproved market conditions for his output,whether of commodity or service, wouldseek to turn the situation to advantage byincreasing that output as largely as lay inhis power? If, for instance, I canmanufacture shoes to sell for $4.00 a pairand a change in market conditions is suchthat I can obtain $5.00 a pair, I wouldendeavor to produce more shoes in order

to profit by the favorable market; and ifthereafter the price should rise to $6.00and $7.00 and $8.00 a pair, at eachincrement my efforts would be still further

intensified That, indeed, is the normaleconomic attitude Fluctuations in theprice level due to changes in the demandfor a commodity are expected to affect,and do affect, the market supply At ahigher price, production is stimulated andmore units of the commodity are brought

to the market, both from new sources andfrom old sources Under falling prices, onthe other hand, the supply offered in themarket would become automaticallydiminished

This is an elementary commonplace ineconomics, yet the laborer to whom wehave just referred does not seem torecognize it He may find that he can earn

in, say four days, an amount equal to his

former earnings in six days and, therefore,

at the end of the fourth day he quits workfor the week Now, obviously under suchincreasing wage scale, he might do one ofthree things:

He could quit at the end of the fourth day,having received a week's income

He could continue working for the sixdays and use his surplus earnings forcomforts, pleasures, and luxuries whichpreviously he had been unable to afford

He might work for the six days and save

as much as possible of his excessearnings

Now, what is the wise choice for the

laborer? Leaving out of account specialcases where he has a large family, orsickness at home, or is under some otherdisability which in his individual casewould reduce his earning power orincrease his minimum expenses, ought henot to work for the six days, putting asideall he could of the excess as savings forthe future? It will be generally concededthat this is self-evident If, viewing thenarrow conditions under which theworkman ordinarily lives, it should beclaimed that during a period of unusualearnings self-gratification would be notonly natural but measurably justifiable, thereply could be made that this is merelyspecious, involving assumption not in

accord with the facts Excuses of this kind

we often make for ourselves in theendeavor to justify our indulgence inpresent pleasure rather than perform theirksome duty of self-restraint The laborerwhose ideals are such that he quits at theend of the fourth day is not the type of manwho is going to spend the two holidays inpursuing higher aims in life; he is going topass them in inaction, quite likely at thegrog-shop The man who fails to takeadvantage of the security for the futureoffered him and his family through theopportunity of saving from extraordinaryearnings is one who is adding to theabnormal demand for such things asphonographs, jewelry, spirits, and

tobacco And this helps to explain thetremendous market for luxuries duringwartime Doubtless there are manyworkmen who follow a more rationalcourse, who are reaping and storing theharvest for the comfort and security ofthemselves and their families during thewinter of life Could any one think that thispolicy involved an aim that was sordid,tending to draw them down, and awayfrom higher considerations of life?Certainly a course of careful planning inone's affairs would be in so far a bettercourse and on a higher plane thanindulgence in idleness or shiftlessexpenditure of surplus for presentluxuries, regardless of future need.

This case of the workmen underconditions of abnormal wages seemsexceptional; yet the choice so presented tohim is not very different fundamentallyfrom the choice normally presented to allthe rest of us.

The young man starting out in life may be

as negligent of his opportunities as theworkman who quits at the end of the fourthday Or if he devotes himself properly tohis vocation he may consume his earnings

in current self-gratification If, however,

he will both concentrate on his work andpractice self-restraint with the purpose ofcreating a saved surplus, all will agree inconsidering him as so far headed on theroad towards success In the case of the

beginner this seems clear enough, but,after all, the same considerations apply toeverybody else, whether in business orprofession, beginners or experienced,young or old; to all of us is the samechoice presented daily, and at our peril

we must make it wisely The physician,for instance, although he cannot afford topay more attention to money-making than

to the welfare of his patients, to hisstudies, to his professional ideals, mustnot, on the other hand, leave out of accountthese business duties and considerationswhich belong to him as an economicmember of society He must produce andmust consume with his family, reasonably,decently and thriftily He must aim at a

surplus to store away for the future Theseaims are, as a matter of course, secondary

to his professional ideals, but there need

be no conflict of duty The point is thatthere exists a department of his activitydevoted, and to be devoted, by him to hisbusiness affairs In any event, as a man, ahusband, a father, a citizen, he cannotescape from the responsibility of thesebusiness affairs They must be conducted

in some way Shall it be well or ill? If hefails herein it may involve failure in any

or all these relations—as a man, husband,father, citizen And obviously these sameconsiderations apply to all other men andwomen, whatever may be theirprofessions, occupations, or major

interests in life Why do so many allowthemselves to be dragged along, livingfrom hand-to-mouth, in fear of the knock

of the bill collector at the door? Why do

we associate money questions with thatwhich is unhappy, unfortunate, down-at-the-heel, with fear and misery? Barringmere accidents, it is because we arecareless, shiftless; because we do not facethe problem manfully, practice reasonableself-restraint, consider the subject in itscomplexity and decide upon, and carryout, a constructive programme Even ifone happens to possess wealth, he is notexempt Indeed, large wealth involves stillgreater necessity for care in the conduct ofone's pecuniary affairs The rich man is

said to have perplexities andresponsibilities which are unknown tothose in moderate circumstances In fine,everyone must face these money questions

or be driven by them

Those who live on fixed incomes, whetherfrom salary or investment, may find itimpossible to make any direct attempt tomake money; for them the problem is to beconfronted and mastered on its other side,the side of spending and saving, that theincome may be apportioned as wisely aspossible for the purposes of living Butduring the last few years a new factor hasentered into the money problems of theindividual, often adding to his trials, oftenadding to his self-made excuses, and

especially burdensome to the man on fixedincome We refer to the high cost ofliving Here it is, however, that the wageearner can do something in self-protection, for the level of prices may be

in some measure affected by his policy inhandling his earnings

A period of high wages is accompanied

by and is in some sense an incident of ahigh level of prices Now we recognizehigh wages, considered in itself, asbeneficial to the community, for it givesopportunity, at least, for comforts in lifeand a provision for the future thatotherwise would be lacking But if priceshave advanced as much as wages, theapparent improvement to the laborer is

merely in nominal wages, while thatwhich alone can benefit him is higher realwages Now let us see what the workmancould do to advance real wages ascontrasted with nominal wages.

What will be the effect on prices of theuse of surplus earnings during a period ofhigh wages?

If the surplus earnings are expended, theywill be used either in meeting the higherprices of customary commodities, or inmeeting these advanced prices and also inpurchasing additional commodities Thefirst case will occur only if, and when, theadvance in price equals the advance inwages, for only in that event will the new

wages just cover the new cost ofcustomary commodities Then thisexpenditure of the entire income incustomary commodities tends to keep upthe price level and any benefit from higherwages disappears.

In the second case, so far as the workerspends his surplus earnings in meetingadvanced prices for customarycommodities, he tends to maintain prices

at the higher level, and so far as he buysadditional commodities, he increases thedemand for them and tends further toadvance the price level

If, on the other hand, the worker will savefrom his surplus earnings, he will increase

the community's capital, and this will tend,directly or indirectly, to cause theproduction of further commodities, soincreasing the supply of commodities andtherefore tending to reduce prices.

In any case, the worker should save asmuch as possible, as this tends to reducethe price level and so to better hiscondition Or, putting it more simply, intime of high wages the worker ought toproduce as much as possible and consume

as little as possible, both influencestending to increase the stock ofcommodities for his ultimate gain and forthat of the community

In fact, a high level of prices may be due

measurably to some wasting of the world'scapital—as in war, for instance—and thenthe only antidote is to restore the capital, amovement that would doubtless occuranyway in time but which could be greatlyaccelerated through a general adoption ofhabits of thrift and saving throughout acommunity.

This then, though small, is somethingdefinite that we can contribute to thematerial advancement of mankind and,like the duty in this connection to ournation, to our families and ourselves, itconsists in creating capital; that is, earning

as much as we can and, in any event, even

if our earnings are fixed, managing theincome thriftily, and carrying forward as

large a net result as possible.

We turn now from the mass of mankind, onthe whole so singularly neglectful of theseresponsibilities, to the few in number whoconstitute the creators of capital, to whomare due so much of the comforts, theconveniences, and the material advantagesthat go to make civilized life possible.Now these few are found in every rank inlife They may be rich or poor,professional or business men, employer oremployee, old or young, male or female.The characteristic is their habit of thrift, ofdefinitely adopting money-making as anaim, of spending less than they earn It isastonishing what a small percentage ofmankind they are The Income Tax returns